Reliance Infrastructure Fund
An Open-Ended Equity Scheme NFO Opens on: 25th May 09 NFO Closes on: 23rd June 09
A Reliance Capital company
Table of Contents
Equity Markets
India Infrastructure
Funding Options Investment Opportunities Reliance Infrastructure Fund
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Indian Equity Markets – Visible Change
Oct 2008
- Major global banks failed, more probable - Liquidity evaporated - Risk aversion - Companies facing capital shortage - Election uncertainty in India - FIIs major sellers
Now
- Looks remote
Now
- Liquidity all around - Risk appetite returning - Equity raising easier, change in B/S - Biggest Election verdict since 1984 - FIIs becoming big buyers
B/S : Balance Sheet
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Equity Markets – Our View
The Catapult - Election - A big positive game changer - Accompanied by improving monetary and economic conditions - Governance, infrastructure and inclusive growth looks to be key goals of incumbent Government
- FII/FDI inflows can be very strong
- Earnings upgrades may follow - Sustainable attractive returns from Indian equities look possible
What can go wrong? - Another global financial catastrophe - Big disappointment in pace of Government actions over next 6 months
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Everything Going For India
Youngest population in the world Largest middle-class and consuming population Domestic focused economy Banking system proved to be amongst the healthiest Global leader in services Lowest cost producer in metals Huge savings and investment rates
However……
Source: Internal - RMF Research
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Infrastructure – Miles To Go
World Bank’s “ Global Competitiveness Report 2007-08”
‘Inadequate supply of infrastructure’ - Most problematic factor for doing business in India
India ranked 48th out of 131 counties in the Global Competitive Index 2007 - Ranked 67th on the quality of infrastructure
India lags behind in infrastructure facility usage compared to US & China
Comparision of Infrastructure Facilities
Particulars Electric consumption per capita (KwH) Roads per mn people (km) Steel Consumption per capita (kg) Rail route per mn people (km) Cargo handled at ports per capita (kg) No. of passengers handled at airports per 1,000 persons India 618 2983 34 56 572 71 US 14240 21443 357 755 7953 4780 China 1684 1471 244 57 4265 151
Source: Published Media, Global Research 2007-08
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Infrastructure Investment – China Vs India
8.5% Of 2008 GDP(USD 380 Bn)
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6% Of 2008 GDP(Rs. 267,356 Cr)
Source: India Infoline, 2008, Exchange Rate: USD = 6.85 RMB
Infrastructure Investment – China Vs India
8.5% Of 2008 GDP(USD 380 Bn)
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6% Of 2008 GDP(Rs. 267,356 Cr)
Source: India Infoline, 2008, Exchange Rate: USD = 6.85 RMB
Realisation – Very Evident
Prime Minister Dr. Manmohan Singh
Our growth potential will be realized only if we can ensure that our infrastructure does not become a severe handicap
Ex – Finance Minister P. Chidambaram
Infrastructure development is essential to sustain high growth rates in future
Dy. Chairman – India Planning Commission Montek Singh Ahluwalia
One of the critical constraints which holds back our growth rate is really the quality of infrastructure
Chairman – Tata Sons – Ratan Tata
We have a large deficit in almost every infrastructure sector whether airports, power, roads, etc. This is an area that needs large amounts of investment.
Ex-CEO Infosys, Nandan Nilekani
India has achieved excellence in human capital, but the country’s shabby infrastructure is proving to be a major stumbling block for the country’s development
Source: CLSA Research April 2008
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CEO, Bharti Airtel, Sunil Mittal
Indian industry would expect significant initiatives in the area of resource mobilization for infrastructure projects
Factors Driving Demand For Better Infrastructure
Economic Factors
Growing economy Rising disposable incomes
Demographic Factors
Rising population Increasing urbanization
Global Integration
Rising international trade and travel
Inadequate road width, poor riding quality, low speeds 10-14% power shortages, frequent brown outs
WSS: Water Supply & Sanitation
Massive under capacity in railways for freight and passenger traffic Poor WSS is major contributor to diseases
Delays, congestion, fuel wastage in air travel High turnaround time, poor connectivity at ports
Source: CLSA research, April 2008
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Now Also Political Pressure
Government with Development focus gain in recent elections
State
Chhattisgarh Bihar Andhra Pradesh Orissa Delhi Karnataka
Ruling Party
NDA NDA Congress Third Front Congress NDA
Total No. of Loksabha Seats
11 40 42 21 7 28
Seats in 2009
10 32 33 15 7 19
Change over 2004
0 21 4 4 1 1
Source: Election Commission 2009
GSDP: Gross State Domestic Product RE: Revised Estimates
Source: RBI: A study of budgets of 2008-09
States with focus on higher development expenditure has proved to be a boon for the Ruling Party
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Manifestos Unanimous On Infrastructure
BJP
- Commits to an agenda for change guided by three goals: Good Governance, Development & Security - Investing heavily in infrastructure projects are at the top of our agenda
DMK
- Implement the Sethu Samundaram project early - Super fast bullet train service between Chennai, Madurai & Coimbatore - Dedicated freight corridor is to be implemented between Chennai & New Delhi
Trinamool Congress
The party aimed at forming a secular, progressive and stable government at the centre which would focus on economic reforms, industry, agricultural development and adopt pro-people policies
Left
- Reviewing of privatisation of infrastructure through PPP - Emphasis on rural infrastructure - Increased outlay on rural roads, electrification etc
PPP: Public Private Partnership
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Source: Media Reports, Election Manifesto of Respective Parties
Congress Manifesto
Manifesto makes intentions clear Increase public investment in infrastructure Ensure that India adds at least 12000-15000 MW of power capacity every year Rural electrification & reduction in distribution losses Implement a scheme to supply energy to poor families at affordable prices Promises a very significant increase in the share of nuclear power Connect villages through broadband network within 3 years
Source: Congress Manifest 2009
Strongest Government platform in India over the last 2 decades..& the opportunities could be substantial
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Intentions Evident In Interim Budget 2009
Government approval to 37 infrastructure projects worth Rs.70,000 Cr from August,
2008 to January, 2009 alone
Under PPP mode, 54 Central sector infrastructure projects, in-principal or final approval and 23 projects approved for viability gap funding in 2008-09
IIFCL to refinance up to 60 % of commercial bank loans for PPP projects involving investment of Rs.1,00,000 Cr in infrastructure over the next 18 months
IIFCL: India Infrastructure Finance Company Limited, PPP: Public Private Partnership
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Source: http://indiabudget.nic.in
The Size Of Opportunity
Particulars
Expressways (Km) Air Passenger Traffic (Mn) Cargo Traffic (Major Ports) (Mn Tons) Power Generation Capacity (GW) Finished Steel (Mn Tons) Cement (Mn Tons)
India (2008)
200 120 519 143 58 218
Year when China Achieved
1989 2006 1991 1992 1991 1989
China (2007)
53,000 186 3,882 720 465 1,500
Source: India Infoline Research, Department of shipping India, National Bureau of statistics China
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XIth FYP – Infrastructure Investment
Sector
Power Roads Telecom Railway Irrigation Water Supply & Sanitation Ports Airports Storage Gas
2007-08
74,205 51,352 33,075 33,207 27,002 25,840 9,691 6,223 3,777 2,984
2008-09
92,829 54,318 39,834 39,964 33,839 31,110 11,740 6,459 4,098 3,454
2009-10
116,541 58,729 50,293 48,626 42,625 37,868 14,271 6,814 4,446 4,005
2010-11 2011-12 Total XI FYP
146,914 67,901 63,408 59,738 53,946 46,555 17,397 7,296 4,824 4,651 186,038 79,516 80,390 76,466 65,718 57,754 20,841 7,956 5,234 5,407 616,527 311,816 267,000 258,001 223,130 199,127 73,940 34,748 22,379 20,500
th
Total Investment Total (USD Billion) Investment as % of GDP
267,356 65 6.0
317,645 77 6.5
384,218 94 7.2
472,630 115 8.1
585,320 143 9.2
2,027,168 494 7.5
Rs. Crore(At 2006-07 prices), Exchange Rate of Rs.41/$ (2006-07) Source: Investment in Infrastructure during the Eleventh Plan published by The Secretariat for the Committee on Infrastructure
FYP : Five Year Plan
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Much Bigger Outlay In The XIIth FYP
The projected investment in infrastructure sector in the XIIth FYP would be
USD 1,128 Billion
Projected GCFI (XII Plan)
2011E-12E 2012E-13E 2013E-14E 2014E-15E 2015E-16E
GDP at Market Prices Rate of growth of GDP (%) GCF in Infrastructure as a % of GDP GCF in Infrastructure (Rs. Crore) 6,347,900 9.00% 9.00% 571,311 6,919,300 9.00% 9.25% 640,035 7,542,000 9.00% 9.50% 716,490 8,220,800 9.00% 9.75% 801,528 8,960,600 9.00% 10.00% 896,060
th
2016E-17E
9,767,100 9.00% 10.25% 1,001,128
Total GCFI (Rs. Crore) Total GCFI (USD Billion)
4,626,552 1,128
Rs. Crore(At 2006-07 prices), Exchange Rate of Rs.41/$ (2006-07) Source: Planning Commission of India Estimates: GDP to grow at 9% per year, GCFI as % of GDP to increase from 9% in 2011-12 to 10.25% in 2016-17
FYP : Five Year Plan, GCFI: Gross Capital Formation In Infrastructure
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Plans Fine – Show Me The Money
Question marks on infrastructure spending - Huge budgetary and fiscal deficit - Past record on foreign flows so-so and not very robust
However, future looks brighter - Avenues to control deficit in sight - PPP - Foreign investments
PPP: Public Private Partnership
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Source: Internal - RMF Research
Fiscal Deficit – Likely To Reduce Going Forward
Subsidy and Fiscal Deficit
2007A-2010E (Rs bn)
Food Fertilizer Petroleum Total
2007A
24,014 12,977 2,699 39,690
2008A 2009RE
31,330 27,060 14,080 72,470 43,630 47,500 78,820 169,950
2010E
55,000 31,700 28,100 114,800
Subsidies as a contributor to fiscal
deficit is expected to decrease
Subsidy/Fiscal deficit %
28
57
52
28
Source: Ministry of Finance, Kotak Institutional Equities Estimates
3 G Auctions
Bids at reserve price Bids at 2x reserve price Bids at 3x reserve price
Source: Internal - RMF Research
Rs Crore
8,590 17,180 25,770
Expected revenue from 3G spectrum auction
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Divestment…
Name
Oil & Natural Gas Corp Ltd NTPC Ltd MMTC Ltd NMDC Ltd Bharat Heavy Electricals Ltd Steel Authority Of India Ltd Indian Oil Corp Ltd Power Grid Corp of India Ltd GAIL India Ltd Power Finance Corp Ltd National Aluminium Co Ltd Neyveli Lignite Corp Ltd Rural Electrification Corp Ltd Container Corp Of India Mahanagar Telephone Nigam Shipping Corp Of India Ltd Engineers India Ltd Rashtriya Chemicals & Fert Total
Mcap Govt. (Rs. Cr) Holding (%)
212,026 171,794 118,137 110,219 99,884 68,276 56,049 49,791 38,955 24,591 23,517 19,923 12,446 12,016 5,572 5,164 4,320 3,603 1,036,282 74 90 99 98 68 86 80 86 57 90 87 94 82 63 56 80 90 93
Divestment of minority stake in listed PSUs to reduce fiscal burden
Divestment of profitable unlisted PSUs like
BSNL, DVC etc
Sale of residual minority stake in privatised PSUs like VSNL(26%), Balco(49%) &
Divestment can give
5% Divestment 10% Divestment 51,814 103,628
Hindustan Zinc(29%)
Source: Bloomberg , Note: The name of the companies mentioned above are for illustration purposes only DVC: Damodar Valley Corporation, PSU: Public Sector Undertaking
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Cash – Rich PSUs
Will be key infra-developers without needing resources from Government budget :
- NTPC: Cash on books as on FY08 is Rs15,360 Crs It can develop 20GW of capacity without raising capital
- ONGC: Cash on books as on FY 08 is Rs 18,652 Crs - Railways: Generating cash of over Rs20,000crs every year - Others like BSNL, AAI, DVC also have enough cash to fund their projects
Source: Internal - RMF Research Note: The name of the companies mentioned above are for illustration purposes only AAI: Airport Authority of India, DVC : Damodar Valley Corporation
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PPP Concept Gaining Credence
Growth Rate of PPP Projects by value in the last 3 years over previous 8 years is 104%
PPP Projects Awarded – Sector Wise
Sector % by Volume
71% 12% 2% 14% 1%
% by value
37% 5% 14% 43% 1%
More than 117 PPP deals closed in last 3 years when compared to 104 in the previous 8 years
Road Urban Development Airports Ports Railways
Total
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100%
100%
Source: Company, DEA PPP Database and Citi Investment Research and Analysis, PPP: Public Private Partnership
PPP & Privatisation
Government is targeting around 30% of the total funding to come from PPP Schemes - As compared to 17% in Xth FYP - 4x times the investment by private sector in the Tenth FYP
In XIth FYP, almost all sectors like power, roads, railways, airports etc, are going
to witness increased private participation
Funding by PPP 30% of total Infrastructure Investment in 11th FYP
Power
Investment Target % of Sector Share PPP Oppourtunity % of Private Share 616,527 30 162,517 26
Road Telecom Railways Irrigation Sanitation Ports Airports Storage
311,816 15 112,503 36 267,000 13 177,689 67 258,001 13 50,491 20 223,130 11 N.A 0 199,127 73,940 10 4 5,396 54,457 3 74 34,748 2 21,165 61
Gas
Total
22,379 20,500 2,027,168 1 1 100 11,190 6,499 601,905 50 32 30
Rs. Crore(At 2006-07 prices) Source: Planning Commission of India
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PPP : Public Private Partnership, FYP : Five Year Plan
Funding Pattern - XIth FYP
Funding of XI FYP
X Plan Sectors Electricity Roads & Bridges Telecommunication Railways Irrigation WSS Ports Airports Storage Gas Total
Rs. Crore(At 2006-07 prices) Source: Planning Commission of India
Centre 102,463 71,534 49,013 108,950 13,617 42,316 2,185 3,823 577 8,713 403,191
State 97,553 66,354 10,402 97,886 21,465 1,530 12 866 296,068
Private 91,834 7,004 54,352 307 1,022 10,356 2,936 3,377 1,000 172,188
Total 291,850 144,892 103,365 119,659 111,503 64,803 14,071 6,771 4,820 9,713 871,447
Centre 255,316 107,359 80,753 201,453 24,759 42,003 29,889 9,288 4,476 10,327 765,623
XI Plan State Private 225,697 185,512 100,000 106,792 177,686 10,000 50,354 228,543 96,306 5,421 3,627 54,479 50 21,630 6,713 11,189 6,528 670,936 619,591
Total 666,525 314,151 258,439 261,807 253,302 143,730 87,995 30,968 22,378 16,855 2,056,150
Private Funding Gains Importance
FYP : Five Year Plan
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Success Stories Of Infrastructure Privatisation
Mundra Port
New Hyderabad Airport
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Mumbai – Pune Expressway
Case For Foreign Investments In Infrastructure
Attractive returns - 16% in power (through PPA Arrangement), attractive double
digits in others over a 20-30 year period
Potential to invest huge sums of money given India’s need for infrastructure Stable political environment with the current decisive mandate Currency outlook - stable to appreciating Rupee Liberal policies – FDI allowed 74% to 100% in most infrastructure sectors
PPA: Power Purchase Agreement
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Source: Internal - RMF Research, CERC
FDI – India Can Attract Much More
Sector Rs. Crore Services Sector Telecommunications Construction Activities Housing & Real Estate Power Total FDI in India(2000-09)(Rs. Cr) Total FDI in India(2000-09)(USD Billion) 2005-06 (Apr-Mar) 2,399 2,776 667 171 386 2006-07 (Apr-Mar) 21,047 2,155 4,424 2,121 713 2007-08 (Apr-Dec) 26,589 5,103 6,989 8,749 3875 2008-09 24,074 11,155 8,287 11,316 4268 Cumulative 79,771 27,902 21,672 22,477 13,898 (Apr-Feb) (Apr00-Feb 09) % Of Total Inflows 22.00% 8.00% 6.00% 6.00% 4.00%
24,613 5.5
70,630 15.7
98,664 24.6
112,896 25.4
382,996 87.9
China attracted 9X FDI as
compared to India
Source: Department of Industrial Policy & Promotion, Internal - RMF Research
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Private Equity – An Important Source Of Funding
Source: Grant Thornton
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Infrastructure Fund – Why Now ?
2008
Now
Valuations very stretched
Political concerns at peak Global scenario –very scary and hazy
Despite recent spurt, still attractive Political stability for five years Some stability. Investors will move to higher growth economies
Raising debt and equity impossible – a must for infrastructure
Interest rates plunge, debt
available, investors looking for equity investments
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Valuations: Reasonable given growth prospects
Source: Bloomberg Note: The name of the companies mentioned above are for illustration purposes only We do not recommend any action based on the above illustration % Change in price from 2007-08 high is compared to prices as on 22nd May 09
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Introducing
Reliance Infrastructure Fund
A Reliance Capital company
Investment Strategy
Investment in Equities of Infrastructure Companies : 65%-100%*
Investment in Debt & Money Market Securities : 0% - 35%*
Multi – Cap Strategy Investment with a medium to longer term horizon
* Please refer detailed asset allocation on slide no 33 32 of 36
Scheme Features
Investment Objective
The primary investment objective of the scheme is to generate long term capital appreciation by investing predominantly in equity & equity related instruments of companies engaged in infrastructure & infrastructure related sectors & which are incorporated or have their area of primary activity, in India & the secondary objective is to generate consistent returns by investing in debt & money market securities An Open Ended Equity Scheme BSE 100 Equity & Equity Related Securities including derivatives engaged in infrastructure sectors & infrastructure related sectors# 65%-100% Debt & Money Market Securities ** 0% - 35%
Nature of Scheme Benchmark
Proposed Asset Allocation
Fund Manager
Sunil Singhania
New Fund Offer Price: Rs.10/- per unit plus applicable load
** including securitised debt up to 30% #An overall limit of 100% of the portfolio value has been introduced for the purpose of equity derivatives in the scheme. The margin money requirement for the purpose of derivative exposure will be as per the SEBI Regulations. The derivate exposure will be restricted to such limit so that the scheme does not leverage upon margin requirements
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Scheme Features
Choice of Plans/Options
Retail & Institutional Plan
Growth Plan: Growth & Bonus Option Dividend Plan : Dividend Payout Option Dividend Reinvestment Option
Load Structure : During New Fund Offer & Continuous Offer including SIP Installments
For Retail Plan:
Entry Load: • For subscription below Rs. 2 Crs – 2.25% • For subscription of Rs.2 Crs & above & below Rs.5 Crs – 1.25% • For subscription of Rs.5 Crs & above - Nil Exit Load: For subscriptions of less than Rs 5 Crs per purchase transactions • 1% If redeemed/ switched on or before completion of 1 year from the date of allotment • Nil If redeemed/ switched after completion of 1 year from the date of allotment For subscriptions of more than Rs. 5 Crs : Nil
Minimum Application Amount
For Retail Plan : Rs.5000/For Institutional Plan: Rs.5 Crs
SIP
Available : Retail Plan Mode of Payment : Only through Direct Electronic Debit to the investor’s bank account. This facility is offered only to the investors having bank accounts in HDFC Bank, Axis Bank
For Institutional Plan:
Entry Load : Nil Exit Load : Nil
Waiver of Load for Direct Applications : As per SEBI Circular no. SEBI/MD/CIR no. 10/112153/07 dated December 31, 2007, no entry load shall be charged for direct applications received by the Asset Management Company (AMC) i.e. applications received through internet, submitted to AMC or collection centre/Investor Service Centre that are not routed through any distributor/agent/broker
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Risk Factors
The views expressed herein are the personal views of the Fund Managers. The views constitute only the opinions and do not constitute any guidelines or recommendation on the course of the action to be followed. Readers are strongly advised to verify the contents before taking any investment decision based on this opinion. The above is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. The readers should exercise due caution and/or seek independent professional advice before making any investment decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. These are not necessarily the views of Reliance Capital Asset Management Ltd. Neither the AMC, the trustees, the Fund nor any of their affiliates or representatives assume any responsibility/liability for the accuracy, completeness, adequacy and reliability of information provided herein. The information contained herein has been obtained from sources published by third parties. While such publications are believed to be reliable and we have made best efforts to avoid any errors or omissions, however, neither the AMC, the Trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the accuracy, completeness, adequacy and reliability of such information. Sponsor: Reliance Capital Limited. Trustee: Reliance Capital Trustee Co. Limited. Investment Manager: Reliance Capital Asset Management Limited. Statutory Details: The Sponsor, the Trustee and the Investment Manager are incorporated under the Companies Act 1956. Scheme Specific Risk Factors: Portfolio Turnover : Given the nature of the scheme, the portfolio turnover ratio may be very high and the AMC may change the portfolio according to the asset allocation commensurate with the investment objective of the scheme. The effect of high portfolio turnover could be higher brokerage and transaction costs. Due to these factors the NAV of scheme might be impacted. Terms of Issue: The Units are available at Rs. 10/- per unit plus applicable load during the New Fund Offer Period and thereafter at applicable NAV based prices. The AMC will calculate and disclose the first NAV not later than 30 days from the closure of the New Fund Offer Period. Subsequently, the NAV will be calculated and disclosed at the close of every working day which shall be published in at least in two daily newspapers and also uploaded on AMFI site i.e. www.amfiindia.com and Reliance Mutual Fund website i.e. www.reliancemutual.com. General Risk Factors: Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on the factors and forces affecting the capital markets. Past performance of the Sponsor/AMC/Mutual Fund is not indicative of the future performance of the Scheme. Reliance Infrastructure Fund is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme; it's future prospects or returns. The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond their initial contribution of Rs.1 lakh towards the setting up of the Mutual Fund and such other accretions and additions to the corpus. The Mutual Fund is not guaranteeing or assuring any dividend. The Mutual Fund is also not assuring that it will make periodical dividend distributions, though it has every intention of doing so. All dividend distributions are subject to the availability of the distributable surplus in the Scheme. For details of scheme features apart from those mentioned above and scheme specific risk factors, please refer to the provisions of the scheme information document. Scheme information document and KIM cum application form is available at all the DISCs/ Distributors of RMF/www.reliancemutual.com. Please read the scheme information document carefully before investing. The information contained herein has been obtained from sources published by third parties.
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Thank you
A Reliance Capital company