Presentation on

Global Depository Receipts (GDRs), American Depository Receipts

(ADRs) & Foreign Currency Convertible Bonds

(FCCBs)

27.02.2009

What is Global Depository Receipt (GDR) and American Depository Receipt (ADR) ?

• GDRs/ ADRs are a way of raising capital from the international money market.

• A Global Depository Receipt (GDR) is a stock which trades in the foreign market but represents a specified number of shares of a domesticcorporation (like Infosys, etc).

• GDRs are created by the Overseas Depository Bank outside India and issued to non-resident investors (NRIs) against the issue of shares or FCCBs of issuing Company.

• A GDR issued in America, where the depository bank is in the USA, is an American Depository Receipt (ADR). European banks issue Europeandepository receipts, and other banks issue Global Depository Receipts (GDR). ADRs were first introduced in 1927.

• Simply put, it is an instrument that is issued abroad, listed and traded on foreign stock markets.

• Reliance Industries Limited was the first Indian Company to raise funds through a GDR issue.

What is Foreign Currency Convertible Bond (FCCB)?

• FCCBs- a quasi debt Instrument with features of both Equity & Debtit is a Debt instrument issued in a currency different than the Issuer’s domestic currency with an option to convert them into common shares of the Issuer Company.

• The Advantages of issuing FCCBs :

For Investors – 1. Capital Protection2. Chance to capitalize on increased share prices.

For Issuer – Source of low cost debt

Salient Features of GDRs / ADRs

• Regulatory Mechanism - Governed by Issue of Foreign Currency Convertible Bonds and Ordinary Shares (through Depository Receipt Mechanism) Scheme, 1993. Reckoned as part of FDI in India. Thus they require to be regulated through ‘Press Notes’ that publicly state the Government’s position on FDI Policy.

• Underlying shares - issued by Issuer Co. to Depository (who is the Registered Owner of shares), in whose name the shares are registered. It is the Depository who subsequently issues the GDRs/ ADRs to the Underwriters for final placement with investors. Physical possession of equity shares is entrusted to Custodian, who is an agent of the Depository.

• Denomination – Dollars or some other freely convertible currency. Underlying shares are however denominated in rupees.

• Dividend – In Rupees only but Depository converts rupees and pays dividend to ultimate investor in US dollars. Thus, no exchange rate risk for Issuer Company.

Salient Features of GDRs / ADRs contd..

• Listing –listed and traded on foreign Stock Exchange.

ADRs - NYSE, NASDAQ etc.GDRs - Luxembourg, London Stock Exchange, Over the counter market in London.

• Voting - No voting rights

• Transfer – Freely transferable and tradable in the overseas market

• Redemption and Sale - GDR/ADR holder has an option to redeem the GDRs/ADRs into the equity shares underlying it.

In the case of redemption, the Depository will request the Custodian to get the corresponding underlying shares released in favor of the non-resident investor. A copy of the same will be sent to the Issuer Company for information and record.

The shares will then be handed over to the non-resident directly and such person will become a member of the Issuer Company and its name will be entered in the Register of Members of the Issuer Company.

Salient Features of GDRs / ADRs contd…

• Sale - If an investor desires to sell GDRs/ADRs held by him/her, he/she can request the Depository who will forward the same to the Custodian to release and sell such shares underlying the ADRs/GDRs and remit the sales proceeds to the investor.

• Listing of underlying shares - The underlying shares are listed on a domestic stock exchange. The underlying shares are denominated in Indian currency only.

Advantages to Investors

• GDRs/ADRs are designated in foreign currency which is more acceptable to global investors.

• Global investors/holders of GDRs/ADRs do not need to be registered with the Securities and Exchange Board of India (the "SEBI").

• The identity of GDR/ADR holders is kept confidential since they are freely transferable and in the records of the Issuer Company, the name of the Overseas Depository appears as Registered Owner of shares.

• Quick settlement of GDRs/ADRs due to the existence of international systems like, Euroclear and Cedel in Europe and the Depository Trust Company in the U.S.

Advantages to the Issuer Company

• The Issuer Company collects the issue proceeds in foreign currency and is thus able to utilize the same for meeting the foreign exchange component of project cost, repayment of foreign currency loans, etc.

• Large amounts can be raised in the global market at cheaper rates.

• Dividend payable by the Issuer Company is in Rupees only. The Depository Bank converts Rupees and pays dividend in US Dollars.

• There is certainty of raising new capital and the issue terms are much better than those which can be obtained in the local market.

• Owing to the restrictive voting rights in the Depository agreement, control is not affected immediately.

• It is possible for the Issuer Company to float more than one foreign equity issue in a year .

Parties involved in the issue of ADRs / GDRs / FCCBs

Issuer Company

Company that plans to tap the foreign market through the global issue mechanism.

Domestic Custodian Bank (DCBs)

A Banking Company which acts as a Custodian for the ordinary shares or FCCBs of an Indian Company which are issued by it against GDRs or Certificates.

Overseas Depository Bank (ODBs)

• Bank authorised by the Issuer Company to issue Certificates/ GDRs against issue of FCCBs or ordinary shares of the Issuer Company.

• Overseas agent of the Issuer Company .• Registered owner of shares. Its name appears in the Register of Members of the

Issuer.• Prepares and issue deposit certificates• Advices on ratio of DRs to common shares, • Appoints custodian, • Assist with stock exchange compliance, • Registration and reporting requirements.

Parties involvedParties involved……. Contd. . Contd. Lead Manager

•• Responsible for marketing the issue, Responsible for marketing the issue, •• Advising the Issuer on the type of security to be issued i.e. EqAdvising the Issuer on the type of security to be issued i.e. Equity, Bonds, uity, Bonds, FCCBsFCCBs, the rate of , the rate of

interest, price of the security, etc. and interest, price of the security, etc. and •• Decides on the nature of investment i.e. GDR/ADR, coupon rate onDecides on the nature of investment i.e. GDR/ADR, coupon rate on bonds, conversion price, bonds, conversion price,

etc.etc.

Underwriter

• Manage the entire transaction, including overall co-ordination• Advice on type of program, listing venue, DR ratio and all capital markets issues• Co-ordinate due diligence process• Line-up participating underwriting syndicate and sell securities• Introduce company to institutional investor client base• Conduct road show with management• Pricing and general marketing of the offer

Accountants/Auditors

• Prepare financial statements in accordance with recognized GAAP• Prepare and review financial sections, stock exchange disclosure filings and offering circulars

Parties involvedParties involved……. Contd. . Contd. International Counsel

• Prepare and file required documents for securities commission of listing venue• Manage compliances with Securities Laws, Rules & Regulations• Prepare offering circular/prospectus with the working parties• Review research, road show and investor communication materials

Legal Advisors/ Indian Counsel

• Assistance in preparation of prospectus, depository agreement, indemnity agreement and subscription agreement.

• Enabling the Issuer to comply with proper disclosures relating to the issue• Provide legal opinion on DR issuance• Advise Company/underwriters on compliances with domestics regulation relating to DR

issuance

Other Parties

• Printers• Stock Exchange• Custodian

Working Mechanism of ADRs/ GDRs

India:Issuer Company

(in India) (Through Lead Manager)

Underlying sharesCustodian

(Banking Co. situated in India which has the physical

possession of shares underlying GDRs/ADRs)

Overseas: Overseas Depository

GDR/ADR listingEuropean or U.S. Stock Exchange

Monies Dividend

Overseas Investor

Documentations for ADRs and GDRsDocumentations for ADRs and GDRsProspectus Drafting

The key offering document would be the offering circular which would be used for marketing and road-shows

Underwriting Agreement

• An agreement among the lead underwriter (acting on behalf of itself and the other underwriters in the syndicate), the issuer • Contains terms and conditions under which the underwriters will purchase and re-offer the securities

Legal Opinions • A confirmation from Legal Counsel to the underwriters on the legality and validity of certain agreements and other documents• Provided comfort on the accuracy of information in the registration statement and the prospectus

Auditor’s Comfort Letter

Issued by independent auditors to the underwriters and directors of the issuer which covers the following: • Conformity of financial information contained in the offering circular• Absence of any material and adverse changes since the date of the financial statements• Performance of special procedure to ensure consistency between the reported financial statements and the internal accounting/financial records

Listing Application and Listing Agreement

• An application to be submitted to the exchange to list the securities• An agreement between the exchange and the issuer which set-forth the issuer’s obligations after the securities have been accepted for listing

Deposit Agreement (for depository shares)

• An agreement outlining the terms under which the depository holds the shares issued by a issuer Company and against which the depository issues GDRs to investors

Procedural Aspects

Preliminary MeetingsPreliminary Meetings

The Issuer to hold preliminary discussions and meets with differThe Issuer to hold preliminary discussions and meets with different global ent global merchant/ investment bankers (who would act as the Lead Manager,merchant/ investment bankers (who would act as the Lead Manager, CoCo--Managers, Underwriters), Legal Advisors (Indian and Foreign), AuManagers, Underwriters), Legal Advisors (Indian and Foreign), Auditors, and ditors, and other intermediaries before deciding to float a GDR/ADR/ FCCB Isother intermediaries before deciding to float a GDR/ADR/ FCCB Issue.sue.

Authorization by the Board of DirectorsAuthorization by the Board of Directors

Board of Directors of the Issuer is required to pass a Board ResBoard of Directors of the Issuer is required to pass a Board Resolution olution approving the proposed GDR/ADR/ FCCB issue.approving the proposed GDR/ADR/ FCCB issue.

Legal and Accounting Due Diligence on the Issuer

Legal and accounting due diligence on the Issuer to be carried out by a team consisting of legal, technical, and financial key persons from the Lead Manager, Co- Managers, Underwriters, Legal Advisors and Auditors.

Procedural Aspects contd…

Authorization by Shareholders

The Shareholders to approve the proposed foreign issues of GDR/ADRs/ FCCBFCCBby a Special Resolution passed at the General Meeting according to the provisions of Section 81 (1A) of the Companies Act, 1956.

Approvals should be also taken from the Issuer's Shareholders with regard to Section 94 (increase in Authorized Share Capital), Section 16 (alteration of Capital Clause of the Memorandum of Association for change in Authorised Share Capital) and Section 31 (alteration of Share capital Clause in Articles of Association) of the Companies Act, 1956, if required.

U.S. GAAPU.S. GAAP

In case of an ADR issue, the Issuer has to get its Balance SheetIn case of an ADR issue, the Issuer has to get its Balance Sheet verified or verified or overhauled by an internationally recognized firm of Chartered Acoverhauled by an internationally recognized firm of Chartered Accountants. countants.

Companies planning an issue of securities in the U.S. wouldCompanies planning an issue of securities in the U.S. would have to ensure that have to ensure that their Accounts for at least past three (3) years are reconciled their Accounts for at least past three (3) years are reconciled with U.S. GAAP. with U.S. GAAP.

Regulatory Mechanism

Foreign Investment Promotion Board (‘FIPB’), Ministry of Finance

- Foreign Investment in the Issuer Company within specified Sectoral Cap - No approval from FIPB i.e. Automatic Route of Foreign Investment.

- Foreign Investment exceeds specified sectoral cap, - FIPB approval required

• However, in the following cases, even though Foreign Investment is within the specified sectoral cap and falls under the authomatic route, FIPB approval is required:

- Indian Company is being established with foreign investment and is owned or controlled by a non-resident entity or

- The control/ ownership of an existing Indian company, currently owned or controlled by resident Indian citizens/ Indian companies, will be/is being transferred to a non-resident entity due to amalgamation, merger, acquisition etc. or

Regulatory Mechanism Contd..

Filings with SEBI

Issue of shares requires the filing of an Offering Circular with SEBI for its information and records.

Stock Exchanges Approval

In principal approval from the Stock Exchanges in India where the shares of the Company are listed, is required to be obtained prior to listing on the Overseas Exchange.

Other Approvals

Issuer must obtain the consent of the financial institutions/banks if it has obtained any financial facilities (term loans, guarantees etc.).

Pricing of the Receipts

The pricing of Global Depositary Receipt and Foreign Currency Convertible Bond issues to be made at a price not less than the Average of the weekly high and low of the closing prices of the related shares quoted on a Stock Exchange during the two (2) weeks preceding the relevant date.

The “relevant date” means the date of the meeting in which the board of the company or the committee of directors, duly authorised by the board of the company, decides to open the proposed issue.

Reporting requirements after issuing ADRs/ GDRsReporting requirements after issuing ADRs/ GDRs

The Issuer to furnish the following information to RBI within 30The Issuer to furnish the following information to RBI within 30 days of the close of days of the close of issue :issue :

Details of the purpose for which the GDRs/ADRs have been raised.Details of the purpose for which the GDRs/ADRs have been raised. If funds are If funds are deployed for overseas investment, details thereof;deployed for overseas investment, details thereof;

Details about the Depository, Lead Manager, SubDetails about the Depository, Lead Manager, Sub--Mangers to the Issue, Indian Mangers to the Issue, Indian Custodian;Custodian;

Details of the FIPB Approval or the relevant NIC Code in case ofDetails of the FIPB Approval or the relevant NIC Code in case of automatic route;automatic route;

Details of Authorized, Issued and paid up capital before and aftDetails of Authorized, Issued and paid up capital before and after the issue;er the issue;

In case of private placement, details of investors and ADRs/GDRsIn case of private placement, details of investors and ADRs/GDRs issued to each issued to each of them:of them:

Number of GDRs/ADRs issued, their ratio to the underlying sharesNumber of GDRs/ADRs issued, their ratio to the underlying sharesDetails of Issue related expensesDetails of Issue related expensesDetails of listing arrangementsDetails of listing arrangementsAmount raised and the amount repatriated Amount raised and the amount repatriated

Further, a quarterly return in a specified form to be sent to RBFurther, a quarterly return in a specified form to be sent to RBI within 15 days of I within 15 days of the close of the quarter. the close of the quarter.

MISCELLANEOUS PROVISIONSMISCELLANEOUS PROVISIONS

Two way fungibility in ADRs / GDRs is permitted and operative guidelines issued for the same.

Two way fungibility implies that an investor who holds ADRs/GDRs can cancel them with the Depository and sell the underlying shares in the market. The Issuer Company can then issue fresh DRs to the extent of shares sold in the market.

Earlier, after initial conversion of the ADRs/GDRs into the underlying shares, the re-conversion of the shares into ADRs/GDRs was not permitted.

Issue related expenses subject to a ceiling of 4% in case of GDRs and FCCBs & 7% in case of ADRs.

End uses of the proceeds include:- financing capital goods imports;- capital expenditure;- prepayment or scheduled repayment of earlier external borrowings;- equity investments in JVs/ WoSs in India.

However end use of the proceeds is not permitted for:

- on-lending or investment in capital market or acquiring a company (or a part thereof) in India by a corporate,

- real estate,

- working capital, general corporate purpose and repayment of existing Rupee loans.

FCCBs – Salient Features

• Issuer Company to have a minimum 3 years consistent track record of good performance (financial or otherwise).

• Maximum amount to be raised by issue of FCCBs is US$ 500 Million in a Financial Year.

• FCCB issues have a ‘Call’ and ‘Put’ option. A call option entitles the issuer to “Call” the loan and make an early redemption. A put option entitles the lender to exercise the option to convert the FCCB into equity.

• The interest on FCCBs is generally 30 - 40 % less than on normal debt paper or foreign currency loans or ECBs. This translates to cost saving of approx 2-3% p.a.

• The coupon rate on bonds can also be zero as in case of Zero Coupon Bonds (ZCB) in view of attractiveness of options attached to them. In case of ZCB, the holder is basically interested in either conversion of the bonds in equity or capital appreciation.

• The redemption of FCCBs can be made at a premium or at par or even at a discount.

FCCBs – Salient Features contd….• FCCBs are generally issued by Corporates, which have high promoter shareholding and

hence do not perceive any risk of losing management control even after exercise of conversion option.

• The conversion price of the FCCBs is generally between 30 – 70 % premium over the Current Market Price.

• The issuance of FCCBs invariably requires the approval of existing consortium of lenders.

• FCCBs can be secured as well as unsecured. Most of the FCCB issued by Indian Companies are generally unsecured.

• Credit rating of Bonds is not mandatory, however rating definitely helps to price the FCCBscompetitively.

• Funds received through FCCBs should be parked abroad till the actual requirements arises in India.

Maturity Period and total cost

• Minimum average maturity of FCCB shall be 3 years for borrowing up to US$ 20 million and 5 years in case it exceeds US$ 20 million.

• The maximum total cost to be incurred on FCCB cannot exceed:- Average maturity of 3-5 years 300 bps over 6 months LIBOR.- Average maturity exceeding 5 years 500 bps for over 6 months LIBOR.

FCCBs: Current Scenario & Case Studies Liquidity crunch & market meltdown have hit the FCCB market.

Cos. with their FCCBs maturing in a year’s time, face double edged sword –1. with the share prices falling below the conversion prices, the exercise of conversion option by the Bond holders is virtually ruled out.Eg. TATA Motors : FCCBs worth 11,760 million yen maturing in March 2011 were issued at a conversion price of Rs.1001. This seems unattractive now in view of its current stock price of Rs.143.2. with the Bond holders not exercising the conversion option, Cos. forced to payout the liabilities.

In current cash crunch scenario, challenging for Cos. to meet this debt obligation, which may be a further drag on their profits.Eg. FCCB holders of Coimbatore based Shanti Gears exercised the redemption option in November 2008, following which the Co. had to redeem outstanding FCCBs worth $5.3 MN (Rs. 25 Crore)

Even if conversion price lowered by Cos. instead of taking on this burden, it would imply a higher equity dilution than planned.

Cos. whose FCCBs mature two-three years from now, can expect a market rebound. However, Cos. like Wockhardt, whose FCCBs worth $110mn (Rs. 517 Crore) mature in October, 2009 do not have the luxury of time. Wockhardt’s shares now trading at Rs. 82 as against FCCB conversion price of Rs.486, ruling out the conversion.

FCCBs: Current Scenario & Case Studies contd…

Realising the tough situation of the Cos., RBI, in November 2008 permitted buyback of FCCBs on satisfaction of certain conditions through their forexresources/ new External Commercial Borrowings. Later RBI permitted buyback from Rupee resources of Cos., provided the buyback amount limited to $50 mnand the resources were from the Cos.’ internal resources.

Reliance Communications, which had issued zero coupon FCCBs in February 2007 for $1 billion (Rs. 4700 Crore) at a conversion price of Rs. 661 is the first Co. to avail of this buyback facility.

Other Cos. following suit in this regard:GTL Infrastructure, pharmaceutical major Jubilant Organosys, Moser Baer, Tulip Communication.Buyback reduces the unsecured debt of the Cos. when they buyback the FCCBsat a discount to the face value of the Bond.

However, only Cos. with sufficient surplus cash would be in a position to do so.

Buyback , however, seems unlikely to become a trend owing to the size of the issues and the current balance sheet positions of the cos.

Comparison SheetParticulars ADR GDR FCCB

Offering size Suitable for large-sized floats (US$300 mm)

Suited for offering in excess of US$200 mm)

Flexibility on issue size

Investor Base ADR opens larger universe of US buyers.

All US institutions /High net worth individuals/ Retail investors

Investor base of primarily Qualified Institutional Buyers (QIB)/MFs

Institutions investors, typically hedge funds

Trading/Liquidity Largest and most liquid stock markets in the world

-Relatively smaller and less liquid market

- Limited Liquidity- Conversion mostly during later part of the life of the instrument

Pricing/Valuation Typically priced at par or at a nominal discount to prevailing market price subject to SEBI price floor

-Typically priced at par or at a nominal discount to prevailing market price subject to SEBI price floor

- The discount may be marginally higher than an ADR

-Expected to be favourable relative to pure debt pricing

-Conversion price is typically set at a premium to prevailing market price subject to SEBI price floor.

Comparison Sheet contd….

Particulars ADR GDR FCCBDisclosure Requirements & Corporate Governance

Stringent regulatory and filing requirements; initial and on continual basis

-Accounts as per US GAAP for 3 years

-Stricter Corporate Governance requirements-conformance to Sarbanes Oxley Act

-Limited filing requirement during listing and on recurring basis

- Accounts as per IFRS only if listed on LSE main board

Limited disclosure requirement

Issue Timeline 15-16 weeks 9 weeks 4 weeks to completion (pricing can be done within 2 weeks on an accelerated basis)

Corporate Visibility

ADR Offering helps in strengthening corporate profile/image amongst international investors

Minimal impact on corporate profile

Lower visibility compared to ADRs and GDRs

Structuring Flexibility

Minimal Minimal Can be structured as per the requirements of the issuer

ADRs Issue in India – Statistics Pricing Date Name of the Company Type Size (US$ mm)

17-July-2007 HDFC Bank ADR Secondary Offer 607.0

23-June-2007 ICICI Bank ADR Secondary Offer 2,460.0

18-June-2007 Sterlite Industries IPO 2016.0

21-Nov.-2006 Infosys Technologies Secondary Offer 1605.0

16-Nov.-2006 Dr. Reddy’s Laboratories Secondary Offer 228.8

7-Dec-2005 Patni computers Systems Ltd. IPO 160.8

6-Dec-2005 ICICI Bank Ltd. Secondary Offer 498.0

26-May-2005 Infosys Technologies Secondary Offer 1072.0

17-March-2005 ICICI Bank Ltd. Secondary Offer 436.7

10-May-2005 Satyam Computer Services Secondary Offer 322.5

30-July-2003 Infosys Technologies Secondary Offer 294.0

20-July-2001 HDFC Bank IPO 172.5

15-May-2001 Satyam Computer Services IPO 161.9

11-Apr-2001 Dr. Reddy’s Laboratories IPO 132.8

19-Oct-2000 Wipro IPO 130.8

20-Jun-2000 Silverline Technologies IPO 108.8

27-March-2000 ICICI Bank Ltd. IPO 175.0

GDRs Issue in India – Statistics Pricing Date Name of the Company Size (US$ mm) Price (US$)

04-Oct-2007 Financial Technologies 115 9.88

26-July-2007 UTI Bank 281 15.43

3-July-2007 Indiabulls Real Estate 400 10.32

9-May-2007 Indiabulls Financial Services 300 13.06

19-Apr-2006 Kotak Mahindra Bank 99 6.66

12-Apr-2006 Cipla 170 15.39

28-March-2006 Hindustan construction 100 3.71

27-Jan-2006 Bajaj Hindustan 136 8.12

31-Jan-2006 Balrampur chini 50 3.06

27-Jan-2006 Federal Bank Ltd. 80 3.97

25-Jan-2006 Gammon India Ltd. 87 9.47

14-Dec-2005 Nagarjuna Constructions 120 5.11

14-Dec-2005 IL&FS Investment 99 4.28

3-Aug-2005 Indiabulls Financial Services 150 5.42

16-March-2005 UTI Bank 257 5.91

19-Nov-2005 Amtek Auto Ltd. 69 7.32

26-Feb-2005 Indiabulls Financial Services 60 2.45

23-March-2005 Centurion Bank 80 4.80

THANKSPrepared by :

Bhavyaa KediaMonika Bansal Rashmi SharmaAmita Gola

Under the guidance of Mr. Amit Jain