USD150,000, % Convertible Bonds due 2014

Transcription

1 OFFERING CIRCULAR DATED 14 OCTOBER 2009 WELSPUN-GUJARAT STAHL ROHREN LIMITED (Incorporated in the Republic of India as a public company with limited liability under the (Indian) Companies Act, 1956 and having its registered office at Welspun City, Village Versamedi, Anjar, , Gujarat, India) USD150,000, % Convertible Bonds due 2014 ISSUE PRICE: 100 PER CENT. The issue of USD150,000, % convertible bonds due 2014 (the Bonds ) issued by Welspun-Gujarat Stahl Rohren Limited ( Company ), which will be convertible into fully paid ordinary shares of Rs. 5 each (the Offering ). The information on our Company s website or any website directly or indirectly linked to our Company s website does not form part of this offering circular (the Offering Circular ) and prospective investors should not rely on such information contained in, or available through, such websites. The Bonds will bear interest at a fixed rate of 4.50 per cent. to be paid on 17 April and 17 October of each year. The first such interest payment in respect of the Bonds will be made on 17 April 2010 and will be in respect of the period from and including 16 October 2009 (the Closing Date ) to but excluding 17 April 2010, as described herein. The Bonds are convertible at any time on and after 41 days after Closing Date up to the close of business on 10 days prior to Maturity Date by holders of the Bonds into fully paid equity shares with full voting rights with a par value of Rs. 5 each of the Company (the Shares ) at an initial Conversion Price (as defined in the Terms and Conditions of the Bonds ) of Rs per Share with a fixed rate of exchange on conversion of Rs to USD1.00. The Conversion Price is subject to adjustment in certain circumstances (see Terms and Conditions of the Bonds Adjustments to Conversion Price ). The closing price of the Shares on the National Stock Exchange of India Limited (the NSE ) on 9 October 2009 was Rs per Share and the closing price of the Shares on the Bombay Stock Exchange Limited (the BSE and together with the NSE, the Indian Stock Exchanges ) on 9 October 2009 was Rs per Share. Unless previously converted, redeemed or purchased and cancelled, the Bonds will be redeemed in U.S. dollars on 17 October 2014 (the Maturity Date ) at per cent. of their principal amount. The Bonds may also be redeemed, in whole but not in part, at any time at the option of the Company, subject to satisfaction of certain conditions, at the Early Redemption Amount (together with accrued but unpaid interest to such date), if less than 10 per cent. of the aggregate principal amount of the Bonds originally issued is outstanding. The Bonds may also be redeemed in whole, but not in part, at any time at the option of the Company, subject to satisfaction of certain conditions, at the Early Redemption Amount (together with accrued but unpaid interest to such date), in the event of certain changes relating to taxation in India. The Company will, at the option of any holder of any Bonds, redeem all (but not less than all) of such holder s Bonds at the Early Redemption Amount (together with accrued but unpaid interest to such date), upon a Delisting of the Shares or upon the occurrence of a Change of Control in respect of the Company or upon a Non-Permitted Conversion Price Adjustment Event. Approval in-principal has been received for the listing of the Bonds to list the Bonds on the Singapore Exchange Securities Trading Limited (the SGX-ST ). The Bonds are expected to be traded on the SGX-ST in a minimum board lot size of USD200,000 for so long as the Bonds are listed on the SGX-ST. The SGX-ST assumes no responsibility for the correctness of any statements made, opinions expressed or reports contained herein. Admission of the Bonds to the Official List of the SGX-ST is not to be taken as an indication of the merits of the Company, its subsidiaries, its associated companies or the Bonds. In-principle approval for listing of the Shares issuable upon conversion of the Bonds has been received from each of the NSE and the BSE. The issue of Bonds was authorised by a resolution of the board of directors of the Company (the Board of Directors ) passed on 29 May 2009 and by a resolution of the Shareholders passed on 25 June The floor price for the conversion of the Bonds is Rs YOU MAY NOT BE AND ARE NOT AUTHORISED TO (1) DELIVER THIS OFFERING CIRCULAR TO ANY OTHER PERSON; OR (2) REPRODUCE THIS OFFERING CIRCULAR IN ANY MANNER WHATSOEVER. ANY DISTRIBUTION OR REPRODUCTION OF THIS DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THIS INSTRUCTION MAY RESULT IN A VIOLATION OF APPLICABLE STATUTORY/REGULATORY PROVISIONS IN INDIA AND OTHER JURISDICTIONS. INVESTING IN THE BONDS INVOLVES CERTAIN RISKS. FOR DETAILS OF THE RISK FACTORS RELATING TO THE COMPANY AND THE BONDS PLEASE REFER TO THE SECTION TITLED RISK FACTORS BEGINNING ON PAGE 65 OF THIS OFFERING CIRCULAR. THIS OFFERING CIRCULAR HAS BEEN PREPARED BY OUR COMPANY SOLELY FOR PROVIDING INFORMATION IN CONNECTION WITH THE PROPOSED OFFERING OF THE BONDS DESCRIBED IN THIS OFFERING CIRCULAR. The Bonds will be represented initially by a Global Certificate (as defined herein) in registered form, deposited with, and registered in the name of a nominee of, the common depositary for Euroclear Bank S.A./N.V. ( Euroclear ) and Clearstream Banking, société anonyme ( Clearstream, Luxembourg ) (together, the Clearing Systems ) on or about 16 October 2009 for the accounts of their respective accountholders. The Bonds and the Shares to be issued upon conversion of the Bonds have not been and will not be registered under the U.S. Securities Act of 1933, as amended and, subject to certain exceptions, may not be offered or sold within the United States. The Bonds are being offered and sold outside the United States in reliance on Regulation S under the Securities Act. For a description of certain restrictions on offers, sales and transfers of the Bonds and the Shares to be issued upon conversion of the Bonds and the distribution of this Offering Circular, see Selling Restrictions. The Bonds may not be offered or sold directly or indirectly in India or to, or for the account or benefit of, any resident of India. A copy of this Offering Circular will be delivered to the NSE and the BSE, the RBI, the Securities and Exchange Board of India (the SEBI ) and the Registrar of Companies of Gujarat, India for their information. Lead Manager

2 Notice to Investors Our company accepts full responsibility for the information contained in this Offering Circular and, having made all reasonable enquiries, confirms that this Offering Circular contains all information with respect to the Company, the Bonds and the Shares to be issued upon conversion of any Bonds in accordance with the provisions of this offering circular which is material in the context of the issue and offering of the Bonds. The statements contained in this Offering Circular relating to the Company, its subsidiaries (Welspun-Gujarat Stahl Rohren Limited, namely, Welspun Natural Resources Private Limited, Welspun Pipes Limited, Welspun Urja India Limited, Welspun Steel Plates and Coil Mills Private Limited, Welspun Pipes Inc., Welspun Plastics Private Limited, Welspun Tubular LLC. and Welspun Global Trade LLC., together the Subsidiaries ) and its joint ventures (the Group ), the Bonds and the Shares are in every material particular true and accurate and not misleading and the opinions and intentions expressed in this Offering Circular with regard to the Company, the Group, the Bonds and the Shares are honestly held, have been reached after considering all relevant circumstances and information which is presently available to the Company, and are based on reasonable assumptions. There are no other facts in relation to the Company, the Group, the Bonds and the Shares the omission of which would, in the context of the issue and offering of the Bonds, make any statement in this Offering Circular misleading in any material respect and all reasonable enquiries have been made by the Company to ascertain such facts and to verify the accuracy of all such information and statements. This Offering Circular does not constitute an offer of, or an invitation by or on behalf of the Company, J.P. Morgan Securities Ltd. (the Lead Manager ), The Hongkong and Shanghai Banking Corporation Limited (the Trustee ) or the Agents (as defined in the Terms and Conditions of the Bonds ) to subscribe for or purchase, any Bonds, and may not be used for the purpose of an offer to, or a solicitation by, any person in any jurisdiction in which such offer or invitation would be unlawful. The distribution of this Offering Circular and the offering of the Bonds in certain jurisdictions may be restricted by law. Persons into whose possession this Offering Circular comes are required by the Company and the Lead Manager to inform themselves about and to observe any such restrictions. For a description of certain further restrictions on offers and sales of the Bonds and distribution of this Offering Circular, see Selling Restrictions. None of the Lead Manager, the Trustee or any of the Agents has separately verified the information contained in this Offering Circular. Accordingly, no representation, warranty or undertaking, express or implied, is made and no responsibility or liability is accepted by the Lead Manager, the Trustee or the Agents as to the accuracy or completeness of the information contained in this Offering Circular or any other information supplied in connection with the Bonds or the Shares. Each person receiving this Offering Circular acknowledges that such person has not relied on the Lead Manager, the Trustee or the Agents or on any person affiliates with the Lead Manager, the Trustee or the Agents in connection with its investigation of the accuracy of such information or its investment decision and each such person must rely on its own examination of the Company and the merits and risks involved in investing in the Bonds. No person is authorised to give any information or to make any representation not contained in this Offering Circular and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of the Company, the Lead Manager, the Trustee or the Agents. The delivery of this Offering Circular at any time does not imply that the information contained in it is correct as at any time subsequent to its date. i

3 Market data and certain industry forecasts used throughout this Offering Circular have been obtained from market research, publicly available information and industry publications. Industry publications generally state that the information that they contain has been obtained from sources believed to be reliable but that the accuracy and completeness of that information is not guaranteed. Similarly, internal surveys, industry forecasts and market research, while believed to be reliable, have not been independently verified, and none of the Company, the Lead Manager, the Trustee or the Agents makes any representation as to the accuracy of that information. The Ministry of Finance of India has issued certain amendments that provide that erstwhile Overseas Corporate Bodies, as defined under applicable regulations in India, that are not eligible to invest in India, and entities prohibited from buying, selling or dealing in securities by SEBI, shall not be eligible to participate in an offering of foreign currency convertible bonds. Each purchaser of the Bonds is deemed to have acknowledged, represented and agreed that it is eligible to invest in India under applicable law, including under the Issue of Foreign Currency Convertible Bonds and Ordinary shares (Through Depository Receipt Mechanism) Scheme, 1993, as amended from time to time and has not been prohibited by SEBI from buying, selling or dealing in securities. ii

4 Contents Presentation of Financial and Other Information Industry and Market Data Forward-looking Statements Enforcement of Civil Liabilities Foreign Investment and Exchange Controls Exchange Rate Information Summary of Business Summary of the Offering Terms and Conditions of the Bonds Global Certificates Representing the Bonds Clearance and Settlement of the Bonds Selected Financial Information of Our Company Risk Factors Use of Proceeds Capitalisation Market Price Information and Other Information Concerning the Shares Dividend Policy Management s Discussion and Analysis of Financial Condition and Results of Operations Industry Overview Business Regulations and Policies Board of Directors and Senior Management Capital Structure and Principal Shareholders Selling Restrictions Indian Government and Other Approvals Indian Securities Market Description of the Shares and Key Provisions of Our Articles of Association Taxation Legal Proceedings General Information Financial Statements F-1 Consolidated Financial Statements F-3 Limited Review Report on the Unaudited Unconsolidated Financial Results of the Company for the Quarter Ended 30 June Q-1 Declaration Q-4 Index of Defined Terms Page iii

5 Presentation of Financial and Other Information In this Offering Circular, unless the context otherwise indicates or implies, references to you, offeree, purchaser, subscriber, recipient, investors and potential investor are to the prospective investors in this Offering, all references to Bondholders and holders are to the holders of the Bonds from time to time; and references to our Company, the Company or the Issuer are to Welspun-Gujarat Stahl Rohren Limited. In this Offering Circular, references to USD and U.S. dollars are to the legal currency of the United States and references to Rs. and Rupees are to the lawful currency for the time being of India. All references herein to the U.S. or the United States are to the United States of America and its territories and possessions and all references to India are to the Republic of India and its territories and possessions. Unless otherwise stated, references in this Offering Circular to a particular year are to the calendar year ended on 31 December and to a particular fiscal or fiscal year are to the fiscal year ended on 31 March. Our Company publishes its financial statements in Rupees. Our Company s financial statements included herein have been prepared in accordance with Indian GAAP and the Companies Act, 1956, as amended (the Companies Act ). Unless otherwise indicated, all financial data in this Offering Circular are derived from our Company s financial statements prepared in accordance with Indian GAAP. Indian GAAP differs in certain significant respects from International Financial Reporting Standards ( IFRS ) and U.S. GAAP. Our Company does not provide a reconciliation of its financial statements to IFRS or U.S. GAAP financial statements. The financial statements of our Company, including the audited consolidated financial statements of our Company for Fiscal 2007, Fiscal 2008 and Fiscal 2009 were prepared in accordance with Indian GAAP, are included in this Offering Circular and are referred to herein as the Financial Statements. 1

6 Industry and Market Data Information regarding market position, growth rates and other industry data pertaining to businesses of our Company contained in this Offering Circular consists of estimates based on data reports compiled by government bodies, professional organizations and analysts, data from other external sources and knowledge of the markets in which our Company competes. The statistical information included in this Offering Circular relating to the various sectors in which our Company operates has been reproduced from various trade, industry and government publications and websites. This data is subject to change and cannot be verified with complete certainty due to limits on the availability and reliability of the raw data and other limitations and uncertainties inherent in any statistical survey. In many cases, there is no readily available external information (whether from trade or industry associations, government bodies or other organizations) to validate market-related analysis and estimates, so our Company has relied on internally developed estimates. Neither our Company nor the Lead Manager have independently verified this data and neither our Company nor the Lead Manager make any representation regarding the accuracy of such data. Similarly, while our Company believes that its internal estimates to be reasonable, such estimates have not been verified by any independent sources and neither our Company nor the Lead Manager can assure potential investors as to their accuracy. 2

7 Forward-looking Statements Certain statements contained in this Offering Circular that are not statements of historical fact constitute forward-looking statements. Investors can generally identify forward-looking statements by terminology such as aim, anticipate, believe, continue, could, estimate, expect, intend, may, objective, plan, potential, project, pursue, shall, should, will, would, or other words or phrases of similar import. All statements regarding our Company s expected financial condition and results of operations and business plans and prospects are forward-looking statements. These forward-looking statements include statements as to our Company business strategy, revenue and profitability, planned projects and other matters discussed in this Offering Circular that are not historical facts. These forwardlooking statements and any other projections contained in this Offering Circular (whether made by our Company or any third party) are predictions and involve known and unknown risks, uncertainties, assumptions and other factors that may cause our Company s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or other projections. All forward-looking statements are subject to risks, uncertainties and assumptions about our Company that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause actual results to differ materially from our Company s expectations include, among others: General, political, economic, social and business conditions in India and other countries; Our Company s ability to successfully implement its strategy, its growth and expansion plans and technological changes; Performance of the Indian debt and equity markets; Occurrence of natural calamities or natural disasters affecting the areas in which our Company has operations; Changes in laws and regulations that apply to companies in India; Changes in the foreign exchange control regulations in India; and Other factors discussed in this Offering Circular, including under the section titled Risk Factors on page 65 of this Offering Circular. All forward-looking statements are subject to risks, uncertainties and assumptions about our Company that could cause actual results and property valuations to differ materially from those contemplated by the relevant statement. Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed under the sections titled Management s Discussion and Analysis of Financial Condition and Results of Operations of Company, Industry Overview and Business on pages 87, 102 and 110 respectively, of this Offering Circular. The forward-looking statements contained in this Offering Circular are based on the beliefs of management, as well as the assumptions made by and information currently available to management. Although our Company believes that the expectations reflected in such forward-looking statements are reasonable at this time, it cannot assure investors that such expectations will prove to be correct. Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements. If any of these risks and uncertainties materialise, or if any of our Company s underlying assumptions prove to be incorrect, our Company s actual results of operations or financial condition could differ materially from that described herein as anticipated, believed, estimated or expected. All subsequent forward-looking statements attributable to our Company are expressly qualified in their entirety by reference to these cautionary statements. 3

8 Enforcement of Civil Liabilities Our Company is a limited liability company incorporated under the laws of India. Substantially all of our Directors and executive officers and some of the experts named herein are residents of India and a substantial portion of assets of such persons are located in India. As a result, it may be difficult for investors to effect service of process upon our Company or such persons outside India or to enforce judgements obtained against such parties outside India. Recognition and enforcement of foreign judgments is provided for under Section 13 of the Code of Civil Procedure, 1908, as amended from time to time (the Civil Code ), on a statutory basis. Section 13 and Section 44A of the Civil Code provides that a foreign judgement shall be conclusive regarding any matter directly adjudicated upon, except: (i) where the judgement has not been pronounced by a court of competent jurisdiction, (ii) where the judgement has not been given on the merits of the case, (iii) where it appears on the face of the proceedings that the judgement is founded on an incorrect view of international law or a refusal to recognize the law of India in cases in which such law is applicable, (iv) where the proceedings in which the judgement was obtained were opposed to natural justice, (v) where the judgement has been obtained by fraud, or (vi) where the judgment sustains a claim founded on a breach of any law in force in India. Under the Civil Code, a court in India shall, upon the production of any document purporting to be a certified copy of a foreign judgment, presume that the judgment was pronounced by a court of competent jurisdiction, unless the contrary appears on record. India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgements. However, Section 44A of the Civil Code provides that where a foreign judgement has been rendered by a superior court within the meaning of that section in any country or territory outside India which the Government has by notification declared to be in a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgement had been rendered by the relevant court in India. However, Section 44A of the Civil Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalty. The United Kingdom, Singapore and Hong Kong amongst other countries have been declared by the Government of India to be reciprocating territories for the purposes of Section 44A of the Civil Code but the United States has not been so declared. A judgment of a court in a jurisdiction which is not a reciprocating territory may be enforced only by a fresh suit upon the judgment and not by proceedings in execution. Such a suit must be filed in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if such action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it is of the opinion that the amount of damages awarded as excessive or inconsistent with public policy. A party seeking to enforce a foreign judgment in India is required to obtain approval from the RBI to execute such a judgment or to repatriate outside India any amount recovered pursuant to the execution of such a judgment and any such amount may be subject to income tax in accordance with applicable laws. In addition, any judgment in a foreign currency would be converted into Indian Rupees on the date of the judgment and not on the date of the payment. 4

9 Foreign Investment and Exchange Controls General Prior to 1 June 2000, foreign investment in Indian securities, including the acquisition, sale and transfer of securities of Indian companies, was regulated by the Foreign Exchange Regulation Act, 1973 ( FERA ) and the notifications issued by the RBI thereunder. With effect from 1 June 2000, FERA was replaced by the Foreign Exchange Management Act, 1999 ( FEMA ) and thereafter foreign investment in Indian securities is regulated by FEMA and the rules, regulations and notifications issued by the RBI under FEMA. The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended from time to time (the FEM Securities Regulations ), regulate the issue of Indian securities including global depositary receipts to persons resident outside India and the transfer of Indian securities by or to persons resident outside India. The FEM Securities Regulations provide that an Indian entity may issue securities to a person resident outside India or record in its books any transfer of security from or to such person only in the manner set forth in FEMA and the rules and regulations made thereunder or as permitted by the RBI. Foreign Direct Investment In 1991, the Indian Government formulated the Industrial Policy, which, as amended from time to time, contains the policies relating to foreign direct investment in Indian companies engaged in business in various sectors of Indian industry. The Indian Government, pursuant to its liberalisation policy, set up the FIPB to regulate together with the RBI all foreign direct investment into India. Foreign direct investment means investment by way of subscription and/or purchase of securities of an Indian company by persons resident outside India ( Foreign Direct Investment or FDI ). Further, pursuant to Press Note 2 of 2009, investments by FIIs (holding as on 31 March), Non-Resident Indians, ADRs, GDRs, FCCBs, FDI, convertible preference shares and convertible currency debentures are required to be taken together for calculating the foreign investment in a company. The following investments would require the prior permission of the FIPB: investments in certain specified industries where the proposed investment is in excess of a maximum specified sectoral limit or industries in which FDI is not permitted under the automatic route under the existing Indian Foreign Investment Policy; investments by any foreign investor who has or had an existing or previous venture in India, or a technology transfer/trade mark agreement in the same field to that Indian company in which the FDI is proposed. However, prior FIPB approval will not be required in case of investment made by a venture capital fund registered with the SEBI, or where the investment in the existing joint venture is less than 3 per cent. or where the existing joint venture is defunct. In the case of joint ventures entered into after 12 January 2005, the joint venture agreement may embody a conflict of interest clause to safeguard the interests of the joint venture partners in the event of one of the partners desiring to set up another joint venture or a wholly-owned subsidiary in the same field of economic activity; investment being more than 24 per cent. in the equity capital of units manufacturing items reserved for small scale industries; and all investments by an unincorporated entity. 5

10 The RBI consolidated its various circulars on foreign investments in India into a Master Circular No. 01/ dated 1 July 2009 summarising the current regulatory provisions as amended from time to time. Broadly, FDI is prohibited in the following sectors: retail trading (except single brand product retailing); atomic energy; lottery business; gambling and betting; housing and real estate business (permitted subject to certain conditions only); and agriculture (excluding floriculture, horticulture, development of seeds, animal husbandry, pisciculture and cultivation of vegetables, mushrooms etc. under controlled conditions and services related to agro and allied sectors) and plantations (other than tea plantations). In other cases, investments can be made either with the specific prior approval of the Indian Government (i.e. the Secretariat for Industrial Assistance/FIPB) or under the automatic route. The automatic route is not available to foreign investors who have or have had previous financial or technical trade mark collaboration with an existing domestic company engaged in the same field of activity. The automatic route is also not available where the investment is beyond the sectoral cap on investments specified under the FEM Securities Regulations. Subject to certain exceptions, FDI and investment by NRIs in Indian companies do not require the prior approval of the FIPB or the RBI. However, a declaration in a prescribed form, detailing the foreign investment, must be filed with the RBI within a specified period of the foreign investment being made in the Indian company. The foregoing description applies only to an issuance of shares by, and not to a transfer of shares of, Indian companies. The Indian Government has indicated that in all cases where Foreign Direct Investment is allowed on an automatic basis without FIPB approval, the RBI would continue to be the primary agency for the purposes of monitoring and regulating foreign investment. In cases where FIPB approval is obtained, no further approval of the RBI is required, although a declaration in the prescribed form, detailing the foreign investment, must be filed with the RBI within a specified period of the foreign investment being made in the Indian company. On 13 February 2009, the Indian Government issued two press notes setting out guidelines for foreign investment in India. Press Note 2 of 2009 prescribes the guidelines for the calculation of total foreign investment (direct and indirect) in Indian companies. Press Note 3 of 2009 prescribes the transfer of ownership or control of Indian companies in sectors with caps from resident Indian citizens to non-resident entities. Additionally, Press Note 4 of 2009 issued on 25 February 2009 clarifies the guidelines on downstream investments by Indian companies. The prescribed applicable norms with respect to determining the price at which shares may be issued by an Indian company to a non-resident investor would need to be complied with and a declaration in the prescribed form, detailing the foreign investment, is required to be filed with the RBI once the foreign investment is made in the Indian company. The Indian Government has set up the Foreign Investment Implementation Authority ( FIIA ) in the Department of Industrial Policy and Promotion. The FIIA has been mandated to (i) translate foreign direct investment approvals into implementation, (ii) provide a proactive one-stop aftercare service to foreign investors by helping them obtain necessary approvals, (iii) sort out operational problems and (iv) meet with various government agencies to find solutions to foreign investment problems and maximise opportunities through a partnership approach. 6

11 Pricing The price of shares of a listed Indian company issued to non-residents under the Foreign Direct Investment scheme on an automatic basis cannot be less than the price worked out in accordance with the applicable guidelines issued by the SEBI and the RBI. Where an Indian company is not listed on any recognised stock exchange in India, the minimum issue price of the shares would in accordance with the requirements of the RBI would be based on a fair valuation of shares done by a chartered accountant as per the guidelines issued by the erstwhile Controller of Capital Issues. The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended ( SEBI Regulations ) are applicable to all public issues by listed and unlisted companies, all offers for sale, bonus issues and rights issues by listed companies (except in the case of rights issues where the aggregate value of securities offered does not exceed Rs. 5 million). The FEM Securities Regulations require an issuer of depositary receipts to price such securities in accordance with Regulation 6of Schedule I (in the case of a public issue) thereof. Regulation 6 states that the price of shares issued to persons resident outside India shall be determined under the provisions of the Scheme for Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipt Mechanism) Scheme, 1993 and the guidelines issued by the Indian Government, from time to time ( FCCB Scheme ). Paragraph 5(4)(ca) of the said FCCB Scheme provides that if the issuer is listed on any recognised stock exchange in India, the issue price should not be less than the higher of the following two averages: (i) average of the weekly high and low of the closing prices of the shares of the company as quoted on the stock exchange during the six month period preceding the relevant date; and (ii) average of the weekly high and low of the closing prices of the shares of the company as quoted on the stock exchange during the two-week period preceding the relevant date. Relevant Date means the date thirty days prior to the date on which the meeting in which the general body of shareholders is held, in terms of Section 81(1A) of the Companies Act, 1956, to consider the proposed issue. The Ministry of Finance has issued a notification dated 27 November 2008 amending the pricing norms for FCCB issues. In pursuance whereof, the pricing of FCCBs is now as follows: The pricing of the FCCBs should not be less than the average of the weekly high and low of the closing prices of the shares quoted on the stock exchanges during the two weeks preceding the relevant date. The relevant date is the date of the meeting in which the board of directors of the company or a committee of directors duly authorised by the board of directors of the company decides to open the proposed issue. Every Indian company issuing shares in accordance with the FEM Securities Regulations is required to submit a report to the RBI within 30 days of receipt of the consideration and another report within 30 days from the date of issue of the shares to the non-resident purchaser. The above description applies only to a fresh issue of shares by an Indian company. Investment by Foreign Institutional Investors The FEM Security Regulations enable foreign institutional investors registered with the SEBI, including institutions such as pension funds, investment trusts, asset management companies, nominee companies and incorporated/institutional portfolio managers ( Foreign Institutional Investors or FIIs ), to make portfolio investments in all securities of listed companies in India. Investments by registered Foreign Institutional Investors or individuals of Indian nationality or origin residing outside India ( Non-Resident Indians ) made through a stock exchange are known as portfolio investments. FIIs wishing to invest and trade in Indian securities in India under the FEM Securities Regulations are required under the SEBI (Foreign Institutional Investor) Regulations 1995 ( FII Regulations ) to register with the SEBI and obtain a general permission from the RBI. However, since the SEBI provides a single window clearance, a single application must be made to the SEBI. 7

12 Foreign investors are not necessarily required to register with the SEBI under the FII Regulations as FIIs may invest in securities of Indian companies pursuant to the Foreign Direct Investment route discussed above. FIIs that are registered with the SEBI are required to comply with the provisions of the FII Regulations. A registered FII may buy, subject to the ownership restrictions discussed below, and sell freely on the stock exchange, securities issued by any Indian company, realise capital gains on investments made through the initial amount invested in India, subscribe to or renounce rights offerings for shares, appoint a domestic custodian for custody of investments made and repatriate the capital, capital gains, dividends, income received by way of interest and any compensation received towards sale or renunciation of rights offerings of shares. An FII shall not hold more than 10 per cent. of the total paid-up equity capital of an Indian company in its own name; a corporate/individual sub-account of the FII shall not hold more than 5 per cent. of the total paid-up equity capital of a company, and a broad-based sub-account shall not hold more than 10 per cent. of the total paid-up equity capital of a company. The total holding of all Foreign Institutional Investors in a company is subject to a cap of 24 per cent. of the total issued capital of a company which can be increased up to the percentage of the sectoral cap on FDI in respect of the said company with the passing of a special resolution by the shareholders of the company in a general meeting. Under the RBI Notification Number FEMA 20/2000-RB dated 3 May 2000 (as amended from time to time), read with the Master Circular on Foreign Investment in India dated 1 July 2009, SEBI registered FIIs have been permitted to purchase shares/convertible debentures of an Indian company through offer/private placement, subject to the ceilings prescribed (in case of individual FII/sub account upto 10 per cent. and all FIIs/sub-accounts put together upto 24 per cent. of the paid-up capital of the Indian company or upto the sectoral limits, as applicable). An Indian company is permitted to issue such shares provided that: in the case of public offer, the price of shares to be issued is not less than the price at which shares are issued to residents; and in the case of issue by private placement, the price is not less than the price arrived at in terms of SEBI guidelines or guidelines issued by the erstwhile Controller of Capital Issues, as applicable. Purchases can also be made of compulsorily and mandatorily Convertible Debentures/Right Renunciations/Units of Domestic Mutual Fund Schemes. The SEBI has, according to press releases dated 23 January 2004 and 26 January 2004, provided that, with effect from 3 February 2004, an FII or sub-account may issue, deal in or hold, offshore derivative instruments such as participatory notes, equity-linked notes or any other similar instruments against underlying securities, listed or proposed to be listed on any stock exchange in India, only in favour of those entities which are regulated by any relevant regulatory authority in the countries of their incorporation or establishment, subject to compliance with the know your client requirements. An FII or sub-account is also to ensure that no further issue or transfer of any offshore derivative instrument is made to any person other than a regulated entity. In June 2008, SEBI amended the definition of a regulated entity to mean: any person that is regulated/supervised and licensed/registered by a foreign central bank; any person that is registered and regulated by a securities or futures regulator in any foreign country or state; 8

13 any broad based fund or portfolio incorporated or established outside India or proprietary fund of a registered foreign institutional investor or university fund, endowment, foundation, charitable trust or charitable society whose investments are managed by a person covered by Clauses (i), or (ii) above. Registered FIIs are generally subject to tax under Section 115AD of the Indian Income Tax Act, The Bonds and the Shares which are represented by GDSs are subject to tax under the Section 115AC Regime. There is uncertainty under Indian law as to the tax regime applicable to FIIs that hold and trade in GDSs and Shares. See Taxation. Foreign investors are not necessarily required to register with the SEBI as Foreign Institutional Investors and may invest in securities of Indian companies pursuant to the Foreign Direct Investment route discussed above, or by establishing joint ventures or collaborations or wholly-owned subsidiaries that such foreign investors may wish to establish in India. Portfolio Investment by Non-Resident Indians A variety of methods for investing in shares of Indian companies are available to Non-Resident Indians. These methods allow Non-Resident Indians to make Portfolio Investments in shares and other securities of Indian companies on a basis not generally available to other foreign investors. In addition to Portfolio Investments in Indian companies, the Non-Resident Indians may also make investments in Indian companies pursuant to the Foreign Direct Investment route discussed above. The overseas corporate bodies, at least 60 per cent. of which are owned by the Non-Resident Indians ( Overseas Corporate Bodies ), were allowed to invest by way of Portfolio Investment until 2001 when the RBI prohibited such investments. Further, pursuant to circulars dated 16 September 2003 and 18 December 2003, the RBI no longer recognises Overseas Corporate Bodies as a separate category of investor. In this connection, the RBI has issued the Foreign Exchange Management (Withdrawal of General Permission to Overseas Corporate Bodies) Regulations, 2003 notified vide Notification No. FEMA 101/2003-RB dated 3 October 2003, pursuant to which, with effect from 16 September 2003, the facilities for Overseas Corporate Bodies under various FEMA and the rules issued by the RBI thereunder stand withdrawn. Transfer of Shares and Convertible Debentures of an Indian Company Subject to what is stated below, a person resident outside India may transfer the shares or convertible debentures held by him in Indian companies in accordance with the FEM Securities Regulations. A person resident outside India, not being a Non-Resident Indian or an overseas corporate body, may transfer by way of sale the shares or convertible debentures held by him to any other person resident outside India without the prior approval of the RBI. A Non-Resident Indian may transfer by way of sale the shares or convertible debentures held by him to another Non-Resident Indian without the prior approval of the RBI. However, the person to whom the shares or convertible debentures are being transferred will have to obtain the prior permission of FIPB in case he has an existing joint venture or tie-up in India through investment in shares or debentures or a technical transfer/trade mark agreement or investment by whatever name called in the same field in which the company whose shares are being transferred is engaged. Further, a non-resident may transfer any security held by him to a person resident in India by way of gift, or may sell the same on a stock exchange in India through a registered broker. 9

14 Further, the RBI has granted, by master circular dated 1 July 2009, general permission for the transfer of shares by a person resident outside India (other than a citizen of Pakistan or Bangladesh or an entity incorporated in Pakistan or Bangladesh) to a person resident in India, subject to compliance with certain terms, conditions and reporting requirements. A resident who wishes to purchase shares from a non-resident must, pursuant to the relevant notice requirements, file a declaration with an authorized dealer in the prescribed Form FC-TRS, together with the relevant documents and file an acknowledgment thereof with the Indian company to effect transfer of the shares. Pursuant to the RBI circular dated 22 April 2009, the sale consideration in respect of equity instruments purchased by a person resident outside India, remitted into India through normal banking channels, shall be subjected to a KYC check by the remittance receiving AD Category I bank at the time of receipt of funds. Further, the form FC-TRS should be submitted to the AD Category I bank, within 60 days from the date of receipt of the amount of consideration. The onus of submission of the form FC-TRS within the given timeframe is on the transferor or transferee which is resident in India. Pursuant to a recent liberalisation, non-residents (other than erstwhile overseas corporate bodies, foreign nationals, Non-Resident Indians, and FIIs) are permitted to purchase shares or convertible debentures of an Indian company (subject to applicable sectoral caps), other than an Indian company engaged in the financial services sector, from a resident of India without the prior approval of the RBI, subject to compliance with prescribed conditions, pricing guidelines, submission of required documents and reports and obtaining a certificate from the relevant authorised dealer. Similarly, a non-resident (i.e. incorporated non-resident entity, erstwhile overseas corporate bodies, foreign nationals, Non-Resident Indians, FIIs) may sell shares or convertible debentures of an Indian company, to a resident of India without the prior approval of the RBI, subject to compliance with prescribed pricing guidelines, submission of required documents and reports and obtaining a certificate from the relevant authorised dealer. Any Non-Resident of India seeking to sell shares received upon conversion of GDSs or otherwise transfer such shares within India, whether or not through the BSE, NSE or any other stock exchange, should seek advice from their Indian legal advisers as to applicable requirements. The Indian Government pursuant to its press note dated 10 February 2006 allowed, under the automatic route, transfer of shares from residents to non-residents in the financial services sector, and where the SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997 ( Takeover Code ) is applicable, in cases where approvals are required from the Reserve Bank/SEBI/Insurance Regulatory & Development Authority. With this, the transfer of shares from residents to non-residents, including the acquisition of shares in an existing company, would be on the automatic route subject to the sectoral policy on FDI and subject to prior approval of the RBI where necessary. Transfers by way of sale not covered under the automatic route, by a person resident outside India of the shares/convertible debentures held by him to a person resident in India, require prior permission of the RBI. Where the shares of the Indian company concerned are traded on a stock exchange, while considering the grant of permission, the RBI may make stipulations as to the price of the shares or convertible debentures while granting its permission and would take into account whether the sale is at the prevailing market price of the shares on the stock exchange and is effected through a merchant banker registered with the SEBI or through a stock broker registered with the stock exchange. 10

15 Where the foreign investor has an existing joint venture or technology transfer or trade mark agreement in the same field, the prior approval of the Indian Government will not be required in the case of (i) investments made by venture capital funds registered with the SEBI; or (ii) investments by multinational financial institutions; or (iii) where an existing joint venture investment by either of the parties is less than 3 per cent.; or (iv) where the existing venture or collaboration is sick or defunct; or (v) where the proposals for investment by the foreign investor in the Information Technology or in the Mining sector for the same area/mineral. In the case of joint ventures entered into after 12 January 2005, the joint venture agreement may embody a conflict of interest clause to safeguard the interests of the joint venture partners in the event of one of the partners desiring to set up another joint venture or a wholly-owned subsidiary in the same field of economic activity. Further, a non-resident may transfer any security held by him to a person resident in India by way of gift. Further, general permission is not available if the purchase of shares or convertible debentures by a non-resident attracts the provisions of the Takeover Code or if the price at which the purchase takes place is not in accordance with applicable pricing guidelines or the activities of the investee company are not under automatic route under the applicable FDI policy. Issue of Foreign Currency Convertible Bonds ( FCCBs ) The Ministry of Finance, though the FCCB Scheme, allowed Indian corporates to issue FCCBs. This Scheme has been amended from time to time by the Ministry of Finance ( MOF ) and certain relaxations in the guidelines have also been notified by the RBI. The relevant regulations provide that an Indian company may issue FCCBs to persons resident outside India subject to the approval of the RBI in certain cases. Any Indian company issuing such FCCBs is required to comply with certain reporting requirements prescribed by the RBI. The relevant regulations read with the Master Circular on External Commercial Borrowings and Trade Credits dated 1 July 2009 issued by the RBI, from time to time are also applicable to FCCBs. An Indian corporation may raise funds up to USD500 million or equivalent in any one financial year under the automatic route and with the approval of the RBI, for amounts up to USD750 million or equivalent. These limits are also applicable to FCCBs under the External Commercial Borrowings Guidelines and Indian companies may issue FCCBs subject to, inter alia, the following conditions: (i) (ii) Amount and maturity: FCCBs up to USD20 million or equivalent are required to have a minimum average maturity period of three years and FCCBs above USD20 million and up to USD500 million or equivalent are required to have a minimum average maturity of five years. Under the automatic route, FCCBs up to USD20 million or its equivalent can have call/put option provided the minimum average maturity of three years is complied with before exercising call/put option. Under the approval route however, prepayment and call/put options, however, is not permissible for FCCBs upto a period of 10 years. The RBI has issued a circular dated 8 December 2008, listing various conditions pursuant to which Indian companies may buyback/prepay their outstanding FCCBs. See FCCB Buyback Guidelines ; End Use: Under the automatic route, FCCBs can be raised for the following end-uses/purposes: (a) (b) investment such as import of capital goods, new projects, modernization/expansion of existing production units in the real sector industrial sector including small and medium enterprises (SME), infrastructure sector and specific service sectors, namely hotel, hospital and software in India; overseas direct investment in joint ventures and wholly owned subsidiaries outside India subject to the existing statutory/regulatory requirements in connection with overseas direct investment in joint ventures and wholly owned subsidiaries outside India; 11