STRICTLY CONFIDENTIAL—DO NOT FORWARD
THIS OFFERING IS AVAILABLE ONLY TO INVESTORS WHO ARE EITHER (I) QIBs (AS DEFINED BELOW) IN RELIANCE ON RULE 144A (“RULE 144A”)UNDERTHEU.S.SECURITIESACTOF 1933, AS AMENDED (THE “SECURITIESACT”) OR (II) OUTSIDE THE UNITED STATES PURCHASINGINOFFSHORETRANSACTIONSINRELIANCEONREGULATIONSUNDERTHE SECURITIESACT(“REGULATION S”).
IMPORTANT: You must read the following before continuing. The following disclaimer applies to the Offering Circular following this page, and you are therefore advised to read this disclaimer carefully before reading, accessing or making any other use of the Offering Circular. In accessing the Offering Circular, you agree to be bound by the following terms and conditions, including any modifications to them any time you receive any information from us as a result of such access.
Confirmation of Your Representation: You have accessed the attached Offering Circular on the basis that you have confirmed your representation to Barclays Bank PLC, Citigroup Global Markets Inc., DBS Bank Ltd., MUFG Securities Asia Limited and Standard Chartered Bank (together, the “Joint Global Coordinators and Joint Bookrunners”) that (i) (A) you are outside the United States and to the extent you purchase the securities described in the attached Offering Circular, you will be doing so pursuant to Regulation S OR (B) you are acting on behalf of, or you are, a “qualified institutional buyer” (“QIB”), as defined in Rule 144A and (ii) you consent to delivery of the attached Offering Circular and any amendments or supplements thereto by electronic transmission.
This Offering Circular is not a prospectus for the purposes of European Union’s Regulation (EU) 2017/1129.
The communication of this Offering Circular and any other document or materials relating to the issue of the securities described herein is not being made, and such documents and/or materials have not been approved, by an authorized person for the purposes of section 21 of the United Kingdom’s Financial Services and Markets Act 2000, as amended. Accordingly, such documents and/or materials are not being distributed to, and must not be passed on to, the general public in the United Kingdom. The communication of such documents and/or materials as a financial promotion is only being made to those persons in the United Kingdom who have professional experience in matters relating to investments and who fall within the definition of investment professionals (as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Financial Promotion Order”)), or who fall within Article 49(2)(a) to (d) of the Financial Promotion Order, or who are any other persons to whom it may otherwise lawfully be made under the Financial Promotion Order (all such persons together being referred to as “relevant persons”). In the United Kingdom, the securities described herein are only available to, and any investment or investment activity to which this Offering Circular relates will be engaged in only with, relevant persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this Offering Circular or any of its contents.
In accordance with the provisions of applicable Indian regulations, only investors that are residents of Financial Action Task Force (“FATF”) or International Organization of Securities Commission’s (“IOSCO”) compliant jurisdictions and multilateral and regional financial institutions where India is a member country are eligible to purchase the securities issued by Adani International Container Terminal Private Limited (the “Issuer”). The Offering Circular is being sent at your request and by accepting the e-mail and accessing the Offering Circular you shall be deemed to have represented to us that you are a resident of a FATF or an IOSCO compliant jurisdiction.
This Offering Circular has not been and will not be filed, produced or published as an offer document (whether a prospectus in respect of a public offer or an information memorandum or private placement offer cum application letter or other offering material in respect of any private placement under the Companies Act, 2013, or the rules framed thereunder, each as amended, or any other applicable Indian laws) with any Registrar of Companies in India or the Securities and Exchange Board of India or the Reserve Bank of India or any other statutory or regulatory body of like nature in India, save and except for any information from any part of this Offering Circular which is (i) mandatorily required to be disclosed or filed in India under any applicable Indian laws, including, but not limited to, the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations 2015, as amended, and under the listing agreement with any Indian stock exchange pursuant to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015, as amended, or (ii) pursuant to the sanction of any regulatory and adjudicatory body in India.
Restrictions: The attached Offering Circular is being furnished in connection with an offering exempt from registration under the Securities Act solely for the purpose of enabling a prospective investor to consider the purchase of the securities described herein. If you have gained access to this transmission contrary to any of the restrictions herein, you are not authorized and will not be able to purchase any of the securities described in the Offering Circular.
NOTHINGINTHISELECTRONICTRANSMISSIONCONSTITUTESANOFFEROFSECURITIES FORSALEORSOLICITATIONINANYJURISDICTIONWHEREITISUNLAWFULTODOSO.THE SECURITIESHAVENOTBEEN,ANDWILLNOTBE,REGISTEREDUNDERTHESECURITIES ACT, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OROTHER JURISDICTIONANDTHESECURITIESMAYNOTBEOFFERED,SOLD,RESOLD,TRANSFERRED OR DELIVERED, DIRECTLY OR INDIRECTLY, WITHIN THE UNITED STATES,EXCEPT PURSUANTTOANEXEMPTIONFROM,ORINATRANSACTIONNOTSUBJECTTO,THE REGISTRATIONREQUIREMENTSOFTHESECURITIESACTANDAPPLICABLE STATE OR LOCAL SECURITIES LAWS.
IFYOUDONOTAGREETOTHETERMSCONTAINEDINTHISNOTICE,YOUSHOULDNOT OPENTHEATTACHEDOFFERINGCIRCULARANDSHOULDDELETETHISE-MAIL.THIS E-MAILANDITSATTACHMENTSAREPERSONALTOYOU,ARECONFIDENTIAL AND MAY ONLYBEREADBYTHEADDRESSEEANDMAYNOTBEREPRODUCEDORREDISTRIBUTED ELECTRONICALLYOROTHERWISETOANYOTHERPERSON.
Except with respect to eligible investors in jurisdictions where such offer is permitted by law, nothing in this electronic transmission constitutes an offer or an invitation by or on behalf of either any issuer of the securities or the Joint Global Coordinators and Joint Bookrunners to subscribe for or purchase any of the securities described therein and access has been limited so that it shall not constitute a “general advertisement” or “solicitation” (as those terms are used in Regulation D under the Securities Act) or “directed selling efforts” (within the meaning of Regulation S) in the United States. If a jurisdiction requires that the offering be made by a licensed broker or dealer and the Joint Global Coordinators and Joint Bookrunners or any affiliate of the Joint Global Coordinators and Joint Bookrunners is a licensed broker or dealer in that jurisdiction, the offering shall be deemed to be made by the Joint Global Coordinators and Joint Bookrunners or their affiliates on behalf of any issuer in such jurisdiction.
You are reminded that this Offering Circular has been delivered to you on the basis that you are a person into whose possession this Offering Circular may be lawfully delivered in accordance with the laws of the jurisdiction in which you are located and you may not, nor are you authorized to, deliver this Offering Circular to any other person.
Actions That You May Not Take: You should not reply by e-mail to this announcement, and you may not purchase any securities by doing so. Any reply e-mail communications, including those you generate by using the “Reply” function on your e-mail software, will be ignored or rejected.
YOU ARE NOT AUTHORIZED TO AND YOU MAY NOT FORWARD OR DELIVER THE ATTACHED OFFERINGCIRCULAR,ELECTRONICALLYOROTHERWISE,TOANYOTHERPERSONOR REPRODUCESUCHOFFERINGCIRCULARINANYMANNERWHATSOEVER. ANY FORWARDING,DISTRIBUTIONORREPRODUCTIONOFTHISOFFERING CIRCULARANDTHE ATTACHED OFFERING CIRCULAR, IN WHOLE OR IN PART, IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS DIRECTIVE MAY RESULT IN A VIOLATION OF THE SECURITIESACTOR THEAPPLICABLELAWSOFOTHERJURISDICTIONS. You are responsible for protecting against viruses and other items of a destructive nature. Your use of this e-mail is at your own risk, and it is your responsibility to take precautions to ensure that it is free from viruses and other items of a destructive nature.
This Offering Circular has been sent to you in an electronic form. You are reminded that documents transmitted via this medium may be altered or changed during the process of electronic transmission and consequently none of the issuer of the securities, the Joint Global Coordinators and Joint Bookrunners or any person who controls any of them or any of their respective affiliates and their respective directors, officers, employees, representatives and agents accepts any liability or responsibility whatsoever in respect of any difference between the Offering Circular distributed to you in electronic format and the hard copy version available to you on request from the Joint Global Coordinators and Joint Bookrunners. Adani International Container Terminal Private Limited (incorporated in the Republic of India with limited liability under the Companies Act, 1956) US$300,000,000 3.00% Senior Secured Notes due 2031 Issue Price: 100.0%
The US$300,000,000 3.00% Senior Secured Notes due 2031 (the “Notes”) will be issued by Adani International Container Terminal Private Limited (the “Company”, “we”, “us”or“our”) and will bear interest at the rate of 3.00% per annum of the principal amount of the Notes, payable semi-annually in arrear on the interest payment dates falling on March 31 and September 30 of each year (except that the final interest payment date shall be February 16, 2031). Payment on the Notes will be made without withholding or deduction for or on account of taxes, duties, assessments or government charges of India to the extent described under the “Terms and Conditions of the Notes—Taxation.” Unless previously redeemed or repurchased and canceled and subject to receipt of necessary approvals under the ECB Guidelines from the Reserve Bank of India, the Notes will be redeemed on February 16, 2031 at their principal amount together with accrued but unpaid interest (if any) subject to receipt of regulatory approvals. The Notes may be redeemed at the option of the Company in whole or in part at their principal amount (together with interest accrued to but excluding the date fixed for redemption) if the Company has any obligation to or will become obliged to pay Additional Tax Amounts in the event of certain changes relating to taxation in India or any authority therein or thereof having power to tax. Subject to the receipt of regulatory approvals, the Company will, at the option of the Noteholders, redeem any outstanding Notes upon the occurrence of a Change of Control Triggering Event at an amount equal to 101% of their principal amount together with interest accrued to but excluding the date fixed for redemption. The Notes may be redeemed at the option of the Company in whole but not in part, at any time on giving not less than 30 Business Days nor more than 60 Business Days notice to the Noteholders in accordance with the Conditions and to the Note Trustee and the Principal Paying Agent in writing at their principal amount plus the Applicable Premium applicable to the Notes (together with interest accrued to but excluding the date fixed for redemption). No Applicable Premium applies if the Notes are redeemed within 182 days of the Maturity Date. The Notes may also be redeemed at the option of the Company (a) following the occurrence of a Sweep Event in part up to the relevant Excess Amount or (b) during the period starting as of the date falling three years prior to the Maturity Date (the “Prudency Sweep Period”) in whole with the Prudency Sweep Amount, at any time on giving not less than 30 nor more than 60 Business Days’ notice to the Noteholders in accordance with the Conditions, at an amount equal to their principal amount (together with interest accrued to but excluding the date fixed for redemption). No Applicable Premium applies if the Notes are redeemed using an Excess Amount or the Prudency Sweep Amount pursuant to the Conditions. See “Terms and Conditions of the Notes—Redemption and Purchase.” The Notes shall be redeemed in part in an amount equal to the applicable Amortization Amount on each Interest Payment Date on a pro rata basis. For the avoidance of doubt, interest accrued on the applicable Amortization Amount will be paid on the relevant Interest Payment Date and no Applicable Premium shall be payable in respect of any redemption of the Notes pursuant to Condition 7.5 of the Conditions. See “Terms and Conditions of the Notes—Scheduled Amortization.” The Notes will be direct, unconditional and unsubordinated obligations of the Company. The Notes will be secured to the extent of the Security in relation to the Notes that will be created under the Security Documents (the “Security”orthe“Collateral”) that are to be executed on or before the respective security longstop dates as set out in “Description of the Collateral and Security Documents.” The payment obligations of the Company under the Notes will, subject to certain conditions, rank (i) at least equally with all other senior secured obligations of the Company, present and future; (ii) senior in respect of all other unsecured or subordinated obligations of the Company, present and future; and (iii) effectively senior (in respect of the value of the Security) in respect of all other unsecured obligations of the Company, present and future. The Notes will rank at all times pari passu without any preference among themselves. The obligations of the Company under the Notes will be secured in favor of the Security Trustee by the Security Documents under security arrangements more fully described in “Terms and Conditions of the Notes.” The Security will consist of certain of the Company’s assets and also secure certain of the Company’s other secured obligations. See “Description of Material Indebtedness” and “Description of the Collateral and Security Documents.” Terms used in the above paragraphs but not otherwise defined shall have the meaning ascribed to them in the “Terms and Conditions of the Notes.” Prior to this Offering there has been no market for the Notes. Approval in-principle has been obtained for the listing of and quotation for the Notes on the official list of the Singapore Exchange Securities Trading Limited (the “SGX-ST”). The SGX-ST assumes no responsibility for the correctness of any of the statements made or opinions expressed, or reports contained in this Offering Circular. Admission to the Official List of the SGX-ST and quotation of the Notes on the SGX-ST is not to be taken as an indication of the merits of the Company, subsidiaries (if any), its associated companies, or the Notes. Approval in-principle has been obtained for the listing and trading of Notes on the India International Exchange (IFSC) Limited (the “India INX”). India INX has not approved or verified the contents of the listing particulars. The Notes will be issued in registered form in denominations of US$200,000 and integral multiples of US$1,000 in excess thereof. See “Risk Factors” on page 17 for a discussion of certain risks that you should consider in connection with an investment in the Notes. The Notes are expected to be rated “Baa3” by Moody’s, “BBB-” from S&P and “BBB-” by Fitch. A rating is not a recommendation to buy, sell or hold securities and may be subject to revision, suspension or withdrawal at any time by the assigning rating organization. The Notes have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) or the securities laws of any other jurisdiction and may not be offered or sold within the United States, except pursuant to an exemption from, or in transactions not subject to, the registration requirements of the Securities Act. Accordingly, the Notes are being offered and sold within the United States to qualified institutional buyers in reliance on Rule 144A under the Securities Act (“Rule 144A”) and outside the United States in offshore transactions in reliance on Regulation S under the Securities Act (“Regulation S”). For a description of restrictions on offers and sales of the Notes and the distribution of this Offering Circular, see “Subscription and Sale” and “Transfer Restrictions.” The Notes sold in reliance on Regulation S under the Securities Act will be represented by beneficial interests in an unrestricted global certificate in registered form, without interest coupons attached, which will be registered in the name of the nominee for, and shall be deposited on or about December 21, 2020 (the “Closing Date”) with, a common depositary for Euroclear Bank SA/NV and Clearstream Banking S.A. The Notes sold in reliance on Rule 144A will be represented by beneficial interests in a restricted global certificate in registered form, without interest coupons attached, which will be deposited on or about the Closing Date with a custodian for, and registered in the name of, Cede & Co. as nominee for The Depository Trust Company. This Offering Circular has not been and will not be registered, produced or published as a prospectus or a statement in lieu of prospectus in respect of a public offer, information memorandum or private placement offer letter or any other offering material with the Registrar of Companies in India or any other statutory or regulatory authority, in accordance with the Companies Act, 2013, or rules framed thereunder, each as amended, and other applicable laws in India for the time being valid. This Offering Circular has not been and will not be reviewed or approved by the Securities Exchange Board of India, Reserve Bank of India, Registrar of Companies in India, any statutory or regulatory authority in India or Indian stock exchange save and except for any information from any part of this Offering Circular which is (i) mandatorily required to be disclosed or filed in India under any applicable Indian laws, including, but not limited to, the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations 2015, as amended, and under the listing agreement with any Indian stock exchange pursuant to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015, as amended or (ii) pursuant to the sanction of any regulatory and adjudicatory body in India. This Offering Circular is not and should not be construed as an advertisement, invitation, offer or sale of any securities whether by way of private placement or to the public in India. The Notes will not be offered or sold, directly or indirectly, in India or to, or for the account or benefit of, any person resident in India. This Offering Circular is not a prospectus for the purposes of the European Union’s Regulation (EU) 2017/1129, as amended, and/or Part VI of the United Kingdom’s Financial Services and Markets Act 2000.
Joint Global Coordinators and Joint Bookrunners Barclays Citigroup DBS Bank Ltd. MUFG Standard Chartered Bank
The date of this Offering Circular is December 14, 2020 The Notes have not been approved or disapproved by the U.S. Securities and Exchange Commission, any state securities commission in the U.S. or any other U.S. regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Notes or the accuracy or adequacy of this Offering Circular. Any representation to the contrary is a criminal offense in the United States.
The Company as well as Barclays Bank PLC, Citigroup Global Markets Inc., DBS Bank Ltd., MUFG Securities Asia Limited and Standard Chartered Bank (together, the Joint Global Coordinators and Joint Bookrunners and referred to hereinafter as “Joint Bookrunners”) reserve the right to withdraw the offering of the Notes at any time or to reject any offer to purchase, in whole or in part, for any reason, or to sell less than all of the Notes offered hereby.
This Offering Circular is personal to the prospective investor to whom it has been delivered by the Joint Bookrunners or any of their respective affiliates and does not constitute an offer to any other person or to the public in general to subscribe for or otherwise acquire the Notes. Distribution of this Offering Circular to any person other than the prospective investor and those persons, if any, retained to advise that prospective investor with respect thereto is unauthorized, and any disclosure of its contents without the Company’s prior written consent is prohibited. The prospective investor, by accepting delivery of this Offering Circular, agrees to the foregoing and agrees not to make any photocopies of this Offering Circular.
This Offering Circular is intended solely for the purpose of soliciting indications of interest in the Notes from qualified investors and does not purport to summarize all of the terms, conditions, covenants and other provisions contained in any transaction documents described herein. The information provided herein is not exhaustive. The market information in this Offering Circular has been obtained by the Company from publicly available sources deemed by them to be reliable. Notwithstanding any investigation that the Joint Bookrunners or any of their respective affiliates may have conducted with respect to the information contained herein, the Joint Bookrunners do not accept any liability in relation to the information contained in this Offering Circular or its distribution or with regard to any other information supplied by or on the Company’s behalf.
Prospective investors in the Notes should rely only on the information contained in this Offering Circular. None of the Company, the Joint Bookrunners, Citicorp International Limited (the “Note Trustee”) or the Agents (as defined in “Terms and Conditions of the Notes”) or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates have authorized the provision of information different from that contained in this Offering Circular. The information contained in this Offering Circular may be accurate only as of the date of such information, regardless of the time of delivery of this Offering Circular or of any sale of the Notes. Neither the delivery of this Offering Circular nor any sale made hereunder shall under any circumstances imply that there has been no change in the Company’s affairs or that the information set forth herein is correct as of any date subsequent to the date hereof.
Prospective investors hereby acknowledge that (i) they have not relied on the Joint Bookrunners, the Note Trustee or the Agents or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates in connection with any investigation of the accuracy of such information or their investment decision, and (ii) no person has been authorized to give any information or to make any representation concerning the Company or the Notes (other than as contained herein and information given by the Company’s or its affiliates’ duly authorized officers and employees, as applicable, in connection with investors’examination of the Company and the terms of this Offering) and, if given or made, any such other information or representation should not be relied upon as having been authorized by the Company, the Joint Bookrunners, the Note Trustee, the Agents or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates.
The Joint Bookrunners are acting as joint bookrunners to the Company and no other person in connection with Offering. The Joint Bookrunners will not be responsible to any person other than the Company for providing any of the protections afforded to clients of the Joint Bookrunners, nor for providing any advice in relation to any matter referred to herein.
i None of the Company, the Joint Bookrunners, the Note Trustee or the Agents or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates is making any representation to any offeree or purchaser of the Notes offered hereby regarding the legality of any investment by such offeree or purchaser under applicable legal investment or similar laws. None of the Joint Bookrunners, the Note Trustee or the Agents or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates makes any representation, warranty or undertaking, express or implied, or accepts any responsibility, with respect to the accuracy or completeness of any of the information in this Offering Circular. To the fullest extent permitted by law, none of the Joint Bookrunners, the Note Trustee or the Agents or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates or representatives accepts any responsibility for the contents of this Offering Circular or for any other statement made or purported to be made by the Joint Bookrunners, the Note Trustee or the Agents or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates, or on their behalf, in connection with the Company or the issue and offering of the Notes. Each of the Joint Bookrunners, the Note Trustee and the Agents and each of their respective representatives, agents, directors, officers, employees, advisers and affiliates accordingly disclaims all and any liability whether arising in tort or contract or otherwise which it might otherwise have in respect of this Offering Circular or any such statement.
Each prospective investor contemplating purchasing any Notes should make its own independent investigation of the financial condition and affairs, and its own appraisal of the creditworthiness of each of the Company and the terms of the Notes being offered, including the merits and risks involved, and its purchase of the Notes should be based upon such investigations with its own tax, legal and business advisers as it deems necessary. See “Risk Factors” for a discussion of certain factors to be considered. Any prospective investor in the Notes should be able to bear the economic risk of an investment in the Notes for an indefinite period of time.
This Offering Circular does not constitute an offer to sell, or a solicitation of an offer to buy, any Notes offered hereby by any person in any jurisdiction in which it is unlawful for such person to make an offer or solicitation in such jurisdiction.
The distribution of this Offering Circular and the offer and sale of the Notes may, in certain jurisdictions, be restricted by law. None of the Company, the Joint Bookrunners, the Note Trustee or the Agents or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates represents that this Offering Circular may be lawfully distributed, or that any Notes may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available thereunder, or assumes any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by the Company or the Joint Bookrunners or any of their respective affiliates which would permit a public offering of any Notes or distribution of this Offering Circular in any jurisdiction where action for that purpose is required. Accordingly, no Notes may be offered or sold, directly or indirectly, and neither this Offering Circular nor any advertisement or other offering material may be distributed or published in any jurisdiction, except under circumstances that will result in compliance with any applicable laws and regulations.
Each purchaser of the Notes (each, a “Noteholder”) must comply with all applicable laws and regulations valid in each jurisdiction in which it purchases, offers or sells the Notes or possesses or distributes this Offering Circular, and must obtain any consent, approval or permission required for the purchase, offer or sale by it of the Notes under the laws and regulations valid in any jurisdiction to which it is subject or in which it makes purchases, offers or sales. Persons into whose possession this Offering Circular or any Notes may come must inform themselves about, and observe, any such restrictions on the distribution of this Offering Circular and the offering and sale of Notes. In particular, there are restrictions on the offer and sale of the Notes, and the circulation of documents relating thereto, in certain jurisdictions including the United States, the United Kingdom and the European Economic Area (“EEA”) and to persons connected therewith. See “Subscription and Sale” and “Transfer Restrictions.”
ii This Offering Circular has not been, nor will it be, registered, filed, produced or published as an offer document (whether a prospectus in respect of a public offer or information memorandum or other offering material in respect of any private placement under the Companies Act or any other applicable Indian laws) with the Registrar of Companies in India, the Securities and Exchange Board of India or any Indian stock exchange or any other statutory or regulatory body of like nature in India, save and except for any information from any part of this Offering Circular which is (i) mandatorily required to be disclosed or filed in India under any applicable Indian laws, including but not limited to, the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations 2015, as amended, and under the listing agreement with any Indian stock exchange pursuant to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 or (ii) pursuant to the sanction of any regulatory and adjudicatory body in India.
This Offering Circular is not a prospectus for the purposes of the European Union’s Regulation (EU) 2017/1129 (the “Prospectus Regulation”).
The communication of this Offering Circular and any other document or materials relating to the issue of the Notes is not being made, and such documents and/or materials have not been approved, by an authorized person for the purposes of section 21 of the United Kingdom’s Financial Services and Markets Act 2000, as amended. Accordingly, such documents and/or materials are not being distributed to, and must not be passed on to, the general public in the United Kingdom. The communication of such documents and/or materials as a financial promotion is only being made to those persons in the United Kingdom who have professional experience in matters relating to investments and who fall within the definition of investment professionals (as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the “Financial Promotion Order”)), or who fall within Article 49(2)(a) to (d) of the Financial Promotion Order, or who are any other persons to whom it may otherwise lawfully be made under the Financial Promotion Order (all such persons together being referred to as “relevant persons”). In the United Kingdom, the Notes are only available to, and any investment or investment activity to which this Offering Circular relates will be engaged in only with, relevant persons. Any person in the United Kingdom that is not a relevant person should not act or rely on this Offering Circular or any of its contents.
Further, the Notes will not be offered or sold, and have not been offered or sold, in India by means of any document, whether as a principal or agent nor have the Joint Bookrunners circulated or distributed, nor will they circulate or distribute, this Offering Circular or any other offering document or material relating to the Notes, directly or indirectly, to any person or the public or any member of the public in India or otherwise generally distributed or circulated in India. The Notes have not been offered or sold, and will not be offered or sold to any person, in India in circumstances which would constitute an advertisement, invitation, offer, sale or solicitation of an offer to subscribe for or purchase any securities (whether to the public or by way of private placement) within the meaning of the Companies Act or any other applicable Indian laws for the time being valid.
This Offering Circular or any material relating to the Notes has not been and will not be circulated or distributed to any prospective investor who is not a resident of a FATF compliant jurisdiction or IOSCO compliant jurisdiction, and the Notes will not be offered or sold or transferred and have not been offered or sold or transferred to any person who is not a resident of a FATF compliant jurisdiction or IOSCO compliant jurisdiction.
For the purposes of this Offering Circular, FATF compliant jurisdiction and IOSCO compliant jurisdiction shall have the following meanings:
“FATF compliant jurisdiction” means a country that is a member of Financial Action Task Force (“FATF”) or a member of a FATF-style regional body; and should not be a country identified in the public statement of the FATF as (a) a jurisdiction having a strategic anti-money laundering or combating the financing of terrorism deficiencies to which counter measures apply; or (b) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies.
iii “IOSCO compliant jurisdiction” means a country whose securities market regulator is a signatory to the International Organization of Securities Commission’s (“IOSCO”) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Securities and Exchange Board of India for information sharing arrangements.
Multilateral and regional financial institutions where India is a member country will also be considered as recognized investors.
Each Joint Bookrunner has represented and agreed that, to the best of its knowledge and belief, the Notes are only being issued and sold to a person who is a resident of a FATF or IOSCO compliant jurisdiction. Neither this Offering Circular nor any other material relating to the Notes has been or will be circulated or distributed to any prospective investor which is an overseas branch of an Indian bank.
This Offering Circular has been prepared on the basis that any offer of the Notes in any Member State of the EEA will be made pursuant to an exemption under the Regulation (EU) 2017/1129 (as amended, the “Prospectus Regulation”) from a requirement to publish a prospectus for offers of Notes. This Offering Circular is not a prospectus for the purpose of the Prospectus Regulation.
Singapore SFA Product Classification: In connection with Section 309B of the Securities and Futures Act (Chapter 289) of Singapore, as modified or amended from time to time (the “SFA”) and the Securities and Futures (Capital Markets Products) Regulations 2018 of Singapore (the “CMP Regulations 2018”), the Company has determined, and hereby notifies all relevant persons (as defined in Section 309(A)(1) of the SFA), that the Notes are ‘prescribed capital markets products’ (as defined in the CMP Regulations 2018) and Excluded Investment Products (as defined in MAS Notice SFA 04-N12: Notice on the Sale of Investment Products and MAS Notice FAA-N16: Notice on Recommendations on Investment Products).
The Company accepts responsibility for the information contained in this Offering Circular. Having taken all reasonable care to ensure that such is the case, the information contained in this Offering Circular is, to the best of the Company’s knowledge, in accordance with the facts and contains no omission likely to affect its import. The Company, having made all reasonable inquiries, confirms that this Offering Circular contains or incorporates all information which is material in the context of the Notes, that the information contained or incorporated in this Offering Circular is true and accurate in all material respects and is not misleading, that the opinions and intentions expressed in this Offering Circular are honestly held and that there are no other facts the omission of which would make this Offering Circular or any of such information or the expression of any such opinions or intentions misleading. The Company accepts responsibility accordingly.
In connection with the issue of the Notes, Standard Chartered Bank (the “Stabilization Manager”) or any person acting on behalf of the Stabilization Manager may, to the extent permitted by applicable laws and directives, over-allot the Notes or effect transactions with a view to supporting the price of the Notes at a level higher than that which might otherwise prevail, but, in so doing, the Stabilization Manager or any person acting on behalf of the Stabilization Manager shall act as principal and not as agent of the Company. However, there is no assurance that the Stabilization Manager or any person acting on behalf of the Stabilization Manager will undertake stabilization action. Any loss or profit sustained as a consequence of any such overallotment or stabilization shall be for the account of the Joint Bookrunners.
MiFID II product governance/Professional investors and ECPs only target market—Solely for the purposes of each manufacturer’s product approval process, the target market assessment in respect of the Notes has led to the conclusion that: (i) the target market for the Notes is eligible counterparties and professional clients only, each as defined in Directive 2014/65/EU (as amended, “MiFID II”); and (ii) all channels for distribution of the Notes to eligible counterparties and professional clients are appropriate. Any person subsequently offering, selling or recommending the Notes (a “distributor”) should take into consideration the manufacturers’ target market assessment; however, a distributor subject to MiFID II is
iv responsible for undertaking its own target market assessment in respect of the Notes (by either adopting or refining the manufacturers’ target market assessment) and determining appropriate distribution channels.
PRIIPSREGULATION/PROHIBITIONOFSALESTOEEAANDUKRETAIL INVESTORS—The Notes are not intended to be offered, sold or otherwise made available to and should not be offered, sold or otherwise made available to any retail investor in the EEA or the UK. For these purposes, a retail investor means a person who is one (or more) of: (i) a retail client as defined in point (11) of Article 4(1) of MiFID II; or (ii) a customer within the meaning of Directive (EU) 2016/97 (as amended, the “Insurance Distribution Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II. Consequently, no key information document required by Regulation (EU) No 1286/2014 (the “PRIIPs Regulation”) for offering or selling the Notes or otherwise making them available to retail investors in the EEA or the UK has been prepared and therefore, offering or selling the Notes or otherwise making them available to any retail investor in the EEA or the UK may be unlawful under the PRIIPs Regulation.
References to Regulations or Directives include, in relation to the UK, those Regulations or Directives as they form part of UK domestic law by virtue of the European Union (Withdrawn) Act 2018 or have been implemented in UK domestic law, as appropriate.
v PRESENTATION OF FINANCIAL AND OTHER INFORMATION
In this Offering Circular, unless the context otherwise indicates or implies, references to “you”, “your”, “offeree”, “purchaser”, “subscriber”, “recipient”, “investors”, “prospective investors” and “potential investor” are to the prospective investors in this Offering of the Notes (the “Offering”) and references to the “Issuer”, the “Company”, “we”, “us” or “our” are to Adani International Container Terminal Private Limited.
References to “Rupees”, “Rs.” and “`” are to Indian rupees, the legal currency of India and references to “U.S. dollars” and “US$” are to United States dollars, the legal currency of the United States. References herein to the “U.S.” or the “United States” are to the United States of America and its territories and possessions and references to “India” are to the Republic of India and its territories and possessions.
References to “lakh” mean “100 thousand”; “million” means “10 lakh”; “crore” means “10 million” or “100 lakhs”; and “billion” means “1,000 million” or “100 crores.”
Unless otherwise stated, references in this Offering Circular to a particular “year” are to the calendar year ended on December 31 and to a particular “Fiscal Year” or “FY” are to the fiscal year ended on March 31.
This Offering Circular includes our audited financial statements as at and for Fiscal Years 2018, 2019 and 2020 (the “Audited Financial Statements”) and our unaudited interim condensed financial statements as at and for the six months ended September 30, 2020 (the “Unaudited Interim Condensed Financial Statements”). The Audited Financial Statements have been prepared in accordance with the Indian Accounting Standards (“Ind AS”) as notified under section 133 of the Companies Act, 2013, read with the Companies (Indian Accounting Standards) Rules, 2015, as amended from time to time, and other accounting principles generally accepted in India, and the Unaudited Interim Condensed Financial Statements have been prepared in accordance with Indian Accounting Standard 34 “Interim Financial Reporting” (“Ind AS 34”) as notified under section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules, 2015, as amended from time to time and other accounting principles generally accepted in India, and are both presented in Rupees. The Audited Financial Statements have been audited by S R B C & CO LLP as per auditing standards generally accepted in India and their audit reports thereon are included herein. The Unaudited Interim Condensed Financial Statements have been subjected to a limited review by S R B C & CO LLP and their review report thereon is included herein.
Unless otherwise stated and unless context requires otherwise, figures for Fiscal Years 2018, 2019 and 2020 and the six months ended September 30, 2020 appearing in this Offering Circular are derived from figures appearing in the Audited Financial Statements, and in the Unaudited Interim Condensed Financial Statements, respectively, and the figures for the six months ended September 30, 2019 appearing in this Offering Circular are derived from comparative figures appearing in the Unaudited Interim Condensed Financial Statements found elsewhere in this Offering Circular.
In this Offering Circular, amounts for the six months ended September 30, 2019 and 2020 are presented along with amounts for Fiscal Years 2018, 2019 and 2020. Figures for the six months ended September 20, 2019 and 2020 are not indicative of annual results and are not directly comparable with figures for Fiscal Years 2018, 2019 and 2020 and are presented for convenience purposes only.
Ind AS differs in certain significant respects from International Financial Reporting Standards (“IFRS”) and, accordingly, the degree to which the financial statements prepared in accordance with Ind AS included in this Offering Circular will provide meaningful information is entirely dependent on the reader’s familiarity with the respective accounting policies. For a description of certain significant differences between Ind AS and IFRS, see “Description of Certain Differences Between Ind AS and IFRS.” See also “Risk Factors—Risks Related to Our Financial Statements—Significant differences exist between
vi Ind AS and other accounting principles, such as U.S. GAAP and IFRS, which may be material to the financial statements prepared and presented in accordance with Ind AS contained in this Offering Circular.”
Any reference in this Offering Circular to any law, regulation or notification is a reference to such law, regulation or notification as the same may have been, or may from time to time be, amended, supplemented or replaced.
Non-GAAP Financial Measures
In this Offering Circular, we refer to EBITDA, which is a non-GAAP and non-Ind AS measure. EBITDA is defined as profit/loss for the period and adjusted for tax expenses, the infrastructure usage rights charges, other income, finance costs, foreign exchange/derivatives (gain)/loss (net) and depreciation and amortization expenses. Our management believes that EBITDA provides investors with additional information about our performance, as well as the ability to incur and service debt and make capital expenditures. This data, however, should not be considered in isolation or as a substitute for measures of performance prepared in accordance with Ind AS.
EBITDA described in this Offering Circular is not a measure of operating performance or liquidity defined by generally accepted accounting principles and is not a substitute for Ind AS measures of earnings and may not be comparable to similarly titled measures reported by other companies due to differences in the way these measures are calculated. We have presented this supplemental financial measure because we believe this measure is frequently used by securities analysts and investors in evaluating similar issuers. This data is not necessarily indicative of, and should not be used as the basis for, or prediction of, future results. Investors are cautioned not to place undue reliance on this supplemental financial measure.
For a reconciliation of EBITDA to profit/loss for the period before non-controlling interests, please see “Summary Financial Information.” This non-GAAP measure should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements included elsewhere in this Offering Circular. You should note that the definition of EBITDA as described above differs from the definition of EBITDA and CFADs for the purposes of the Terms and Conditions of the Notes. See Condition 21 (Definitions) of the Terms and Conditions of the Notes.
Rounding
In this Offering Circular, certain amounts have been rounded; accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.
AVAILABLE INFORMATION
For so long as any of the Notes remain outstanding and are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, we will, during any period in which we are neither subject to Section 13 or Section 15(d) of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, provide to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner or to the Note Trustee (as defined herein) for delivery to such holder, beneficial owner or prospective purchaser, in each case upon the request of such holder, beneficial owner, prospective purchaser or Trustee, the information required to be provided by Rule 144A(d)(4) under the Securities Act.
vii INDUSTRY AND MARKET DATA
Certain information regarding market position, growth rates and other industry data pertaining to our businesses contained in this Offering Circular consists of estimates based on data reports compiled by professional organizations and analysts, data from other external sources and our knowledge of the markets in which we compete. The statistical information included in this Offering Circular relating to the container industry has been reproduced from various trade, industry and government publications and websites, including the Global Container Terminal Operators—Annual Review and Forecast—Annual Report 2020/21 by Drewry Maritime Research, Container Forecast, Quarter 3, September 2020 by Drewry Maritime Research and the Container Market Study report dated November 9, 2020 of Drewry Maritime Advisors commissioned by the Company (together, the “Drewry Reports”). Drewry Maritime Services Private Limited has, on behalf of Drewry Maritime Advisors and Drewry Maritime Research (together, “Drewry”) has given and not withdrawn its written consent to the inclusion herein of data and information extracted from such reports, including references to its name, in the form and context in which they appear. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information is not guaranteed. In addition, the forward-looking statements and forecasts in the Drewry Reports which have been reproduced in this Offering Circular are based on key assumptions concerning the future and other key sources of estimates or uncertainty at the date on which they were prepared which may require material adjustments to such statements and forecasts should the underlying assumptions prove to be incorrect or incomplete. The accuracy and completeness of the underlying assumptions are not guaranteed by us or Drewry. Drewry will not accept any liability for any errors contained in the Drewry Reports.
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 we rely on internally developed estimates. While we have compiled, extracted and reproduced this data from external sources, including third parties, trade, industry or general publications, we accept responsibility for accurately reproducing such data. However, neither we nor the Joint Bookrunners, any of their respective affiliates, the Note Trustee or the Agents have independently verified the industry and market data and neither we nor the Joint Bookrunners, the Note Trustee or the Agents or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates make any representation regarding the accuracy of such data. Similarly, while we believe our internal estimates to be reasonable, such estimates have not been verified by any independent sources and neither we nor the Joint Bookrunners, the Note Trustee or the Agents or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates can assure potential investors as to their accuracy. Internal and third-party estimates and projections cited in this Offering Circular are subject to significant uncertainties that could cause actual data to differ materially from the estimated or projected figures. No assurances are or can be given that these figures will be achieved. As a result, you are cautioned against undue reliance on such information. The extent to which the market and industry data contained in this Offering Circular is meaningful depends on the investor’s familiarity with an understanding of the methodologies used in compiling such data. See “Risk Factors—Risks Related to our Business—Third party statistical and financial data in this Offering Circular may be incomplete or unreliable.”
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”, “forecast”, “guideline”, “intend”, “may”, “objective”, “plan”, “potential”, “predict”, “project”, “pursue”, “shall”, “should”, “target”, “will”, “would”, or other words or phrases of similar import but these are not the exclusive means of identifying these statements.
viii All statements regarding our expected financial condition, results of operations, business plans and prospects are forward-looking statements. These forward-looking statements include statements as to our business strategy, revenue and profitability, growth plans and other matters discussed in this Offering Circular that are not historical facts. These forward-looking statements and any other projections contained in this Offering Circular (whether made by us or any third party) are predictions and involve known and unknown risks, uncertainties, assumptions and other factors that may cause our 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 us 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 expectations include:
• the global outbreak of COVID-19 and its impact (including any preventive or protective action that governmental authorities may take in response);
• regional and global economic, financial and political conditions;
• the pending signing by the Gujarat Maritime Board (“GMB”) of the Sub-Concession Agreement as a confirming party under which we operate our Terminals (as defined herein);
• credit risk with respect to our customers;
• concentration risk of our business and assets in Gujarat and adverse or unfavorable events affecting the state of Gujarat or the Mundra Port;
• our dependence on a small number of customers;
• operational risks;
• disruption to the Terminals as a result of upgrading or renovation work or physical damage;
• severe weather conditions and natural disasters;
• dependence on our senior management and other key personnel;
• potential to cause environmental damage;
• inability to compete effectively with our competitors; and
• inability to keep up with changes in technology.
The forward-looking statements contained in this Offering Circular are based on the beliefs of our management, as well as the assumptions made by and information currently available to our management. Although we believe that the expectations reflected in such forward-looking statements are reasonable at this time, we cannot assure investors that such expectations will prove to be correct. Given these uncertainties, investors should review forward-looking statements with caution. If any of these risks and uncertainties materialize, or if any of our underlying assumptions prove to be incorrect, our actual results of operations or financial condition could differ materially from those described herein as anticipated, believed, estimated or expected. All subsequent forward-looking statements attributable to us are expressly qualified in their entirety by reference to these cautionary statements. The forward-looking statements speak only as at the date of the Offering Circular and none of the Company, the Joint Bookrunners, the Note Trustee or the Agents or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates assume any responsibility to update or revise any of the forward-looking statements to reflect events or circumstances after the date of this Offering Circular.
ix ENFORCEABILITYOFCIVILLIABILITIES
The Company is a private limited company incorporated under the laws of India. Except for two directors, all of the Company’s directors and executive officers are residents of India. All of the Company’s assets, and a portion of such persons’ assets, are located in India. As a result, it may not be possible for investors to effect service of process on the Company or such persons in jurisdictions outside of India, or to enforce against them judgments obtained in courts outside of India predicated upon civil liabilities of the Company or such directors and executive officers under laws other than the laws of India, including judgments predicated upon the civil liability provisions of the federal securities laws of the United States.
India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. Statutory basis for recognition and enforcement of foreign judgments is provided for under Section 13 and Section 44A of the Indian Code of Civil Procedure, 1908 (the “Civil Code”). Section 44A of the Civil Code provides that, where a foreign judgment has been rendered by a superior court in any country or territory outside India which the GoI has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. A superior court with reference to any such territory would mean such courts as are specified in the aforesaid notification. Pursuant to GoI notifications, the High Courts in England are included in the list of relevant superior courts. Accordingly, a judgment of a superior court in the United Kingdom may be enforceable by proceedings in execution, and a judgment not of a superior court, by a fresh suit resulting in a judgment or order.
Under the Civil Code, a court in India will, 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 but such presumption may be displaced by proving want of jurisdiction. However, section 44A of the Civil Code is applicable only to monetary decrees other than those 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 and is not applicable to arbitration awards, even if such awards are enforceable as a decree or judgment.
While each of the United Kingdom, Singapore, Hong Kong and the United Arab Emirates has been declared by the GoI to be a reciprocating territory for the purposes of Section 44A of the Civil Code and the High Courts of England as a relevant superior court, the United States has not been declared by the GoI to be a reciprocating territory for the purposes of Section 44A of the Civil Code. Accordingly, a judgment of a superior court in the United Kingdom may be enforceable by proceedings in execution, and a judgment not of a superior court by a fresh suit resulting in a judgment or order. A judgment of a court in a jurisdiction which is not a reciprocating territory, including that of a court in the United States, may be enforced only by a new suit upon the judgment and not by proceedings in execution. Furthermore, the execution of foreign decrees under Section 44A of the Civil Code is subject to exceptions under Section 13 of the Civil Code. Section 13 of the Civil Code provides that a foreign judgment to which this section applies shall be conclusive as to any matter thereby directly adjudicated upon between the same parties or between parties under whom they or any of them claim to litigate under the same title, except: (i) where it has not been pronounced by a court of competent jurisdiction; (ii) where it has not been given on the merits of the case; (iii) where it appears on the face of the proceedings to be founded on an incorrect view of international law or a refusal to recognize the law of India in cases where such law is applicable; (iv) where the proceedings in which the judgment was obtained were opposed to natural justice; (v) where it has been obtained by fraud; or (vi) where it sustains a claim founded on a breach of any law valid 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 and such presumption may be displaced by proving want of jurisdiction. The suit must be brought 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 an action were brought in India. Furthermore, it is unlikely that an Indian court would enforce a foreign judgment if it viewed the amount of damages awarded as excessive or inconsistent with Indian practice.
x A party seeking to enforce a foreign judgment in India is required to obtain approval from the Reserve Bank of India (the “RBI”) under the Foreign Exchange Management Act, 1999, as amended (“FEMA”) and the rules and regulations framed thereunder, to execute such a judgment and repatriate outside India any amount recovered pursuant to execution. 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.
We would not be entitled to immunity based on sovereignty from any legal proceedings in India.
xi TABLE OF CONTENTS
Definitions andAbbreviations...... 1
Summary...... 3
Summary Financial Information...... 6
SummaryoftheOffering ...... 11
RiskFactors...... 17
UseofProceeds...... 45
Capitalization...... 46
Management’s Discussion and Analysis of Financial Condition and Results of Operations .... 47
IndustryOverview ...... 84
OurBusiness...... 107
Environment, Social and Governance...... 130
Board of Directors and Senior Management...... 135
Regulations and Policies...... 137
PrincipalShareholders ...... 159
Description of Material Indebtedness...... 162
Description of Principal Debt Documents ...... 165
Terms and Conditions of the Notes ...... 184
Description of the Collateral and Security Documents...... 249
GlobalCertificates...... 253
Taxation...... 257
ClearanceandSettlement ...... 263
SubscriptionandSale...... 267
TransferRestrictions...... 273
LegalMatters...... 275
IndependentAccountants...... 276
Description of Certain Differences Between Ind AS and IFRS...... 277
Index to the Financial Statements ...... F-1
xii DEFINITIONSANDABBREVIATIONS
This Offering Circular uses the definitions and abbreviations set forth below which, unless otherwise specified, you should consider when reading this Offering Circular. Notwithstanding the definitions and abbreviations set forth below, the defined terms in our financial statements contained in this Offering Circular shall have the meanings given to such terms therein.
Adani Group ...... APSEZ, Adani Enterprises Limited, Adani Power Limited, Adani Green Energy Limited, Adani Gas Limited and Adani Transmission Limited, their respective subsidiaries and such other companies promoted and/or owned by our Promoter Group
APSEZ ...... Adani Ports and Special Economic Zone Limited, one of our Sponsors
Bankruptcy Code ...... The Insolvency and Bankruptcy Code, 2016, as amended
CAGR ...... Compoundedannualgrowthrate
Companies Act ...... The CompaniesAct, 2013 and/or the CompaniesAct, 1956, as applicable
Companies Act, 1956 ..... The Companies Act, 1956, as amended and to the extent effective read with the rules, regulations, clarifications and modifications thereunder
Companies Act, 2013 ..... The Companies Act, 2013, as amended and to the extent effective, read with the rules, regulations, clarifications and modifications thereunder
Conditions ...... TheTermsandConditionsoftheNotes(contained herein)
ECB ...... Externalcommercialborrowings
ECB Guidelines ...... The Foreign Exchange Management Act, 1999, the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 and the rules and regulations issued by the RBI in relation to ECBs including the Master Direction—External Commercial Borrowings, Trade Credits and Structured Obligations, issued by the RBI on March 26, 2019 and the Master Direction on Reporting under Foreign Exchange Management Act, 1999 dated January 1, 2016, each as amended from time to time
FEMA ...... ForeignExchangeManagementAct,1999,as amended and the rules and regulations issued thereunder
GCR ...... Gross crane rate; containers moved over the quay per crane/ hours between first and last lift (period)
GDP ...... GrossDomesticProduct
GoG ...... GovernmentofthestateofGujarat
1 GoI ...... GovernmentofIndia
Income-Tax Act ...... Income-TaxAct,1961,asamendedandtherulesand regulations issued thereunder
IPOS ...... IntegratedPortsOperationsSystem
Ind-AS...... IndianAccountingStandardsnotifiedunder Section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules, 2015, as amended
Joint Venture partners .... APSEZandMundiLimited
Major Ports ...... 12portsinIndiawhichfallunderthejurisdiction of the GoI
MMT ...... Millionmetrictonnes
Mundra Port ...... TheportatMundra,Gujarat
MTEU ...... Milliontwenty-footequivalentunit
Non-Major Ports ...... PortsthatarenotMajorPorts
O&D ...... Originanddestination;cargothroughput for import to, or export from, a dedicated terminal, as opposed to cargo throughput that is stored at the terminal while being transferred from one ship to another for further shipment
Promoter Group ...... ThepromotergroupofourCompanyasdeterminedin terms of Regulation 2(1)(pp) of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018
RBI ...... ReserveBankofIndia
Sponsors ...... Sponsors shall mean collectively or individually APSEZ and TiL (including their respective affiliates)
TEU ...... twenty-footequivalentunit
TiL ...... TerminalInvestmentLimitedHolding S.A., the ultimate parent company of Mundi Limited and one of our Sponsors throughput ...... Ameasureofcontainerhandlingactivity,expressed in TEU. The two main categories of throughput are O&D and transhipment. Throughput includes the handling of imports, exports, empty containers and transhipments
2 SUMMARY
This summary highlights information contained elsewhere in this Offering Circular and does not contain all of the information that you should consider before investing in the Notes. You should read this entire document, including “Risk Factors” and the financial statements and related notes included elsewhere in this Offering Circular, before making an investment decision. This Offering Circular includes forward- looking statements that involve risks and uncertainties. See “Forward-Looking Statements.”
Overview
We operate two major container terminal facilities-CT-3 and CT-3 Extension (the “Terminals”)-at Mundra Port in Gujarat, on the west coast of India, with an annual capacity of 3.1 MTEUs as of September 30, 2020. We are a 50:50 joint venture between Adani Ports & Special Economic Zone Limited (“APSEZ”) and Mundi Limited, a subsidiary of Terminal Investment Limited Holding S.A. (“TiL”).
We have demonstrated a steady growth in our business. Our total income increased to `9,380.60 million in Fiscal Year 2020 from `9,202.37 million in Fiscal Year 2019 and `6,476.50 million in Fiscal Year 2018. Our total income increased to `4,998.28 million in the six months ended September 30, 2020 from `4,428.09 million in the six months period ended September 30, 2019. EBITDA increased to `5,058.20 million in Fiscal Year 2020 from `4,691.56 million in Fiscal Year 2019 and `3,550.41 million in Fiscal Year 2018. EBITDA increased to `2,678.48 million in the six months ended September 30, 2020 from `2,329.13 million in the six months period ended September 30, 2019.
APSEZ is India’s largest private developer and operator of ports and related infrastructure based on container volume handled*. APSEZ provides fully integrated marine, stevedoring, handling, storage, warehousing, transportation and other value-added logistics services. APSEZ is part of the Adani Group, which is a multinational diversified business organization with significant interests across resources (coal mining and trading), transport and logistics (ports and logistics, shipping and rail) and energy (power generation and transmission) sectors, with a presence in India, Indonesia, Singapore, Australia, China and the Middle East. As of November 24, 2020, the combined market capitalization of APSEZ, Adani Power Limited, Adani Enterprises Limited, Adani Green Energy Limited, Adani Transmission Limited and Adani Gas Limited was approximately `55.00 billion (source: Bloomberg).
TiL is a leading globally diversified container terminal operators. TiL handled approximately 6.3% of the world’s container port throughput as of September 30, 2020 and ranked sixth in the Global Terminal Operator’s throughput league in 2019**. TiL owns and operates 42 terminals out of which 16 are wholly or majority-owned and 26 are joint ventures at the world’s largest O&D markets. TiL is majority owned (as to 57.3%) by Mediterranean Shipping Company S.A. (“MSC”), the second largest shipping line globally in terms of container vessel capacity according to Alphaliner. Global Infrastructure Partners, one of the world’s leading infrastructure investment funds founded in 2006, holds 32.7% ownership in TiL and GIC, the Singaporean government sovereign wealth fund, which has extensive experience in large and unlisted infrastructure assets, holds 10.0% ownership in TiL.
APSEZ developed Mundra Port under the “build-own-operate-transfer” policy of the GoG, pursuant to which it entered into a 30-year concession agreement with the GMB (the “Concession Agreement”) on February 17, 2001. The Concession Agreement permits APSEZ (as the licensee) to induct sub-concessionaires to develop and operate port facilities in Mundra Port. Subsequently, on October 17, 2011, we signed a sub-concession agreement with APSEZ (the “Sub-Concession Agreement”) that granted us the right and authority to operate and maintain the contracted assets to the Terminal facilities. The Sub-Concession agreement will be valid until February 16, 2031. We also executed with APSEZ an infrastructure facilities and port services agreements for CT-3 on June 29, 2013 and for CT-3 Extension on November 1, 2017 (together, the “Infrastructure Use and Port Services Agreement”), pursuant to which APSEZ agreed to provide infrastructure facilities and port services to us. For more information on these agreements, see “Our Business—Material Agreements.”
* Derived from the Indian Container Market Reports 2016 to 2019 by Maritime Gateway, Coronavirus Impact on Container Trade—Container India 2020 Report and Indian Ports Association.
** According to Global Container Terminal Operators—Annual Review and Forecast—Annual Report 2020/21 of Drewry Maritime Research.
3 Our Competitive Strengths
We believe that the following are some of our competitive strengths, which are more fully described in the “Our Business” section:
• Strategic location poised for growth
• Good rail and road connectivity
• Superior infrastructure for effective capacity utilizations
• Operational excellence
• Backed by prominent Sponsors with global sector expertise
Strategies
Our key strategies, which are more fully described in “Our Business” section, are the following:
• Growth and retention of business
• Customer satisfaction
• Maximize operational efficiencies and increase profit generated from assets
• Synergy with APSEZ Group companies
Key Milestones
The following are the key milestones of the Company:
• July 2013: Began cargo handling operations at CT-3;
• March 2016: Cargo handling volumes crossed 1 MTEUs, first time in our history;
• November 2017: Began cargo handling operations at CT-3 Extension and cumulative cargo handling capacity reached 3.1 MTEUs;
• December 2019: Handled a vessel with a length of 366 meters (the longest meters in our history) and draft of 16.8 meters (deepest draft in our history);
• June 2020: Handled a vessel with parcel size exchanged in a single vessel of 12,053 TEUs (largest size in our history); and
• October 2020: Achieved highest container throughput of 2,41,081 TEUs.
Recent Developments
Impact of COVID-19
An outbreak of the novel strain of coronavirus (“COVID-19”) was recognized as a pandemic by the World Health Organization on March 11, 2020. In response to the outbreak, governmental authorities in various jurisdictions imposed lockdowns and other restrictions to contain the virus, and various businesses suspended or reduced operations. The GoI also imposed a nationwide lockdown on March 25, 2020. During this lockdown, only companies providing essential services could continue operations. The GoI declared ports and related logistics services essential services, and accordingly, the Terminal facilities continued operations.
4 During the initial period of the lockdown in India, we experienced logistical bottlenecks. Supply chain was impacted as road transportation was affected and we were not able to evacuate cargo seamlessly out of the Terminals. However, we were able to reduce the impact of road transportation bottlenecks by leveraging India’s rail transportation system to move cargo from the Terminals. Thereafter, lockdown restrictions were gradually lifted in zones and the GoI has announced several economic stimulus measures in response to COVID-19, helping the economy to recover from the second quarter of Fiscal Year 2021. India’s GDP contraction reduced from 23.9% in the first quarter to 7.5% in the second quarter of Fiscal Year 2021.
Despite the lockdowns and other restrictions, the Company has displayed robust growth in container volumes since the second quarter of Fiscal Year 2021. This was primarily due to (i) the Company’s strengths such as its efficiency, strategic location, superior infrastructure and association with MSC; and (ii) the ports and logistical services being declared as “essential services” by the GoI, enabling the Company to continue its operations. The largest impact of COVID-19 on container volumes at the Mundra Port and the Company was mainly witnessed in April and May 2020 which was a result of the lockdown in India from March 2020. Thereafter, container volumes have gradually recovered and eventually surpassed pre-COVID-19 levels. Set out below is the increase in container volumes at the Mundra Port and the Company from the third quarter of Fiscal Year 2020 to September 30, 2020.
Mundra and AICTPL Container Volumes (MTEUs) 0.45 0.45 0.42 0.40 0.38 0.35 0.34 0.28 0.21 0.20 0.18 0.16 0.16 0.15 0.14 0.13
Q3 FY20 Q4 FY20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Monthly Average Mundra AICTPL
Source: Company report
Despite the lockdowns and restrictions imposed by countries globally, the port and container sector has shown signs of recovery. Port throughput has been the least affected as compared to other transport and traffic sector such as air freight and passenger traffic. Set out below are the port throughput and toll road traffic from January 2020 to August 2020.
1. Source: Port Throughput Index – Drewry Maritime Research, Company Filings;
2. Port Throughput Index: A series of volume growth/decline indices based on monthly throughput data for a sample of over 235 ports worldwide, representing over 75.00% of global volumes. The base point for the indices is January 2012 = 100; and
3. Toll Road traffic growth is based on vehicle kilometers traveled. The data refers to a selected set of toll roads across Ferrovial, Atlantia and Abertis, with 16 toll roads in US, Canada, Italy, Spain, France, Brazil, Chile and Mexico. Sourced from Company reports.
5 SUMMARY FINANCIAL INFORMATION
Unless otherwise stated and unless context requires otherwise, figures for Fiscal Years 2018, 2019 and 2020 and the six months ended September 30, 2020 appearing in this Offering Circular are derived from the figures appearing in the Audited Financial Statements and the Unaudited Interim Condensed Financial Statements, respectively. The figures for the six months ended September 30, 2019, appearing in this Offering Circular are derived from the comparative figures appearing in the Unaudited Interim Condensed Financial Statements.
Our Audited Financial Statements have been prepared in accordance with Ind AS and our Unaudited Interim Condensed Financial Statements have been prepared in accordance with Ind AS 34.
The summary financial information presented below should be read in conjunction with the Audited Financial Statements and the Unaudited Interim Condensed Financial Statements as well as the respective notes thereto included elsewhere in this Offering Circular and the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Ind AS differs in certain respects from IFRS and U.S. GAAP and other accounting principles with which prospective investors may be familiar. For a discussion of certain significant differences between Ind AS and IFRS, see “Description of Certain Differences Between Ind AS and IFRS.”
Summary of Assets and Liabilities
As of As of March 31, September 30,
2018 2019 2020 2020
(` inmillion) (` in million)
Assets
Non-Current assets
Property,PlantandEquipment...... 34,740.67^ 33,163.72^ 28,506.18 27,739.80
Right-of-useassets...... – – 9,266.95# 8,840.65#
Capitalwork-in-progress...... 3.62 14.19 23.13 44.42
IntangibleAssets...... 7,487.03^ 6,902.53^ 22.34 22.49
Financial Assets
(i)OtherFinancialAssets...... 299.96 38.07 13.34 1,012.95
(ii)OtherNon-CurrentAssets ...... 662.42 819.57 802.64 779.90
43,193.70 40,938.08 38,634.58 38,440.21
Current assets
Inventories 45.75 52.47 47.06 49.84
Financial Assets
(i)TradeReceivables...... 527.21 341.70 233.50 248.31
(ii)CashandCashEquivalents ...... 612.39 108.50 920.85 166.86
(iii) Bank balance other than cash and cash equivalents . . . . – 116.10 74.50 117.90
(iv)OtherFinancialAssets...... 181.06 249.96 182.94 244.68
OtherCurrentAssets ...... 582.84 681.08 1,027.93 617.89
1,949.25 1,549.82 2,486.78 1,445.48
Total Assets ...... 45,142.95 42,487.90 41,121.36 39,885.69
6 As of As of March 31, September 30,
2018 2019 2020 2020
(` inmillion) (` in million)
Equity and Liabilities
Equity
EquityShareCapital ...... 6,444.64 6,444.64 6,444.64 6,444.64
OtherEquity...... (108.35) (2,124.05) (4,887.34) (3,258.88)
Total Equity ...... 6,336.29 4,320.59 1,557.30 3,185.74
Non-Current Liabilities
Financial Liabilities
(i)Borrowings...... 22,717.69 31,489.82 24,584.21 28,844.68
(ii)LeaseLiabilities...... – – 650.71 616.10
(iii)OtherFinancialLiabilities...... 707.43* 1,066.61* 1,432.84 1,261.76
DeferredTaxLiabilities(net) ...... 1,564.42 2,389.20 3,014.06 2,896.55
24,989.54 34,945.63 29,681.82 33,619.09
Current Liabilities
Financial Liabilities
(i)Borrowings...... 203.09 445.00 15.00 –
(ii)LeaseLiabilities...... – – 30.13 34.61
(iii)TradeandOtherPayables......
(A) Total outstanding dues of micro enterprises and Small enterprises...... – 0.43 – –
(B) Total outstanding dues of creditors other than micro enterprisesandsmallenterprises ...... 1,755.89 563.58 1,253.81 190.87
(iii)OtherFinancialLiabilities...... 11,268.13* 1,915.66* 8,304.90 2,173.68
OtherCurrentLiabilities ...... 478.99 228.94 261.56 520.45
Provisions...... 4.83 9.98 16.84 18.01
LiabilitiesforCurrentTax(net)...... 106.19 58.09 – 143.24
13,817.12 3,221.68 9,882.24 3,080.86
Total Liabilities ...... 38,806.66 38,167.31 39,564.06 36,699.95
Total Equity And Liabilities ...... 45,142.95 42,487.90 41,121.36 39,885.69
Notes:
^ Property, plant and equipment and intangible assets for Fiscal Year 2018 and 2019 includes leasehold land of `3,490.44 million and `3,218.99 million respectively, and infrastructure usage rights of `7,477.07 million and `6,898.24 million, respectively.
# On account of the adoption of Ind AS 116 from Fiscal Year 2020, leasehold land under property, plant and equipment and infrastructure usage under intangible assets were reclassified to right-of-use assets. * Other financial liabilities (current and non-current) for Fiscal Year 2018 and 2019 includes lease liabilities of `718.06 million and `707.37 million, respectively.
7 Summary of Profit and Loss
For the six months Fiscal Year ended September 30,
2018 2019 2020 2019 2020
(` inmillion) (` in million)
Income
RevenuefromOperations...... 6,433.87 9,139.90 9,282.60 4,380.01 4,948.21
OtherIncome...... 42.63 62.47 98.00 48.08 50.07
Total Income ...... 6,476.50 9,202.37 9,380.60 4,428.09 4,998.28
Expenses
OperatingExpenses ...... 1,549.49 2,358.73 2,215.91 1,096.32 1,135.04
RevenueSharingExpense...... 1,099.29 1,718.98 1,617.73 762.23 935.52
EmployeeBenefitsExpense...... 78.50 128.31 140.17 65.87 66.56
Depreciation andAmortization Expenses ...... 1,557.63 2,427.02 2,431.50 1,211.83 1,222.11
Foreign Exchange/Derivatives (Gain)/Loss (net) ...... (110.02) 1,406.83 2,557.12 608.59 (1,063.62)
FinanceCosts...... 1,028.72 2,061.04 2,248.12 1,115.97 714.38
Infrastructure Usage Rights Charges...... 150.00 46.90 47.03 23.52 23.52
OtherExpenses...... 156.18 242.32 250.59 126.46 132.61
Total Expenses ...... 5,509.79 10,390.13 11,508.17 5,010.78 3,166.12
Profit/(Loss) Before Tax ...... 966.71 (1,187.76) (2,127.57) (582.70) 1,832.16
Tax Expense:
CurrentTax...... 208.24 – – – 320.11
Taxchargerelatingtoearlierperiods ...... 58.63 0.05 8.85 8.85 –
DeferredTaxcharge...... 794.98 825.92 625.56 310.47 202.99
Less: Tax (Credit) under Minimum Alternate Tax (MAT). . (563.09)# (0.05) – – (320.11)
Total Tax Expenses ...... 498.76 825.92 634.41 319.32 202.99
Profit/(Loss) for the year/period ...... 467.95 (2,013.68) (2,761.98) (902.02) 1,629.17
Other Comprehensive Income
Other comprehensive income not to be reclassified to profit or loss in subsequent periods
Re-measurement gains/(losses) on defined benefit plans . . 0.21 (3.11) (2.02) (1.50) (1.10)
IncomeTaxCredit/(Charge)...... (0.07) 1.09 0.71 0.52 0.38
Total Other Comprehensive Income/(Loss) for the year/period, net of tax ...... 0.14 (2.02) (1.31) (0.98) (0.72)
Total Comprehensive Income for the period ...... 468.09 (2,015.70) (2,763.29) (902.99) 1,628.46
# Tax (Credit) under Minimum Alternate Tax (MAT) includes tax credit `354.85 million pertaining to previous years.
8 Non-GAAP Financial Measure
The followings table presents a reconciliation of profit/(loss) for the period to EBITDA for the periods indicated:
For the six months Fiscal Year ended September 30,
2018 2019 2020 2019 2020
(` inmillion) (` in million)
Profit/(loss)fortheyear/period...... 467.95 (2,013.68) (2,761.98) (902.02) 1,629.17
AdjustedforTaxExpenses...... 498.76 825.92 634.41 319.32 202.99
Less:OtherIncome ...... (42.63) (62.47) (98.00) (48.08) (50.07)
FinanceCosts...... 1,028.72 2,061.04 2,248.12 1,115.97 714.38
Foreign Exchange/Derivatives (Gain)/Loss (net) ...... (110.02) 1,406.83 2,557.12 608.59 (1,063.62)
Depreciation andAmortization Expenses ...... 1,557.63 2,427.02 2,431.50 1,211.83 1,222.11
Infrastructure Usage Rights Charges(2) ...... 150.00 46.90 47.03 23.52 23.52
EBITDA(1) ...... 3,550.41 4,691.56 5,058.20 2,329.13 2,678.48
Notes:
(1) EBITDA is not a recognized measure under Ind AS or IFRS. Our management believes that EBITDA provides investors with additional information about our performance, as well as the ability to incur and service debt and make capital expenditures, and is a measure commonly used by investors. This data, however, should not be considered in isolation or as a substitute for net income, operating income, cash flows from operations or other measures of operating performance, liquidity or ability to service debt. EBITDA does not have a standardized definition under Ind AS or IFRS, and the method of calculating EBITDA may be different from the method used by most other companies to calculate EBITDA. This non-GAAP measure should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the financial statements included elsewhere in this Offering Circular. See “Presentation of Financial and Other Information—Non- GAAP Financial Measures.” (2) “Infrastructure Usage Rights Charges” is a one-time service concession fee of USD9.6 million that the Company paid to APSEZ in connection with the Company’s right to use certain infrastructure facilities pursuant to the infrastructure facilities and port services agreement dated June 29, 2013. See “Business—Material Agreements—Infrastructure Use and Port Services Agreement”. Infrastructure Usage Rights Charges are being amortized over the period during which we have right to use the infrastructure facilities, being until February 16, 2031.
9 Summary of Cash Flows
For the six months Fiscal Year ended September 30,
2018 2019 2020 2019 2020
(` inmillion) (` in million)
A Net Cash Inflow From OperatingActivities...... 4,133.32 3,065.54 5,533.24 2,044.02 2,000.88
B Net Cash (Outflow) from Investing Activities. . . . . (11,687.60) (10,244.77) (345.08) (568.16) (1,070.36)
C Net Cash Inflow/(Outflow) from Financing Activities...... 7,635.52 6,675.34 (4,375.81) (1,201.49) (1,684.51)
Net Increase/(Decrease) in Cash & Cash Equivalents (A + B + C) ...... 81.24 (503.89) 812.35 274.37 (753.99)
Cash & Cash Equivalents at the beginning of the year/period ...... 531.15 612.39 108.50 108.50 920.85
Cash & Cash Equivalents at the end of the year/period ...... 612.39 108.50 920.85 382.87 166.86
10 SUMMARY OF THE OFFERING
The following is a summary of the terms of the Notes. For a more complete understanding of the Notes, you should read the entire Offering Circular carefully, including the “Terms and Conditions of the Notes” and “Description of the Collateral and Security Documents”, which shall prevail to the extent of any inconsistency with the terms set out in this summary. Capitalized terms used in this Summary of the Offering and not otherwise defined have the respective meanings given to such terms in the Terms and Conditions of the Notes.
Issuer ...... Adani International Container Terminal Private Limited.
Issue ...... US$300,000,000 3.00% Senior Secured Notes due 2031.
Issue Price ...... TheNotes will be issued at 100.0% of their principal amount.
Maturity Date ...... February 16, 2031.
Redemption at Maturity ...... Unless previously redeemed, or purchased and canceled, the Company will redeem each Note at its principal amount, together with accrued but unpaid interest (if any), on the Maturity Date.
Interest Rate ...... TheNotes will bear interest at the rate of 3.00% per annum from and including the Closing Date payable semi-annually in arrear on March 31 and September 30 of each year (except for the final interest payment which shall be payable on February 16, 2031).
Interest Payment Dates ...... Interest on the Notes will be payable semi-annually in arrear on each Interest Payment Date, being March 31 and September 30 in each year (except that the final Interest Payment Date shall be February 16, 2031), commencing on March 31, 2021, provided that if any Interest Payment Date falls on a day which is not a Business Day, it shall be postponed to the next following day which is a Business Day unless it would then fall into the next calendar month, in which event the Interest Payment Date shall be brought forward to the immediately preceding Business Day. For the avoidance of doubt, there will be a short first coupon in respect of the Interest Period from the Initial Issue Date to March 31, 2021. All interest payable on the Notes shall be subject to applicable laws in India, including but not limited to the ECB Guidelines.
Scheduled Amortization ...... TheNotes shall be redeemed in part in an amount equal to the applicable Amortization Amount on each Interest Payment Date on a pro rata basis. For the avoidance of doubt, interest accrued on the applicable Amortization Amount will be paid on the relevant Interest Payment Date and no Applicable Premium shall be payable in respect of the redemption of the Notes pursuant to Condition 7.5 of the Conditions.
Ranking of the Notes ...... The Notes will be direct, unconditional and unsubordinated obligations of the Company. The payment obligations of the Company in respect of the Notes shall, save for exceptions as may be provided by applicable law and subject to the covenants and undertakings set out in these Conditions, the Intercreditor Deed and the Note Trust Deed, rank (i) at least equally with all other senior secured obligations of the Company, present and future, (ii) senior in respect of all other subordinated obligations
11 of the Company, present and future and (iii) effectively senior (in respect of the value of the Security) in respect of all other unsecured obligations of the Company, present and future.
Security...... TheNotes will be secured to the extent of the Security that will be created under the Security Documents that are to be executed in accordance with Conditions 3.2.2 and 3.2.3, respectively. The Notes will rank at all times pari passu without any preference among themselves. See “Terms and Conditions of the Notes—Status and Security—Security” and “Description of the Collateral and Security Documents” for further details on the Collateral.
Intercreditor Arrangements...... The Company will enter into an Indian-law governed Intercreditor Deed which will regulate, among other things, the ranking of claims of Noteholders and other creditors against the Company and the methods by which the Noteholders and other creditors can enforce their claims. See “Description of Principal Debt Documents” for further details on the Intercreditor Deed.
Use of Proceeds...... The gross proceeds from the issue of the Notes will be US$300 million. Subject to compliance with applicable laws and regulations and as permitted by RBI under the ECB Guidelines, the Company will use the proceeds from the Notes to repay all of its existing senior indebtedness. The balance of the proceeds from the Notes, after repaying the Company’s existing senior indebtedness, will be applied towards repaying a portion of the subordinated shareholder loans availed by the Company. See “Capitalization.” Payment of fees and expenses relating to the offering will be paid from the Company’s internal resources.
Additional Tax Amounts ...... Intheevent that certain taxes are payable in respect of payments on the Notes, the Company will, subject to certain exceptions, pay such additional amounts as will result, after withholding or deduction of such taxes, in the payment of the amounts which would have been received by the Noteholders in respect of the Notes, had no such withholding or deduction been required. See “Terms and Conditions of the Notes—Taxation.”
Undertakings and Covenants...... The Company has agreed to a number of undertakings and covenants. See “Terms and Conditions of the Notes—Undertakings.”
Redemption for Taxation Reasons . . The Notes may be redeemed at the option of the Company at any time in whole or in part, on giving not less than 30 Business Days’ (as defined in the Conditions) nor more than 60 days’ notice to the Noteholders (in accordance with Condition 17 of the Conditions) and to the Note Trustee and the Principal Paying Agent in writing (which notice shall be irrevocable), at their principal amount plus interest accrued to but excluding the date fixed for redemption, if the Company satisfies the Note Trustee immediately prior to the giving of such notice that (i) on the occasion of the next payment due under the Notes, the Company has or will become obliged to pay Additional Tax Amounts (as defined in Condition 9) as provided or referred to in Condition 9 of the Conditions as a result of any change in, or amendment to, the laws, regulations or treaties of the relevant Tax Jurisdiction (as defined in Condition 9 of the Conditions), or any change in the application or official interpretation of such laws,
12 regulations or treaties, which change or amendment becomes effective on or after the Closing Date and (ii) such obligation cannot be avoided by such issuer taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which such issuer would be obliged to pay such Additional Tax Amounts were a payment in respect of the Notes then due. See Condition 7.2 of the Conditions.
The Company may be required to obtain the prior approval of the Reserve Bank of India or each of their designated authorized dealer banks, as the case may be, in accordance with the ECB Guidelines before effecting a redemption of the Notes for taxation reasons prior to the Maturity Date and such approval may not be forthcoming. The notice of redemption to Noteholders shall state that, in the Company’s sole discretion, the redemption date may be delayed until such time as such approval is received, or such redemption may not occur, and such notice may be rescinded if the relevant approval has not been received by the redemption date, or by the redemption date so delayed.
Change of Control Put Option .... Upon the occurrence of a Change of Control Triggering Event (as defined in Condition 7.3 of the Conditions), each Noteholder shall have the right to require that the Company redeem such Noteholder’s Notes at 101 per cent. of their principal amount (together with interest accrued to but excluding the date fixed for redemption). See Condition 7.3 of the Terms and Conditions of the Notes.
The Company may be required to obtain the prior approval of the Reserve Bank of India or each of their designated authorized dealer banks, as the case may be, in accordance with the ECB Guidelines before effecting a redemption of the Notes prior to the Maturity Date upon the occurrence of a Change of Control Triggering Event and such approval may not be forthcoming. The notice of redemption to Noteholders shall state that, in the Company’s sole discretion, the redemption date may be delayed until such time as such approval is received, or such redemption may not occur, and such notice may be rescinded if the relevant approval has not been received by the redemption date, or by the redemption date so delayed.
Redemption at the Option of the Early Redemption with Applicable Premium Company...... The Notes may be redeemed at the option of the Company at any time, in whole or in part, on giving not less than 30 Business Days’ nor more than 60 days’ notice to the Noteholders in accordance with Condition 17 of the Conditions and to the Note Trustee and the Principal Paying Agent in writing, at a redemption price equal to the principal amount plus the Applicable Premium applicable to the Notes (together with interest accrued to but excluding the date fixed for redemption). No Applicable Premium applies if the Notes are redeemed within 182 days of the Maturity Date. See Condition 7.4 of the Conditions.
13 Early Redemption due to Sweep Event or with Prudency Sweep Amount
Following the occurrence of a Sweep Event, the Company may apply any amount (an “Excess Amount”) in the Senior Debt Redemption Account which is in excess of the amount then held in the Senior Debt Restricted Amortization Account in or towards redemption of the Notes. During the period starting as of the date falling three years prior to the Maturity Date (the “Prudency Sweep Period”), the Company may apply any amount (a “Prudency Sweep Amount”) (a) standing to the credit of (i) the Senior Debt Redemption Account, (ii) the Senior Debt Restricted Amortization Account and (iii) the Senior Debt Restricted Reserve Account and (b) standing to the credit of the Senior Debt Service Reserve Account to the extent such amount relates to debt service in respect of the Notes if, in aggregate, those amounts are in excess of the outstanding principal amount and any interest accrued under the Notes, in redemption of the Notes. The Notes may be redeemed at the option of the Company (a) in part up to the relevant Excess Amount or (b) in whole with the Prudency Sweep Amount, at any time on giving not less than 30 nor more than 60 Business Days’ notice to the Noteholders in accordance with Condition 17 and to the Note Trustee and the Principal Paying Agent in writing, at an amount equal to their principal amount (together with interest accrued to but excluding the date fixed for redemption). No Applicable Premium applies if the Notes are redeemed pursuant to Condition 7.4.2 of the Conditions.
The Company may be required to obtain the prior approval of the Reserve Bank of India or each of their designated authorized dealer banks, as the case may be, in accordance with the ECB Guidelines before effecting a redemption of the Notes prior to the Maturity Date at the Company’s option or as a result of the occurrence of a Sweep Event and such approval may not be forthcoming. The notice of redemption to Noteholders shall state that, in the Company’s sole discretion, the redemption date may be delayed until such time as such approval is received, or such redemption may not occur, and such notice may be rescinded if the relevant approval has not been received by the redemption date, or by the redemption date so delayed.
Form and Registration of Notes . . . The Notes will upon issue be initially represented by one or more global certificates in fully registered form.
Notes which are offered and sold outside the United States in reliance on Regulation S will be represented by interests in a global certificate (the “Regulation S Global Certificate”), deposited with, and registered in the name of a nominee for the common depositary for Euroclear and Clearstream, Luxembourg on or about the Closing Date.
Notes which are offered and sold in the United States in reliance on Rule 144A will be represented by interests in a global certificate (the “Rule 144A Global Certificate” and, together with the Regulation S Global Certificate, the “Global Certificates”), deposited with a custodian for, and registered in the name of, Cede & Co., as nominee for DTC on or about the Closing Date.
14 Beneficial interests in the Global Certificates will be shown on, and transfers thereof will be effected only through, records maintained by DTC, Euroclear and Clearstream (together, the “Clearing Systems”) and their respective direct and indirect participants. Beneficial interests in the Global Certificates may not be exchanged for Notes in definitive form except in the limited circumstances described in the Global Certificates—see “Global Certificates.”
See also generally, “Clearance and Settlement” and “Subscription and Sale.”
Transfer Restrictions...... TheNotes have not been registered under the Securities Act, or the securities laws of any other jurisdiction, and may not be offered or sold within the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Notes are being offered and sold in the United States only to qualified institutional buyers (as defined in Rule 144A) in accordance with Rule 144A and outside the United States in offshore transactions in accordance with Regulation S. There are other restrictions on the offer, sale and/or transfer of the Notes in, among other jurisdictions, India, Hong Kong, Japan, Singapore and the United Kingdom. For a description of the selling restrictions on offers, sales and deliveries of the Notes, see “Subscription and Sale.”
Delivery of the Notes...... The Company expects to make delivery of the Notes against payment therefor on or about December 21, 2020, which will be on or about the fifth business day (being a business day in New York, Mumbai, Hong Kong and Singapore) following the pricing date of the Notes (this settlement cycle being referred to as “T+5”). Trades in the secondary market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Notes on the date of pricing or the next succeeding business day will be required, by virtue of the fact that the Notes initially will settle in T+5, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of the Notes who wish to trade the Notes on the date of pricing or succeeding business days should consult their own legal advisors.
Security Trustee ...... Catalyst Trusteeship Limited.
Note Trustee ...... Citicorp International Limited.
Principal Paying Agent ...... Citibank, N.A., London Branch.
Registrar...... Citibank, N.A., London Branch.
Transfer Agent ...... Citibank, N.A., London Branch.
CUSIP...... Rule 144A: 00654U AA0.
ISIN ...... Rule 144A: US00654UAA07.
15 Regulation S: XS2267100514.
Common Code ...... Rule 144A: 227069945. Regulation S: 226710051.
Ratings ...... TheNotes are expected to be rated “Baa3” by Moody’s, “BBB-” from S&P and “BBB-” by Fitch. A security rating is not a recommendation to buy, sell or hold securities insofar as such ratings do not comment as to market price or suitability for a particular investor. There is no assurance that any rating will remain in effect for a given period of time or that any rating will not be revised or withdrawn entirely by a rating agency in the future if in its judgment circumstances warrant. Ratings may be changed, withdrawn or suspended at any time. We are under no obligation to update information regarding such ratings should they change over time.
Listing ...... Approval in-principle has been obtained for the listing and quotation of the Notes on the official list of the SGX-ST. Admission of the Notes to the SGX-ST is not to be taken as an indication of the merits of the Company or the Notes. The Notes will trade on the SGX-ST in a minimum board lot size of US$200,000, so long as any of the Notes remain listed on the SGX-ST.
So long as the Notes are listed on the SGX-ST and the rules of that exchange so require, if a Global Certificate is exchanged for definitive Certificates, the Company shall appoint and maintain a paying agent in Singapore, where the Notes may be presented or surrendered for payment or redemption. In addition, if a Global Certificate is exchanged for definitive Certificates, announcement of such exchange shall be made by or on behalf of the Company through the SGX-ST and such announcement will include all material information with respect to the delivery of the definitive Certificates, including details of the Singapore agent.
Approval in-principle has been received for the listing and trading of the Notes on the India INX. The India INX has not approved or verified the contents of the listing particulars. The listing of the Notes by the Company is in compliance with the Securities and Exchange Board of India (International Financial Services Centres) Guidelines, 2015, as amended from time to time.
Governing Law ...... TheNotes, the Note Trust Deed and the Agency Agreement will be governed by the laws of England. The Intercreditor Deed, the Security Trustee Appointment Agreement, the Project Accounts Deed and the Security Documents will be governed by Indian law.
Risk Factors ...... Foradiscussion of certain factors that should be considered in evaluating an investment in the Notes, see “Risk Factors.”
16 RISK FACTORS
This Offering Circular contains forward-looking statements that involve risks and uncertainties. Prospective investors should carefully consider the risks and uncertainties described below and the information contained elsewhere in this Offering Circular before making an investment in the Notes. In making an investment decision, each investor must rely on its own examination of us and the terms of the offering of the Notes. The risks described below are not the only ones faced by us or by investments in India in general. Our business, prospects, financial condition, cash flows and results of operations could be materially and adversely affected by any of these risks. There are a number of factors, including those described below, that may adversely affect our ability to make payment on the Notes. Additional risks not currently known to us or that we currently deem immaterial may also impair our business, prospects, financial condition, cash flows and results of operations.
Risks Related to Our Business
The global outbreak of COVID-19 could adversely affect our business.
The outbreak of COVID-19 was recognized as a pandemic by the World Health Organization on March 11, 2020. In response to the outbreak, governmental authorities in various jurisdictions imposed lockdowns and other restrictions to contain the virus, and various businesses suspended or reduced operations. The Indian government imposed a nationwide lockdown on March 25, 2020, and thereafter gradually lifted the lockdown in zones. COVID-19 and policies implemented by governments to deter the spread of the virus have had, and will continue to have, an adverse effect on trading and export/import activities and the general Indian and global economic conditions that our business is subject to. While the final impact on the global economy and financial markets is still uncertain, the pandemic has resulted in severe global macroeconomic disruptions and financial market volatility.
Risks arising on account of COVID-19 can also threaten the safe operation of our facilities and transport of cargo, cause disruption in operational activities, environmental harm, loss of life and injuries and adversely impact the wellbeing of our employees. For instance, a force majeure event was announced at the Mundra Port by APSEZ in order to mitigate the risks of claims of damages from its customers. These risks could have an adverse effect on our results of operations and could negatively impact our business, cash flows, financial condition and results of operations.
Any financial difficulties of our customers could also impact our revenue. In addition to operational disruptions related to public health measures, the global macroeconomic effects of the COVID-19 pandemic and related impacts on our customers’ business operations may persist for an indefinite period, even after the COVID-19 pandemic has subsided. Due to the high volume of transshipment handling, continued business with MSC and increase in third party volumes, we have not experienced major reductions in business or lower demand. COVID-19 has had no material effect on our historical results of operations and on our financial statements for Fiscal Year 2020 and the six months ended September 30, 2020 included elsewhere in this Offering Circular. However, there may be potential adverse effects of this pandemic on our short-and medium-term business operations and we may see the impact of COVID-19 on our financial statements for subsequent periods. The Company has taken into account all known events arising from COVID-19. Upon evaluating its liquidity, recoverability and carrying value of assets, it has determined that no adjustment is required to its financial statements. However, the Company will continue to monitor any material changes to the future economic conditions. The pandemic may also adversely impact our ability to raise additional capital or require additional reductions in capital expenditures that are otherwise needed to implement our strategies. We have executed and intend to continue to execute our strategic plans and operational initiatives during the COVID-19 outbreak; however, the aforementioned uncertainties may result in delays or modifications to these plans and initiatives, which could have a material and adverse impact on our financial condition, results of operations and cash flows.
17 Due to the continuing uncertainty around the duration, breadth and severity of the COVID-19 pandemic, the actions taken to contain the virus or treat its impact, and the impact of economic stimulus measures, the complete impact of the pandemic on our business, results of operations or financial condition cannot be reasonably estimated at this time.
Our business may be affected by regional and global economic, financial and political conditions.
Our business is heavily dependent on the levels of international trade between India and the rest of the world, which ultimately depends on global economic conditions and the continued flow of trade between India and the rest of the world. We may be unfavorably impacted by adverse economic conditions, including uncertainties and instability in global market conditions. If key export markets for Indian exporters experience an economic downturn or recession, export volumes may decrease.
Adverse conditions and volatility in the global credit and financial markets, fluctuations in oil and commodity prices, the increasing geopolitical and policy risks arising from growing populist and nationalist tendencies, global political turbulence and more recently, the trade dispute between the U.S. and the People’s Republic of China, sovereign debt concerns and the general weakness of the global economy due to COVID-19 have all contributed to the increased uncertainty of global economic prospects.
In addition, the global credit markets have experienced, and may continue to experience, volatility and liquidity disruptions, which have resulted in the consolidation, failure or near-failure of a number of institutions in the banking and insurance industries. There remains a concern that the debt crisis in Europe will impinge upon the health of the global financial system. These and other related events have had a significant impact on the global credit and financial markets. The global credit crunch has adversely affected the global shipping industries, as liquidity problems in the international banking sector have reduced the availability of credit, making the financing of shipments and trade more difficult.
Decreases in imports and exports caused by these or other circumstances may adversely affect our business, financial condition, results of operations and prospects, including causing (i) decreased throughput and use of ancillary services, and (ii) a negative impact on the ability of our customers to pay us, thus reducing our cash flow. Our business activities are run entirely in India, therefore our operations, revenue, performance and future growth depend, to a large extent, on the continued growth of markets in India. A reduced demand for exports produced in India, any decrease in demand for imports due to economic downtown or limits that the GoI imposes, reduced levels of foreign and domestic investment in India and decreased consumer confidence, may result in a slowdown in growth in the markets in India. This may lead to reduced demand for our services, which could have an adverse effect on our business, financial condition and results of operations, as well as our future prospects.
Other factors impacting the performance and growth of regional and international trading economies may also affect our business, including for instance, trade restrictions or disputes, sanctions, embargoes, boycotts, exchange controls, currency fluctuations, labor strikes, weather patterns, epidemics, pandemics, terrorism, changes in seaborne and other transportation patterns, and natural disasters. Further, under the concession and sub-concession agreements, the GoI and the GoG have step-in rights in the event of an emergency or for national security reasons.
Until the GMB has executed the sub-concession agreement as a confirming party, our rights to operate the combined facilities of CT-3 and CT-3 Extension may be subject to modification or revocation.
The GMB and the GoG granted APSEZ, one of our Sponsors, the port development rights for the Mundra Port under a 30-year concession agreement dated February 17, 2001 (the “Concession Agreement”). In accordance with the Concession Agreement, APSEZ, pursuant to a sub concession agreement dated October 17, 2011 between APSEZ and the Company (the “Sub-Concession Agreement”), granted the Company sub-concession rights for the operation and maintenance of the deep water two-berth container terminal (of approximately 810 metres of quay length and 43 hectares of land) that includes a container yard and other back-up facilities (“CT-3”). The Sub-Concession Agreement is in force until February 16, 2031. For further details on the Concession Agreement and Sub-Concession Agreement, see “Our Business—Material Agreements.”
18 In accordance with the terms of the Concession Agreement, APSEZ approached the GMB, by way of a letter dated February 23, 2012, to: (a) approve the Company as a sub-concessionaire to APSEZ with respect to CT-3; and (b) transfer to the Company ownership of CT-3’s Core Assets (as defined in “Terms and Conditions of the Notes”). APSEZ also submitted a form of a sub-concession agreement to GMB for its review, and to which GMB is expected to become a confirming party.
The GMB, in its letter dated August 30, 2012, informed the Company that the GoG has approved the abovementioned requests of APSEZ, subject to the conditions that: (a) a list of assets to be transferred to the Company, including a list of contracted assets and their capital cost, be submitted to the GMB; (b) the Company obtain the necessary approvals from the GoG and the GoI prior to commencement of cargo operations, and submit copies of those approvals to the GMB; and (c) after obtaining the necessary approvals from the GoG, the sub-concession agreement will be signed between APSEZ and the Company with GMB as a confirming party thereto (the “CT-3 Sub-Concessionaire Approval”).
Subsequently, APSEZ developed an extension to CT-3 comprising a 650-meter berth (“CT-3 Extension”), pursuant to an agreement dated December 23, 2015 between APSEZ, Mundi Limited and the Company. CT-3 Extension commenced its operations on November 1, 2017. The GMB, pursuant to its letter dated March 22, 2018, granted approval to APSEZ to transfer the Core Assets to the Company, thereby approving it as sub-concessionaire vide the CT 3 Sub-Concessionaire Approval (the “CT-3 Extension Sub-Concessionaire Approval”). The CT-3 Extension Sub-Concessionaire Approval is subject, among other things, to the condition that APSEZ and the Company continue to abide by the terms of, and their respective obligations under, the Concession Agreement and the sub-concession agreement, a form of which is under consideration by the GMB and relates to both CT-3 and CT-3 Extension. The CT-3 Extension Sub-Concessionaire Approval provides that the GMB will execute, as a confirming party, the sub-concession agreement provided to GMB for its review upon receipt of relevant approvals from the GoG.
Further, through a letter to the GMB dated March 27, 2018, the Company and APSEZ have undertaken, inter alia: (a) to indemnify the GoG and the GMB for any losses resulting from delay in or rejection of approval by GoG; (b) that APSEZ shall remain liable for the transferred Core Assets until such time as the form of the sub-concession agreement provided to GMB for its review is executed by GMB as a confirming party; and (c) that, if the form of sub-concession agreement provided to GMB for its review is not executed by GMB as a confirming party or is not approved by the GoG, then the Company will restore status quo ante without holding the GoG or the GMB liable for any consequences whatsoever.
As of date of this Offering Circular, the Sub-Concession Agreement is only a bipartite agreement between APSEZ and the Company, and GMB is not a confirming party thereto. All other conditions stipulated by the GMB in the CT-3 Sub-Concessionaire Approval and the CT-3 Extension Sub-Concessionaire Approval have been satisfied by APSEZ and the Company. Once the GoG approves the form of the sub-concession agreement provided to GMB for its review, APSEZ and the Company will be required to incorporate into the Sub-Concession Agreement any conditions that the GoG imposes in its approval. We do not and cannot know, and therefore cannot provide any assurance as to, what the nature or extent of these conditions, if any, may be, including whether the GMB will impose additional conditions within the powers vested with it under the terms of the Concession Agreement. Failure to comply with any conditions imposed by the GOG or the GMB could result in the revocation of our right to operate CT-3 and CT-3 Extension. In addition, the GoG or the GMB may take any other adverse action against us or APSEZ under the terms of the Concession Agreement. The revocation of our right to operate CT-3 and CT-3 Extension would have, and any other adverse action by the GoG or the GMB could have, a material adverse effect on our business, cash flows, results of operations and prospects.
We are exposed to credit risk with respect to our customers, and our business could be adversely affected if our customers default on their obligations.
While we seek to manage our credit risk by limiting the credit period to less than 30 days and by regularly monitoring outstanding receivables, our customers may default on their obligations due to bankruptcy, as a result of the impact of COVID-19 or otherwise lack of liquidity, operational failure or other reasons. Our credit risk is increased by the fact that our major customers operate in the same shipping industry and
19 therefore may be similarly affected by changes in economic and other conditions. In addition, we may be unable to obtain reliable information regarding the financial condition of many of our customers since they are privately owned with limited publicly available information. Delayed payment, non-payment or non-performance on the part of one or more of our major customers or a number of our smaller customers, could have a material adverse effect on our business, cash flows, financial condition, results of operations and prospects.
Our business and assets are concentrated in Gujarat and may be materially and adversely affected by adverse or unfavorable events affecting Gujarat or Mundra Port.
Our business and assets are concentrated in Gujarat. As a result, our business, financial condition, results of operations and prospects may be materially and adversely affected by adverse or unfavorable events affecting Gujarat or Mundra Port. Any material adverse events, including changes in the regulatory environment, change in government development plans for Gujarat, a decrease in investor confidence in Gujarat and/or Mundra Port, political instability due to change in state government and disasters, whether natural or otherwise, may affect the development of Gujarat and Mundra Port. Due to the concentration of our business in Gujarat and Mundra Port, we may not be able to effectively manage potential losses arising from the occurrence of any of the above events, which could, therefore lead to a material and adverse effect on our business, financial condition and results of operations.
A small number of customers account for a significant portion of our business.
We are dependent on a small number of customers for a significant portion of our business. Consistent with our peers, major shipping lines contribute significantly to our business and revenue. For the six months ended September 30, 2020 and Fiscal Year 2020, our largest five customers accounted for 82.0% and 81.0% of our total revenue from operations, with income from MSC, an affiliate of one of our Sponsors, accounting for more than 60.0%, of our total revenue from operations during both these periods. We expect that a large portion of our revenue will continue to be attributable to a limited number of customers.
Our major customers are global and regional shipping companies with whom we generally enter into contracts for a duration of less than 12 months (with a prior written notice) (other than the terminal service agreement dated July 1, 2013 entered into between MSC and the Company, which is a long-term contract with rate escalation clause and will continue valid unless terminated. Our contracts typically contain provisions granting the shipping company the right to terminate the contract by giving advance notice. Certain of our contracts also require us to indemnify the customer if the container or cargo is secured or latched incorrectly, or there is some loss or damage to cargo, or if there is any loss or damage to any container vessel or equipment entrusted by the customer to the Company due to, inter alias, acts, neglect or omissions of the Company, its representatives, agents or sub-contractors. We may be required to provide performance guarantee or productivity guarantee to our customers. In addition, we may not be able to enter into contracts with another carrier or renew such contracts, unless we satisfy the stated requirements of MSC. We are also not able to enter into a contract with another carrier for a term of more than one year without the prior approval of MSC. See, for example, “Business—Material Agreements—Terminal Services Agreement.” In addition, our income may be affected by competition and a number of factors, other than our performance, that could cause the loss of a customer and that may not be predictable such as financial difficulties, bankruptcy or insolvency affecting our customers. If our customers experience pressures on their profitability, they may demand price reductions and/or other value-added services for no additional charge as a result of impact from COVID-19 pandemic or otherwise, which could reduce our profitability. Any significant reduction in or the elimination of the use of services that we provide to any of our customers, or any requirement to reduce our price or provide additional value-added services at no cost, could adversely affect our profitability. Adverse developments affecting our key customers, such as bankruptcy, change of management or mergers and acquisitions, could also adversely affect our business.
There can be no assurance that if we were to lose all or a significant portion of the business from one or more of our major customers, we would be able to obtain business from other customers in an amount sufficient to replace any such lost revenue or, that we will be able to obtain business from other customers,
20 on similar or commercially reasonable terms or at all. The loss of, significant decreases in the volumes from, or any adverse development concerning, our key customers could have an adverse effect on our business, cash flows and results of operations. If any of our major customers reduce their business with us, it may result in low capacity utilization of our resources, which could adversely affect our profitability and results of operations.
Our business is subject to operational risks such as breakdown of equipment, accidents, labor disputes and natural disasters. If any of these risks were to materialize, our business, cash flows and results of operations could be adversely affected.
The container terminal business may be adversely affected by many factors, such as the breakdown of equipment, accidents, labor disputes, natural disasters, increased government regulation, lack of qualified equipment operators and a downturn in the overall performance of the container industry.
In addition, our business relies on a number of third parties involved in activities such as hiring of equipment and vehicles, survey of ships, supply of water and the provision of transportation and evacuation services from the Terminals and contract labor. For instance, in Fiscal Year 2019, the Company ordered wire ropes which were dispatched by a third party. The driver (not an employee of the Company) delivering the wire ropes was arrested for carrying prohibited substances and the wire ropes were seized. The court released the wire ropes for the Company. The failure or inability of third parties to provide the required services correctly or efficiently, or at all, could disrupt our operations and have an adverse effect on our business, cash flows and results of operations.
Upgrading or renovation works or physical damage to the Terminals may disrupt our operations and require capital expenditure beyond our current estimates.
The Terminals may require upgrading or renovation from time to time to retain their competitiveness and may also require unforeseen ad hoc maintenance or repairs in respect of faults or problems that may develop or due to new laws or regulations. The Terminals may suffer some disruptions and it may not be possible to continue operations in areas affected by such upgrading or renovation works, which in turn may result in unforeseen costs which may have an adverse effect on our business, cash flows and results of operations.
We operate in a capital-intensive industry that requires substantial amounts of capital and other long-term expenditure. The Terminals may require upgrading or renovation from time to time to retain their competitiveness, which may require periodic capital expenditures beyond our current estimates. We may not be able to obtain additional equity or debt financing, on favorable terms, or at all. If we are unable to obtain such funding, we may be unable to upgrade or renovate the Terminals to retain their competitiveness and as a consequence fail to retain our customers, which in turn could have a material adverse effect on our business, financial condition, results of operations and prospects.
Our business and facilities may be adversely affected by severe weather conditions and natural disasters.
Severe weather conditions, resulting in conditions such as dense fog, low visibility, heavy rains, wind and waves, may force us to temporarily suspend operations at the Terminals. In some cases, we may temporarily suspend operations based on warnings from local and national meteorological departments. If weather conditions of any type were to force the Terminals to close for an extended period of time, our business may be adversely affected. For example, we voluntarily suspended operations at our Terminals for approximately 36 hours due to cyclone Vayu in June 2019; however, no damage was caused. In addition, any weather condition, including but not limited to, severe monsoons and flooding, that affects ports that serve as starting points or final destinations for shipping lines could harm our business.
Our operational facilities may be damaged in natural disasters such as earthquakes, tsunamis, tornados, hurricanes and cyclones. Such natural disasters in India, may lead to a disruption of transportation networks, information systems and telephone service for sustained periods of time. Damage or destruction that interrupts our business operations may cause us to incur substantial additional expenses to repair or
21 replace damaged facilities or equipment. We may also be liable to our customers for disruption in our operations resulting from such damage or destruction. While we currently have commercial liability insurance, our insurance coverage may not be sufficient. Furthermore, we may not be able to secure any additional insurance coverage on commercially reasonable terms or at all. Prolonged disruption of our operations as a result of natural disasters may also entitle our customers to terminate their contracts with us, which may have an adverse effect on our business, cash flows and results of operations.
Our senior management team and other key personnel are critical to our continued success and the loss of, or the inability to attract and retain, such personnel in the future could adversely affect our business, cash flows and results of operations.
Our future success substantially depends on the continued service and performance of the members of our senior management team and other key personnel in our business for the management and running of our daily operations and the planning and execution of our business strategy.
There is intense competition for experienced senior management and other key personnel with technical and industry expertise in the container terminal business and, if we lose the services of any of our senior management and other key personnel or other key individuals and are unable to find suitable replacements in a timely manner, our ability to realize our strategic objectives could be impaired. The loss of key members of our senior management or other key team members, particularly to competitors, could have an adverse effect on our business, cash flows and results of operations.
Our performance also depends on our ability to attract and train highly skilled personnel. We are subject to laws and regulations governing relationships with employees, in areas such as minimum wage and maximum working hours, overtime, working conditions, hiring and terminating of employees and work permits. Any shortage of skilled personnel or work stoppages caused by disagreements with employees could have an adverse effect on our business, cash flows and results of operations.
We may handle goods that are hazardous, which could result in environmental damage.
Certain of our customers are involved in the transportation of hazardous materials, such as chemicals. The transportation of these hazardous materials is subject to the risk of leaks and spills, causing environmental damage. Our business also requires individuals to work with potentially hazardous materials, which may be volatile and often highly flammable. If improperly handled or subjected to unsuitable conditions, such materials could impair the operations at our ports. This could lead to disruptions in our business and expose us to legal and regulatory costs and liabilities, which could adversely affect our results of operations and reputation.
Further, customers may ship undeclared hazardous cargo to avoid additional surcharge. Regulations also generally restrict the handling and storage of certain amounts of specified hazardous chemicals, some of which are handled and stored at the Terminals. For details on the governing regulations, see section “Regulations and Policies.” Although we believe that the Terminals do not handle or store these hazardous chemicals in quantities above the specified limits, there can be no assurance that we will not in the future inadvertently violate applicable environmental regulations. Violations of environmental regulations may subject us to fine and penalties or result in the closure or temporary suspension of our operations. If we are found to have violated environmental regulations because of the cargo handled and stored or are required to discontinue handling such cargo, or to close or suspend our operations, our business, financial condition, results of operations and prospects could be materially adversely affected.
We operate in a competitive environment and, if we are not able to compete effectively, our business, cash flows and results of operations may be adversely affected.
We compete primarily against other container terminals located within the Mundra Port and at other Non-Major Ports and Major Ports that cater to the hinterlands of north, west and central India. Competition is based on factors such as characteristics and location of the ports, including capacity, congestion, ability
22 to berth large vessels, proximity and connectivity to inland cargo centers. Some of these container terminals and ports have significant financial resources, marketing and other capabilities. Some of our domestic competitors may have extensive local knowledge and business relationships and a longer operational track record in selected areas of the domestic market than us. As a result, there can be no assurance that we will be able to compete successfully in the future against our existing or potential competitors or that our business and results of operations will not be adversely affected by increased competition.
Competition may increase as a result of the development of new container terminals and new ports in India. In addition, container terminal operator companies from other countries that establish operations in India may compete with us, particularly if they are more efficient and have lower costs. Current and future competitors may also introduce new and more competitive container terminal services, make strategic acquisitions or establish cooperative relationships among themselves or with third parties, thereby increasing their ability to address the needs of our target customers. We cannot assure you that we will be able to retain our customers as a result of increased competition. If we lose customers as a result of competition, our market share will decline. If we cannot compete effectively in providing services or expand into new markets, this could have an adverse effect on our business, cash flows and results of operations. Similarly, we may face competition from a number of international and domestic port-based logistics service providers. Some of our competitors may have significantly greater financial and marketing resources and operate larger networks than we do. If we cannot maintain, or gain, sufficient market presence or are unable to differentiate ourselves from our competitors, we may not be able to compete effectively. Further, if we cannot maintain cost competitiveness, including as a result of choosing to expand and incurring excessive fixed costs or experiencing a disproportionate increase in costs in comparison to our competitors, our customers could choose to use services of our competitors.
Changes in technology may render our current technologies obsolete or require us to make substantial capital investments.
Our business is dependent on technology. See “Our Business—Information Technology.” To maintain the competitiveness of our business, we need to keep pace with technological developments and changing standards. If we are unable to adequately respond to technological changes and the technologies currently employed by us become obsolete, our business, financial condition, cash flow and results of operations may be materially and adversely affected. In addition, the cost of implementing new technologies and upgrading our facilities to keep pace with technological developments may be significant and may adversely affect our results of operations.
Technology and automation implementation for our business may not result in the expected efficiencies and benefits we anticipate, which could adversely affect our operations and financial condition. Further, technology is susceptible to outages and technical vulnerabilities, which may result in us incurring additional expenses from time to time. The technology implemented by us is developed by third-party vendors, on whom we rely for the maintenance of our technology, which may result in us incurring additional costs in carrying out such maintenance from time to time.
In response to the COVID-19 pandemic and in compliance with guidance from public health officials and state and local governments, many of our employees are working from home or remotely, increasing our dependence on our information technology systems and third-party providers. If our information technology and communications systems experience reliability issues, integration or compatibility concerns or if our third-party providers are unable to perform effectively or experience disruptions or failures, there could be an adverse impact on the availability and functioning of our information technology and communications systems, which could lead to business disruption or inefficiencies, reputational harm or loss of customers that could have an adverse impact on our business, results of operations or financial condition. Further, while our maintenance costs typically account for a small portion of our expenses, we may experience significant costs in the event that large-scale maintenance of our technology is required.
23 We are also subject to hacking or other breaches of our IT systems. If we fail to meet our customers’ technological demands or to protect against technological disruptions of our operations or operations of our customers could materially and adversely affect our business, financial condition and results of operations.
We may not have adequate insurance to cover all losses we may incur in our business operations or otherwise.
Container terminal business carries inherent risks of personal injury and loss of life, damage to or destruction of property, plant and equipment and damage to the environment, and are subject to risks such as fire, theft, flood, earthquakes and terrorism. We maintain insurance coverage in such amounts and against such risks which we believe are in accordance with industry practice. However, such insurance may not be adequate to cover all losses or liabilities that may arise from our operations, including when the loss suffered is not easily quantifiable and in the event of severe damage to our reputation.
We may not be able to maintain insurance of the types or at levels which we deem necessary or adequate or at rates which we consider reasonable. The occurrence of an event for which we are not adequately or sufficiently insured or the successful assertion of one or more large claims against us that exceed available insurance coverage, or changes in our insurance policies (including premium increases or the imposition of large deductible or co-insurance requirements), could have an adverse effect on our reputation, business and results of operations. We don’t have any pending insurance claims however we cannot assure you that any claim that arises under the insurance policies will be honored fully or on time. Any payments we make to cover any losses, damages or liabilities or any delays we experience in receiving appropriate payments from our insurers could have an adverse effect on our business, financial condition, cash flows and results of operations.
We derive substantial benefits from our Sponsors, and a loss or reduction in the level of support could adversely affect our business, financial condition and results of operations.
Pursuant to the terminal services agreement we signed with MSC effective from July 1, 2013, MSC (ultimate parent company of Mundi Limited) is our single largest customer, both in terms of throughput volume and revenue. Of our revenue from operations for Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2019 and September 30, 2020, MSC (ultimate parent company of Mundi Limited) accounted for 71.6%, 62.2%, 65.8%, 67.7% and 69.5%, respectively. During the same periods, MSC accounted for 72.1%, 62.4%, 72.8%, 74.9% and 69.5% of our total throughput.
We are also significantly reliant on APSEZ for infrastructure and various port related services, which are essential for our operations. For instance, we entered into the Infrastructure Use and Port Services Agreements for the CT-3 and CT-3 Extension, pursuant to which we are entitled to (i) use various marine facilities developed by APSEZ, including basins, breakwaters (structures used to protect the Terminals from erosion due to water waves), entrance channels (which connect shipping lanes with the Mundra Port), and turning circle which enable vessels to manoeuvre vessels to execute a 360 degree turn), (ii) use roads within the Mundra Port which are required for our operations, (iii) customs infrastructure facilities, (iv) water, electricity, telecommunication facilities and fuel from APSEZ at competitive prices, which shall in no case be higher than regulated or market rates/tariffs (as applicable), (v) access to facilities for solid waste management, sewage treatment and rain water harvesting/storm water drains, (vi) access to rail connectivity within Mundra Port, (vii) access to various port services such as port security, among others. APSEZ is also responsible for maintenance of the utilities corridor and also provides marine and port facilities. Access to the infrastructure and services is essential for our operations and we believe we are able to derive these benefits at competitive prices. See “Our Business—Material Agreements” for details.
24 Our Sponsors have supported us through their global customer network, sharing of operational know-how, industry best practices and innovations and enterprise risk management. APSEZ also provides experienced personal resources for the operations of the Terminals and supports us in adopting best governance practices in India. TiL leverages its experience and knowledge gained from its extensive global portfolio of terminals to support us in adopting best practices across financial, commercial and operational matters.
In the event that either of our Sponsors ceases to hold a significant stake in the Company, it is likely that we would no longer benefit from the expertise and relationships of our Sponsors, which may have a material adverse effect on the business, financial condition and results of operation of the Company. Further, cooperation and agreement between our Sponsors are important factors for the smooth operation and financial success of the Company. Although we have good relations with our Sponsors and have not experienced any significant disputes with or among our Sponsors, we cannot assure you that disputes among our Sponsors will not arise in the future, which in turn could have a material adverse effect on our business, prospects, financial condition and results of operations. We are also required to indemnify one of our Sponsors, APSEZ against losses, claims, costs and demands under the Sub-Concession Agreement and other ancillary agreements for the operation of the Terminals, including in respect of the utility charges under the Infrastructure Use and Port Services Agreement. Our Sponsors may also have economic or business interests that are inconsistent with one another or with our interests.
We may plan to avail various financing options, which may have terms that restrict our operations and require us to obtain consents from the lenders to undertake certain transactions.
We will use the proceeds from the Notes to repay our existing indebtedness (including a part of our subordinated shareholder loans). See “Use of Proceeds.” Subject to the terms of the Notes, we may further enter into financing agreements that contain certain restrictive covenants, events of default and notice provisions that limit our ability to undertake certain types of transactions. Such covenants may include restrictions on creating security over our existing and future assets, incurring additional indebtedness or undertaking any guarantee obligations, making certain restricted payments, investing in equity interests or purchasing assets, other than in ordinary course of our business, unless certain conditions are satisfied, selling or disposing assets, materially altering our capital structure, management or constitution, changing our scope of business or expanding our existing business and entering into certain corporate transactions such as reorganizations, amalgamations and mergers. These agreements may require us to maintain certain financial ratios such as debt service coverage ratios and disclose, from time to time, all our material business transactions to the lenders and obtain consents from lenders for certain actions, including effecting any changes in our capital structure or shareholding pattern. If we fail to meet our debt service obligations on time or breach covenants under future financing agreements, or fail to receive approvals from lenders to undertake certain transactions, such lenders could (subject to the terms of the Intercreditor Deed) declare us to be in default under the terms of such agreements, accelerate the maturity of our obligations or take over other security made available to such lenders. Furthermore, certain of such future financing arrangements may contain cross-default or cross-acceleration provisions, which could automatically trigger defaults under our other financing arrangements. We may be forced to sell some or all of our assets if we do not have sufficient cash or credit facilities to make repayments.
For instance, in Fiscal Year 2019, an event of default had occurred under our facility agreement dated July 26, 2018 with Citicorp International Limited, as the facility agent and Citibank N.A., Jersey Branch, DBS Bank Ltd., and Intesa Sanpaolo S.p.A., Hong Kong Branch, as the original lenders due to non-delivery of required documents within the applicable time frame and due to failure to deposit relevant amounts in a specified account, settle costs and expenses from that account as well as close certain bank accounts within a specified time frame. This event of default was waived by the facility agent subject to certain conditions, which the Company satisfied. Subject to the terms of the Notes, some of our borrowings may be secured against all or a portion of our assets and relevant creditors may be able to sell those assets to enforce their claims for repayment (whichever applicable, in accordance with the Intercreditor Deed). Our failure to meet our obligations under such debt financing agreements or inability to undertake transactions due to the lenders’ not providing the requisite consent under such financing agreements could have an adverse effect on our business, cash flows and results of operations.
25 We are currently taking advantage of certain benefits and exemptions under the Income-tax Act, which are subject to the policies and decisions of government authorities.
We currently claim benefits of tax incentives under section 80 IA of the Income-tax Act. We believe that we are entitled to the tax benefits under section 80 IA of the Income-tax Act on our entire income. The Central Board of Direct Taxes could have a contrary view in terms of the availability of tax benefits to us in respect of certain forms of income. Any ruling by the tax authorities to the contrary could have an adverse effect on our business, cash flows and results of operations.
Additionally, we have continuously paid MAT and hence, are eligible for MAT credit for the coming years, which would be available for set off up to 15 years. We intend to utilize the entire MAT credit within the prescribed time period so that no MAT credit lapses. Therefore, there may not be a material increase in the tax liability until such time as we are able to set off our tax liability against available MAT credit. However, when such MAT credit expires or when the entire MAT credit is utilized, our tax expense could materially increase, thereby reducing our profitability. Further, there can be no assurance that we will be entitled to similar or other tax incentives in the future. When such tax incentives expire, our tax expense could materially increase, thereby reducing our profitability.
Claims made against us and/or our directors and Sponsors and other members of the Sponsor group from time to time can result in litigation or regulatory proceedings which could result in liability or harm our reputation.
From time to time, we and/or our directors and management may be involved in litigation, claims and other proceedings relating to the conduct of our business, including environmental claims, non-compliance with provisions of our various licenses, tax disputes, and proceedings involving the securities dealings of our directors. Any claims could result in litigation against us and could also result in regulatory proceedings being brought against us by various Government and state agencies that regulate our business, including the Ministry of Environment, Forest and Climate Change, the Gujarat pollution control board, the Gujarat Marine Control Board, the Ministry of Commerce, Directorate of Revenue Intelligence, the Serious Fraud Investigation Office and the Ministry of Home Affairs. Often these cases raise complex factual and legal issues, which are subject to risks and uncertainties and which could require significant time from our directors and/or our management. Litigation and other claims and regulatory proceedings against us or our management could result in unexpected expenses and liability and could also materially adversely affect our operations and our reputation. For further details, see “Our Business—Legal Proceedings.”
In addition, our Sponsors and other members of the Sponsor group, from time to time are involved in litigation, claims and other proceedings relating to the conduct of their businesses, including environmental claims, proceedings relating to abuse of market position, tax disputes and proceedings involving securities dealings. Any claims could result in litigation and/or regulatory proceedings against our Sponsors and other members of the Sponsor group, could harm our reputation and ultimately materially adversely affect our operations.
We rely on security procedures at other facilities or by our customers, which are outside our control.
We inspect the physical condition of container cargo that enters the Terminals in accordance with our own practice and the inspection procedures prescribed by, and under the authority of, the relevant regulations. We also rely on the security procedures carried out by our customers on their containers, to supplement our own inspection to varying degrees.
However, there can be no assurance that the cargo that passes through or is received at the Terminals will not be adversely affected by breaches in security or acts of terrorism, either directly or indirectly, in other areas of the supply chain, which would have an adverse effect on our operations. A security breach or act
26 of terrorism that occurs at the Terminals, or at another port facility that has handled cargo prior to the cargo arriving at the Terminals, could subject us to significant liability, including the risk of litigation and loss of goodwill.
We have a substantial amount of outstanding borrowings, which requires significant cash flows to service, and limits our ability to operate freely.
As of September 30, 2020, our total borrowings outstanding were `30,478.54 million of which term loan from banks and financial institutions were `18,459.17 million and inter-corporate deposits from the Joint Venture partners were `12,019.37 million. Subject to compliance with applicable laws and regulations and as permitted by RBI under the ECB Guidelines, we intend to use the proceeds from the Notes to repay all of our existing senior indebtedness. The balance of the proceeds from the Notes, after repaying our existing senior indebtedness, will be applied towards repaying a portion of the subordinated shareholder loans availed by us. For further details of our debt, see “Description of Material Indebtedness” and “Use of Proceeds.” However, we intend to finance the majority of the cost of any future capital expenditures and any future acquisitions through operational cash flow generation and debt and therefore may incur additional borrowings in the future. Our ability to meet our debt service obligations and repay our outstanding borrowings will depend primarily on the cash generated by our business. Increasing our level of indebtedness also has important consequences to us such as:
• increasing our vulnerability to general adverse economic, industry and competitive conditions;
• limiting our flexibility in planning for, or reacting to, changes in our business and the industry;
• limiting our ability to borrow additional funds; and
• increasing our interest expenditure.
We cannot assure you that we will generate sufficient cash to service existing or proposed borrowings or fund other liquidity needs, which could have an adverse effect on our business, cash flows and results of operations.
Our operations are subject to extensive environmental and other related regulations and policies.
Our business and operations are subject to various environmental risks such as disposal of hazardous waste and chemicals. We, like other terminal operators in India, are subject to various central, state and local environmental, health and safety laws and regulations concerning issues such as damage caused by air emissions, wastewater discharges, solid and hazardous waste handling and disposal. These laws, rules and regulations also prescribe the punishments for any violations. While we believe that our facilities are in compliance in all material respects with applicable environmental laws and regulations and we have obtained the requisite permissions and clearances in this regard, we may incur additional costs and liabilities in relation to compliance with these laws and regulations or any remedial measures in relation thereto.
If any of these disputes is decided against us, we may be subject to fines and other penalties, including suspension of our operations, cancelation of our approvals and undertaking remedial procedures. Any such additional costs or liabilities could have an adverse effect on our business, financial condition, cash flow and results of operations. Moreover, the laws and regulations under which we operate are subject to change and any change to these laws and regulations could adversely affect our business, cash flows and results of operations.
Moreover, the laws and regulations under which we operate are subject to change and any change to these laws and regulations could adversely affect our business, cash flows and results of operations. For example, the GoI introduced the Indian Ports Bill in the Indian Parliament to consolidate the Indian Ports Act and the Major Ports Act into a single piece of legislation that would be applicable to Major Ports as well as Non-Major Ports, whether public or private. The Indian Ports Bill contains enhanced penalties and
27 fines compared to those specified in the Indian Ports Act. Even though the Indian Ports Bill lapsed in the Indian Parliament, if it is reintroduced and subsequently enacted into law, and if we are found to be in violation of the provisions of the enacted legislation, certain penalties or terms of imprisonment may be imposed thereunder, which could adversely affect our business, cash flows and results of operations.
The Major Port Authorities Bill, 2020 seeks to replace the Major Ports Act, 1963 and proposes to create a “Board of Port Authority” that will be empowered to determine port tariffs for Major Ports including services offered by the private sector companies at such Major Ports. Currently, the Major Port tariff is fixed by the Tariff Authority for Major Ports (“TAMP”). If the Major Port Authorities Bill, 2020 is reintroduced and subsequently enacted, the Board of Port Authority would be empowered to set tariff rates for services in Major Ports that are significantly different from the prevailing guidelines issued by TAMP, which may adversely affect our business, cash flows and results of operations.
We have entered into related party transactions and will continue to do so in the future.
We have entered into transactions with other Adani Group companies and MSC in the ordinary course of our business. Our revenue from operations for Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2019 and the six months ended September 30, 2020, MSC (ultimate parent company of Mundi Limited) accounted for 71.6%, 62.2%, 65.8%, 67.7% and 69.5%, respectively. Trade receivables from MSC (ultimate parent company of Mundi Limited) were `155.64 million as of September 30, 2020. For further details of our significant related party transactions in the previous three Fiscal Years, please see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Related Party Transaction.”
While we believe that all such transactions have been conducted on an arm’s length basis, there can be no assurance that we could not have achieved more favorable terms had such transactions not been entered into with third parties. It is likely that we will enter into related party transactions, in the ordinary course of our business, in the future and we cannot assure you that such transactions, individually or in the aggregate, will not have an adverse effect on our business, cash flows, results of operations or on our expected ratings.
We do not own the “adani” trademark, name or logo and our ability to use the trademark, name or logo may be impaired.
The “adani” trademark, name and logo do not belong to us. The S.B. Adani Family Trust, a member of our Promoter Group, has applied for the “adani” trademark, which is pending with the trademark registry. We do not have a formal agreement with, or pay, the S.B. Adani Family Trust for the use of the “adani” trademark, name or logo. If the S.B. Adani Family Trust withdraws the “adani” trademark or if its application for the “adani” trademark is rejected, we will not be able to use the “adani” trademark, name or logo in connection with our business and, consequently, we may be unable to capitalize on the brand recognition associated with the “adani” trademark.
Further, we cannot assure you that the “adani” trademark, name or logo will not be adversely affected in the future by events such as actions that are beyond our control, including action or inaction of other entities using the “adani” trademark, name or logo, regulatory actions against such companies or adverse publicity from any other source. Any damage to this trademark, name or logo, if not immediately and sufficiently remedied, could have an adverse effect on our financial condition, cash flows and results of operations.
If we are unable to obtain required approvals and licenses or renewals thereof in a timely manner, our business and operations may be adversely affected.
We require certain approvals (including environmental approvals), licenses, registrations and permissions for operating our business and we may need to apply for further approvals in the future including for the expansion of our facilities or for renewal of approvals that may expire from time to time. There can be no assurance that the relevant authorities will issue such permits or approvals in the timeframe anticipated by us or at all. If we cannot obtain the approval within the anticipated timeframe, it could have an adverse effect on our business, financial condition, cash flow and results of operations. Further, we cannot assure that the approvals, licenses, registrations and permits issued to us would not impose onerous requirements
28 and conditions on our operations or would not be suspended or revoked in the event of non-compliance or alleged non-compliance with any terms or conditions thereof, or pursuant to any regulatory action. Failure by us to renew, maintain or obtain, or any suspension or revocation of, the required permits or approvals at the requisite time may result in stringent restrictions or interruption in all or some of our operations and may have an adverse effect on our business, financial condition, cash flow and results of operations.
Our inability to effectively manage our growth or to successfully implement our business plan and growth strategy could have an adverse effect on our business, cash flows and results of operations.
We have experienced considerable operational and financial growth in recent years, and we have significantly expanded our operations and services. We cannot assure you that our growth strategy will continue to be successful or that we will be able to continue to expand further or diversify our business further. Our inability to maintain our utilization rates or manage our expansion effectively and execute our growth strategy could have an adverse effect on our business, cash flows and results of operations. We intend to continue expansion to pursue existing and potential market opportunities. Our future prospects will depend on our ability to grow our business and operations in India. The development of such future business could be adversely affected by many factors, including general political and economic conditions in India, government policies or strategies in respect of specific industries, prevailing interest rates, price of equipment and construction materials, fuel supply and currency exchange rates.
Third party statistical and financial data in this Offering Circular may be incomplete or unreliable.
Information regarding market position, growth rates and other industry data pertaining to our businesses contained in this Offering Circular consists of estimates based on data reports compiled by professional organizations and analysts, data from other external sources and our knowledge of the markets in which we compete. The statistical information included in this Offering Circular relating to the container industry has been reproduced from various trade, industry and government publications and websites, including the Drewry Reports. Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information is not guaranteed. In addition, the forward-looking statements and forecasts in the Drewry Reports which have been reproduced in this Offering Circular are based on key assumptions concerning the future and other key sources of estimates or uncertainty at the date on which they were prepared which may require material adjustments to such statements and forecasts should the underlying assumptions prove to be incorrect or incomplete. The accuracy and completeness of the underlying assumptions are not guaranteed by us or Drewry. Drewry Maritime Series Private Limited will not accept any liability for any errors contained in the Drewry Reports. 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 analyses and estimates, so we rely on internally developed estimates. Neither we nor the Joint Bookrunners, any of their respective affiliates, the Notes Trustee or the Agents have independently verified data obtained from industry publications and other sources referred to in this Offering Circular and, therefore, while we believe them to be true, we cannot assure you that they are complete or reliable. Such data may also be produced on different bases from those used in other industry publications. Therefore, discussions of matters relating to India, its economy and the industries in which we currently operate in this Offering Circular are subject to the caveat that the statistical and other external data upon which such discussions are based may be incomplete or unreliable. 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 we rely on internally developed estimates. Similarly, while we believe our internal estimates to be reasonable, such estimates have not been verified by any independent sources and we cannot assure potential investors as to their accuracy.
29 Risks Related to India
Our growth is dependent on the factors affecting the Indian economy.
The performance and the growth of our business is dependent on the performance of the Indian economy which, in turn, depends on various factors. The Indian economy has been affected by global economic uncertainties, volatility in interest rates, currency exchange rates, commodity and electricity prices, adverse conditions affecting agriculture and various other factors. The Indian economy is undergoing many changes and it is difficult to predict the impact of certain fundamental economic changes upon the Indian economy and, consequently, our business.
Conditions outside India, such as a slowdown or recession in the economic growth of other major countries, especially the United States, have an impact on the growth of the Indian economy, and the GoI’s policy may change in response to such conditions. See “—Risks Related to India—Financial instability in other countries may cause increased volatility in Indian financial markets.” While recently the GoI have been encouraging private participation in the industrial sector, any adverse change in policy could result in a further slowdown of the Indian economy. In addition, these policies will need continued support from stable regulatory regimes that stimulate and encourage the investment of private capital into industrial development. Additionally, an increase in trade deficit, a downgrading in India’s sovereign debt rating or a decline in India’s foreign exchange reserves could negatively impact interest rates and liquidity, which could adversely impact the Indian economy and our business. Any downturn in the macroeconomic environment in India could materially and adversely affect the market price of the Notes and our business, financial condition, cash flows and results of operations.
A decline in India’s foreign exchange reserves may adversely affect liquidity and interest rates in the Indian economy, which could have an adverse impact on us. A rapid decrease in reserves would also create a risk of higher interest rates and a consequent slowdown in growth.
India’s foreign exchange reserves stood at US$560.53 billion as at October 23, 2020. Flows to foreign exchange reserves can be volatile, and past declines may have adversely affected the valuation of the Rupee. There can be no assurance that India’s foreign exchange reserves will not decrease again in the future. Further decline in foreign exchange reserves, as well as other factors, could adversely affect the valuation of the Rupee and could result in reduced liquidity and higher interest rates that could adversely affect our business, financial condition and results of operations.
Political instability or significant changes in the economic liberalization and deregulation policies of the GoI or in the states where we operate could disrupt our business.
The Company is incorporated in India and we derive a material portion of our revenue from India. In addition, all of our assets are located in India. Consequently, the performance and liquidity of the Notes may be adversely affected by changes in exchange rates and controls, interest rates, government policies, taxation, social and ethnic instability and other political and economic developments affecting India.
The GoI has traditionally exercised and continues to exercise significant influence over many aspects of the Indian economy. Our businesses, and the market price and liquidity of the Notes may be adversely affected by changes in exchange rates and controls, interest rates, government policies, taxation, social and ethnic instability and other political and economic developments in or affecting India. India has been following a course of economic liberalization and our businesses could be significantly influenced by economic policies followed by the GoI, including fiscal and economic policy, industrial policy, direct and indirect taxes and foreign trade policy. In particular, changes to the foreign trade policies of India could significantly impact the volumes of cargo we handle at the Terminals. Further, our businesses are also impacted by regulation and conditions in the various states in India where we operate. Adverse trade policies implemented by other countries due to the COVID-19 pandemic might adversely affect the volume of cargo at the Terminals, and accordingly, adversely affect our business and results of operations. However, we cannot assure Noteholders that such policies will continue in the future. GoI corruption, scandals and protests against certain economic reforms, which have occurred in the past, could slow the pace of liberalization and deregulation. The rate of economic liberalization could change, and specific
30 laws and policies affecting foreign investment, currency exchange rates and other matters affecting investment in India could change as well. A significant change in India’s economic liberalization and deregulation policies, in particular, those relating to the business in which we operate, could disrupt business and economic conditions in India generally and our business in particular.
Changing laws, rules and regulations and legal uncertainties may adversely affect our business and financial performance.
Our business and operations are governed by various laws and regulations. Our business and financial performance could be adversely affected by any change in laws or interpretations of existing, or the promulgation of new, laws, rules and regulations applicable to the business. For instance, the GoI introduced the Goods and Services Tax (“GST”) regime, with effect from July 1, 2017. GST subsumed most of the indirect taxes such as service tax, value added tax/central sales tax, entry tax and excise duty, previously levied by the central or state governments, into a unified system of indirect taxation.
In India, transactions in securities are outside the purview of GST legislations. Under the Integrated GST Act, any supply of goods or services or both to a SEZ or a SEZ unit shall be treated as zero rated supply. The Ministry of Commerce of the GoI introduced amendments in the SEZ policy, in view of aligning the same with the GST legislations. Further, the General Anti-Avoidance Rules (“GAAR”) have come into effect from April 1, 2017. Under the GAAR regime, the tax authorities are empowered to deny tax benefits to transactions or arrangements which do not inter alia have any commercial substance, other than achieving the tax benefits. The consequences of the GAAR provisions being applied to a transaction could result in disregarding the entire transaction or a part of the said transaction so as to deny the tax benefit amongst other consequences. In the absence of any precedents on the subject, the application of these provisions is uncertain. If we enter into any transaction to which GAAR provisions are applicable, it may have an adverse tax impact on us.
Further, the Finance Act, 2019 (the “Finance Act”) was subject to various amendments. The Finance Act stipulates the sale, transfer and issue of securities through exchanges, depositories or otherwise to be charged with stamp duty. The Finance Act also clarified that, in the absence of a specific provision under an agreement, the liability to pay stamp duty in case of sale of securities through stock exchanges will be on the buyer, while in other cases of transfer for consideration through a depository, the onus will be on the transferor. Further, in case of change in records maintained with the depository as a result of issue of securities, stamp duty will be paid by the issuer. The stamp duty for transfer of securities other than debentures, on a delivery basis is specified at 0.015% and on a non-delivery basis is specified at 0.003% of the consideration amount.
The GoI has also amended its tax residency rules with effect from April 1, 2017. Previously, a foreign company could be a tax resident of India only if its control and management was situated wholly in India. Under the amended rules, a company will be treated as tax resident of India if (i) it is an Indian company; or (ii) its place of effective management (“POEM”) is in India. POEM is defined in the Income-tax Act, to mean a place where key management and commercial decisions that are necessary for the conduct of the business of an entity as a whole are, in substance, made. The GoI also issued the final guidelines for determining the POEM of a company on January 24, 2017. The applicability of the amended rules and our treatment outside India under such rules is uncertain and may have a material adverse effect on our business, financial condition, cash flows and results of operations.
There can be no assurance that the GoI or state governments will not implement further new regulations and policies, which will require us to obtain approvals and licenses from the GoI, state government or other regulatory bodies or impose onerous requirements and conditions on our operations. Any such changes and related uncertainties with respect to the implementation of the new regulations may have a material adverse effect on our business, financial condition, cash flows and results of operations.
31 If regional hostilities, terrorist attacks or social unrest in India increase, our business could be adversely affected and the trading price of the Notes could decrease.
India has from time to time experienced instances of social, religious and civil unrest and hostilities with neighboring countries. Military activity or terrorist attacks in the future could adversely impact the Indian economy by disrupting communications and making travel more difficult, and such tensions could create a greater perception that investments in Indian companies involve higher degrees of risk. Events of this nature in the future, as well as social and civil unrest within other countries in Asia, could adversely impact the Indian economy and our revenue, operating results and cash flows. For example, the recent unrest on the Indo-China border led to retaliation by India and escalated hostilities between India and China. Further, India has also experienced social unrest in some parts of the country. The impact of these events on the volatility of global financial markets could increase the volatility of the market price of the Notes.
Natural disasters, outbreaks of contagious diseases such as COVID-19 and other disruptions could have a negative impact on the Indian economy and cause business to suffer.
Natural disasters such as floods, earthquakes or famines have in the past had a negative impact on the Indian economy. Potential effects may include damage to infrastructure and loss of business continuity and business information. In the event that our facilities are affected by any of these factors, our operations may be significantly interrupted, which may materially and adversely affect our business, financial condition, results of operations, cash flows and prospects. Although we have insurance coverage to mitigate the effects of such risks, the occurrence of any such events may nonetheless materially and adversely affect our business.
A number of countries in Asia, including India, as well as countries in other parts of the world, are susceptible to contagious diseases and, for example, have had confirmed cases of diseases such as the highly pathogenic H7N9, H5N1 and H1N1 strains of influenza in birds and swine and more recently, the COVID-19 virus. Certain countries in Southeast Asia have reported cases of bird-to-human transmission of avian and swine influenza, resulting in numerous human deaths. The World Health Organization and other agencies have recently issued warnings on the COVID-19 virus and on a potential avian or swine influenza pandemic if there is sustained human-to-human transmission. A worsening of the current outbreak of COVID-19 virus or future outbreaks of COVID-19 virus, avian or swine influenza or a similar contagious disease could adversely affect the Indian economy and economic activity in the region. As a result, any present or future outbreak of COVID-19 virus, avian or swine influenza or other contagious disease could have a material adverse effect on our business.
Any downgrading of India’s debt rating could have a negative impact on our business and the trading price of the Notes.
India’s sovereign rating is Baa3 with a “negative” outlook (Moody’s), BBB- with a “stable” outlook (S&P) and BBB- with a “negative” outlook (Fitch). Any adverse revisions to India’s credit ratings may adversely affect our ability to raise additional financing and the interest rates and other commercial terms at which such additional financing is available. This could adversely affect our business and future financial performance and our ability to obtain financing for capital expenditure, as well as the trading price of the Notes.
Financial instability in other countries may cause increased volatility in Indian financial markets.
The Indian market and the Indian economy are influenced by economic and market conditions in other countries, including, but not limited to, the conditions in the United States, Europe and Asia. Financial turmoil in Asia and elsewhere in the world in recent years has adversely affected the Indian economy. Any worldwide financial instability may cause increased volatility in the Indian financial markets and, directly or indirectly, adversely affect the Indian economy and financial sector and its business.
32 Although economic conditions vary across markets, loss of investor confidence in one emerging economy may cause increased volatility across other economies, including India. Financial instability in other parts of the world could have a global influence and thereby adversely impact the Indian economy. Financial disruptions in the future could adversely affect our business, future financial condition and results of operations. The global credit and equity markets have experienced substantial dislocations, liquidity disruptions and market corrections.
On June 23, 2016, the United Kingdom held a referendum on its membership of the European Union and voted to leave the European Union. Under the terms of the ratified EU-UK Article 50 Withdrawal Agreement, a transition period has now commenced which will last until December 31, 2020.
During this period, most EU rules and regulations will continue to apply to and in the UK and negotiations in relation to a free trade agreement will be on-going. Under the EU-UK Article 50 Withdrawal Agreement, the transition period may, before July 1, 2020, have been extended once by up to two years but on June 12, 2020, the UK formally confirmed that it would not be seeking an extension and this was formally accepted by the EU. While this does not entirely remove the prospect that the transition period will be extended (for example, it could be achieved under a new treaty which deals solely with an extension), the likelihood of a further extension is reduced. During the transition period, the UK and the EU may not reach agreement on the future relationship between them, or may reach a significantly narrower agreement than that envisaged by the political declaration of the European Commission and the UK Government. Such on-going political uncertainty as regards the structure of the future relationship between the UK and the EU could lead to a further slowdown and instability in financial markets. These could include further falls in stock exchange indices and/or greater volatility of markets in general due to the increased uncertainty.
These and other related events could have a significant impact on the global credit and financial markets as a whole, and could result in reduced liquidity, greater volatility, widening of credit spreads and a lack of price transparency in the global credit and financial markets. There are also concerns that a tightening of monetary policy in emerging markets and some developed markets will lead to a moderation in global growth.
Further, trade tensions between the U.S. and major trading partners, most notably China, continue to escalate following the introduction of a series of tariff measures in both countries. Although China is the primary target of U.S. trade measures, value chain linkages mean that other emerging markets, primarily in Asia, may also be impacted. China’s policy response to these trade measures also presents a degree of uncertainty.
In response to such developments, legislators and financial regulators in the United States and other jurisdictions, including India, have implemented a number of policy measures designed to add stability to the financial markets. However, the overall long-term impact of these and other legislative and regulatory efforts on the global financial markets is uncertain, and they may not have had the intended stabilizing effects. Any significant financial disruption in the future could have an adverse effect on our cost of funding, business, financial performance and the trading price of the Notes. Adverse economic developments overseas in countries where we have operations could have a material adverse impact on us and the trading price of the Notes.
If inflation were to rise in India, we might not be able to increase the prices of our services in order to pass costs on to our customers and our profits might decline.
Inflation rates in India have been volatile in recent years, and such volatility may continue in the future. Increasing inflation in India could cause a rise in the price of transportation, wages, raw materials and other expenses, and we may be unable to reduce our costs or pass the increased costs on to our customers by increasing the price that we charge for our services, and our financial condition, cash flows and results of operations may therefore be adversely affected.
33 Significant differences exist between Ind AS and other accounting principles, such as U.S. GAAP and IFRS, which may be material to the financial statements prepared and presented in accordance with Ind AS contained in this Offering Circular.
Our audited financial statements included in this Offering Circular as at and for Fiscal Years 2018, 2019 and 2020 have been prepared and presented in accordance with Ind AS and our unaudited interim condensed financial statements included in this Offering Circular as at and for the six months ended September 30, 2020, have been prepared and presented in accordance with Ind AS 34, which differs from accounting principles and auditing standards in other countries with which prospective investors may be familiar, such as U.S. GAAP and IFRS. Significant differences exist between Ind AS, U.S. GAAP and IFRS, which may be material to the financial information prepared and presented in accordance with Ind AS contained in this Offering Circular. Accordingly, the degree to which the financial information included in this Offering Circular will provide meaningful information is dependent on your familiarity with Ind AS and the Companies Act. Any reliance by persons not familiar with Ind AS on the financial disclosures presented in this Offering Circular should accordingly be limited. For further details, see “Description of Certain Differences between Ind AS and IFRS.”
The level of development and reliability of Indian infrastructure could adversely affect our results of operations, financial condition and cash flows.
India’s physical infrastructure is less developed than that of many developed nations. Any congestion or disruption in its port, transportation networks, electricity grid, communication systems or any other public facility could disrupt our normal business activity. Any deterioration of India’s physical infrastructure would harm the national economy, disrupt the transportation of goods and supplies and add costs to doing business in India. These problems could interrupt our business operations, which could have an adverse effect on our results of operations, financial condition and cash flows.
Our ability to raise foreign capital may be constrained by Indian law.
Companies operating in India are subject to exchange controls that regulate borrowing in foreign currencies. Such regulatory restrictions could limit our financing sources for acquisitions and could constrain our ability to obtain financings on competitive terms and refinance existing indebtedness. In addition, it cannot be assured that any approval required to raise foreign capital will be granted to us without onerous conditions, or at all. Limitations on foreign debt may have an adverse impact on our business, financial condition, cash flows and results of operations.
We may be adversely affected by competition law in India and any adverse application or interpretation of the Competition Act could in turn adversely affect our business.
The Competition Act, 2002 (the “Competition Act”) was enacted for the purpose of preventing practices that have or are likely to have an adverse effect on competition in India and has mandated the Competition Commission of India (“CCI”) to separate such practices. Under the Competition Act, any arrangement, understanding or action, whether formal or informal, which causes or is likely to cause an appreciable adverse effect on competition is void and attracts substantial penalties.
Further, any agreement among competitors which, directly or indirectly, involves determination of purchase or sale prices, limits or controls production, or shares the market by way of geographical area or number of subscribers in the relevant market is presumed to have an appreciable adverse effect in the relevant market in India and shall be void. The Competition Act also prohibits abuse of a dominant position by any enterprise. On March 4, 2011, the GoI notified and brought into force the combination regulation (merger control) provisions under the Competition Act with effect from June 1, 2011. These provisions require acquisitions of shares, voting rights, assets or control or mergers or amalgamations that cross the prescribed asset and turnover based thresholds to be mandatorily notified to, and pre-approved by, the CCI. Additionally, on May 11, 2011, the CCI issued the Competition Commission of India (Procedure for Transaction of Business Relating to Combinations) Regulations, 2011, which sets out the mechanism for implementation of the merger control regime in India.
34 The Competition Act aims to, among other things, prohibit all agreements and transactions which may have an appreciable adverse effect in India. Consequently, all agreements entered into by us could be within the purview of the Competition Act. Further, the CCI has extra-territorial powers and can investigate any agreements, abusive conduct or combination occurring outside of India if such agreement, conduct or combination has an appreciable adverse effect in India. However, the impact of the provisions of the Competition Act on the agreements entered into by us is unclear. We are not currently party to any outstanding proceedings, nor have we received notice in relation to non-compliance with the Competition Act or the agreements entered into by us. However, if we are affected, directly or indirectly, by the application or interpretation of any provision of the Competition Act, or any enforcement proceedings initiated by the CCI, or any adverse publicity that may be generated due to scrutiny or prosecution by the CCI or if any prohibition or substantial penalties are levied under the Competition Act, it would adversely affect our business, financial condition, results of operations and prospects.
Investors in the Notes may not be able to enforce a judgment of a foreign court against us.
The Company is a limited liability public company incorporated under the laws of India. Except for two of our directors, other directors and key managerial personnel named in this Offering Circular are residents of India. Further, all of the Company’s assets and a portion of the directors and executive officer’s assets, are located in India. As a result, it may be difficult for investors to effect service of process upon us or to enforce judgments obtained against us. The recognition and enforcement of foreign judgments in India is governed by Sections 13 and 44A of the Civil Code, which provide that a suit must be brought in India within three years from the date of the judgment sought to be enforced. Generally, there are considerable delays in the disposal of suits by Indian courts.
It is unlikely that a court in India would award damages on the same basis as a foreign court if an action were to be brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if that court was of the view that the amount of damages awarded was excessive or inconsistent with Indian practice. A party seeking to enforce a foreign judgment in India is required to obtain prior approval from the RBI under the FEMA to repatriate any amount recovered, and we cannot assure that such approval will be forthcoming within a reasonable period of time, or at all, or that conditions of such approvals would be acceptable. For further details, see “Enforceability of Civil Liabilities.”
Risks Related to the Notes
Redemption of the Notes prior to maturity may be subject to compliance with applicable regulatory requirements, including the prior approval of RBI or the Authorized Dealer Bank, as the case may be.
Under the ECB Guidelines, any repayment of an external commercial borrowing, such as the Notes, prior to its stated maturity may require the prior approval of the RBI or the designated authorized dealer Category 1 bank (the “Authorized Dealer Bank”), as the case may be. Any early redemption of the Notes (whether due to certain tax events or a Change of Control Triggering Event, the application of an Excess Amount or the Prudency Sweep Amount or an Event of Default, each as described in the Conditions) may require the prior approval of RBI or the Authorized Dealer Bank. Compliance with any conditions specified in any such RBI or Authorized Dealer Bank approval will be required. There can be no assurance that RBI or the Authorized Dealer Bank will provide such approval in a timely manner or at all. In the absence of such an approval, we may not be able to redeem all or any of the Notes prior to maturity. Furthermore, any modification or waiver of the Conditions which has the effect of modifying or waiving terms which are not permitted under the automatic route for the issue of bonds under the ECB Guidelines will require prior approval from RBI in accordance with the ECB Guidelines, and such approval may not be forthcoming.
35 Remittance of funds outside India by the Company pursuant to indemnification by the Company in relation to the Notes requires prior RBI approval.
Remittance of funds outside India by the Company pursuant to the indemnity clauses under the relevant Conditions, the Note Trust Deed or any other agreements in relation to the Notes requires prior RBI approval. Any approval, if and when required, for the remittance of funds outside India is at the discretion of RBI and we can give no assurance that we will be able to obtain such approval.
There is no recourse to our Sponsors or our shareholders for repayment of our debt.
Other than a non-disposal undertaking over 100.0% of the equity share capital of the Company provided by our Sponsors, holders of the Notes will have no recourse to the Sponsors or any of their respective affiliates (other than us) for payments in respect of the Notes and neither of our Sponsors nor anyone else has guaranteed any payments in respect of the Notes. The obligation to make payments in respect of the Notes will solely be our own obligation and the holders of a Notes will have a payment claim against us only.
We may incur additional indebtedness which could increase our risk exposure from debt and could decrease the Noteholders’ share of enforcement proceeds and control over the enforcement process.
Subject to the restrictions in the Note Trust Deed, we are entitled to incur additional senior secured debt that will share the benefits of the Collateral granted by us and certain of our direct and indirect shareholders. In particular, we are entitled to incur additional senior secured debt if the Project Life Coverage Ratio is not less than 1.95:1.00 and certain other conditions are satisfied. See “Terms and Conditions of the Notes—Condition 4.28 Incurrence of Additional Debt.” The incurrence of such additional senior secured debt could increase the risks associated with our already substantial indebtedness and reduce the share of the proceeds of the Collateral to which holders of Notes would be entitled in an enforcement scenario.
The Conditions include certain covenants limiting our financial and operating flexibility.
The Conditions include certain covenants that will restrict our ability to, among other things:
• create liens;
• enter into transactions with affiliates;
• incur additional indebtedness;
• sell assets; and
• enter into new businesses.
These limitations are subject to certain exceptions and qualifications described in “Terms and Conditions of the Notes.”
In addition, the Conditions also restrict our ability to create any Security Interests over our assets or provide undertakings for the benefit of any other person under any indebtedness prior to the creation, perfection and registration of the Security for the Notes.
These covenants could limit our ability to pursue our growth plans, restrict our flexibility in planning for, or reacting to, changes in our business and industry and increase our vulnerability to general adverse economic and industry conditions.
36 Any default under the covenants contained in the Conditions may lead to an Event of Default (as defined in the Conditions) under the Notes and may lead to cross acceleration under our future indebtedness. We may not be able to pay any amounts due to holders of the Notes in the event of any such default and any such default may significantly impair our ability to satisfy our obligations under the Notes.
We may not be able to meet our obligations to pay or redeem the Notes.
In certain circumstances, Noteholders may require us to redeem all or a portion of the Notes and we would be required to pay all amounts then due under the Notes. In particular, upon a Change of Control Triggering Event (as defined in the Conditions), the Noteholders may require us to redeem their Notes and following an acceleration of the Notes upon an Event of Default, we would be required to pay all amounts then due under the Notes, which we may not be able to meet. We may not be able to make required payments in connection with the Notes if the requisite regulatory approval is not received or if we do not have sufficient cash flows for those payments.
Since the Global Certificates are held by or on behalf of the relevant Clearing Systems, investors will have to rely on the relevant Clearing System’s procedures for transfer, payment and communication with us.
The Notes will be represented by the Global Certificates except in certain limited circumstances described under “Global Certificates.” The Global Certificates will be deposited with, and registered in the name of, a nominee of DTC or the Common Depositary, as the case may be. Except in certain limited circumstances set out in the Global Certificates and described under “Global Certificates”, investors will not be entitled to receive definitive certificates. The relevant Clearing System will maintain records of the beneficial interests in the Global Certificates. While the Notes are represented by the Global Certificates, investors will be able to trade their beneficial interests only through the relevant Clearing System. We will discharge our payment obligations under the Notes by making payments to or to the order of the relevant Clearing System for distribution to the account holders. A holder of a beneficial interest in any of the Global Certificates must rely on the procedures of the relevant Clearing System to receive payments under the Notes.
We have no responsibility or liability for the records relating to, or payments made in respect of, beneficial interests in the Global Certificates. Holders of beneficial interests in the Global Certificates will not have a direct right under the Global Certificates to take enforcement action against us in the event of a default under the Notes but will have to rely upon the Note Trustee to enforce their rights under the Note Trust Deed. However, while the Note Trustee has the ability to accelerate the Notes, any enforcement action in respect of the Collateral shall be taken through the Security Trustee, subject to the provisions of the Intercreditor Deed and the Security Documents.
An active trading market may not develop for the Notes, in which case your ability to transfer the Notes will be limited.
The Notes are new securities for which there is no existing trading market. Prior to this Offering, there has been no trading market in the Notes. The liquidity of any market for the Notes will depend on a number of factors, including general economic conditions and our financial condition, performance and prospects, as well as recommendations of securities analysts. We have been informed by the Joint Bookrunners that they may make a market in the Notes after this Offering has been completed. However, they are not obligated to do so and may discontinue such market-making activity at any time without notice. In addition, market-making activity by the Joint Bookrunners may be subject to limits imposed by applicable law. As a result, we cannot assure you that any market in the Notes will develop or, if it does develop, it will be maintained. If an active market in the Notes fails to develop or be sustained, you may not be able to sell the Notes or may have to sell them at a lower price.
37 The ratings and outlook of the Notes and us may be downgraded or withdrawn.
The Notes are expected to be rated “Baa3” by Moody’s, “BBB-” from S&P and “BBB-” by Fitch. The ratings and outlook represent the opinions of the rating agencies and their assessment of the ability of the Company to perform its obligations under the Notes and credit risks in determining the likelihood that payments will be made when due under the Notes. A rating or outlook is not a recommendation to buy, sell or hold securities. The ratings or outlook can be lowered or withdrawn at any time. We are not obligated to inform Noteholders if the ratings or outlook are lowered or withdrawn. A reduction or withdrawal of the ratings may adversely affect the market price and liquidity of the Notes and our ability to access the debt capital markets.
Developments in other markets may adversely affect the market price of the Notes.
The market price of the Notes may be adversely affected by declines in the international financial markets and world economic conditions. The market for Indian securities is, to varying degrees, influenced by economic and market conditions in other markets, especially those in Asia. Although economic conditions are different in each country, investors’ reactions to developments in one country can affect the securities markets and the securities of issuers in other countries, including India. In recent years, the international financial markets have experienced significant volatility. If similar developments occur in the international financial markets in the future, the market price of the Notes could be adversely affected.
The Note Trustee may request Noteholders to provide an indemnity and/or security and/or prefunding to its satisfaction.
In certain circumstances, the Note Trustee may (at its sole discretion) request the Noteholders to provide an indemnity and/or security and/or prefunding to its satisfaction before it takes steps and/or actions and/or institute proceedings on behalf of the Noteholders. The Note Trustee shall not be obliged to take any such steps and/or actions and/or institute any such proceedings if not indemnified and/or secured and/or prefunded to its satisfaction. Negotiating and agreeing to an indemnity and/or security and/or prefunding can be a lengthy process and may adversely impact when such steps and/or actions can be taken and/or such proceedings can be instituted.
The Note Trustee may not be able to take steps and/or actions and/or institute proceedings, notwithstanding the provision of an indemnity or security or prefunding to it, in breach of the terms of the Note Trust Deed or in circumstances where there is uncertainty or dispute as to the applicable laws or regulations and in any such event, to the extent permitted by the agreements and the applicable law, it will be for the Noteholders to take such steps and/or actions and/or institute proceedings directly.
Modifications of, or any waivers under, the Trust Deed and the Notes could be adverse to the interests of Noteholders.
The Note Trust Deed contain provisions for calling meetings of Noteholders to consider matters affecting their interests generally. These provisions permit defined majorities to bind all holders of the Notes, including Noteholders who did not attend and vote at the relevant meeting and Noteholders who voted in a manner contrary to the majority. The Conditions also provide that the Note Trustee may, without the consent of the Noteholders, agree to (i) any modification of the Conditions or any of the provisions of the Note Trust Deed or any other Senior Note Document or Common Document to which the Note Trustee is a party, which, in the opinion of the Note Trustee, is of a formal, minor or technical nature or is made to correct a manifest error or to comply with any mandatory provision of applicable law, and (ii) any other modification (except as mentioned in the Note Trust Deed), and any waiver or authorization of any breach or proposed breach, of any of the Conditions or any of the provisions of the Note Trust Deed which is in the opinion of the Note Trustee not materially prejudicial to the interests of the Noteholders.
38 The Note Trust Deed also contains provisions permitting the Note Trustee to agree, subject to such amendment of the Note Trust Deed and such other conditions as the Note Trustee may require, but without the consent of the Noteholders, to the substitution of any other company in place of us, or of any previous substituted company, as principal debtor under the Note Trust Deed and the Notes; provided, however, that immediately after such substitution, we must deliver to the Note Trustee an opinion of counsel of recognized standing with respect to U.S. federal income tax matters that the beneficial owners of the Notes will not recognize gain or loss for U.S. federal income tax purposes as a result of such substitution and will be subject to the same U.S. federal income tax consequences as if such substitution did not occur.
The Notes are subject to restrictions on resales and transfers, which may adversely affect their liquidity and the price at which they may be sold.
The Notes have not been and will not be registered under the Securities Act or any U.S. state securities laws or under the securities laws of any other jurisdiction and are being issued and sold in reliance upon exemptions from registration provided by such laws. As a result, investors may not resell or transfer the Notes unless such sale or transfer is exempt from the registration requirements of the Securities Act and applicable state securities laws or in transactions that have been registered under the Securities Act. See “Subscription and Sale” and “Transfer Restrictions.”
The right of Noteholders to receive payments on the Notes is junior to certain tax and other liabilities preferred by law.
The Notes will be subordinated to certain liabilities preferred by law such as claims of the GoI on account of taxes, and certain liabilities incurred in the ordinary course of our trading or banking transactions. Indian laws relating to the Notes and to the enforcement thereof may differ, in some cases significantly, from the laws in other jurisdictions. In particular, in the event of bankruptcy, liquidation or winding-up, our assets will be available to pay obligations on the Notes only after all of those liabilities that rank senior to the Notes have been paid. In the event of bankruptcy, liquidation or winding-up, there may not be sufficient assets remaining, after paying amounts relating to these liabilities, to pay amounts due on the Notes.
The Notes are not a suitable investment for all investors.
Each potential investor in the Notes must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should:
• have sufficient knowledge and experience to make a meaningful evaluation of the Notes, the merits and risks of investing in the Notes and the information contained in this Offering Circular or any applicable supplement;
• have access to, and knowledge of, appropriate analytical tools to evaluate, in the context of its particular financial situation, an investment in the Notes and the impact such investment will have on its overall investment portfolio;
• have sufficient financial resources and liquidity to bear all of the risks of an investment in the Notes, including where the currency for principal or interest payments is different from the potential investor’s currency;
• understand thoroughly the terms of the Notes and be familiar with the behavior of any relevant indices and financial markets; and
• be able to evaluate (either alone or with the help of a financial adviser) possible scenarios for economic, interest rate and other factors that may affect its investment and its ability to bear the applicable risks.
39 Noteholders may be adversely affected by a change of English law.
The structure of the issue of the Notes is based on English law and administrative practices in effect as at the date of this Offering Circular. No assurance can be given as to the impact of any possible change to English law or administrative practices after the date of this Offering Circular, nor can any assurance be given as to whether any such change could adversely affect our ability to make payments under the Notes.
There are interest rate risks on an investment in the Notes.
Investment in fixed rate instruments, such as the Notes, involves the risk that subsequent changes in market interest rates may adversely affect the value of the fixed rate instruments.
Investment in the Notes may subject investors to foreign exchange risks.
The Notes are denominated and payable in U.S. dollars. If an investor measures its investment returns by reference to a currency other than U.S. dollars, an investment in the Notes entails foreign exchange-related risks, including possible significant changes in the value of the U.S. dollar relative to the currency by reference to which an investor measures its investment returns, because of, among other things, economic, political and other factors over which we have no control. Depreciation of the U.S. dollar against such currency could cause a decrease in the effective yield of the Notes below their stated coupon rates and could result in a loss when the return on the Notes is translated into such currency. In addition, there may be adverse tax consequences for investors as a result of any foreign exchange gains resulting from any investment in the Notes.
The insolvency laws of India and other local insolvency laws may differ significantly from those of other jurisdictions with which the holders of the Notes are familiar.
As the Company is incorporated under the laws of India, any insolvency proceeding relating to us would likely involve the insolvency laws of India, the procedural and substantive provisions of which may differ significantly from comparable provisions of the local insolvency laws of jurisdictions with which the holders of the Notes are familiar. Potential investors should analyze the risks and uncertainties carefully before making an investment in the Notes.
We will be subject to the applicable corporate disclosure standards for debt securities listed on the SGX-ST and India INX, which standards may be different from those applicable to companies in certain other countries.
We will be subject to reporting obligations in respect of the Notes to be listed on the SGX-ST and India INX. The disclosure and corporate governance standards imposed by the SGX-ST and India INX may be different from those imposed by securities exchanges in other countries such as the United States or the United Kingdom. As a result, the level of information that is available to investors may not correspond to the level to which investors in the Notes are accustomed.
Holders of the Notes may suffer erosion in the return on their investments due to inflation.
Holders of the Notes may suffer erosion in the return on their investments due to inflation. Holders of the Notes may have an anticipated rate of return based on expected inflation rates on the purchase of the Notes. An unexpected rise in inflation could reduce the actual returns to such holders.
Integral multiples of less than the specified denomination may result in illiquidity in the Notes.
The denomination of the Notes is US$200,000 and integral multiples of US$1,000 in excess thereof. Therefore, it is possible that the Notes may be traded in amounts in excess of US$200,000 that are not integral multiples of US$200,000. In such a case, a holder who, as a result of trading such amounts, holds
40 a principal amount of less than US$200,000 will not receive a definitive certificate in respect of such holding of the Notes (should definitive certificates be printed) and would need to purchase a principal amount of the Notes such that it holds an amount equal to one or more denominations. If definitive certificates are issued, holders should be aware that Notes with aggregate principal amounts that are not an integral multiple of US$200,000 may be illiquid and difficult to trade.
Your ability to protect your rights through the U.S. federal courts may be limited.
The Company is a private limited company incorporated under the laws of India. Except for two of our Directors, all our Directors and executive officers are residents in India and all of the Company’s assets, and a portion of the assets of such persons, are located in India. As a result, it may not be possible for investors to effect service of process within the United States upon the Company or its directors, or to enforce any judgment obtained in U.S. courts predicated upon civil liability provisions of the U.S. securities laws. In addition, we cannot assure you that civil liabilities predicated upon the federal securities laws of the United States will be enforceable in India. See “Enforceability of Civil Liabilities.”
Risks Related to the Collateral
The Security is only required to be created and perfected within 90 days of the Closing Date or later, and failure to properly create, perfect and register the Security Interests securing the Notes could impair the ability of the Noteholders to seek repayment.
Under the terms of the Note Trust Deed, we will be obligated to create, perfect and register the Security Interests securing the Notes (i) in the case of Security to be created and perfected under Condition 3.2.2 of the Note Trust Deed, within 90 days of the Closing Date (the “Initial Security Longstop Date”) or (ii) in the case of Security to be created and perfected under Condition 3.2.3 of the Note Trust Deed, within 180 days from the date on which we procure the relevant consents or approvals, including from the regulatory authorities in India, and complete the relevant regulatory actions for such purpose (the “Second Security Longstop Date”). See “Description of the Collateral and Security Documents.” The creation, perfection and registration of the Security Interests will be subject to various consents, approvals and authorizations from governmental authorities and such consents, approvals or authorizations may not be forthcoming. For example, the creation of a charge over the Core Assets and Immoveable Fixed Assets (each as defined in the Conditions) or the mortgage by deposit of title deeds in respect of the Immoveable Property (as defined in the Conditions) by the Company in favor of the Security Trustee would require certain regulatory actions such as the approval of the GMB and the GoG to be obtained prior to such creation of security. The Notes will not be secured, on the Closing Date. Accordingly, some of the documents to be executed in relation to the Notes, including but not limited to the Security Documents are proposed to be entered into only after the Closing Date or after the Initial Security Longstop Date. Certain terms of these documents may not be in agreed form and consequently the executed documents may differ from the summarized form set out in this Offering Circular. Failure to create, perfect and register the Security Interests within the stipulated timelines would constitute an Event of Default under the Conditions (unless such failure is due to a delay caused by a Government authority in (i) the release of the security granted under the Company’s existing debt documents allowing the repayment of indebtedness under such existing debt documents and/or (ii) the filing/registration of such security in favor of the Security Trustee with the Government authorities following its release (to the extent such failure is not caused by or attributable to the Company)), and any claim of the Security Trustee in a bankruptcy or similar proceeding against the Company would be unsecured to the extent that we have failed to create, perfect and register any Security Interests securing the Notes, which could limit any recovery holders of the Notes receive in any such proceeding.As of September 30, 2020, we had `17,147.23 million of secured borrowings. To the extent that any of this secured indebtedness remains outstanding after the Closing Date, the creditors of such secured indebtedness will be effectively senior to the obligations due under the Notes, until security over those assets specified in the Conditions is created, in the manner provided in “Terms and Conditions of the Notes.”
41 Further, the obligations of the Company under the Notes constitute direct, unconditional and unsubordinated obligations of the Company, which will be secured pursuant to the Security Documents. The Conditions include certain negative pledge and non-disposal undertakings by the Company and the Company and its shareholders will also provide non-disposal undertakings in favor of the Security Trustee in respect of certain Collateral by the Initial Security Longstop Date (as defined in the Conditions) such that the Company is effectively restricted from granting security or disposing of its assets subject to certain exceptions and qualifications described in “Terms and Conditions of the Notes.” However, the Notes will be effectively subordinated to any other secured indebtedness of the Company which ranks senior to the Notes (where such security does not constitute Collateral or has been created under the exceptions and qualifications to the restrictions in the Conditions), to the extent of the value of the assets securing that indebtedness. In the event of bankruptcy, liquidation, reorganization or other winding up of the Company, the assets that secure its senior secured indebtedness will be available to pay the obligations on the Notes only after all senior secured indebtedness of the Company, together with accrued interest, has been repaid. If the Company is unable to repay its secured indebtedness, the lenders could foreclose on substantially all of its assets which serve as collateral. In this event, the senior secured lenders would be entitled to be repaid in full from the proceeds of the liquidation of those assets before those assets would be available for distribution to other creditors, including Noteholders. Noteholders will participate in the proceeds of the liquidation of the remaining assets of the Company, ratably with holders of its secured indebtedness that is deemed to be of the same class as the Notes. See “Our Business—Material Agreements— Undertaking by APSEZ in favor of the Company.”
The value of the Collateral may not be sufficient to cover all secured obligations.
The Collateral that is to be provided to secure the Notes will be shared with other creditors of the Company existing at the time such Collateral is created and perfected and future creditors of the Company on a pari passu basis. See “Description of the Collateral and Security Documents—Collateral.” No appraisals of the Collateral have been or will be prepared. The value of the Collateral at any time will depend on market and other economic conditions, including the availability of suitable buyers for the Collateral. By its nature, the Collateral may be illiquid and may have no readily ascertainable market value. Likewise, the Collateral might not be saleable or, if saleable, there could be substantial delays in its liquidation. For example, in case of early termination of the Concession Agreement, the compensation payable by APSEZ to the Company (in proportion to the value of CT-3 and CT-3 Extension) will be computed on the basis of methodologies set forth under the Concession Agreement and the Sub-Concession Agreement. Additionally, we cannot assure you that this compensation will be sufficient to cover all obligations of the Company under the Notes. For further details of the undertaking by APSEZ in favor of the Company, see “Our Business—Material Agreements—Undertaking by APSEZ in favor of the Company.
Enforcing the rights of Noteholders under the Notes or the Security Documents across multiple jurisdictions and enforcing foreign court judgment on the Company in India may prove difficult.
The Notes will be issued by us, and we are required to create, perfect and register the Security Interests securing the Notes. The Notes and the Note Trust Deed will be governed by English law. The Security Documents, the Project Accounts Deed and the Intercreditor Deed will be governed by Indian law. In the event of a bankruptcy, insolvency of the Company or similar event, proceedings could be initiated in England and India. The rights of Noteholders under the Notes and the Security Documents will be subject to the insolvency and administrative laws of several jurisdictions and investors might not be able to effectively enforce their rights in such complex multiple bankruptcy, insolvency or similar proceedings. In addition, the bankruptcy, insolvency, administrative and other laws of India may be materially different from those with which Noteholders may be familiar, including in the areas of the rights of creditors, priority of governmental and other creditors, ability to obtain post-petition interest and duration of the proceeding. The application of these laws, or any conflict among them, could call into question whether any particular jurisdiction’s laws should apply, adversely affect investors’ ability to enforce their rights under the Notes and the Security Documents in the relevant jurisdictions or limit any amounts that they may receive.
42 The Company is a private limited company incorporated under the laws of India. Except for two directors, all of the Company’s directors and executive officers are residents in India. All of the Company’s assets, and all of such person’s assets, are located in India. As a result, it may not be possible for investors to effect service of process upon the Company or such persons outside India or to enforce judgments obtained against such parties outside India. Recognition and enforcement of foreign judgments are provided for under Section 13 and Section 44A of the Civil Code on a statutory basis. Section 13 of the Civil Code provides that a foreign judgment shall be conclusive regarding any matter directly adjudicated upon, except: (i) where the judgment has not been pronounced by a court of competent jurisdiction; (ii) where the judgment has not been given on the merits of the case; (iii) where it appears on the face of the proceedings that the judgment is founded on an incorrect view of international law or a refusal to recognize the law of India in cases to which such law is applicable; (iv) where the proceedings in which the judgment was obtained were opposed to natural justice; (v) where the judgment has been obtained by fraud; and (vi) where the judgment sustains a claim founded on a breach of any law valid in India.
India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. Section 44A of the Civil Code provides that where a foreign judgment has been rendered by a superior court, within the meaning of such section, in any country or territory outside India, which the GoI has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment 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, other charges of a like nature or in respect of a fine or other penalties and does not apply to arbitration awards.
The United Kingdom, Singapore and Hong Kong have been declared by the GoI to be reciprocating territories for the purposes of Section 44A, but the United States has not been so declared. A judgment of a court in a country which is not a reciprocating territory may be enforced in India only by a fresh suit upon the judgment and not by proceedings in execution. Such a suit has to 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 an action were brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if that court were of the view that the amount of damages awarded was 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 repatriate outside India any amount recovered pursuant to such award and any such amount may be subject to income tax in accordance with applicable laws. It is uncertain as to whether an Indian court would enforce foreign judgments that would contravene or violate Indian law.
The decision to enforce the Security Interests may be adverse to the interests of Noteholders.
The Security Trustee is required to take action to enforce the Security Interests in accordance with the instructions of the Secured Creditors given under and in accordance with the Intercreditor Deed and the Security Documents. The ability of the Security Trustee (on instructions of the Secured Creditors) to enforce the Security Interests is restricted under the Intercreditor Deed. If an Event of Default occurs under the Senior Note Documents and/or under any of the other Primary Debt Documents, depending upon the waiting period (from the date of occurrence of such Event of Default), such Secured Creditors (including the holders of the Notes) representing such percentages of Intercreditor Voting Entitlements as may be stipulated in the Intercreditor Deed in respect of the decision to be taken may decide whether or not to take any enforcement action, provided that any Secured Creditor may, notwithstanding a decision taken by any of the other groups of Secured Creditors representing certain percentages of Intercreditor Voting Entitlements (as specified in the Intercreditor Deed), individually decide whether or not to take any enforcement action, upon expiry of the maximum waiting period since the occurrence of the Event of Default. Furthermore, such Secured Creditor(s) may, through the Security Trustee in accordance with the Intercreditor Deed, instruct the Security Trustee to take enforcement action against the Security Interests. By virtue of the instructions given to the Security Trustee described above, actions may be taken in respect of the Security Interests that may be adverse to the holders of the Notes who did not vote in favor of enforcement or who did not have an opportunity to vote. Further, if the Note Trustee is unable to obtain
43 instructions of the Noteholders with respect to any enforcement action within the stipulated waiting period or if other Senior Creditors instruct the Security Trustee to take enforcement action without Noteholder input, the Security Trustee will not have any obligation to provide the Noteholders with an extended time period to respond and may proceed with any enforcement action as instructed by the consenting Secured Creditors provided that it has received the prescribed percentage of Intercreditor Voting Entitlements. In the event that the Security Trustee delivers an Enforcement Notice to the Company pursuant to the terms of the Intercreditor Deed, the Notes will immediately become due and payable at their principal amount together with accrued interest. If this were to occur, no action is required by or from the Noteholders or the Note Trustee under the Conditions or otherwise and the outstanding principal amount of the Notes, any accrued interest and any other payments under the Notes will be and will be deemed to be due and payable for all purposes of the Intercreditor Deed, including or any application of proceeds by the Security Trustee thereunder.
The rights over the Security Interests will not be granted directly to holders of the Notes.
The Security Interests securing the obligations of the Company under the Notes and the Note Trust Deed have not been and will not be granted directly to the Noteholders, but will be granted only in favor of the Security Trustee. As a consequence, Noteholders will not have direct security and will not be entitled to take enforcement action in respect of the security for the Notes, except through the Security Trustee.
The Security over certain collateral may in certain circumstances be voidable.
The Security Interests securing the Notes may be voidable under insolvency, bankruptcy, fraudulent transfer or similar laws of England, India and other jurisdictions, if and to the extent applicable. In the case of the Security Interests being voidable under such laws in England, the relevant time period during which such security is voidable could be within six months of the date of the charge or, under some circumstances, within longer periods. In the event the Security Interest on the Collateral is invalid or voidable under such laws in India, the relevant time period during which such security is deemed invalid or voidable could be within one year of the date of the winding-up petition or insolvency commencement date, as the case may be, or under some circumstances, it could be held invalid or voidable within longer periods. Additionally, under Indian law, the Security Interests granted by the Company that are in the nature of a floating charge, if created within 12 months immediately preceding the commencement of winding-up, will be void and have no effect unless it is proved that the relevant issuer was solvent immediately after the creation of such floating charge. If the Security Interests were to be voided for any reason, holders of the Notes would have only an unsecured claim against us.
44 USEOFPROCEEDS
The gross proceeds from the issue of the Notes will be US$300 million. Subject to compliance with applicable laws and regulations and as permitted by RBI under the ECB Guidelines, the Company will use the proceeds from the Notes to repay all of its existing senior indebtedness. The balance of the proceeds from the Notes, after repaying the Company’s existing senior indebtedness, will be applied towards repaying a portion of the subordinated shareholder loans availed by the Company. See “Capitalization.” Payment of fees and expenses relating to the Offering will be paid from the Company’s internal resources.
Certain of the Joint Bookrunners and/or their affiliates are lenders under our existing indebtedness and will be repaid with a portion of the proceeds from this Offering. See “Description of Material Indebtedness.” Certain of the Joint Bookrunners and/or their affiliates have and will continue to have additional relationships with us as described in “Subscription and Sale.”
45 CAPITALIZATION
The following table sets forth our capitalization as of September 30, 2020 (i) on an actual basis (derived from our Unaudited Interim Condensed Financial Statements, which have been prepared in accordance with Ind AS 34); and (ii) on an as adjusted basis to give effect to this Offering and the use of proceeds specified in “Use of Proceeds”. This table should be read in conjunction with “Summary Financial Information,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Use of Proceeds” and our financial statements and related notes thereto included in this Offering Circular.
As of September 30, 2020 Actual As adjusted (US$ (US$ (` million) million)(1) (` million) million)(1) Shareholders’ funds Equity share capital ...... 6,444.64 87.36 6,444.64 87.36 Other Equity (consisting of securities premium and retained earnings)...... (3,258.88) (44.18) (3,258.88) (44.18)
Total Equity ...... 3,185.75 43.18 3,185.75 43.18
Notes offered hereby(2) ...... — — 22,131.00 300.00 Term loans from banks and financial institutions ...... 18,459.17 250.23 —(5) —(5) Inter-corporate deposits from the Joint Venture partners ...... 12,019.37 162.93 8,347.54(5) 113.16(5)
Total Borrowings (including current maturities)(3) ...... 30,478.54 413.16 30,478.54 413.16
Total Capitalization(4) ...... 33,664.29 456.34 33,664.29 456.34
Notes:
(1) Converted at the rate of US$1.00 = `73.77 based on the exchange rate as of September 30, 2020 issued by the Foreign Exchange Dealers’ Association of India. These translations of Indian rupee amounts to/from U.S. dollars are solely for the convenience of the reader. No representation is made that the amounts referred to in this section could have been or could be converted into at any particular exchange rate or at all.
(2) Does not reflect the payment of fees and expenses relating to the Offering, which will be paid from our internal resources.
(3) Does not include lease liability under Ind AS 116 disclosed as separate line item on face of balance sheet.
(4) Total capitalization is the sum of total equity and total borrowings. (5) Adjustment for repayment of term loans from banks and financial institutions amounting to `18,459.17 million (equivalent to US$250.23 million) and repayment of inter-corporate deposits from the Joint Venture partners amounting to `3,671.83 million (equivalent to US$49.77 million), converted at the exchange rate of US$1.00 = `73.77 based on the exchange rate as of September 30, 2020 issued by the Foreign Exchange Dealers’ Association of India.
Except as disclosed in this Offering Circular, there has been no material change to our capitalization since September 30, 2020.
46 MANAGEMENT’SDISCUSSIONANDANALYSISOFFINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion is intended to convey our management’s perspective on our financial condition and results of operations for Fiscal Years 2018, 2019 and 2020 and the six months ended September 30, 2019 and 2020. Our audited financial statements included in this Offering Circular as at and for Fiscal Years 2018, 2019 and 2020 have been prepared and presented in accordance with Ind AS and our unaudited interim condensed financial statements included in this Offering Circular as at and for the six months ended September 30, 2020 have been prepared and presented in accordance with Ind AS-34. The figures for the six months ended September 30, 2019, appearing in this Offering Circular are derived from the comparative figures appearing in the Unaudited Interim Condensed Financial Statements.
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements, the schedules and notes thereto and the other information included elsewhere in this Offering Circular.
This section contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in such forward-looking statements as a result of various factors, including those described under the sections “Forward-Looking Statements” and “Risk Factors.”
Overview
We operate two major container terminal facilities—CT-3 and CT-3 Extension (the “Terminals”)—at Mundra Port, with an annual capacity of 3.1 MTEUs as of September 30, 2020. We are a 50:50 joint venture between APSEZ and Mundi Limited, a subsidiary of TiL.
We have demonstrated a steady growth in our business. Our total income increased to `9,380.60 million in Fiscal Year 2020 from `9,202.37 million in Fiscal Year 2019 and `6,476.50 million in Fiscal Year 2018. Our total income increased to `4,998.28 million in the six months ended September 30, 2020 from `4,428.09 million in the six months ended September 30, 2019. EBITDA increased to `5,058.20 million in Fiscal Year 2020 from `4,691.56 million in Fiscal Year 2019 and `3,550.41 million in Fiscal Year 2018. EBITDA increased to `2,678.48 million in the six months ended September 30, 2020 from `2,329.13 million in the six months period ended September 30, 2019.
Significant Factors Affecting Our Results of Operations
Cargo Volumes and Macroeconomic Conditions
Our customers comprise international and domestic shipping lines. Our results of operations are directly linked to the cargo volumes handled at the Terminals, which depend on the performance of the Indian economy, the levels of global and regional trade, the continued globalization of world trade (which has historically led to an increase in the volume of seaborne cargo) and competition from new and existing ports and container terminals in India (particularly in west India). Global demand for natural resources and consumer goods also has an effect on global cargo volumes. As a result, fluctuations in domestic or global economic or industry conditions affecting consumer demand, production and distribution affect the demand for shipping and the overall volume of containers that we handle.
Container volumes increased at a CAGR of 8.2% from Fiscal Year 2018 to Fiscal Year 2020. The total container volumes increased 26.9% to 1.93 MTEUs in Fiscal Year 2019 from 1.52 MTEUs in Fiscal Year 2018. The transhipment volumes increased to 0.59 MTEUs in Fiscal Year 2019 from 0.50 MTEUs in Fiscal Year 2018 and the origin and destination (“O&D”) (export-import) volumes increased to 1.34 MTEUs in Fiscal Year 2019 from 1.02 MTEUs in Fiscal Year 2018. This increase was a result of a number of factors, including (i) the contribution of the full year operation of the CT-3 Extension that was transferred to us in November 2017; (ii) increased transhipment volumes and containerization (increasing system of intermodal freight transport) in India; and (iii) the continued growth of India’s total O&D (export-import)
47 volumes. Subsequently, container volumes decreased 7.8% year-on-year to 1.78 MTEUs in Fiscal Year 2020 from 1.93 MTEU in Fiscal Year 2019. While the transhipment volumes increased to 0.67 MTEUs in Fiscal Year 2020 from 0.59 MTEUs in Fiscal Year 2018, the O&D (export-import) volumes decreased to 1.11 MTEUs in Fiscal Year 2020 from 1.34 MTEUs in Fiscal Year 2019. This was mainly driven by a decrease in contribution from coastal cargo from 0.30 MTEUs in Fiscal Year 2019 to 0.08 MTEUs in Fiscal Year 2020, which was due to a loss in coastal volume to another port which had an advantage of closer proximity to certain shippers’ cargo centers (which results in lower trucking costs for the shippers) as compared to Mundra Port.
For the first quarter of Fiscal Year 2021, container volume was 0.44 MTEUs (as compared to 0.49 MTEUs of the fourth quarter of Fiscal Year 2020), which was mainly due to the GoI’s country-wide lockdown and other restrictions. Thereafter, volumes gradually increased and eventually surpassed the pre-COVID-19 levels following the easing of COVID-19 restrictions and the container volume increased to 0.60 MTEUs in the second quarter of Fiscal Year 2021.
Container volume further increased 20.9% to 1.04 MTEUs for the six months ended September 30, 2020 from 0.86 MTEUs for the six months ended September 30, 2019, driven by an increase in (i) an increase in O&D (export-import) cargo by 19.5% to 0.64 MTEUs for the six months ended September 30, 2020 from 0.53 MTEUs for the six months ended September 30, 2019 and (ii) an increase in transhipment volumes by 21.2% to 0.40 MTEUs for the six months ended September 30, 2020 from 0.33 MTEUs for the six months ended September 30, 2019.
Capacity, Utilization and Efficiency
Our results of operations are affected by the capacities and utilizations of the Terminals, berths, equipment and other infrastructure. We aim to bring our terminal capacity in line with demand to avoid excess capacity.
We can increase our capacity either through the expansion of terminals or by increasing the efficiency of the Terminals. Between Fiscal Years 2018 and 2020, our cargo volume increased at a CAGR of 8.1%. After reaching CT-3’s utilization at over 60.0% in its first few years of operation, we increased our capacity significantly to 3.1 MTEU by 1.3 MTEUs by expanding CT-3 Extension in 2017 by commencing operation of CT-3 Extension in November 2017. The deep drafts at our Terminals allow us to accommodate larger ships that can handle larger volumes of cargo. We have berth site drafts of 17.5 meters, which allow us to handle large vessels visiting India.
We maintain robust operation and maintenance practices to maximize efficiency. We also have large scale infrastructure with efficient crane productivity of 28.7 moves per hour for the six months ended September 30, 2020, that indicates faster turnaround of the vessels and robust infrastructure facility at the Terminals. See “Our Business—Superior infrastructure for effective capacity utilizations Operational excellence.”
The Terminals are automatized, mechanized and equipped with data analytics and smart port technologies. See “Our Business—Information Technology” for details. We utilize new technologies which speed up processes and reduce labor costs. We also implement industry and trade-specific software to provide our customers and us with real-time information for the Terminals.
Our ability to increase our capacity by implementing measures to operate more efficiently would permit increased throughput. Increased efficiency also reduces our cost as we can maximize the utilization of our existing assets and do not need to invest additional capital in the deployment of new assets. Efficiency also helps improve customer relations and ability to reduce customer defection.
48 Variable Costs
Fluctuations in variable costs may affect our results of operations. Our principal variable costs include cargo-handling and other charges to sub-contractors for various services at the Terminals, equipment hire charges for rentals for cargo handling equipment, power and fuel costs and contractual manpower charges.
We strive to mitigate the fluctuations of our variable costs through various measures, including entering into two Infrastructure Use and Port Services Agreements with APSEZ dated June 29, 2013 and November 1, 2017, as amended (pursuant to which APSEZ will provide various utilities such as electricity, water, telecommunication facilities and fuel to us at commercially competitive rates and also provide us with access to rail connectivity and certain port services for which we have paid an upfront fee). However, our operations are energy-intensive and our fuel and electricity costs, to an extent, vary depending on the volume of throughput we handle. In the future, as we continue to expand our business, we expect fuel and electricity costs to increase. Our ability to manage these variable costs is crucial to us maintaining or increasing our margins.
Origin and Destination and Transhipment Cargo Mix
In Fiscal Year 2020, approximately 62.3% of our gross throughput was from O&D traffic and 37.7% from transhipment traffic. O&D traffic consists of the transport of containers to and from the hinterland served by the Terminals whereas transhipment traffic refers to a container that is transferred from one vessel to another at the serving intermediate terminal between loading and discharge of such containers. O&D throughput has higher revenue realization per TEU than transhipment throughput, as O&D throughput also provides terminal operators with an opportunity to earn additional revenue by charging for delivery or reception of the container from the shipper or consignee, as well as by providing ancillary services, such as container freight stations, container cleaning and asset-tracking radio frequency identification (“RFID”) tagging on containers. We will endeavor to increase our O&D component at the Terminals. However, the development of sophisticated route networks by shipping lines, together with the limited number of terminals that can efficiently service the growing number of large container ships, increases the potential for, and attractiveness of, additional transhipment volume in certain locations.
Government Incentives on Services and Tax Incentives
We derived income from export incentives under the Service Exports from Indian Scheme (the “SEIS Scheme”) of the GoI’s Foreign Trade Policy 2015-2020. This income was classified as part of income from port terminal operations (under revenue from operations) in Fiscal Year 2018 and was subsequently classified under other operating income (under revenue from operations). Income from government incentives on services represented 4.2%, 5.1%, 6.8% and 0.4% of total income for Fiscal Years 2018, 2019, 2020 and the six months ended September 30, 2020, respectively. Under the SEIS Scheme, the GoI provided incentives in the range of 3.0% to 7.0% on the net foreign exchange earned, to all eligible service providers for providing services in India. For further details on the SEIS Scheme, please see “Key Regulations and Policies.” The SEIS Scheme was valid until Fiscal Year 2020 and therefore, we have discontinued recognizing the income from the SEIS Scheme with effect fromApril 1, 2020. The GoI issued a notification dated March 31, 2020 providing that for services rendered from April 1, 2020, the incentives will be determined subsequently by way of a further notification. The GoI has not issued such notification.
We have also claimed benefits of tax incentives under section 80 IA of the Income-tax Act since Fiscal Year 2014. We believe that we are entitled to the tax benefits under section 80 IA of the Income-tax Act on our entire income. However, the Central Board of Direct Taxes could have a contrary view in terms of the availability of tax benefits to us in respect of certain forms of income. Any ruling by the tax authorities to the contrary could have an adverse effect on our business, cash flows and results of operations. These tax incentives are available to us for a period of 10 consecutive years in a block of 15 years from commencement of operations. We have paid MAT under the provisions of the Income-tax Act, and therefore, when we earn profit, we will be eligible for MAT credit subject to provisions of income tax act.
49 Availability and Cost of Financing for Capital Expenditure
We operate in a capital-intensive industry that requires substantial amounts of capital expenditure for the development of container terminals and infrastructure and the procurement of equipment. Our ability to continue to develop our business depends in part on our ability to make capital expenditures associated with the modernization of our facilities, replacing and upgrading our equipment and updating our technology which involves substantial capital investment. In Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2020, our capital expenditures (comprising payment for purchase of property, plant and equipment (including capital work-in-progress and capital advances)) totaled `11,834.65 million, `10,162.71 million, `475.75 million and `69.74 million, respectively.
Historically, we have funded our capital expenditures through debt financing from bank loans and equity from our shareholders. Our capital expenditure plans are subject to our ability to generate sufficient cash flows from our operations and the availability and terms of external financing. We aim to finance our capital expenditures through cash flow from operations, and additional debt financing from the most appropriate source, as required.
Natural hedging of the U.S. dollar revenue stream by issuance of U.S. dollar debt
We benefit from natural hedging of U.S. dollar because a majority of our sales are denominated in U.S. dollars and we strategically denominate a majority of our debt in U.S. dollars to match the projected cash flows from operations. As the majority of our earnings are denominated in the U.S. dollar, we are naturally hedged to a large extent against our non-Rupee liabilities, including debt proposed to be refinanced with the proceeds from this Offering. However, as our financial statements are presented in Rupee, we are subject to a foreign currency translation risk, and therefore, from a financial reporting perspective, our results of operations and financial condition may be affected by fluctuations in the Rupee relative to other currencies.
Critical Accounting Policies
Certain of our accounting policies require our management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.
The key assumptions concerning the future and other key sources of estimates or uncertainty at the reporting date that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next Fiscal Year, are described below. We based our assumptions and estimates on parameters available when the financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances arising that are beyond our control. Such changes are reflected in the assumptions when they occur.
We believe the following are the most relevant critical accounting policies, related judgments and estimates used in the preparation of our last audited financial statements.
Basis of Preparation
The financial statements of the Company have been prepared in accordance with the Ind AS notified under the Companies (Indian Accounting Standards) Rules, 2015 (as amended from time to time) and presentation requirements of division II of schedule III to the Companies Act, 2013 (Ind AS compliant schedule III), as applicable to the Company.
50 The Financial Statements have been prepared on the historical cost basis, except for the following assets and liabilities which have been measured at fair value:
• Derivative financial instruments including current investments;
• Lease liabilities; and
• Certain financial assets and liabilities measured at fair value.
Foreign currency translation
The Company’s financial statements are presented in INR, which is functional currency of the Company. The Company determines the functional currency and items included in the financial statements are measured using that functional currency.
Transactions and balances
Transactions in foreign currencies are initially recorded by the Company at their respective functional currency spot rates at the date the transaction first qualifies for recognition. However, for practical reasons, the Company uses an average rate if the average approximates the actual rate at the date of transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rates of exchange at the reporting date.
Exchange differences arising on settlement or translation of monetary items are recognized in profit or loss with the exception of the following:
Exchange differences arising on long-term foreign currency monetary items related to acquisition of a property, plant and equipment (including funds used for projects work in progress) recognized in the Indian generally accepted accounting principles (“Indian GAAP”) financial statements for the period ending immediately before the beginning of the first Ind AS financial reporting period i.e. March 31, 2016 are capitalized/decapitalised to cost of Property, Plant and Equipment and depreciated over the remaining useful life of the asset.
Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the date of initial transactions.
In determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which the Company initially recognizes the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Company determines the transaction date for each payment or receipt of advance consideration.
Fair value measurement
The Company measures financial instruments, such as, derivatives and current investments at fair value at each balance sheet date.
51 Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
• in the principal market for the asset or liability; or
• in the absence of a principal market, in the most advantageous market for the asset or liability.
The principal or the most advantageous market must be accessible by the Company.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy based on the lowest level input that is significant to the fair value measurement as a whole.
For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.
The Company’s management determines the policies and procedures for recurring fair value measurement, such as derivative instruments, investment in mutual funds and unquoted financial assets measured at fair value.
At each reporting date, the management of the Company analysis the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Company’s accounting policies. For this analysis, the management of the Company verifies the major inputs applied in the latest valuation by agreeing the information in the valuation computation to contracts and other relevant documents.
For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above.
Revenue Recognition
Revenue from contracts with customers is recognized when control of the goods or services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.
Port Operation Services
Revenue from port operation services including cargo handling, storage and other ancillary port services is recognized in the accounting period in which the services are transferred to the customers at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those services.
52 In cases where the contracts include multiple contract obligations, the transaction price will be allocated to each performance obligation based on the standalone selling prices. Where these prices are not directly observable, they are estimated based on standalone selling prices.
Estimates of revenues, costs or extent of progress toward completion are revised if circumstances change. Any resulting increases or decreases in estimated revenues or costs are reflected in profit or loss in the period in which the circumstances that give rise to the revision become known by management. In determining the transaction price for the sale of port operation services, the Company considers the effects of variable consideration and consideration payable to the customer.
Variable consideration in the form of volume discount
If the consideration in a contract includes a variable amount, the Company estimates the amount of consideration to which it will be entitled in exchange for transferring the services to the customer. The variable consideration is estimated at contract inception in some of the contract terms and constrained until it is highly probable that a significant revenue reversal in the amount of cumulative revenue recognized will not occur when the associated uncertainty with the variable consideration is subsequently resolved. Some contracts for the Port Operation services provide customers with volume rebates. The Company provides retrospective volume rebates to certain customers once the quantitative factors/conditions exceeds a threshold specified in the contract. Rebates are offset against amounts payable by the customer on one to one basis. To estimate the variable consideration for the expected future rebates, the Company applies the most likely amount method for contracts with a single-volume threshold. The selected method that best predicts the amount of variable consideration is primarily driven by the number of volume thresholds contained in the contract. The Company then applies the requirements on constraining estimates of variable consideration and recognizes a refund liability for the expected future rebates.
Contract balances
A contract asset is initially recognized for revenue earned from port operation services/other services as receipt of consideration is conditional on successful completion of services. Upon completion of services and acceptance by the customer, the amounts recognized as contract assets are reclassified to trade receivables. Contract assets are subject to impairment assessment.
Trade receivables
A receivable is recognized if an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due).
Contract liabilities
A contract liability is recognized if a payment is received or payment is due (whichever is earlier) from a customer before the Company deliver port services and transaction price is allocated to unsatisfied performance obligation in respect of storage and dispatch services of customers’ cargo lying at port. contract liabilities are recognized as revenue when the Company performs under the contract (i.e., delivery of services to the customer).
Assets and liabilities arising from rights of return
Refund liabilities: A refund liability is recognized for the obligation to refund some or all of the consideration received (or receivable) from the customer. The Company’s refund liabilities arise from the customer when the Company ultimately expects it will have to return the amount to the customer. The Company updates its estimates of refund liabilities (and the corresponding change in the transaction price) at the end of each reporting period.
53 Other Operating Income/Other Income
Income from the SEIS Scheme: Income from the export incentives under the SEIS Scheme of the GoI’s Foreign Trade Policy 2015-2020 on port services income are classified as “Other Operating Income” and this income is recognized based on the effective incentive rate under the scheme, provided no significant uncertainty exists for the measurability, realization and utilization of the credit under the scheme. The receivables related to the SEIS Scheme licenses are classified as “Other Non-Financial Assets.”
Interest Income: For all debt instruments measured either at amortized cost or at fair value through other comprehensive income, interest income is recorded using the effective interest rate (“EIR”). EIR is the rate that exactly discounts the estimated future cash payments or receipts over the expected life of the financial instrument or a shorter period, where appropriate, to the gross carrying amount of the financial asset or to the amortized cost of a financial liability. Interest income is included in finance income in the statement of profit and loss.
Rental Income: Rental Income arising from operating leases on Equipment is accounted for on straight-line basis over on lease term and included in ‘other income’ in the statement of Profit and loss.
Government Grants: Government grants are recognized where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the period that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognized as income in equal amounts over the expected useful life of the related asset.
Waterfront royalty on cargo under the concession agreement executed by APSEZ with the GMB is paid at concessional rate in terms of rate prescribed by the GMB and notified in official gazette of Government of Gujarat, wherever applicable.
Property, plant and equipment: Property, plant and equipment (including capital work-in-progress) is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of purchase, cost of replacing part of the plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of plant and equipment are required to be replaced at intervals, the company depreciates them separately based on their specific useful lives or over the balance life of the parent asset, as applicable. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred.
Capital work-in-progress comprises of construction and procurement cost of port terminal related infrastructure project. Cost of capital work in progress includes direct cost in the nature of Engineering, Procurement and Construction Charges (EPC Charges) paid/payable to contractor and other direct and indirect cost incurred during the construction phase which are attributable to procurement and development of the project.
Borrowing cost relating to acquisition/construction of Property, Plant and Equipment which take substantial period of time to get ready for its intended use are also included to the extent they relate to the period till such assets are ready to be put to use. All other costs are recognized in the profit or loss as incurred.
The Company adjusts exchange differences arising on translation difference/settlement of long-term foreign currency monetary items outstanding in the Indian GAAP financial statements for the period ending immediately before March 31, 2016 (the beginning of the first Ind AS financial statements), and pertaining to the acquisition of a depreciable asset to the cost of asset, and depreciates the cost of asset over the remaining life of the asset. The depreciation on such foreign exchange difference is recognized from the first day of the financial year.
54 Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets as prescribed under Part C of Schedule II of the Companies Act 2013, except for the assets mentioned below for which useful life estimated by the management. The Identified component of property, plant & equipment are depreciated over their useful lives and the remaining components are depreciated over the life of the principal assets. The management believes that these estimated useful lives are realistic and reflect fair approximation of the period over which the assets are likely to be used.
The Company has estimated the following useful life to provide depreciation on its certain property, plant and equipment based on assessment made by expert and management estimate.
Assets Estimated Useful Life
Marine Structure, building and back up yard . . . . 50 Years as per Sub-Concession Agreement.
An item of property, plant and equipment covered under Sub-Concession Agreement, shall be transferred to and shall vest in Grantor (government authorities) at the end of concession agreement. In cases, where the Company is expected to receive consideration of residual value of property from grantor at the end of concession period, the residual value of contracted property is considered as the carrying value at the end of concession period based on depreciation rates as per management estimate, Sub-Concession Agreement and Schedule II of the Companies Act, 2013 and in other cases it is at a nil amount.
An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognized.
The residual values, useful lives and methods of depreciation of property, plant and equipment are reviewed at each financial year end and adjusted prospectively, if appropriate.
Borrowing Costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. Borrowing cost also includes exchange differences to the extent regarded as an adjustment to the borrowing costs.
Leases
The determination of whether an arrangement is (or contains) a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement.
The Company as lessee: Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.
Finance leases are capitalized at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the statement of profit and loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company’s general policy on the borrowing costs, contingent rentals are recognized as expenses in the periods in which they are incurred.
55 A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term.
Operating lease payments are recognized as an expense in the statement of profit and loss on a straight-line basis over the lease term.
The Company as a lessor: Leases in which the Company does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Rental income from operating lease is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.
Leases are classified as finance leases when substantially all of the risks and rewards of ownership transfer from the Company to the lessee. Amounts due from lessees under finance leases are recorded as receivables at the Company’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease.
Ind AS 116:
The Company assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.
The Company as a lessee: The Company applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Company recognizes lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. i. Right-of-use assets:
The Company recognizes right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows:
Assets Estimated Useful Life
Right-of-use of Land...... Over the balance period of the Sub-Concession Agreement i.e. up to February 16, 2031 Right-of-use of Infrastructure Usage Right...... Over the balance period of Sub-Concession Agreement i.e. up to February 16, 2031 from the date of addition (which is 12-18 years).
If ownership of the leased asset transfers to the Company at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment.
56 ii. Lease Liabilities:
At the commencement date of the lease, the Company recognizes lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments (including in substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Company and payments of penalties for terminating the lease, if the lease term reflects the Company exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognized as expenses (unless they are incurred to produce inventories) in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Company uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. iii. Short-term leases and leases of low-value assets:
The Company applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognized as expense on a straight-line basis over the lease term.
The Company as a lessor: Leases in which the Company does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Rental income from operating lease is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.
Leases are classified as finance leases when substantially all of the risks and rewards of ownership transfer from the Company to the lessee. Amounts due from lessees under finance leases are recorded as receivables at the Company’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the net investment outstanding in respect of the lease.
Impairment of non-financial assets
The Company assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, The Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or group of assets. When the carrying amount of an asset or cash-generating unit exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
57 In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used.
The Company bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Company’s cash-generating unit to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. For longer periods, a long-term growth rate is calculated and applied to project future cash flows after the fifth year. To estimate cash flow projections beyond periods covered by the most recent budgets/forecasts, the Company extrapolates cash flow projections in the budget using a steady or declining growth rate for subsequent years, unless an increasing rate can be justified. In any case, this growth rate does not exceed the long-term average growth rate for the products, industries, or country or countries in which the entity operates, or for the market in which the asset is used. After impairment, depreciation is provided on the revised carrying amount of the assets over its remaining useful life.
Taxes
Tax expense comprises of current income tax and deferred tax.
Current income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. Current income tax (including Minimum Alternate Tax (“MAT”)) is measured at the amount expected to be paid to the tax authorities in accordance with the Income Tax Act, 1961 enacted in India. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted, at the reporting date.
Current income tax relating to items recognized outside the statement of profit and loss is recognized outside the statement of profit and loss (either in other comprehensive income (“OCI”) or in equity). Current tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity. The management of the Company periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred tax
Deferred tax is provided using the liability approach on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date.
Deferred tax liabilities are recognized for all taxable temporary differences, except when the deferred tax liability arises from the initial recognition of an asset or liability in a transaction that affects neither the accounting profit nor taxable profit or loss.
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except when the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that affects neither the accounting profit nor taxable profit or loss.
58 The Company is eligible and claiming tax deductions available under section 80IA of the Income Tax Act, 1961 with effect from Fiscal Year 2014. In view of Company availing tax deduction under Section 80IA of the Income Tax Act, 1961, deferred tax has been recognized in respect of temporary difference, which reverse after the tax holiday period in the year in which the temporary difference originate and no deferred tax (assets or liabilities) is recognized in respect of temporary difference which reverse during tax holiday period, to the extent such gross total income is subject to the deduction during the tax holiday period. For recognition of deferred tax, the temporary difference which originate first are considered to reverse first.
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient future taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.
Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss (either in other comprehensive income or in equity). Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity.
Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax relate to the same tax authority.
The Company recognizes tax credit in the nature of MAT credit as an asset only to the extent that there is sufficient taxable temporary difference/convincing evidence that the company will pay normal income tax during the specified period, i.e., the period for which tax credit is allowed to be carried forward. In the year in which the Company recognizes tax credit as an asset, the said asset is created by way of tax credit to the statement of profit and loss. The Company reviews the such tax credit asset at each reporting date and writes down the asset to the extent the Company does not have sufficient taxable temporary difference/convincing evidence that it will pay normal tax during the specified period. Deferred tax includes MAT tax credit.
Provisions
General: Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to a provision is presented in the statement of profit and loss.
Contingent Liabilities: Contingent liabilities may arise from litigation, taxation and other claims against the Company. Where it is management’s assessment that the outcome is uncertain or cannot be reliably quantified, the claims are disclosed as contingent liabilities unless the likelihood of an adverse outcome is remote such contingent liabilities are disclosed in the notes but are not provided for in the financial statements. Although there can be no assurance regarding the final outcome of the legal proceedings, the Company does not expect them to have a materially adverse impact on the Company’s financial position.
Retirement and other employee benefits
Defined Contribution Plan: Retirement benefit in the form of provident fund is a defined contribution scheme. The Company has no obligation, other than the contribution payable to the provident fund. The Company recognizes contribution payable to the provident fund scheme as an expense, when an employee renders the related service. If the contribution payable to the scheme for service received before the balance sheet date exceeds the contribution already paid, the deficit payable to the scheme is recognized as a liability after deducting the contribution already paid.
59 Defined Benefits Plan: The Company operates a defined benefit gratuity plan in India, which requires contributions to be made to a separately administered fund. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method.
Re-measurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognized immediately in the balance sheet with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Re-measurements are not reclassified to profit or loss in subsequent periods.
Past service costs are recognized in profit or loss on the earlier of:
• The date of the plan amendment or curtailment; and
• The date that the Company recognizes related restructuring costs
Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Company recognizes the following changes in the net defined benefit obligation as an expense in the statement of profit and loss:
• Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and
• Net interest expense or income.
Financial instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.
Financial assets
Initial recognition and measurement: All financial assets are recognized initially at fair value plus in case of financial asset not recorded at fair value through profit and loss, transaction cost that are attributable to the acquisition of the financial assets.
The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Company’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component or for which the Company has applied the practical expedient, are measured at the transaction price determined under Ind AS 115.
In order for a financial asset to be classified and measured at amortized cost, it needs to give rise to cash flows that are solely payments of principal and interest (“SPPI”) on the principal amount outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level. Financial assets with cash flows that are not SPPI are classified and measured at fair value through profit or loss, irrespective of the business model.
The Company’s business model for managing financial assets refers to how it manages its financial assets in order to generate cash flows. The business model determines whether cash flows will result from collecting contractual cash flows, selling the financial assets, or both. Financial assets classified and measured at amortized cost are held within a business model with the objective to hold financial assets in order to collect contractual cash flows while financial assets classified and measured at fair value through OCI are held within a business model with the objective of both holding to collect contractual cash flows and selling.
60 Purchases or sales of financial assets that require delivery of assets within a time frame established by regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date that the Company commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in two categories:
• Financial assets instruments at amortized cost (debt instruments); and
• Financial assets at fair value through profit or loss (“FVTPL”).
Financial assets at amortized cost (debt instruments): A ‘financial assets’ is measured at the amortized cost if both the following conditions are met:
(a) The asset is held within a business model whose objective is to hold assets for collecting contractual cash flows; and
(b) Contractual terms of the asset give rise on specified dates to cash flows that are SPPI on the principal amount outstanding.
This category is the most relevant to the Company. After initial measurement, such financial assets are subsequently measured at amortized cost using the EIR method. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included in finance income in the profit or loss. The losses arising from impairment are recognized in the profit or loss. The Company’s financial assets at amortized cost includes trade and other receivables, loans, Security and Other deposits included under Other financial assets.
Financial Assets at FVTPL: Financial assets at fair value through profit or loss are carried in the balance sheet at fair value with net changes in fair value recognized in the statement of profit and loss.
This category includes derivative instruments and investments in equity instruments which the Company had not irrevocably elected to classify at fair value through OCI. Dividends on such investments are recognized in the statement of profit and loss when the right of payment has been established.
Financial Assets included within the FVTPL category are measured at fair value with all changes recognized in the P&L.
Derecognition: A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized (i.e. removed from the Company’s balance sheet) when:
• The rights to receive cash flows from the asset have expired, or
• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’arrangement; and either (a) the Company has transferred substantially all the risks and rewards of the asset, or (b) the Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
61 When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, it evaluates if and to what extent it has retained the risks and rewards of ownership. When it has neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of the asset, the Company continues to recognize the transferred asset to the extent of the Company’s continuing involvement. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.
Impairment of financial assets: The Company recognizes an allowance for expected credit losses (“ECLs”) for all debt instruments not held at fair value through profit or loss. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive, discounted at an approximation of the original effective interest rate. The expected cash flows will include cash flows from the sale of collateral held or other credit enhancements that are integral to the contractual terms.
ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Company follows ‘simplified approach’ for recognition of impairment loss allowance on trade receivables. Under the simplified approach the Company does not track changes in credit risk. Rather, it recognizes impairment loss allowance based on lifetime ECLs at each reporting date, right from its initial recognition. Lifetime ECL are the expected credit losses resulting from all possible default over the expected life of a financial instrument.
The Company considers a financial asset in default when contractual payments are overdue. However, in certain cases, the Company may also consider a financial asset to be in default when internal or external information indicates that the Company is unlikely to receive the outstanding contractual amounts in full before taking into account any credit enhancements held by the Company. A financial asset is written off when there is no reasonable expectation of recovering the contractual cash flows.
ECL impairment loss allowance (or reversal) recognized during the period is recognized as income/(expense) in the statement of profit and loss. This amount is reflected under the head “Other Expense” in the profit and loss statement.
The balance sheet presentation for various financial instruments is described below:
Financial assets measured as at amortized cost: ECL is presented as an allowance, i.e., as an integral part of the measurement of those assets in the balance sheet. The allowance reduces the net carrying amount. Until the asset meets write-off criteria, the Company does not reduce impairment allowance from the gross carrying amount.
62 Financial liabilities and equity instruments
Classification as debt or equity: Financial liabilities and equity instruments issued by the Company are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument.
Equity instruments: An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all of its liabilities. Equity instruments are recorded at the proceeds received, net of direct issue costs.
Perpetual debt: The Company issued a subordinated perpetual debt, redeemable at the Company’s option, with a fixed coupon that can be deferred indefinitely if the Company does not pay a dividend on its equity shares. The Company classifies these instruments as equity under Ind AS 32.
Initial recognition and measurement: Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives, as appropriate. All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Company’s financial liabilities include trade and other payables, loans and borrowings and derivative financial instruments.
Subsequent measurements: For purposes of subsequent measurement, financial liabilities are classified in two categories: (i) financial liabilities at fair value through profit or loss; and (ii) financial liabilities at amortized cost (loans and borrowings).
Financial liabilities at fair value through profit or loss: Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss. Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the near term. This category also includes derivative financial instruments entered into by the Company that are not designated as hedging instruments in hedge relationships as defined by Ind AS 109.
Gains or losses on liabilities held for trading are recognized in the profit or loss. Financial liabilities designated upon initial recognition at fair value through profit or loss are designated as such at the initial date of recognition, and only if the criteria in IndAS 109 are satisfied. For liabilities designated as FVTPL, fair value gains/losses attributable to changes in own credit risk are recognized in OCI. These gains/loss are not subsequently transferred to the profit and loss statement. However, The Company may transfer the cumulative gain or loss within equity. All other changes in fair value of such liability are recognized in the statement of profit or loss.
Loans and borrowings: This is the category most relevant to the Company. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortization is included as finance costs in the statement of profit and loss. This category generally applies to borrowings.
63 Derecognition: A financial liability is derecognized when the obligation under the liability is discharged or canceled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying amounts is recognized in the statement of profit or loss.
Reclassification of financial assets: The Company determines classification of financial assets and liabilities on initial recognition. After initial recognition, no reclassification is made for financial assets which are equity instruments and financial liabilities. For financial assets which are debt instruments, a reclassification is made only if there is a change in the business model for managing those assets. Changes to the business model are expected to be infrequent. The Company’s senior management determines change in the business model as a result of external or internal changes which are significant to the Company’s operations. Such changes are evident to external parties. A change in the business model occurs when the Company either begins or ceases to perform an activity that is significant to its operations. If the Company reclassifies financial assets, it applies the reclassification prospectively from the reclassification date which is the first day of the immediately next reporting period following the change in business model. The Company does not restate any previously recognized gains, losses (including impairment gains or losses) or interest.
Offsetting of financial instruments: Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
Derivative financial instruments
Initial recognition and subsequent measurement: The Company uses derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risks, such as forward currency contracts, interest rate swaps, principal only swaps and cross currency swaps to hedge its foreign currency risks. Such derivative financial instruments are initially recognized at FVTPL on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative.
Any gains or losses arising from changes in the fair value of derivative financial instrument or on settlement of such derivative financial instruments are recognized in statement of profit and loss and are classified as foreign exchange (gain)/loss except those relating to borrowings, which are separately classified under finance cost.
New standards, appendices to Ind AS and amendments adopted by the Company
The accounting policies adopted in the preparation of the financial statements are consistent with those followed in the preparation of the Company’s audited financial statements for the year ended March 31, 2019, except for the adoption of new standards effective as of April 1, 2019 as mentioned below. The Company has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.
Ind AS 116 Leases: Ind AS 116 supersedes Ind AS 17 Leases including its appendices (Appendix C of Ind AS 17 Determining whether an Arrangement contains a Lease, Appendix A of Ind AS 17 Operating Leases-Incentives and Appendix B of Ind AS 17 Evaluating the Substance of Transactions Involving the Legal Form of a Lease). The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases.
64 Lessor accounting under Ind AS 116 is substantially unchanged from Ind AS 17. Lessors will continue to classify leases as either operating or finance leases using similar principles as in Ind AS 17. Therefore, Ind AS 116 did not have an impact for leases where the Company is the lessor.
The Company adopted Ind AS 116 using the modified retrospective method of adoption and applied the Standard to its leases on a prospective basis. The adoption of the standard has led to re-classification of certain component of property, plant and equipment and intangibles to right to use assets. The Company did not identify and recognize any material lease transactions on adoption of Ind AS 116. The Company elected to use the transition practical expedient allowing the standard to be applied only to contracts that were previously identified as leases applying Ind AS 17 and appendix A to Ind AS 17 Operating Leases-Incentives, appendix B to Ind AS 17 Evaluating the Substance of Transactions Involving the Legal Form of a Lease and appendix C to Ind AS 17 Determining whether an Arrangement contains a Lease. The Company also elected to use the recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less and do not contain a purchase option (‘short-term leases’) and lease contract for which the underlying asset is of low value (‘low-value assets’).
Leases Previously classified as finance leases: The Company did not change the initial carrying amounts of recognized assets and liabilities at the date of initial application for lease previously recognized as finance leases i.e., the right to use of assets and lease liabilities equal to the lease assets and liabilities recognized under Ind AS 17. The requirements of Ind AS 116 was applied to those leases from April 1, 2019.
Other Amendments: Apart from aforesaid amendments, below mentioned amendments in Ind AS did not have any material impact to the financial statements.
• Appendix C to Ind AS 12 – uncertainty over income tax treatment;
• Amendment to Ind AS 12 – income taxes;
• Ind AS 19 – plan amendment, curtailment or settlement;
• Ind AS 109 – prepayment features with negative compensation;
• IndAS 23 – borrowing costs;
• Ind AS 28 – long-term interests in associates and joint ventures;
• Ind AS 103 – business combinations; and
• Ind AS 111 – Joint Arrangements.
65 Results of Operations
The following table sets forth select financial data from our statement of profit and loss for the periods indicated, the components of which are also expressed as a percentage of total income for such periods.
FiscalYear SixmonthsendedSeptember30,
2018 2019 2020 2019 2020
% of % of % of % of % of ` in total ` in total ` in total ` in total ` in total million income million income million income million income million income Income Revenue from Operations...... 6,433.87 99.3 9,139.90 99.3 9,282.60 99.0 4,380.01 98.9 4,948.21 99.0 OtherIncome...... 42.63 0.7 62.47 0.7 98.00 1.0 48.08 1.1 50.07 1.0
Total Income ...... 6,476.50 100.0 9,202.37 100.0 9,380.60 100.0 4,428.09 100.0 4,998.28 100.0
Expenses OperatingExpenses ...... 1,549.49 23.9 2,358.73 25.6 2,215.91 23.6 1,096.32 24.8 1,135.04 22.7 Revenue Sharing Expense...... 1,099.29 17.0 1,718.98 18.7 1,617.73 17.2 762.23 17.2 935.52 18.7 EmployeeBenefitsExpense...... 78.50 1.2 128.31 1.4 140.17 1.4 65.87 1.5 66.56 1.3 Depreciation and Amortization Expense . . . 1,557.63 24.1 2,427.02 26.4 2,431.50 25.9 1,211.83 27.4 1,222.11 24.5 Foreign Exchange/Derivatives (Gain)/Loss (net)...... (110.02) (1.7) 1,406.83 15.3 2,557.12 27.3 608.69 13.7 (1,063.62) (21.3) FinanceCosts...... 1,028.72 15.9 2,061.04 22.4 2,248.12 24.0 1,115.97 25.2 714.38 14.3 InfrastructureUsageRightsCharges. . . . . 150.00 2.3 46.90 0.5 47.03 0.5 23.52 0.5 23.52 0.5 OtherExpenses...... 156.18 2.4 242.32 2.6 250.59 2.7 126.46 2.9 132.61 2.7
Total Expenses ...... 5,509.79 85.1 10,390.13 112.9 11,508.17 122.7 5,010.79 113.2 3,166.12 63.3
Profit/(Loss) Before Tax ...... 966.71 14.9 (1,187.76) (12.9) (2,127.57) (22.7) (582.70) (13.2) 1,832.16 36.7
Tax Expense: CurrentTax...... 208.24 3.2 – – – – – – 320.11 6.4 Taxchargerelatingtoearlierperiods . . . . 58.63 0.9 0.05 0.0 8.85 0.1 8.85 0.2 – – DeferredTaxcharge...... 794.98 12.3 825.92 9.0 625.56 6.7 310.47 7.0 202.99 4.1 Less: Tax (Credit) under Minimum Alternate Tax(MAT) ...... (563.09)# (8.7) (0.05) 0.0 – – – – (320.11) (6.4)
Total Tax Expenses ...... 498.76 7.7 825.92 9.0 634.41 6.8 319.32 7.21 202.99 4.1
Profit/(Loss) for the period ...... 467.95 7.2 (2,013.68) (21.9) (2,761.98) (29.5) (902.02) (20.4) 1,629.17 32.6
Other Comprehensive Income Other comprehensive income not to be reclassified to profit or loss in subsequent periods Re-measurement gains/(losses) on defined benefitplans...... 0.21 0.0 (3.11) (0.00) (2.02) (0.0) (1.50) 0.0 (1.10) 0.0 IncomeTaxCredit/(Charge)...... (0.07) (0.0) 1.09 0.00 0.71 0.0 0.52 0.0 0.38 0.0
Total Other Comprehensive Income/(Loss) for the period net of tax ...... 0.14 0.0 (2.02) (0.00) (1.31) 0.0 (0.98) 0.0 (0.72) 0.0
Total Comprehensive Income for the period ...... 468.09 7.2 (2,015.70) (21.9) (2,763.29) (29.5) (902.99) (20.4) 1,628.46 32.6
# Tax (Credit) under Minimum Alternate Tax (MAT) includes tax credit `354.85 million pertaining to previous years.
66 Total Income. Total income consists of revenue from operations and other income.
• Revenue from Operations. Revenue from operations comprises (i) income from contracts with customers; and (ii) other operating income. Income from contracts with customers consists of income derived from our port terminal operations and other operating income consists of incentives under the SEIS Scheme of the GoI. Income from contracts with customers accounted for 95.8%, 94.9%, 93.2%, 92.2% and 99.6% of revenue from operations in Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2019 and 2020, respectively.
• Other Income. Other income includes interest income from bank deposits, income tax refunds, other deposits, profit on sale of current investments, fair value on current investment at fair value through profit or loss on sale of current investment, equipment hire income and income from sale of inventory. Other income as a percentage of our total income was 0.7%, 0.7%, 1.0%, 1.1% and 1.0% in Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2019 and 2020, respectively.
Total Expenses. Total expenses consist of operating expenses, revenue sharing expense, employee benefits expense, depreciation and amortization expenses, foreign exchange/derivatives loss or (gain) (net), finance costs, infrastructure usage rights charges and other expenses. Our total expenses as a percentage of our total income was 85.1%, 112.9%, 122.7%, 113.2% and 63.3% in Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2019 and 2020, respectively.
• Operating Expenses. Operating expenses include cargo handling and other charges paid to sub-contractors (including RFID tagging cost and net of reimbursements from sub-contractors), equipment hire charges, customer claims, waterfront charges (a monthly waterfront royalty payable on every container handled at the Mundra Port to APSEZ) power and fuel costs, spare parts and consumables and contractual manpower charges. Operating expenses as a percentage of total income were 23.9%, 25.6%, 23.6%, 24.8% and 22.7% in Fiscal Years 2018, 2019 and 2020, and for the six months ended September 30, 2019 and 2020, respectively.
• Revenue Sharing Expense. Revenue sharing expense relates to the sharing of income earned from port terminal operations at a rate stipulated under the Sub-Concession Agreement with APSEZ in consideration of the rights granted to the Company by APSEZ to develop, operate and maintain CT-3 and CT-3 Extension and the right to carry out revenue generating activities. Revenue sharing expenses as percentage of our total Income was 17.0%, 18.7%, 17.2%, 17.2% and 18.7% in Fiscal Year 2018, 2019 and 2020 and for the six months ended September 30, 2019 and 2020, respectively.
• Employee Benefits Expense. Employee benefits expense consists of salaries and wages, contributions to provident and other funds for the benefit of our employees, gratuity expenses (compensation paid to the employees as required under the Payment of Gratuity Act, 1972) and staff welfare expenses. Employee benefits expense as a percentage of total income was 1.2%, 1.4%, 1.5%, 1.5% and 1.3% in Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2019 and 2020, respectively.
• Depreciation and Amortization Expense. Depreciation and amortization expense mainly relates to the depreciation and amortization of our plant, property and equipment, right-of-use assets and intangible assets. Depreciation and amortization expense as a percentage of total income was 24.1%, 26.4%, 25.9%, 27.4% and 24.5% in Fiscal Years 2018, 2019 and 2020, in the six months ended September 30, 2019 and 2020, respectively.
• Foreign Exchange/Derivatives Loss or (Gain) (Net). Foreign exchange/derivatives loss (gain) relate to the foreign exchange fluctuation (including foreign exchange loss (gain) on borrowings)and changes in fair valuation loss/(gain) of derivatives not designated as hedge. Foreign exchange/ derivatives loss or (gain) as a percentage of total income were (1.7%), 15.3%, 27.3%, 13.7% and (21.3)% in Fiscal Years 2018, 2019 and 2020, and for the six months ended September 30, 2019 and 2020, respectively, mainly on account of fluctuations in the U.S. dollar exchange rate (against Indian Rupee) on account of our foreign currency borrowings.
67 • Finance Costs. Finance costs consist primarily of (A) interest expense on (i) long term loans, buyer’s credit and short term loans (net of interest costs capitalized to property, plant and equipment on our balance sheet), (ii) inter-corporate deposits and shareholders’ loans, (iii) finance charges payable under lease obligations, and (iv) capital creditors; (B) banks and other finance charges; and (C) Loss/(Gain) on derivatives/swap contracts on borrowings not designated as hedges (net). Finance costs as a percentage of total income were 15.9%, 22.4%, 24.0%, 25.2% and 14.3% in Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2019 and 2020, respectively.
• Infrastructure usage rights charges. Infrastructure usage rights charges consist of the amortization of the charges we pay to APSEZ for use of marine facilities, roads which connect the Terminals to the nearest highway, rail connectivity and electricity, water and telecommunication facilities at the Terminals pursuant to the Infrastructure Usage Agreements. Infrastructure usage rights charges as a percentage of total income were 2.3%, 0.5%, 0.5% 0.5% and 0.5% in Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2019 and 2020, respectively.
• Other Expenses. Other expenses include rent, rates and taxes, insurance expenses, security manpower services, communication expenses, payment to auditors, legal & professional expenses, traveling and conveyance expenses, legal and professional expenses, management support charges, IT support services, payment to auditors, corporate social responsibility expenses, other repairs and maintenance expenses and miscellaneous expenses. Management support charges are the charges paid to APSEZ for the financing, commercial and technical services provided by APSEZ’s staff. Other expenses as a percentage of total income were 2.4%, 2.6%, 2.7%, 2.9% and 2.7% in Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2019 and 2020, respectively.
Tax Expense. Tax expense comprises current tax (including MAT and tax charge relating to earlier periods), tax credit under MAT and deferred tax charge.
Six Months ended September 30, 2020 Compared to Six Months ended September 30, 2019
Total Income. Total income increased by 12.9% to `4,998.28 million in the six months ended September 30, 2020 from `4,428.09 million in the six months ended September 30, 2019.
• Revenue from Operations. Revenue from operations increased by 13.0% to `4,948.21 million in the six months ended September 30, 2020 from `4,380.01 million in the six months ended September 30, 2019 which was primarily due to an increase in container volume handled. For the first quarter of Fiscal Year 2021, container volume was 0.44 MTEUs (as compared to 0.49 MTEUs of the fourth quarter of Fiscal Year 2020), which was mainly due to the GoI’s country-wide lockdown and other restrictions. Thereafter, volumes gradually increased and eventually surpassed the pre-COVID-19 levels following the easing of COVID-19 restrictions and the container volume increased to 0.60 MTEUs in the second quarter of Fiscal Year 2021.
• Other Income. Other income increased by 4.2% to `50.07 million in the six months ended September 30, 2020 from `48.08 million in the six months ended September 30, 2019. This increase was primarily attributable to increase in interest income on bank deposits.
Total Expenses. Total expenses decreased by 36.8% to `3,166.12 million in the six months ended September 30, 2020 from `5,010.78 million in the six months ended September 30, 2019.
• Operating Expenses. Operating expenses increased by 3.5% to `1,135.04 million in the six months ended September 30, 2020 from `1,096.32 million in the six months ended September 30, 2019. This increase was primarily due to (i) an increase in waterfront charges by 20.6% to `185.43 million in the six months ended September 30, 2020 from `153.75 million in the six months ended September 30, 2019 due to an increase in cargo volume handled, and (ii) an increase in power and fuel cost by 28.9% to `85.20 million in the six months ended September 30, 2020 from `66.09 million in the six months ended September 30, 2019 which was due to rise in price of fuel cost as compared to the
68 comparative period. This increase was partially offset by a reduction in spare parts and consumables expenses by 29.7% to `30.94 million in the six months ended September 30, 2020 from `44.02 million in the six months ended September 30, 2019 owing to cyclical nature of repair and maintenance required for various equipment.
• Revenue Sharing Expenses. Revenue sharing expenses increased by 22.7% to `935.52 million in the six months ended September 30, 2020 from `762.23 million in the six months ended September 30, 2019. This increase was due to an increase in the volume of cargo that we handled the corresponding increase in revenue earned.
• Employee Benefits Expense. Employee benefits expense increased by 1.1% to `66.56 million in the six months ended September 30, 2020 from `65.87 million in the six months ended September 30, 2019. This increase was a result of primarily due to increases in employee’s welfare and other expenses.
• Depreciation and Amortization Expense. Depreciation and amortization expense stayed relatively constant at `1,222.11 million in the six months ended September 30, 2020 as compared to `1,211.83 million in the six months ended September 30, 2019.
• Foreign Exchange/Derivatives Loss or (Gain) (net). We recorded on net foreign exchange and derivative gain of 274.7% to `(1,063.62) million in the six months ended September 30, 2020 as compared to a loss of `608.69 million in the six months ended September 30, 2019, mainly on account of fluctuations in the U.S. dollar to Indian Rupee exchange rate (against Indian Rupee) on account of our foreign currency borrowings.
• Finance Costs. Finance costs decreased by 36.0% to `714.38 million in the six months ended September 30, 2020 from `1,115.97 million in the six months ended September 30, 2019. This decrease was primarily a result of a decrease in the interest on long term loans, buyers’ credit and short-term loans, which was a result of repayment of loans and a decrease of 118.6% in loss on derivatives/swap contracts on borrowings not designated as hedges (net) to `(30.52) million from `164.30 million, which was a result of fluctuations in the U.S. dollar exchange rate against Indian Rupee.
• Infrastructure Usage Rights Charges. Infrastructure usage rights charges remained the same at `23.52 million in the six months ended September 30, 2020 and the six months ended September 30, 2019, respectively.
Other Expenses. Other expenses increased by 4.9% to `132.61 million in the six months ended September 30, 2020 from `126.46 million in the six months ended September 30, 2019. This increase was primarily due to (i) an increase in rent expenses by 23.9% to `12.58 million in the six months ended September 30, 2020 from `10.55 million in the six months ended September 30, 2019, (ii) an increase in security manpower charges by 49.7% to `8.46 million in the six months ended September 30, 2020 from `5.65 million in the six months ended September 30, 2019, and (iii) an increase in insurance expenses by 38.9% to `25.57 million in the six months ended September 30, 2020 from `18.40 million in the six months ended September 30, 2019. This was partially offset by a decrease in IT support services by 31.8% to `9.82 million in the six months ended September 30, 2020 from `14.4 million in the six months ended September 30, 2019 and a decrease in traveling and conveyance expense by 15.8% to `6.75 million in the six months ended September 30, 2020 from `8.02 million in the six months ended September 30, 2019.
(Loss)/Profit before Tax. We had a profit before tax of `1,832.16 million in the six months ended September 30, 2020 as compared to a loss before tax of `582.70 million in the six months ended September 30, 2019.
69 Tax Expense. Total tax expenses decreased by 36.4% to `202.99 million in the six months ended September 30, 2020 from `319.32 million in the six months ended September 30, 2019, primarily due to a 100.0% decrease in tax charge relating to earlier periods to `0.00 in the six months ended September 30, 2020 from `8.85 million in the six months ended September 30, 2019 and 34.6% decrease in deferred tax charge to `202.99 million in the six months ended September 30, 2020 from `310.5 million in the six months ended September 30, 2019.
(Loss)/Profit for the period. As a result of the foregoing, net income was a profit of `1,629.17 million in the six months ended September 30, 2020 as compared to a loss of `902.02 million in the six months ended September 30, 2019.
Fiscal Year 2020 Compared to Fiscal Year 2019
Total Income. Total income increased by 1.9% to `9,380.60 million in Fiscal Year 2020 from `9,202.37 million in Fiscal Year 2019.
• Revenue from Operations. Revenue from operations increased by 1.6% to `9,282.60 million in Fiscal Year 2020 from `9,139.90 million in Fiscal Year 2019. This increase was primarily due to an increase in other operating income (which comprised Government incentives on services—the SEIS Scheme incentives) by 34.9% to `632.77 million in Fiscal Year 2020 from `469.00 million in the Fiscal Year 2019, partially offset by a decrease in our income from port terminal operations by 0.2% to `8,649.83 million in Fiscal Year 2020 from `8,670.92 million in Fiscal Year 2019.
• Other Income. Other income increased by 56.9% to `98.00 million in Fiscal Year 2020 from `62.47 million in Fiscal Year 2019. This increase was primarily attributable to increases in bank deposit income, income tax refund and profit on sale of current investment, to `25.54 million, `11.48 million and `40.60 million in Fiscal Year 2020 from `6.87 million, `0.00 and `29.04 million, respectively, in Fiscal Year 2019, which was partially offset by the decrease in equipment hire income by 21.0% to `18.83 million in Fiscal Year 2020 from `23.85 million in Fiscal Year 2019.
Total Expenses. Total expenses increased by 10.8% to `11,508.17 million in Fiscal Year 2020 from `10,390.13 million in Fiscal Year 2019.
• Operating Expenses. Operating expenses decreased by 6.1% to `2,215.91 million in Fiscal Year 2020 from `2,358.73 million in Fiscal Year 2019. This decrease was primarily due to (i) a decrease in cargo handling/other charges to sub-contractors (including RFID tagging cost and net of reimbursement from sub-contractors) to `1,210.62 million in Fiscal Year 2020 from `1,286.30 million in Fiscal Year 2019, (ii) a decrease in equipment hire charges to `184.66 million in Fiscal Year 2020 from `198.78 million in Fiscal Year 2019, (iii) a decrease in power and fuel cost to `212.56 million in Fiscal Year 2020 from `233.32 million in Fiscal Year 2019 and (iv) a decrease in contractual manpower charges to `172.02 million in Fiscal Year 2020 from `215.37 million in Fiscal Year 2019. Such decreases were due to a decrease in volume of cargo handled by us during Fiscal 2020 compared to Fiscal Year 2019.
• Revenue Sharing Expenses. Revenue sharing expenses decreased by 5.9% to `1,617.73 million in Fiscal Year 2020 from `1,718.98 million in Fiscal Year 2019. This decrease was due to the lower volume of cargo that we handled and the subsequent revenue earned.
• Employee Benefits Expense. Employee benefits expense increased by 9.2% to `140.17 million in Fiscal Year 2020 from `128.31 million in Fiscal Year 2019. This increase was a result of increases in employees’ salaries and wages, welfare and other expenses, driven by the increase of the number of our employees.
70 • Depreciation and Amortization Expense. Depreciation and amortization expense stayed relatively constant at `2,431.50 million in Fiscal Year 2020 as compared to `2,427.02 million in Fiscal Year 2019.
• Foreign Exchange/Derivatives Loss or (Gain) (net). Net foreign exchange and derivative loss increased by 81.8% to `2,557.12 million in Fiscal Year 2020 from a loss of `1,406.83 million in Fiscal Year 2019, mainly on account of wide fluctuations in the U.S. dollar exchange rate on account of our foreign currency borrowings and change in fair value of derivatives against future receivables.
• Finance Costs. Finance costs increased by 9.1% to `2,248.12 million in Fiscal Year 2020 from `2,061.04 million in Fiscal Year 2019. This increase was primarily a result of an increase of 377.9% in loss on derivatives/swap contracts on borrowings not designated as hedges (net), on account of wide fluctuations in foreign exchange rate which was partially offset by a decrease in interest on capital creditors by 98.3% to `2.45 million in Fiscal Year 2020 from `147.83 million in Fiscal Year 2019.
• Infrastructure Usage Rights Charges. Infrastructure usage rights charges increased by 0.3% to `47.03 million in Fiscal Year 2020 from `46.90 million in Fiscal Year 2019.
• Other Expenses. Other expenses increased by 3.4% to `250.59 million in Fiscal Year 2020 from `242.32 million in Fiscal Year 2019. This increase was primarily due to a 75.8% increase in rent to `20.32 million in Fiscal Year 2020 from `11.56 million in Fiscal Year 2019, a 26.9% increase in security manpower charges to `14.20 million in Fiscal Year 2020 from `11.19 million in Fiscal Year 2019, a 10.0% increase in management support charges to `107.15 million in Fiscal Year 2020 from `97.41 million in Fiscal Year 2019 and an increase in allowance for trade receivables—credit impaired to `4.57 million in Fiscal Year 2020 from `0.00 in Fiscal Year 2019. The increase was partially offset by 31.5% decrease in traveling and conveyance to `14.20 million in Fiscal Year 2020 from `20.74 million in Fiscal Year 2019 and 55.9% decrease in corporate social responsibility expenses to `7.72 million Fiscal Year 2020 from `17.51 million in Fiscal Year 2019.
(Loss)/Profit before Tax. We had a loss before tax of `2,127.57 million in Fiscal Year 2020 as compared to a loss before tax of `1,187.76 million in Fiscal Year 2019.
Tax Expense. Total tax expenses decreased by 20.7% to `634.41 million in Fiscal Year 2020 from `825.92 million in Fiscal Year 2019, primarily due to a 24.3% decrease in deferred tax charge to `625.56 million in Fiscal Year 2020 from `825.92 million in Fiscal Year 2019, which was partially offset by a tax charge relating to earlier years of `8.85 million in Fiscal Year 2020 as compared to `0.00 in Fiscal Year 2019.
(Loss)/Profit for the year. As a result of the foregoing, net loss for the year increased by 37.2% to `2,761.98 million in Fiscal Year 2020 from `2,013.68 million in Fiscal Year 2019.
Fiscal Year 2019 Compared to Fiscal Year 2018
Total Income. Total income increased by 42.1% to `9,202.37 million in Fiscal Year 2019 from `6,476.50 million in Fiscal Year 2018.
• Revenue from Operations. Revenue from operations increased by 42.1% to `9,139.90 million in Fiscal Year 2019 from `6,433.87 million in Fiscal Year 2018. This increase was primarily due to an increase of 40.6% in income from port terminal operations to `8,670.92 million in Fiscal Year 2019 from `6,165.97 million in Fiscal Year 2018, as a result of the increase in cargo handling, storage and other ancillary port services we provided due to a 26.9% increase in cargo volume we handled from 1.52 MTEUs in Fiscal Year 2018 to 1.93 MTEUs in Fiscal Year 2019, Such increase was primarily attributable to the full year operation of the CT-3 Extension in Fiscal Year 2019 as it was transferred to us in November 2017.
71 • Other Income. Other income increased by 46.5% to `62.47 million in Fiscal Year 2019 from `42.63 million in Fiscal Year 2018. This increase was primarily attributable to increases in equipment hire income, bank deposit income and profit on sale of current investment, to `23.85 million, `6.87 million and `29.0 million in Fiscal Year 2019 from `9.74 million, `0.80 million and `25.49 million in Fiscal Year 2018, respectively.
Total Expenses. Total expenses increased by 88.6% to `10,390.13 million in Fiscal Year 2019 from `5,509.79 million in Fiscal Year 2018.
• Operating Expenses. Operating expenses increased by 52.2% to `2,358.73 million in Fiscal Year 2019 from `1,549.49 million in Fiscal Year 2018. This increase was primarily due to (i) an increase of 57.7% in cargo handling and other charges paid to sub-contractors to `1,286.30 million in Fiscal Year 2019 from `815.78 million in Fiscal Year 2018, (ii) an increase of 47.2% in waterfront charges to `323.77 million in Fiscal Year 2019 from `219.99 million in Fiscal Year 2018, (iii) an increase of 62.5% in contractual manpower charges to `215.37 million in Fiscal Year 2019 from `132.50 million in Fiscal Year 2018, (iv) an increase of 42.4% in power and fuel cost to `233.32 million in Fiscal Year 2019 from `163.82 million in Fiscal Year 2018, and (v) an increase of 38.8% in equipment hire charges to `198.78 million in Fiscal Year 2019 from `143.17 million in Fiscal Year 2018. Such increases of expenses were in line with the general increase of operations as a result of increase in cargo volumes handled by us.
• Revenue Sharing Expenses. Revenue sharing expenses increased by 56.4% to `1,718.98 million in Fiscal Year 2019 from `1,099.29 million in Fiscal Year 2018. This increase was due to a corresponding increase in our revenue as a result of higher amount of cargo handled and revenue share on the Government incentives on services—the SEIS Scheme recognized in Fiscal Year 2019 with retrospective effect from Fiscal Year 2016.
• Employee Benefits Expense. Employee benefits expense increased by 63.5% to `128.31 million in Fiscal Year 2019 from `78.50 million in Fiscal Year 2018. This increase was a result of increases in employee’s salaries and wages, welfare and other expenses, in line with the increase of the number of our employee base, the improvement of salaries and benefits and a one-time incentive provided to our employees (accounted under “salaries and wages”).
• Depreciation and Amortization Expense. Depreciation and amortization expense increased by 55.8% to `2,427.02 million in Fiscal Year 2019 from `1,557.63 million in Fiscal Year 2018. This increase was a result of increased depreciation and amortization expenses in all major categories of property, plant and equipment, attributable to primarily an increase of 59.4% in depreciation and amortization expense of plant and machinery to `1,108.49 million in Fiscal Year 2019 from `695.53 million in Fiscal Year 2018, and an increase of 39.4% in depreciation and amortization expense of leasehold land to `271.45 million in Fiscal Year 2019 from `194.79 million in Fiscal Year 2018. Such increases are attributable to the corresponding increase in our asset base following the capitalization of CT-3 Extension in November 2017.
• Foreign Exchange/Derivatives (Gain) or Loss (net). Net foreign exchange and derivative result reversed to a loss of `1,406.83 million in Fiscal Year 2019 from a gain of `110.02 million in Fiscal Year 2018, mainly on account of fluctuations in the U.S. dollar exchange rate (against Indian Rupee) on account of our foreign currency borrowings and change in fair value of derivatives against future receivables.
72 • Finance Costs. Finance costs increased by 100.3% to `2,061.04 million in Fiscal Year 2019 from `1,028.72 million in Fiscal Year 2018. This increase was primarily a result of an increase of 190.9% in the interest on long term loans, buyers’ credit, short term loans to `822.63 million in Fiscal Year 2019 from `282.74 million in Fiscal Year 2018 and an increase of 17.4% in interest on inter corporate deposit to `880.11 million in Fiscal Year 2019 from `749.62 million in Fiscal Year 2018, due to an increase in our borrowings for the purchase of power, plant and equipment, and payment of the fees to APSEZ in connection with the CT-3 Extension.
• Infrastructure Usage Rights Charges. Infrastructure usage rights charges decreased by 68.7% to `46.90 million in Fiscal Year 2019 from `150.00 million in Fiscal Year 2018. This decrease was on account of the retrospective application of the infrastructure usage rights charges from Fiscal Year 2016 as per the terms of the Infrastructure Use and Port Services Agreements, the impact of which was given in Fiscal Year 2018.
• Other Expenses. Other expenses increased by 55.2% to `242.32 million in Fiscal Year 2019 from `156.18 million in Fiscal Year 2018. This increase was primarily due to an increase of 65.1% in management support charges to `97.41 million from `58.99 million, an increase of 133.4% in IT support services to `22.71 million from `9.73 million, an increase of 119.2% in traveling and conveyance expenses to `20.74 million from `9.46 million and an increase of 92.4% in corporate social responsibility expenses to `17.51 million from `9.10 million, all to Fiscal Year 2019 from Fiscal Year 2018.
(Loss)/Profit before Tax. We had a loss before tax of `1,187.76 million in Fiscal Year 2019 from a profit of `966.71 million in Fiscal Year 2018.
Tax Expense. Total tax expenses increased by 65.6% to `825.92 million in Fiscal Year 2019 from `498.76 million in Fiscal Year 2018, primarily due to:
• a tax credit under MAT of `563.09 million in Fiscal Year 2018, out of which `354.85 million pertained to earlier years as compared to `0.05 million in Fiscal Year 2019; and
• an increase of 3.9% in deferred tax charges to `825.92 million in Fiscal Year 2019 from `794.98 million in Fiscal Year 2018; partially offset by:
• a current income tax charge under MAT of `208.25 million in Fiscal Year 2018, compared to `0.00 in Fiscal Year 2019; and
• adjustment in respect of income tax charge of previous years of `58.63 million in Fiscal Year 2018, compared to `0.05 million in Fiscal Year 2019.
(Loss)/Profit for the year. As a result of the foregoing, net income for the year reversed to a loss of `2,013.68 million in Fiscal Year 2019 from a profit of `467.95 million in Fiscal Year 2018.
Financial Condition, Liquidity and Capital Resources
We broadly define liquidity as our ability to generate sufficient funds from internal and external sources to meet our obligations and commitments. In addition, liquidity includes the ability to obtain appropriate equity and debt financing for our various projects. Liquidity cannot be considered separately from capital resources that consist of current or potentially available funds for use in achieving long-range business objectives and meeting debt service and other commitments.
73 We have historically financed our capital requirements primarily through financing from banks and other financial institutions and funds from shareholders. Our primary capital requirements have been towards capital expenditures to develop, expand and improve existing facilities and other capital expenditure and working capital requirements. We believe that we will have sufficient capital resources from our operations, net proceeds from this Offering and other financings from banks, financial institutions and other lenders to meet our capital requirements for at least the next 12 months.
Cash Flows
The table below summarizes our cash flows for Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2019 and 2020.
For the six months Fiscal Year ended September 30, 2018 2019 2020 2019 2020 (` inmillions) (` in millions) Net cash inflow from operating activities ...... 4,133.32 3,065.54 5,533.24 2,044.02 2,000.88 Net cash (outflow) from investing activities ...... (11,687.60) (10,244.77) (345.08) (568.16) (1,070.36) Net cash inflow/(outflow) from financingactivities...... 7,635.52 6,675.34 (4,375.81) (1,201.49) (1,684.51)
Net (decrease)/increase in cash andcashequivalents...... 81.24 (503.89) 812.35 274.37 (753.99)
Cash and cash equivalents at beginningofperiod ...... 531.15 612.39 108.50 108.50 920.85 Cash and cash equivalents at end ofperiod...... 612.39 108.50 920.85 382.87 166.86
Operating Activities
Six months ended September 30, 2020
Net cash inflow from operating activities was `2,000.88 million in the six months ended September 30, 2020, mainly on account of profit before tax of `1,832.16 million, as adjusted primarily for depreciation and amortization expenses, finance expenses and forex gain on borrowings and derivative related to borrowings and working capital changes.
Inflow of working capital changes included an increase in financial liabilities of `51.16 million and an increase in other liabilities of `258.89 million. Outflow from working capital changes included an increase in trade receivables of `14.81 million, a decrease in trade payables of `1,090.64 million. We had a outflow of direct taxes paid of `177.91 million.
74 Six months ended September 30, 2019
Net cash inflow from operating activities was `2,044.02 million in the six months ended September 30, 2019, mainly on account of loss before tax of `582.70 million, as adjusted primarily for depreciation and amortization expenses of `1,211.83 million, finance expenses of `951.66 million and foreign exchange loss on borrowings and derivatives related to borrowings and working capital changes.
Inflow of working capital changes included a decrease in trade receivables of `132.22 million, a decrease in other financial assets of `54.48 million and an increase in financial liabilities of `31.05 million. Outflow from working capital changes included a decrease in trade payables of `86.83 million and an increase in other assets of `356.10 million. The changes in working capital were primarily attributable to an increase in our business operations.
Fiscal Year 2020
Net cash inflow from operating activities was `5,533.24 million in Fiscal Year 2020, mainly on account of (i) loss before tax of `2,127.57 million, as adjusted primarily for finance expenses, foreign exchange loss on borrowings and derivative related to borrowings and foreign exchange loss on capital creditors; (ii) direct taxes paid (net of refunds); and (iii) working capital changes.
Inflow of working capital changes included a decrease in trade receivables of `103.63 million and an increase in trade payables of `689.45 million. Outflow from working capital changes included an increase in other assets of `299.82 million and a decrease in financial liabilities of `17.35 million. The changes in working capital were primarily attributable to an increase in our business operations.
Fiscal Year 2019
Net cash inflow from operating activities was `3,065.54 million in Fiscal Year 2019, mainly on account of (i) loss before tax of `1,187.76 million, as adjusted primarily for finance expenses, foreign exchange loss on borrowings and derivative related to borrowings and foreign exchange loss on capital creditors; (ii) depreciation and amortization of property, plant & equipment, intangible; (iii) direct taxes paid (net of refunds); and (iv) working capital changes.
Inflow of working capital changes included a decrease in trade receivables of `185.52 million and an increase in financial liabilities of `47.37 million. Outflow from working capital changes included a decrease in trade payables of `1,191.88 million and a decrease in other liabilities of `250.04 million. The changes in working capital were primarily attributable to an increase in our business operations.
Fiscal Year 2018
Net cash inflow from operating activities was `4,133.32 million in Fiscal Year 2018, mainly on account of (i) net profit before tax of `966.71 million, as adjusted primarily for depreciation and amortization expenses and finance expenses; (ii) working capital changes; and (iii) direct tax paid (net of refunds).
Inflow of working capital changes included an increase in trade payables of `1,033.83 million, an increase in financial liabilities of `349.79 million, an increase in other liabilities of `414.68 million. Outflow of working capital changes included an increase in other assets of `841.30 million. We also had an outflow of direct taxes paid of `266.78 million.
The changes in working capital were primarily attributable to an increase in our business operations.
75 Investing Activities
Six months ended September 30, 2020
Net cash outflow from investing was `1,070.36 million in the six months ended September 30, 2020, which was primarily due to (i) outflows of `1,043.40 million for the deposits of margin money/other fixed deposits with banks (net) and (ii) outflows of `69.74 million towards payment for purchase of plant, property and equipment (including capital work in progress and capital advances), and (ii) inflows from interest income on fixed deposits of `39.99 million.
Six months ended September 30, 2019
Net cash outflow from investing was `568.16 million in the six months ended September 30, 2019, which was primarily due to (i) outflows of `422.95 million towards payment for purchase of plant, property and equipment (including capital work in progress and capital advances), and `277.29 million from the purchase of investment in mutual funds (net) and (ii) inflows of `116.10 million from the proceeds from margin money/other fixed deposits with banks (net).
Fiscal Year 2020
Net cash outflow from investing activities was `345.08 million in Fiscal Year 2020, which was primarily due to (i) outflows of `475.75 million for payments towards purchase of plant, property and equipment (including capital work in progress and capital advances), and (ii) inflows of `40.60 million proceeds from sale of investment in mutual funds (net) and (iii) inflow of `66.60 million from the proceeds from margin money/other fixed deposits with banks (net).
Fiscal Year 2019
Net cash outflow from investing activities was `10,244.77 million in Fiscal Year 2019, which was primarily due to (i) outflows of `10,162.71 million payment towards purchase of plant, property and equipment (including capital work in progress and capital advances) and `116.10 million of deposits of margin money with banks (net), and (ii) inflows of proceeds of `29.04 million from sale of investment in mutual funds.
Fiscal Year 2018
Net cash outflow from investing activities was `11,687.60 million in Fiscal Year 2018, which was primarily due to (i) outflows of `11,834.65 million for the payment towards purchase of plant, property and equipment (including capital work in progress and capital advances) and `25.00 million for deposits for margin money with banks (net), and (ii) inflows of `165.49 million from the sale of investment in mutual funds.
Financing Activities
Six months ended September 30, 2020
Net cash outflow from financing activities was `1,684.51 million in the six months ended September 30, 2020, primarily due to (i) outflows of `7,002.84 million towards repayment of long-term borrowings and `730.82 million towards interest and finance charges paid (including interest payment on lease obligations) and (ii) inflows of `5,946.77 million from proceeds from long-term borrowings and `147.51 million from gain on settlement of derivative contracts related to borrowings (net).
76 Six months ended September 30, 2019
Net cash outflow from financing activities was `1,201.49 million in the six months ended September 30, 2019, primarily due to (i) inflows of `203.22 million from gain on settlement of derivative contracts related to borrowings (net) and (ii) outflows of `430.00 million towards repayment of inter corporate deposit and `891.51 million towards interest and finance charges paid (including interest payment on lease obligations).
Fiscal Year 2020
Net cash outflow from financing activities was `4,375.81 million in Fiscal Year 2020, primarily due to (i) outflows of `2,547.21 million for the repayment of long term borrowings, `430.00 million in repayment of inter corporate deposit and `1,703.27 million in interest and finance charges paid (including interest payment on lease obligations) and (ii) inflows of `331.20 million from gain on settlement of derivative contracts on borrowings (net).
Fiscal Year 2019
Net cash inflow from financing activities was `6,675.34 million in Fiscal Year 2019, primarily due to (i) inflows of `13,545.19 million from proceeds from long-term borrowings and proceeds from inter-corporate deposits of `445.00 million and (ii) outflows of `5,398.08 million for the repayment of long term borrowings and `1,953.98 million in interest and finance charges paid.
Fiscal Year 2018
Net cash inflow from financing activities was `7,635.52 million in Fiscal Year 2018, primarily due to (i) inflows of `9,286.67 million from the proceeds from long-term borrowings and the proceeds from inter corporate deposits of `4,314.17 million and (ii) outflows of `4,886.68 million for the repayment of long-term borrowings and `1,397.69 million towards interest and finance charges paid.
Indebtedness
As of September 30, 2020, our total borrowings (excluding lease liabilities under Ind AS 116) were `30,478.54 million which consisted of long-term borrowings, current maturities of long-term borrowings and short-term borrowings. The borrowings include foreign currency loans.
The breakdown of our borrowings as of September 30, 2020 was as follows:
Composition ` in million (%)
Term loans from banks and financial institutions ...... 18,459.17 60.6% Inter-corporate deposit from the Joint Venture partners ...... 12,019.37 39.4%
Total Borrowings...... 30,478.54 100.0%
There are certain restrictive covenants in the agreements we have entered into with our lenders, including:
• Creation of security over existing and future assets of our facilities.
• Incurrence of additional indebtedness.
• Making certain restricted payments.
• Sale or other disposition of assets.
• Change or expansion in scope of business.
• Entering into certain corporate transactions such as reorganizations, amalgamations and mergers.
77 See “Risk Factors—Risks Related to Our Business—We plan to avail various financing options, which may have terms that restrict our operations and require us obtain consents from the lenders to undertake certain transactions and “Description of Material Indebtedness” for further details.
Contractual Obligations
Following the issuance of the Notes and the application of the proceeds thereof, we do not expect to have material contractual obligations over the next five years other than repayments of principal and interest under the Notes. See “Use of Proceeds.”
Contingent Liabilities
The contingent liabilities of the Company as per Ind AS 37 as of September 30, 2020 are set out below:
(in ` million)
In respect of the tax deduction at source (TDS) matter relating to assessment year 2014-2015, the income tax department is under appeal before Gujarat High Court sinceNovember2017...... 7.53 In respect of the tax dispute relating to assessment year 2013-2014, the Company has opted to settle the dispute under section 3 of the Direct Tax Vivad Se Vishwas Act, 2020 (the “VSV Act”). The Company has recorded the disputed tax amount of `66.89 million in the books and demand pertaining to interest has been disclosed as contingent liability pending settlement under VSV Act...... 50.58 In respect of assessment year 2018-2019, the department has assessed higher book profit of `211.65 million on account of arithmetical error in processing Company’s tax return and thus computed higher tax liability/demand of `55.30 million. The Company’s application for correction of error was rejected and thus, the Company has filed an appeal with Commissioner of Income Tax (Appeals) against the demand order of `55.3million...... 55.30
Capital Expenditures
As of March 31, 2018, 2019 and 2020 and September 30, 2020, net property, plant and equipment was `34,740.67 million, `33,163.72 million, `28,506.18 million and `27,739.80 million, respectively. On account of the adoption of Ind AS 116 from Fiscal Year 2020, leasehold land under property, plant and equipment and infrastructure usage under intangible assets were reclassified to right-of-use assets. As of March 31, 2020 and September 30, 2020, the right-of-use assets was `9,266.95 million and `8,840.64 million, respectively. Most of our capital expenditure was incurred in connection with the development of the Terminal facilities, including the purchase of machinery and equipment. We do not expect to incur any significant capital expenditures in the near term.
Related Party Transactions
We have in the past engaged, and in the future may engage, in transactions with related parties, including with our affiliates. Such transactions include availing of port services, providing equipment hire, sale and purchase of materials, fuel and electricity, charges for use of property and infrastructure, and income from port terminal services. For example, pursuant to the terminal services agreement effective from July 1, 2013 entered into between us and MSC, we provide, inter alia, priority berthing and right to increase cargo volumes to MSC. See also “Description of Material Indebtedness”.
78 Below are the details of material transactions with our related parties as per Ind AS 24, Related Party Disclosures for Fiscal Year 2020.
We recorded income of:
• `18.83 million for equipment hire income from APSEZ.
• `298.55 million from sale of SEIS license to Adani Wilmar Limited.
• `6,108.81 million for availing port terminal services (income) to MSC (ultimate parent company of Mundi Limited).
We recorded expense of:
• `1,617.73 million as revenue share expense paid to APSEZ.
• `154.10 million as purchase of materials, stores and spares, fuel and electricity from APSEZ.
• `323.79 million as waterfront royalty reimbursements to APSEZ.
• `353.41 million as port services availed (including reimbursement of expenses) to APSEZ.
Below are the details of the material transactions with our related parties as per Ind AS 24, Related Party Disclosures for Fiscal Year 2019.
We recorded income of:
• `23.85 million for equipment hire income from APSEZ.
• `371.97 million from sale of SEIS license to Adani Wilmar Limited.
• `5,681.77 million for rendering port terminal services (income) to MSC (ultimate parent company of Mundi Limited).
We recorded expense of:
• `1,858.37 million as revenue share expense paid to APSEZ.
• `323.77 million as waterfront royalty reimbursements to APSEZ.
• `966.36 million for availing of container handling services to APSEZ.
• `350.77 million as port services availed (including reimbursement of expenses) to APSEZ.
• `172.00 million as purchase of materials, stores and spares, fuel and electricity from APSEZ.
We believe each of the arrangements listed above has been entered into on arm’s length terms, or on terms that we believe are at least as favorable to us as similar transactions with unrelated parties.
Off-Balance Sheet Commitments and Arrangements
We do not have any off-balance sheet arrangements, derivative instruments, swap transactions or relationships with affiliates or other unconsolidated entities or financial partnerships that have been established for the purpose of facilitating off-balance sheet arrangements.
79 Quantitative and Qualitative Disclosures about Market Risk
Market risk is the risk of loss related to adverse changes in market prices, including interest rate risk and commodities risk. We are exposed to exchange rate risk, interest rate risk, credit risk and inflation risk in the normal course of our business.
Exchange Rate Risk
We face exchange rate risk because certain of our obligations, revenues and assets are denominated in foreign currencies. To manage exchange rate risk, we entered in to forward and swap contracts with various counterparties.
Details of outstanding positions under our forward and swap contracts as of March 31, 2020 are set out below:
As of Nature of Instrument March 31, 2020 (in millions) Forward contract (Sell) (Hedging of expected future billing based on Port tariff denominated in foreign currency) ...... US$114.00 Forward contract (Buy) (Hedging of foreign currency borrowing principal & interestliability)...... US$65.00 Interest rate swap (variable to fixed rate) (Hedging of interest rate on foreign currency borrowing liability)...... US$89.00 Principal only swap (Mitigate higher interest rate of INR loan against INR currency loan with possible forex risk of principle currency losses) ...... US$111.38
While we believe that our forward contracts might protect us against certain short-term swings in the Rupee-U.S. Dollar exchange rates, there can be no assurance that they will fully mitigate any adverse movements in exchange rates. Details of our foreign currency exposures that are not hedged by a derivative instrument or otherwise as of March 31, 2020 are set out below:
Denominated Currency As of March 31, 2020 (` in millions) (US$ in millions) Foreign Currency Loans U.S.Dollar...... 14,234.71 188.13 Bills under letter of credit U.S.Dollar...... 5,892.51 77.88 Euro...... – – Interest accrued but not due U.S.Dollar...... 423.78 5.60 Capital Creditors U.S.Dollar...... 0.13 0.0017 Trade payables U.S.Dollar...... 26.05 0.34 Euro...... 0.21 0.026
80 Sensitivity Analysis
We are mainly exposed to fluctuations in US dollars. The table below sets forth the sensitivity to a 1.0% increase or decrease in the respective foreign currency rates against the Rupee, with all other variables being constant. The sensitivity analysis is prepared on our net un-hedged exposure as at March 31, 2020. 1.0% represents our assessment of reasonably possible change in foreign exchange rate.
Impact on profit after tax For Fiscal For Fiscal Year 2019 Year 2020
USD Sensitivity INR/USD—increaseby1.0%...... 290.90 199.66 INR/USD—decreaseby1.0% ...... 290.90 199.66 Euro Sensitivity INR/Euro—increaseby1.0%...... 0.58 0.00 INR/Euro—decreaseby1.0% ...... 0.58 0.00 SGD Sensitivity INR/SGD—increaseby1.0%...... 0.02 – INR/SGD—decreaseby1.0% ...... 0.02 –
Interest Rate Risk
We are subject to interest rate risk, primarily because some of our borrowings and our deposits of cash and cash equivalents with banks and other financial institutions are at floating interest rates. As of September 30, 2020, 60.6% of our indebtedness consisted of floating rate indebtedness.
To manage interest rate risk, we endeavor to maintain a balanced portfolio of fixed and variable rate loans and borrowings and from time to time we enter into interest rate swap contracts with various counterparties to protect against the volatility of interest rates of our outstanding indebtedness. Details of our interest rate swap contracts are set out below as at March 31, 2020:
Currency As of Nature of Instrument (millions) March 31, 2020
Interest rate swap (Variable to Fixed Rate)...... US$ 89.0
Interest rates are highly sensitive to many factors beyond our control, including the monetary policies of the various central banks, deregulation of the financial sector in India, domestic and international economic and political conditions, inflation and other factors. Upward fluctuations in interest rates increase the cost of servicing existing and new debts, which may adversely affect our results of operations.
Credit Risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Company is exposed to credit risk from its operating activities (primarily trade receivables and other financial assets) and from its financing activities, including deposits with banks and investment, foreign exchange transactions and other financial instruments.
81 Customer credit risk is managed by the Company’s established policy, procedures and control relating to customer credit risk management. Credit quality of a customer is assessed based on an extensive evaluation and individual credit limits are defined in accordance with this assessment.
An impairment analysis is performed at each reporting date on an individual basis for major clients. In addition, a large number of minor receivables are grouped into groups and assessed for impairment collectively. The calculation is based on exchange losses historical data.
Credit risk from balances with banks is managed by APSEZ’s treasury department in accordance with the Company’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed by the Board of Directors on an annual basis, and may be updated throughout the year subject to approval of the Board of Director. The limits are set to minimize the concentration of risks and therefore mitigate financial loss through counterparty’s potential failure to make payments.
Nevertheless, we significantly depend on cargo from MSC (ultimate parent company of Mundi Limited). Of our revenue from operations for Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2019 and September 30, 2020, MSC (ultimate parent company of Mundi Limited) accounted for 71.6%, 62.2%, 65.8%, 67.7% and 69.5%, respectively. Trade receivables from MSC were `155.64 million as of September 30, 2020.
Inflation Risk
The table below shows wholesale price index of India for the Fiscal Years indicated:
Wholesale Price Index 2018 2019 2020
India...... 114.9 119.8 121.1
Source: Office of Economic Advisor GoI.
While India has experienced low inflation in recent years, a high inflation may contribute to an increase in interest rates, adversely affecting both sales and margins.
The objective of our risk management policy is to:
(a) mitigate currency risk of foreign currency outflows and inflows;
(b) mitigate interest rate risk;
(c) achieve greater predictability to earnings and protect margins; and
(d) minimize cash flow volatility.
Our risk management policy is determined by the Risk Management Committee of our Board of Directors. This committee is duly represented by both the shareholders, APSEZ and Mundi Limited. Set out below are the key guidelines for our risk management policy.
Foreign Currency Risk
• USD outflows and inflows for the next four quarters can be hedged on a net basis (the “Net USD Exposure”) as per the ‘core hedge ratio’ (the “Core Hedge Ratio”), which is currently stipulated by the RMB as 75.0% of the Net USD Exposure.
82 • Hedging of Net USD Exposure beyond next four quarters (the “Stepped-up Hedge Ratio”) can be decided by the RMB. However, currently no Stepped-up Hedge Ratio is stipulated by the RMB.
• Hedging of other currency exposure (such as EUR and GBP) will be decided by RMB from time to time.
Interest Rate Risk
Foreign Currency Financing
• If the residual maturity of floating interest rate linked foreign currency financing is more than five years, the current Core Hedge Ratio stipulated by the RMB is a minimum of 25%.
• If the residual maturity of floating interest rate linked foreign currency financing is less than five years, no Core Hedge Ratio is stipulated by the RMB.
INR Financing
Interest rate risk may be hedged through suitable products such as interest rate futures, overnight index swap, Indian benchmark swaps, as may be decided by the RMB from time to time.
Approved Hedging Products
Our approved hedging products are forwards, currency options, futures, currency swap / principal only swap, foreign currency interest rate swap, rupee interest rate swap and any other products as may be permitted by the RBI.
Seasonality of Business
Our results of operations do not generally exhibit seasonality.
83 INDUSTRY OVERVIEW
In this section, we have included data relating to the port industry, both internationally and within India, and other statistics. The statistical information included in this Offering Circular relating to the industries in which we operate has been reproduced from various trade, industry and government publications and websites including the Drewry Reports. Drewry has given and has not withdrawn its written consent to the inclusion herein of data and information extracted from such reports, including references to its name, in the form and context in which they appear.
Industry publications generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information is not guaranteed. In addition, the forward-looking statements and forecasts in the Drewry Reports which have been reproduced in this Offering Circular are based on key assumptions concerning the future and other key sources of estimates or uncertainty at the date on which they were prepared which may require material adjustments to such statements and forecasts should the underlying assumptions prove to be incorrect or incomplete. The accuracy and completeness of the underlying assumptions are not guaranteed by us or Drewry. Drewry will not accept any liability for any errors contained in the Drewry Reports.
While we have compiled, extracted and reproduced this data from external sources, including third parties, trade, industry or general publications, we accept responsibility for accurately reproducing such data. However, neither we nor the Joint Bookrunners, any of their respective affiliates, the Note Trustee or the Agents have independently verified such data and neither we nor the Joint Bookrunners, the Note Trustee or the Agents or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates make any representation regarding the accuracy of such data. Similarly, while we believe our internal estimates to be reasonable, such estimates have not been verified by any independent sources and neither we nor the Joint Bookrunners, the Note Trustee or the Agents or any of their respective representatives, agents, directors, officers, employees, advisers or affiliates can assure potential investors as to their accuracy. Internal and third party estimates and projections cited in this Offering Circular are subject to significant uncertainties that could cause actual data to differ materially from the estimated or projected figures. No assurances are or can be given that these figures will be achieved. As a result, you are cautioned against undue reliance on such information. The extent to which the market and industry data contained in this Offering Circular is meaningful depends on the investor’s familiarity with an understanding of the methodologies used in compiling such data.
Indian Port Industry
In 2020, the International Monetary Fund (“IMF”) continues to expect India to be the third largest economy in the world by purchasing power parity (U.S.$12.4 trillion). However, as a result of the global economic turmoil in 2020, the IMF expects India’s 2020 GDP to contract by 10.3% while expecting global GDP to contract by 4.4%. This is expected to be driven primarily by COVID-19 and the associated impact on global trade and economies. However, in 2021, India is expected to return to historical growth rates with an estimated GDP growth of 8.8%.
According to the IMF, India overtook the UK and France in 2019 to become the fifth largest economy in the world by nominal GDP (U.S.$2.94 trillion).
The port sector plays an important role in the overall economic development of the country, with the shipping industry having played a crucial role in the transport sector of India’s economy over the years. Approximately 95% of the country’s trade by volume and 68% by value is moved through Maritime Transport (source: Ministry of Shipping annual report 2020). With a long coastline of about 7,517 km, spread on the western and eastern shelves of the mainland and along the Islands, India has numerous ports to serve its international trade. Although India’s northern part is a landlocked region, it is served by the east and west coast, coastal states. According to the Center for Coastal Zone Management and Coastal Shelter Belt, out of 28 states of India, only Gujarat, Maharashtra, Goa, Karnataka, Kerala, Tamil Nadu, Andhra Pradesh, Odisha and West Bengal have ports.
84 India’s port industry has grown exponentially from five ports handling cargo traffic tonnage of around 20 mmt per year at the time of independence, to the current 12 ports which fall under the jurisdiction of the GoI (“Major Ports”) and approximately 200 Non-Major Ports which fall under the state governments’ jurisdiction (“Non-Major Ports”). These ports handled 1,320 mmt of cargo in Fiscal Year 2020 (Source: Update on Indian Port Sector 31.03.2020, Ministry of Shipping of GoI, Indian Ports Association). Aware of the critical role of ports and logistic sector in India, the Government of India has been continuously focusing on ‘ease of doing business’ in this sector by allowing 100.0% FDI and introducing transparent and standardized bidding process for PPP Projects. The GoI has also accorded infrastructure status to the shipping industry and imposes no restrictions or requirements on pricing. India has a stable regulatory environment mainly driven by state bodies.
Over time, Indian ports have evolved both institutionally and infrastructurally. Today, many ports in India have evolved (and are evolving) into specialized centers of economic activities and services that are vital to sustain the future economic growth of the country (source: Sagarmala, Ministry of Shipping).
Competitive Advantages
Over the years, Indian ports have leveraged several key competitive advantages.
Natural geographical advantage
The Indian port sector benefits from the natural geographical advantage that India possesses. According to the Indian Ports Association and the Ministry of Shipping, India has an extensive coastline of 7,517 kilometers (excluding the Andaman and Nicobar Islands), interspersed with more than 212 ports (including Major and Non-Major Ports). Most cargo ships that sail between East Asia and America, Europe and Africa pass through Indian territorial waters, providing Indian ports with a unique geographical advantage.
Strong macroeconomic fundamentals
According to IMF, India’s real GDP has grown at an average rate of over 7.0% per annum during 2010 to 2019 led by increased domestic consumption and infrastructure spending. Although the IMF expects India’s GDP to contract by 10.3% in 2020, it also expects it to grow at 8.8% in 2021. The IMF further estimates an average 4.8% in real GDP growth rate for India over 2020 to 2025, making it one of the fastest growing economies in the world. The below chart sets out expected growth rates in GDP per capita over 2020 to 2025 for select countries.
Average Real GDP Growth (2020-2025E) of Key Economies
5.5% 4.8%
1.3% 1.1% 1.0% 0.9% 0.8% 0.8% 0.3% 0.1%
China India USA Spain Brazil Germany France UK Japan Italy
Source: International Monetary Fund Note: GDP at constant prices in national currency
85 India’s economic growth has been quite resilient over the years and largely dependent on its own domestic consumption. India is the second most populated country in the world with a large portion of its population forming part of the working age group. According to estimates by ‘Central Intelligence Agency (“CIA”)—The World of Factbook, by July 2020, 44.0% of India’s population will be under the age of 25 years (while the global average is 41%) with another 42.0% between the age of 25 to 54 years.
Strong domestic consumption has consistently been a major contributor to India’s GDP. According to the Ministry of Statistics and Program Implementation, Private Final Consumption Expenditure (“PFCE”), which is defined as the expenditure incurred on final consumption of goods and services by the resident households and non-profit institutions serving households, has grown at a CAGR of 7.0% from Fiscal Year 2013 to Fiscal Year 2020, in line with India’s overall GDP growth. India’s PFCE has been consistently over 56.0% of its total GDP during the same period highlighting its strong domestic consumption story.
India Population Breakdown by Age Private Final Consumption Expenditure in ` trillion and as % of GDP
>55 years, 56.2% 56.7% 56.2% 56.1% 56.1% 56.0% 56.6% 57.2% 15% under 25 CAGR: 7.0% 83.3 years 79.1 44% 73.8 25-54 69.0 63.8 years, 59.1 55.6 42% 51.8
FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 Private Final Consumption Expenditure
Source: CIA—The World of Factbook, Updated July 2020 Source: Ministry of Statistics and Program Implementation— National Accounts Statistics 2020
Types of Ports—Major and Non-Major
According to the Ministry of Shipping, Indian ports are classified as either “Major Ports” or “Non-Major Ports”, a distinction rooted in the level of control and governance of the port, not the capacity or cargo traffic. There are 12 Major Ports and approximately 200 Non-Major Ports across India.
The following map shows the location of Major Ports and some of the Non-Major Ports in India:
86 Major Ports are typically ports with a combination of dedicated bulk terminals, specialized container terminals and general cargo berths.
According to the Ministry of Shipping, Major Ports are under the jurisdiction of the GoI and are governed by the Major Port Trusts Act, 1963; except Ennore Port which is administered under the Companies Act, 1956. Under the Major Port Trust Act, all administrative and financial matters of each Major Port (except for Ennore Port) is overseen by a Board of Trustees, with the appointment of the Chairman of each Major Port by the Central Government.
The Board of Trustees have effective ownership of and control over all port assets and liabilities and is empowered to handle all port administration and operations, including the power to enter into all contracts with respect to various works and services to be provided by the port and to control all financial matters, including budget management, revenues and investment-related activities of the port. The Board of Trustees must submit all port-related revenues and expenditures to the GoI, which are subject to scrutiny of the Comptroller and Auditor General of India.
Non-Major Ports are typically privately-run commercial ports, which provide ports and related services for various types of cargo including bulk, containers and crude, or captive ports for certain business (which does not serve third parties or commercial cargo).
These ports are governed by the Indian concurrent list of the Constitution and are administered under the Indian Ports Act. At the state level, the department in charge of ports or the state maritime board (created through state legislation as in the case of Gujarat) is responsible for formulating policies and plans concerning waterfront development, regulating and overseeing the management of state ports, attracting private investment in state ports and enforcing environmental protection standards. Maritime boards have so far been constituted only in Gujarat, Maharashtra and Tamil Nadu.
Government Focus on port sector development
Government of India has placed a focus on the development of its port sector right from the beginning and in turn, various initiatives have been undertaken for this sector over the years. Recent policy support for this sector given is given below.
Sagarmala Initiative
The Sagarmala Project, launched in March 2015, is the flagship program of the GoI to promote port-led development in India and to provide infrastructure to transport goods to and from ports quickly, efficiently and cost-effectively.
The concept of Sagarmala was approved by the Union Cabinet on March 25, 2015. As part of the program, a National Perspective Plan for the comprehensive development of India’s c.7,500 km coastline, 14,500 km of potentially navigable waterways and maritime sector was prepared for the Maritime India Summit 2016.
The Sagarmala Project aims to reduce logistics costs for exports and imports as well as domestic trade with minimal infrastructure investment. The Sagarmala initiative will achieve this by focusing on four main strategies:
• reducing the cost of transporting domestic cargo through optimizing modal mix
• lowering logistic cost of bulk commodities by location future industrial capacities near the coast
• optimizing time/cost of O&D (export-import) container movement
• improving export competitiveness by developing port proximate discrete manufacturing clusters
87 The key components of the Sagarmala program are as follows:
Port Modernization Coastal Shipping & and New Port Port Connectivity Port-linked Coastal Community Inland Waterways Development Enhancement Industrialization Development Transport
De-bottlenecking Enhancing the Developing port- Promoting Impetus to move and capacity connectivity of the proximate industrial sustainable cargo through the expansion of ports to the clusters and Coastal development of sustainable and existing ports and hinterland, Economic Zones to coastal communities environment-friendly development of new optimizing cost and reduce logistics cost through skill coastal and inland greenfield ports time of cargo and time of O&D development & waterways mode. movement through (export-import) and livelihood generation multi-modal logistics domestic cargo activities, fisheries solutions including development, coastal domestic waterways tourism etc. (inland water transport and coastal shipping)
Since its inception in 2015, 601 projects with a total project cost of approximately `8.8 trillion have been identified to be implemented as part of the Sagarmala Program. These projects mainly aim to modernize ports, enhance ports connectivity, bring about industrialization and develop the coastal community.
Summary of Projects under Sagarmala
Until Fiscal Fiscal Year Fiscal Year Fiscal Year Fiscal Year Project Theme Year 2018 2019 2020 2021-2025 2026-2035 TOTAL
Cost Cost Cost Cost Cost Cost No. (`bn) No. (`bn) No. (`bn) No. (`bn) No. (`bn) No. (`bn)
PortModernization... 107 380 100 337 15 86 36 540 8 107 266 1,451
PortConnectivity.... 82 631 69 482 46 358 13 1,035 3 4 213 2,509
Port Led Industrialization..... 18 1,369 1 111 5 43 33 3,226 0 0 57 4,749
Coastal Community Development...... 28 22 34 43 6 7 0 0 0 0 68 72
Total...... 235 2,402 204 973 72 495 82 4,801 11 111 604 8,781
Source: Ministry of Shipping, GOP
Dedicated Freight Corridor
According to the Press Information Bureau, Government of India, the Dedicated Freight Corridor (“DFC”) is one of the largest rail infrastructure projects that the GoI has undertaken. The project proposes to undertake planning and development, mobilization of financial resources and construction, maintenance and operation of the DFCs.
The key mission of the Dedicated Freight Corridor Corporation of India Ltd includes:
• Building a corridor with appropriate technology that enables Indian railways to regain their market share of freight transport by creating additional capacity and guaranteeing efficient, reliable, safe and cheaper options for mobility to their customers;
• Setting up multimodal logistic parks along the DFC to provide complete transport solution to customers; and
88 • Supporting the Government’s initiatives toward ecological sustainability by encouraging users to adopt railways as the most environmentally friendly mode for their transport requirements.
(Source: Dedicated Freight Corridor Corporation of India Limited, Ministry of Railways, GoI)
The project involves the construction of six freight corridors traversing the entire country. The purpose of the project is to provide a safe and efficient freight transportation system. This is expected to reduce congestion at various terminals and junctions while allowing for efficient and fast movement of freight along the corridor.
The project currently consists of two corridors, the Eastern Corridor and the Western Corridor. The two routes cover a total length of 3,360 kilometers with the Eastern DFC stretching from Ludhiana in Punjab to Dankuni in West Bengal and the Western DFC from Jawaharlal Nehru Port in Mumbai to Dadri in Uttar Pradesh.
On the back of the expected rise of demand for rail from the DFCs, the Special Freight Train Operator Scheme was launched in the year 2010 and substituted in 2018. According to the Ministry of Railways, the policy was launched with the view to increase rail share in transportation of non-conventional traffic like molasses, fly ash, edible oil, caustic soda, chemical, petrochemicals, alumina & bulk cement. The policy provides an opportunity to logistic service providers or manufacturers to invest in wagons and use advantages of rail transport to tie up with end users and market the train services owned by them for rail transport.
Coastal shipping—Relaxation in Cabotage Law
Coastal Shipping is a fuel efficient and environmentally friendly mode to reduce road and rail congestion. The ability to move large volumes in a short period gives coastal shipping a distinct comparative advantage over other modes of transport. However, despite the inherent advantages, coastal shipping is still in its infancy in India. (Source: Ministry of Shipping, Annual Report 2019-20)
To promote coastal shipping in India, in May 2018 the Ministry of Shipping allowed for the relaxation of cabotage under section 407 of Merchant Shipping Act, 1958. In turn, this allowed for foreign shippers to move cargo and carry out coastal shipping activities in India.
According to the Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors, the positive impact of this include:
• allowing coastal activities to foreign ships, and arguably likely reduce logistics costs, as well as congestion on the country’s railway and roadways;
• greater competition to the feeder market which in turn would benefit local importers and exporters;
• indian ports allowed to compete for container traffic currently handled in adjacent regional hub ports; and
• would likely address the issue of empty containers accumulating at certain Indian ports, while others face a shortage.
Ease of doing business
Direct Port Delivery (“DPD”), Direct Port Entry (“DPE”) has introduced to make import and export more efficient and cost effective. Along with this, some changes have made in custom law to facilitate trade in more efficient way. India improved its ranking under the Trading across Border (“TAB”) parameter of Ease of Doing business (“EoDB”) from 80 to 68. This impressive record has been facilitated due to various measures taken by major ports in India for e.g. DPD, DPE, Introduction of RFID, Installation of scanners/container scanners, Simplification of procedures etc. (Source: Ministry of Shipping, Annual Report, 2019-2020).
89 Gujarat Revised Port policy
The Gujarat Government has announced a new port policy to provide benefits to the existing and future captive jetties players and other players: according to the new policy, the 32 operational captive jetties are now permitted to handle third party cargo. They can increase the number of cargo handling facilities and expand and modernize their jetties as well. Captive jetty holders will be able to handle cargo of other companies by paying double wharfage charges (source: Gujarat Maritime Board).
Jal Marg Vikas Project (JMVP) on National Waterway-1
The GoI is implementing the Jal Marg Vikas Project (“JMVP”) at an estimated cost of `5,369.18 Crore for capacity augmentation of navigation on National Waterway-1 on the Haldia—Varanasi stretch of Ganga-Bhagirathi-Hooghly River System with the technical and financial assistance of the World Bank. The project is scheduled to be completed in Fiscal Year 2023. (Source: Press Information Bureau, Government of India)
Model Concession Agreement for PPP Projects
According to the Ministry of Shipping of the GoI, a Model Concession Agreement (“MCA”) has been finalized to bring transparency and uniformity to contractual agreements that Major Ports would enter into with selected bidders for projects under the Build, Operate and Transfer model. In March 2018, a revised MCA was approved by GoI to make Major Ports in the country more investor friendly and make the investment climate in the Port Sector more attractive Some of the salient features of the revised MCA provide for relaxed exit, expansion, lower charges for land use based on each container, cheaper dispute resolution mechanism and online complaint portal for users.
Disinvestments
In March 2019, the Union Government accorded the approval of the Governments strategic sale of its stake in the Dredging Corporation of India. Similarly, the Cabinet Committee on Economic Affairs has also granted an in-principle approval for the disinvestment of the 100.0% equity share of GoI in Kamrajar/ Ennore port. Above and beyond the aforementioned divestments in the port and logistics industry, it is understood that the GoI is also looking for strategic disinvestment in Container Corporation of India. (Source: Press Information Bureau, GoI).
Other GoI Initiatives
The Ministry of Shipping of the GoI published the MaritimeAgenda 2010-2020, which identifies key areas of attention for the GoI. The Maritime Agenda 2010-2020 focuses on implementing an agenda, with specific and general aims, buttressed by a philosophy of increasing private sector participation.
The agenda includes a number of specific aims, including the development of two new Major Ports on each of the west and east coasts of India, developing two “hub” ports, on each of the west and east coasts of India, full mechanization of cargo handling and movement, ensuring that all Major Ports and “hub” ports have drafts of no less than 14 meters and 17 meters, respectively, and identifying and implementing projects for rail, road and inland waterway connectivity to ports. “Hub” ports are intended to be key focus ports on the coasts with deep drafts, less need for dredging, strategic locations and the potential to reduce total transport costs through a “hub and spoke” model. The agenda also includes broader policy measures, including the development and implementation of new policies for land for Major Ports, captive berths, dredging, shifting transshipment of Indian containers from foreign ports to Indian ports, fostering cooperation and competition among Indian ports and the creation of a sovereign entity, now named Indian Ports Limited, to invest in port infrastructure internationally.
90 According to the Ministry of Shipping, the GoI has also allowed foreign direct investments of up to 100% under the automatic route for projects related to the construction and maintenance of ports and harbors. The GoI intends for the private sector to invest in these projects primarily on a private partnership, build-operate-transfer or build-own-operate-transfer basis. To facilitate investment and transparency, the Department of Shipping has released a model documentation, including requests for proposals, requests for quotations and concession agreements.
SEZs are being developed in close proximity to several ports, thereby providing strategic advantage to industries within these zones.
Other State Government Initiatives
According to the GMB, the GoG has proactively developed Non-Major Ports on India’s coastline, beginning with the implementation of a comprehensive Integrated Port Policy in 1995. This was focused on pursuing vertically integrated development of both its ports and industrial base. The GMB, which is the government of Gujarat’s regulatory body responsible for maritime oversight, has selected ten sites for the Greenfield development of new ports, six of which are to be developed through private investment, and four through joint development. The government of Maharashtra has also implemented several policy initiatives for port development, while implementing policy guidelines for captive terminals.
Changes to Tariff Regime
Since 2005, tariffs at Major Ports have been set by the TAMP. The Ministry of Shipping of the GoI proposed a new tariff regime, pursuant to which the Major Ports Regulatory Authority and the respective state port regulatory authorities would regulate tariffs in Major Ports and Non-Major Ports, respectively. The Ministry of Shipping of the GoI proposed the deregulation of tariffs, instead allowing port operators to implement a fixed market-linked tariff to attract private sector investment. Under this regime, TAMP will set a reference tariff based on minimum efficiency standards for ports, such as turnaround time, average output per ship berth day and average idle time. The reference tariff will be indexed to inflation and TAMP will implement a new reference tariff every five years. Reference tariffs, and pricing, will thus be determined by the availability of port facilities (e.g., minimum waiting time), quality of services rendered (minimum turnaround time, port security and quality of evacuation infrastructure) and competition.
Operational Performance of Indian Ports
Turnaround Time
In recent years, the port infrastructure within India has grown significantly due to the influx of additional investments. Capacity additions through established private port operators such as CMA CGM (Mundra), PSA (J.N.P.T) and Terminal Investment Limited (Mundra) have paved the way for bigger ports with more efficient services. As such, average turnaround time at Major Ports has declined consistently from 5.29 days in Fiscal Year 2011 to 2.76 days in Fiscal Year 2020. Average turnaround time is influenced by factors such as type of cargo, parcel size and entrance channel.
91 Major Ports: Average Turn Round Time
5.29 4.56 4.29 3.84 3.89 3.51 3.48 2.91 2.73 2.76
FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Turn-Round Time—Total time spent by a ship since its entry till its departure Source: Update on Indian Port Sector, Ministry of Shipping, GoI
Over the years, through various Government initiatives, the cargo handling capacity of Major Ports has steadily increased to cater to the growing volume of internal and external trade. The capacity of the ports which was 617 mmt at the end of Fiscal Year 2010 increased to 1,535 mmt at the end of Fiscal Year 2020 (Source: Update on Indian Port Sector, Ministry of Shipping, GoI).
During the period from Fiscal Year 2014 to Fiscal Year 2019, 160 port infrastructure projects with a capacity of 442.08 TPA and total investments of `391,870.00 million (U.S.$5.2 billion) have been awarded to Major Ports.
However, despite the capacity addition, Major Ports still suffer from inadequate evacuation infrastructure and are unable to make full use of the additional capacity. For example, railways lacked the necessary equipment and structure to ensure a steady flow of container traffic, concentrating instead primarily on bulk cargo. Inadequate road linkage also impeded the flow of cargo to Major Ports, resulting in instances of new ports with modern facilities being under-utilized due to connectivity bottlenecks.
In Fiscal Year 2020, Major Ports added about 21 mmt of additional capacity, however, the actual output could only increase by 6 mmt, thereby leading to a marginal drop in utilization rates from 46.2% in Fiscal Year 2019 to 45.9% in Fiscal Year 2020.
In the last 10 years, Major Ports capacity utilization has declined substantially. In Fiscal Year 2010, the ports capacity utilization of Indian major ports was more than 90%. However, this has come down to less than 50% in Fiscal Year 2020, largely the result of more inter-port competition between Indian ports. In the last 10 years, Major Ports has incrementally added almost 900 mmt of port capacity, but only witnessed less than 150 mmt of incremental cargo traffic growth however in same timeframe.
Major Ports: Capacity (mmt) and Utilization Rate (%)
91% 94% 80% 73% 72% 67% 63% 61% 47% 46% 46% 1,451 1,514 1,535 1,066 872 965 697 745 774 679 699 705 617 561 609 570 560 546 555 581 606 648 FY10 FY17 FY11 FY12 FY13 FY14 FY15 FY16 FY18 FY19 FY20
Capacity Traf c
Source: Update on Indian Port Sector, Ministry of Shipping, GoI
92 Container Port Industry
Global Containerized Trade
According to the Global Container Terminal Operators—Annual Review and Forecast—Annual Report 2020/21 of Drewry Maritime Research, global container port throughput reached 800.8 MTEUs in 2019, an increase of 2.1% from 2018 levels. In line with the past, Asian ports were the largest contributors to global throughput with 433.0 MTEUs in 2019, while Europe were second with 139.7 MTEUs.
Container port throughput confounded expectations in the second quarter of Fiscal Year 2020 to register a far smaller decrease than envisaged of around 8.0% year-on-year, as opposed to the anticipated 16.0% drop, and below the average fall in GDP across the advanced economies.
World Container Port throughput by region, 2018-2019 (in MTEU)
World 2018 2019 2018-19YoYGrowth
NorthAmerica...... 67.6 68.7 1.6% Europe...... 136.1 139.7 2.7% Asia...... 423.5 433.0 2.2% MiddleEastandSouthAsia. 68.6 69.6 1.5% LatinAmerica...... 48.0 48.3 0.6% Africa...... 27.7 28.4 2.7% Oceania...... 13.1 13.0 (1.1%) Total...... 784.6 800.8 2.1%
Source: Global Container Terminal Operators—Annual Review and Forecast—Annual Report 2020/21 of Drewry Maritime Research
This year, ocean carriers have controlled capacity more tightly than in previous crises and were able to secure high load factors, high rates and lower costs. According to the Container Forecast, Quarter 3, September 2020 by Drewry Maritime Research, some carriers say that they have “learnt a lesson” during the COVID-19 crisis about how to manage their business in times of volatile demand. This could have long-term repercussions on carrier resilience and profitability in what is normally a cyclical, boom and-bust business.
The major influences driving the recent freight rate increases are, in Drewry’s view (extracted from the Container Forecast, Quarter 3, September 2020):
• The higher level of concentration of the ocean carrier industry, combined with new, tighter capacity management discipline among carriers;
• Unexpectedly strong demand in North America and Europe, partly on account of replenished inventories;
• A seasonal rush to bring in cargoes before Chinese factories close for the Golden Week holiday at the start of October;
• Limited container inventory stocks in Asia, not helped by service disruptions (blank voyages etc.).
Based on the available income statements of selected carriers, carrier operating margins for the second quarter and first half 2020 were almost universally positive. Drewry estimates (extracted from the Container Forecast, Quarter 3, September 2020) that the industry secured an operating profit (EBIT) of around $3.5 billion and margin of 7.7% in the second quarter of Fiscal Year 2020, the best quarterly performance in many years.
93 India Container Port Industry
Container is a major commodity handled at Indian ports, and it is one of the fastest growing commodities in India. The major cargo commodities that get containerized in India are garments, electronic goods, agro products, cotton yarn, machinery/parts, granite products, coir products, leather products, wastepaper, automobile parts. In India, the industry has witnessed the gradual but steady growth in general cargo containerizations rate. From 2005-06 to 2018-19, penetration of gateway container traffic has increased by about 10.0% to reach 74.0%. (Source: the Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors)
Historical Container Cargo Growth in India
Despite the low base that it started out with, the container market in India has witnessed significant growth in recent years, recording a CAGR of c. 7.8% over the last ten years. In particular, it is noted that the market is primarily O-D traffic driven with a miniscule percent of its total traffic reported as transshipment, therein making it a very stable market growing at an exceptional pace. (source: Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors)
Growth of Container Traffic in India (MTEUs)
17.0 17.4 15.8 13.6 12.4 11.8 7.4 6.7 7.1 5.2 3.8 4.2
8.0 8.1 8.4 9.1 9.9 10.0
FY15 FY16 FY17 FY18 FY19 FY20 Major Non-major
Source: Ministry of Shipping, GoI
Note: Container Traffic for Non-Major Ports based on Government and Industry estimates
According to data from the Ministry of Shipping of the GoI and Industry Reports, Indian ports handled around 17.4 MTEUs of container traffic in Fiscal Year 2020. This represents a CAGR of c. 8.1% CAGR between Fiscal Year 2015 to 2020. Relative to the longer-dated growth rates, the greater short-term CAGRs underscore a recent pickup in growth rates within the Indian context.
Growth at Major Ports and Non-Major(Minor) Ports
Another noteworthy trend that has been noted over the last decade has been the different growth stories observed at Indian Major and Non-Major ports. The share of Non-Major ports has increased consistently over this period while the share of major ports in India’s total container handling has progressively declined. In particular, Drewry notes that major ports in India has lost substantial market share to non-major ports. In Fiscal Year 2010, non-major ports accounted for c. 16.0% of all container traffic. However, over the last ten years, this share has grown substantially, with non-major ports accounting for c. 43.0% of all container traffic in Fiscal Year 2020. (Source: Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors)
94 Major and Non-major Container Traffic Split, FY20
Non-major Ports, 43% Major Ports, 57%
Source: Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors
Shift from Major to Non-Major Ports
There are various reasons for shifting of these container volumes (in %) from major ports to non-major ports, which are summarized below.
• Superior Infrastructure at non-major ports: Higher growth registered at non-major ports due to the availability of adequate container handling capacity, Space for scale development, efficient road/rail connectivity, better draft and modern equipment and technology application at non-major ports.
• Total Logistic Cost for shipper: Emergence of Mundra. Hazira, Pipavav port may have facilitated key cargo generating cluster of north west region of country like Ahmedabad and the national capital region (NCR) to play with Total logistic cost. Same has happened with Chennai Bangalore cluster cargo while selecting ports between Chennai to Kattupalli and Krishnapatnam ports.
• New Terminals Capacity addition at Non-major Ports: New Container terminals have been mainly added at Minor ports, especially at Mundra, Pipavav, Hazira, Krishnapatnam ports, very few capacity additions projects has happened at major ports like at JNPT, Ennore.
• JNPT has lost its early mover advantage: Over the years, with the emergence of other private ports like Mundra, Hazira, Pipavav, with its dedicated container terminals, offered shipper an alternative choice of options for O&D (export-import) trade.
• Volume Diversion (Percentage volumes): On west coast substantial volume diversion has happened from JNPT to Mundra, Pipavav & Hazira. Similarly, on East Coast volume diversion is witnessed from Chennai port to Kattupalli and Krishnapatnam Ports.
• Bottlenecking at JNPT and Chennai Port: Inherent issues at JNPT Port such as gate congestions, low rail coefficient. Chennai Port: Port & city conflict with regards to the efficient movement of cargo from the Port.
95 Regional Dynamics of Indian Container Traffic
Container traffic of India can be divided into East Coast and West Coast bound traffic. East Coast traffic is handled by ports in the Lower East Coast, Central East Coast and Upper East Coast while west coast traffic is handled by ports in the Lower West Coast, Greater Mumbai or Upper West Coast.
Region Ports
UpperWest Coast...... Mundra, Pipavav, Kandla and Hazira Greater Mumbai Region ...... JNPT and Mumbai LowerWest Coast...... Cochin,Vallarpadam, Mangalore and Mormugao UpperEastCoast ...... Kolkata,Haldia and Paradip Central East Coast ...... Visakhapatnam, Kakinada, and Krishnapatnam Lower East Coast...... Ennore, Katupalli, Chennai, Karaikaland Tuticorin
According to the Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors, the three largest port clusters in India are the Upper West Coast, Greater Mumbai and Lower East Coast. These three port clusters comprise of 84.0% of India’s container traffic in Fiscal Year 2020, with just 16.0% of traffic distributed among the rest of the port clusters.
Ports in the Upper West have gained the highest market share over the last decade. Its share increased from 17.0% in Fiscal Year 2010 to 39.0% in Fiscal Year 2020. The ports in the Upper West benefit from having the largest hinterland in the country and growth of Mundra and Pipavav have accelerated the growth in this port cluster.
The second largest port cluster in Greater Mumbai, which has lost its market share to ports in the Upper West. The rise of Mundra coupled with capacity unavailability at JNPT triggered the diversion of cargo from traditional handling facility in JNPT to ports in the Upper West.
Unlike the private ports in the Upper West, the new ports in Lower East coast—which constitute the third largest cluster in the country—started their operations later in Fiscal Year 2013, with their market share standing at c. 17.0% in Fiscal Year 2020.
India Coast Wise Container Market Share, 2010 vs. 2020 (in%)
20% 17% 6% 6% 1% 5% 4% 5% 29% 51%
38% 17%
FY10 FY20 Upper West Coast Greater Mumbai Region Lower West Coast Upper East Coast Central East Coast Lower East Coast
Source: Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors, Ministry of Shipping, and Indian Ports Association
96 Container Handling Ports in India
The key ports in container volumes handling in India are Mundra, JNPT and Chennai. These three ports accounted for 64.0% of India’s container traffic in the first half of Fiscal Year 2021, with Mundra port surpassing JNPT to become the busiest container handling port in India. Capacity wise, the total container handling capacity across all Indian ports in Fiscal Year 2020 was c. 28.7 MTEUs while the total cargo volume handled is c. 17.4 MTEU, implying a c. 61% capacity utilization. Mundra has. Please refer to the table below for more information.
India Container Port Cargo Volume, FY2015-20 (in MTEUs)
1HFY 2016-20 Major Container Ports FY2016 FY2017 FY2018 FY2019 FY2020 2021 CAGR
JNPT ...... 4.5 4.5 4.8 5.1 5.0 1.9 2.9% Chennai ...... 1.6 1.5 1.5 1.6 1.4 0.6 (3.0%) Kolkata ...... 0.6 0.6 0.6 0.7 0.7 0.3 4.0% V. O. Chidambaranar ... 0.6 0.6 0.7 0.7 0.8 0.4 7.1% Cochin ...... 0.4 0.5 0.6 0.6 0.6 0.3 10.3% Visakhapatnam ...... 0.2 0.4 0.4 0.5 0.5 0.2 19.8% Deendayal ...... 0.0 0.0 0.1 0.2 0.4 0.2 284.4% Haldia ...... 0.1 0.1 0.2 0.2 0.2 0.1 18.7% Mangalore...... 0.1 0.1 0.1 0.1 0.2 0.1 19.1% Kamarajar ...... – – 0.0 0.1 0.1 0.1 NA Mormugao ...... 0.0 0.0 0.0 0.0 0.0 0.0 5.3% Mumbai ...... 0.0 0.0 0.0 0.0 0.0 0.0 (11.0%) Paradip ...... 0.0 0.0 0.0 0.0 – 0.0 NA Total ...... 8.1 8.4 9.1 9.9 10.0 4.1 5.2%
Non-major Container 1HFY 2016-20 Ports FY2016 FY2017 FY2018 FY2019 FY2020 2021 CAGR
Mundra...... 3.0 3.5 4.5 4.5 4.7 2.3 11.9% Pipavav ...... 0.7 0.7 0.7 0.9 0.9 0.4 6.5% Kattupalli ...... 0.1 0.3 0.5 0.6 0.7 0.2 62.7% Hazira...... 0.3 0.4 0.5 0.6 0.6 0.3 18.9% Krishnapatnam ...... 0.1 0.3 0.5 0.5 0.5 0.2 49.5% Kakinada ...... – 0.0 0.0 0.0 0.0 0.0 NA Total ...... 4.2 5.2 6.7 7.1 7.4 3.4 15.2%
Source: Ministry of Shipping, GoI, Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors; Indian Ports Association Data for FY20; and Company data for 1HFY2021
Note: Container Traffic for Non-Major Ports based on Government and Industry estimates
Container terminals operations in India can be categorized into three main types namely landlord terminals, private terminal and service terminals. Landlord and service container terminal can be typically found in major ports, whereas a private terminal can be found in non-major ports.
97 Similar to the overall trends of ports volumes growth in non-major ports across India and the increase in percentage market share relative to major ports, similar trends have also been witnessed in the container commodity as well. It has been observed that major ports have lost a significant market share of container traffic to non-major ports. On the back of a 15.2% CAGR growth between Fiscal Year 2016 and Fiscal Year 2020, Non-major ports like Mundra, Hazira, Kattupalli and Krishnapatnam ports have gained significant container market share at the Pan India level. Conversely, traditional major ports like JNPT, Kolkata, and Chennai have lost their market share at the Pan India level given their relatively subdued growth of 5.2% CAGR between Fiscal Year 2016 and Fiscal Year 2020. Please refer to the statistics below that outline the key trends in Ports market share over the last five years.
Pan India Container Ports Market Share, 2015-2020 (%)
2016 to 1H21 1HFY Share SelectMajorPorts FY2016 FY2017 FY2018 FY2019 FY2020 2021 Change
JNPT ...... 36% 33% 31% 30% 29% 26% (10%) Chennai ...... 13% 11% 10% 10% 8% 8% (5%) Kolkata ...... 5% 5% 4% 4% 4% 3% (1%) V.O.Chidambaranar .... 5% 5% 4% 4% 5% 5% 0% Visakhapatnam ...... 2% 3% 2% 3% 3% 3% 1% Cochin ...... 3% 4% 4% 3% 4% 4% 0% 2015 to 1H21 1HFY Share Select Non-major Ports FY2016 FY2017 FY2018 FY2019 FY2020 2021 Change
Mundra...... 24% 25% 28% 27% 27% 31% 7% Kattupalli ...... 1% 3% 3% 3% 4% 3% 2% Krishnapatnam ...... 1% 2% 3% 3% 3% 2% 1% Hazira...... 2% 3% 3% 3% 3% 4% 2% Pipavav ...... 6% 5% 4% 5% 5% 5% (1%)
Source: Ministry of Shipping, GoI, Indian Container Market Reports 2016 to 2019 by Maritime Gateway; Indian Ports Association Data for FY20; and Company data for 1HFY2021
Note: Container Traffic for Non-Major Ports based on Government and Industry estimates
Container Terminals Operators in India
Many international container terminal operators (“CTO”) exist in India. Across the globe, the CTO market oligopolistic is nature, and India is no exception. Key international CTOs that operate in India include DP World, APM terminals and PSA Internationals. Apart from these global operators, APSEZ is one of the biggest container terminal operators in India. APSEZ operates through three models of container terminals: (1) Terminal solely owned and operated by APSEZ, such APSEZ container terminals exist at Mundra, Hazira, Kattupalli and Krishnapatnam ports. (2) Container terminal owned and operated with JV partners. (3) Container terminal at Major ports under PPP model. Two major JV partners of APSEZ container terminals are TIL which is majority owned by MSC and CMA CGM. Apart from these operators, JM Baxi and other small terminal operators also exist in India. The key CTO footprint across India is illustrated below.
98 Key Terminal Operators footprint in India: Fiscal Year 2020
PSA 5 CT Port Traf!c volume in DP World 6 CT S.I. Terminal Name Jammu Name MTEUs (FY 20) Port Traf!c volume in S.I. Terminal Name Kashmir Name MTEUs (FY 20) 1 BMCT PSA JNPT 0.81 MICT DP World 2 CITP Chennai 0.88 1 Mundra 0.91 Mundra Himachai 3 Bharat Kolkata PSA Kolkata 0.60 2 NSICT JNPT 0.53 Pradesh 4 PSA Tuticorin Tuticorin 0.17 3 NSIGT JNPT 0.99 Punjab 5 PSA Kakinada Kakinada 0.02 Vallaroadanam DP 4 Cochin 0.62 world/ICTT Haryana Chennai Cont. 5 Chennai 0.48 terminal DPW Uttar Sikkim 6 Visakha CT Vizag 0.50 Pradesh Rajasthan Assam Nagaland Bihar Meghalaya Manipur Jharkha Mizoram Gujarat Madhya West ripura Pradesh Ben Chattisgarh
Orissa APSEZ 8 CT Traf!c volume Maharashtra S.I. Terminal Name Port Name in MTEU ndhra (FY 20) Pradesh 1 AMCT(1) Mundra 1.09 2 AICTPL Mundra 1.78 Karnataka 3 Adani CMA Mundra 0.94 4 Adani Hazira Hazira 0.61 Port Traf!c volume in S.I. Terminal Name 5 Adani Ennore Ennore 0.13 Name MTEUs (FY 20) 6 KPCL(2) Krishnapatnam 0.54 amil Nadu 1 Kandla KICT Kandia 0.45 7 Katupalli terminal Katupalli 0.68 2 Paradip IVT Paradip 0.01 3 Haldia CT Haldia 0.17
APMT 2 CT Port Traf!c volume in S.I. Terminal Name Name MTEYs (FY 20) 1 APMT Pipavav Pipavav 0.87 2 APMT CONCOR JNPT 2.00
Source: Ministry of Shipping, GoI, Indian Container Market Reports 2016 to 2019 by Maritime Gateway, and Indian Ports Association Data Note: (1) Inclusive of Mundra T-2 which is part of the capacity augmentation of the existing Adani Mundra Container Terminal operated by APSEZ; (2) APSEZ completed the acquisition of Krishnapatnam Port Company Ltd., (KPCL) in October 2020.
Initially, DP Word was the largest container terminal operators in India. However, APSEZ with its JV partners have since overtaken it and emerged as the fastest growing major container terminal operators in India—CAGR growths of more than 20.0% in volumes (APSEZ container volumes also includes APSEZ JV terminals) between Fiscal Year 2016 and Fiscal Year 2020. Despite the container market growth that India has witnessed in the last five years, CTOs such as DP World, APMT have witnessed less than proportionate growth in volumes. Although JM Baxi volumes are smaller on an absolute basis, they have witnessed modest growth, driven primarily by volume ramp-up at Kandla port. PSA container volume growth is largely in tandem with India’s container volume growth with their portfolio at Chennai, Tuticorin and JNPT.
99 CTO volumes for previous five years segregated terminal operator wise are given in the table below.
FY16 to FY 20, CTO Operator’s Volumes (in MTEUs)
TerminalOperators FY16 FY17 FY18 FY19 FY20 CAGR in % DPWorld...... 3.8 3.7 3.9 4.0 4.0 2% APMT...... 2.6 2.5 2.7 3.0 2.9 3% JMBaxi...... 0.1 0.3 0.3 0.4 0.6 63% APSEZ...... 2.4 3.1 4.4 4.9 5.2 21% OfwhichAICTPL...... 1.1 1.2 1.5 1.9 1.8 13% PSA...... 1.8 2.0 2.1 2.5 2.6 10% Other...... 1.7 2.0 2.3 2.1 2.1 6% Total ...... 12.3 13.5 15.8 17.0 17.4 9%
Source: Indian Container Market Reports 2016 to 2019 by Maritime Gateway, Coronavirus Impact on Container Trade—Container India 2020 Report; and Indian Ports Association
Over the years, container market share of key terminals operators in India has changed substantially. From FY16 to FY20, DP World has lost its market share by 8.0% followed by APMT losing market share by 4.0%. During the same time, APSEZ along with its JV partners has gained the market share by 10.0%, followed by JM Baxi who has gained 3% market share in India.
FY16 to FY 20, CTO Market Share Trends in India (in %)
35%
30%
25%
20%
15%
10%
5%
0% FY16 FY17 FY18 FY19 FY20
DP World APMT J M Baxi APSEZ (Incl. AICTPL) AICTPL PSA Others
Source: Indian Container Market Reports 2016 to 2019 by Maritime Gateway, Coronavirus Impact on Container Trade—Container India 2020 Report; and Indian Ports Association
100 Container terminal Capacities in India
Although container terminal capacities are almost equally divided into major port and non-major ports, the market is largely oligopolistic in nature with four container terminal operators holding c. 80.0% of market share (with regards to CTO capacities in Fiscal Year 2019). Apart from APSEZ, DPW and PSA also have assets strategically located across the Indian coastline. However in last four years only two players have added incremental capacities in India namely APSEZ (4.5 MTEUs) incremental capacities and PSA (2.6 MTEUs capacity).
FY16 to FY20 CTO Terminal Capacities in India (in MTEUs)
FY16 FY17 FY18 FY19
DPWorld...... 6.2 5.6 6.2 6.3 APMT...... 3.2 3.2 3.2 3.4 JMBaxi...... 0.9 0.7 0.9 0.9 APSEZ...... 4.3 6.3 8.5 8.8 OutofwhichAICTPL...... 1.3 1.5 3.0 3.0 PSA...... 2.4 2.9 5.1 5.0
Source: Indian Container Market Reports 2016 to 2019 by Maritime Gateway
Container terminal Capacity Utilization
At the end of Fiscal Year 2020, the estimated container terminal capacities in India was around 28.7 MTEUs (note that breakdown by CTO is unavailable for Fiscal Year 2020), implying a c. 61.0% capacity utilization. However regional variation exist is container terminal capacity utilizations. Key terminal operator’s capacity utilizations trends in India is given below.
FY16 to FY19 CTO Capacity Utilization in India (in MTEUS)
100%
80%
60%
40%
20%
0% FY16 FY17 FY18 FY19
DP World APMT J M Baxi APSEZ (Incl. AICTPL) AICTPL PSA
Source: Indian Container Market Reports 2016 to 2019 by Maritime Gateway
101 Container Growth future Outlook
Despite the increase in containerization in India, India’s containerization penetration remains low compared to global peers and regions as can be seen from the chart below.
Container Penetration in 2019 (TEU/’000 people)
168 167 165 139 104 93
50 35 22 13
UK Europe China North World Latin Brazil Russia Africa India America America
Source: Drewry Maritime Research
Note: Port throughput figures include gateway and transshipment volumes
Strong container volume growth potential exists driven by potential increase in share of manufacturing in GDP, surge in transshipment volumes and incremental containerization opportunity on the back of increasing trade.
Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors has estimated three different economic growth scenarios for India during the forecast period. The future economic growth rates scenarios are built upon Oxford Economics’growth estimates for GDP of India until Fiscal Year 2035 and the historical pattern of economic growth.
According to Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors, in the base case scenario, India container traffic (excluding coastal and transshipment) is projected to achieve a CAGR of c. 6.6% and total traffic is expected to reach around 33.4 MTEU by Fiscal Year 2035.
In high case growth scenario, Indian container traffic may grow by CAGR of 7.6%, with volumes reaching to nearly 37.7 MTEU by Fiscal Year 2035.
In a low case growth scenario, Indian container traffic is projected to increase to 28.2 MTEU by Fiscal Year 2035, reflecting a CAGR of 5.6% in the forecast period.
CAGR (FY21 to FY2025 FY2030 FY2035 FY35)
Base Case .... 17.9 25.0 33.4 6.6% High Case .... 18.4 27.0 37.7 7.6% Low Case .... 16.6 22.2 28.2 5.6%
Source: Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors
Key Industry Growth Drivers
Improved Intermodal Logistics and Infrastructure
A port’s success is increasingly dependent upon the quality of infrastructure in and around the port, including road and rail connections, and on how well a port can handle the logistics of moving cargo from the port onto shore.
102 Last mile connectivity to the ports is one of the major constraints in smooth movement of cargo to/from the hinterland. According to Ministry of Shipping of the GoI, around 87% of Indian freight uses either road or rail for transportation of goods. A significant share of this cargo experiences “idle time” during its transit to the ports due to capacity constraints on highways and railway lines connecting ports to production and consumption centers. According to Sagarmala (Ministry of Shipping), the main challenges to port connectivity in India are underleveraging of domestic waterways, severely constrained rail infrastructure along key routes, sub-optimal modal mix for container freight, poor connectivity to west coast ports through the Western Ghats, lack of coordinated end to end planning for bulk logistics and constrained last-mile connectivity between ports and key industrial hinterlands.
In 2018, the Ministry of Railways of the GoI introduced the General-Purpose Wagon Investment Scheme to meet the long-term demand from railway freight wagon users for better and more timely availability of general purpose wagons. The scheme opens private investment in general purpose wagons and allows investors to procure wagons that can move multiple commodities, including coal, without the need for any specific approval from the Ministry of Railways for carriage of the commodity in that wagon.
Furthermore, the development of intermodal routes has increased inter-port competition for ship calls and cargo. It has also reduced the relative importance of any one port in the logistics chain. As private transport companies integrate their services across modes and as shipping lines become more concerned with the landside delivery of cargo, a port’s customer base has expanded from individual shippers and consignees to include forwarders and transport companies. The modal options available at ports have become a major selling proposition in attracting business.
External Trade
Indian ports handle approximately 90.0% of India’s merchandise trade (by volume) thus contributing significantly to India’s external trade. India’s total external trade grew at a CAGR of 9.7% from Fiscal Year 2010 to Fiscal Year 2020 in local currency terms boosted by growth in both exports and imports. According to the Ministry of Commerce and Industry of the GoI, India’s total external trade fell by 3.2 trillion in Fiscal Year 2020 with total exports of 22 trillion and imports of 34 trillion.
In India due to COVID-19 exports to US, Europe & Middle East have been impacted. However, major imports from Japan, Korea & China have not slowed down However, Export to these countries once the pandemic subsides are expected to pick up again. Major import products lie white goods are also expected to pick up once economy restarts.
India O&D (export-import) Trade (FY10 to FY20)
36 34 30 27 27 27 25 26 23 23 22 19 19 18 20 17 16 17 14 15 11 8
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20
Export Import
Source: Ministry of Commerce & Industry, GoI
103 Coastal Shipping
Coastal Shipping is the movement of cargo and passengers by sea (for domestic transportation) along the coast within the country without cross regional boundaries. India has a coastline spanning over 7,517 km, with 12 Major and 204 Non-Major Ports across the coastline. Despite having an extensive network of inland waterways in the form of rivers, canals, backwaters and creeks freight transportation by waterways is highly under-utilized.
According to Ministry of Shipping of the GoI, although water-borne transport is much safer, cheaper and cleaner compared to other modes of transportation, it accounts for less than 6% of India’s modal split, which is significantly less than that in developed economies and some of the developing economies such as China (47.0%), the United States (12.4%) and Japan (34.0%).
The Ministry of Shipping of the GoI estimates that coastal shipping traffic of about 250 metepa can be achieved from current and planned capacities across coal, cement, iron and steel, food grains, fertilizers, and POL by 2025. Additionally, about 150 mmtpa of cargo is expected to be moved via inland waterways by 2025.
Coastal Shipping Volume (mmt)
20.5% 19.3% 19.2% 17.9% 17.7% 17.3% 17.4% 17.3% 16.6% 16.4% 16.7%
263 253 201 233 152 153 159 162 161 173 179
FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20(P)
Coastal Shipping Volume % of Total Cargo
Source: Ministry of Shipping, GoI
The GoI has also taken various initiatives for promotion of coastal shipping such as Sagarmala, dedicated coastal berths in Major Ports, financial assistance to State Government for coastal berth, concession in cargo related and vessel related charges to the extent of 40.0%.
To further encourage coastal shipping relaxation in cabotage laws have been made. Cabotage refers to transport of goods or passengers between two places in the same country by a transport operator from another country. Post the relaxation of cabotage laws, foreign carriers can carry containers between Indian ports without any specific license. Also, Indian ports can now attract cargo that originates from and is destined for a foreign country.
According to the Update on Indian Port Sector (31.03.2020), amongst the Non-Major Ports, GMB handled the maximum Coastal Cargo of 46.9 mmt with a share of 49.9% followed by MMB (21.6%), Andhra Pradesh Maritime Board (APMB) (19.2%), Directorate of Ports, Odisha (4.2%), Puducherry (2.5%), A&N Islands (1.9%), Directorate of Ports, Karnataka (0.4%), Kerala Maritime Board (KMB) and TNMB (0.2%) each during Fiscal Year 2020.
104 Increasing Foreign Direct Investment (“FDI”)/Private Sector Participation
According to the Ministry of Shipping, the ports sector in India has received a cumulative FDI of U.S.$1.64 billion between April 2000 and December 2019. Strong growth potential, a favorable investment climate and incentives provided by the Government have encouraged domestic and foreign private players to enter the Indian ports sector.
Such initiatives include allowing FDI up to 100.0% under the automatic route for projects related to the construction and maintenance of ports and harbors, as well as a 10-year tax holiday to enterprises engaged in the business of developing, maintaining and operating ports, inland waterways and inland ports. Private ports enjoy price flexibility, as the Government allows Non-Major Ports to determine their own tariffs in consultation with the state maritime boards.
The Government has laid down guidelines for private sector participation in the port sector. The following areas have been identified:
• Leasing out assets of the port;
• Construction and operation of container terminals, multipurpose cargo berths and specialized cargo berths, warehouse, storage facilities, tank farms, container freight stations, setting up captive power plants etc.;
• Leasing of equipment for cargo handling and leasing of floating crafts from private sector;
• Pilotage; and
• Captive facilities for port-based activities.
Transshipment
According to Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors, in Fiscal Year 2020, transshipments accounted for 7% of the 17.4 MTEUs handled in India. Traditionally, transshipment has not been a major component in India’s port throughput, However, the transshipment volume has started to increase in the last couple of years. In recent years, private ports have built up capabilities to capture a share of India’s O&D (export-import) volumes that are transshipped from foreign ports. Improving infrastructure, competitive pricing and relaxation in cabotage rules are some key factors that have been vital in positioning private players to capture transshipment volumes.
COVID-19 Impact on Ports
In order to contain the spread of coronavirus, a complete lockdown was imposed in India from March 25, 2020. The lockdown imposed severe restrictions on movement of goods. While ports were classified as “essential” services, issues in logistics of interstate movement of goods, unavailability of drivers and supply chain proved to be bottlenecks. The quarantine rule imposed by the Government of India also restricted imports from affected regions, mainly from China.
Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors notes that the situation improved after 2Q20. The lockdown was eased, and businesses restarted their operations, signs of improvement in container handling was seen. As per Drewry estimates, container handling at Indian ports during the first quarter of Fiscal Year 2020 dropped to c. 27.0% below what it was during the same period in 2019. However, container handling during Jul-Aug 2020 was 10.0% below that in July and August 2019. It is expected that this improvement will continue during the rest of 2020.
105 The GoI has taken proactive measures to enable movement of containers through rail. They have been able to divert some of the road traffic through rail as the Government allowed to run empty container rakes. GoI provided relief measures to ports to boost O&D (export-import) cargo by supporting and rebuilding the logistics chain. Major ports were asked to defer rentals, waive charges and penalty. They have been asked to defer lease rentals, license fees-related charges for April – June 2020 on pro-rata basis without any interest. These measures helped ease burden on PPP operators, port users and other stakeholders hit by the coronavirus.
106 OURBUSINESS
Overview
We operate two major container terminal facilities—CT-3 and CT-3 Extension (the “Terminals”)—at Mundra Port, with the annual capacity of 3.1 MTEUs as of September 30, 2020. We are a 50:50 joint venture between APSEZ and Mundi Limited, a subsidiary of TiL.
We have demonstrated a steady growth in our business. Our total income increased to `9,380.60 million in Fiscal Year 2020 from `9,202.37 million in Fiscal Year 2019 and `6,476.50 million in Fiscal Year 2018. Our total income increased to `4,998.28 million in the six months ended September 30, 2020 from `4,428.09 million in the six months ended September 30, 2019. EBITDA increased to `5,058.20 million in Fiscal Year 2020 from `4,691.56 million in Fiscal Year 2019 and `3,550.41 million in Fiscal Year 2018. EBITDA increased to `2,678.48 million in the six months ended September 30, 2020 from `2,329.13 million in the six months period ended September 30, 2019.
APSEZ is India’s largest private developer and operator of ports and related infrastructure based on container volume handled*. APSEZ provides fully integrated marine, stevedoring, handling, storage, warehousing, transportation and other value-added logistics services. APSEZ is part of the Adani Group, which is a multinational diversified business organization with significant interests across transport and logistics (ports and logistics, shipping and rail) and energy and utility (power generation and transmission) sectors. As of November 24, 2020, the combined market capitalization of APSEZ, Adani Power Limited, Adani Enterprises Limited, Adani Green Energy Limited, Adani Transmission Limited and Adani Gas Limited was approximately `55.00 billion (source: Bloomberg).
TiL is a leading global container terminal operators. TiL handled approximately 6.3% of the world’s container port throughput as of September 30, 2020 and ranked sixth in the Global Terminal Operator’s throughput league in 2019**. TiL owns and operates 42 terminals out of which 16 are wholly or majority-owned and 26 are joint ventures at the world’s largest O&D markets. TiL is majority owned (as to 57.3%) by MSC, which is the second largest shipping line globally in terms of container vessel capacity according to Alphaliner.
APSEZ developed Mundra Port under the “build-own-operate-transfer” policy of the GoG, pursuant to which it entered into a 30-year Concession Agreement with the GMB on February 17, 2001. The Concession Agreement permits APSEZ (licensee) to induct sub-concessionaires to develop and operate port facilities in Mundra Port. Subsequently, on October 17, 2011, we signed a sub-concession agreement with APSEZ (the “Sub-Concession Agreement”) that granted us the right and authority to operate, maintain the contracted assets to the Terminal facilities and a right to construct additional assets at CT-3. The Sub-Concession agreement will be valid until February 16, 2031. We also executed with APSEZ the Infrastructure Use and Port Services Agreement for CT-3 and CT-3 Extension on June 29, 2013 and November 1, 2017, respectively, pursuant to which APSEZ agreed to provide infrastructure facilities and port services to us. For more information on these agreements, see “—Material Agreements.”
* Derived from data in the India Container Market Reports 2016-2019 by Maritime Gateway, Coronavirus Impact on Container Trade 2020 Report and Indian Ports Association. ** According to Global Container Terminal Operators—Annual Review and Forecast—Annual Report 2020/21 of Drewry Maritime Research.
107 Container volume growth and capacity utilization at the Terminals
CT-3 and CT-3 Extension - Container Volumes and Capacity Utilization
1.93 1.78
1.52
1.17 1.07 0.91
68% 0.58 65% 60% 62% 57% 50% 43%
FY14 FY15 FY16 FY17 FY18 FY19 FY20
Cargo Volumes (M TEUs) Capacity Utilisation (%)
The Terminals have witnessed significant growth in container volumes. The combined container volumes at the Terminals increased from 0.58 MTEUs in Fiscal Year 2014 to 1.78 MTEUs in Fiscal Year 2020, at a robust CAGR of 21.5% as set out above.
In Fiscal Year 2020, MSC’s contribution to our total volumes was 73.0% and third parties’ (including coastal) was 27.2%. In terms of cargo types, the share of O&D (export-import) cargo in our total volumes was 61.3% and transhipment cargo stood at 37.7%.
For the six months ended September 30, 2020, container volumes increased 21.9% year-on-year to 1.04 MTEUs from 0.86 MTEUs for the six months ended September 30, 2019. This increase was driven by an increase in O&D (export-import) cargo by 19.5% period-on-period to 0.64 MTEUs for the six months ended September 30, 2020 and an increase in transshipment volumes by 21.2% period-on-period to 0.40 MTEUs for the six months ended September 30, 2020. Our cargo throughput was impacted by the COVID-19 outbreak during the first quarter of Fiscal Year 2021, when the GoI imposed country-wide lockdown and other restrictions. Thereafter, volumes gradually increased and eventually surpassed the pre-COVID-19 levels following the easing of COVID-19 restrictions.
The combined container handling capacity of the Terminals is 3.1 MTEUs. In Fiscal Year 2014, the capacity utilization rate of the Terminals was 43.0%, which has since grown to a 57.0% capacity utilization rate in Fiscal Year 2020 (accounting for the increased total capacity of CT-3 Extension).
For the six months ended September 30, 2020, the capacity utilization rate of the Terminals was 67.0% as against 55.0% for the six months ended September 30, 2019.
108 Our Competitive Strengths
We believe our competitive strengths are as follows:
Strategic location poised for growth
We are strategically located in the state of Gujarat to serve India’s western, central and northern landlocked areas/hinterlands. Gujarat and Maharashtra collectively account for 46.0% of gross exports and 66.0% of total container throughput from India according to the Drewry Reports. Container throughput from the Mundra hinterland has grown significantly over the years on account of the distance and cost advantages that our location provides to shippers. In Fiscal Year 2019, the total container throughput from this region was 3.8 million TEUs and Mundra Port handles at least 55.0% of containerized cargo from Northwest Indian states of the National Capital Region, Gujarat, Punjab, Rajasthan and Himachal Pradesh according to the Drewry Reports. We believe that we are strategically located to handle high container volumes due to the following reasons:
• Proximity to Gujarat’s hinterland provides a conducive environment for trading
The Terminals are the gateway port to handle Gujarat-based cargo as they are located within the Mundra Port. Gujarat is rich in natural resources and offers favorable policy initiatives, industrial infrastructure and a supportive environment for investments, which has enabled it to provide a conducive environment for trading. Certain key advantages of trading in Gujarat are strong domestic demand, industrial infrastructure, availability of raw materials, labor pool with required skill set and growth of the port sector. Gujarat is the hub for many industrial activities, and various export-import reliant industrial zones have developed across the state such as automobile parts, food grains, gems and jewelry, engineering chemicals, pharmaceuticals, textiles, plastics, refined copper, zinc oxide and marine products.
The key industrial zones of Gujarat that we serve are shown below.
Source: Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors
109 • National hinterland/contestable hinterland
The Terminals at Mundra Port are strategically located to serve India’s northern, north-western and central landlocked hinterland. The northern states of India are densely populated and have well-developed industrial zones, which makes O&D (export-import) cargo important for the region. The northern states such as Uttar Pradesh, Rajasthan, New Delhi, Punjab, Haryana, Madhya Pradesh, Maharashtra and Gujarat have significant share of the Indian agricultural output; for example they are the largest exporters of Basmati rice and other agricultural products according to the Agricultural and Processed Food Products Export Development Authority.
During the past five years, the northern and north-western states accounted for approximately 67.0%-68.0% of total container traffic in India and are likely to sustain this level for the next few years, according to the Drewry Reports. The region provides a significant trading opportunity to, among others, Gujarat-based ports to handle containerized cargo given their shorter transit times to north and north-western India compared to the ports in Mumbai.
The following map depicts the key cities in India to which cargo from the Terminals is dispatched.
Source: Container Market Study report dated November 9, 2020 by Drewry Maritime Advisors
• Strategic location for transshipment cargo-handling
Mundra Port is strategically located to serve the middle-east region of Asia and has a favorable position on the Arabian Sea route, as per the India Container Market Report 2019. Over the years, Mundra Port has emerged as a transshipment hub on the west coast of India with direct pathways to the Middle East and the South Asian markets. Mundra Port provides deep draft container terminals and good natural depth in channel and alongside.
110 Good rail and road connectivity
We believe that the existing road and rail network from the Terminals to inland regions of north and north-western region provides us with a competitive advantage for attracting larger volumes of cargo. The following factors contribute to our robust connectivity infrastructure which reduces waiting time and increases efficiency at the Terminals.
• Road Connectivity: Munda Port is to the northern hinterland via National Highway number 25 (NH25), the central hinterland through Morbi located on National Highway 27EW (NH27EW), and to southern Gujarat, Maharashtra and other southern states via National Expressway number 1 (NE1).
• Rail connectivity: Mundra port is well connected to hinterland with an efficient rail network, which gives a competitive advantage to the Terminals. Mundra Port has a double-stack container train connectivity, which helps it achieve economies of scale in operations.
o We have access to a private 64 km double track railway line between Mundra and Adipur, connecting Mundra Port to the Indian Railways network at Adipur, Gujarat, which was developed and is operated by APSEZ.
o We also have access to a 22 km railway line through the Mundra Special Economic Zone, connecting Mundra Port to the Mundra-Adipur railway line and nearby power plants, which was constructed and developed by APSEZ.
o It is expected that railway connectivity between Munda Port and north and west India will be further enhanced by railway lines under construction, including a railway line between Palanpur and Adipur, which is under construction by the Indian Railways, and the Western Dedicated Freight Corridor which will connect Delhi and Mumbai.
Superior infrastructure for effective capacity utilizations
In addition to our strategic location, our infrastructure offers a competitive edge to the Terminals. Although the global shipping lines prefers the deployment of ultra large container vessels (“ULCV”) on main shipping routes to achieve economy of scale in container transportations, there are only few terminals in India which are equipped to handle ULCV, as per the India Container Market Report 2019. We are equipped to handle ULCV which had been planned during terminal designing stage.
Our operations are supported by quality cranes and robust infrastructure to give us a competitive edge. For example, in October 2020, we achieved container throughput of 241,081 TEUs, which was the highest monthly throughput ever achieved by any container terminal port in the India. In September 2019, we also commenced the centralized gate operation of in-gates at the Terminals with the feature of auto image capture for future reference. This mechanization and automation help reduce the transaction time for each truck at the terminal gate, which added to our operational efficiency.
111 Operational excellence
At container terminals, seaside productivity is essential to inter-port and intra-port competitiveness. We strive to attain high standards of productivity as demonstrated by the improvements made in our Gross Crane Rate (“GCR”) efficiency rate (containers moved over the quay per crane per hour) in the fiscal year/period as provided below.
GCR Efficiency Rate
33.3 35 29.9 28.7 30 27.1 24.5 25.7 25 20 15 GCR 10 5 0 2016 2017 2018 2019 2020 1H2021
In October 2019, we achieved our highest ever monthly GCR of 34.7 mph.
We also measure our operational efficiency in vessel turnaround time which is highlighted below:
• Average vessel turnaround time reduced from 1.02 days in Fiscal Year 2016 to 0.8 days in Fiscal Year 2020.
Average Turnaround Time (Days)
1.0
1.0 0.9 0.8
0.8
0.6
0.4
0.2
0.0 FY18 FY19 FY20
Certain other aspects in which we measure our operational efficiencies are pre-berthing time, berth productivity and truck turnaround time at the Terminals which are highlighted below:
• Average pre-berthing time reduced from 0.06 days in Fiscal Year 2016 to 0.05 days in the six months ended September 30, 2020.
• Average berth productivity improved from 73.5 moves per hour in Fiscal Year 2016 to 90.7 moves per hour in the six months ended September 30, 2020.
• Truck turnaround time has improved significantly from 51.5 minutes in Fiscal Year 2016 to 27.9 minutes in in the six months ended September 30, 2020.
112 For overall operational efficiency improvements, we have focused on the application of innovative technologies, which we believe have provided us with a competitive edge in energy savings, cost optimization and environment.
Backed by prominent Sponsors with global expertise
We are a 50:50 joint venture between APSEZ and Mundi Limited, a wholly-owned subsidiary of TiL. We benefit from APSEZ’s execution and operational strength and TiL’s global presence and expertise. See “Principal Shareholders” for more information.
About APSEZ
APSEZ, part of Adani Group, is India’s largest private developer and operator of ports and related infrastructure based on container volume handled^. APSEZ provides fully integrated marine, stevedoring, handling, storage, warehousing, transportation and other value-added logistics services. APSEZ is a leading port operator in India in terms of cargo handled among all commercial ports.
About Adani Group
Adani Group is a multinational diversified business organization with significant interests across transport and logistics (ports and logistics, shipping and rail) and energy and utility (power generation and transmission) sectors. The Adani Group includes six listed companies in India four of which are investment grade rated by international rating agencies and maintain robust coverage and liquidity, allowing them to access a diverse pool of capital at competitive cost. Adani Enterprises Limited, the flagship company of the Adani Group, continues to incubate new business-to-business opportunities and drive the group’s transition into the business-to-customers sectors such as gas, airport and electricity distribution. The Adani Group has transformed from a small-sized commodity trading business to an infrastructure creator meeting critical demand gaps in India. As of November 24, 2020, the combined market capitalization of APSEZ, Adani Power Limited, Adani Enterprises Limited, Adani Green Energy Limited, Adani Transmission Limited and Adani Gas Limited was approximately `55.00 billion (source: Bloomberg).
TM
Transport & Logistics Energy & Utility Portfolio Portfolio
TIL 63.5% 100% 75% 75% APSEZ SRCPL ATL AGEL Port & Logistics Rail T&D Renewables
100% 75% 37.4% APL AGL Mundi Ltd NQXT IPP Gas DisCom
50% 50% 75% AEL AICTPL Incubator
100% 100% 100% 100% AAHL ATRL AWL Data Airports Roads Water Centre ~USD 55 bn Combined Market Cap
UNLISTED ENTITIES LISTED ENTITIES
^ Derived from data in the India Container Market Reports 2016 to 2019 by Maritime Gateway, Coronavirus Impact on Container Trade—Container India 2020 Report and Indian Ports Association.
113 About TiL
TiL is a leading globally diversified container terminal operator. TiL handled approximately 6.3% of the world’s container port throughput as of September 30, 2020 and ranked sixth in the Global Terminal Operator’s throughput league in 2019^^. TiL owns and operates 42 terminals out of which 16 are wholly or majority-owned and 26 are joint ventures at the world’s largest O&D markets. TiL is majority owned (as to 57.3%) by MSC, the second largest shipping line globally in terms of container vessel capacity according to the Alphaliner Global Infrastructure Partners, one of the world’s leading infrastructure investment funds founded in 2006, holds 32.7% ownership in TiL and GIC, the Singaporean government sovereign wealth fund, which has extensive experience in large and unlisted infrastructure assets, holds 10.0% ownership in TiL.
TiL has a strategy to increase majority ownership at the terminals it operates and provides important terminal capacity to MSC. TiL has diverse operations with majority of cargo throughput at the ports being from MSC. The locations of the terminals are carefully selected. TiL also has a strategy to invest in financially sound investments with growing returns and to follow a de-risked “affiliated” business model. It is able to make such investments due to capital programs and acquisitions with MSC. TiL successfully leverages the volumes handled by MSC and its alliance partners by securing and managing new investments, managing concession extensions and providing a strong growth platform. The Company’s long-term relationship, through TiL, with MSC makes the Company attractive to port authorities due to its potential for increased volume and risk reduction. The affiliated business model, through TiL, allows for greater certainty for having MSC’s volumes tied to the Company, which is a major factor in terminal economics and de-risking the original development cost, acquisition or expansion capital expenditure. Additionally, the Company can achieve a high degree of tariff certainty, through TiL, with MSC. Further, MSC’s global operations generate valuable insights to changes in trade flows. The Company believes it benefits from such insights, through TiL, in terms of being able to accurately align operating capacity and capital expenditure to the demands of the different trades. MSC’s majority ownership in TiL ensures the strong financial performance of TiL and its terminals. TiL aims to maximize efficiency which is mutually beneficial to TiL and its customers and strategizes towards becoming one of the world’s safest, most productive and efficient container terminal operators. The following is TiL’s global footprint of its terminals.
Rotterdam (Netherlands)
Antwerp (Belgium) Bremerhaven (Germany) Le Havre (France) Klaipeda (Lithuania) Liverpool (United Kingdom)
Marseille (France) St Petersburg (Russia)
Sines (Portugal) Asyaport (Turkey) Marport (Turkey) Seattle (USA) Montreal (Canada) Iskenderun (Turkey) Newark (USA) Ashdod (Israel) Long Beach (USA) Las Palmas (Spain) Ningbo (China) Freeport (USA) Trieste (Italy) Freeport (Bahamas) Mundra (India) Houston (USA) Everglades (USA) Abu Dhabi (UAE) Umm Qasr (Iraq) New Orleans (USA) Valencia (Spain) KAEC (Saudi Arabia) Singapore Balboa (Panama) Gioia Tauro (Italy) Callao (Peru) Bettolo (Italy) Rio (Brazil)
Santos (Brazil)
Navegantes (Brazil) La Reunion (France) Lomé (Togo) Buenos Aires (Argentina) San Pedro (Ivory Coast)
42 Container Terminals
26 Operating terminals (mostly 50% owned) 14 Operating terminals (majority owned) 2 Green!eld terminals (100% owned)
^^ According to Global Container Terminal Operators—Annual Review and Forecast—Annual Report 2020/21 of Drewry Maritime Research.
114 Strategies
We aim to create value through our business model, which drives performance by capitalizing on the growth of the container industry, developing new revenue opportunities, optimizing operational efficiency and community development. Our key strategies include the following:
Growth and retention of business: Since our inception, we have handled healthy volumes of cargo. Our future growth strategy focuses on improving the retention rate of our customers through robust operations, high standards of customer service and by offering other value-added services. We intend to endeavor to further increase our relationship with all stakeholders in the supply chain by offering integrated logistics solutions. Going forward, we believe end-to-end logistics will be a prime focus area to offer quality services to our customers. This includes working with shipping lines, shippers, custom house agents and other stakeholders. To attract more volume from the hinterland and in particular, from north India, we intend to increase the efficiency of the rail connectivity to the Terminals. We plan to further leverage the comprehensive port ecosystem operated by APSEZ, competitive inland transportation costs and close ties to our Sponsors, customers and other industry participants to capture higher proportions of the existing trade volumes from the hinterland. Our sales and marketing team prepares and implements a comprehensive sales and marketing strategy plan. We will continue to regularly coordinate with our customers for a better understanding of their needs and requirements, which will help us address their concerns effectively.
Maximize operational efficiencies and increase profit generated from assets: We will continue to optimize the performance of our Terminals and maximize operational efficiencies by increasing throughput. We aim to improve efficiency in all our operating domains, from the time the vessels enter the port limit to transporting a container to our customers’ doorstep. We intend to focus on applying technologies that will increase performance and productivity, such as data analytics and artificial intelligence. We aspire to bring radical changes in port operational efficiencies through various innovations. Going forward, our focus will be on increasing the profits generated from our existing assets across the terminal system and equipment. We will strive to use all the assets of the Terminals in an optimal manner to leverage their value. Before investing in new equipment, we intend to conduct a thorough analysis of our existing asset utilization to avoid duplication of assets.
Synergy with APSEZ group companies: Our customers have been pivotal in shaping our strategies and developing business. We have strived to provide relevant services to cater to the current and future needs of our customers. In order to enhance our reach to the hinterland and expand our services, we work with Adani Logistics Limited (a subsidiary of our Sponsor, APSEZ) to provide integrated logistics solutions to our customers by providing connectivity between ports and the destinations of cargo for imports and by connecting export cargo from inland container depots (where containers are stored or held in transit once they are unloaded from vessels) to the Terminals.
Key Milestones
The following are the key milestones of the Company:
• July 2013: Began cargo handling operations at CT-3;
• March 2016: Cargo handling volumes crossed 1 MTEUs, first time in our history;
• November 2017: Began cargo handling operations at CT-3 Extension and cumulative cargo handling capacity reached 3.1 MTEUs;
• December 2019: Handled a vessel with a length of 366 meters (the longest meters in our history) and draft of 16.8 meters (deepest draft in our history);
115 • June 2020: Handled a vessel with parcel size exchanged in a single vessel of 12,053 TEUs (largest size in our history); and
• October 2020: Achieved highest container throughput of 241,081 TEUs.
Recent Developments
Impact of COVID-19
An outbreak of the novel strain of coronavirus (“COVID-19”) was recognized as a pandemic by the World Health Organization on March 11, 2020. In response to the outbreak, governmental authorities in various jurisdictions imposed lockdowns and other restrictions to contain the virus, and various businesses suspended or reduced operations. The GoI also imposed a nationwide lockdown on March 25, 2020. During this lockdown, only companies providing essential services could continue operations. The GoI declared ports and related logistics services essential services, and accordingly, the Terminal facilities continued operations.
During the initial period of the lockdown in India, we experienced logistical bottlenecks. Supply chain was impacted as road transportation was affected and we were not able to evacuate cargo seamlessly out of the Terminals. However, we were able to reduce the impact of road transportation bottlenecks by leveraging India’s rail transportation system to move cargo from the Terminals. Thereafter, lockdown restrictions were gradually lifted in zones and the GoI has announced several economic stimulus measures in response to COVID-19, helping the economy to recover from the second quarter of Fiscal Year 2021. India’s GDP contraction reduced from 23.9% in the first quarter to 7.5% in the second quarter of Fiscal Year 2021.
Despite the lockdowns and other restrictions, the Company has displayed robust growth in container volumes since the second quarter of Fiscal Year 2021. This was primarily due to (i) the Company’s strengths such as its efficiency, strategic location, superior infrastructure and association with MSC; and (ii) the ports and logistical services being declared as “essential services” by the GoI, enabling the Company to continue its operations. The largest impact of COVID-19 on container volumes at the Mundra Port and the Company was mainly witnessed in April and May 2020 which was a result of the lockdown in India from March 2020. Thereafter, container volumes have gradually recovered and eventually surpassed pre-COVID-19 levels. Set out below is the increase in container volumes at the Mundra Port and the Company from the third quarter of Fiscal Year 2020 to September 30, 2020.
Mundra and AICTPL Container Volumes (MTEUs) 0.45 0.45 0.42 0.40 0.38 0.35 0.34 0.28 0.21 0.20 0.18 0.16 0.16 0.15 0.14 0.13
Q3 FY20 Q4 FY20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Monthly Average Mundra AICTPL
Source: Company report
Despite the lockdowns and restrictions imposed by countries globally, the port and container sector has shown signs of recovery. Port throughput has been the least affected transport and traffic sector as compared to others such as air freight and passenger traffic. Set out below are the port throughput and toll road traffic from January 2020 to August 2020.
116 1. Source: Port throughput Index – Drewry Maritime Research, Company filings; 2. Port Throughput Index: A series of volume growth/decline indices based on monthly throughput data for a sample of over 235 ports worldwide, representing over 75.00% of global volumes. The base point for the indices is January 2012 = 100; and 3. Toll Road traffic growth is based on vehicle kilometers traveled. The data refers to a selected set of toll roads across Ferrovial, Atlantia and Abertis, with 16 toll roads in US, Canada, Italy, Spain, France, Brazil, Chile and Mexico. Sourced from Company reports.
Material Agreements
Concession Agreement
APSEZ has the right to develop, operate and maintain land located at Mundra Port in Mundra, Gujarat until February 16, 2031 pursuant to a concession agreement, dated February 17, 2001, entered into between APSEZ, the GMB and the government of Gujarat.
Pursuant to the concession agreement, APSEZ as the licensee has the exclusive rights and entitlements to:
• develop various assets, including a multi-purpose jetty, jetty approach head and dry bulk container jetty, shared services, terminals and certain intangible assets;
• grant sub-concessions for all assets (including CoreAssets (as defined below) subject to GMB’s prior approval), as are consistent with, and terminate at the same time or earlier than, the concession agreement;
• sub-contract with third parties and mortgage its leasehold interests in the land and waterfront; and
• collect fees for services rendered at the Mundra Port.
The “Core Assets” under the Concession Agreement comprise the multi-purpose T-shaped jetty, jetty approach head, and the dry bulk/container jetty.
APSEZ must pay the GMB concessional waterfront royalties for each tonne, and varying by type, of cargo handled at Mundra Port. When the Concession Agreement expires, all immovable and essential movable contracted assets will be transferred to the GMB. APSEZ will receive consideration from GMB based on replacement value of the assets, subject to depreciation, as determined by an independent appraisal team. If the Concession Agreement is terminated early due to a default by either party, the assets will be transferred to the GMB and APSEZ will receive compensation based on an independent valuation of the assets, adjusted based on which party defaulted, as set out in the Concession Agreement.
Sub-Concession Agreement
Under the Concession Agreement, APSEZ is permitted to enter into a sub-concession agreement with third parties to fulfill its obligations. The Company entered into the Sub-Concession Agreement on October 17, 2011 with MPSEZ (now known as APSEZ) to develop and operate CT-3 comprising a two-berth deep
117 water container terminal. The Sub-Concession Agreement will be valid, as is the concession agreement, until February 16, 2031. The GMB has granted its approval for the aforementioned sub-concession and transfer of ownership of Core Assets of CT-3 by its letter dated August 30, 2012 (“GMB Letter 1”). In the GMB Letter 1, while providing its approval to the grant of sub-concession to the Company by APSEZ, the GMB observed that the Sub-Concession Agreement will be counter-signed by the GMB as a confirming party once the GoG has approved the Sub-Concession Agreement. Further to the decision of the Company to also operate an extension to the CT-3 comprising a 650-meter berth, i.e. CT-3 Extension, the GMB granted is approval for transfer of the CoreAssets of CT-3 Extension to the Company by its letter dated March 22, 2018.
Pursuant to the Sub-Concession Agreement, the Company was granted the right and authority to, along with other activities incidental thereto: (a) perform services at the Terminals, including loading, unloading, storage, receipt and dispatch of container cargo, inter alia, by road or rail or any other means, stuffing and de-stuffing and all related and ancillary services connected with the Terminals (“Services”); (b) finance, design, operate and maintain the contracted assets; (c) carry out activities in nature of logistics services, information technology support, customs clearance service and transit warehousing. We would require prior written consent of the GMB for carrying our additional activities in the Terminals. See “Risk Factors—Risks related to our Business—Until the GMB has executed the sub-concession agreement as a confirming party, our rights to operate the combined facilities of CT-3 and CT-3 Extension may be subject to modification or revocation.”
The Company has exclusive rights to fix, vary and collect tariffs for services rendered or performed at the Terminals. APSEZ is required to ensure that the Terminals are connected to the Indian railways network and also provide certain infrastructure, marine and port services to the Company.
The material terms of the Sub-Concession Agreement are as follows:
• Royalty payments: The Company shall pay to the Licensee a monthly waterfront royalty on every container handled at the Mundra Port for onward payment to the GMB. Further, the Company is also required to pay to the Licensee terminal royalty (“Terminal Royalty”) on a monthly basis as per the agreed rate.
• Sub-contracting of Services: The Company has the right to engage sub-contractors to provide Services at the Terminals. The Company is required to ensure that all sub-contractors, agents and/or their employees comply with the relevant provisions of the Concession Agreement and Sub-Concession Agreement.
• Liability of APSEZ: APSEZ is not liable for any costs or liabilities incurred by persons availing of the Services, the Company’s sub-contractors at the Terminals and the Mundra Port or any third party. APSEZ is also not liable for any direct or indirect loss, consequential damages or loss of profits to the Company in the event the GoG, GoI, any public or statutory authority or APSEZ directs the Company to provide Services on a priority basis and which direction the Company has to comply with.
• Rights of the Company: In the event of the termination of the Concession Agreement, the Company is entitled to operate and maintain the Terminals in accordance with the Concession Agreement and the Company shall be entitled to the rights and shall be liable to perform all the obligations under the Concession Agreement to the extent they relate to the Terminals as if the Company were APSEZ under the Concession Agreement. This is subject to the condition that the Company executes a deed agreeing to be bound by the terms of the Concession Agreement. In the event of occurrence of an event of default in terms of the Concession Agreement by APSEZ, APSEZ is required to the communicate it to Company within 5 days from the date of occurrence and all communication and notices received by APSEZ in relation to any alleged default or breach is required to be shared with the Company. The Company also has the right to remedy a default or breach by APSEZ under the Concession Agreement insofar as it relates to the Terminals.
118 • Step-in rights: APSEZ, the GMB, the GoI and the GoG possess step-in rights on occurrence of the events of default, emergency-like situation or for national security reasons. However, GMB or APSEZ, as the case may be, will be entitled to all revenues during the period of exercise of such step-in rights by the GMB, the GoG or the GoI. The Company can extend the term of the agreement for the duration of the exercise of step-in rights by APSEZ, the GMB, the GoG or the GoI except in case the Concession Agreement is terminated earlier. APSEZ’s and GMB’s entitlement to revenues during this period are balanced by their liability for all outstanding and operating expenses.
• Rights over assets: The Company is entitled to mortgage or create any security interest over any portion of the contracted assets in accordance with the Concession Agreement for its borrowings, except in respect of the Core Assets for which prior written permission and consent from GMB is required. Any transfer or assignment of any interest in the Core Assets by the Company is also subject to the prior written consent of the GMB. However, the GMB’s consent is not required in respect of creation of any security asset over the land leased under the sub-lease and possession agreement, to be executed between APSEZ and the Company, (“Sub-Lease and Possession Agreement”) by the Company in favor of a bank or a financial institution.
• Default and Termination: In the Company or APSEZ’s event of default in the Concession Agreement, the procedure given under the Sub-Concession Agreement has to be followed. The Company’s events of default are: (i) failure to pay Terminal Royalty or lease rent; (ii) failure to pay toAPSEZ any other due under the Sub-Lease and Possession Agreement; (iii) material breach of a material provision; (iv) failure to pay waterfront royalty payments; (v) repudiation of the Sub-Concession Agreement or evidencing of any intention of the Company that has the same effect; (vi) appointment of a provisional liquidator for winding up of the Company or appointment of a receiver for the assets of the Company unless such appointment is set aside within 45 days; (vii) material default by the Company of any of the agreements entered into the Terminals; (viii) change in ownership of the Company; (ix) any court orders winding up of the Company or filing of such petition is filed by the Company except for amalgamation or reconstruction; (x) Company’s abandonment of the operation of the Terminals and the contracted assets for a continuous period of 45 days; (xi) persistent failure of the Company to operate and promote activities at the Terminals and provide Services in accordance with good industry practice and in accordance with the Sub-Concession Agreement; (xii) failure of the Company to comply with lawful directives given by a statutory authority connected with ports; and (xiii) failure of the Company to comply with applicable law.
Events of default of APSEZ are: (i) repudiation of the Sub-Concession Agreement or evidencing of any intention of the APSEZ that has the same effect; (ii) material breach of a material provisions of the Sub-Concession Agreement; (iii) appointment of a provisional liquidator for winding up of APSEZ or appointment of a receiver for the assets of the Company unless such appointment is set aside within 45 days; (iv) any court orders winding up of APSEZ or such a petition is filed by the APSEZ, except for amalgamation or reconstruction; (v) APSEZ abandons the obligations under the Concession Agreement for a continuous period of 45 days which has an adverse effect on the rights of the Company under the Sub-Concession Agreement; (vi) material default by APSEZ of any of the agreements entered for the Terminals (however, failure to provide marine and port services will not be considered a material default); and (vii) failure by APSEZ to comply with lawful directives of a statutory authority connected with ports and which has an adverse effect on the rights of the Company under the Sub-Concession Agreement.
• Lenders’ right of substitution: In case APSEZ issues a notice of termination due to the occurrence of an event of default by the Company, lenders of the Company to whom at least 75% of the debt is due may approach APSEZ with a request to replace the Company by another operator to undertake the Company’s obligations under the Sub-Concession Agreement, in accordance with the provisions of the Sub-Concession Agreement.
• Indemnities: The Company will indemnify APSEZ against all losses, claims and costs resulting from any act or omission of the Company or inter alia, its sub-contractors, agents and customers. The
119 Company will also indemnify APSEZ from and against all claims including for death of any person, demands, losses caused, expenses incurred as a result of the failure of the Company to perform its obligations under the Sub-Concession Agreement. Further, in the event of a breach of any obligation by the Company or APSEZ, as the case may be, the non-defaulting party will have the right, but not the obligation, to remedy such breach by having the non-defaulting party discharge such obligation or procuring the discharge of such obligation at the sole cost of the defaulting party.
• Insurance: The Company is required to maintain insurance policies for, inter alia, public liability, statutory insurances, project insurance, and builders all risk insurance.
Undertaking by APSEZ in favor of the Company
Under the undertaking to be dated on or about the Closing Date issued by APSEZ in favor of the Company, APSEZ has undertaken that upon termination of the Concession Agreement prior to the expiry of the scheduled term of the concession, any payment received by APSEZ towards or on account of such termination from the GMB or the GoG shall be paid to the Company within five business days of receipt of such compensation by APSEZ from the GMB or the GoG in proportion to the value that CT-3 and CT-3 Extension have, relative to the overall asset being compensated. Such compensation is payable by APSEZ to the Company only if the Company does not exercise its right to step into the place of, and substitute APSEZ as licensee under the Concession Agreement with respect to CT-3 and CT-3 Extension, as stipulated in the Sub-Concession Agreement. The undertaking is valid until the execution of the Sub-Concession Agreement by GMB as a confirming party and until the Sub-Concession Agreement is validly and legally effective and binding.
JV Agreement
MPSEZ (now known as APSEZ), was granted the development rights under the Concession Agreement from the GoG and the GMB to develop and operate the Mundra Port in 2011. Pursuant to the Concession Agreement, APSEZ developed CT-3. A memorandum of understanding (“MoU”) was signed between MPSEZ (now known as APSEZ) and Mundi Limited on July 14, 2011 to develop and operate CT-3 on a joint venture basis. Pursuant to the MoU, the joint venture agreement dated October 31, 2011 (the “JV Agreement”) was signed between MPSEZ and Mundi Limited to record the understanding as to the manner in which Mundi Limited was to invest in the Company and the rights and obligations of Mundi Limited and MPSEZ (now known as APSEZ) in relation to the organization, operation and management of the Company and operation of CT-3.
Under the agreement, MPSEZ (now known as APSEZ) is obligated to:
• develop CT-3;
• finalize the equipment for CT-3 in consultation with Mundi Limited; and
• develop and maintain suitable depth in south basin and in front of CT-3 berths to ensure berthing of vessels of up to 22 containers wide.
Under the JV Agreement, Mundi Limited is obligated to:
• procure that MSC undertakes its best efforts towards making CT-3 a key transhipment hub for MSC’s and its affiliated container volumes in the region; and
• procure volumes of MSC, its affiliates and, as far as possible, consortium partners currently held at the existing container terminal at Mundra Port to migrate to CT-3.
Under the JV Agreement, the parties have agreed that CT-3 shall primarily handle container volumes of MSC and its affiliates and consortium partners. There are restrictions (such as right of first refusal and tag along rights as described in the JV Agreement) on each of the parties to transfer its shares. Further, any
120 transfer of shares to any competitor is not permitted unless agreed in writing by both parties. However, each party is free to transfer its shares to an affiliate subject to the affiliate signing a deed of adherence.
Under the terms of the JV agreement and subsequent decisions between the JV partners, each of APSEZ and Mundi Limited have the right to appoint two directors on the Board of Directors which was later approved by the shareholders of the Company upon amendment of the article of association of the Company. The chief executive officer shall be nominated by APSEZ, whereas the chief financial officer shall be nominated by Mundi Limited. The parties also agreed on a business plan to achieve the objectives of the agreement, which included the construction schedule for CT-3, procurement schedule in relation to major container handling equipment in relation to CT-3 and traffic projections in relation to CT-3. Voting at a general meeting is to be conducted by a poll, conducted in writing and all resolutions except certain reserved matters such as alteration in the capital of the Company and changes to the articles and memorandum of association of the Company will be considered to be passed only on approval of a majority of the shareholders provided, however, that at least one authorized representative of the party must approve of all resolutions at the general meeting before the same shall be considered to have been passed. Any resolution in respect of a shareholder reserved matter shall only be considered passed on approval of all shareholders.
The JV Agreement has certain reserved matter items which include approval of business plan, entering of any contract, agreement or arrangement with a current or prospective customer with contract value exceeding US$500,000 per annum, varying of material contracts, arrangement or agreements which can only be passed with the approval of all the directors of the Company. The JV Agreement requires each party to indemnify and keep the other party indemnified against all cases, which may be asserted against or incurred by the indemnified party by reason of any third-party claims against the indemnified party. Such third party claims could arise out of: (i) breach or non-observance of any of the terms and conditions of the JV Agreement; (ii) acts of negligence or intentional misconduct; (iii) any misleading or untrue representation and warranty; (iv) failure to fulfill obligations under law. The Company has agreed to adopt a dividend policy that pays out the dividend at the highest rate from the Company net of profit after taxes as may be permitted under applicable laws, and financing documents, except in the event when Board of Directors determines lesser amount to be paid considering the sustainability of profit or cash needs of the Company, in order to comply with the business plan.
The JV Agreement can be terminated by a mutual written agreement to that effect or occurrence of termination events such as material breach, change in control, winding-up, liquidation, inability to repay debts, termination of the terminal service agreement dated July 1, 2013. Further, the JV Agreement will automatically stand terminated against a party, if such party (along with its respective affiliates, in case of Mundi Limited) ceases to be a shareholder of the Company. The JV Agreement is governed and interpreted in accordance with the laws of India and disputes arising out of it will have to be negotiated and settled through binding arbitration.
Rail Services Agreement
The Company has the right to use the private railway siding laid down by APSEZ that connects the railway yard at Mundra Port and the main line of the Indian Railways pursuant to the Rail Services Agreement dated July 1, 2013, as amended from time to time (the “Rail Services Agreement”) entered into by the Company and APSEZ. The Company uses this service for loading and unloading of containers from wagons and movement of containers within the container storage yard of the Company at CT-3 and CT-3 Extension. The Company is entitled to terminate this Rail Services Agreement only if APSEZ grossly fails to provide the services under this Rail Services Agreement. In consideration of this right, the Company makes payments to APSEZ. The Rail Service Agreement was subsequently amended by the parties to update the rail service charges with effect from January 1, 2015. The Rail Services Agreement was subsequently amended on July 31, 2018 to include CT-3 Extension within its ambit.
121 Terminal Services Agreement
The Company and MSC have entered into a Terminal Services Agreement dated July 1, 2013 (the “Terminal Services Agreement”) pursuant to which MSC has the benefit of, inter alia, the following at CT-3:
• priority berthing and cargo operations for up to two vessels;
• the right to increase volumes of the containers passing through the Terminals as required by MSC subject to availability of capacity and at least 3 months of notice for major changes, such as the addition of a new line using the Terminals; and
• priority treatment to develop its business and regularly discuss with the Company its anticipated requirements to enable the Company to reserve sufficient capacity for MSC.
The Terminal Services Agreement provides that the Company may not enter into contracts or renew contracts with other carriers unless it has satisfied the requirements of MSC. Further, the Company may not enter into contracts with other carriers for a term of more than one year. The Company also agrees to provide to MSC, inter alia, the following services:
• suitable and safe berths with adequate and safe approaches and depths of water;
• safe, sufficient and secure handling capacity for the volume of the containers to be discharges and loaded, including storage of empty containers;
• proper, efficient and safe care and control of all services provided to the container vessels and containers of MSC in accordance with the Company’s operational procedure as agreed with MSC, and supply of adequate equipment, manning and supervision for the handling of cargo and containers within the Terminals;
• documentation and electronic information as specified and mutually agreed between the Company and MSC from time to time;
• ensuring all terminal equipment are technically compatible with MSC’s container vessels, containers and other equipment using the Terminals from time to time;
• sufficient facilities, power connections for the continuous operation of refrigerated containers;
• sufficient facilities for handling non-standard containers and uncontainerized cargo; and
• accurate estimated time of departure upon arrival of each of MSC’s container vessels and effective communication during the working of each container vessel.
Under its terms, the Terminal Services Agreement can be suspended by MSC by giving a one-month notice if the Company does not maintain agreed levels of productivity as specified in the Terminal Services Agreement. The Terminal Services Agreement will remain in force unless immediately terminated by either party, by giving written notice to the other party, in case of: (i) winding up or dissolution; (ii) appointment of a liquidator, trustee, receiver or similar officer; (iii) any similar action, application or proceeding in any jurisdiction to which it is subject; or (iv) if both MSC and the Adani Group cease to hold interest (directly or indirectly) in the Company. In case of performance shortfall, either party may provide notice of dis-satisfaction to be remedied within 30 days. If after 30 days, the remedial action is found to be inadequate, then either party may terminate the agreement. Further, in case of material breach of any of terms or conditions of the agreement, the cure period is 45 days. If the breach is incapable of being remedied, the agreement can be terminated immediately. Upon termination of the agreement: (i) all sums payable by MSC to the Company in respect of tariffs shall be paid by MSC; (ii) the Company shall cease to be under obligation to provide services to MSC; (iii) the priority benefits given to MSC by the
122 Company for Mundra Port shall end; and (iv) all claims between MSC and the Company relating to matters that took place before termination shall remain unaffected. The Terminal Services Agreement is governed by the substantive laws of England and disputes arising out of it will have to be negotiated and settled through binding arbitration.
Infrastructure Use and Port Services Agreement
APSEZ provides infrastructure facilities and port services to the Company for the facilitation of the operations of the Terminals, pursuant to an infrastructure facilities and port services agreement dated June 29, 2013 (for CT-3 terminal operations) infrastructure use and the port services agreement dated and November 1, 2017 (for CT-3 Extension terminal operations) entered into between APSEZ and the Company. According to the Infrastructure Use and Port Services Agreement, APSEZ provides the following infrastructure facilities and port services to the Company:
Infrastructure facilities:
• use of marine facilities including basins, breakwaters (structures used to protect the Terminals from erosion due to water waves and entrance channels), which connect shipping lanes with Mundra Port, channels and turning circles which enable vessels to manoeuvre vessels to execute a 360-degree turn;
• right to use the roads within Mundra Port. APSEZ is responsible for coordinating with the GoG to ensure that we are at all times effectively and properly connected with the nearest highway by a road network;
• customs infrastructure facilities;
• utilities such as electricity, water, telecommunications and fuel, at commercially competitive rate, and the maintenance of the utilities corridor;
• rail connectivity i.e.,APSEZ is required to ensure that railway lines within Mundra Port are available to us for the transport of container traffic from the Terminals. APSEZ maintains the railway lines within the port limits and the south basin terminal up to the Terminals;
• access to solid waste management;
• access to sewage treatment; and
• access to rainwater harvesting/storm water drain facilities.
Port services:
• compliance with the international ship and port facility security code;
• port security;
• overall disaster management;
• interface with the GMB for the Terminals in relation to matters arising out of the Concession Agreement and affecting the Sub-Concession Agreement;
• environmental clearance and compliance for the Terminals; and
• marine and port facilities to the ships berthing and unberthing at the Terminals such as: (a) scheduling the entry, sailing, pilotage and towage of any container vessels; (b) ensuring availability of waterside safety and safety of navigation facilities; (c) ensuring adequate pilots, tugs, mooring crews and navigational facilities at all times; and (d) ensuring provision and maintenance of all general port infrastructure.
123 Office Facilities Agreement
The Company has entered into an office facilities agreement dated July 1, 2013, as amended (the “Office Facilities Agreement”) with APSEZ to avail, inter alia, on a non-exclusive and sharing basis, various facilities, amenities and utilities including various departments, APSEZ’s employees and related office infrastructure for discharging the Company’s corporate functions. Pursuant to the terms of the Office Facilities Agreement, APSEZ possesses the right to identify the employees, departments and the heads of departments (the “Senior Management”) who would handle various assignments of the Company. Pursuant to the terms of the Office Facilities Agreement, the Senior Management requires the Company’s authorization to engage in any transaction or enter into any agreement for and on behalf of the Company, however, the Company does not exercise any direct control, supervision or authority over the Senior Management. The Office Facilities Agreement shall remain in force until terminated. The Office Facilities Agreement can be terminated mutually by the Company and APSEZ. Further, APSEZ can terminate the Office Facilities Agreement by delivering a 30 days’ written notice in case the Company is in breach of the terms and conditions thereof. The Office Facilities Agreement is governed by, and construed in accordance with, the laws of India and disputes arising out of it will be negotiated and settled through binding arbitration. Under the terms of the Office Facilities Agreement, the Company will indemnify APSEZ against all costs, claims, liabilities, damages, suits, causes of action and expenses arising out of any breach thereof by the Company. Further, under the terms of the Office Facilities Agreement, the Company will also be solely liable for any acts or omissions in the performance of its corporate functions. In addition, the Company will indemnify APSEZ for any claims, liabilities, damages and expenses which may be suffered or incurred by APSEZ due to or in respect of its performance of corporate functions by the relevant departments.
Terminals
The Terminals are named CT-3 and CT-3 Extension as the construction took place in phase 1 and phase 2, respectively. However, at the site on Mundra Port, the Terminals are a contiguous facilities and are not physically demarcated. The quay length of CT-3 and CT-3 Extension is 810 meters and 650 meters, respectively.
The congestion-free, deep-draft Terminals are capable of handling ultra large container carriers (container ships with a nominal container capacity of 10,000 TEU and over). The Terminals can accommodate four to five container vessels based on the vessel length. A total of 15 super-post-panamax (the largest modern container cranes) quay gantry/ship-to-shore cranes are installed on berth for ship-to-shore terminal handling operations. These quay gantry/ship-to-shore cranes are capable of handling up to 24 to 25 rows of containers in a vessel and the safe working load capacity of ship-to-shore crane is 65 MT under spreader and 75 MT under hook. The terminal storage yard is developed with hard surfaced pavements for container storage. The total area of the Terminals is 65 hectares, with approximately 13,795 total ground slots and 420 reefer plugs for cargo storage. The static capacity of the Terminal is approximately 68,975 TEUs. The container stacking yard is equipped with an ERTG system which is efficient and pollution-free, capable of handling 6 + 1 container stacking. the Terminals have a total 45 ERTGs. The safe working load capacity of the terminal RTG is 41 MT. The ERTG system has provided the Terminals with certain advantages including lower operating expenses, higher reliability and ability to minimize the maintenance cycle. the Terminals also have three reach-stackers and one empty container handler for other supporting operations. For the terminal transport system, terminal trucks are used, which can be also deployed for rail head cargo transport. For seamless cargo-handling (entry/exit), dedicated terminal gates are in place, which enable congestion-free gate operations at the Terminals.
We have developed substantial infrastructure around the Terminals which allows us to have better connectivity to land. We have mechanized material handling equipment, including dredgers, mobile harbor cranes, quay cranes, cranes, conveyer systems, port crafts and tugs, allowing us to smoothly carry out our operations and achieve improvement in the average turnaround time at the Terminals. Further, 31.6% of the total O&D cargo evacuation is through railway network, indicating a balanced mix of cargo evacuation between road and rail. We have access to seven railway lines for hinterland cargo movement which are
124 available 24 hours a day and seven days a week. For rail loading operations, six rail mounted gantry cranes are available which have twin lifting capacity. All rail-mounted gantry cranes are electric based and capable of operating five full length container trains simultaneously. Reach-stackers are also provided to facilitate rail sided operations for overall improvement in rail cargo evacuations. We handle on average 400 rakes per month (or 85,000 TEUs per month) at this rail siding facility.
We continuously aim to add value at each step of the Terminal value chain, from the piloting of vessels to their berths to the evacuation of cargo to, and beyond, the regional infrastructure network. These services include storage and handling, evacuation and logistics services across road and railway connectivity.
Summary of Infrastructure Facilities
Quaylength...... 4 berths, 1,460 meters Annualcapacity...... 3.1millionTEUs Groundslots...... 13,795 Quaycranes...... 15 super post panamax Electrified rubber tired gantry (ERTG’s) ...... 45 Draft...... 17.5 meters
Maintenance
Proactive periodic maintenance is necessary for optimum utilization of resources and improved availability of equipment at the Terminals. We adopt various technologies and standard operating processes in our operations and maintenance. We have established a workshop with the necessary tools and equipment required for periodic maintenance. Periodic and scheduled inspection of wire rope, brakes, failure critical structural member and safety interlocks ensures a safer work environment. We also use root cause analysis tools to improve the reliability of our equipment and reduce maintenance expenditures.
Customers
Our major customers are global and regional shipping companies with whom generally we enter into contracts for a duration less than 12 months (except the Terminal Services Agreement, which is a long-term contract with rate escalation clause and will continue in force unless terminated).
Pursuant to the Terminal Services Agreement, MSC is our single largest customer. For instance, of our total volumes for Fiscal Years 2018, 2019 and 2020 and for the six months ended September 30, 2019 and the six months ended September 30, 2020, MSC accounted for 72.1%, 62.4%, 72.8%, 74.9% and 69.5% of our total throughput. See “Risk Factors — Risks Related to Our Business — We derive substantial benefits from our Sponsors, and a loss or reduction in the level of support could adversely affect our business, financial condition and results of operations.”
Sales and Marketing
We prepare and implement a comprehensive sales and marketing plan. The primary purpose of our sales and marketing plan is to promote our container services business and to develop a better understanding of the needs and requirements of our customers. Our sales and marketing teams are organized to handle existing customer relationships, new customer sales, corporate marketing and strategic partnerships. We are focused particularly on: (a) sustainably growing our partnership with MSC (one of our Sponsor’s affiliates and one of our key customers); (b) securing long-term contractual arrangements with third party carriers; (c) focusing on the non-vessel operating cargo carriers at the Terminals; (d) increasing efficiency in transportation via railway; and (e) providing value-added services to customers.
125 Information Technology
Information technology systems are key to being able to manage our business efficiently. Our information technology systems enable us to coordinate our operations. We use software by SAP SE to manage and control activities such as preventive maintenance, compliance, scheduling, inventory and procurement, storage management and project monitoring and execution.
We use advanced smart port technologies in our operations to ensure smoother trade. For internal terminal vehicle fleet management in the Terminals, we use the Global Positioning System and other tailor-made software to get clear real-time visibility of our equipment. We operate on an IPOS system and vehicle-mounted terminal-driven operations.
For smoother customer experience, Smart-Epic (Customer Portal), a web-based portal, is available to customers with interface functions with the IPOS-AICTPL Terminal Operating System. We also use TRACTOS, a web-based rail terminal operating system, which interphases with the IPOS-AICTPL Terminal Operating System.
For optimum resource utilization, we carry out maintenance planning, scheduling and execution through SAP SE’s plant maintenance module, which is integrated with our other functions such as finance and procurement. Asset maintenance history is used to further analyze and optimize delays, cost, inventory, man and machine hours.
We also utilize new technologies and IT systems such as Internet-of-Things analytics with an aim to improve overall performance.
Tariffs
We are not covered by the regulatory purview of the Tariff Authority of Major Ports and are, therefore, entitled to determine tariff for the container cargo handled by us on the basis of prevalent market conditions.
Employees and Contract Labor
As of September 30, 2020, we had 146 employees performing various functions as set forth below:
Number of Department employees
Administration...... 2 Engineering...... 71 Environment Health and Safety...... 5 Finance&Accounts...... 3 HumanResources...... 2 Operations...... 63
Total ...... 146
As of September 30, 2020 we also had 1,443 contract employees and laborers.
126 Our operations require skilled and experienced management and technical personnel. We offer our employees comprehensive ongoing training in order to increase their competence and capabilities with respect to terminal operations. We also have regular staff training sessions and performance enhancement programs to develop and improve competencies in our general workforce. We have also implemented a performance appraisal system which allows us to assess the performance of our employees.
Our employees are not covered by any collective bargaining agreements. We have not experienced any material strikes, work stoppages, labor disputes or actions by or with our employees, and we consider our relationship with our employees to be stable. Our employees are not unionized. We believe that we provide an attractive remuneration package for our employees. The total remuneration for our employees includes a base salary, a tax-friendly component and a bonus.
Our focus is to be able to timely adopt new technology in our operations and we have implemented certain measures to achieve this objective. We have developed a new learning platforms, “eVidyalaya”, to develop the soft skills of our employees. We also conduct other various technical training programs and modules to progress our employees’future capabilities. As part of our employee engagement drive, periodic surveys are conducted across our group to harness employees’ input and improve the workplace.
Insurance
We are covered by insurance policies for losses caused by accidents, fire, floods, riots, strikes, terrorism and malicious damage to our assets (and those of APSEZ at the Terminals) and corresponding loss of profit. These insurance policies include coverage for damage to the Terminals, facilities, equipment, machinery, buildings and other assets. The Company also has a commercial liability insurance, insurance cover for personal injury and loss of life, motor vehicle insurance policy, group mediclaim, group personal accident insurance and marine transit insurance. We believe that our assets are covered with adequate insurance and with commercially reasonable deductibles and limits on coverage, which are normal for the type and location of the assets and properties to which they relate in similar businesses in India.
Further, our port package liability policy covers loss to customer’s cargo and/or other third-party liability in our operations. It covers liabilities arising out of, inter alia, damages/losses due to accidents or fire, wrongful delivery or handling of equipments (including business interruptions). Further, as per the Infrastructure Use and Port Services Agreements, APSEZ provides port security at the Mundra Port including at the Terminals and its perimeters. We also have a terrorism and sabotage insurance policy which covers our liability arising out of acts of terrorism. See, “Risk Factors—Risks Related to Our Business—We may not have adequate insurance to cover all losses we may incur in our business operations or otherwise.”
Health, Safety and Security
We have implemented work safety measures to ensure a safe working environment at our facilities. The Terminals has its own work safety management department that monitors and ensures compliance with the health and safety of the Terminals. We also maintain firefighting equipment, mobile firefighting units and ambulances and an experienced firefighting crew. We hold a compulsory safety induction program for all our employees, including periodic walk-the-talk interactions to inculcate safety in work culture, organization of safety awareness programs, use of personal protective equipment, use of standard operating processes for safety improvements and periodic safety audits by internal and external auditors. We are certified by Indian Register Quality Systems (IRQS) for Quality Management System—ISO 9001:2015, Environmental Management System—ISO 14001:2015, Occupational Health & Safety Management System—ISO 45001:2018 and Energy management System—ISO 50001.
127 In light of the COVID-19 pandemic, we have taken significant measures to minimize its impact and safeguard our employees, including implementing remote working arrangements, requiring temperature checks and social distancing, distributing personal protective equipment at the terminals, requiring enhanced cleaning protocols, instituting contact tracing protocols and accommodating quarantine and leave arrangements where necessary.
We believe that we are in compliance in all material respects with Indian legislation in relation to employee health and safety. See “Regulations and Policies” for further details.
Our Registered Office
Our registered office is located at Adani Corporate House, Shantigram, Near Vaishno Devi Circle, S. G. Highway, Khodiyar, Ahmedabad 382421, India.
Risk Management
In the globalized environment, businesses are exposed to a variety of risks and uncertainties from economic, technological, political, policies, climate change, social and other factors. These risks may pose challenges to our future sustainable growth by impacting financial conditions, operational performance, future growth plans, our brand value and other aspects. As such, we have developed a robust risk identification and monitoring framework to address present and future risks within our framework.
Enterprise Risk Management (“ERM”) helps management to identify known and unknown risks and also acts as a mechanism to manage risks and leverage signals of change. ERM framework of our Sponsor APSEZ is used to establish processes and procedures intended for risk identification, categorization, probable likelihood and its impact and mitigation plan. We regularly monitor all types of risks like economic, strategic, technology, ESG risks, operational risks affecting our business and design appropriate mitigation plans which are being regularly reviewed in our internal risk management forums.
Competition
We compete primarily against other container terminals located within the Mundra Port and at other Non-Major Ports and Major Ports that cater to the hinterlands of north, west and central India. Competition is based primarily on the characteristics and location of the ports, including capacity, congestion, ability to berth large vessels, proximity and connectivity to inland cargo centers. We believe that our key competitive advantages are our infrastructure for effective capacity utilisations, strategic location, cost advantage relative to other ports in the region, port characteristics such as deep drafts, longer and larger berths, dedicated and expandable back-up areas (i.e. areas for internal movement of cargo), quicker turnaround time, integrated services and connectivity to the key hinterland location, prominent sponsors with global expertise and our ability to attract and retain highly experienced employees. See “Industry Overview,”“—Competitive Strengths” and “Risk Factors—Risk Factor Related to Our Business—We operate in a competitive environment and, if we are not able to compete effectively, our business, cash flows and results of operations may be adversely affected.”
Legal Proceedings
We are, and, from time to time, may be, involved in legal proceedings arising in the ordinary course of our business, both as plaintiff and defendant. Except as described below, we are not involved in any pending (i) civil and/or tax proceedings (including any legal notices) which are quantifiable and have a pecuniary implication of, or in excess of `93.80 million (being approximately 1.0% of our total income for Fiscal Year 2020); (ii) land-related proceedings, civil writ petitions (including any legal notices), criminal proceedings and/or regulatory proceedings (including any legal notices); (iii) any legal proceedings which we believe could have, or have had, a material adverse effect on our business, financial condition, results of operation or reputation; and (iv) any legal proceedings (including any legal notices) involving our Directors which we believe could have, or had in the past, a material adverse effect on our business, financial condition, results of operation or reputation.
128 We have an outstanding demand for Assessment Year 2013-2014 from the Income Tax Department for a disputed tax amount of `66.89 million with interest of `30.48 million on December 30, 2016. The demand pertains to, inter alia, capital gains tax on the high seas sale transaction of a plant and an equipment, derivative swap losses and interest income. Furthermore, we have received a notice of refund adjustment, wherein further interest of `20.20 million has been adjusted, which the Company appealed to the Commissioner of Income Tax (Appeals). We decided to settle the tax arrears of Assessment Year 2013-2014 under the Direct Tax Vivad se Vishwas Act, 2020, pursuant to which the Company is liable to pay the disputed tax only and will receive a waiver of interest. Accordingly, the Company has paid the disputed tax amount of `66.89 million and the accounted the interest of `50.58 million as contingent liabilities pending settlement under the Direct Tax Vivad se Vishwas Act, 2020.
129 ENVIRONMENT,SOCIALANDGOVERNANCE
Our environment, social and governance (“ESG”) performance, which is part of the sustainability framework of APSEZ and Mundra Port, is a sign of our commitment towards sustainable development. Sustainable growth and development has been a part of our inclusive growth agenda, and we have endeavored to improve practices both within and beyond our business, with a focus on the environment and social and economic initiatives. In addition to our focus on growth, our sustainability agenda is a key focus area in our business strategy.
Our sustainability strategy acts as a governing mechanism for conducting business responsibly and for demonstrating accountability for decisions taken. It integrates the culture of sustainability throughout the organization in various aspects such as the decision-making process, the working culture and employee behavior. We have been managing and intend to continue to manage our operations and services responsibly, creating a safe, secure and eco-friendly working environment at all sites and workplaces. A strong sustainability framework supports us in providing ongoing voluntary programs, demonstrating the commitment of our operations and infrastructure development towards functioning in the most sustainable manner possible.
We engage and collaborate with a wide variety of stakeholders who may be impacted by our business operations in different ways and ensure that stakeholder interests are taken into due consideration when making important business decisions.
On the environmental front, all our efforts are directed towards optimum utilization and better management of natural resources. On the social front, we believe in providing a working environment that is conducive to fostering innovation and a sense of belonging among employees.
Environment
Climate Change
We have a process of considering the potential risk of physical climate change on our business. These physical impacts may include extreme weather events such as droughts, floods and cyclones and a rise in sea levels. We are considering ways to ensure that our business is robust and resilient in response to a range of realistic scenarios, which is an important element in our relationship with local communities, who we strive to ensure have the resources they need to thrive. We are taking a phased approach to implement climate change-related recommendations, aiming to integrate them over time.
Energy
In line with our goal to build resilience towards climate change and our commitment to reduce negative impact on the environment, we pursue several measures to process improvements and technology integration. One of these measures is to reduce energy use and carbon emissions, which are fundamental to any corporate environmental program that is acting on climate change. We accomplish this by improving and optimizing process efficiencies, investing in the electrification of port infrastructure, improved measurement of fuels and electricity through a bespoke Sustainability Information Management System, retrofitting lighting with energy efficient light emitting diodes. All crane container movements are electrically powered as fuel-powered cranes were discontinued at Mundra Port. Through our energy conservation initiatives, in Fiscal Year 2020 we have saved more than one million units of energy, which is equivalent to 892 tCO2e.
In Fiscal Year 2020, our total energy consumption was 76,075 GJ, a decrease of 11.0% from Fiscal Year 2019. We were able to reduce energy intensity by 2.0% to 2994 GJ/MMT from 3060 GJ/MMT in Fiscal Year 2019. 95% of the energy requirements were met by grid and only 5.0% of the energy was fuel-based.
130 Greenhouse Gas Emissions
One of the biggest impacts on climate change comes through greenhouse gas emissions, which potentially impact the phenomenon of global warming. While it is our constant endeavor to reduce greenhouse gas emissions arising from the burning of diesel for transporting cargo and the use of ancillary electricity for other operating activities, there are some emissions that cannot be avoided. Greenhouse gas emissions in our operations are mainly linked to the combustion of fuels that release greenhouse gases.
Water Conservation
Water availability in docks is not only important for maintaining coastal habitats, it is also vital for business operations. Our internal water stewardship policy imposes withdrawal and usage standards. We continue to closely monitor the water quality in docks to keep the impact of port activities on water quality in the sea as low as possible. Mundra Port lies in extremely water-stressed regions. In such areas, we use treated wastewater from other industries or desalinated water to the maximum, as guided by our site-specific water plan, which reduces our overall dependence on fresh water.
We continuously strive to improve our best practices to reduce fresh water withdrawal and consumption for our industrial water requirements. During Fiscal Year 2020, we consumed 46.00 million liters of water, 33.0% more than in Fiscal Year 2019. Out of our total water requirements, about 96.0% was sourced directly from the sea and only 4.0% was sourced from the public utility. Water consumption against cargo handled was reduced by 26.0% from Fiscal Year 2019.
Biodiversity and Land Use
We have a dedicated horticulture and environmental compliance team which is assisted by APSEZ and undertakes eco-friendly initiatives. We comply all the applicable conditions as per the guidelines of the Ministry of Environment, Forests and Climate Change, the Central Pollution Control Board and the Gujarat Pollution Control Board. APSEZ have undertaken afforestation projects and have developed and maintained a green zone near Mundra Port. We and APSEZ are committed towards the protection and conservation of mangrove over an area of 2,340 hectares at Mundra, Gujarat.
Waste Management
APSEZ has developed a vision for ‘Zero Waste Initiative’ and we are part of the initiative. We encourage waste management activities to be guided by four major goals under this initiative—Zero Unauthorized Waste Disposal, Zero Waste to Landfill, Zero Waste Incineration and Zero Effluent Discharge. We follow ‘5R principles’ for waste management, which include Reduce, Reuse, Reprocess, Recycle and Recover. At Mundra Port, in Fiscal Year 2020, 2610 MT of waste was reused, recycled, recovered and reprocessed. Mundra Port achieved ‘Zero Waste to Landfill’ for two consecutive years. ‘Oil Spill Action Plan’ has been institutionalized at the Mundra Port, which complies with the guidelines issued by the National Oil Spill Disaster Contingency Plan and the International Petroleum Industry Environmental Conservation Association. In Fiscal Year 2020, Mundra Port was awarded a ‘Zero Waste Port’ certificate by Libero Assurance.
Disaster Management
All our facilities are required to follow a disaster management plan to manage the impact of any natural disasters. The disaster management plan sets out security measures for onboarding vessels at locations where they are moored. It sets out guidelines and procedures for monitoring and closing operations in the event of a natural disaster. The facilities at the Terminals hold a security exercise once every year, which tests the preparation of employees to act at a time of disaster. We maintain insurance coverage to protect us against a broad range of disaster-related security and safety risks, at levels which we believe are appropriate and consistent with current industry practice.
131 During a disaster event such as a cyclone, disaster teams comprising accountable safety officers and managers in charge on site are activated for emergency preparedness, response and investigation. Any potential risks emerging in the aftermath of a disaster are reported to management via APSEZ Sustainability Committees and the same are investigated for inclusion in the Risk Management Framework.
Health, Safety and Security
We have implemented workplace safety measures to ensure a safe working environment at our facilities and to protect the general public. We have our own work safety team that monitors and ensures compliance with the health and safety of the facility. APSEZ has also established a committee for work safety, which sets safety standards, including procedures for loading and unloading cargo, handling dangerous cargo, warehousing, firefighting, and berthing and de-berthing. We also have firefighting equipment, including two mobile firefighting units and ambulances and an experienced firefighting crew. We recorded one workplace injury and zero fatality in Fiscal Year 2020.
Quality, health, safety and environmental responsibilities are integrated in our operations. We have obtained ISO 9001, ISO 14001, ISO 45001 and ISO 50001 certifications specifying the requirements for an integrated management system as part of our objective to improve quality, health, safety and environment at the workplace.
We have a risk and compliance team that designs internal control procedures and ensures that these procedures adhere to statutory regulations as well as those of our third-party contractors. We also conduct periodic internal audits of our internal control procedures, including over physical inventory, security systems and billing systems.
We have online processes for the reporting of incidents such as near-miss incidents or accidents, injuries, illnesses, spills, releases, property damage and other such events that occur while working at our sites or at customer sites, ensuring incidents are identified, reported, investigated and communicated to prevent recurrences. GENSUITE, an online platform, enables employees to get involved in reporting safety observations, near misses and accidents, thereby enhancing our behavior-based safety culture. Any employee or associate, including contractors, can report a concern using android or iOS-based phones. Through our management approach, we continue to minimize the severity of injuries and to focus on preventing all injuries so as to promote our aim of a culture of employee wellbeing.
People Management
We consider that our human resource and work culture gives us a competitive advantage. We have built an enabling culture through attracting the right talent, providing engaging work and a working environment that encourages informed risk-taking, offering growth opportunities and developing leaders from within.
We are a young and vibrant company with a periodical infusion of entry level talent across all streams. A system of rewards helps meet and re-define organizational commitments to customers. We aim to continuously re-define and enhance performance by rewarding our staff at all levels. Our teams are valued and remain engaged in order to contribute and achieve their full potential. An emphasis on diversity and inclusion is fostered in the work culture. Our teams are dedicated to delivering superior performance and to ensuring best-in-class services for customers and stakeholders on a continuous basis.
Structured management of talent has contributed to extraordinary employee performance for customers and other stakeholders. It provides a stable and tested career model to promote high end talent. Empowerment in all aspects of decision making help individuals to grow quickly and also take total ownership of results, which keeps business processes agile and responsive.
132 Vendor Management
We believe that procurement is one of the key levelers that can stimulate local economic development. We work towards implementing innovative measures in procurement and particularly aim to ensure that social and environmental criteria can be embedded in the process. We encourage small and medium local suppliers to bid for various opportunities. The majority of our procurement is from the local area and most of our vendors are located in the state from where the respective entity is operating. A majority of our vendors are located in the state of Gujarat. This has manifold benefits, ranging from speed of the delivery of our services and after sales services and reduced costs.
Customer Centricity
We serve our customers through state-of-the-art technologies and best-in-class infrastructures coupled with a high level of automation and an intense focus on time management in terminal and vessel operations, thereby providing a high level of convenience for customers. We offer value for money, which enables us to retain customer trust and confidence. Our interactions with our customers are not limited to maintaining a rewarding relationship but are also aimed at maximizing the customer experience. This provides us with manifold benefits such as customer retention, increased revenues, enhanced brand image and business sustainability. Information Technology has become an integral part of our business, which we believe gives us a competitive edge among companies in the Ports sector.
We have implemented various initiatives such as our ‘Smart Port’ initiative, which uses loT devices, and we leverage big data analytics to offer superior value to our customers. We have developed vessel cargo tracking, which allows customers to check and monitor the status of vessels and cargo at the Terminals through the use of mobile phones. A customer satisfaction survey is conducted every two years to identify the needs and expectations of our customers, thereby creating opportunities for improvement. Our sector is vulnerable to a range of cyber risks, including theft, misuse of personal data and so on, which, if not controlled, can be dangerous. We have implemented stringent measures with respect to data privacy and security.
Safe working on container terminals and container vessels and the handling of dangerous cargo and performance measurement are also part of the module. For ease of business for our customers, APSEZ has developed ‘Customerry’, an integrated CRM System that reflects and allows centralized management of all customer data—covering all activities, workflows, order details, volumes of business, documentation, etc. We utilize various IT tools such as APMS, SAP and Mercury to help us achieve a form of operational and business excellence which produces tangible benefits.
Corporate Social Responsibility
We carry out most of our corporate social responsibility activities through Adani Foundation for developing and implementing programs for underprivileged communities through initiatives in education, community health, community infrastructure development and sustainable livelihood. Our corporate social responsibility expenditure for Fiscal Year 2020 was `7.72 million.
Environment
We engage with experts and technology partners to understand how to mitigate our environmental impact and prepare action plans accordingly. This plan complies with Integrated Management System (ISO 9001, 14001, 45001 and 50001) standards and performance is monitored by site-level officers and, at a corporate-level, by officers through a bespoke Sustainability Information Management System. Additionally, APSEZ discloses environmental clearance permissions, including compliance reports and other reports, on it’s website. Through systemic transitional activities, including training, policy reviews and system transformation, we have aligned our Environment Management System to the a bespoke Sustainability Information Management System.
133 We strive to ensure compliance with all laws, regulations and policies in our operations. Our internal IT-enabled compliance management system, Legatrix, tracks all legal and statutory commitments and appraises internally of any breaches. During Fiscal Year 2020, there were no cases of non-compliance and there were no significant fines or non-monetary sanctions for non-compliance with environmental laws and/or regulations at any of our locations.
134 BOARDOFDIRECTORSANDSENIORMANAGEMENT
Board of Directors
The Articles of Association provide that the total number of Directors shall be four. The Company has four Directors. The Company may, subject to the provisions of the Articles of Association and the Companies Act, alter the maximum number of Directors pursuant to a special resolution passed by the Company’s shareholders.
None of the Directors of the Company are required to retire by rotation. Each of the Sponsors has a right to appoint a chairman, who will be entitled to hold office for a period of three years. Each of the Sponsors has a right to nominate 2 Directors. The quorum for meetings of the Board of Directors is one-third of the total number of Directors, but not less than two Directors or the minimum required under the Companies Act, 2013, provided that, at least one Director nominated by each Sponsor is present for constituting quorum.
The Directors are not required to hold any equity shares of the Company in order to qualify as a Director. The table set out below provides information about the Company’s Directors.
Name and Nationality Age (Years) Designation
Mr. Johannes Christianus Hubertus Schaffers 59 Director Nationality: Dutch Mr. Unmesh Madhusudan Abhyankar 61 Director Nationality: Indian Mr. Sandeep Mehta 59 Director Nationality: Indian Mr. Craig Edward Kelly 49 Director Nationality: Canadian
Brief Profile of the Directors
Mr. Johannes Christianus Hubertus Schaffers, aged 59 years, is a Director of the Company and is responsible for a portfolio of terminals. He has more than 40 years of experience in the terminal businesses field. He has been associated with the Company since August 21, 2013.
Mr. Unmesh Abhyankar, aged 61 years, is a Director of the Company. He has over 35 years of experience in the field of marine operations. Prior to joining the Company, he worked with the Great Eastern Shipping Company and OCN Marine Services where he was involved in marine and port operations. He has been associated with the Company since April 13, 2018.
Mr. Sandeep Mehta, aged 58 years, is a Director of the Company. He is a member of the Institute of Chartered Ship Brokers and a member of the Company of Master Marines of India. He holds a “master of foreign-going ship” certificate granted by the GoI. He has played a vital role in establishing Mundra Port as one of the leading ports in India and has over 34 years of experience in the maritime industry including senior management positions in the container shipping and logistics sector. He has been associated with the Company since November 9, 2015.
Mr. Craig Edward Kelly, aged 49 years, is a Director of the Company and the chief financial officer for TiL. He is responsible for leading TiL’s global, group-wide financial activities. He has a Bachelor of Commerce degree from Queen’s University in Kingston, Ontario, Canada and is a member of the Chartered Professional Accountants of Alberta, Canada. He has more than 25 years of experience in the financial industry having worked previously with RBC Capital Markets, Ernst & Young and two publicly traded upstream energy companies. He has been associated with the Company since March 31, 2018.
135 Borrowing Powers of the Board of Directors
The Articles of Association, subject to the provisions of the Companies Act, authorize the Board of Directors to raise, borrow, or secure the payment of any sum or sums of money as approved by shareholders for the purposes of the Company.
Shareholding of Directors
None of the Directors of the Company holds any equity shares of the Company as at the date of this Offering Circular.
Remuneration of Directors
No remuneration was paid/payable to any of the Directors for the Fiscal Year 2020.
Key Managerial Personnel
Mr. Mayur Shah is the Company Secretary of the Company and is responsible for secretarial compliance of the Company. He is a certified chartered accountant and a certified company secretary with more than 30 years of experience in the field of finance and accounts and company law. He has been associated with the Adani Group since 2008. No remuneration was paid to Mr. Mayur Shah for Fiscal Year 2020. Mr. Mayur Shah does not hold any equity shares of the Company as at the date of this Offering Circular.
Senior Management and Corporate Function
The senior management and corporate functions are supported by APSEZ, pursuant to the office facilities agreement dated July 1, 2013 (the “Office Facilities Agreement”) between the Company and APSEZ. As per the Office Facilities Agreement, APSEZ’s senior management, head of departments and various employees provide their services on a shared basis and handle various assignments related to the Company for effective discharge of the Company’s various corporate and technical functions pertaining to various disciplines which include corporate finance, accounts, legal, internal audit, secretarial, purchase/ commercial, documentation, township maintenance, safety, training, engineering and maintenance, planning, operations and central stores. The Company pays fixed monthly fees to APSEZ for such functions as per the Office Facilities Agreement.
Committees of the Board of Directors
The Board of Directors has only one committee—the Corporate Social Responsibility Committee, which functions within its terms of reference. Set out below are brief details of the members of the Corporate Social Responsibility Committee.
Committee Members
Corporate Social Responsibility Committee Mr. Sandeep Mehta Mr. Unmesh Abhyankar Mr. Johannes Christianus Hubertus Schaffers
136 REGULATIONSANDPOLICIES
The following section provides an overview of certain Indian laws and regulations governing our business and this Offering. The information set out below has been obtained from sources available in the public domain and is based on the current provisions of the Indian laws, as amended; and which are subject to amendments, changes and modifications.
The information set out below is not exhaustive and is only intended to provide general information to the investors and is neither designed nor intended to substitute for professional legal advice. Prospective investors should seek independent legal advice on the laws and regulations applicable to our business.
Port Related Regulations
The ports in India may be classified as major and non-major ports. Under the Indian Ports Act, the GoI is empowered to declare a port as a major port. The port related regulations governing the Company and Mundra Port are as follows:
The Indian Ports Act, 1908
The Indian Ports Act, 1908, as amended (the “Indian Ports Act”) consolidates the enactments relating to ports and port charges. In respect of ports other than major ports, State governments have been given power to make rules with respect to regulating the time, hours, speed, manner and conditions in which vessels may enter, leave or move in the port; berths, stations and anchorages to be occupied by vessels in a port; the anchoring, fastening, mooring and un-mooring of vessels in any such port; regulating the moving and warping of all vessels; removal or proper hanging or placing of anchors, spars and other things being in or attached to vessels. The GoI can make rules for the prevention of danger arising to the public health by the spread of any infectious or contagious disease from vessels arriving at or sailing from any such port. The state governments can alter the limits of a port.
The Indian Ports Act regulates the safety and conservation of ports as well as matters relating to the administration of port duties, pilotage and other charges. State governments in consultation with the relevant authority can exempt and extend/cancel the exemption to any vessel(s) from payment of port related dues. State governments are entitled to charge fees for pilotage, hauling, mooring, re-mooring, hooking and other services rendered to vessels. The state government can also vary the rates at which port dues are to be fixed. However, the rates should not exceed the amount authorized to be levied under the Indian Ports Act.
Fixation of tariff
The tariff for non-major ports comes within the jurisdiction of the respective state governments and is stipulated by them.
The Indian Ports Bill, 2018
The Indian Ports Bill, 2018 (the “Indian Ports Bill”) proposes to update and consolidate the provisions of the existing Indian Ports Act and amend the Major Port Trust Act, 1963 (the “MPT Act”) into a single law. It also proposes to make a provision for the constitution of port authorities for major ports in India to vest the control, administration and management of such ports in such authorities and for all matters connected thereto enactments related to ports. It applies to all ports as well as to such parts of navigable waters including rivers and channels as may be notified by the Central Government. The Indian Ports Bill proposes various changes in the law including granting overriding powers to the GoI in respect of defining or altering port limits. Further, it will empower the central and state governments to appoint an officer or body of persons to be the conservator of every port. The conservator of every port shall act with the power to ensure the compliance of all the regulations relating to the operations of ports or affecting them and who is authorized to carry proceedings for offenses and to levy penalties on the concerned offender. No
137 provisions of the Indian Ports Bill are applicable to any vessel of war or any vessel in the service of the central and state government during the time when security of India or any part of its territory thereof is threatened by war or external aggression or during proclamation of emergency. The Indian Ports Bill was pending before the upper house of the Indian Parliament before the session lapsed and has not been reintroduced in the 17th Lok Sabha.
The provisions relating to the TAMP have been de-linked from the Indian Ports Bill and a separate statute, namely the Port Regulatory Authority Act, is proposed to be promulgated, a draft of which was released for public comments by the Ministry of Shipping in March 2011. This draft of the Port Regulatory Authority Bill, 2011 proposes to constitute the Major Ports Regulatory Authority (the “MPRA”) and State Ports Regulatory Authorities (the “SPRAs”). It further provides for the establishment of Regulatory Authorities to regulate rates for the facilities and services provided at the ports and to monitor the performance standards of port facilities and services and for matters connected therewith or incidental thereto. The MPRA is intended to succeed the TAMP. The current draft of the Port Regulatory Authority Bill, 2011 proposes that the MPRA and the SPRAs will, among other things: (1) regulate the charges for facilities and services provided at all ports including the non-major ports, which are not currently subject to such regulations; (2) monitor performance standards of port authorities and private operators; (3) advise the appropriate government on matters relating to the port sector; and (4) determine any disputes arising at ports.
The Gujarat Maritime Board Act, 1981
The Gujarat Maritime Board Act, 1981, as amended (the “GMB Act”) provides for the constitution of a maritime board for Non-Major Ports in Gujarat and vests the administration, control and management of such ports in the maritime board, including the right to levy rates. The GMB Act provides that the GMB shall not lease the waterfront, jetty, waterway and corresponding infrastructural facilities for a term exceeding five years without the prior approval of the GoG. Similarly, no contract for acquisition or sale of immovable property or for the lease of any such property for a term exceeding 30 years shall be made without the prior approval of the GoG.
Port Policy, 1995 of the Government of Gujarat
The port policy formulated in 1995 is an integrated approach of the GoG covering port development, industrial development, power generation and infrastructure development. The GMB is the coordinating agency for procuring infrastructure and other facilities like rail, road and power and any other clearances from the GoG or the GoI.
Some of the objectives of the port policy are:
• decongestion of the existing Major Ports of western India;
• catering to the needs of increasing traffic of western and northern states;
• providing port facilities to promote export-oriented industries and port-based industries;
• encouraging ship building, ship repairing and establishing manufacturing facilities for cranes, dredgers and other floating crafts; and
• attracting private sector investment in the existing minor and intermediate ports and in the new port locations.
• General guidelines for private investment as outlined in the port policy are as follows:
• construction of new wharves/jetties in selected sites and incomplete works of wharf/jetty/quay of the GMB will be privatized;
138 • private entrepreneurs will be permitted to install modern mechanical handling equipment on the wharf/jetty/quay; and
• privatization of the construction of new wharves/jetties in selected sites.
The entrepreneurs making investment in these locations will be given ousting priority for a period of five years from the date on which it is awarded. The entrepreneurs in turn have to assure a minimum cargo handling from the said landing place.
The port policy identifies port locations keeping in mind the infrastructure facilities that would be required.
Build-Own-Operate-Transfer (“BOOT”) principles under Port Policy, 1995 of the Government of Gujarat
The BOOT policy issued by the GoG on July 29, 1997 serves as a framework for involvement of private sector in the construction and operation of new private and joint sector ports in Gujarat as announced in the Port Policy, 1995. It provides that the GoG will grant license/concession to private developers to build, own, operate and manage port facilities for a specific period. After expiry of the BOOT period, the assets will be transferred back to the GoG. The ownership of the land and waterfront will always vest with the GoG.
In accordance with the BOOT principles, the acquisition of land for the project will be the responsibility of the GoG/GMB and the land will be allotted on lease to the private developer for a term concurrent with the term of the concession agreement. The GoG will facilitate future expansion of port related activity, and the setting up of, among other things, industrial parks, commercial ventures, roads and railways in the vicinity of the port. Under the BOOT package, the private developer will be responsible for creation of the port infrastructure. The developer would be free to finalize the means of finance for the project and to structure the financing for the project. The GoG may extend tax concessions to the projects by way of lowered stamp duty and registration fees. The developer would be responsible for obtaining the relevant clearances from central and state government ministries/departments/agencies.
The BOOT principles state that the relevant member(s) forming the bidding consortium of the project company must retain their financial commitment to the project for a minimum period of five years from the commercial operations. However, without GoG consent, they may reduce their equity participation in the project to up to 51.0% during the first five years.
The GoG will specify from time to time, a list of the essential services that the developer would be obliged to render. The broad areas of service in this respect will be stipulated in the concession agreement. The GoG will stipulate performance standards for the developer that seeks to evoke international standards of quality, safety and technological expertise in port operations. The developer will be granted a concession on the royalty payable to the GoG for a specified period of time.
The duration of the BOOT package will be 30 years. The BOOT period would commence after three years or the period mentioned in the document, whichever is earlier. BOOT periods greater than 30 years could be considered for projects which entail sizeable capital investment on account of site-specific marine conditions and backup infrastructure such as road/rail linkages.
At the time of the transfer, the GoG could choose any of the following options: offer the developer a roll-over option, take over the port and offer it to another developer, take over the port as a landlord and farm out services to the private sector on lease or management on contract basis, and take over the port and operate as a full service port itself.
139 Port Policy (Draft), 2018, issued by Ports and Transport Department, Government of Gujarat
The Port Policy (Draft), 2018, (the “Draft Policy”) was issued by the GMB in 2018 with a view to provide clarity and uniformity of various applications for reclamation of land and thereby improving administrative decision making. The Draft Policy includes provisions in relation to regularization of reclaimed land and prescribe a two-stage process for approval of the GMB for land reclamation projects.
Memorandum New Captive Policy, 2019, issued by Ports and Transport Department, Government of Gujarat
The Memorandum New Captive Policy, 2019 was issued by the GMB in 2019 with a view to (a) unlock value in the existing port infrastructure by allowing existing captive jetty holders to handle third party cargos and (b) provide opportunities to new players. The Memorandum New Captive Policy, 2019 provides for optimal capacity utilization of existing captive jetties with provision for new investment.
The Gujarat Infrastructure Development Act, 1999
The Gujarat Infrastructure Development Act, 1999, as amended (the “GID Act”) provides a framework for participation by persons other than the GoG and Government agencies in financing, construction, maintenance and operation of infrastructure projects. The GID Act provides that any person may participate in financing, construction, maintenance and operation of a project and may enter into a concession agreement with the GoG or its specified agency. No concession agreement shall provide for transfer of a project by a developer to the GoG or its specified agency later than 35 years from the date of agreement, however, if the GoG or its specified agency is satisfied with the performance of the developer during the concession period, it may extend the concession period on such terms and conditions as may be mutually agreed. A concession agreement for undertaking a project may be entered into with a person through competitive public bidding or by direct negotiation.
Inland Vessel Act, 1917
The Inland Vessel Act, 1917, as amended (the “Inland Vessel Act”) was enacted to consolidate the enactments relating to inland vessels. It provides, among other things, for inland water limits, registration and survey of inland vessels, certificates of competency, licensing of masters and crew, investigation into casualties, protection and carriage of passengers and insurance against third party. An “inland vessel” or “inland mechanically propelled vessel” is defined as a mechanically propelled vessel, which ordinarily plies on inland water, but does not include fishing vessel and a ship registered under the Merchant Shipping Act, 1958. The Inland Vessel Act provides that an inland mechanically propelled vessel cannot proceed on any voyage, or used for any service unless she has a certificate of survey and a certificate of registration. The Inland Vessel Act empowers the state governments to appoint examiners for the purpose of examining the qualifications of persons desirous of obtaining certificates of competency to the effect that he is competent to act as a first-class master, second-class master or serang, or as an engineer, first-class engine-driver or second-class engine. The Inland Vessel Act also introduced the concept of temporary permit and made provisions for prevention and control of pollution and protection of inland water. The Ministry of Shipping published a draft of the Inland Vessel Bill, 2020 on April 28, 2020 to replace the Indian Vessel Act, 1917. The Bill has not yet been introduced in the Parliament.
Major Port Authorities Bill
The Major Ports Bill, 2020 (“Major Ports Bill”) was passed in the Lok Sabha on September 23, 2020 with an aim to provide for regulation, operation and planning of major ports in India. The Major Ports Bill vests the administration, control and management of such ports upon a board of major port authorities (the “Ports Board”) in respect of each such port. It seeks to replace the Major Port Trusts Act, 1963. If passed, it shall apply to the major ports of Chennai, Cochin, Deendayal (Kandla), Jawaharlal Nehru (Nhava Sheva), Kolkata, Mormugao, Mumbai, New Mangalore, Paradip, V.O. Chidambaranar (Tuticorin) and Visakhapatnam. A Ports Board will be set up for each major port and shall consist of members nominated
140 by the GoI, state governments and various ministries. The Ports Board will be vested with, inter alia, the authority to make necessary rules and regulations, enter into and perform contracts (including for public private partnership projects), create master plans for development of infrastructure within port limits and frame scale of rates at which services shall be performed or made available.
Merchant Shipping Act, 1958
In May 2018, the Ministry of Shipping, GoI, through a general order under Section 407 and Section 408 of the Merchant Shipping Act, 1958 relaxed cabotage laws enabling foreign flagged ships to transport export-import laden containers meant for transhipment, empty containers meant for re-positioning, agriculture, horticulture, fisheries, fertilizer and animal husbandry commodities on domestic routes without a license from the Director General of Shipping.
Recycling of Ships Act, 2019
The Recycling of Ships Act, 2019 (“Ship Recycling Act”) was enacted by the GoI to accede to the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, 2009. The purpose of the Ship Recycling Act is to ensure that ships, when being recycled after the end of their operational lives, do not pose any unnecessary risk to the environment or to human health and safety. The Ship Recycling Act provides for the regulation of recycling of ships by setting certain international standards and laying down a statutory mechanism for enforcement of such standards. The Ship Recycling Act restricts and prohibits the use or installation of hazardous materials; for new ships, such restriction or prohibition on use of hazardous materials will be immediate while existing ships shall have a period of five years for compliance. However, this restriction or prohibition is not applicable to warships and non-commercial ships operated by the GoI. Ships shall be surveyed and certified on the inventory of hazardous materials used in ships. Under the Ship Recycling Act, ship recycling facilities are required to be authorized and ships shall be recycled only in such authorized ship recycling facilities. Further, the Ship Recycling Act also provides that ships shall be recycled in accordance with a ship-specific recycling plan.
SEZ Related Regulations
Special Economic Zones Act, 2005
The Special Economic Zones Act, 2005, as amended (the “SEZ Act”) was enacted for the establishment, development and management of Special Economic Zone(s) (“SEZ(s)”) for the promotion of exports. An SEZ is a specifically delineated duty-free enclave, deemed to be a foreign territory for the purposes of Indian customs control, trade as well as duties and tariffs. A board of approval (“SEZ Board”) has been set up under the SEZ Act, which is responsible for promoting the SEZ and ensuring its orderly development. The SEZ Board has a number of powers including the authority to approve proposals for the establishment of the SEZ, the operations to be carried out in the SEZ by the developer, the foreign collaborations and foreign direct investments.
Any person may jointly or severally, establish a SEZ in accordance with the procedure under the SEZ Act. Any person who intends to set up an SEZ after identification of the area, is required to make an application directly to the SEZ Board or the concerned state government for approval. The developer of the SEZ is required to take effective steps for implementation of the SEZ project within the said validity period. The developer is required to furnish intimation of fulfillment of conditions specified in the “in-principle” approval to the Department of Commerce, the Ministry of Commerce and Industry (the “DoC”) and the GoI within the specified validity period of the “in-principle” approval. The DoC, on being satisfied with the proposal and compliance of the developer with the terms of the approval, issues a notification declaring the specified area as an SEZ. The incentives and facilities offered to developers of an SEZ include single window clearance for central and state level approvals, exemption from dividend distribution tax, service tax and minimum alternate tax. The Special Economic Zones (Amendment) Act, 2019 was passed on July 6, 2019 to amend the definition of ‘person’to include trusts or any entity as may be notified by the Government.
141 The Special Economic Zone, Rules 2006
The SEZ Rules, as amended (the “SEZ Rules”) was enacted to effectively implement the provisions of the SEZ Act. The SEZ Rules provide for a simplified procedure for a single window clearance from central and state governments for setting up of SEZs and a “unit” in SEZ. The SEZ Rules also prescribe the procedure for the operation and maintenance of an SEZ, for setting up and conducting business therein with an emphasis on “self-certification” and the terms and conditions subject to which entrepreneurs and developers shall be entitled to exemptions, drawbacks and concessions. The SEZ Rules also provide for the minimum area requirement for various categories of SEZs. The GoI has enacted various amendments to the SEZ Rules. The last amendment to the SEZ Rules pursuant to the notification dated December 31, 2019 in relation to, inter alia, net foreign exchange earnings, provides for certain exemptions in this regard. Various states have their own state SEZ policies. Gujarat Special Economic Zone Act, 2004.
The Gujarat Special Economic Zone Act, 2004, as amended (the “Gujarat SEZ Act”) provides for the operation, maintenance, management and administration of a SEZ in the state of Gujarat. Any person desirous of establishing an SEZ must make an application to the GoG in the prescribed form. The state government might modify the application and make a recommendation to the GoI. The Gujarat SEZ Act establishes the Special Economic Zone Development Authority. The Gujarat SEZ Act also provides for the constitution and functions of the approval committee.
In addition to the functions entrusted by the GoI, the approval committee grants necessary local and state level clearances, approvals, licenses or registrations under the state acts for setting up an SEZ. The Gujarat SEZ Act provides that every SEZ shall be deemed to be an industrial township area. The area of the SEZ shall cease to be under the jurisdiction of any municipal corporation, municipal council, nagar panchayat or gram panchayat or the notified area constituted under the state laws. The Gujarat SEZ Act establishes a Special Economic Zone Development Committee. Some of the functions of the said Committee are to prepare a plan for the development of the SEZ in conformity with the guidelines prepared by the authority; to demarcate and develop sites for industrial, commercial, residential and for other purposes according to the plan; to provide infrastructure facilities and amenities; to allocate and transfer, either by way of lease or otherwise, plots of land for industrial, commercial, residential or other purposes; and to regulate the construction of buildings. The developer of the SEZ has to provide various facilities such as electricity, water, waste distribution and management, non-major port and related services, roads and bridges, gas distribution, communication and data network transmission and any other services as may be prescribed. The developer may levy user charges or fees as may be approved by the Special Economic Zone Development Committee for providing infrastructural facilities. The Gujarat SEZ Act provides that all sales and transactions within the processing area or the demarcated area or between the units in the processing area and the demarcated area of the SEZ shall be exempt from all taxes, cess, duties, duties or fees levied under any law of the state of Gujarat to the extent of stamp duty and registration fees payable on transfer of land meant for approved units in the SEZ and on loan agreements, credit deeds and mortgages executed by a unit, industry or establishment established in the processing area or the demarcated area of the SEZ; sales tax; purchase tax; motor spirit tax; luxury tax; entertainment tax and other taxes and cess payable on sales and transactions. Goods and services purchased by units in the SEZ from the domestic tariff area as input for any product have also been exempted from tax on sales or purchases of goods other than the goods specified in Schedule III of the Gujarat Value Added Tax Act, 2003 and other taxes levied under the laws of the state of Gujarat.
Customs Act, 1962
The Customs Act, 1962, as amended (the “Customs Act”) deals with the levy of customs duty, the power of the GoI to prohibit import and export certain goods, and prevention and detection of illegally imported goods. Section 8 of the Customs Act empowers the Principal Commissioner of Customs to approve proper places in any customs port or customs airport or coastal port for the unloading and loading of goods or for any class of goods. The Principal Commissioner of Customs is also empowered to specify limits of any customs area. Section 45 of the Customs Act lays down that all imported goods unloaded in a customs area shall remain in the custody of the person approved by the Principal Commissioner of Customs until they
142 are cleared for home consumption or warehoused or transshipped. The custodian is required to keep a record of such goods and send a copy of the record to the proper officer. The custodian shall not permit the goods to be removed unless approved by the proper officer in writing or in such manner as may be prescribed. The Customs Act further provides that, if the goods are pilfered while in the custody of the custodian, then such custodian shall be liable to pay duty on such goods.
By a notification dated March 17, 2009, the Central Board of Excise and Customs notified the Handling of Cargo in Customs Area Regulations, 2009 (as amended on April 1, 2019) which specify the eligibility requirements and responsibilities of persons who receive, store, deliver or otherwise handle imported goods in the customs area.
Guidelines for Setting up of Container Freight Station
The Ministry of Commerce and Industry, GoI issued the Guidelines for setting up of Container Freight Station (the “CFS Guidelines”). A container freight station (“CFS”) is an off-dock facility located near the servicing ports which helps in decongesting the port by shifting cargo and customs related activities outside the port area.
Functionally, a CFS is a transit facility, which offers services for containerization of break bulk cargo and vice-versa. These could be served by rail and/or road transport. The centers of activity that the CFSs revolve around are rail siding (in case of a rail-based terminal), container yard, warehouse and gate complex.
Part B of the CFS Guidelines provides that survey/feasibility study must precede the setting up a CFS. The minimum area requirement for a CFS has been prescribed under the CFS Guidelines to be one hectare. The CFS Guidelines prescribe procedure for approval of CFS along with its implementation. On acceptance of a proposal, an LOI is issued to applicant, which will enable it to initiate steps to create infrastructure. The applicant is required to set up the infrastructure within one year from the date of approval. After the applicant has put up the required infrastructure, met the security standards of the jurisdictional Commissioner of Customs and provided a bond backed by bank guarantee to the Customs Authorities, a final clearance and Customs notification is issued. The approval is subject to cancelation in the event of any violation of the conditions of the approval.
The Indian Carriage of Goods by Sea Act, 1925
The Indian Carriage of Goods by Sea Act, 1925, (the “Sea Carriage Act”) sets out rules in relation to and in connection with the carriage of goods by sea in ships, carrying goods from any port in India to any other port whether in or outside India. Carriage of goods covers the period from the time when the goods are loaded on to the vessel until the time they are discharged. The Sea Carriage Act provides that every bill of lading issued in India, which contains or is evidence of any contract to which its provisions apply, shall contain a statement that it is to have effect subject to these provisions. The applicable rules also set out the responsibilities, liabilities and the rights and immunities of the carrier.
International Maritime Dangerous Goods Code
International Maritime Dangerous Goods Code (the “IMDG Code”) was developed as a uniform international code for the transport of dangerous goods by sea covering matters including packing, container traffic and stowage. Further, it was adopted by the International Maritime Organization to regulate carriage of dangerous goods by sea in order to prevent injury to persons or damage to ships and their cargoes. The objective of the IMDG Code is to enhance the safe carriage of dangerous goods while facilitating the free and unrestricted movement of such goods, and to regulate carriage of marine pollutants to prevent harm to the marine environment. For the purposes of the IMDG Code, dangerous goods are classified into different classes based on their characteristics and properties. For example, gases are classified as flammable, non-flammable, toxic and non-toxic. The IMDG Code sets out certain general provisions, including with respect to transportation, for each class or division of dangerous goods.
143 Customs House Agents Licensing Regulations, 2004
Customs House Agents Licensing Regulations, 2004, as amended (the “Customs Regulations”) regulate customs house agents in India. As per the Customs Regulations, no person is allowed to carry on the business of the entry or departure of a conveyance, or the import or export of goods at any customs station, unless such person holds a valid license under the Customs Regulations.
Warehousing (Development and Regulation) Act, 2007
Warehousing (Development and Regulation) Act, 2007, as amended (the “Warehousing Act”) regulates the registration of warehouses as well as the issuance of negotiable warehousing receipts in electronic formats. These negotiable warehousing receipts provide proof of ownership of commodities that are stored in a warehouse for safekeeping. In accordance with the terms of the Warehousing Act, no person is permitted to commence or carry on the business of warehousing without obtaining a certificate of registration in respect of such warehouse. Warehouses which do not propose to issue negotiable warehouse receipts are not required to obtain a certificate of registration under the Warehousing Act.
Other Laws
Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016, as amended (the “Bankruptcy Code”) came into effect from August 5, 2016. The Bankruptcy Code primarily consolidates and amends the existing insolvency laws, inter alia, relating to companies and bodies corporate with the objective of providing clarity and consistency in the treatment of all the stakeholders in the insolvency process. The Bankruptcy Code establishes an Insolvency and Bankruptcy Board of India (the “Board”) which, inter alia, functions as a regulator to oversee functioning of insolvency professionals, insolvency professional agencies and information utilities. The Board exercises a range of legislative, administrative and quasi-judicial functions. The Bankruptcy Code classifies creditors into, inter alia, financial creditors (i.e., creditors who have disbursed debt along with interest (if any) against the consideration for time value of money) and operational creditors (i.e., creditors who have a claim in respect of the provision of goods or services including employment or payment in respect of statutory dues). The Bankruptcy Code proposes to appoint specialized insolvency professionals tasked with the duty to oversee and facilitate the entire corporate insolvency resolution process for companies and bodies corporate. The Bankruptcy Code provides a 180-day timeline for insolvency resolution in cases of companies, which may be extended by 90 days. As part of the corporate insolvency resolution process, the resolution plan submitted by prospective resolution applicant(s) has to be approved by 66.0% of unrelated financial creditors and further by the adjudicating authority and, if rejected, the adjudicating authority will pass an order for liquidation. The National Company Law Tribunal is the adjudicating authority with jurisdiction over companies and limited liability entities. However, the provisions and sections under the Bankruptcy Code are being notified in a staggered manner and some provisions and sections are not effective yet. To the extent notified, the Bankruptcy Code has amended relevant provisions of, inter alia, the Companies Act, 2013 and the other laws as specified therein.
The Insolvency and Bankruptcy Code (Amendment) Act, 2019 (the “Amendment”) that was notified on August 6, 2019 has inter alia, mandated that the corporate insolvency resolution process be completed within an overall timeline of 330 days from the insolvency commencement date. The Amendment has also clarified that a resolution plan under the Bankruptcy Code may include provisions for restructuring of the corporate debtor, including by way of mergers, amalgamations and demergers.
144 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, as amended (the “SARFAESI Act”) provides that if any borrower who is under a liability to a secured creditor makes any default in repayment of secured debt and his account is classified as a non-performing asset, then the secured creditor may require the borrower, by notice in writing, to discharge in full his liabilities within 60 days from the date of notice, failing which the secured creditor shall be entitled to exercise all or any of the following rights.
The secured creditor may take possession of the secured assets or take over, directly or indirectly, the management of the business of the borrower, including the right to transfer by way of lease, assignment or sale for realizing the secured asset. Further, in the case of financing of a financial asset by more than one secured creditor or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any right unless the exercise of such right is agreed upon by the secured creditors representing not less than 60.0% in value of the amount outstanding as of a record date as determined by the secured creditors and such action shall be binding on all the secured creditors.
The Securitization Act also provides for the setting up of asset reconstruction companies regulated by the RBI to acquire assets from banks and financial institutions by issuing a debenture or bond, or any other security in the nature of debenture, for consideration agreed upon between such company and the bank or financial institution or by entering into an agreement with such bank or financial institution for transfer of such financial assets on such terms and conditions as may be agreed upon between them.
The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016
The GoI passed the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016, (the “Securitization Act Amendment Act”) which was made effective from September 1, 2016. The Securitization Act Amendment Act has inter alia: i. made certain amendments to the SARFAESI Act, the Debts Recovery Act, the Indian Stamp Act, 1899 and the Depositories Act, 1996; ii. quickened the process for enforcement of security interest created over collateral; iii. enabled banks to take over management of defaulting companies after conversion of debt to equity; iv. created a central registry to record transactions which pertain to secured assets (including record of creation of security interest, which are a pre-requisite for a secured creditor to enforce such security interest); and v. given certain powers to the RBI regulate the activities of asset reconstruction companies.
Recovery of Debts and Bankruptcy, Insolvency Resolution and Bankruptcy of Individuals and Partnership Firms Act, 1993
The Recovery of Debts and Bankruptcy, Insolvency Resolution and Bankruptcy of Individuals and Partnership Firms Due to Banks and Financial Institutions Act, 1993, as amended (the “Debts Recovery Act”) provides for establishment of Debt Recovery Tribunals (“DRT”) for expeditious adjudication and recovery of debts due to any bank or public financial institution or to a consortium of banks and public financial institutions. Under the Debts Recovery Act, the procedures for recoveries of debt have been simplified and time frames have been fixed for speedy disposal of cases. Upon establishment of the DRT, no court or other authority can exercise jurisdiction in relation to matters covered by the Debts Recovery Act except the Supreme Court and High Court exercising jurisdiction under Articles 226 and 227 of the Constitution of India, in relation to matters specified in Section 17 of the Debts Recovery Act. The
145 Securitization Act Amendment Act amended the Debts Recovery Act. It authorized a bank or a financial institution to take proceedings under Debts Recovery Act before a tribunal in whose jurisdiction where the defaulted account is maintained or located, upon service of summons under the Debts Recovery Act, is restricted from transferring the secured assets or other assets.
Services Exports from India Scheme
Foreign Trade Policy 2015-2020 provided a framework for increasing exports of goods and services of which included the ‘Merchandise Exports from India Scheme’ for export of certain goods to specified markets and the SEIS Scheme for increasing exports of notified services. Under the SEIS Scheme, the GoI provides incentives in the range of 3% to 7% on the net foreign exchange earned, to all eligible service providers for providing services from India. Service providers of eligible services was entitled to duty credit scrips at notified rates on net foreign exchange earned. The duty credit scrips issued under these schemes are fully transferable. The GoI issued a notification dated March 31, 2020 providing that for services rendered from April 1, 2020, the incentives will be determined subsequently by way of a further notification. The GoI has not issued such notification. We have discontinued recognizing the income from the SEIS Scheme with effect from April 1, 2020 as it is no longer applicable.
Tax Regulation
Income Tax Act, 1961
The Income Tax Act, 1961 is applicable to every domestic and foreign company whose income is taxable depending upon its “residential status” and “type of income” involved.
Goods and Services Tax
Goods and Services Tax (“GST”) is a tax on supply of goods or services or both. Inter-state supply of goods and services attract integrated GST under the Integrated Goods and Services Tax Act, 2017 (the “GST Act”). For this purpose, inter-state supply includes: (i) supply of goods and services between two different states within India; and (ii) supply of goods and services imported into India and exported out of India. Supply of goods and services within a state or union territory in India attracts central GST under the Central Goods and Services Tax Act, 2017; and state GST or union territory GST levied under the GSTAct of the state or union territory in question. The applicable rate of GST depends upon the nature of the goods and services in question. The general rates of GST are provided in notifications issued by the central government and the State/Union Territory governments.
Concessional tax rates/exemptions have also been notified for certain categories of goods and services. An input tax credit mechanism is available, in terms of which the GST incurred on goods and services purchased by a taxpayer can be taken as input tax credit. Input tax credit can be used to offset the GST payable on the taxpayer’s output of goods and services.
Employment and Labor Laws
India has extensive labor related legislation. Preliminary information on some of the labor laws that may be applicable has been provided below. This list is indicative and does not cover all provisions of the law specified or cover other applicable labor laws.
146 The Dock Workers (Regulation of Employment) Act, 1948
The Dock Workers (Regulation of Employment) Act, 1948, as amended (the “Dock Workers Act”) regulates the employment of dock workers. It provides that a scheme may provide for the registration of dock workers and employers to ensure greater regularity of employment. Such a scheme may provide for the following:
• classes of dock workers and employers to be covered under the scheme;
• obligations of dock workers and employers; and
• regulation of the employment of dock workers (whether registered or not) including their remuneration and working hours.
The scheme may also provide for penalty and/or imprisonment in case of contravention of any provision of the scheme. The Dock Workers Act also provides for the establishment of a board responsible for administering the scheme for the ports for which it has been established.
The Dock Workers (Safety, Health and Welfare) Act, 1986
The Dock Workers (Safety, Health and Welfare) Act, 1986, as amended (the “Dock Workers Safety Act”) was enacted to give effect to the conventions concerning protection against accidents of workers employed in loading and unloading ships. The Dock Workers Safety Act is applicable to all ports in the country. The appropriate governments i.e., GoI in respect of major ports and state governments in respect of non-major ports are empowered to frame rules and regulations. The relevant state governments may by notification in the official gazette make regulations in consistent with the Dock Workers Safety Act for providing for the safety and health and welfare of dock workers.
Factories Act, 1948
The Factories Act, 1948 regulates occupational safety, health and welfare of workers of industries in which 10 or more workers are employed in a manufacturing process being carried out with the aid of power. The Factories Act, 1948 includes provisions as to the approval of factory building plans before construction or extension, investigation of complaints, maintenance of registers and the submission of yearly and half-yearly returns. Penalties for non-compliance include imprisonment of the occupier and manager for up to two years or a fine, or both, and a further fine for each day of continued contravention. The Factories (Amendment) Bill, 2016 (the “Factories Bill”) was passed by the lower house of the Indian Parliament on August 10, 2016. The Factories Bill seeks to amend provisions relating to working hours and overtime working hours in the Factories Act, 1948 to empower both the central and state governments to make rules in relation to overtime hours of work in a quarter and raises the limit of overtime work from 50 hours to 100 hours. The Factories Bill was pending before the upper house of the Indian Parliament, before the session lapsed.
Industrial Disputes Act, 1947
The Industrial Disputes Act, 1947, as amended (the “ID Act”) sets out the procedure for the investigation and settlement of industrial disputes. When a dispute exists or is apprehended, the appropriate government may refer the dispute to a labor court, tribunal or arbitrator, to prevent the occurrence or continuance of the dispute, or to prevent a strike or lock-out while a proceeding is pending. The labor courts and tribunals may grant appropriate relief including ordering the modification of contracts of employment or the reinstatement of workmen.
147 The ID Act also distinguishes between (i) employees who are “workmen” and (ii) employees who are not “workmen.” Workmen have been provided several benefits and are protected under various labor laws, while those persons who have been classified as managerial employees and earning salary beyond a prescribed amount may not generally be afforded statutory benefits or protection, except in certain cases. The ID Act lays down certain requirements for termination of a workman, the procedure for dispute resolution and financial obligations upon retrenchment. However, the ID Act will be repealed once the implementation notification is issued in terms of Industrial Relations Code, 2020 (discussed below).
The Industrial Relations Code, 2020
The Industrial Relations Code, 2020 (the “Industrial Relations Code”) was passed by Lok Sabha and Rajya Sabha and received the assent of the President on September 28, 2020; however, it is yet to be notified for implementation by the GoI. It seeks to replace three existing labor laws, namely the Industrial Disputes Act, 1947, the Trade Unions Act, 1926, and the Industrial Employment (Standing Orders) Act, 1946. The Industrial Relations Code aims to streamline industrial relations and help India improve on the ease of doing business index. Further, to impart flexibility to the exit provisions of employees, the threshold for prior approval of appropriate Government has been kept unchanged at 100 employees, however, a provision is proposed to be added for changing the number of employees through notification. This means that a parliamentary approval is no longer required to change the number of employees and it can be done solely by an executive order. At the same time, it protects workers by proposing to create a worker re-skilling fund, which is to be utilized for crediting to workers in the prescribed manner. In addition, the Industrial Relations Code provides a definition for fixed term employment of any duration across sectors which does not entail requirement of notice or retrenchment compensation. However, it makes provision for accrual of all statutory benefits such as social security and wages to such employees at par with regular employees.
Contract Labor (Regulation and Abolition) Act, 1970
The Contract Labor (Regulation and Abolition) Act, 1970, as amended (the “CLRA”) regulates the employment of workers hired on the basis of individual contracts in certain establishments. The CLRA applies to every establishment in which 20 or more workmen are employed or were employed on any day of the preceding 12 months as contract labor. The CLRA vests the responsibility with the principal employer of an establishment to register as an establishment that engages contract labor. Likewise, every contractor to whom the CLRA applies must obtain a license and may not undertake or execute any work through contract labor except in accordance with the license issued. Penalties, including both fines and imprisonment, may be levied for contravention of the CLRA. Penalties for non-compliance include imprisonment up to three months or a fine, or both.
Minimum Wages Act, 1948
The Minimum Wages Act, 1948, as amended provides for a minimum wage payable by employers to employees, and every employer is required to pay the minimum wage to all employees, whether for skilled, unskilled, manual or clerical work, in accordance with the minimum rates of wages that have been fixed and revised thereunder. Workmen are to be paid for overtime at overtime rates stipulated by the appropriate state government. Contravention may result in imprisonment for up to six months or a fine, or both. State governments may stipulate a higher penalty for contravention, if it is deemed fit to do so.
Payment of Wages Act, 1936
The Payment of Wages Act, 1936, as amended (the “PWA”) regulates payment of wages to certain classes of employees and makes every employer responsible for payment of wages to persons employed by such employer. No deductions are permitted from, nor is any fine permitted to be levied on, wages earned by a person employed except as provided under the PWA. Penalties under the PWA include a fine.
148 Employee’s Compensation Act, 1923
The Employee’s Compensation Act, 1923, as amended makes every employer liable to pay compensation if injury, disability or death is caused to an employee (including those employed through a contractor) due to an accident arising out of or in the course of employment. If the employer fails to pay the compensation due within a month from the date it falls due, the commissioner shall direct the employer to pay the compensation along with interest and may impose a penalty for non-payment.
The Employee’s Compensation (Amendment) Act, 2017 was notified on April 12, 2017 which amends the Employee’s Compensation Act, 1923 and creates an obligation upon an employer to inform their employees of their right to compensation under the Employee’s Compensation Act, 1923 penalizing the failure to discharge such obligation with a fine of up to `100,000. The Employee’s Compensation Act, 1923 permits appeals against orders in relation to compensation, distribution of compensation and awards of penalty if the dispute concerns an amount of `300 and above.
Employee State Insurance Act, 1948
The Employee State Insurance Act, 1948, as amended (the “ESIA”), requires the provision of certain benefits to employees or their beneficiaries in the event of sickness, maternity, disability or employment injury. The ESIA contemplates payment of a contribution by the principal employer and each employee to the Employee State Insurance Corporation of India. Penalties for failure to make contributions under the ESIA include imprisonment for a term which may extend to three years (which shall not be less than (i) one year in case of failure to pay the employee’s contribution which has been deducted by him from the employee’s wages; or (ii) six months in any other case) and a fine.
Employees’ Provident Funds and Miscellaneous Provisions Act, 1952
The Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, as amended institutes provident funds for the benefit of employees in factories, industrial undertakings and other establishments notified by the GoI from time to time. Contributions are required to be made by employers and employees to a provident fund and pension fund established and maintained by the GoI. Further, pursuant to a notification dated May 18, 2020, there is a reduction in provident fund contributions to be made by both employers and employees for the months of May, June and July 2020, owing to the COVID-2019 pandemic.
Payment of Gratuity Act, 1972
Under the Payment of Gratuity Act, 1972, as amended an employee who has been in continuous service for five years is eligible for gratuity on retirement, resignation, death or disablement due to accident or disease. Entitlement to gratuity in the event of superannuation or death or disablement due to accident or disease is not contingent on an employee having completed five years of continuous service.
Payment of Bonus Act, 1965
The Payment of Bonus Act, 1965, as amended provides for payment of a minimum annual bonus to all employees regardless of whether the employer has made a profit or a loss in the accounting year in which the bonus is payable. Contravention of the Payment of Bonus Act, 1965, as amended by a company is punishable by imprisonment up to six months or a fine, or both, against persons in charge of, and responsible to the company for, the conduct of the business of the company at the time of contravention.
The Code on Wages, 2019
The Code on Wages, 2019 (the “Wage Code”) seeks to consolidate and amend four existing labor laws relating to wages, namely, the Equal Remuneration Act, 1976, the Minimum WagesAct, 1948, the Payment of Wages Act, 1936 and the Payment of Bonus Act, 1965. It may be noted that the GoI is empowered to bring into force the various provisions of the Wage Code in a staggered manner. The Wage Code proposes
149 to extend the benefits and make the requirements prescribed with respect to payment of wages and minimum wages applicable to all types of establishments irrespective of their nature of business or activities. The Wage Code proposes a common definition of the term “wages” as opposed to the separate definitions in the erstwhile laws. This will enable employers to take a consistent and uniform approach and avoid multiple interpretations. The Wage Code makes it mandatory for the employer to pay within seven days from expiry of succeeding month, irrespective of the size of the establishment. The Wage Code has introduced stringent penalties in cases of contravention. It introduces the concept of “floor wages”, which will be fixed by the GoI taking into account the minimum living standards of a worker. Once the Wage Code comes into force, the minimum rates of wages fixed by the state government cannot be less than floor wages as determined by the GoI.
The Code on Social Security, 2020
The Code on Social Security, 2020 (the “Social Security Code”) amends and consolidates nine existing labor laws, namely the Employees’ Compensation Act, 1923, the Employees’ State Insurance Act, 1948, the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, the Maternity Benefit Act, 1961, the Payment of Gratuity Act, 1972, the Cine Workers Welfare Fund Act, 1981, the Building and Other Construction Workers’ Welfare Cess Act, 1996, the Employment Exchanges (Compulsory Notification of Vacancies) Act, 1959, and the Unorganised Workers’ Social Security Act, 2008. It proposes to universalize social security and extend it to all workers, including gig workers. The Social Security Code proposes the creation of the following social security organizations namely, the Central Board of Trustees for the Employees Provident Fund, the Employees State Insurance Corporation, the National Social Security Board for unorganized workers, the State Unorganised Workers’ Social Security Board, and the State Building Workers’ Welfare Boards to administer the various social security schemes included in the Social Security Code. The benefits of the schemes are proposed to be paid out of funds comprising employer and employee contribution and may also include funds from the central or state government or from the corporate social responsibility fund. The Social Security Code empowers the GoI to exempt an establishment or class of establishment, from any or all provisions of the Social Security Code.
The Occupational Safety, Health and Working Conditions Code, 2020
The Occupational Safety, Health and Working Conditions Code, 2020 (the “Safety, Health and Working Conditions Code”) was passed by the Lok Sabha and Rajya Sabha and received the assent of the President on September 28, 2020; however, it is yet to be notified for implementation by the GoI. The Safety, Health and Working Conditions Code aims to regulate the occupational safety, health and working conditions of workers employed in establishments and subsumes 13 labor laws relating to safety, health and working conditions, namely, the Factories Act, 1948, the Contract Labor (Regulation and Abolition) Act, 1970, the Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979, the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996, the Mines Act, 1952, the Dock Workers (Safety, Health and Welfare) Act, 1986, the Plantations Labor Act, 1951, the Working Journalists and Other Newspaper Employees (Conditions of Service) and Miscellaneous Provisions Act, 1955, the Working Journalists (Fixation of Rates of Wages) Act, 1958, the Motor Transport Workers Act, 1961, the Sales Promotion Employees (Conditions of Service) Act, 1976, the Beedi and Cigar Workers (Conditions of Employment) Act, 1966 and the Cine-Workers and Cinema Theatre Workers (Regulation of Employment) Act, 1981. The Safety, Health and Working Conditions Code seeks to widen its applicability to different types of workers such as audio-visual workers, inter-state migrants or sales promotion employees. It also attempts to promote gender equality by allowing women workers to work at night subject to obtaining their consent. The Safety, Health and Working Conditions Code further introduces the concept of deemed registration of establishments to circumvent the prolonged delays in administrative processes.
150 Environmental Legislation
The three major statutes in India which seek to regulate and protect the environment against pollution related activities in India are the Water (Prevention and Control of Pollution) Act 1974, as amended, the Air (Prevention and Control of Pollution) Act, 1981, as amended, and the Environment Protection Act, 1986, as amended. The Pollution Control Boards (the “PCBs”), which are vested with diverse powers to deal with water and air pollution, have been set up in each state to control and prevent pollution. The PCBs are responsible for setting the standards for maintenance of clean air and water, directing the installation of pollution control devices in industries and undertaking investigations to ensure that industries are functioning in compliance with the standards prescribed. All industries and factories are required to obtain consent orders from the PCBs, and these orders are required to be renewed annually.
The Ministry of Environment and Forests through its notification dated September 14, 2006, issued the environmental impact assessment notification, as amended, (which supersedes the notification dated January 27, 1994, except in respect of acts done/omitted to be done before such supersession) pursuant to the provisions of the Environment (Protection) Act, 1986. Projects and activities have been classified into two categories, category A and category B, based on the spatial extent of potential impacts and potential impacts on human health and natural and man-made resources. The GoI has directed that on and from the date of publication of the EIA Notification, the construction of new projects or activities or the expansion or modernization of existing projects or activities listed in the schedule thereto (which includes ports and harbor) entailing capacity addition with change in process and or technology shall be undertaken only after the prior environmental clearance from the GoI (in case of category A) or by the State Level Environment Impact Assessment Authority (in case of category B). Ports and harbors with cargo handling capacity of more than or equal to five million tonnes per annum (excluding fishing harbors) fall under Category A and with cargo handling capacity of less than five million tonnes per annum and/or more than or equal to 10,000 tonnes per annum of fish handling capacity, fall under Category B.
Water (Prevention and Control of Pollution) Act, 1974
The Water (Prevention and Control of Pollution) Act, 1974, as amended (the “Water Act”) prohibits the use of any stream or well for disposal of polluting matter, in violation of standards set down by the State Pollution Control Board (the “SPCB”). The Water Act also provides that the consent of the SPCB must be obtained prior to opening of any new outlets or discharges, which is likely to discharge sewage or effluent. In addition, the Water (Prevention and Control of Pollution) Cess Act, 1977 requires a person carrying on any industry to pay a cess in this regard.
Air (Prevention and Control of Pollution) Act, 1981
The Air (Prevention and Control of Pollution) Act, 1981, as amended (the “Air Act”) under which any individual, industry or institution responsible for emitting smoke or gases by way of use as fuel or chemical reactions must obtain consent from the SPCB prior to commencing any industrial operation in any air pollution control area. The consent may contain conditions relating to specifications of pollution control equipment to be installed. The Air Act empowers the state government, after consultation with the SPCB, to declare any area or areas within the State as air pollution control area or areas.
Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016
The Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016 (the “Wastes Rules”) fixes the responsibility of the occupier of the premises and the person in possession of hazardous or other waste to properly collect, treat, store or dispose the hazardous wastes without adverse effects on the environment. Moreover, they must take steps to ensure that persons working on the site are given adequate training and equipment for performing their work. When an accident occurs at the facility of the occupier handling hazardous or other waste or during transportation of the same, then the SPCB has to be immediately alerted. The occupier is liable for all damages caused to the environment or a third party due to improper handling and management of the hazardous and other waste, and in addition, may be fined for any violation of the Wastes Rules.
151 Bio-Medical Waste Management Rules, 2016
The Bio-Medical Waste Management Rules, 2016 (the “Bio-Waste Rules”) was introduced to improve the collection, segregation, processing, treatment and disposal of bio-medical wastes. The Bio-Waste Rules apply to all persons who generate, collect, receive, store, transport, treat, dispose, or handle bio medical waste in any form. An authorization is required from the prescribed authority (such as the State Pollution Control Boards) under the Bio-Waste Rules to handle bio-medical wastes.
Environmental Policy of the GMB
The GMB implements an environmental policy which aims to achieve compliance with relevant environmental laws, minimize environmental impact of port operations and seek continual improvement in the environmental performance of all the GMB ports. The GMB will integrate environmental issues in its own operations and in its contracts with third parties. The policy seeks to ensure that projects comply with the legal requirements and in line with Coastal Zone Management Plans.
Coastal Regulation Zone Notification, 2018
The GoI issued the Coastal Regulation Zone Notification, 2018 (the “CRZ Notification 2018”) under Sections 3(1) and 3(2)(v) of the Environment (Protection) Act, 1986 and Rule 5(3)(d) of the Environment (Protection) Rules 1986, for the purposes of conserving and protecting the coastal environment. The CRZ Notification 2018 was passed in supersession of the Coastal Regulation Zone Notification, 2011 dated January 6, 2011. Pursuant to the CRZ Notification 2018, the GoI has declared the coastal stretches of the country and the water area up to its territorial water limit, excluding the islands of Andaman and Nicobar and Lakshadweep and the marine areas surrounding these islands, which are influenced by tidal action up to 500 meters from the High Tide Line (the “HTL”), the land between HTL and 50 meters or width of the creek, the land between the Low Tide Line (the “LTL”) and the HTL as Coastal Regulation Zone (the “CRZ”) and the water and the bed area between the LTL and the territorial water limit (12 nautical miles) as CRZ; and certain restrictions on the setting up and expansion of industries, operations or processes, in the said notification. The CRZ Notification 2018 provides a list of prohibited activities and regulates the permissible activities. Operational constructions for ports and harbors, jetties, quays, wharves, erosion control measures, breakwaters, pipelines, lighthouses, navigational safety facilities, coastal police stations, Indian coast guard stations and the like has been identified as an activity requiring environmental and CRZ clearance from the Ministry of Environment, Forest and Climate Change. The CRZ Notification 2018 further divides the coastal zone into four zones and lays down the activities that can be undertaken in each area.
Environmental Impact Assessment Notification, 2006
The Ministry of Environment and Forest issued the Environmental Impact Assessment Notification, 2006, as amended (the “EIA Notification”) under Rule 5(3) of the Environment (Protection) Rules, 1986, replacing the erstwhile Environmental Impact Assessment Notification, 1994, for imposing certain restrictions and prohibitions on new projects or activities, or on the expansion or modernization of existing projects or activities based on their potential environmental impacts as indicated in the schedule to the EIA Notification, being undertaken in any part of India, unless prior environmental clearance has been accorded in accordance with the objectives of National Environment Policy as approved by the Union Cabinet on May 18, 2006 and the procedure specified in the EIA Notification, by the GoI or the State or Union territory Level Environment Impact Assessment Authority, to be constituted by the GoI.
152 The following projects or activities shall require prior environmental clearance from the concerned regulatory authority, which shall hereinafter referred to be as the GoI in the Ministry of Environment and Forests for matters falling under category ‘A’ in the schedule and at State level the State or Union territory Level Environment Impact Assessment Authority for matters falling under category ‘B’ in the said Schedule, before any construction work, or preparation of land by the project management except for securing the land, is started on the project or activity:
(i) All new projects or activities listed in the schedule to the EIA Notification;
(ii) Expansion and modernization of existing projects or activities listed in the schedule to the EIA Notification with addition of capacity beyond the limits specified for the concerned sector, that is, projects or activities which cross the threshold limits given in the Schedule, after expansion or modernization;
(iii) Any change in product—mix in an existing manufacturing unit included in Schedule beyond the specified range.
The environmental clearance process for new projects will comprise of a maximum of four stages, all of which may not apply to particular cases as set forth below in the EIA Notification. These four stages in sequential order are:
• Stage (1) Screening (only for category ‘B’ projects and activities)
• Stage (2) Scoping
• Stage (3) Public Consultation
• Stage (4)Appraisal
• The Central Government, in exercise of the powers conferred under Environment (Protection) Act, 1986 has published the draft notification namely, Draft Environment Impact Assessment Notification, 2020 to address the unprecedented situation arising from the global outbreak of COVID-19.
Foreign Exchange Laws
Regulation of External Commercial Borrowings
The current laws relating to External Commercial Borrowings (“ECBs”) in India are embodied in the Foreign Exchange Management Act, 1999, the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 and the rules and regulations issued by the RBI in relation to ECBs including the Master Direction – External Commercial Borrowings, Trade Credits and Structured Obligations issued by the RBI on March 26, 2019 read with the Master Direction on Reporting under Foreign Exchange Management Act, 1999, dated January 1, 2016, each as amended (together, the “ECB Guidelines”). ECBs can be accessed under two routes:
(i) the automatic route; and
(ii) the approval route.
Availing of ECBs under the automatic route does not require a borrower to obtain any RBI approval whereas availing ECBs under the approval route requires prior RBI approval. The ECB Guidelines classify ECBs under two categories: (i) foreign currency denominated ECBs (“FCYECB”) and (ii) Rupee denominated ECBs (“INRECB”).
153 In accordance with the ECB Guidelines, all entities that are eligible to receive foreign direct investment are classified as eligible borrowers for availing ECBs. Additionally, the ECB Guidelines also allow (i) port trusts; (ii) units in a special economic zone; (iii) Small Industries Development Bank of India; and (iv) Export Import Bank of India; (iv) registered not for profit companies; (v) registered societies/trusts// cooperatives and; (vi) non-government organizations to raise FCY ECBs.
Hedging: An entity raising FCY ECB is required to follow hedging guidelines issued, by the concerned sectoral or prudential regulator in respect of foreign currency exposure. Infrastructure space companies are required to have a board approved risk management policy and are required to mandatorily hedge 70.0% of their ECB exposure in case the average maturity of the ECB is less than five years. The designated AD Category-I bank shall verify that the 70.0% hedging requirement is complied with during the tenor of the ECB and report the position to RBI through Form ECB 2.
Pursuant to the ECB Guidelines any resident of a Financial Action Task Force or International Organization of Securities Commissions compliant country will qualify as a recognized lender or investors eligible to provide ECBs to Indian entities. Additionally, multilateral and regional financial institutions where India is a member country will also be considered as recognized lenders or investors. Further, the ECB Guidelines permit individuals as ECB lenders if they are foreign equity holders or if the ECB is raised by way of bonds or debentures which are listed abroad.
Foreign branches and subsidiaries of Indian banks are permitted to participate as lenders for only FCY ECBs (except foreign currency convertible bonds and foreign currency exchangeable bonds). Foreign branches and subsidiaries of Indian banks, subject to applicable prudential norms, can participate as arrangers/underwriters/market-makers/traders for Rupee denominated Bonds issued overseas. However, underwriting by foreign branches and subsidiaries of Indian banks for issuances by Indian banks will not be allowed.
The ECB Guidelines permit refinancing of existing ECB by fresh ECB provided that the outstanding maturity of the original borrowing (weighted outstanding maturity in case of multiple borrowings) is not reduced, and all-in-cost of fresh ECB is lower than the all-in-cost (weighted average cost in case of multiple borrowings) of existing ECB. Further Indian banks are permitted to participate in refinancing of existing ECB, for highly rated corporates (AAA) and for Maharatna/Navratna public sector undertakings.
In relation to the utilization of the ECB proceeds, the negative list for both FCY ECB and INR ECB includes: (i) real estate activities; (ii) investment in capital market; and (iii) equity investment. Additionally, except in the cases detailed below, proceeds from an ECB cannot be utilized for (i) working capital purposes; (ii) general corporate purposes; and (iii) repayment of Rupee loans except from a foreign equity holder. Additionally, save for the exception below, for all ECBs, on-lending for any of the abovementioned activities is prohibited under the ECB Guidelines. However, the RBI, by way of circular dated July 30, 2019, has liberalized the ECB framework and has relaxed the end-use restrictions. Accordingly, eligible borrowers are now permitted to raise ECBs from recognized lenders, except foreign branches/overseas subsidiaries of Indian banks, for the following purposes:
1. working capital, general corporate or repayment of Rupee loans, if raised from foreign equity holders with a minimum average maturity period of five years;
2. working capital purposes, general corporate purposes or on-lending by non-banking financial companies for the same purposes, subject to the minimum average maturity period being 10 years;
3. repayment of Rupee loans availed domestically for capital expenditure or on-lending by non-banking financial companies for the same purposes, subject to the minimum average maturity period being seven years; and
4. repayment of Rupee loans availed domestically for purposes other than capital expenditure or on lending by non-banking financial companies for the same purposes, subject to the minimum average maturity period being 10 years.
154 Further, the maximum amount which can be raised every financial year under the automatic route is US$750 million or its equivalent. Further, in case of FCY denominated ECB raised from direct foreign equity holder, ECB liability-equity ratio for ECB raised under the automatic route cannot exceed 7:1. However, this ratio will not be applicable if the outstanding amount of all ECB, including the proposed one, is up to USD5 million or its equivalent. Additionally, an eligible borrowing entity will also be governed by the guidelines on debt equity ratio issued, if any, by the relevant sectoral or prudential regulator of such eligible borrowing entity.
The all-in cost (which includes rate of interest, other fees and expenses in foreign currency or Rupees but does not include commitment fees, payments for withholding tax in Rupees), for both FCY ECB and INR ECB is set at the benchmark rate plus 450 basis points spread. As per the ECB Guidelines, various components of all-in-cost have to be paid by the ECB borrower without taking recourse to the drawdown of ECB, i.e. ECB proceeds cannot be used for payment of interest or charges. Prepayment charge or penal interest, if any, for default or breach of covenants, should not be more than 2.0% over and above the contracted rate of interest on the outstanding principal amount and will be outside the all-in-cost ceiling.
Approval route
All ECBs falling outside the automatic route limits are considered by the RBI through the Authorized Dealer Banks (“AD Bank”) under the approval route.
Creation of Security
Security can be created by Indian borrowers or obligors over immovable or movable property, shares and other securities, in favor of a non-resident lender/security trustee and as a condition to the grant of such security, the Indian borrower is required to obtain a ‘no-objection’ certificate from their designated AD Bank (and the borrower’s existing lenders if applicable).
An AD Bank can issue no-objection certificates to Indian borrowers or obligors provided inter alia, the following conditions are satisfied: (i) the underlying ECB is in compliance with the extant ECB Guidelines, and (ii) there exists a security clause in the loan agreement or document requiring the Indian borrower to create a charge in favor of the security trustee or offshore lenders; (iii) the ‘no objection’ certificate, as applicable, from the existing lenders in India has been obtained in case of creation of charge; and (iv) the period of the charge has to be the same as the loan maturity.
Creation of Charge on immovable assets
The ‘no objection’ certificate is not to be construed as a permission to acquire immovable asset (property) in India, by a non-resident lender or security trustee; and in the event of enforcement of the charge or other security interest, the immovable asset (property) cannot be transferred to a non-resident and has to be sold only to a person resident in India and the sale proceeds used to repay the outstanding loan. Additionally, such security shall be subject to provisions contained in the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2017, as amended from time to time.
Creation of Charge on Movable Assets
In the event of enforcement of the charge over movable assets, the claim of the lender, whether the lender takes possession over the movable asset or otherwise, will be restricted to the outstanding claim against the ECB.
Filing and regulatory requirements in relation to issuance of Notes
An ECB borrower is required to obtain a loan registration number (“LRN”) from the RBI before an issuance of Notes is affected. To obtain this, ECB borrowers are required to submit a completed Form ECB certified by a company secretary or a chartered accountant to the AD Bank of the ECB borrower. The AD Bank is then required to forward the completed Form ECB to the RBI.
Any ECB borrower is required to submit an ECB-2 return on a monthly basis through its AD Bank to the RBI (to report actual ECB transactions within seven working days of the month to which it is related).
155 Procedure in relation to any change to the Terms and Conditions of the Notes
Changes in ECB parameters in consonance with the ECB norms, including reduced repayment by mutual agreement between the lender and borrower, should be reported to the Department of Statistics and Information Management of the RBI through revised Form ECB at the earliest, in any case not later than seven days from the changes effected. Such changes may be approved by the AD Bank to the extent of delegation provided for in the ECB Guidelines or by the RBI if so required. Certain changes such as a change in the name of borrower or lender, transfer of ECB and any such other parameters may be approved by the AD Bank, provided the revised terms comply with extant ECB norms and are with the consent of lender. Any redemption of the Notes prior to their stated maturity, including for taxation reasons upon a Change of Control Triggering Event, the application of an Excess Amount or the Prudency Sweep Amount or an Event of Default (as further described in the Terms and Conditions of the Notes) will require the prior approval of the RBI.
Foreign Currency (Non-Resident) Borrowings
In the Master Direction—Reserve Bank of India (Interest Rate on Deposits) Directions, 2016, read with the Master Direction—Reserve Bank of India (Interest Rate on Advances) Directions, 2016, as amended (“Interest on Advances Directions”), the RBI sets out the revised framework in relation to the Foreign Currency (Non-resident) Accounts (Banks) Scheme. Pursuant to the Interest on Advances Directions, banks can determine the interest rates on advances in foreign currency in accordance with the comprehensive policy on interest rates on advances duly approved by the board of directors or any committee of the board of directors to which such powers have been delegated. The interest rate is required to be determined with reference to a market determined external benchmark and the actual lending rates are required to be determined by adding the components of spread to the external benchmark. Further, the banks shall ensure that interest rates offered shall be reasonable, consistent, transparent and available for supervisory review/scrutiny as and when required.
Consolidated Guidelines by the Ministry of Home Affairs for the Containment of COVID-19 Pandemic
The Ministry of Home Affairs, GoI (“MHA”) issued an order (applicable from March 25, 2020) (the “MHA Order”) which imposed a general lockdown in the country and brought in effect guidelines aimed at containing the spread of the COVID-19 which had been declared as a pandemic by the World Health Organization (the “MHA Guidelines”). The MHA Guidelines laid down the measures to be taken by ministries and departments of the central and state governments to contain the proliferation of COVID-19. In light of the MHA Order and the MHA Guidelines, the Directorate General of Shipping through an order dated March 29, 2020, advised Indian seaports, carriers and shipping lines not to impose any container charges on the export/import of shipments from cargo owners/consignees of non- containerised cargo during the lock down period. The Ministry of Shipping through an order dated April 21, 2020 also waived penal charges, demurrage, detention charges and dwell time charges on imported goods lying at the ports beyond the normal free period.
Due to the COVID-19 induced lockdown and the continuing disruption, the Reserve Bank of India through its Circular dated March 27, 2020, and through its notification dated May 23, 2020 issued instructions to all, inter alios, commercial banks permitting them to extend moratorium periods on the payment of installments in respect of term loans.
COVID-19 Regulatory Framework
In light of the recent COVID-19 pandemic, the RBI has notified various regulatory frameworks and relaxations to taken/to be availed by the respective banks and financial institutions to deal with the disruptions caused by the pandemic. The RBI, vide its circular titled ‘COVID-19 — Operational and Business Continuity Measures’ dated March 16, 2020, has provided an indicative list of steps to be taken by banks/financial institutions as part of their operations and business continuity plans. These include,
156 among others, steps to encourage their customers to use digital banking facilities, to take steps of sharing important instructions/strategy with the staff members at all levels and sensitizing the staff members about preventive measures/steps to be taken in suspected cases, based on the instructions received from health authorities, from time-to-time, and to take stock of critical processes and revisiting Business Continuity Plan (BCP) in the emerging situations/scenarios with the aim of continuity in critical interfaces, and preventing any disruption of services, due to absenteeism either driven by the individual cases of infections or preventive measures.
The RBI, vide its circular titled ‘COVID-19—Regulatory Package’ dated March 27, 2020, announced certain regulatory measures to mitigate the burden of debt servicing brought about by disruptions on account of the COVID-19 pandemic, and to ensure the continuity of viable businesses. In furtherance of the same, lending institutions were permitted to grant a moratorium of 3 months on payment of all installments in respect of all term loans (including agricultural term loans, retail and crop loans) (“Moratorium Period”) falling due between March 1, 2020 and May 31, 2020. Additional relaxations were also granted in relation to the calculation of ‘drawing power’ in respect of working capital facilities sanctioned in the form of cash credit/overdraft to borrowers. Such measures would not result in asset classification downgrade. The RBI vide its circular dated April 17, 2020 provided detailed instructions in relation to the extension of resolution timelines under the Prudential Framework on Resolution of Stressed Assets. In respect of accounts which were within the review period as of March 1, 2020, the period from March 1, 2020 to May 31, 2020 shall be excluded from the calculation of the 30-day timeline for the review period. In respect of all such accounts, the residual review period shall resume from June 1, 2020, upon expiry of which the lenders shall have the usual 180 days for resolution. In respect of accounts where the review period was over, but the 180-day resolution period had not expired as of March 1, 2020, the timeline for resolution shall get extended by 90 days from the date on which the 180-day period was originally set to expire.
Subsequently, the RBI vide its circular dated May 23, 2020, further permitted the lending institutions to extend the Moratorium Period on payment of all installments in respect of term loans (including agricultural term loans, retail and crop loans) by another 3 months, i.e., from June 1, 2020 to August 31, 2020. In relation to working capital facilities sanctioned in the form of cash credit/overdraft, lending institutions were permitted to allow a deferment of another 3 months, from June 1, 2020 to August 31, 2020, on recovery of interest applied in respect of all such facilities. In respect of such working capital facilities sanctioned in the form of cash credit/overdraft to borrowers facing stress on account of the economic fallout of the pandemic, lending institutions could, as a one-time measure, (i) recalculate the ‘drawing power’ by reducing the margins until August 31, 2020. However, in all such cases where such a temporary enhancement in drawing power is considered, the margins must be restored to the original levels by March 31, 2021; and/or, (ii) review the working capital sanctioned limits up to March 31, 2021, based on a reassessment of the working capital cycle. In respect of such working capital facilities, lending institutions were also permitted, at their discretion, to convert the accumulated interest for the deferment period up to August 31, 2020, into a funded interest term loan which shall be repayable not later than March 31, 2021.
Further, the RBI through its ‘Statement on Developmental and Regulatory Policies’ dated August 6, 2020, stated that with the intent to facilitate revival of real sector activities and mitigate the impact on the ultimate borrowers, it had been decided to provide a separate window under the ‘Prudential Framework on Resolution of Stressed Assets’ dated June 7, 2019 to enable the lenders to implement a resolution plan in respect of eligible corporate exposures without change in ownership, and personal loans, while classifying such exposures as standard (as set out under the Prudential Framework on Resolution of Stressed Assets dated June 7, 2019) subject to specified conditions. The RBI has also issued a notification on August 6, 2020 titled ‘Resolution Framework for COVID-19-related Stress’ (“COVID-19 Resolution Framework”). Under the Covid-19 Resolution Framework, lending institutions are required to frame policies, as approved by their board of directors, for implementation of viable resolution plans for eligible borrowers pursuant to the Covid-19 Resolution Framework and ensure that the resolution plans under this facility are extended only to borrowers bearing stress on account of the COVID-19 pandemic.
157 The RBI, vide its circular dated September 7, 2020 on ‘Resolution Framework for COVID-19-related Stress—Financial Parameters’, laid down key ratios to be mandatorily considered while finalizing the resolution plans in respect of eligible borrowers under the COVID-19 Resolution Framework. Further, it also laid down, sector specific thresholds to be considered by the lending institutions, intended as floors or ceilings, in the resolution assumption with respect to an eligible borrower. The resolution plans shall take into account the pre-COVID-19 operating and financial performance of the borrower and impact of COVID-19 on its operating and financial performance at the time of finalizing the resolution plan, to assess the cashflows in subsequent years, while stipulating appropriate ratios in each case. Lending institutions are free to consider other financial parameters as well while finalizing the resolution assumptions in respect of eligible borrowers apart from the above mandatory key ratios and the sector-specific thresholds that have been prescribed.
158 PRINCIPAL SHAREHOLDERS
We are a 50:50 joint venture between APSEZ and Mundi Limited, a subsidiary of TiL. The shareholding of the Company as of the date of this Offering Circular is set out in the table below.
Number of Percentage of Equity Shares Total Paid-up Name of Shareholders Held Equity Capital (%) APSEZ ...... 322,231,717 50.0 MundiLimited...... 322,231,817 50.0 Mr.KunjalMehta(nomineeofAPSEZ)...... 100 –
Total ...... 644,463,634 100.00
About APSEZ
APSEZ is India’s largest private developer and operator of ports and related infrastructure based on container volume handled*. APSEZ provides fully integrated marine, stevedoring, handling, storage, warehousing, transportation and other value-added logistics services. APSEZ is part of the Adani Group, which is a multinational diversified business organization with significant interests across transport and logistics (ports and logistics, shipping and rail) and energy and utility (power generation and transmission) sectors. As of November 24, 2020, the combined market capitalization of APSEZ, Adani Power Limited, Adani Enterprises Limited, Adani Green Energy Limited, Adani Transmission Limited and Adani Gas Limited was approximately `55.00 billion (source: Bloomberg).
TM
Transport & Logistics Energy & Utility Portfolio Portfolio
TIL 63.5% 100% 75% 75% APSEZ SRCPL ATL AGEL Port & Logistics Rail T&D Renewables
100% 75% 37.4% APL AGL Mundi Ltd NQXT IPP Gas DisCom
50% 50% 75% AEL AICTPL Incubator
100% 100% 100% 100% AAHL ATRL AWL Data Airports Roads Water Centre ~USD 55 bn Combined Market Cap
UNLISTED ENTITIES LISTED ENTITIES
* Derived from data in the India Container Market Reports 2016 to 2019 by Maritime Gateway, Coronavirus Impact on Container Trade—Container India 2020 Report and Indian Ports Association.
159 About TIL
TiL is a leading globally diversified container terminal operator. TiL handled approximately 6.3% of the world’s container port throughput as of September 30, 2020 and ranked sixth in the Global Terminal Operator’s throughput league in 2019 according to Global Container Terminal Operators—Annual Review and Forecast—Annual Report 2020/21 of Drewry Maritime Research. TiL owns and operates 42 terminals out of which 16 are wholly or majority-owned and 26 are joint ventures at the world’s largest O&D markets, as of October 30, 2020. The terminals owned and operated by TiL are strategically located across the world including at seven of the world’s busiest ports. TiL is majority owned (as to 57.3%) by MSC, the second largest shipping line globally in terms of container vessel capacity according to the Alphaliner. Global Infrastructure Partners, one of the world’s leading infrastructure investment funds founded in 2006, holds 32.7% ownership in TiL and GIC, the Singaporean government sovereign wealth fund, which has extensive experience in large and unlisted infrastructure assets, holds 10.0% ownership in TiL.
TiL has a strategy to increase majority ownership at the terminals it operates and provides important terminal capacity to MSC. TiL has diversifying operation with majority of cargo throughput at the ports being from MSC. The locations of the terminals are carefully selected. TiL also has a strategy to invest in financial sound investments with growing returns. It is able to make such investments due to capital programs and acquisitions with MSC. TiL successfully leverages the volumes handled by MSC and its alliance partners by securing and managing new investments, managing concession extensions and providing a strong growth platform’s long-term relationship, through TiL, with MSC makes the Company attractive to port authorities due to its potential for increased volume and risk reduction. The affiliated business model, through TiL, allows for greater certainty for having MSC’s volumes tied to the Company, which is a major factor in terminal economics and de-risking the original development cost, acquisition or expansion capital expenditure. Additionally, the Company can achieve a high degree of tariff certainty, through TiL, with MSC. Further, MSC’s global operations generate valuable insights to changes in trade flows. The Company believes it benefits from such insights, through TiL, in terms of being able to accurately align operating capacity and capital expenditure to the demands of the different trades. MSC’s majority ownership in TiL helps to ensure the robust financial performance of TiL and its terminals. TiL aims to maximize efficiency which is mutually beneficial to TiL and its customers and strategizes towards becoming one of the world’s safest, most productive and efficient container terminal operators.
Rotterdam (Netherlands)
Antwerp (Belgium) Bremerhaven (Germany) Le Havre (France) Klaipeda (Lithuania) Liverpool (United Kingdom)
Marseille (France) St Petersburg (Russia)
Sines (Portugal) Asyaport (Turkey) Marport (Turkey) Seattle (USA) Montreal (Canada) Iskenderun (Turkey) Newark (USA) Ashdod (Israel) Long Beach (USA) Las Palmas (Spain) Ningbo (China) Freeport (USA) Trieste (Italy) Freeport (Bahamas) Mundra (India) Houston (USA) Everglades (USA) Abu Dhabi (UAE) Umm Qasr (Iraq) New Orleans (USA) Valencia (Spain) KAEC (Saudi Arabia) Singapore Balboa (Panama) Gioia Tauro (Italy) Callao (Peru) Bettolo (Italy) Rio (Brazil)
Santos (Brazil)
Navegantes (Brazil) La Reunion (France) Lomé (Togo) Buenos Aires (Argentina) San Pedro (Ivory Coast)
42 Container Terminals
26 Operating terminals (mostly 50% owned) 14 Operating terminals (majority owned) 2 Green!eld terminals (100% owned)
160 According to Alphaliner, MSC’s container vessel capacity is currently the second largest in the world which has a global network including 493 offices in 155 countries with 70,000 staff. MSC operates 572 vessels on approximately 200 routes calling approximately 500 ports. The MSC Group provides 3.8 MTEU ship capacity (approximately 16% of total global capacity). MSC container shipping is global in scale, providing services across all the major shipping routes worldwide. MSC’s alliance with Maersk gives total 2MAlliance capacity of almost 8 MTEU enabling it to utilize facilities of container terminals such as those of the Company garnering additional container or transshipment volumes.
161 DESCRIPTIONOFMATERIALINDEBTEDNESS
The following summary of certain provisions of our loan facilities and other indebtedness does not purport to be complete and is subject to, and qualified in its entirety by reference to, the underlying credit agreements and other documentation. Further, this summary relates primarily to principal long-term indebtedness.
As of September 30, 2020, our total borrowings outstanding were `30,478.54 million, which consisted of long-term borrowings and current maturities of long-term borrowings and included subordinated shareholder loans. 43.74% of our total borrowings (`13,331.31 million) as of September 30, 2020 were unsecured.
We intend to repay the existing senior indebtedness, which consisted of `18,459.17 million of foreign currency loans from banks and financial institutions as of September 30, 2020. The balance of the proceeds from the Notes after repaying the Company’s existing senior indebtedness will be applied towards partially repaying `12,019.37 million subordinated shareholder loans availed by the Company. For further details, see “Use of proceeds.”
Senior Loans – Foreign Currency Borrowings
US$180 million facility by Citibank N.A., DBS Bank Ltd., and Intesa Sanpaolo S.p.A., Hong Kong Branch
The Company entered into a facility agreement dated July 26, 2018 with Citicorp International Limited, as the facility agent and Citibank N.A., Jersey Branch, DBS Bank Ltd., and Intesa Sanpaolo S.p.A., Hong Kong Branch, as the original lenders, for an aggregate principal amount of US$180 million, repayable at an interest of the aggregate of the applicable margin (i.e. 1.75% per annum until November 30, 2020 and 4.25% per annum thereafter) and LIBOR for each interest period. The facility is used for repayment of the debt of the Company, financing capital expenditure in respect of CT-3 Extension and for costs and expenses incurred by the Company for entry into this facility. This facility is secured by way of a first ranking pari passu security interest over our present and future assets including our tangible, movable and immovable properties and assets and/or leasehold interest, intangible assets, insurance policies, all performance bonds, contractors’ guarantees, any letter of credit provided by any person under the Project Documents (as defined in the facility agreement) contractual rights and interest, all bank accounts of the Company, all book debts, operating cash flows, receivables, all other current and non-current assets, commissions, reserves, both present and future revenues and receivables from business activities. This facility is also secured by a first ranking pari passu charge over 26.0% of our paid-up equity share capital held by APSEZ.
The parties to this facility entered into an amendment side letter dated March 29, 2019, for amending the facility agreement for, inter alia, the extension of the repayment schedule. The shareholders of the Company also issued an undertaking to the facility agent dated March 29, 2019. Under this shareholders’ undertaking, each shareholder undertakes in favor of the facility agent, inter alia, that: (a) it shall not create or permit to subsist any security interest over the unsecured shares of the Company or sell, transfer or otherwise dispose of the unsecured shares of the Company; (b) ensure that it holds, at all times 50.0% of the shares of the Company; (c) upon issue of any additional shares of the Company, to inform the facility agent the details and terms thereof on the basis that 26.0% of the shares held by APSEZ after such issuance shall be subject to pledge and 74.0% of the shares shall be unsecured shares; and (d) provide the facility agent with all records relating to the additional shares of the Company as maybe requested. The Company has received all consents and/or waivers required under this facility for this Offering. The Company expects the security under this facility to be released within a period of 45 days after the Closing Date. As of September 30, 2020, `12,125.65 million was outstanding under this facility. A guarantee dated September 3, 2020 was entered (made effective from October 1, 2020) in relation to this facility between APSEZ, as the guarantor, and Citicorp International Limited.
162 US$100 million facility by MUFG Bank, Ltd.
The Company entered into a facility agreement dated March 27, 2020 with MUFG Bank Ltd., as the mandated lead arranger and bookrunner and MUFG Bank Ltd., Singapore Branch, as the original lender, for an aggregate principal amount of US$100 million. The facility agreement was further amended by way of an amendment deed dated December 1, 2020, pursuant to which the facility is repayable at an interest of: the aggregate of the applicable (i) margin i.e., 1.75% per annum from the date of the facility agreement up to November 30, 2020 and 4.35% thereafter; and (ii) LIBOR for each interest period. The facility is used for refinancing of the debt of the Company. The Company shall pay the accrued interest on the loan on the last day of each interest period. The scheduled repayment date will be 36 months from (and including) the utilization date. A guarantee dated March 27, 2020 was entered in relation to this facility between APSEZ, as the guarantor and MUFG Bank, Ltd., Singapore branch, as the original lender. The Company is not required to notify or obtain consent from MUFG Bank Ltd. under this facility for this Offering. As of September 30, 2020, `5,738.51 million was outstanding under this facility.
US$50 million facility by Export-Import Bank of India
The Company entered into a facility agreement dated January 18, 2016 with Export-Import Bank of India, as the lender, for an aggregate principal of US$50 million, repayable in structured installments at an interest rate of LIBOR + 2.45% per annum. The facility is used for the financing of capital expenditure and, for the repayment of debt we availed. This facility is secured by a first ranking charge over inter alia, our immovable assets and movable assets, intangible assets, contractual rights and interest, all bank accounts of the Company, future revenues and receivables from business activities, insurance contracts and by way of a pledge over 26.0% of our equity share capital held by APSEZ. Further, the facility is also secured by a corporate guarantee of APSEZ. The Company has received all consents and/or waivers required under this facility for this Offering. As of September 30, 2020, `595.01 million was outstanding under this facility.
Covenants under our Foreign Currency Borrowings
The facility agreements for our foreign currency borrowings contain covenants customary for facilities of this nature, including covenants that limit our ability to (subject to certain carve-outs):
• create permit to subsist security interest over our assets;
• incur any other financial indebtedness or give guarantees;
• enter into amalgamations, demergers, mergers or corporate reconstruction;
• sell or otherwise dispose of certain assets; and
• change the nature of our business.
Events of Default under our Foreign Currency Borrowings
The facility agreements contain customary events of default and provide that upon the occurrence of an event of default, the lender may cancel the commitments and declare the loans (including interest) immediately due and payable, if an event of default occurs and is not cured within the agreed curing period.
163 Subordinated Shareholder Loans
US$30 million loan from Mundi Limited
The Company entered into a loan agreement dated January 24, 2018 (as amended on February 21, 2018), with Mundi Limited for an aggregate principal of US$30 million at an interest rate of 4.0% per annum, compounded annually. The loan is used towards funding capital expenditure of the Company. The loan is secured by a subordinated charge over the assets of the Company at CT-3 and CT-3 Extension. The subordinated charge is yet to be created. The loan is repayable in a single installment on March 8, 2023. Mundi Limited may, with the prior approval of the Company, convert all or a part of the outstanding loan into the equity shares of the Company, on or prior to March 8, 2023. As of September 30, 2020, `2,213.10 million was outstanding under this long term borrowings from Mundi Limited.
`7,712.89 million facility by APSEZ
The Company entered into a facility agreement dated January 23, 2017 with APSEZ for a rupee term loan facility of `7,712.89 million at an interest rate of 9.1% per annum payable per month, and repayable in a single installment on January 19, 2022. The facility is to be used towards project related expenditure and for repayment of existing loans availed by the Company. As of September 30, 2020, `7,593.17 million was outstanding under this facility. We entered into a currency swap arrangement (“Hedging Agreement”) on January 23, 2017 with Axis Bank Limited (“Axis”) to hedge the US$/INR exchange rate risk arising from our INR payment obligations under this facility and matching the payables against US$-denominated revenue from our ordinary course of business. This Hedging Agreement is co-terminus with the underlying loan facility. We have requested Axis to enter into the Intercreditor Deed on or around the Closing Date on the terms set out therein. In the event the terms of the Intercreditor Deed are not acceptable to Axis, we propose to terminate the currency swap arrangement with Axis within a period of 15 Business Days from the Closing Date and enter into an alternative currency swap arrangement with another hedging counterparty, who will then accede to the Intercreditor Deed.
US$30 million loan from APSEZ
The Company entered into a loan agreement dated January 24, 2018 with APSEZ, for an aggregate principal equivalent to US$30 million at an interest rate of 4.0% per annum and repayable in a single installment on March 8, 2023. The loan is to be used for the construction and operation of CT-3 and CT-3 Extension. The loan is secured by a subordinated charge over the project assets of the Company at CT-3 and CT-3 Extension. The subordinated charge is yet to be created. APSEZ may, with the prior approval of the Company, convert all or a part of the outstanding loan into the equity shares, on or prior to March 8, 2023. As of September 30, 2020, `2,213.10 million was outstanding under this facility.
Covenants and Events of Default under our Subordinated Shareholder Loans
The loan agreements for our subordinated shareholder loans contain covenants, including the compliance of applicable law and ensuring that the creation of security and payments due to the lenders are not restricted. The loan agreements contain customary events of default and provide that upon the occurrence of an event of default, the lender may declare the loans immediately due and payable.
164 DESCRIPTIONOFPRINCIPALDEBTDOCUMENTS
The following summary is not exhaustive and is subject to and qualified in its entirety by reference to all of the provisions of such agreements, including the definitions therein of certain terms that are not otherwise defined in this Offering Circular. Definitions of certain terms used in this section are set forth in “Terms and Conditions of the Notes.”
General overview
The Senior Noteholders will benefit from a common security package to be granted by the Issuer on or before the respective security longstop dates as set out in “Description of the Collateral and Security Documents”. In order to, inter alia, regulate the sharing of the common security between the Issuer, the Note Trustee and the Security Trustee will enter into, among others, the Project Accounts Deed and the Security Documents.
The Note Trustee, the Security Trustee and the other Primary Creditors or their respective representatives shall enter into the Intercreditor Deed. The Intercreditor Deed will regulate, among other things:
(i) the claims of the Primary Creditors; and
(ii) the exercise, acceleration and enforcement of rights by the Primary Creditors.
The Intercreditor Deed will also provide for the ranking of the claims of the relevant Primary Creditors both before and after an Enforcement Action has been taken, and for the subordination of Subordinated Creditors, and the subordination of the Sponsor Affiliate Lenders.
Project Accounts Deed
Establishment and maintenance of the Project Accounts
Operating Account
The Note Trust Deed requires the Company to open and maintain an operating account with an Account Bank. Accordingly, the Company shall be opening inter alia the Operating Account with the Account Bank, and inter alia, the terms of making deposits into and credit from such accounts, are governed by a Project Accounts Deed, to be entered into (the “Project Accounts Deed”), between the Company, the Account Bank and the Security Trustee.
The Company must ensure that all of its Operating Revenue must be deposited directly into the Operating Account except the Excluded Payments.
The Company shall be entitled to withdraw monies in deposit from time to time in the Operating Account for the purposes and as per the order of priority mentioned herein below (the “Operating Account Waterfall”):
(a) first, towards:
(i) the payment of Taxes;
(ii) any amount required to be maintained under applicable law towards any cash reserve requirement or liquidity reserve requirement applying to the Company which shall be deposited in the Statutory Reserve Account;
165 (b) second, towards the payment of Operating Expenses, statutory dues which, for the avoidance of doubt, may be funded from a Non PAD Accounts-Statutory Payments Account) and Capital Expenditure, including payments towards any of the Non PAD Accounts, including:
(i) transfers towards the Non PAD Accounts – Rail Freight for onward payment of rail freight charges;
(ii) transfers towards the Non PAD Accounts – H2H Payments for onward payments to vendors under H2H payments systems;
(iii) transfers towards the Non PAD Accounts – Bill Discounting Exchange for onward payment of bills discounting facilitated through exchanges;
(iv) transfers towards the Non PAD Accounts – Regulatory Payments for onward payment of regulatory payments;
(v) transfers towards the Non PAD Accounts – Salary Payment for onward payment of salaries.
(c) third, pro rata and pari passu for payment of any Costs and liabilities Incurred by or due and payable to the Security Trustee, the Note Trustee, the Account Bank, each Representative and each Agent under the Senior Documents;
(d) fourth, on a pro-rata and pari passu basis:
(i) payment of accrued interest (including default interest), Costs due and payable to any Senior Creditor under any Senior Document (other than any Secured Hedging Agreements and any other Hedging Agreements); and
(ii) scheduled payments under Senior Secured HedgingAgreements and Senior Unsecured Hedging Agreements (other than Hedge Termination Payments or final payments on cross currency swaps and any Defaulting Hedge Amounts due and payable under Senior Secured Hedging Agreements and Senior Unsecured Hedging Agreements) and any accrued interest (with default interest, if any) on any Hedge Termination Payments under Senior Secured Hedging Agreements and Senior Unsecured Hedging Agreements.
(e) fifth, pro rata and pari passu towards:
(i) principal outstanding (including break costs, make whole and other redemption amounts), which are due and payable under the Senior Documents, (other than the Senior Secured Hedging Agreements and any other Hedging Agreements);
(ii) Hedge Termination Payments and final payments on cross currency swaps under the Senior Secured Hedging Agreements and Senior Unsecured Hedging Agreements (other than payment of any Defaulting Hedge Amounts).
(f) sixth, pro rata and pari passu towards any other amounts (excluding the paragraphs (a) and (e) above, as applicable) due but unpaid to the Senior Creditors under the Senior Documents;
(g) seventh, transfer of the relevant amounts to its Senior Debt Service Reserve Account to the extent necessary to ensure that it is funded to the Required Senior DSRA Balance in relation to the relevant Senior Debt;
(h) eighth, towards the Capital Expenditure Reserve Account, to ensure maintenance of the Required Capex Reserve Account Balance;
166 (i) ninth, following the occurrence of a Sweep Event, transfer of the Sweep Amount to the relevant Senior Debt Redemption Account to the extent necessary to comply with Clause 4.5 of the Project Accounts Deed;
(j) tenth, by way of transfer to the relevant Senior Debt Restricted Amortisation Account, payments required to be made towards Senior Debt Restricted Amortisation Amount if any, in compliance with the conditions stipulated in the Primary Debt Documents;
(k) eleventh, if the DSCR Condition is in force, transfer to the relevant Senior Debt Restricted Reserve Account, of any amounts which are required to be transferred pursuant to the DSCR Condition;
(l) twelfth, provided that no Payment Blockage then subsists, on a pro rata and pari passu basis, towards
(i) payment of accrued but unpaid interest, fees and expenses that are payable under and in accordance with any Subordinated Documents (other than where the relevant Subordinated Creditor is an Affiliate of the Company or a Sponsor Affiliate Lender) to the extent permitted under the Intercreditor Deed;
(ii) scheduled payments (other than Hedge Termination Payments or final payments on cross- currency swaps or any Defaulting Hedge Amounts under the Subordinated Hedging Agreements) and any accrued interest (with default interest, if any) on any Hedge Termination Payments under Subordinated Hedging Agreements;
(iii) transfers to the Subordinated DSRAs pro rata to the extent necessary to ensure that the relevant Subordinated DSRA is funded to Required Subordinated DSRA Balance in relation to the relevant Subordinated DSRA.
(m) thirteenth, payments of any Defaulting Hedge Amounts due and payable under any Senior Secured Hedging Agreement or Senior Unsecured Hedging Agreement;
(n) fourteenth, if no Payment Blockage then subsists, pro rata and pari passu towards
(i) principal outstanding which is due and payable under and in accordance with the Subordinated Documents (other than where the relevant Subordinated Creditor is anAffiliate of the Company or a Sponsor Affiliate Lender) to the extent permitted under the Intercreditor Deed;
(ii) Hedge Termination Payments and final payments on cross-currency swaps under the Subordinated Hedging Agreements;
(o) fifteenth, if no Payment Blockage then subsists, payments of any Defaulting Hedge Amounts due and payable under the Subordinated Hedging Agreements;
(p) sixteenth, transfer to the Surplus Holdings Account to the extent necessary for voluntarily prepaying or purchasing all or any part of any Senior Debt as determined by the Company;
(q) last, transfers of the amount of any Permitted Distribution to the Distribution Account and otherwise in accordance with the Operating Account Waterfall.
Any Permitted Distribution may be made by (i) declaring, making or paying any dividends or other distributions on or in respect of its share capital, (ii) making any payments in respect of Sponsor Affiliate Debt, (ii) making any upstream loans or other payments to its affiliates or (iv) redeeming, repurchasing or otherwise repaying any of its share capital.
167 Any surplus monies available in the Operating Account after applying the Operating Account Waterfall and not deposited in the Distributions Account shall be retained in the Operating Account.
Subject to Clause 4.5 of the Project Accounts Deed, all payments made towards satisfaction of paragraphs (d), (e) and (f) of this Operating Account Waterfall may be paid with any amount standing to the credit of the Senior Debt Redemption Account (if any) in excess of the amounts required to maintain the Project Life Cover Ratio of 1.95:1.00.
Statutory Reserve Account
The Company shall ensure that the monies in the Operating Account are utilized in accordance with the Operating Account Waterfall order to maintain cash reserves or liquidity reserves required to be maintained under applicable laws and/or regulations from time to time in relation any Primary Debt in the relevant Statutory Reserve Account. To the extent that the Company is maintaining a balance in a Statutory Reserve Account for any specified Senior Debt, the Required Balance in the relevant DSRA for such Debt shall stand reduced. The monies lying to the credit of a Statutory Reserve Account, as and when deposited therein, shall be utilized in accordance with the instructions of the Company, for the redemption or repayment of the relevant Primary Debt of the Company against which a statutory reserve is required to be maintained or any such purpose allowed under the applicable laws and regulations.
Senior Debt Service Reserve Account
The Company shall ensure that, the monies in the Operating Account are utilized in accordance with the Operating Account Waterfall order to maintain the Required Balance in the relevant Senior Debt Service Reserve Account.
Subject to applicable laws, the Company shall have the right, if required under the terms of any relevant Senior Secured Documents, to apply a portion of the funds borrowed from the relevant Senior Creditors to fund the relevant Senior Debt Service Reserve Account to the extent of their Required Balance in the relevant Senior Debt Service Reserve Account without first running the Operating Account Waterfall.
The Account Bank shall, based on the instructions of the Company, including when there is an insufficiency in the Operating Account to make payments of interest (including default interest, fees, costs and expenses) and/or principal payments (repayment or redemption) in relation to any Senior Debt in respect of which a Required Balance in the relevant Senior Debt Service Reserve Account has been maintained, withdraw from monies in deposit in the relevant DSRA and make such payments from the relevant DSRA to such Senior Creditor.
If any Senior Debt is repaid and/or refinanced, whether in part or in full, and/or for any other reason the amounts required to be kept in deposit in the relevant Senior Debt Service Reserve Account is lower than what is the then current balance of such account, then the Account Bank shall on the instructions of the Company withdraw the relevant amounts of surplus and apply it as reserve for any other Senior Debt borrowed as Permitted Finance Debt by the Company or be released in accordance with the remaining order of priority set out in the Operating Account Waterfall.
During the Prudency Sweep Period (as such term may be defined or construed under the relevant Primary Debt Documents), the Company may apply the Prudency Sweep Amount (as such term may be defined or construed under the relevant Primary Debt Documents) standing to the credit of this Senior Debt Service Reserve Account towards redemption/ repayment of the relevant Senior Debt to such extent and in such manner required under the relevant Primary Debt Documents corresponding to such Senior Debt.
168 Capital Expenditure Reserve Account
The Company shall ensure maintenance of the Required Capex Reserve Account Balance in the Capital Expenditure Reserve Account. The Company shall be entitled to withdraw monies on deposit from time to time in the Capital Expenditure Reserve Account at the sole discretion of the Company to fund Capital Expenditure.
Senior Debt Redemption Account
If a Sweep Event occurs, then on each Calculation Date and only to the extent that funds are available for that purpose in accordance with the Operating Account Waterfall, transfer any amounts that would otherwise be available for Distributions to the Senior Debt Redemption Account to the extent required to ensure that the Project Life Cover Ratio is not less than 1.95:1.0.
The balance in the Senior Debt Redemption Account shall be released and immediately transferred to the Operating Account in the event the Project Life Cover Ratio is equal to or exceeds 1.95:1.00 for two subsequent consecutive Calculation Dates. Any funds in any Senior Debt Redemption Account in excess of the amount required to maintain a Project Life Cover Ratio equal to 1.95:1.0 shall be released and immediately transferred to the Operating Account.
Following the occurrence of a Sweep Event, the Company may apply any amount (an “Excess Amount”) in the Senior Debt Redemption Account which is in excess of the amount then held in the Senior Debt Restricted Amortization Account in or towards redemption of the relevant Senior Debt (as required under the terms of the relevant Primary Debt Documents).
During the Prudency Sweep Period (as such term may be defined or construed under the relevant Primary Debt Documents), the Company may apply the Prudency Sweep Amount (as such term may be defined or construed under the relevant Primary Debt Documents) standing to the credit of this Senior Debt Redemption Account towards redemption/ repayment of the relevant Senior Debt to such extent and in such manner required under the relevant Primary Debt Documents corresponding to such Senior Debt.
Any other transfers from the Senior Debt Redemption Account shall be subject to the terms of the Primary Debt Documents.
Senior Debt Restricted Amortization Account
The Company shall ensure that the Senior Debt Restricted Amortisation Amount shall be deposited as per Clause 4.1.2 (j) of the Project Accounts Deed in the relevant Senior Debt Restricted Amortisation Account.
The monies lying to the credit of the Senior Debt Restricted Amortisation Account, as and when deposited therein, shall be utilized in accordance with the instructions of the Company, to make principal payments (repayment or redemption), interest payments and other payments (including default interest, costs, scheduled payments and final payments) and Hedge Termination Payments (other than Defaulting Hedge Amounts) in relation to any Senior Document; or
During the Prudency Sweep Period (as such term may be defined or construed under the relevant Primary Debt Documents), the Company may apply the Prudency Sweep Amount (as such term may be defined or construed under the relevant Primary Debt Documents) standing to the credit of this Senior Debt Restricted Amortisation Account towards redemption/ repayment of the relevant Senior Debt to such extent and in such manner required under the relevant Primary Debt Documents corresponding to such Senior Debt.
In the event the balance amount in the Senior Debt Restricted Amortization Account exceeds the amounts required for payments towards Senior Debt Restricted Amortisation Amount as per the conditions specified in the Primary Debt Documents, the excess cash balance shall be released in accordance with the remaining order of priority set out in the Operating Account Waterfall.
169 Senior Debt Restricted Reserve Account
If the DSCR Condition is in force, the Company shall ensure that any amounts which are required to be transferred pursuant to compliance with conditions stipulated in the DSCR Condition are transferred to the relevant Senior Debt Restricted Reserve Account.
The Company shall be entitled to withdraw monies standing to the credit of the Senior Debt Restricted Reserve Account, and which are released pursuant to the compliance with conditions stipulated in the DSCR Condition and deposit the same in the Distribution Account.
During the Prudency Sweep Period (as such term may be defined or construed under the relevant Primary Debt Documents), the Company may apply the Prudency Sweep Amount (as such term may be defined or construed under the relevant Primary Debt Documents) standing to the credit of this Senior Debt Restricted Reserve Account towards redemption/ repayment of the relevant Senior Debt to such extent and in such manner required under the relevant Primary Debt Documents corresponding to such Senior Debt.
Subordinated Debt Service Reserve Accounts
The Company shall ensure that, subject to the absence of Payment Blockages and only to the extent that funds are available for that purpose in accordance with the Operating Account Waterfall, the monies in the Operating Account are utilized in accordance with the Operating Account Waterfall order to maintain the Required Balance in the Subordinated Debt Service Reserve Accounts. The Company may, if required by the terms of any Primary Debt Document for a Subordinated DSRA, procure the deposit of monies into the Subordinated DSRA from the proceeds of a disbursement of monies to the Company as per the terms of such Primary Debt Document.
The Company shall if required in terms of the relevant Subordinated Secured Documents use the funds borrowed from the Subordinated Creditors to fund the Subordinated Debt Service Reserve Accounts to the extent of their relevant Required Balance in the Subordinated Debt Service Reserve Account.
So long as no Payment Blockage is then subsisting, the Account Bank shall based on the instructions of the Company, including whenever there is an insufficiency in the Operating Account to make payments of interest (including default interest, fees, costs and expenses) and/or principal payments (repayment or redemption) in relation to any Subordinated Debt in respect of which a Subordinated Debt Service Reserve Account has been maintained, withdraw from monies in deposit in the Subordinated DSRA and make such payments from the relevant Subordinated DSRA to such Subordinated Creditor.
If any Subordinated Debt is repaid and/or refinanced, whether in part or in full, and/or for any other reason the amounts required to be kept in deposit in a Subordinated Debt Service Reserve Account is lower than what is the then current balance of such account, then the Account Bank shall on the instructions of the Company withdraw the relevant amounts of surplus and apply it as reserve for any other Senior Debt or Subordinated Debt borrowed as Permitted Finance Debt by the Company or be released in accordance with the remaining order of priority set out in the Operating Account Waterfall.
Surplus Holdings Accounts
The Company shall instruct the deposit of monies into the Surplus Holdings Account as per the terms of the Operating Account Waterfall, or if required, pursuant to clause 4.3(b), 4.5(b), 4.6 (b) or 4.7(b) of the Project Accounts Deed.
The Company shall be entitled to withdraw monies in deposit from time to time in the Surplus Holdings Account to repay, prepay or purchase Senior Debt to Senior Creditors at the sole discretion of the Company. Any money so not utilized and lying to the credit of the Surplus Holdings Account may on the instructions of the Company be transferred to the Operating Account to meet any shortfall to make any payments out of the Operating Account.
170 Distributions Account
The Company shall, only to the extent that funds are available for that purpose in accordance with the Operating Account Waterfall, instruct the transfer of an amount of any Permitted Distribution into the Distributions Account from the Operating Account. The Company shall also be entitled to deposit any amount pursuant to Clause 4.7(b) of the Project Accounts Deed in the Distribution Account.
The Company shall be entitled to withdraw monies from time to time in the Distributions Account and apply the same towards a Permitted Distribution.
Any Permitted Distribution may be made by (i) declaring, making or paying any dividends or other distributions on or in respect of its share capital, (ii) making any payments in respect of Sponsor Affiliate Debt, (ii) making any upstream loans or other payments to its affiliates or (iv) redeeming, repurchasing or otherwise repaying any of its share capital
“Sweep Amount” shall mean any amount required to be deposited into Senior Debt Redemption Account in accordance with the terms of the Project Accounts Deed.
“Senior Debt Restricted Amortization Amount” means the relevant amount required to be paid in relation to each amortization period as may be specified the relevant amortizing schedule of such Senior Debt.
Intercreditor Deed
Definitions
“Acceleration Decision” means a decision by a Primary Creditor (other than a Sponsor Affiliate Lender) to declare that all amounts outstanding under any Primary Debt Documents are immediately due and payable or to declare that amounts outstanding under any Primary Debt Documents are due and payable on the demand of the Security Trustee, following an Event of Default.
“Accession Memorandum” shall mean a reference to any or all of the Primary Creditor’s accession memorandum and/or the Sponsor Affiliate Lender’s deed of accession, as the context may require as specified under the Intercreditor Deed.
“Approval Notice” has the meaning given to the term in Clause 8.2(d) of the Intercreditor Deed.
“Consultation Period” shall have the meaning given to the term in paragraph (c) of Clause 8.2 (Enforcement Actions for a Principal Event of Default) of the Intercreditor Deed.
“Debenture” means, in respect of a Debenture Issuance, any debt instrument issued as part of a Debenture Issuance.
“Debenture Issuance” means any offering or issuance of debentures or bonds in the debt capital markets or on an unlisted basis by the Company with substantially the same terms and conditions (other than as to maturity), which may take the form of a private placement, or any other public issuance in India.
“Debenture Trustee” means the delegate or trustee appointed under a debenture trust deed in respect of a debenture issuance as listed in Part 7 of Schedule I of the Intercreditor Deed and any Debenture Trustee acceding to the Intercreditor Deed under an Accession Memorandum from time to time.
“Debenture Outstandings” with respect to a Debenture Issuance shall be an amount equal to the aggregate principal amount outstanding of the Debentures issued with respect to that Debenture Issuance.
171 “Principal Event of Default Enforcing Creditor” has the meaning given to the term in Clause 8.2(a) of the Intercreditor Deed.
“Receiver” means a receiver or manager, in each case, appointed under a Security Document.
“Reference Rate” means the (a) Indian Rupee/U.S. Dollar spot rate, expressed as the amount of Indian Rupees per one U.S. Dollar, for settlement in two (2) Business Days, reported by the RBI, which is displayed on Reuters page “RBIB” (or any successor page) at approximately 1:00 p.m. (Mumbai time) or (b) for any other currency, the relevant RBI reference rate.
“Relevant Debt Documents” means, for a Hedging Agreement, the documents designated in the Hedging Agreement as the Relevant Debt Documents for that Hedging Agreement.
“Senior Debenture Holder” means, in respect of a Senior Debenture Issuance, each person who is, for the time being, the Holder of any Senior Debenture issued as part of that Senior Debenture Issuance.
“Subordinated Hedge Counterparty” means, from time to time, any hedge counterparty which is party to the Intercreditor Deed in relation a Subordinated Hedging Agreement.
“Subordinated Hedging Agreement” means a Hedging Agreement, entered into by the Company with the Subordinated Hedge Counterparty, for the purpose of availing hedging facilities in relation to the Subordinated Debt.
“Senior Unsecured Hedge Counterparty” means, from time to time, any hedge counterparty which is party to the Intercreditor Deed in relation to a Senior Unsecured Hedging Agreement.
“Senior Unsecured Hedging Agreement” means each Hedging Agreement entered into by any Borrower in compliance with the Intercreditor Deed with a Senior Unsecured Hedge Counterparty.
General
The intercreditor arrangements in respect of the financing provided to the Adani International Container Terminal Private Limited (the “Company”), including the Notes, are contained in the Intercreditor Deed, to be entered into, (the “Intercreditor Deed”) between, among others, the Security Trustee, the Note Trustee, the Debenture Trustee, the Senior Lender, the Subordinated Creditors, the Senior Unsecured Hedge Counterparty, the Subordinated Hedge Counterparty, the Senior Secured Hedge Counterparty and the Sponsor Affiliate Lenders named therein. The Noteholders derive all of their rights and powers under the Note Trust Deed, the other Common Documents and the Conditions through the Note Trustee, and accordingly the rights of the Noteholders, like the other Secured Creditors, are subject to the terms of the Intercreditor Deed.
The purpose of the Intercreditor Deed is to regulate, among other things, (a) the claims of the Primary Creditors to the security interests made available; (b) the exercise and enforcement of rights by the Primary Creditors against the security interests; (c) the rights of the Primary Creditors to instruct the Security Trustee in relation to such actions; and (d) the subordination conditions for Subordinated Debt and Sponsor Affiliate Debt.
Under the Intercreditor Deed, except to the extent of distributions of proceeds of an Enforcement Action as governed by the Intercreditor Deed, payments of debt shall rank in the following order of priority:
(a) first, the Senior Debt, pari passu in right and priority of payment, and without any preference between them;
(b) second, the Subordinated Debt, pari passu in right and priority of payment and without any preference between them; and
(c) third, the Sponsor Affiliate Debt, pari passu in right and priority of payment and without any preference between them.
172 Under the Intercreditor Deed, the Transaction Security shall secure the Primary Debt as follows which shall be applied towards the Primary Debt as follows:
(a) first, the Senior Secured Debt, pari passu and without any preference between them (but only to the extent that such Transaction Security is expressed to secure, that Primary Debt); and
(b) second, the Subordinated Debt, pari passu and without any preference between them (but only to the extent that such Transaction Security is expressed to secure that Subordinated Debt and only to the extent permitted under the Primary Debt Documents).
In terms of the Intercreditor Agreement and other transaction documents the Sponsor Affiliate Debt is and shall at all times remain postponed and subordinated to the Primary Debt.
The Intercreditor Deed is governed by Indian Law and all disputes under the Intercreditor Deed will be subject to the exclusive jurisdiction of the courts of Delhi, India.
Additional Parties to the Intercreditor Deed
The Intercreditor Deed provides for a mechanism of accession of parties, including additional Senior Secured Creditors, additional Senior Unsecured Creditors, additional Subordinated Creditors and additional Sponsor Affiliate Lenders.
Voting and Instruction Mechanics for Enforcement Decisions
General
The Intercreditor Deed contains detailed provisions setting out the voting and instruction mechanics in respect of Enforcement Decisions.
Summary of majorities and consents required for Enforcement Decision
Enforcement Decisions
Pursuant to the terms of the Intercreditor Deed, the “Enforcement Decisions” are any decision by the Senior Secured Creditors to direct the Security Trustee to take an Enforcement Action. This is described in more detail below in “—Enforcement Action.”
Enforcement Action
Principal Event of Default
As more fully set out in the Intercreditor Deed and briefly summarized below, in the event of the following:
(i) non-payment;
(ii) Insolvency of the Company;
(iii) Winding-up of the Company;
(iv) Illegality;
(v) Security/Security Documents in jeopardy;
(vi) events analogous to the above; and
(vii) in respect of the Senior Secured Hedge Counterparties and Senior Unsecured Hedge Counterparties, each of the Hedge Termination Events analogous to the above.
173 (collectively the “Principal Event of Default”), the Security Trustee may be notified by the affected Senior Secured Creditor or its Representative of such Principal Event of Default, indicating its intention to initiate an Enforcement Action. The Security Trustee shall, promptly upon receipt of such notice of a Principal Event of Default notify each Representative about such notice for undertaking such Enforcement Action. On such a request for an Enforcement Action(, a consultation period commences wherein the other Senior Secured Creditors may, for a period of five days commencing from when the Security Trustee has notified the other Senior Secured Creditors or their Representatives, consult with the Principal Event of Default Enforcing Creditor. The Principal Event of Default Enforcing Creditor shall give good faith consideration to the views of the other Senior Secured Creditors (or such of the Senior Secured Creditors who have provided views during the Consultation Period) in determining whether or not an Enforcement Action should be taken under or with respect to any applicable Primary Debt Document. If at any time during the Consultation Period, all the other Senior Secured Creditors send an Approval Notice to the Security Trustee, promptly upon the receipt of such Approval Notice the Security Trustee shall notify the Principal Event of Default Enforcing Creditor, who shall upon receipt of such Approval Notice from the Security Trustee instruct the Security Trustee in writing to proceed to take an Enforcement Action agreed upon with the other Senior Secured Creditors. If the Consultation Period expires without the issuance of an Approval Notice, the Principal Event of Default Enforcing Creditor may, at the end of the Consultation Period, regardless of the reason for the non issuance of the Approval Notice including on account of any dissent by any other Senior Secured Creditors), implement an Enforcement Action by instructing the Security Trustee, in writing, to take an Enforcement Action. Any action being taken by a Principal Event of Default Enforcing Creditor in terms of the above as above shall be taken by such Principal Event of Default Enforcing Creditor further to and in the manner permitted under its respective Primary Debt Documents.
Events of Default other than a Principal Event of Default
Without prejudice to the ability to initiate an Enforcement Action under the mechanism provided for under “Principal Event of Default” above and as further detailed in the Intercreditor Deed, at any time at which the Security Trustee has express written notice of the occurrence of an Event of Default from a Senior Secured Creditor or a Subordinated Creditor, giving such Senior Secured Creditor or Subordinated Creditor the right to initiate an Enforcement Action under their respective Primary Debt Documents, and receives thereupon, a notice of an intention to initiate an Enforcement Action from any such Primary Creditor Group or Primary Creditor, as the case may be, it shall promptly request by written notice (an “Enforcement Instruction Notice”) an instruction from all the Senior Secured Creditors (through their Representatives, if applicable).
Enforcement Action
An “Enforcement Action” means any of the following actions to:
(a) exercise any remedy under the Primary Debt Documents following an Event of Default which is continuing for the recovery of any amount owed by the Company including by way of set off and including:
(i) the exercise of any rights with respect to any Security Interests granted under the Security Documents; or
(ii) the exercise of any right of netting, set off or account combination against the Company in respect of any present and future liabilities, debts and other obligations at any time due, owing or incurred in connection with the Primary Debt Documents;
(b) initiate any insolvency, corporate insolvency resolution or other action (including to initiate any action or proceedings under the Insolvency and Bankruptcy Code, 2016 or any other analogous law for the time being in force), winding-up, liquidation, reorganization, administration or dissolution proceedings or any similar proceedings in each case that involves the Company and is in connection with the Primary Debt Documents, or any analogous procedure or step in any jurisdiction;
174 (c) sue for, commence or join any legal or arbitration proceedings against the Company to recover any present and future liabilities, debts and other obligations at any time due, owing or incurred in connection with the Primary Debt Documents;
(d) enter into any composition, compromise, assignment or arrangement with the Company which owes any present and future liabilities, debts and other obligations at any time due, owing or incurred, or has given any Security Interests against loss in respect of the present and future liabilities, debts and other obligations at any time due, owing or incurred (other than any action permitted under the Intercreditor Deed in connection with the Primary Debt Documents); and
(e) levy distress against the Company’ assets or undertaking or attach, levy execution, arrest or otherwise exercise any creditors process in respect of any asset or undertaking of any of them, in each case in connection with the Primary Debt Documents, provided that upon occurrence of an Event of Default which is continuing, any notice issued by any Senior Secured Creditor to the Company to discharge its liabilities under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the rules made thereunder to preserve or protect the assets, rights or benefits secured under the Security Interest, shall not constitute or be construed as an Enforcement Action, and may be exercised individually by such Senior Secured Creditor.
When voting on an Enforcement Instruction Notice, the Security Trustee will have to take into consideration the Enforcement Quorum, Enforcement Majority and Intercreditor Voting Entitlements as detailed below:
Enforcement Majority
The table below summarizes the voting threshold and the required quorum of Senior Secured Creditors required for a vote in relation to the Enforcement Decision and the required period within which that quorum must be reached for the various categories of Enforcement Decision.
Quorum Requirements
Pursuant to the terms of the Intercreditor Deed, the “Quorum Requirement” in respect of an Enforcement Decision, the Enforcement Quorum Requirement (as described further in “Enforcement Action” below).
Enforcement Enforcement Quorum Enforcement Action1 Majority Requirement During the first 20 Business Days after the relevant Event of Default...... 75% 66% During the period from and including 21 Business Days to and including 40 Business Days after the relevant Event of Default... 66% 50% On or after 41 Business Days until and including 60 Business Days after the relevant Event of Default ...... 50% 331/3% After 60 days from the relevant Event of Default...... Any Senior Secured Creditor (or if all Senior Secured Debt is irrevocable and unconditionally discharged in full, any Primary Creditor)
1 Fundamental Events of Default means each of the following Events of Default, howsoever described in any Primary Debt Documents: (a) breach of financial covenants; (b) nationalization of the Company; (c) change in control; (d) events analogous to the above; and (e) in respect of the Senior Secured Hedge Counterparties and Senior Unsecured Hedge Counterparties, each of the Hedge Termination Events analogous to the above.
175 Enforcement Enforcement Quorum Enforcement Action1 Majority Requirement Enforcement Action
Enforcement Enforcement Quorum Non-Fundamental Event of Default2 Majority Requirement During the first 45 Business Days after the relevant Event of Default ...... 75% 66% During the period from and including 46 Business Days to and including 75 Business Days after the relevant Event of Default . . 66% 50% During the period from and including 76 Business Days after the relevant Event of Default to and including 105 Business Days after the relevant Event of Default...... 50% 331/3% After 105 days from the relevant Event of Default...... Any Senior Secured Creditor (or if all Senior Secured Debt is irrevocable and unconditionally discharged in full, any Primary Creditor)
Intercreditor Voting Entitlements
General
Senior Secured Creditors to whom Senior Secured Debt is owed will be entitled to vote the amount of such debt when consenting to proposals for an Enforcement Action or instructing the Security Trustee to take action in accordance with the Intercreditor Deed. Each such Senior Secured Creditor will be entitled to vote the amount of its Intercreditor Voting Entitlement as described below in Intercreditor Voting Entitlements.
Intercreditor Voting Entitlements
The “Intercreditor Voting Entitlement” means the votes of a Senior Secured Creditor in determining an Enforcement Majority equal to the aggregate of:
(a) in the case of a Senior Lender with respect to a Loan Facility:
(i) during the availability period under the relevant Loan Facility, and unless the relevant Senior Lenders are not obliged to provide any further utilization or may unilaterally cancel any commitments under the Loan Facility (a “Drawstop Event”), the aggregate of the commitments of the relevant Senior Lender under that Loan Facility on the date on which the Security Trustee requests instructions in relation to the Enforcement Decision (the “Request Date”); or
(ii) after the expiry of the availability period or upon a Drawstop Event under the relevant Senior Facility Agreement, the aggregate drawn loan participation of the relevant Senior Lender under that Loan Facility on the Request Date;
2 Non-Fundamental Events of Default for the purpose of the aforementioned includes all events of default which are not Fundamental Events of Default and/or Principal Event of Default.
176 (b) in the case of a Senior Note Holder or Senior Debenture Holder with respect to a Senior Note Issuance or a Senior Debenture Issuance, the Note Outstandings or Debenture Outstandings to that Senior Note Holder or Senior Debenture Holder for that Senior Note Issuance or the Senior Debenture Issuance on the Request Date;
(c) in the case of a Senior Secured Hedge Counterparty with respect to a Senior Secured Hedging Agreement, or, in the case of a Senior Unsecured Hedge Counterparty with respect to a Senior Unsecured Hedging Agreement the aggregate of:
(i) after any Acceleration Decision in relation to the Relevant Debt Documents for that Senior Secured Hedging Agreement
(i) the Hedge Termination Payments (if any) payable to that Senior Secured Hedge Counterparty under a Senior Secured Hedging Agreement or to that Senior Unsecured Hedge Counterparty under a Senior Unsecured Hedging Agreement it is party to as a result of any termination or close-out of that Senior Secured Hedging Agreement or that Senior Unsecured Hedging Agreement in accordance with Clause 10 (Hedge Counterparty) (which amount will be calculated on a net basis in accordance with the relevant Senior Secured Hedging Agreement or Senior Unsecured Hedging Agreement); and
(ii) the amount (if any) which would be payable to that Senior Secured Hedge Counterparty under a Senior Secured Hedging Agreement or to that Senior Unsecured Hedge Counterparty under a Senior Unsecured Hedging Agreement it is party to on any day if the Senior Secured Hedging Agreement or Senior Unsecured Hedging Agreement was terminated by the Senior Secured Hedge Counterparty or Senior Unsecured Hedge Counterparty for default (which amount will be calculated on a net basis in accordance with the relevant Hedging Agreement as if the Company is the sole “Affected Party”),
(ii) otherwise, zero;
provided that, if the sum of such amounts is less than zero, the Intercreditor Voting Entitlement for the Senior Secured Hedge Counterparty or Senior Unsecured Hedge Counterparty shall be counted as zero, in each case expressed as an amount in INR. In determining the Intercreditor Voting Entitlement of a Senior Creditor, the Security Trustee will be entitled to convert any amounts denominated in a currency other than INR into INR at the Reference Rate for the relevant currency on the Request Date.
Any of the following Representatives acting in its personal capacity and for its own account, i.e., as a Representative in relation to its fees, costs, charges and not with regards to any outstanding under any Senior Debt shall not have any Intercreditor Voting Entitlement in respect of amounts owed to it: (I) the Note Trustee, (II) the Facility Agent, (III) the agent appointed under the Working Capital Documents, (IV) the Account Bank, (V) the Security Trustee, and (vi) any other facility agent or agent or security trustee that accedes to Intercreditor Deed as a Representative. No Subordinated Creditor or Sponsor Affiliate Lender shall have any Intercreditor Voting Entitlement in respect of amounts owed to it in its capacity as Subordinated Creditor or Sponsor Affiliate Lender, as applicable.
Subject to “–Permitted Enforcement Action–Hedge Counterparties” below, no Enforcement Action is permitted to be taken under the Intercreditor Deed other than through the process described above.
Permitted Enforcement Action-Hedge Counterparties
Notwithstanding the terms of any Senior Secured Hedging Agreement or Senior Unsecured Hedging Agreement or Subordinated Hedging Agreement, the Intercreditor Deed or any other Primary Debt
177 Document, a Senior Secured Hedge Counterparty or Senior Unsecured Hedge Counterparty or Subordinated Hedge Counterparty must not terminate or close-out all or any part of a Senior Secured Hedging Agreement or Senior Unsecured Hedging Agreement or Subordinated Hedging Agreement, as applicable, prior to its maturity date unless one of the following “Hedge Termination Events” occurs:
(i) the Company fails to make, when due, any payment required to be made by it in accordance with that Hedging Agreement and such failure is not remedied on or before the date that is five (5) Business Days after, in each case, the date notice of such failure to pay is given to the Company under the relevant Hedging Agreement and a Hedge Termination Notice is given to the Security Trustee; or
(ii) an Illegality, Tax Event or Tax Event Upon Merger (each as defined in the applicable Senior Secured Hedging Agreement or Senior Unsecured Hedging Agreement or Subordinated Hedging Agreement) occurs and the Senior Secured Hedge Counterparty or the Senior Unsecured Hedge Counterparty or Subordinated Hedge Counterparty or the Company, who is subject to such Illegality, Tax Event or Tax Event upon Merger (each as defined in the applicable Senior Secured Hedging Agreement or Senior Unsecured Hedging Agreement or Subordinated Hedging Agreement), has not been able to avoid or otherwise mitigate such Illegality, Tax Event or Tax Event Upon Merger (each as defined in the applicable Senior Secured Hedging Agreement or Senior Unsecured Hedging Agreement or Subordinated Hedging Agreement) by complying with its mitigation obligation under the Primary Debt Documents within a period of fifteen (15) days from the occurrence of such event; provided that the relevant Senior Secured Hedge Counterparty or Senior Unsecured Hedge Counterparty or Subordinated Hedge Counterparty shall notify the Company, the Security Trustee of such Illegality, Tax Event or Tax Event Upon Merger; or
(iii) only in relation to Senior Secured Hedge Counterparty or Senior Unsecured Hedge Counterparty, any default occurs in the payment of any amounts under any Senior Document by the Company by more than 21 (twenty-one) days of an aggregate amount in excess of USD50 million or 3% per cent of the net worth of the Company, whichever is lower; or
(iv) occurrence of the final scheduled maturity date of the Senior Debt or Subordinated Debt under the Relevant Debt Documents or such earlier termination date as set out in the relevant Hedging Agreement; or
(i) all or part of the Senior Debt or Subordinated Debt under the Relevant Debt Documents of that Senior Secured Hedge Counterparty or Senior Unsecured Hedge Counterparty has been repaid, redeemed, canceled, prepaid or forgiven in accordance with the terms of the relevant Senior Documents or Subordinated Documents;
(ii) all or part of the Senior Debt or Subordinated Debt under the Relevant Debt Documents of that Senior Secured Hedge Counterparty or Senior Unsecured Hedge Counterparty has been purchased by the Company; or
(iii) in a Senior Secured Hedging Agreement relating to a Senior Debt or Subordinated Debt which is a Note, and the relevant Notes are not issued, provided that, if only part of the Senior Debt or Subordinated Debt has been repaid, redeemed, and canceled, prepaid or forgiven, or purchased by the Company, the Senior Secured Hedge Counterparty or Senior Unsecured Hedge Counterparty may only terminate or close out the relevant Hedging Agreement to an extent that corresponds with that part, selected in a manner as determined by the Company in accordance with the applicable regulatory framework; or
(iv) all of the Senior Debt or Subordinated Debt under the Relevant Debt Documents of that Hedge Counterparty has been accelerated in accordance with the terms of the relevant Senior Documents or Subordinated Documents; or
178 (v) an Insolvency Event, including any insolvency event or bankruptcy (howsoever described in the applicable Senior Secured Hedging Agreement or Senior Unsecured Hedging Agreement or Subordinated Hedging Agreement), has occurred with respect to the Company; or
(vi) the Company has given notice that it intends to refinance all or any part of the Senior Debt or Subordinated Debt under the Relevant Debt Documents of that Senior Secured Hedge Counterparty or Senior Unsecured Hedge Counterparty or Subordinated Hedge Counterparty and the Company and such Senior Secured Hedge Counterparty or Senior Unsecured Hedge Counterparty or Subordinated Hedge Counterparty have not been able to agree on an acceptable novatee of the Senior Secured Hedge Counterparty’s or Senior Unsecured Hedge Counterparty’s or Subordinated Hedge Counterparty’s rights and obligations under the Senior Secured Hedging Agreement or Senior Unsecured Hedging Agreement or Subordinated Hedging Agreement or acceptable novation terms within a reasonable period (and in any event no more than twenty (20) Business Days) before the proposed date of the refinancing as determined by the Company; or
(vii) an Enforcement Action is initiated as per the terms of the Intercreditor Deed; or
(viii)an event which has been agreed upon as an “Additional Termination Event” under a Senior Secured Hedging Agreement or Senior Unsecured Hedging Agreement or Subordinated Hedging Agreement between the Company and a Senior Secured Hedge Counterparty or Senior Unsecured Hedge Counterparty or Subordinated Hedge Counterparty has occurred.
Permitted Enforcement Action – Subordinated Creditors
During the Subordination Period, and while an Event of Default subsists in respect of the relevant Subordinated Debt, Subordinated Creditors may take the following actions available to them in relation to the Subordinated Debt, subject to the terms of the Intercreditor Deed:
(i) take any Enforcement Action with the prior consent of the Senior Secured Creditors following the mechanism detailed in the Intercreditor Deed;
(ii) in the event the Security Trustee has taken Enforcement Action or if an Insolvency Event has occurred in relation to the Company, (and such Insolvency Event is not a result of actions taken by a Subordinated Creditor contrary to the Intercreditor Deed), exercise any right under the Subordinated Documents that arises as a result of an Event of Default to accelerate any of the Subordinated Debt or declare the Subordinated Debt prematurely due and payable or payable on demand (but not require or accept payment (other than a payment otherwise permitted by the Primary Debt Documents) of any of the Subordinated Debt);
(iii) apply any applicable default interest on outstanding payments in accordance with the Subordinated Documents; and
(iv) refuse to advance any further Subordinated Debt to the Company in accordance with the Subordinated Documents.
Post-Enforcement Priority of Payments
Subject to certain matters and to certain exceptions as set out in the Intercreditor Deed and the Project Accounts Deed, following the taking of any Enforcement Action, all amounts of trust property from time to time received or recovered by the Security Trustee (including all monies standing to the credit of any debt service reserve account) will be held by the Security Trustee on trust to apply them under the Intercreditor Deed subject to the terms of any Primary Debt Document in accordance with the following ‘Post Enforcement Priority of Payments’ waterfall:
179 (a) first, in discharging any sums owing under and in accordance with the Primary Debt Documents to the Security Trustee, any Receiver, any Note Trustee, any Debenture Trustee or any Agent or any Delegate (in each case acting in that capacity), including any amounts owing in respect of indemnities given in favor of those persons under and in accordance with the Primary Debt Documents;
(b) second, toward payment:
(i) of all Costs incurred by any Senior Secured Creditor (other than the Security Trustee) in realization or enforcement of the Transaction Security or taking any other Enforcement Action in lieu (due to the inability or refusal of the Security Trustee to do so) or at the direction of the Security Trustee that are payable under and in accordance with the Senior Secured Documents and on a pro rata basis between them; and
(ii) to each Representative (other than the Security Trustee) and the Account Bank and each Agent in respect of its fees and Costs that are payable to it (for its own account) and any amounts owing in respect of indemnities given in favor of those persons under the Senior Secured Documents to the extent not paid under paragraph (a) above of this Clause 12.1 (Order of application-general),
on a pari passu and pro rata basis between them;
(c) third, towards:
(i) accrued interest (including default interest), redemption premium, fees and expenses under the Senior Secured Documents (other than the Senior Secured Hedging Agreements); and
(ii) scheduled payments (other than Hedge Termination Payments or final payments on cross- currency swaps or any Defaulting Hedge Amounts) under the Senior Secured Hedging Agreements and any accrued interest (with default interest, if any) on any Hedge Termination Payments under such Senior Secured Hedging Agreements,
on a pari passu and pro rata basis between them;
(d) fourth, towards:
(i) principal outstanding (including make-whole payments, break costs and other redemption amounts and/or repayment amounts and/or prepayment amounts) which is due and payable under the Senior Secured Documents (other than the Senior Secured Hedging Agreements); and
(ii) Hedge Termination Payments, Defaulting Hedge Amounts and final payments on cross- currency swaps under the Senior Secured Hedging Agreements,
on a pari passu and pro rata basis between them;
and in the case of each of paragraphs (a) to (d) above of this Clause 12.1 (Order of application-general), no proceeds of recovery from any Enforcement Action in relation to any Transaction Security or guarantees shall be applied to pay any Senior Secured Creditor who is not a beneficiary of that Transaction Security;
(e) fifth, towards:
(i) accrued but unpaid interest, fees and expenses that are payable under and in accordance with the Subordinated Documents,
180 (ii) scheduled payments (other than Hedge Termination Payments or final payments on cross- currency swaps or any Defaulting Hedge Amounts) under the Subordinated Hedging Agreements and any accrued interest (with default interest, if any) on any Hedge Termination Payments under such Subordinated Hedging Agreements,
on a pari passu and pro rata basis between them, provided that such Subordinated Creditors are beneficiaries of the Transaction Security,
(f) sixth, towards:
(i) principal outstanding which is due and payable under and in accordance with the Subordinated Documents (or any Additional Debt Finance Documents in respect of Subordinated Debt),
(ii) Hedge Termination Payments, Defaulting Hedge Amounts and final payments on cross- currency swaps under the Subordinated Hedging Agreements,
on a pari passu and pro rata basis between them, provided that such Subordinated Creditors are beneficiaries of the Transaction Security;
and in the case of each of paragraphs (e) and (f) above of this Clause 12.1 (Order of application-general), no proceeds of recovery from any Enforcement Action in relation to any Transaction Security or guarantees shall be applied to pay any Subordinated Creditor who is not a beneficiary of that Transaction Security;
(g) seventh, towards:
(i) accrued interest including (default interest), redemption premium, fees and expenses under the Senior Unsecured Document (other than Senior Unsecured Hedging Agreements); and
(ii) scheduled payments (other than Hedge Termination Payments or final payments on cross- currency swaps or such other hedging instrument or any Defaulting Hedge Amounts) under the Senior Unsecured Hedging Agreements and any accrued interest (with default interest, if any) on any Hedge Termination Payments,
(iii) in relation to proceeds of Enforcement Action in relation to any Transaction Security of which a Senior Secured Creditor is not a beneficiary, towards payment of accrued interest including (default interest), redemption premium, fees and expenses under any Senior Debt due and payable to such Senior Secured Creditors, in each case, after deducting the amount paid to them pursuant to paragraphs (a) to (f) above of this Clause 12.1 (Order of application-general),
on a pari passu and pro rata basis between them;
(h) eighth, towards:
(i) principal outstanding (including make-whole payments, break costs and other redemption amounts) which is due and payable under the Senior Unsecured Document (other than the Senior Unsecured Hedging Agreements);
(ii) Hedge Termination Payments, Defaulting Hedge Amounts and final payments on cross- currency swaps or such other hedging instrument under the Senior Unsecured Hedging Agreements,
(iii) in relation to proceeds of Enforcement Action in relation to any Transaction Security of which a Senior Secured Creditor is not a beneficiary, towards payment of principal outstanding (including make-whole payments, break costs and other redemption amounts) under any Senior
181 Debt due and payable to such Senior Secured Creditors, in each case, after deducting the amount paid to them pursuant to paragraphs (a) to (g) above of this Clause 12.1 (Order of application-general,
on a pari passu and pro rata basis between them;
(i) ninth, towards payment of any other Subordinated Debt on a pari passu and pro rata basis;
(j) tenth, towards payment of any Sponsor Affiliate Debt; and
(k) eleventh, the balance, if any, to the Company.
Subordination Conditions for Sponsor Affiliate Debt
The Intercreditor Deed provides for the terms of subordination of the loans provided by the Sponsor Affiliate Lenders and contains provisions for accession of future Sponsor Affiliate Lenders by way of execution of accession memorandums.
The subordination conditions for Sponsor affiliate debt are summarized below:
(a) Except as provided in paragraph (b) below, no payments of any amount (whether in the form of payment of interest, coupon, expenses, premium, commission, fees, costs or expenses or repayment of principal, scheduled payments, Hedge Termination Payments, Defaulting Hedge Amounts in any manner) shall be due or payable to any Sponsor Affiliate Lender under any Sponsor Affiliate Debt at any time prior to the end of the Sponsor Subordination Period, and the Sponsor Affiliate Debt shall stand postponed and all title, rights and interest of the Sponsor Affiliate Lenders in respect thereto shall remain subordinated until the end of the Sponsor Subordination Period.
(b) The Company may only make payments of any amount (whether in the form of payment of interest, coupon, expenses, premium, commission, fees, costs or expenses or repayment of principal, scheduled payments, Hedge Termination Payments, Defaulting Hedge Amounts in any manner) under the Sponsor Affiliate Debt Documents, from the amounts standing to the credit of the Distribution Accounts and/or Excluded Payments (as such term is defined in and to the extent permitted under the Project Accounts Deed).
(c) The Sponsor Affiliate Debt shall, at all times, be bound by the terms and conditions set out in the Intercreditor Deed and the Project Accounts Deed.
(d) Except as set out in paragraph (e) below, no Security Interest of any nature and in any form or manner whatsoever shall be provided in favor of the Sponsor Affiliate Lenders in respect of the Sponsor Affiliate Debt and provided further that, the Sponsor Affiliate Lenders shall not have the benefit of the Transaction Security.
(e) Without prejudice to paragraph (d) above any Subsidiary upon becoming an obligor for the purpose of any Senior Debt of the Company may become an obligor for the benefit of the Sponsor Affiliate Lenders (if required in terms of the Sponsor Affiliate Debt Document with such Sponsor Affiliate Lenders). No Sponsor Affiliate Lender shall, at any time prior to the expiry of the Sponsor Subordination Period, unless requested to do so by the Security Trustee take any Enforcement Action (other than conversion of its Sponsor Affiliate Debt into ordinary shares of the Company or proof of its claims in insolvency proceedings of the Company).
(f) No SponsorAffiliate Lender shall exercise any right of set-off against the Company in respect of the Sponsor Affiliate Debt (or any part thereof) without the prior written consent of the Security Trustee.
182 (g) Each Sponsor Affiliate Lender shall (as long as it is an Affiliate of a Sponsor or a Sponsor), for the purposes of any creditors’ meetings or exercise of any creditors’ rights or for any other purposes, in insolvency proceedings of the Company, be treated as if it were a “related party” of the Company under and for the purposes of the Insolvency and Bankruptcy Code, 2016 of India and shall not have any right of representation, participation or voting in the meeting of a committee of creditors constituted under the Insolvency and Bankruptcy Code, 2016 of India.
(h) Until the expiry of the Subordination Period, upon the occurrence of an Insolvency Event in respect of the Company:
(i) Only such proof of claims shall be made in relation to the Sponsor Affiliate Debt as are permitted under Indian insolvency laws, including the Insolvency and Bankruptcy Code, 2016, read with the provisions of this Agreement and the Applicable Law; and
(ii) the Sponsor Affiliate Lenders irrevocably authorize the Security Trustee to take any action as required on behalf of the Primary Creditor Group.
183 TERMSANDCONDITIONSOFTHENOTES
The following, subject to modification and other than the words in italics, is the text of the terms and conditions of the Notes which will appear on the reverse of each of the definitive certificates evidencing the Notes:
Any redemption prior to the Maturity Date (as defined below) under the terms and conditions of the Notes may require the Company to obtain the prior approval of the Reserve Bank of India or the designated authorized dealer Category 1 bank, as the case may be, in accordance with the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 of India, the Master Direction on External Commercial Borrowings, Trade Credits and Structured Obligations dated March 26, 2019 of India and the Master Direction on Reporting under Foreign Exchange Management Act, 1999 dated January 1, 2016 of India in effect at the time (collectively, the “ECB Guidelines”), and such approval may not be forthcoming.
The issue of the US$300,000,000 3.00 per cent. Senior Secured Notes due 2031 (the “Notes”) was authorized by a resolution of the Board of Directors of Adani International Container Terminal Private Limited (the “Company”) passed on March 24, 2020 and a resolution of the shareholders of the Company passed on December 7, 2020. The Notes are constituted by a Note Trust Deed (as amended and/or supplemented from time to time, the “Note Trust Deed”) dated December 21, 2020 (the “Initial Issue Date”) between the Company and Citicorp International Limited (the “Note Trustee”, which expression shall include all persons for the time being the trustee or trustees under the Note Trust Deed) as trustee for itself and the holders of the Notes. These terms and conditions (the “Conditions”) include summaries of, and are subject to, the detailed provisions of the Note Trust Deed, which includes the form of the Notes. Copies of (i) the Note Trust Deed, (ii) the Agency Agreement (as amended and/or supplemented from time to time, the “Agency Agreement”) dated the Initial Issue Date relating to the Notes between the Company, the Note Trustee, Citibank, N.A., London Branch as principal paying agent (the “Principal Paying Agent”), as registrar (the “Registrar”) and transfer agent (the “Transfer Agent”) and the other paying agents and transfer agents named in it, (iii) the Intercreditor Deed (as amended and/or supplemented from time to time, the “Intercreditor Deed”) to be dated on or about December 21, 2020 between among others, the Note Trustee, Catalyst Trusteeship Limited (the “Security Trustee”) and certain financial institutions named therein, (iv) the Security Trustee Agreement (as amended and/or supplemented from time to time, the “Security Trustee Agreement”) to be dated on or about December 21, 2020 between, among others, the Company and the Security Trustee, (v) the Project Accounts Deed (as amended and/or supplemented from time to time, the “Project Accounts Deed”) to be dated on or about December 21, 2020, and (vi) the other relevant Primary Debt Documents relating to the Notes are available for inspection during normal business hours (being between 9:30 a.m. and 3:30 p.m., Monday to Friday (except public holidays)) at the principal place of business of the Note Trustee (being at the Initial Issue Date at 20/F, Citi Tower, One Bay East, 83 Hoi Bun Road, Kwun Tong, Kowloon, Hong Kong) and at the specified office of the Principal Paying Agent following prior written request and proof of holding satisfactory to the Note Trustee or, as the case may be, the Principal Paying Agent and subject in each case to each of the Note Trustee and the Principal Paying Agent having been provided by the Company with copies of those Primary Debt Documents to which it is not a party.
References to the “Paying Agents” shall include the Principal Paying Agent and the other paying agents named in the Agency Agreement. The Principal Paying Agent, the other Paying Agents, the Registrar and the Transfer Agent together with any other agent or agents appointed from time to time pursuant to the Agency Agreement with respect to the Notes are collectively the “Agents”). The Noteholders are entitled to the benefit of, are bound by, and are deemed to have notice of, all the provisions of the Note Trust Deed, the Security Trustee Agreement, the Intercreditor Deed, the Project Accounts Deed and the other relevant Primary Debt Documents relating to the Notes and are deemed to have notice of those provisions of the Agency Agreement applicable to them.
Capitalized terms that are not defined in these Conditions have the meanings given to them in the Note Trust Deed.
184 For the purposes of these Conditions, unless otherwise specified, “Business Day” means a day (other than a Saturday, Sunday or public holiday) on which banks and foreign exchange markets are open for business and settlement of US Dollar payments in Singapore, Mumbai, London and New York City and (if surrender of the relevant Certificate is required) the relevant place of presentation.
1. Form, Specified Denomination and Title
1.1 Form and Denomination
The Notes are issued in registered form in a minimum denomination of US$200,000 and integral multiples of US$1,000 in excess thereof (referred to as the “principal amount” of each Note). A note certificate (each, a “Certificate”) will be issued to each Noteholder in respect of its registered holding of Notes. Each Certificate will be numbered serially with an identifying number which will be recorded on the relevant Certificate and in the register of Noteholders which the Company will procure to be kept by the Registrar (the “Register”), and, save as provided in Condition 2.1, each Certificate shall represent the entire holding of Notes by the same holder.
1.2 Title
Title to the Notes passes only by registration in the Register. The registered holder of any Note will (except as ordered by a court of competent jurisdiction or as otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it, any writing on it, or the theft or loss of the Certificate issued in respect of it) (other than a duly executed transfer thereof in the form endorsed thereon), and no person will be liable for so treating the holder. The registered holder of a Note will be recognized by the Note Trustee as entitled to his Note free from any equity, set-off or counterclaim on the part of the Note Trustee against the original or any intermediate holder of such Note.
The Note Trustee may call for and shall be at liberty to accept and place full reliance on (as sufficient evidence thereof and shall not be liable to any Noteholder or any other person by reason only of either having accepted as valid or not having rejected) an original Note or for so long as the Notes are represented by one or more Global Certificates, a letter of confirmation, certificate, report or any other information purporting to be signed on behalf of DTC, Euroclear or Clearstream, Luxembourg or any other relevant clearing system to the effect that at any particular time or throughout any particular period any particular person is, was or will be shown in its records as having a particular aggregate face amount of Notes credited to his securities account.
In these Conditions, “Noteholder” and “holder” mean the person in whose name a Note is registered.
Upon issue, the Notes offered outside the United States in reliance on Regulation S of the Securities Act will be represented by a Regulation S Global Certificate registered in the name of a nominee of, and deposited with, a common depositary for Euroclear and Clearstream, Luxembourg and the Notes offered within the United States to qualified institutional buyers in compliance with the exemption from registration provided by Rule 144A of the Securities Act will be represented by a Rule 144A Global Certificate registered in the name of, and deposited with a custodian for, DTC.
The Conditions are modified by certain provisions contained in the Regulation S Global Certificates and the Rule 144A Global Certificates. See “Global Certificates” in this Offering Circular.
185 2. Transfers of Notes
2.1 Transfer
Subject to Condition 2.4 and Condition 2.5 and the provisions of theAgencyAgreement, a Note may be transferred in whole or in part (but in any event in principal amounts of at least US$200,000 and integral multiples of US$1,000 in excess thereof) by depositing the Certificate issued in respect of that Note, with the form of transfer on the back duly completed and signed, at the specified office of the Registrar or the Transfer Agent.
Transfers of interests in the Notes evidenced by the Global Certificates will be effected in accordance with the rules of the relevant clearing system through which the interest is held.
For a description of certain restrictions on transfers of interests in the Notes, see “Subscription and Sale” and “Transfer Restrictions” in this Offering Circular.
2.2 Delivery of new Certificates
Each new Certificate to be issued pursuant to Condition 2.1 shall, within seven business days of receipt by the Registrar or the Transfer Agent of the duly completed form of transfer endorsed on the relevant Certificate, be mailed by uninsured mail at the risk of the holder entitled to the new Certificate to the address specified in the form of transfer unless such holder requests otherwise and pays in advance to the Registrar or the Transfer Agent (as the case may be) the costs of such other method of delivery and/or such insurance it may specify.
Except in the limited circumstances described herein, owners of interests in the Notes will not be entitled to receive physical delivery of Certificates. Issues of Certificates upon transfer of Notes are subject to compliance by the transferor and transferee with the certification procedures described above and in the Agency Agreement.
Where some but not all Notes in respect of which a Certificate is issued are to be transferred, a new Certificate in respect of the Notes not so transferred will, within seven business days of receipt by the Registrar or the Transfer Agent of the original Certificate, be mailed by uninsured mail (at the cost of the Company) at the risk of the holder of the Notes not so transferred to the address of such holder appearing on the register of Noteholders or as specified in the form of transfer.
In this Condition 2.2, “business day” means a day, other than a Saturday, Sunday or public holiday, on which banks are open for business in the place of the specified office of the Registrar or the Transfer Agent (as the case may be).
2.3 Formalities free of charge
Registration of a transfer of Notes will be effected without charge by or on behalf of the Company or any Agent but upon payment (or the giving of such indemnity and/or security as the Company or any Agent may require) in respect of any tax or other governmental charges which may be imposed in relation to such transfer.
2.4 Closed periods
No Noteholder may require the transfer of a Note to be registered (i) during the period of 15 days ending on (and including) the due date for any payment of principal, premium (if any) or interest on that Note, (ii) during the period of 15 days prior to (and including) any date on which Notes may be called for redemption by the Company at its option pursuant to Condition 7.2 or Condition 7.4, or (iii) after any such Note has been called for redemption.
186 2.5 Regulations
All transfers of Notes and entries on the Register will be made subject to the detailed regulations concerning a transfer of Notes scheduled to the Agency Agreement. The regulations may be changed by the Company with the prior written approval of the Registrar and the Note Trustee or, by the Registrar with the prior written approval of the Note Trustee. A copy of the current regulations will be mailed (at the cost of the Company and free of charge to the Noteholder) by the Registrar to any Noteholder who requests one in writing and provides proof of holding satisfactory to the Registrar.
3. Status and Security
3.1 Status
The Notes will be direct, unconditional and unsubordinated obligations of the Company. The payment obligations of the Company in respect of the Notes shall, save for exceptions as may be provided by applicable law and subject to the covenants and undertakings set out in these Conditions, the Security Trustee Agreement and Intercreditor Deed and the Note Trust Deed, rank (i) at least equally with all other senior secured obligations of the Company, present and future, (ii) senior in respect of all other subordinated obligations of the Company, present and future and (iii) effectively senior (in respect of the value of the Security) in respect of all other unsecured obligations of the Company, present and future.
3.2 Security
3.2.1 The Notes will be secured to the extent of the Security that will be created under the Security Documents that are to be executed (i) in the case of the Security to be created and perfected under Condition 3.2.2. below, within 90 days of the Initial Issue Date (the “Initial Security Longstop Date”) and (ii) in the case of the Security to be created and perfected under Condition 3.2.3, in accordance with the timing set out in Condition 3.2.3. The Notes will rank at all times pari passu without any preference among themselves. See “Description of the Collateral and Security Documents” in this Offering Circular.
3.2.2 The following Security will be created and perfected by the Initial Security Longstop Date:
(a) a non-disposal undertaking in respect of Immoveable Property (both present and future) until the creation and perfection of Security Interest in terms of Condition 3.2.3(a) below;
(b) a non-disposal undertaking in respect of Core Assets (as defined below) and Immoveable Fixed Assets (as defined below) (both present and future) until the creation and perfection of Security Interest in terms of Condition 3.2.3(b) below;
(c) afirstranking pari passu charge by way of deed of hypothecation by the Company in favour of the Security Trustee (the “Initial Security Longstop DOH”) and a power of attorney by the Company in favour of the Security Trustee in relation to the Initial Security Longstop DOH in relation to:
(i) all tangible and intangible moveable assets including accounts, book debts, current and non-current assets, cash flows, receivables (including monies that may be received pursuant to the APSEZ Undertaking (as defined below)), commissions and revenues of whatsoever nature and whenever arising, including those arising out of operation of CT-3 and CT-3 Extension (both present and future) not forming part of Core Assets;
187 (ii) the Project Accounts under the Project Accounts Deed (other than the Excluded Accounts) and amounts lying to the credit of such Project Accounts (both present and future);
(iii) the rights, title, interests and benefits of the Company under the APSEZ Undertaking;
(iv) the rights, title, interests and benefits of the Company under the Infrastructure Services and Port Facilities Agreements and Rail Services Agreement, including the right to use intangible assets forming part of common infrastructure or facilities granted to the Company by APSEZ;
(v) the rights, title, interests and benefits of the Company under the Sub-Concession Agreement and other related Project Documents (duly acknowledged and consented to by the relevant counterparties, if applicable), in each case, as amended, varied or supplemented from time to time;
(vi) all performance bonds, contractors’ guarantees and any letter of credit provided under the Project Documents;
(vii) the rights, title, interests and benefits of the Company under licenses, permits, approvals, consents and the authorizations obtained by the Company, to the extent they are capable of assignment under the respective terms thereof; and
(viii) the rights, title, interests and benefits of the Company under the insurance policies in relation to its assets (along with endorsement by a loss payee clause in favor of the Security Trustee).
In addition, the shareholders of the Company shall execute a non-disposal undertaking on or prior to the Initial Security Longstop Date in respect of 100% of the issued and paid-up equity and preference share capital of the Company by its shareholders in favor of the Security Trustee (“AICTPL Shares NDU”), which shall contain a specific carve-out allowing a shareholder to freely transfer the shares held by it to any entity for so long as such transfer does not result in a Change of Control (such transfer, a “Permitted Shareholder Transfer”).
The process set out below shall be required to implement a Permitted Shareholder Transfer:
(a) the relevant shareholder shall inform the Security Trustee regarding a Permitted Shareholder Transfer;
(b) the transferee shareholder shall accede to and/or enter into a similar non disposal undertaking (in form and substance identical to that executed by the transferor shareholder) and deliver to the Security Trustee a signed Form 39 (or the relevant depository filing equivalent) (“Permitted Shareholder Transfer Security Documentation”); and
188 (c) each of the legal counsel to the Company and the transferee shareholder shall deliver to the Security Trustee a legal opinion covering the following (“Permitted Shareholder Transfer Opinions”):
(i) the contemplated transfer does not result in a Change of Control; and
(ii) the due authorisation, validity and enforceability of the Permitted Shareholder Transfer Security Documentation entered into by such transferee shareholder.
Following receipt of the Permitted Shareholder Transfer Security Documentation and the Permitted Shareholder Transfer Opinions, the Security Trustee shall permit such Permitted Shareholder Transfer without requiring any approval and/or confirmation from the Note Trustee or the holders.
The Security Trustee shall be designated as loss payee under all applicable insurance policies.
A failure to comply with these requirements will be an Event of Default pursuant to Condition 10.1(p), unless such failure is due to a delay caused by a Government Authority in (i) the release of the security granted under the Existing Debt Documents following the repayment of indebtedness under such Existing Debt Documents and/or (ii) the filing/registration of such security in favor of the Security Trustee with the Government Authorities following its release (to the extent such failure is not caused by or attributable to the Company). If a delay occurs for one of these reasons, the Company has undertaken in the Trust Deed to use all reasonable means to create and perfect the Security as soon as possible.
3.2.3 The Company will use its best efforts to procure that GMB will execute the Sub-Concession Agreement as a confirming party. The Security described in this Condition 3.2.3 shall be created and perfected by the Company within a period of 180 days from the date on which the Company procures the relevant consents or approvals, including from the regulatory authorities in India, and completes the relevant regulatory actions for that purpose (the “Second Security Longstop Date”):
(a) a first ranking pari passu mortgage over Immoveable Property (both present and future) by deposit of title deeds by Company in favour of the Security Trustee;
(b) a first ranking pari passu charge, by way of deed of hypothecation by the Company in favour of the Security Trustee, over the Core Assets and Immoveable Fixed Assets (both present and future) (the “Core Assets DOH”) and a power of attorney by Company in favour of the Security Trustee in relation to the Core Assets DOH.
4. Undertakings
The Company undertakes that:
4.1 Accounts
The Company shall provide to the Security Trustee, the Note Trustee and each Rating Agency:
(a) within 120 days after the close of each Financial Year, copies of the audited statutory financial statements of the Company in respect of that Financial Year with any statements, reports (including any directors’ and auditors’ reports) and notes attached to or intended to be read with any of them; and
189 (b) within 90 days after the close of the first six-month period of each Financial Year, copies of the Company’s unaudited but reviewed statutory financial statements in respect of that period.
The Note Trustee shall not be under any duty to monitor (and will not be responsible for any loss arising from not monitoring) whether the Company has complied with the provisions of this Condition 4.1, and unless it has received express notice in writing from the Company or a Noteholder in accordance with the Note Trust Deed to the contrary, the Note Trustee may assume without enquiry that the Company has complied with the provisions mentioned above.
4.2 Form of Accounts
The Company must ensure that each set of audited statutory financial statements provided under Condition 4.1 gives a true and fair view of its financial condition as at the date to which those accounts have been drawn up and of the results of its operations for such period.
4.3 Compliance Certificate
Together with each set of audited statutory financial statements provided under Condition 4.1, the Company will provide a Compliance Certificate substantially in the form set out in Schedule 5 to the Note Trust Deed to the Security Trustee and the Noteholders (with a copy to the Note Trustee) which sets out:
(a) the aggregate amount that the Company is entitled to transfer to its Distribution Account in accordance with the Operating Account Waterfall and the Distribution Conditions as at the relevant Calculation Date;
(b) the Debt Service Cover Ratio for the Calculation Period ending on the relevant Calculation Date and calculations thereof;
(c) the Project Life Cover Ratio for the Calculation Period ending on the relevant Calculation Date and calculations thereof;
(d) the cash balance in the Company’s Project Accounts as at the Calculation Date;
(e) the amount of any Capital Expenditure undertaken or forecast to be undertaken by the Company in the six-month period commencing on the relevant Calculation Date;
(f) the Company’s EBITDA (on an aggregate basis) for the Calculation Period ending on the relevant Calculation Date;
(g) any refinancing plan (if required) during the six-month period commencing on the relevant Calculation Date; and
(h) a confirmation by the Company that, to the best of its knowledge having made due enquiry, no Default subsists or, if a Default subsists, details of the Default and providing details as to the corrective actions that the Company has taken or proposes to take in respect of it.
The Note Trustee and the Agents shall not be obliged to monitor compliance with this Condition 4.3 or to track receipt by the Security Trustee and/or the Noteholders and/or the Note Trustee of any Compliance Certificate as contemplated in this Condition 4.3 or to check or verify the information or calculations contained in or annexed to any such Compliance Certificate as is referred to in this Condition 4.3 or to ensure that the information in any such Compliance Certificate or other document meets the requirements of or covers each of the line items specified in Condition 4.3, or to review or check any information contained in any set of audited statutory financial statements of the Company attached to or delivered with any
190 Compliance Certificate as is referred to in this Condition 4.3, and each of them may rely conclusively and without any investigation on any such Compliance Certificate and any attachment thereto or document delivered with such Compliance Certificate and on each set of audited statutory financial statements of the Company and each other document as aforesaid, as the case may be, and none of them shall be responsible or liable to the Noteholders, the Company or any other person for not doing so or for so relying.
4.4 Notification of Default
The Company must immediately:
(a) notify the Security Trustee and the Note Trustee in writing if it becomes aware of the occurrence of any Default and the steps, if any, it proposes to take to remedy it; and
(b) within 14 days of any request by the Note Trustee, provide a certificate signed by an Authorized Officer of the Company confirming that, to the best of its knowledge having made due enquiry, no Default subsists or, if a Default subsists, setting out the nature of the Default and providing details as to the corrective actions that the Company has taken or proposes to take in respect of it.
4.5 Credit rating
The Company shall notify the Security Trustee and the Note Trustee in writing if any international credit rating in respect of the Notes is downgraded by any Rating Agency promptly after becoming aware of such downgrade.
4.6 Authorized Officer
The Company shall notify the Security Trustee, the Note Trustee and each Agent in writing of any change in Authorized Officers of the Company, such notification to be signed by an Authorized Officer of the Company and accompanied by specimen signatures of each new Authorized Officer.
4.7 General information
The Company will provide such other information in their possession as the Security Trustee or the Note Trustee may require in order to perform its duties under the relevant Primary Debt Document to which it is a party.
4.8 Corporate existence
The Company must do all things necessary to maintain its corporate existence and its registration in the place of its registration as at the Initial Issue Date.
4.9 Compliance with laws
The Company must comply in all material respects with all laws applicable to it to which it is subject.
4.10 Maintenance of assets
The Company must maintain in good working order and condition all assets necessary for the conduct of the Permitted Businesses (ordinary wear and tear excepted), except to the extent that such failure to do so would not have a Material Adverse Effect. Additionally, the Company must use commercially reasonable endeavors to ensure that its assets are operated and maintained in good operational order and in a prudent manner.
191 4.11 Permitted Businesses:
(a) The Company will not engage in any business other than the Permitted Businesses.
(b) The Company shall not incorporate or acquire any Subsidiary, or contribute equity to any other entity.
4.12 Authorizations
The Company will obtain, maintain and comply in all material respects with all Authorizations necessary to:
(a) enable it to enter into the Primary Debt Documents;
(b) fully comply with its obligations under the Primary Debt Documents and allow them to be enforced;
(c) fully comply with its obligations under the Material Documents and allow them to be enforced, unless failure to do so would not have a Material Adverse Effect;
(d) carry on the Permitted Businesses (including under any Environmental Law), unless failure to do so would not have a Material Adverse Effect; and
(e) fully comply with its obligations under the Companies Act, 2013 in order to incur any Permitted Finance Debt.
4.13 Insurance
The Company will:
(a) insure and keep insured its assets with reputable insurers for providing insurance of the relevant type against any risks and liabilities to which the Company is exposed, to the extent that insurance is prudent having regard to the risks and liabilities applicable to the Permitted Businesses and Good Industry Practice in India for such assets for companies carrying on the same or substantially similar business in India to the Permitted Businesses and has not otherwise been taken out by any other party;
(b) ensure that the Security Trustee is designated as loss payee under all applicable insurance policies and provide certificates of currency to the Security Trustee; and
(c) ensure that, within the time period provided for in the relevant Primary Debt Document relating to the Notes, the relevant insurer provides the Security Trustee with an acknowledgment that any Insurance proceeds to be paid or payable by such insurer will be paid as follows: (i) any Insurance proceeds in respect of any public liability policies will be paid to the relevant third parties or to the insured entity as indemnity for amounts paid by it to third parties and (ii) all other Insurance proceeds will be paid into the Operating Account (or, in the Company’s discretion, into the Capital Expenditure Reserve Account).
4.14 Pari passu
The Company must ensure that at all times its payment obligations under the Primary Debt Documents relating to the Notes rank at least pari passu with the claims of all other unsubordinated creditors of the Company except for those creditors whose claims are mandatorily preferred by laws of general application to companies.
192 4.15 Maintenance of rating
The Company shall use its best endeavors to maintain a credit rating from at least two Rating Agencies in respect of the Notes and pay all fees due and payable to such Rating Agencies.
4.16 Hedging
The Company shall not enter into Hedging Agreements except as contemplated by the Hedging Policy.
4.17 Taxes
The Company must:
(a) file all material Tax returns required to be filed by it in any relevant jurisdiction in which the Company is resident for Tax purposes; and
(b) pay all material Taxes imposed on it or its property, assets or income to the extent the same have become due and payable, provided that the Company need not pay any such Tax if:
(i) the Tax (including the amount, applicability or validity thereof) is being contested in good faith; and
(ii) where no amount is payable until the dispute is resolved and the Company has sufficient financial resources to pay promptly the contested amount of the Tax if a legally binding determination is made that payment is required.
4.18 Access
The Company must, to the extent it is able to do so under existing contractual arrangements and applicable law, permit the Security Trustee, the Note Trustee, any Receiver or any Delegate and any of their respective accountants or other professional advisers, free access, at all reasonable times and on reasonable notice, to the premises, assets, books, accounts and records of the Company, provided that the Security Trustee, the Note Trustee, such Receiver or Delegate and their respective accountants and professional advisers comply at all times with all applicable laws, rules and regulations governing such access and that compliance with any such rules, regulations and policies (and any consequential restriction on the access of the Security Trustee, the Note Trustee, any Receiver or any Delegate and their respective accountants or professional advisers) will not be deemed to be a failure on the part of the Company to comply with this Condition 4.18.
4.19 Subordinated Creditor key terms
The Company shall ensure the following:
(a) each Subordinated Creditor (including a Sponsor Affiliate Lender) shall be bound by the Intercreditor Deed;
(b) prior to the expiry of the Sponsor Subordination Period, payment due to each Subordinated Creditor shall be permitted only if made in accordance with Condition 4.31 or permitted under the Intercreditor Deed;
(c) no Sponsor Affiliate Lender shall be entitled to exercise any enforcement or acceleration actions during the Sponsor Subordination Period other than conversion of its claim into
193 ordinary equity of the Company under any of the Subordinated Documents or in accordance with clause 1(f) to Schedule 5 to the Intercreditor Deed;
(d) where the relevant Subordinated Creditor is a Sponsor Affiliate Lender or an Affiliate of the Company, payment to such Subordinated Creditor will be payable only from amounts standing to the credit of the Distribution Account and/or Excluded Payments to the extent permitted under the Project Accounts Deed; and
(e) where the relevant Subordinated Creditor is a Sponsor Affiliate Lender or an Affiliate of the Company, the Company shall be able to make dividend payments or other distributions to its shareholders while not paying any distribution or principal in respect of any Subordinated Debt.
4.20 Further assurances
The Company must promptly do all such acts or execute all such documents, and in such form, as the Security Trustee and/or the Note Trustee may require:
(a) to give effect to each Primary Debt Document relating to the Notes;
(b) to perfect, protect or maintain any Security Interest, right, power, authority, discretion, remedy or privilege afforded or created, or intended to be afforded or created, by any Primary Debt Document relating to the Notes;
(c) to invoke any legal or regulatory mechanism for collecting unpaid overdue receivables, as required to maintain the Company’s credit standing;
(d) for the exercise of any rights, powers and remedies of a Primary Creditor provided by or pursuant to the Primary Debt Documents or by law; or
(e) to facilitate the realization of the assets which are, or are intended to be, the subject of any Security Document.
This may include any of the following, in each case to the extent required by the Security Trustee and/or the Note Trustee for one of the purposes described above:
(f) doing anything to make, procure or obtain any Authorization (including registration of any Primary Debt Document relating to the Notes);
(g) creating, procuring or executing any document, including any notice, consent or agreement, or legal or statutory mortgage or transfer; or
(h) delivering documents or evidence of title and executed blank transfers, or otherwise giving possession or control with respect to any Primary Debt Document relating to the Notes.
4.21 Use of Proceeds
The Company shall not use the proceeds from the sale of the Notes issued and sold on the Initial Issue Date, in any amount, for any purpose other than as specified under “Use of Proceeds” in the Offering Circular.
194 4.22 Negative pledge
The Company shall not, directly or indirectly, create or attempt to create or permit to subsist any Security Interest upon any Security, any of its immoveable assets or its equity shares (other than a Permitted Security Interest).
4.23 No disposals
The Company shall not sell, transfer or otherwise dispose of any asset other than in connection with a Permitted Disposal.
4.24 No mergers
The Company shall not enter into any amalgamation, demerger, merger or reconstruction (a “Merger”) other than:
(a) with the prior written consent of the Note Trustee, acting on the instructions of the Noteholders by Extraordinary Resolution; or
(b) any Merger relating to any assets which have commenced commercial operations where the Company remains the surviving entity.
4.25 No Distributions
After the Initial Issue Date, the Company shall not pay or make any Distribution save for a Permitted Distribution, provided that, notwithstanding any other provision in these Conditions or the Primary Debt Documents relating to the Notes, no restriction on Distributions in these Conditions and the Primary Debt Documents relating to the Notes shall apply if, at the date of the transfer of the relevant amount into the Distribution Account, the payment of such Distribution would have complied with this provision.
4.26 Arm’s length dealings
The Company will not enter into any transaction with any person other than:
(a) transactions under the Primary Debt Documents or that the Company is required to enter into under the terms of a Primary Debt Document;
(b) in connection with any Permitted Disposal, Permitted Security Interest, Permitted Financial Accommodation or Permitted Finance Debt;
(c) transactions with third parties (including any joint venture, any shareholder or partner in a joint venture) or (subject to paragraph (g) below of this Condition) Affiliates in the ordinary course of business;
(d) (subject to paragraph (g) below of this Condition in relation to any Affiliate Transaction) in the nature of any Permitted Businesses or any other transaction as permitted under these Conditions or any Primary Debt Document;
(e) acquisitions of all or any part of the business (relating to Specified Assets) or Specified Assets of any entity by the Company;
(f) for the purposes of any Distribution in accordance with the terms of these Conditions;
195 (g) transactions with Sponsor Affiliate Lenders, to make payment to, or enter into, renew or extend any transaction or arrangement with any Sponsor Affiliate Lender (each, an “Affiliate Transaction”) provided that such Affiliate Transaction:
(i) is in the ordinary course of business and on an arm’s length basis;
(ii) is in the nature of Permitted Businesses and on an arm’s length basis; or
(iii) such Affiliate Transaction is otherwise permitted under these Conditions and any other Primary Debt Document; or
(h) any Hedge Termination Payment made by the Company to a Hedge Counterparty pursuant to any Hedging Agreement following the repayment of any Senior Secured Debt which is the subject of the relevant Hedging Agreement, by applying the proceeds of the Initial Senior Notes, or any refinancing, transfer or novation of any Existing Indebtedness within 90 days after the Initial Issue Date (“Initial Termination Payment”).
4.27 Constitutive Documents
The Company shall not amend or vary its constitutive documents in a way which would be materially prejudicial to any Primary Creditor.
4.28 Incurrence of Additional Debt
The Company shall not incur any Finance Debt, save for Permitted Finance Debt, unless the following conditions are satisfied at the Transaction Date:
(a) if such Finance Debt constitutes Additional Senior Debt:
(i) the Senior Creditor (or a Representative of the Senior Creditor Group) in respect of such Additional Senior Debt accedes to the Intercreditor Deed at the time of incurring such Additional Senior Debt and shall have the benefit of the Security;
(ii) the Project Life Cover Ratio shall not be less than 1.95:1:00; and
(iii) to the extent any Notes remain outstanding at the time of Incurring such Additional Senior Debt, confirmation by two Rating Agencies that, following the Incurrence of such Additional Senior Debt, the credit rating of the Notes will not decrease below the credit rating of the Notes immediately prior to such Incurrence of Additional Senior Debt;
(b) if such Finance Debt constitutes Additional Subordinated Debt (other than Sponsor Affiliate Debt):
(i) the Subordinated Creditor (or a Representative of the Subordinated Creditors) in respect of such Additional Subordinated Debt accedes to the Intercreditor Deed at the time of incurring such Additional Subordinated Debt;
(ii) to the extent any Notes remain outstanding at the time of incurring such Additional Subordinated Debt, confirmation by two Rating Agencies that, following the Incurrence of such Additional Subordinated Debt, the credit rating of the Notes will not decrease from the credit rating of the Notes immediately prior to such Incurrence of Additional Subordinated Debt; and
196 (c) if such Finance Debt constitutes Additional Sponsor Affiliate Debt, the Sponsor Affiliate Lender (or a Representative of the Sponsor Affiliate Lender) in respect of such Additional Sponsor Affiliate Debt accedes to the Intercreditor Deed.
(d) if the Company increases the notional principal amounts under any existing Senior Secured Hedging Agreement or enter into Hedging Agreements with respect to interest rate or currency exposure under a Senior Secured Document:
(i) the relevant Hedging Agreement is transacted under an ISDA Master Agreement; and
(ii) the relevant Hedge Counterparty with respect to such Additional Senior Secured Hedging Agreement or Hedging Agreement accedes to the Intercreditor Deed.
(e) if the Company increases the notional principal amounts under any existing Senior Unsecured Hedging Agreement or enter into Hedging Agreements with respect to interest rate or currency exposure under a Senior Unsecured Document:
(i) the relevant Hedging Agreement is transacted under an ISDA Master Agreement; and
(ii) the relevant Hedge Counterparty with respect to such Additional Senior Unsecured Hedging Agreement or Hedging Agreement accedes to the Intercreditor Deed.
4.29 Debt Service Cover Ratio
The Company shall, on each Calculation Date, commencing on March 31, 2021, ensure that the Debt Service Cover Ratio is not less than 1.10:1.0 for the Calculation Period ending on the relevant Calculation Date.
4.30 Senior Debt Redemption Account
(a) If a Sweep Event (as defined below) occurs, then on each Calculation Date and only to the extent that funds are available for that purpose in accordance with the Operating Account Waterfall, any amounts that would otherwise be available for Distributions shall be transferred to the Company’s specified account (the “Senior Debt Redemption Account”) to the extent required to ensure that the Project Life Cover Ratio is not less than 1.95:1.00.
(b) The balance in the Senior Debt Redemption Account shall be released and immediately transferred to the Operating Account in the event the Project Life Cover Ratio is equal to or exceeds 1.95:1.00 for two subsequent consecutive Calculation Dates. Any funds standing to the credit of the Senior Debt Redemption Account in excess of the amount required to maintain the Project Life Cover Ratio of 1.95:1.00 will be released to the Operating Account in accordance with Condition 4.31 and the Project Accounts Deed.
(c) ASweep Event shall occur if the Project Life Cover Ratio on the most recent Calculation Date is less than 1.95:1.00 (a “Sweep Event”), and the Sweep Event shall subsist until the Project Life Cover Ratio on two subsequent consecutive Calculation Dates is greater than or equal to 1.95:1.00.
(d) Following the occurrence of a Sweep Event, the Company may apply any amount standing to the credit of the Senior Debt Redemption Account which is in excess of the amount then standing to the credit of the Senior Debt Restricted Amortization Account
197 towards repayment of Senior Debt, subject to compliance with applicable regulatory requirements, including in or towards redemption of the Notes pursuant to Condition 7.4.2.
4.31 Operating Account and Operating Account Waterfall
4.31.1 Establishment
(a) The Company must, in accordance with the Project Accounts Deed, establish and maintain in its name with Barclays Bank PLC (the “Account Bank”), an Operating Account in the form of escrow accounts for the purposes of implementing the Operating Account Waterfall: provided that the Company may establish and/or maintain the following accounts with a bank other than the Account Bank which is a Scheduled Commercial Bank (together, the “Non PAD Accounts”):
(i) Non PAD Accounts – Rail Freight;
(ii) Non PAD Accounts – H2H Payment;
(iii) Non PAD Accounts – Bill Discounting Exchange;
(iv) Non PAD Accounts – Regulatory Payment;
(v) Non PAD Accounts – Salary Payment;
(vi) Non PAD Accounts – Statutory Payment Accounts;
(vii) current accounts opened with lenders providing working capital or cash credit facilities to the Company; and
(viii) any current accounts for the receipt and utilization of any of the Excluded Payments.
(b) The Company must maintain its Operating Account or any replacement therefor at all times in accordance with the Project Accounts Deed. All the accounts to be maintained or established pursuant to the Project Accounts Deed must become operational within a period of 60 Business Days from the Initial Issue Date.
(c) Any existing accounts of the Company into which any Operating Revenue is deposited shall be closed within a period of 60 Business Days from the Initial Issue Date, in accordance with the Project Accounts Deed.
4.31.2 Funding
Following the repayment in full of the indebtedness under the Existing Debt Documents and the partial repayment of Sponsor Affiliate Loan(s), the Company will ensure that (a) the net amounts standing to the credit of its existing bank accounts after repayment in full of indebtedness under the Existing Debt Documents and the partial repayment of the Sponsor Affiliate Loan(s) and (b) all Operating Revenue received by it or on its behalf (excluding the amount of any Excluded Payments) will be deposited directly into its Operating Account promptly following receipt. Notwithstanding the foregoing, the Company shall be permitted to keep open and operate: (a) any of the Non PAD Accounts and (b) such other accounts as may be required or necessary to manage the Excluded Payments.
198 4.31.3 Withdrawals from an Operating Account
Prior to an Enforcement Action, the Company may only make a withdrawal or transfer from its Operating Account to pay the following amounts as and when those amounts are due and payable (including, in each case, an amount on account of any Tax payable by it in respect of the relevant payment) and in the following order of priority:
(a) first, towards:
(A) the payment of Taxes; and
(B) any amount required to be maintained under applicable law towards any cash reserve requirement or liquidity reserve requirement applying to the Issuer which shall be deposited in the Statutory Reserve Account;
(b) second, towards Operating Expenses, Capital Expenditure and statutory dues (which, for the avoidance of doubt, may be funded from a Non-PAD Account – Statutory Payments Account), including:
(A) transfers towards the Non PAD Accounts – Rail Freight for onward payment of rail freight charges;
(B) transfers towards the Non PAD Accounts – H2H Payments for onward payments to vendors under H2H payments systems;
(C) transfers towards the Non PAD Accounts – Bill Discounting Exchange for onward payment of bills discounting facilitated through exchanges;
(D) transfers towards the Non PAD Accounts – Regulatory Payments for onward payment of regulatory payments; and
(E) transfers towards the Non PAD Accounts – Salary Payment for onward payment of salaries;
(c) third, pro rata and pari passu any Costs and liabilities Incurred by or due and payable to the Security Trustee, the Note Trustee, the Account Bank, each Representative and each Agent under the Senior Documents;
(d) fourth, on a pro-rata and pari passu basis:
(A) payment of accrued interest (including default interest), Costs due and payable to any Senior Creditor under any Senior Document (other than any Secured Hedging Agreements and any other Hedging Agreements); and
(B) scheduled payments under Senior Secured Hedging Agreements and Senior Unsecured Hedging Agreements (other than Hedge Termination Payments or final payments on cross currency swaps and any Defaulting Hedge Amounts due and payable under Senior Secured Hedging Agreements and Senior Unsecured Hedging Agreements) and any accrued interest (with default interest, if any) on any Hedge Termination Payments under Senior Secured Hedging Agreements and Senior Unsecured Hedging Agreements;
(e) fifth, pro rata and pari passu towards
(A) principal outstanding (including break costs, make whole and other redemption amounts) which are due and payable under the Senior Documents (other than any Secured Hedging Agreements and any other Hedging Agreement) and
(B) Hedge Termination Payments and final payments on cross currency swaps under the Senior Secured Hedging Agreements and Senior Unsecured Hedging Agreements (other than any Defaulting Hedge Amounts);
199 (f) sixth, pro rata and pari passu towards any other amounts (excluding the paragraphs (a) and (e) above, as applicable) due but unpaid to the Senior Creditors under the Senior Documents;
(g) seventh, transfer of the relevant amounts to its Senior Debt Service Reserve Account to the extent necessary to ensure that it is funded to the Required Debt Service Account Balance in relation to the relevant Senior Debt. In the event that the balance amount in the Senior Debt Service Reserve Account exceeds the Required Senior Debt Service Account Balance, the excess cash balance shall be released in accordance with the remaining order of priority set out in the Operating Account Waterfall in this Condition 4.31.3;
(h) eighth, transfer of the relevant amounts to its Capital Expenditure Reserve Account to the extent necessary to ensure such account is funded to the Required Capex Reserve Account Balance;
(i) ninth, following the occurrence of a Sweep Event, transfer of the relevant amounts to the Senior Debt Redemption Account in accordance with Condition 4.30;
(j) tenth, starting from the date falling three years prior to the Maturity Date, payment into the Senior Debt Restricted Amortization Account up to the outstanding debt service until the Maturity Date (including, for the avoidance of doubt both principal and interest). In the event that the balance amount in the Senior Debt Restricted Amortization Account exceeds the outstanding debt service until the Maturity Date, the excess cash balance shall be released in accordance with the remaining order of priority set out in the Operating Account Waterfall in this Condition 4.31.3;
(k) eleventh, transfer of the relevant amounts to its Senior Debt Restricted Reserve Account in accordance with Condition 4.34;
(l) twelfth, if no Payment Blockage then subsists, pro rata and pari passu towards:
(A) payment of accrued but unpaid interest, fees and expenses that are payable under and in accordance with the Subordinated Debt Documents (other than where the relevant Subordinated Creditor is an Affiliate of the Company or a Sponsor Affiliate Lender) to the extent permitted under the Intercreditor Deed;
(B) scheduled payments (other than Hedge Termination Payments or final payments on cross-currency swaps or any Defaulting Hedge Amounts under the Subordinated Hedging Agreements) and any accrued interest (with default interest, if any) on any Hedge Termination Payments under Subordinated Hedging Agreements; and
(C) transfers to the Subordinated Debt Service ReserveAccounts pro rata to the extent necessary to ensure that the relevant Subordinated Debt Service Reserve Account is funded to Required Subordinated Debt Service Reserve Account Balance in relation to the relevant Subordinated Debt Service Reserve Account;
(m) thirteenth, towards Defaulting Hedge Amounts due and payable under any Hedging Agreement;
200 (n) fourteenth, if no Payment Blockage then subsists, pro rata and pari passu towards
(A) principal outstanding which is due and payable under and in accordance with the Subordinated Documents (other than where the relevant Subordinated Creditor is an Affiliate of the Company or a Sponsor Affiliate Lender) to the extent permitted under the Intercreditor Deed; and
(B) Hedge Termination Payments and final payments on cross-currency swaps under the Subordinated Hedging Agreements;
(o) fifteenth, if no Payment Blockage then subsists, payments of any Defaulting Hedge Amounts due and payable under the Subordinated Hedging Agreements;
(p) sixteenth, transfer to the Surplus Holdings Account to the extent necessary for voluntarily prepaying or purchasing all or any part of any Senior Debt as determined by the Company; and
(q) last, transfers of the amount of any Permitted Distribution to the Distribution Account and otherwise in accordance with the Operating Account Waterfall.
Any surplus monies available to the Company and standing to the credit of the Operating Account after applying the Operating Account Waterfall and not deposited in the Distribution Account shall be retained in the Operating Account.
Subject to Condition 4.30, all payments made towards satisfaction of paragraphs (d), (e) and (f) of this Condition 4.31 may be paid with any amount standing to the credit of the Senior Debt Redemption Account (if any) in excess of the amount required to maintain the Project Life Cover Ratio of 1.95:1.00.
4.32 Senior Debt Sizing
The Company shall ensure that the aggregate outstanding amount of Senior Debt does not, on the Initial Issue Date, exceed (x) the net present value of the EBITDA Forecast until the termination date of the Concession Agreement plus any residual value of assets of the Company (including (i) cash or cash equivalents, other than cash standing to the credit of the Senior Debt Restricted Amortization Account, the Senior Debt Service Reserve Account, the Senior Debt Restricted Reserve Account and the Senior Debt Redemption Account), (ii) the Terminal Value and (iii) any other indemnity or other payment due under the Concession Agreement) divided by (y) 1.95.
4.33 Senior Debt Restricted Amortization Account
The Company will, starting from the date falling three years prior to the Maturity Date, transfer relevant amounts from the Operating Account to the Senior Debt Restricted Amortization Account in accordance with the Operating Account Waterfall.
4.34 Restrictions
(a) If on the most recent Calculation Date, the Debt Service Cover Ratio is less than 1.90:1.00 but greater than or equal to 1.70:1.00, and no Sweep Event has occurred and is continuing, the Company shall not make any payments into the Distribution Account in an amount greater than 75 per cent. of the funds otherwise available to pay into such account pursuant to Condition 4.31 and the Project Accounts Deed as at such Calculation Date, and any amounts that would otherwise be available for such payment shall be
201 transferred to the Senior Debt Restricted Reserve Account, until such time as the Debt Service Cover Ratio is greater than or equal to 1.90:1.00 for two consecutive Calculation Periods.
(b) If on the most recent Calculation Date, the Debt Service Cover Ratio is less than 1.70:1.00 but greater than or equal to 1.50:1.00, and no Sweep Event has occurred and is continuing, the Company shall not make any payments into the Distribution Account in an amount greater than 50 per cent. of the funds otherwise available to pay into such account pursuant to Condition 4.31 and the Project Accounts Deed as at such Calculation Date, and any amounts that would otherwise be available for such payment shall be transferred to the Senior Debt Restricted Reserve Account, until such time as the Debt Service Cover Ratio is greater than or equal to 1.70:1.00 for two consecutive Calculation Periods.
(c) If on the most recent Calculation Date, the Debt Service Cover Ratio is less than 1.50:1.00, and no Sweep Event has occurred and is continuing, the Company shall not make any payments into the Distribution Account in respect of the funds otherwise available to pay into such account pursuant to Condition 4.31 and the Project Accounts Deed as at such Calculation Date, and any amounts that would otherwise be available for such payment shall be transferred to the Company’s Senior Debt Restricted Reserve Account, until such time as the Debt Service Cover Ratio is greater than or equal to 1.50:1.00 for two consecutive Calculation Periods,
((a), (b) and (c) collectively, the “DSCR Condition”).
(d) Any amount standing to the credit of the Senior Debt Restricted Reserve Account and which is released in accordance with the Distribution lockup provisions set out in this Condition 4.34, shall be transferred to the Distribution Account.
(e) Any Permitted Distribution may be made by the Company (i) declaring, making or paying any dividends or other distributions on or in respect of its share capital, (ii) making any payments in respect of Sponsor Affiliate Debt, (ii) making any upstream loans or other payments to its affiliates or (iv) redeeming, repurchasing or otherwise repaying any of its share capital.
4.35 Required Capex Reserve Account Balance
The Company shall, on each Calculation Date, ensure that the Capex Reserve Account Balance is at least equal to the Required Capex Reserve Account Balance.
4.36 Required Debt Service Reserve Accounts
Senior Debt Service Reserve Account
The Company shall ensure that, the amounts in the Operating Account are utilized in accordance with the Operating Account Waterfall in order to maintain the Required Senior Debt Service Reserve Account Balance and shall, on each Calculation Date, ensure that Senior Debt Service Reserve Account Balance is at least equal to the Required Senior Debt Service Reserve Account Balance.
Subordinated Debt Service Reserve Account
The Company shall ensure that, subject to the absence of Payment Blockages and only to the extent that funds are available for that purpose in accordance with the Operating Account Waterfall, the amounts in the Operating Account are utilized in accordance with the Operating
202 Account Waterfall in order to maintain the Required Subordinated Debt Service Reserve Account Balance and shall, on each Calculation Date, ensure that Subordinated Debt Service Reserve Account Balance is at least equal to the Required Subordinated Debt Service Reserve Account Balance.
4.37 Trustee monitoring
Without prejudice to the other provisions in these Conditions, neither the Note Trustee nor any Agent shall be under any duty to monitor (and none of them will be responsible or liable to Noteholders, the Company or any other person for any loss arising from not monitoring) whether the Company has complied with the provisions of this Condition 4, and unless it has received express notice in writing from the Company in accordance with the Note Trust Deed or the Agency Agreement (as applicable) to the contrary, the Note Trustee and each Agent may assume that the Company has complied fully with all the provisions of this Condition 4.
4.38 Hedging
(a) The Company may enter into HedgingAgreements to manage risk inherent in its business or funding, but the Company may not enter into a Hedging Agreement for the purpose of speculation.
(b) Each Senior Secured Hedge Counterparty shall have a minimum rating equivalent to the Notes, other than such Senior Secured Hedge Counterparties which are Scheduled Commercial Banks.
(c) No amendment, waiver, modification or termination (in whole or part) of this Condition 4.38 that is required to meet the requirements of applicable law or to satisfy the criteria of a Rating Agency for the Notes from time to time will require the consent of any Person other than the Company. If the Company is required to make a change to the Hedging Policy in order to comply with the requirements of any applicable law or the requirements of any Rating Agency, the Security Trustee will be required to execute such documents as the Company confirms to it in writing are necessary to give effect to the change to the Hedging Policy.
(d) The “Hedge Period” means, in relation to any Senior Debt or Subordinated Debt, the period commencing on the Issue Date relating to that Senior Debt or Subordinated Debt falling on or after the date of this Deed (or, if so determined by the Company, a date prior to or after the Issue Date of the Senior Debt or Subordinated Debt in relation to which it enters into a Hedging Agreement) and ending on the final scheduled maturity date of that Senior Debt or Subordinated Debt or such earlier date as may be determined by the Company as set out in the relevant Hedging Agreement having regard to the market, liquidity and other similar factors affecting the availability for the relevant hedging.
(e) Form:
(i) All Senior Secured Hedging Agreements must be entered into by the Company in the form of the 2002 ISDA Master Agreement or any replacement master agreement published by ISDA from time to time, unless otherwise agreed by the Security Trustee (acting on the instructions of the Required Majority).
(ii) The Company may enter into one or several Hedging Agreements with different maturities (including extension or rollover of the Hedging Agreements).
(iii) Each Hedge Counterparty will be required to acknowledge in the relevant Hedging Agreement that the Hedging Agreement is subject to the provisions of the
203 Intercreditor Deed and that all amounts payable or expressed to be payable by the Company under or in connection with the Hedging Agreement will only be recoverable (and the relevant rights of the Hedge Counterparty will only be exercisable) subject to and in accordance with the Intercreditor Deed and the other Primary Debt Documents.
(iv) Subject to any provision in a Hedging Agreement and without prejudice to paragraph (ii) above, no Hedge Counterparty will be entitled to terminate or close out any Hedging Agreement prior to the end of the Hedge Period other than any Initial Termination Payment, otherwise than in accordance with the Intercreditor Deed.
(v) All Hedging Agreements may be governed by the laws of India, England or any other jurisdiction agreed to under the relevant Hedging Agreements. The Company must irrevocably accept the non-exclusive jurisdiction of courts with jurisdiction there.
(f) Without prejudice to the other provisions in these Conditions, neither the Note Trustee nor any Agent:
(i) shall be required to be or become a party to any Hedging Agreement; or
(ii) shall be under any duty to monitor whether the Company has complied with the provisions of this Condition 4.38 in relation to Hedging Agreements and/or the Hedging Policy (and the Note Trustee and each Agent may assume that the Company has complied fully with all the provisions of this Condition 4.38); or
(iii) shall be responsible to determine whether any Hedging Agreement or any interest rate or currency hedging arrangement entered into or to be entered into by the Company or any of them meets the requirements of the Hedging Policy,
and none of them shall be responsible or liable to the Noteholders, the Company or any other person for not doing so.
5. Security
(a) The obligations of the Company under the Notes will be secured pursuant to the Security Documents under which the Company will grant certain Security Interests in favor of the Security Trustee.
See “Description of the Collateral and Security Documents” in this Offering Circular for more details of Security Interests to be granted by the Company.
(b) The Company undertakes that it will not create any Security Interest over any of its assets or undertaking for the benefit of any other person under any indebtedness prior to the creation, perfection and registration of the Security, except for any Permitted Security Interest.
(c) The Note Trustee shall not be under any duty to monitor (and will not be responsible or liable to the Noteholders or any other person for any loss arising from not monitoring) whether the Company has complied with the provisions of this Condition 5, and unless it has received express notice in writing from the Company in accordance with the Note Trust Deed to the contrary, the Note Trustee may assume that the Company has complied and is complying fully with all the provisions mentioned above, and all of the Security Documents referred to in, this Condition 5.
204 6. Interest
6.1 Interest Rate and Interest Payment Dates
(a) The Notes bear interest on their outstanding principal amount from and including the Initial Issue Date at the rate of 3.00 per cent. per annum, payable semi-annually in arrear on March 31 and September 30 in each year (except that the final interest payment date shall be February 16, 2031) (each an “Interest Payment Date”) commencing on March 31, 2021. In these Conditions, the period beginning on (and including) the Initial Issue Date and ending on (but excluding) the first Interest Payment Date and each subsequent period beginning on (and including) an Interest Payment Date and ending on (but excluding) the next following Interest Payment Date is called an “Interest Period.”
(b) If any Interest Payment Date falls on a day which is not a Business Day, it shall be postponed to the next following day which is a Business Day unless it would then fall into the next calendar month, in which event the Interest Payment Date shall be brought forward to the immediately preceding Business Day.
6.2 Interest Accrual
Each Note will cease to bear interest from the due date for redemption unless, upon surrender of the Certificate representing such Note, payment of principal is improperly withheld or refused. In such event it shall continue to bear interest at such rate (both before and after judgment) until whichever is the earlier of:
(a) the day on which all sums due in respect of such Note up to that day are received by or on behalf of the relevant Noteholder, and
(b) the day seven days after the Note Trustee or the Principal Paying Agent has notified Noteholders of receipt of all sums due in respect of all the Notes up to that seventh day (except to the extent that there is failure in the subsequent payment to the relevant holders under these Conditions).
6.3 Calculation of Interest
(a) Interest in respect of each Note shall be calculated per US$1,000 in principal amount of the Notes (the “Calculation Amount”). The amount of interest payable per Calculation Amount for each Interest Period (and for any period less than a complete Interest Period) shall be equal to the product of the rate of interest specified above, the Calculation Amount and the day-count fraction which will be determined on the basis of a 360-day year consisting of 12 months of 30 days each and, in the case of an incomplete month, the number of days elapsed on the basis of a month of 30 days rounding the resulting figure to the nearest cent (half a cent being rounded upwards).
(b) All interest payable on the Notes shall be subject to applicable laws in India, including but not limited to the ECB Guidelines.
So long as the Notes are represented by a Global Certificate, the calculation of interest in respect of the Notes will be made in accordance with the method of calculation provided for in these Conditions, save that the calculation is made in respect of the total aggregate amount of the Notes represented by the Global Certificate.
205 7. Redemption and Purchase
7.1 Final Redemption
Unless previously redeemed, or purchased and cancelled, the Notes will be redeemed at their principal amount (together with accrued but unpaid interest (if any)) on February 16, 2031 (the “Maturity Date”). The Notes may not be redeemed at the option of the Company other than in accordance with this Condition 7.
7.2 Redemption for Taxation Reasons
(a) The Notes may be redeemed at the option of the Company in whole, or in part, at any time, on giving not less than 30 nor more than 60 Business Days’ notice to the Noteholders in accordance with Condition 17 and to the Note Trustee and the Principal Paying Agent in writing (which notice shall be irrevocable), at their principal amount (together with interest accrued to but excluding the date fixed for redemption), if the Company satisfies the Note Trustee immediately prior to the giving of such notice that (i) on the occasion of the next payment due under the Notes the Company has or will become obliged to pay Additional Tax Amounts as provided or referred to in Condition 9, to the extent such Additional Tax Amount is a result of any change in, or amendment to, the laws, regulations or treaties of the relevant Tax Jurisdiction (as defined in Condition 8), or any change in the application or official interpretation of such laws, regulations or treaties, which change or amendment becomes effective on or after the Initial Issue Date and (ii) such obligation cannot be avoided by the Company taking reasonable measures available to it, provided that no such notice of redemption shall be given earlier than 90 days prior to the earliest date on which the Company would be obliged to pay such Additional Tax Amounts were a payment in respect of the Notes then due.
(b) Prior to the publication of any notice of redemption pursuant to this Condition 7.2, the Company shall deliver to the Note Trustee (A) a certificate in English signed by two Directors who are also Authorized Officers of the Company stating that the Company is obliged to pay Additional Tax Amounts in accordance with Condition 8 and that such obligation cannot be avoided by the Company taking reasonable measures available to it; and (B) an opinion of independent legal or tax advisors of recognized standing in the Tax Jurisdiction of the Company to the effect that such change or amendment has occurred. The Note Trustee shall be entitled to accept such certificate and opinion as sufficient evidence of the satisfaction of the conditions precedent set out in clauses (i) and (ii) above without enquiry or liability in doing so, in which event it shall be conclusive and binding on the Noteholders.
The ECB Guidelines, at the time of any early redemption pursuant to this Condition 7.2, may require the Company to obtain the prior approval of the Reserve Bank of India or the designated authorized dealer bank, as the case may be, in accordance with the ECB Guidelines before effecting such a redemption prior to the Maturity Date and such approval may not be forthcoming. The notice of redemption to Noteholders shall state that, at the Company’s sole discretion, the redemption date may be delayed until such time as such approval is received, or such redemption may not occur and such notice may be rescinded if the relevant approval has not been received by the redemption date, or by the redemption date so delayed.
206 7.3 Change of Control Put Option
(a) Upon the occurrence of a Change of Control Triggering Event (as defined below), each Noteholder shall have the right to require that the Company redeem such Noteholder’s Notes at an amount equal to 101 per cent. of their principal amount (together with interest accrued to but excluding the date fixed for redemption).
(b) Upon becoming aware of any Change of Control Triggering Event, the Company will promptly (and in any event no later than 30 days following the occurrence of such Change of Control Triggering Event) give notice in writing to the Noteholders in accordance with Condition 17 and to the Note Trustee and the Principal Paying Agent (the “Change of Control Offer”) stating:
(i) that a Change of Control Triggering Event has occurred and that each Noteholder has the right to require the Company to redeem such Noteholder’s Notes at 101 per cent. of their principal amount (together with interest accrued to but excluding the date fixed for redemption);
(ii) the circumstances and relevant facts regarding such Change of Control;
(iii) the redemption date (which shall be no earlier than 30 nor later than 60 Business Days’ from the date such notice is given); and
(iv) that each Noteholder may, no later than 30 Business Days after the Change of Control Offer from the Company, accept the Change of Control Offer by delivering to the specified office of any Paying Agent on any Business Day during such period, a duly signed and completed notice of acceptance in the form provided in the Agency Agreement (a “Put Notice”) (which notice shall be irrevocable).
(c) The Company will not be required to give notice of a Change of Control Triggering Event or to redeem any Notes pursuant to this Condition if a Person who is not the Company makes an equivalent offer to each Noteholder to purchase from such Noteholder its Notes for a purchase consideration at least equal to 101 per cent. of the principal amount of such Notes (together with any accrued but unpaid interest to but excluding the date fixed for purchase) and which amount is payable in the manner, at the times and otherwise meeting the requirements set out in this Condition for a Change of Control Offer to be made by the Company by tender offer or otherwise (an “Equivalent Offer”).
(d) If a Noteholder accepts the Change of Control Offer by providing the Put Notice within such period specified in the Change of Control Offer, the Company shall redeem all (but not some only) of the Notes of such Noteholder at an amount equal to 101 per cent. of their principal amount (together with interest accrued to but excluding the date fixed for redemption) on the specified redemption date.
(e) If the Company or any Paying Agent does not receive a Put Notice from a Noteholder in response to a Change of Control Offer by a date which is 30 days after the Change of Control Offer, the Company shall have no obligation to redeem any Notes held by such Noteholder, and any such offer made by the Company shall automatically lapse.
(f) None of the Note Trustee or the Agents shall be required to take any steps to ascertain whether a Change of Control or a Change of Control Offer or an Equivalent Offer or any event which could lead to a Change of Control or a Change of Control Offer or an Equivalent Offer has occurred or may occur and each of them shall be entitled to assume that no such event has occurred until it has received express written notice to the contrary from the Company. None of the Note Trustee or the Agents shall be required to take any
207 steps to ascertain whether the condition for the exercise of the rights of Noteholders in accordance with this Condition 7.3 has occurred. None of the Note Trustee or the Agents shall be responsible for determining or verifying whether a Note is to be accepted for redemption under this Condition 7.3 and none of them will be responsible to the Noteholders or any other person for any loss or liability arising from any failure by it to do so. None of the Note Trustee or the Agents shall be under any duty to determine, calculate or verify the redemption amount payable under this Condition 7.3 or the purchase price payable under any Equivalent Offer and will not be responsible or liable to Noteholders or any other person for any loss or liability arising from any failure by it to do so.
(g) The Company and the Security Trustee shall inform all international and domestic rating agencies if any international credit rating in respect of the Notes is withdrawn or downgraded by any Rating Agency on account of a Change of Control.
(h) In this Condition 7.3:
“Adani Group” means Mr. Gautam S. Adani, any Person who is related to Mr. Gautam S. Adani, by blood or marriage and any combination of those Persons acting together.
“TiL Holding” means Terminal Investment Limited Holding S.A.
“Change of Control” means Adani Group and/or TiL Holding ceasing to Control the Company.
“Change of Control Triggering Event” means the occurrence of a Change of Control; provided, however that, only in the case that the Notes are rated, it shall not constitute a Change of Control Triggering Event unless and until a Rating Downgrade due to such Change of Control shall also have occurred.
“Control” means in relation to the Company, any Person who directly or indirectly:
(i) is in a position to cast or control the casting of more than 26 per cent. of the voting rights of the issued equity share capital of such entity;
(ii) holds issued share capital having the right to cast more than 26 per cent. of the votes capable of being cast in general meetings of such entity;
(iii) other than pursuant to any regulatory restrictions set out under SEBI Regulations, has the right to determine the composition of the majority of the board of directors or equivalent body of such entity; or
(iv) has the power to manage or direct such entity in any of its affairs (including the power to manage or direct the management or policy decisions of such entity) whether directly or indirectly through ownership of share capital in such entity, by contract or otherwise.
“Person” includes any individual, firm, company, corporation, government, state or agency of a state or any association, trust, joint venture, consortium, partnership or other entity (whether or not having separate legal personality) or two or more of the foregoing.
“Rating Category” means: (i) with respect to S&P, any of the following categories: “BB”, “B”, “CCC”, “CC”, “C” and “D” (or equivalent successor categories); (ii) with respect to Moody’s, any of the following categories: “Ba”, “B”, “Caa”, “Ca”, “C” and “D” (or equivalent successor categories); and (iii) with respect to Fitch, any of the
208 following categories; “BB”, “B”, “CCC”, “CC”, “C”, and “D” (or equivalent successor categories). In determining whether the rating of the Notes has decreased by one or more gradations, gradations within Rating Categories (“+” and “-” for S&P and Fitch; “1”, “2” and “3” for Moody’s) shall be taken into account (e.g., with respect to S&P and Fitch, a decline in a rating from “BB+” to “BB”, as well as from “BB-” to “B+” will constitute a decrease of one gradation).
“Rating Date” means, in connection with a Change of Control Triggering Event, that date which is 30 days prior to the earlier of (a) a Change of Control, (b) the initial public notice of the occurrence of a Change of Control by the Company, and (c) the date that the acquirer or prospective acquirer (i) has entered into one or more binding agreements with Company and/or shareholders of Company that would give rise to a Change of Control or (ii) has commenced an offer to acquire outstanding capital stock of the Company.
“Rating Downgrade” means in connection with a Change of Control Triggering Event, the occurrence on, or within 90 days after, the later of (A) the date a Change of Control occurs, or (B) public notice of the occurrence of (1) a Change of Control or (2) the intention by the Company or any other person or persons to effect a Change of Control (which period shall be extended so long as the credit rating of the Notes is under publicly announced consideration for possible change by any of the Rating Agencies due to such Change of Control) of any of the events listed below, provided that the relevant Rating Agencies include the Change of Control as one of the reasons for the occurrence of any such event:
(i) if the Notes are rated by three RatingAgencies on the Rating Date, the rating of the Notes by any two Rating Agencies shall be withdrawn or decreased by one or more gradations (including gradations within Rating Categories as well as between Rating Categories); or
(ii) if the Notes are rated by two Rating Agencies on the Rating Date, the rating of the Notes by any one Rating Agency shall be withdrawn or decreased by one or more gradations (including gradations within Rating Categories as well as between Rating Categories); or
(iii) if the Notes are rated by one Rating Agency on the Rating Date, the rating of the Notes by such Rating Agency shall be withdrawn or decreased by one or more gradations (including gradations within Rating Categories as well as between Rating Categories).
The ECB Guidelines may require the Company to obtain the prior approval of the Reserve Bank of India or the designated authorized dealer bank, as the case may be, in accordance with the ECB Guidelines before effecting a redemption of the Notes prior to the Maturity Date and such approval may not be forthcoming. The notice of redemption to Noteholders shall state that, in the Company’s sole discretion, the redemption date may be delayed until such time as such approval is received, or such redemption may not occur and such notice may be rescinded if the relevant approval has not been received by the redemption date, or by the redemption date so delayed.
7.4 Redemption at the Option of the Company
7.4.1 Early Redemption with Applicable Premium
The Notes may be redeemed at the option of the Company in whole, or in part, at any time on giving not less than 30 nor more than 60 Business Days’ notice to the Noteholders in accordance with Condition 17 and to the Note Trustee and the Principal Paying Agent in writing, at an amount equal to the principal amount plus the Applicable Premium (together with interest accrued to but excluding the date fixed for redemption).
209 No Applicable Premium applies if the Notes are redeemed within 182 days of the Maturity Date. For the avoidance of doubt, none of the Agents or the Note Trustee have any responsibility to the Noteholders, the Company or any other person with respect to the calculation or verification of any calculation of the Applicable Premium.
7.4.2 Early Redemption due to Sweep Event or with Prudency Sweep Amount
Following the occurrence of a Sweep Event, the Company may apply any amount (an “Excess Amount”) in the Senior Debt Redemption Account which is in excess of the amount then held in the Senior Debt Restricted Amortization Account in or towards redemption of the Notes. During the period starting as of the date falling three years prior to the Maturity Date (the “Prudency Sweep Period”), the Company may apply any amount (a “Prudency Sweep Amount”) (a) standing to the credit of (i) the Senior Debt Redemption Account, (ii) the Senior Debt Restricted Amortizaton Account and (iii) the Senior Debt Restricted Reserve Account and (b) standing to the credit of the Senior Debt Service Reserve Account to the extent such amount relates to debt service in respect of the Notes if, in aggregate, those amounts are in excess of the outstanding principal amount and any interest accrued under the Notes, in or towards redemption of the Notes. The Notes may be redeemed at the option of the Company (a) in part up to the relevant Excess Amount or (b) in whole with the Prudency Sweep Amount, at any time on giving not less than 30 nor more than 60 Business Days’ notice to the Noteholders in accordance with Condition 17 and to the Note Trustee and the Principal Paying Agent in writing, at an amount equal to their principal amount (together with interest accrued to but excluding the date fixed for redemption). No Applicable Premium applies if the Notes are redeemed pursuant to this Condition 7.4.2.
Any optional redemption of Notes and notice of redemption under this Condition 7.4 may, at the Company’s discretion, be subject to the satisfaction (or waiver by the Company in its sole discretion) of one or more conditions precedent. If any such redemption or notice is subject to satisfaction of one or more conditions precedent, such notice may state that, in the Company’s sole discretion, the redemption date may be delayed until such time as any or all such conditions shall be satisfied, or such redemption may not occur and such notice may be rescinded if any or all such conditions shall not be satisfied by the redemption date, or by the redemption date so delayed.
“Adjusted Treasury Rate” means, with respect to any redemption date, the rate per annum equal to the semi-annual equivalent yield to maturity of the Comparable Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as a percentage of its principal amount) equal to the Comparable Treasury Price for such redemption date.
“Applicable Premium” means, with respect to a Note on any redemption date, the excess of (A) the present value on such redemption date of an amount equal to the principal amount of such Note, plus all required remaining scheduled interest payments due on such Note through the stated maturity of such Note (but excluding accrued and unpaid interest to the redemption date), computed using a discount rate equal to the Adjusted Treasury Rate plus 50 basis points, over (B) an amount equal to the principal amount of such Note.
“Comparable Treasury Issue” means the most recently issued United States Treasury security having a maturity comparable to the remaining term of the Notes to be redeemed that would be utilized, at the time of selection and in accordance with customary financial practice, in pricing new issues of corporate debt securities of comparable maturity to the remaining term of such Notes.
“Comparable Treasury Price” means, with respect to any redemption date:
(i) the average of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) on the fifth
210 Business Day preceding such redemption date, as set forth in the Federal Reserve Statistical Release H.15 (519) (or any successor release); or
(ii) if such release (or any successor release) is not published or does not contain such prices on such Business Day, (a) the average of the Reference Treasury Dealer Quotations for such redemption date, after excluding the highest and lowest of such Reference Treasury Dealer Quotations or (b) if fewer than three such Reference Treasury Dealer Quotations are available, the average of all such quotations.
“Reference Treasury Dealer” means each of any three investment banks of recognized standing that is a primary United States Government securities dealer in The City of New York, selected by the Company in good faith.
“Reference Treasury Dealer Quotations” means, with respect to each Reference Treasury Dealer and any redemption date, the average as determined by the Company or any of its agents of the bid and asked prices for the Comparable Treasury Issue (expressed in each case as a percentage of its principal amount) quoted in writing to the Company or such agent by such Reference Treasury Dealer at 5:00 p.m. (New York time) on the fifth Business Day preceding such redemption date.
The ECB Guidelines may require the Company to obtain the prior approval of the Reserve Bank of India or the designated authorized dealer bank, as the case may be, in accordance with the ECB Guidelines before effecting a redemption of the Notes prior to the Maturity Date and such approval may not be forthcoming. The notice of redemption to Noteholders shall state that, in the Company’s sole discretion, the redemption date may be delayed until such time as such approval is received, or such redemption may not occur and such notice may be rescinded if the relevant approval has not been received by the redemption date, or by the redemption date so delayed.
7.5 Scheduled Amortization
The Notes shall be redeemed in part in an amount equal to the applicable Amortization Amount on each Interest Payment Date on a pro rata basis. For the avoidance of doubt, interest accrued on the applicable Amortization Amount will be paid on the relevant Interest Payment Date and (ii) no Applicable Premium shall be payable in respect of any redemption of the Notes pursuant to this Condition 7.5.
“Amortization Amount” means, in respect of each Amortization Period specified on the left hand column of the Scheduled Amortizing Structure, the amount calculated by multiplying (i) the percentage corresponding to the relevant Amortization Period and appearing in the right hand column titled “Percentage of the Original Notes Amount” of the Scheduled Amortizing Structure by (ii) the amount of the Original Notes Amount.
“Amortization Period” means each period as set out in the Scheduled Amortizing Structure.
“Original Notes Amount” means the initial total principal amount of the Notes after subtracting all amounts, if any, paid towards repayment of principal on the Notes as permitted under Conditions 7.2, 7.3 and 7.4; provided that, for the avoidance of doubt, amounts paid towards repayment of principal on the Notes pursuant to this Condition 7.5 shall not be subtracted in calculating the Original Notes Amount.
211 “Scheduled Amortizing Structure” means the below amortization schedule:
Percentage of the Original Amortization Period Notes Amount
Period 1: Initial Issue Date to March 31, 2021...... 0.00% Period 2: Six-month period following the last day of Period 1 ...... 2.00% Period 3: Six-month period following the last day of Period 2 ...... 2.00% Period 4: Six-month period following the last day of Period 3 ...... 2.25% Period 5: Six-month period following the last day of Period 4 ...... 2.25% Period 6: Six-month period following the last day of Period 5 ...... 2.75% Period 7: Six-month period following the last day of Period 6 ...... 2.75% Period 8: Six-month period following the last day of Period 7 ...... 3.00% Period 9: Six-month period following the last day of Period 8 ...... 3.00% Period 10: Six-month period following the last day of Period 9...... 3.50% Period 11: Six-month period following the last day of Period 10...... 3.50% Period 12: Six-month period following the last day of Period 11...... 4.00% Period 13: Six-month period following the last day of Period 12...... 4.00% Period 14: Six-month period following the last day of Period 13...... 4.50% Period 15: Six-month period following the last day of Period 14...... 4.50% Period 16: Six-month period following the last day of Period 15...... 6.50% Period 17: Six-month period following the last day of Period 16...... 6.50% Period 18: Six-month period following the last day of Period 17...... 7.50% Period 19: Six-month period following the last day of Period 18...... 7.50% Period 20: Six-month period following the last day of Period 19...... 7.50% February16,2031 ...... 20.50%
Total ...... 100.00%
7.6 Purchase
The Company or any of its Affiliates may at any time (if permitted under applicable laws) purchase Notes in the open market or otherwise at any price. The Notes so purchased, while held by or on behalf of either the Company or any such Affiliate, shall not entitle the holder to vote at any meetings of the Noteholders and shall be deemed not to be outstanding for the purposes of calculating quorums at meetings of the Noteholders or for the purposes of Condition 13.1.
7.7 Cancellation
All Certificates representing Notes purchased by or on behalf of the Company shall be surrendered for cancellation to the Registrar and, upon surrender thereof, all such Notes shall be cancelled forthwith. Any Certificates so surrendered for cancellation may not be reissued or resold and the obligations of the Company in respect of any such Notes shall be discharged.
7.8 Redemption Amounts
None of the Note Trustee or theAgents shall be under any duty to determine, calculate or verify any amount payable on redemption under this Condition 7 and none of them will be responsible to Noteholders or any other person for any loss arising from any failure by it to do so.
212 8. Payments
8.1 Method of Payment
(a) Payments of principal and premium (if any) shall be made (subject to surrender of the relevant Certificates at the specified office of the Transfer Agent or Registrar if no further payment falls to be made in respect of the Notes represented by such Certificates) by transfer to the registered account of the Noteholder.
(b) Interest on each Note shall be paid to the person shown on the Register at the close of business 15 days before the due date for payment thereof (the “Record Date”). Payments of interest on each Note shall be made in US Dollars by transfer to the registered account of the Noteholder.
(c) For the purposes of this Condition, a Noteholder’s “registered account” means the US Dollar account maintained by or on behalf of it with a bank in New York City, details of which appear on the Register at the close of business on the Business Day before the due date for payment.
(d) If the amount of principal being paid upon surrender of the relevant Certificate is less than the outstanding principal amount of such Certificate, the Registrar will annotate the Register with the amount of principal so paid and will (if so requested by the Company or a Noteholder) issue a new Certificate with a principal amount equal to the remaining unpaid outstanding principal amount. If the amount of interest being paid is less than the amount then due, the Registrar will annotate the Register with the amount of interest so paid.
Notwithstanding the foregoing, so long as any Global Certificate is held on behalf of DTC, Euroclear or Clearstream, Luxembourg or any additional or alternative clearing system selected by the Company and approved by the Note Trustee, the Principal Paying Agent and the Registrar (an “Alternative Clearing System”), each payment in respect of the Global Certificate will be made to the person shown as the Noteholder in the Register at the close of business of the relevant clearing system on the Clearing System Business Day before the due date for such payments, where “Clearing System Business Day” means a weekday (Monday to Friday, inclusive) except 25 December and 1 January.
8.2 Payments subject to Fiscal Laws
All payments are subject in all cases to (i) any applicable fiscal or other laws, regulations and directives in the place of payment and (ii) any tax, assessment, withholding or deduction required by sections 1471 through 1474 of the U.S. Internal Revenue Code of 1986, as amended (“FATCA”), any current or future U.S. Treasury Regulations or rulings promulgated thereunder, any law, regulation or other official guidance enacted in any jurisdiction implementing FATCA, any intergovernmental agreement between the United States and any other jurisdiction to implement FATCA, or any agreement with the U.S. Internal Revenue Service under FATCA. No commission or expenses shall be charged to the Noteholders in respect of such payments.
8.3 Payment Initiation
Where payment is to be made by transfer to a registered account, payment instructions (for value the due date, or if that is not a Business Day, for value the first following day which is a Business Day) will be initiated on the due date for payment or, in the case of payments of principal where the relevant Certificate has not been surrendered at the specified office of the Transfer Agent or of the Registrar, on a Business Day on which the Principal Paying Agent is open for business and on which the relevant Certificate is surrendered.
213 8.4 Appointment of Agents
The Principal Paying Agent, the Registrar, the Paying Agents and the Transfer Agent initially appointed by the Company and their respective specified offices are listed below. The Principal Paying Agent, the Registrar, the Paying Agents and the Transfer Agent act solely as agents of the Company or, as the case may be, the Note Trustee, and do not assume any obligation or relationship of agency or trust for or with any Noteholder. The Company reserves the right at any time with the prior written approval of the Note Trustee to vary or terminate the appointment of the Principal Paying Agent, the Registrar, any Paying Agent or the Transfer Agent and to appoint additional or other transfer agent, subject to the terms of the Agency Agreement, provided that the Company shall at all times maintain (i) a Principal Paying Agent, (ii) a Registrar, (iii) a Paying Agent, (iv) a Transfer Agent and (v) such other agents as may be required by any stock exchange on which the Notes may be listed, in each case, as approved by the Note Trustee.
Principal Paying Agent and Transfer Agent
Citibank, N.A., London Branch c/o Citibank, N.A., Dublin Branch 1 North Wall Quay Dublin 1 Ireland
Registrar
Citibank, N.A., London Branch c/o Citibank, N.A., Dublin Branch 1 North Wall Quay Dublin 1 Ireland
In each case, with a copy to
Citicorp International Limited 20/F, Citi Tower One Bay East 83 Hoi Bun Road Kwun Tong, Kowloon Hong Kong
Notice of any such change or any change of any specified office shall promptly be given to the Noteholders in accordance with Condition 17.
So long as the Notes are listed on the SGX-ST and the rules of that exchange so require, if a Global Certificate is exchanged for definitive Certificates, the Company shall appoint and maintain a paying agent in Singapore, where the Notes may be presented or surrendered for payment or redemption. In addition, if a Global Certificate is exchanged for definitive Certificates, an announcement of such exchange shall be made by or on behalf of the Company through the SGX-ST and such announcement will include all material information with respect to the delivery of the definitive Certificates, including details of the paying agent in Singapore.
8.5 Delay in Payment
Noteholders will not be entitled to any interest or other payment for any delay after the due date in receiving the amount due on a Note if the due date is not a Business Day, or if the Noteholder is late in surrendering or cannot surrender its Certificate (if required to do so).
214 8.6 Business days
In this Condition 8, “Business Day” means a day (other than a Saturday, Sunday or public holiday) on which banks and foreign exchange markets are open for business and settlement of US Dollars payments in New York City, the city in which the specified office of the Principal Paying Agent is located and (if surrender of the relevant Certificate is required) the relevant place of presentation.
9. Taxation
All payments of principal, premium (if any) and interest by or on behalf of the Company in respect of the Notes shall be made free and clear of, and without withholding or deduction for or on account of, any taxes, duties, assessments or governmental charges of whatever nature imposed, levied, collected, withheld or assessed by or within the Republic of India or any authority therein or thereof having power to tax (each a “Tax Jurisdiction”), unless such withholding or deduction is required by law. In such event, the Company shall pay such additional amounts (“Additional Tax Amounts”) as will result in receipt by the Noteholders of such amounts as would have been received by them had no such withholding or deduction been required by a Tax Jurisdiction, except that no Additional Tax Amounts shall be payable in respect of any Note:
(a) Other connection: to a holder (or to a third party on behalf of a holder) who is liable to such taxes, duties, assessments or governmental charges in respect of such Note by reason of his having some connection with the relevant Tax Jurisdiction, other than the mere holding of the Note;
(b) Failure to provide certification: to the extent a holder is liable for such taxes, duties, assessments or governmental charges because of the holder’s failure to comply with any reasonable certification, identification or other reporting requirements concerning its nationality, residence, identity or connection with a relevant Tax Jurisdiction if (1) compliance is required by applicable law (but not including treaties), regulation or administrative practice as a precondition to exemption from all or a part of such taxes, duties, assessments or governmental charges, (2) the holder is able to comply with those requirements without undue hardship and (3) the Company has given to the holder prior written notice, at a time which would enable the holder acting reasonably to comply with such request, before any such withholding or deduction that the holder will be required to comply with such certification, identification or reporting requirements; or
(c) Surrender more than 30 days after the Relevant Date: in respect of which the Certificate representing it is presented for payment more than 30 days after the Relevant Date except to the extent that the holder of it would have been entitled to such Additional Tax Amounts on surrendering the Certificate representing such Note for payment on the last day of such period of 30 days.
“Relevant Date” in respect of any Note means the date on which payment in respect of it first becomes due or (if any amount of the money payable is improperly withheld or refused) the date on which payment in full of the amount outstanding is made or (if earlier) the date seven days after that on which notice is duly given to the Noteholders that, upon further surrender of the Certificate representing such Note being made in accordance with the Conditions, such payment will be made, provided that payment is in fact made upon such surrender.
Notwithstanding the foregoing, no Additional Tax Amounts shall be payable for or on account of (i) any estate, inheritance, gift, sale, transfer, personal property or similar tax, assessment or other governmental charge, (ii) any taxes, duties, assessments or governmental charges that are imposed otherwise than by deduction or withholding from payments made under or with respect to the Notes, (iii) any taxes, duties, assessments or governmental charges that are imposed on or with respect to
215 any payment on a Note to a holder who is a fiduciary, partnership, limited liability company, or person other than the Beneficial Owner of such payment to the extent that the Beneficial Owner with respect to such payment (or portion thereof) would not have been entitled to the Additional Tax Amounts had the payment (or the relevant portion thereof) been made directly to such Beneficial Owner and (iv) any tax, assessment, withholding or deduction required by FATCA, any current or future U.S. Treasury Regulations or rulings promulgated thereunder, any law, regulation or other official guidance enacted in any jurisdiction implementing FATCA, any intergovernmental agreement between the United States and any other jurisdiction to implement FATCA, or any agreement with the U.S. Internal Revenue Service under FATCA. As used above, “Beneficial Owner” means the person whom is required by the laws of the relevant Tax Jurisdiction to include the payment in income for tax purposes.
Any payments made by the Company are required to be within the all-in-cost ceilings prescribed under the ECB Guidelines and in accordance with any specific approvals from the Reserve Bank of India or the designated authorized dealer bank, as the case may be, obtained by the Company in this regard.
10. Events of Default
10.1 It will be an event of default (each an “Event of Default”) if any of the following events occur:
(a) Non-payment: the Company fails to pay an amount due and owing under these Conditions or any other Primary Debt Document relating to the Notes in the manner required under such documents unless the failure to pay is caused by administrative or technical error and the payment is made within seven Business Days of its due date in case of payment of principal amount and within 14 days of its due date in case of payment of interest.
(b) Breach of Debt Service Cover Ratio: any requirement of Condition 4.29 is not satisfied.
(c) Breach of other obligations: the Company does not perform or comply with any one or more of its other obligations under these Conditions or any other Primary Debt Document relating to the Notes, which default has a Material Adverse Effect and is in the opinion of the Note Trustee incapable of remedy or, if in the opinion of the Note Trustee capable of remedy, is not remedied within 30 Business Days of the earlier of the date on which (i) notice of such default was given to the Company by the Note Trustee or (ii) the Company became aware of the relevant default and notified the Note Trustee promptly of the same.
(d) Cross-acceleration: (i) any other present or future indebtedness (other than any indebtedness payable under a Subordinated Debt) of the Company for or in respect of moneys borrowed or raised (A) becomes due and payable prior to its stated maturity by reason of any event of default, and such acceleration shall not be rescinded or annulled (by reason of a remedy, cure or waiver thereof with respect to the event of default upon which such acceleration is based) within 21 days after such acceleration; or (B) is not paid when due or, as the case may be, within any applicable grace period or (ii) the Company fails to pay when due any amount payable by it under any present or future guarantee for, or indemnity in respect of, any moneys borrowed or raised (other than any indebtedness payable under a Subordinated Debt); provided that the aggregate amount of the relevant indebtedness, guarantees and indemnities in respect of which one or more of the events mentioned above have occurred equals or exceeds US$25,000,000 (or its equivalent in another currency).
(e) Enforcement Proceedings: a distress, attachment or execution is levied, enforced or sued out against the Company and it is not discharged or stayed within 60 days.
216 (f) Security enforced: any Security Interest, present or future, created or assumed by the Company becomes enforceable and any step is taken to enforce it (including the taking of possession or the appointment of a receiver, administrative receiver, administrator manager or other similar person) and such step is not stayed within 60 days.
(g) Insolvency: the Company is (or is, or could be, deemed by law or a court to be) insolvent or bankrupt or unable to pay its debts, stops, suspends or threatens to stop or suspend payment of all or a material part of (or of a particular type of) its debts, proposes or makes, by reason of any actual or anticipated financial difficulty, a general assignment or an arrangement or composition with or for the benefit of the relevant creditors in respect of any of such debts or a moratorium is agreed or declared or comes into effect in respect of or affecting all or any part of (or of a particular type of) the debts of the Company.
(h) Winding-up: an order is made and is not discharged or stayed within 60 days or an effective resolution passed for the winding-up or dissolution of the Company, or the Company ceases or threatens to cease to carry on all or substantially all of its business or operations, except for the purpose of and followed by a reconstruction, amalgamation, reorganization, merger or consolidation on terms approved by an Extraordinary Resolution of the Noteholders.
(i) Nationalization: the seizure, compulsory acquisition, expropriation or nationalization of all or a material part of the assets of the Company or all or a majority of the shares or units of the Company or, in each case, a final order is made in relation to such action.
(j) Illegality: it is or will become unlawful for the Company to perform or comply with any one or more of its obligations under any Primary Debt Document relating to the Notes or any Primary Debt Document relating to the Notes is or becomes void, voidable or unenforceable in whole or in part and results in a Material Adverse Affect.
(k) Analogous events: any event occurs which under the laws of any relevant jurisdiction has an analogous effect to any of paragraphs (e), (f), (g) or (h) of this Condition 10.
(l) Authorization and consents: any action, condition or thing (including the obtaining or effecting of any necessary consent, approval, authorization, exemption, filing, license, order, recording or registration) at any time required to be taken, fulfilled or done, which has not been remedied within a period of 90 days from the Company becoming aware of the requirement of such remedial action, in order (i) to enable the Company to lawfully to enter into, exercise its respective rights and perform and comply with its respective obligations under any Primary Debt Document relating to the Notes, (ii) to ensure that those obligations are legally binding and enforceable and (iii) to make any Primary Debt Document relating to the Notes admissible in evidence in the courts of England and Wales or India, as the case may be, is not taken, fulfilled or done which have a Material Adverse Effect.
(m) Repudiation: (i) if any Primary Debt Document relating to the Notes ceases to be, or is claimed by the Company not to be, in full force and effect; or (ii) the Company terminates or repudiates any Primary Debt Document relating to the Notes.
(n) Unsatisfied judgment: one or more judgments, arbitral awards, settlements or orders from which no further appeal or review is permissible under applicable law is rendered against the Company for the payment of money in relation to an amount more than US$10,000,000 (or its equivalent in another currency) and continue(s) unsatisfied and unstayed after the date specified for payment in that judgment, award, settlement or order, or, if not so specified, for a period of 30 Business Days after the date(s) thereof.
217 (o) Misrepresentation: any material representation or warranty made by the Company in any Primary Debt Document relating to the Notes is incorrect or misleading in a material respect when made or deemed to be made, unless the events or circumstances causing the misrepresentation are in the opinion of the Note Trustee capable of remedy and the Company has remedied the circumstances causing the misrepresentation within 15 Business Days of Company becoming aware of the event or circumstance.
(p) Security Document: (i) the Company does not perform or comply with any one or more of its material obligations under Condition 3, (ii) any Security Document required to be entered into by the terms of any Primary Debt Document relating to the Notes is not entered into, or is not valid, binding and effective, by the date specified in that Primary Debt Document relating to the Notes; (iii) any Security Document is not (once entered into) in full force and effect or does not (once entered into) create in favor of the Security Trustee for the benefit of the relevant Primary Creditors who are the intended beneficiaries of the relevant Transaction Security, the Security Interest it is expressed to create with the ranking and priority it is expressed to have (other than as a result of (A) the restrictions on enforcement caused by applicable bankruptcy, insolvency, liquidation, reorganization and other laws or regulations of general application affecting the rights of creditors generally, (B) general principles of equity, (C) the qualifications as to matters of law in the most recent legal opinions delivered to the relevant Senior Secured Creditors in connection with the relevant Primary Debt Documents), provided that the release or discharge of any Security Interest over any interest in accordance with the Permitted Steps shall not constitute an Event of Default under this Condition 10.
(q) Abandonment of operations: (i) an Event of Loss occurs or (ii) the Company suspends the operation of, or ceases to operate any part of the Permitted Businesses (other than any temporary suspension or cessation in accordance with Good Industry Practice), including for the avoidance of doubt, the termination of APSEZ’s rights under the Concession Agreement or the Company’s rights under the Sub-Concession Agreement.
(r) Material Adverse Effect: any event, circumstance or condition (other than any event of default howsoever defined in relation to a Material Adverse Effect, in any other provision of a Primary Debt Document relating to the Notes) occurs or exists which has had and continues to have, or could reasonably be expected to have, a Material Adverse Effect in relation to paragraphs (a) or (b) of the definition of “Material Adverse Effect”, provided that, in respect of any event described in paragraph (p) of this Condition 10 that is a result of a delay caused by a Government Authority in (i) the release of the security granted under the Existing Debt Documents following the repayment of indebtedness under such Existing Debt Documents and/or (ii) the filing/registration of such security in favor of the Security Trustee with the Government Authorities following its release (to the extent such failure is not caused by the Company), such event shall not constitute or be construed as an Event of Default. If a delay occurs for one of these reasons, the Company undertakes to use all reasonable means to create and perfect the Security as soon as possible.
If any Event of Default occurs and is continuing, the Note Trustee at its discretion may, and if so requested in writing by holders of at least 25 per cent. in aggregate principal amount of the Notes then outstanding or if so directed by an Extraordinary Resolution shall (provided that in any such case the Note Trustee shall have been indemnified and/or secured and/or pre-funded to its satisfaction), (i) give notice to the Company that the Notes are, and they shall immediately become, due and payable at their principal amount together if applicable) with accrued interest, (ii) instruct the Security Trustee to enforce the Security in accordance with the Intercreditor Deed, and the other Security Documents and (iii) instruct the Security Trustee to give notice to the other parties in accordance with the Intercreditor Deed. An Event of Default shall be deemed to be “continuing” if (x) it shall not have been waived in writing by the Note
218 Trustee pursuant to the provisions of the Note Trust Deed or (y) it shall not have been remedied to the satisfaction of the Note Trustee acting on the instructions of the Noteholders by Extraordinary Resolution; provided that, notwithstanding anything herein to the contrary, an Event of Default in the form of a failure to deliver a document or perform an act within a period of time or on or by a specified date shall be capable of remedy and shall cease to be “continuing” once that document has been delivered or act performed prior to the delivery of any notice by the Note Trustee pursuant to (i), (ii) or (iii) in this paragraph.
10.2 Consequences of the service of Enforcement Notices and taking of Enforcement Action
Upon service of an Enforcement Notice as described in clause 8 of the Intercreditor Deed, the Security Documents shall become enforceable, but only by the Security Trustee and only in accordance with the Intercreditor Deed and the Primary Debt Documents.
Notwithstanding Condition 10.2, the Notes shall immediately become due and payable at their principal amount together with accrued interest upon the delivery of an Enforcement Notice to the Company pursuant to clause 8.6 of the Intercreditor Deed (an “Immediate Acceleration Event”). For the avoidance of doubt, no action is required from or by the Noteholders or the Note Trustee under these Conditions or otherwise for an Immediate Acceleration Event to occur. Immediately upon the occurrence of an Immediate Acceleration Event, the outstanding principal amount of the Notes, any accrued interest and any other payments under the Notes will be and shall be deemed to be due and payable for all purposes of the Intercreditor Deed, including for any application of proceeds by the Security Trustee under clause 12 of the Intercreditor Deed.
11. Enforcement
11.1 At any time after the Notes become due and payable, the Note Trustee may, at its discretion and without further notice, (i) take such steps and/or actions and/or institute such proceedings against the Company as it may think fit to enforce the terms of the Note Trust Deed and the Notes, (ii) instruct the Security Trustee to enforce the Security in accordance with the Security Trustee Agreement and the Intercreditor Deed and the Security Documents and (iii) instruct the Security Trustee to give notice to the other parties in accordance with the Security Trustee Agreement and the Intercreditor Deed, but the Note Trustee need not take any such steps, actions or proceedings unless (A) it shall have been so directed by an Extraordinary Resolution or so requested in writing by Noteholders holding at least 25 per cent. in aggregate principal amount of the Notes outstanding, and (B) it shall have been indemnified and/or secured and/or pre-funded to its satisfaction. No Noteholder may proceed directly against the Company unless the Note Trustee, having become bound so to proceed, fails to do so within a reasonable time and such failure is continuing.
11.2 Except in the manner permitted and set out under the Intercreditor Deed, no Noteholder or other Primary Creditor is entitled to take any action against the Company or against any assets of the Company to enforce its rights in respect of the Senior Note Documents (including in respect of the Notes) or to enforce any of the Security Documents. The Security Trustee shall, subject to being indemnified and/or secured and/or prefunded to its satisfaction, upon being so directed by the requisite proportion of Primary Creditors (including the Noteholders) in accordance with the provisions of the Intercreditor Deed, enforce the Security Documents and take such Enforcement Action in accordance with the Intercreditor Deed.
12. Prescription
Claims against the Company for payment in respect of the Notes shall be prescribed and become void unless made within ten years (in the case of principal and premium, if any) or five years (in the case
219 of interest) from the appropriate Relevant Date in respect of them. Neither the Note Trustee nor any Agent shall be responsible for any amounts so prescribed.
13. Replacement of Certificates
If any Certificate is lost, stolen, mutilated, defaced or destroyed, it may be replaced, subject to applicable laws, regulations or other relevant regulatory authority regulations, at the specified office of the Registrar or such other TransferAgent as may from time to time be designated by the Registrar for that purpose and notice of whose designation is given to Noteholders, in each case on payment by the claimant of the fees and costs incurred in connection therewith and on such terms as to evidence, security, indemnity and otherwise as the Company may require (provided that the requirement is reasonable in light of prevailing market practice) or as the Registrar or the Transfer Agent may require. Mutilated or defaced Certificates must be surrendered before replacements will be issued.
14. Meetings of Noteholders, Modification, Waiver and Authorization
14.1 Meetings of Noteholders
(a) The Note Trust Deed contains provisions for convening meetings of Noteholders (including meetings held by way of audio or videoconference call) to consider matters affecting their interests, including without limitation the sanctioning by Extraordinary Resolution of a modification of any of these Conditions or any provisions of the Note Trust Deed and any other Senior Note Document or Common Document to which the Note Trustee is a party. Such a meeting may be convened by the Company or the Note Trustee (and shall be convened by the Note Trustee (subject to it being indemnified and/or secured and/or prefunded to its satisfaction) upon the request in writing of the Noteholders holding not less than 25 per cent. in principal amount of the Notes for the time being outstanding). The quorum for any meeting convened to consider an Extraordinary Resolution will be two or more Noteholders or agents present in person representing 662/3 per cent. in aggregate principal amount of the Notes for the time being outstanding, or at any adjourned meeting two or more Noteholders or agents present in person whatever the aggregate principal amount of the Notes held or represented, unless the business of such meeting includes consideration of proposals, inter alia, (i) to modify the maturity of the Notes or the dates on which interest is payable in respect of the Notes, (ii) to reduce or cancel the principal amount or any premium payable on redemption of, or interest on, the Notes, (iii) to change the currency of payment of the Notes or (iv) to modify the provisions concerning the quorum required at any meeting of Noteholders or the majority required to pass an Extraordinary Resolution, in which case the necessary quorum will be two or more persons holding or representing not less than 662/3 per cent., or at any adjourned meeting not less than 331/3 per cent., in aggregate principal amount of the Notes for the time being outstanding. Any Extraordinary Resolution duly passed shall be binding on all Noteholders (whether or not they were present at the meeting at which such resolution was passed).
(b) The Note Trust Deed provides that a resolution in writing signed by or on behalf of the holders of not less than 90 per cent. in aggregate principal amount of the Notes outstanding, and who are for the time being entitled to receive notice of a meeting in accordance with the provisions of the Note Trust Deed, shall for all purposes be as valid and effective as an Extraordinary Resolution passed at a meeting of Noteholders duly convened and held. Such a resolution in writing may be contained in one document or several documents in the same form, each signed by or on behalf of one or more Noteholders.
220 14.2 Modification of the Note Trust Deed
The Note Trustee may, but shall not be obliged to, agree, without the consent of the Noteholders or any other Primary Creditor (i) to any modification of any of these Conditions or any of the provisions of the Note Trust Deed or any other Senior Note Document or Common Document to which the Note Trustee is a party, that is, in its opinion, of a formal, minor or technical nature or is made to correct a manifest error or to comply with any mandatory provision of law, and (ii) to any other modification (except as mentioned in the Note Trust Deed), or to waive or authorize, on such terms as seem expedient to it, any breach or proposed breach by the Company of any of these Conditions or any of the provisions of the Note Trust Deed or the Agency Agreement or determine that an Event of Default or Potential Event of Default will not be treated as such, if, in the opinion of the Note Trustee, it is not materially prejudicial to the interests of the Noteholders, provided that the Note Trustee will not do so in contravention of an express direction given by an Extraordinary Resolution or a request made pursuant to Condition 9. Any such modification, authorization or waiver shall be binding on the Noteholders and such modification, authorization or waiver shall be notified by the Company to the Noteholders as soon as practicable.
14.3 Amendments to Senior Note Documents
Any amendment which relates to a Senior Note Document will be made in accordance with the requirements of such Senior Note Document.
14.4 Substitution
The Note Trust Deed contains provisions permitting, but not obliging, the Note Trustee to agree, subject to amendment of the Note Trust Deed and such other conditions as the Note Trustee may require, but without the consent of the Noteholders, to the substitution of any other company in place of the Company, or of any previous substituted company, as principal debtor under the Note Trust Deed and the Notes; provided, however, that prior to or concurrent with such substitution, the Company must deliver to the Note Trustee an opinion of counsel of recognized standing with respect to U.S. federal income tax matters that the beneficial owners of the Notes will not recognize gain or loss for U.S. federal income tax purposes as a result of such substitution and will be subject to the same U.S. federal income tax consequences as if such substitution did not occur.
14.5 Entitlement of the Note Trustee
In connection with the exercise of its powers, trusts, authorities or discretions (including but not limited to those referred to in this Condition) the Note Trustee shall have regard to the general interests of the Noteholders as a class and shall not have regard to any interest arising from circumstances particular to individual Noteholders (whatever their number) and, in particular but without limitation, shall not have regard to the consequences of such exercise for individual Noteholders (whatever their number) resulting from their being for any purpose domiciled or resident in, or otherwise connected with, or subject to the jurisdiction of, any particular territory or otherwise to the tax consequences thereof and the Note Trustee shall not be entitled to require, nor shall any Noteholder be entitled to claim, from the Company or the Note Trustee any indemnification or payment in respect of any tax consequence of any such exercise upon individual Noteholders, except to the extent provided for in Condition 9 and/or any undertaking given in addition thereto or in substitution therefor pursuant to the Note Trust Deed.
221 15. Indemnification of the Note Trustee
(a) The Note Trust Deed contains provisions for the indemnification of the Note Trustee and for its relief from responsibility, including without limitation provisions relieving it from taking steps, actions or proceedings to enforce payment or taking other actions unless first indemnified and/or secured and/or pre-funded to its satisfaction. The Note Trustee is entitled to enter into business transactions with the Company, the Security Trustee, any other party to any Security Document or any Primary Debt Document or any Primary Creditor and any entity related (directly or indirectly) to any Company, the Security Trustee, any other party to any Security Document or any Primary Debt Document or any Primary Creditor without accounting for any profit.
(b) The Note Trustee may rely without liability to Noteholders, any Company or any other person on any report, confirmation, certificate or information from or any advice or opinion of any legal counsel, accountants, financial advisers, financial institution, rating agency or any other expert, whether or not addressed to it and whether their liability in relation thereto is limited (by its terms or by any engagement letter relating thereto entered into by the Note Trustee or in any other manner) by reference to a monetary cap, methodology or otherwise. The Note Trustee may accept and shall be entitled to rely on any such report, confirmation, certificate, information, advice or opinion, in which event such report, confirmation, certificate, information, advice or opinion shall be binding on the Company and the Noteholders. The Note Trustee shall not be responsible or liable to the Company, the Noteholders, the Security Trustee, any other party to any Security Document or any Primary Debt Document, any Primary Creditor or any other person for any loss occasioned by acting on or refraining from acting on such report, confirmation, certificate, information, advice or opinion.
(c) Whenever the Note Trustee is required or entitled by the terms of the Note Trust Deed, the Agency Agreement, the Security Trustee Agreement and the Intercreditor Deed and the other relevant Primary Debt Documents relating to the Notes or these Conditions to exercise any discretion or power, take any action, make any decision or give any direction, the Note Trustee is entitled, prior to exercising any such discretion or power, taking any such action, making any such decision or giving any such direction, to seek directions from the Noteholders by way of Extraordinary Resolution, and the Note Trustee shall not be responsible or liable for any loss or liability incurred by any Company, the Noteholders, the Security Trustee, any other party to any Security Document or any Primary Debt Document, any Primary Creditor or any other person as a result of any delay in it exercising such discretion or power, taking such action, making such decision or giving such direction as a result of seeking such direction from the Noteholders or in the event that no direction is given to the Note Trustee by the Noteholders. None of the Note Trustee or any Agent shall be liable to any Noteholder, any Company, the Security Trustee, any other party to any Security Document or any Primary Debt Document, any Primary Creditor or any other person for any action taken by the Note Trustee or such Agent in accordance with the instructions, direction, request or resolution of the Noteholders. The Note Trustee shall be entitled to rely on any instructions, direction, request or resolution of Noteholders given by the Noteholders of the requisite principal amount of Notes outstanding or passed at a meeting of Noteholders convened and held in accordance with the Note Trust Deed.
(d) Repatriation of proceeds outside India by the Company under an indemnity clause requires the prior approval of the Reserve Bank of India, in accordance with the extant applicable laws and regulations of India, including the rules and regulations framed under the Foreign Exchange Management Act, 1999.
222 16. Further Issues
Subject to compliance by the Company with all of the covenants in the Note Trust Deed and these Conditions, the Company may from time to time without the consent of the Noteholders create and issue further securities either having the same terms and conditions as the Notes in all respects (or in all respects except for the first payment of interest on them) and so that such further issue shall be consolidated and form a single series with the outstanding Notes or upon such terms as the Company may determine at the time of their issue; provided, however, that the Company may not consolidate such further securities as a single series with the outstanding Notes unless such securities are fungible with the outstanding Notes for US federal income tax purposes. References in these Conditions to the Notes include (unless the context requires otherwise) any other securities issued pursuant to this Condition and forming a single series with the Notes. Any further securities forming a single series with the outstanding Notes constituted by the Note Trust Deed or any deed supplemental to it shall be constituted by a deed supplemental to the Note Trust Deed.
17. Notices
All notices to Noteholders will be valid if published in a leading newspaper having general circulation in Asia (which is expected to be the Straits Times) or, if such publication shall not be practicable, in an English language newspaper of general circulation in Europe or Asia. Any such notice shall be deemed to have been given on the date of such publication or, if published more than once or on different dates, on the first date on which publication is made. Notices to be given by any Noteholder must be in writing and given by lodging the same with the Registrar or, if the Notes are held in a clearing system, may be given through the clearing system in accordance with its standard rules and procedures.
So long as the Notes are represented by the Global Certificate and the Global Certificate is held on behalf of DTC, Euroclear or Clearstream, Luxembourg or any Alternative Clearing System, notices to the Holders shall be validly given by the delivery of the relevant notice to DTC, Euroclear or Clearstream, Luxembourg or any such Alternative Clearing System, for communication by it to entitled accountholders in substitution for notification as required by these Conditions.
18. Contracts (Rights of Third Parties) Act 1999
Save as contemplated in Condition 11.1, no person shall have any right to enforce any term or condition of the Notes under the Contracts (Rights of Third Parties) Act 1999, but this shall not affect any right or remedy of any person which exists or is available apart from that Act.
19. Non-Petition
(a) Only the Security Trustee (acting on the directions of the Primary Creditors, which includes the Note Trustee for so long as any Notes remain outstanding) may pursue the remedies available under general law or under the Security Documents to enforce the Security and no other person (including any Noteholder or the Note Trustee) will be entitled to proceed directly against the Company to enforce the Security Documents. In particular, each party to the Intercreditor Deed (other than the Security Trustee, and in respect of certain rights, the Note Trustee) has agreed that, except to the extent provided for in the Intercreditor Deed, it will not: (i) take any steps for the purpose of recovering any Secured Obligations; or (ii) enforce any rights arising out of the Senior Secured Documents or the Security Documents against the Company or procure the winding-up of the Company.
223 (b) In this Condition 19, “Secured Obligations” shall mean all indebtedness of the Company under the Senior Note Documents and any Common Document and amounts payable by the Company pursuant to the terms of the Senior Note Documents and any Common Document, including without limitation:
(i) the principal, interest, default interest and all other obligations and liabilities of the Company, including indemnities, expenses, fees, interest, incurred under, arising out of or in connection with any Senior Note Document and any Common Document;
(ii) any and all sums advanced by any Noteholder, the Security Trustee and/or the Note Trustee in order to preserve the Security or preserve their Security Interest in the Security; and
(iii) in the event of any proceeding for the collection or enforcement of the Secured Obligations, after an event of default shall have occurred and be continuing, the expenses of retaking, holding, preparing for sale or lease, selling or otherwise disposing of or realising the Security, or of any exercise of any Noteholder, the Security Trustee and/or the Note Trustee of its rights under the Senior Note Documents and any Common Document, together with legal fees and court costs.
20. Governing Law and Jurisdiction
20.1 Governing Law
The Note Trust Deed, theAgencyAgreement and the Notes and any non-contractual obligations arising out of or in connection with them are governed by, and shall be construed in accordance with, English law. The Intercreditor Deed, the Project Accounts Deed and the Security Trustee Agreement are governed by, and shall be construed in accordance with, the laws of India.
20.2 Jurisdiction
The courts of England are to have jurisdiction to settle any disputes which may arise out of or in connection with the Note Trust Deed or the Notes and, accordingly, any legal action or proceedings arising out of or in connection with any Notes (“Proceedings”) may be brought in such courts. The Company has in the Note Trust Deed irrevocably submitted to the exclusive jurisdiction of such courts.
20.3 Agent for Service of Process
The Company has irrevocably appointed in the Note Trust Deed an agent in England to receive service of process in any Proceedings in England based on any of the Notes.
21. Definitions
“Additional Debt” means any Additional Senior Secured Debt, Additional Senior Unsecured Debt or Additional Subordinated Debt.
“Additional Debt Finance Document” has the meaning given to it in the Intercreditor Deed.
“Additional Senior Debt” means any Additional Senior Secured Debt or any Additional Senior Unsecured Debt.
“Additional Senior Secured Debt” means the Senior Secured Debt proposed to be incurred by Company after the Initial Issue Date.
224 “Additional Senior Secured Debt Finance Document” means any document to be entered into between the Company and a Senior Secured Creditor in relation to any Additional Senior Secured Debt and designated as such by the Company and the Security Trustee.
“Additional Senior Unsecured Debt” means any Senior Unsecured Debt proposed to be incurred pursuant to any Senior Unsecured Document entered into by the Company after the Initial Issue Date.
“Additional Sponsor Affiliate Debt” means any Sponsor Affiliate Debt proposed to be incurred pursuant to any Sponsor Affiliate Debt Document entered into by the Company after the Initial Issue Date.
“Additional Subordinated Debt” means any Finance Debt which (i) is subordinated to the Senior Debt and (ii) is incurred or proposed to be incurred by the Company after the Initial Issue Date.
“Additional Tax Amounts” has the meaning set forth in Condition 9.
“Affiliate” means, in relation to any Person, any other Person that controls, is controlled by, or is under common control with, such Person.
“Agent” means each agent appointed under the Agency Agreement.
“AICTPL Shares NDU” has the meaning set forth in Condition 3.2.2.
“APSEZ” means Adani Ports and Special Economic Zone Limited.
“APSEZ Undertaking” means the undertaking to be dated on or about the Initial Issue Date executed by APSEZ in favor of the Company requiring the passthrough of termination compensation accruing to APSEZ under the Concession Agreement, in proportion to the Company’s assets under the Sub-Concession Agreement.
“Arrear Payment” means any payment received by the Company after the Initial Issue Date in relation to a period prior to the Initial Issue Date pursuant to the approval of the amount corresponding to the unbilled amount in that period.
“Authorization” means:
(a) any material consent, authorization, registration, filing, lodgement, agreement, notarisation, certificate, permission, license, approval, authority or exemption from, by or with a Government Authority; or
(b) in relation to anything which will be fully or partly prohibited or restricted by law if a Government Authority intervenes or acts in any way within a specified period after lodgement, filing, registration or notification, the expiry of that period without intervention or action.
225 “Authorized Officer” means:
(a) in relation to the Company, any officer of the Company whose title is or includes the words “Chief Financial Officer”, “Director” or “Company Secretary” or a person appointed as an authorized officer of the Company for the purposes of the Primary Debt Documents by a resolution of the board of Directors of the Company and in respect of whom the Security Trustee, the Note Trustee and the Principal Paying Agent (for itself and the other Agents) have received a certificate signed by a Director of the Company who is also an Authorized Officer of the Company pursuant to (in the case of the certificates delivered to the Note Trustee and the Principal Paying Agent) the Agency Agreement:
(i) setting out that person’s name, title and specimen signature; and
(ii) confirming the appointment, provided the Note Trustee or, as the case may be, the Security Trustee or, as the case may be, the relevant Agent has not received notice of revocation of that appointment; and
(b) in relation to any Primary Creditor, any attorney or agent of that Primary Creditor or any officer of that Primary Creditor whose title is or includes the word “Manager”, “Head”, “Executive”, “Director”, “President”, “Senior Vice President”, “Vice President” or “Associate Vice President”.
“Calculation Date” means each March 31 and September 30, occurring on or after March 31, 2021.
“Calculation Period” means:
(a) for the first Calculation Date falling on March 31, 2021, the period commencing from April 1, 2020 and ending on that Calculation Date; and
(b) in respect of each subsequent Calculation Date, the 12-month period ending on that Calculation Date.
“Capex Reserve Account Balance” means the balance of the Capital Expenditure Reserve Account.
“Capital Expenditure” means, at any time, the expenditure or obligation in respect of expenditure used to establish, maintain, repower as required and operate the assets and which, in accordance with Ind AS, is treated as capital expenditure.
“Capital Expenditure Reserve Account” has the meaning given to it in the Project Accounts Deed.
“Cash Flow Available for Debt Service” or “CFADS” means, in respect of any period, the aggregate amount of CFADS Operating Revenue for that period (which, for the avoidance of doubt, includes (i) any Terminal Value and (ii) interest revenue accrued on all Project Accounts (including the Distribution Account, to the extent any such interest is transferred to an Operating Account) to the extent not already included in CFADS Operating Revenue) less:
(a) Operating Expenses paid in that period, other than any other operating Expenses (including any Costs or fees payable in connection with the Existing Indebtedness, the Senior Secured Documents or any Additional Senior Debt and any Costs or break fees payable as a consequence of the repayment or prepayment of the Existing Indebtedness or any Hedge Termination Payments in respect of the Existing Indebtedness) funded by Permitted Finance Debt, equity contributions, any Sponsor Affiliate Debt or amounts withdrawn from a Project Account in accordance with the Conditions or Project Accounts Deed;
226 (b) Taxes paid by the Company in that Period; and
(c) Amounts paid to the Security Trustee, each Representative under the Senior Secured Documents and any third party paying, transfer, or listing agents or registrars in relation to the Senior Debt, in each case for paragraph (b) and (c) of this definition, without double counting.
“CFADS Operating Revenue” means Operating Revenue excluding (without double counting):
(a) non-recurring significant items (including but not limited to profits or losses on disposal of assets outside the ordinary course of business);
(b) extraordinary items (including but not limited to profits or losses on termination of any Secured Hedging Agreement);
(c) net payments received under any Secured Hedging Agreements;
(d) any other non-cash items (including but not limited to property revaluations);
(e) insurance proceeds, other than business interruption insurance proceeds or advance consequential loss of profit insurance proceeds or any proceeds applied towards reimbursement for repairs or reinstatement of an asset where the cost of the relevant repair or reinstatement is an Operating Expense; and
(f) proceeds of any Finance Debt or equity.
“Common Document” means:
(a) the Security Trustee Agreement;
(b) the Intercreditor Deed; and
(c) the Project Accounts Deed.
“Commitment” means for a Lender, the commitment that such Lender has under a Facility Agreement to the extent not cancelled, transferred or reduced under the applicable Facility Agreement.
“Compliance Certificate” means a compliance certificate with respect to a Calculation Period as referred to in Condition 4.32 and in the form set out in Schedule 5 to the Note Trust Deed or in such other form acceptable to the Security Trustee and the Note Trustee (acting on the instruction of the Noteholders by Extraordinary Resolution).
“Concession Agreement” means the concession agreement dated February 17, 2001 between GMB, APSEZ and the Government of Gujarat under which APSEZ has been granted a concession for the development, financing, designing, operation and maintenance of the Mundra Port in the State of Gujarat, India, as amended, restated, extended, replaced, supplemented or otherwise modified from time to time.
“Control” means in relation to an entity (of any kind), control or influence of, or having the capacity to control or influence, the composition of a majority of the members of the board, or control or having the capacity to control the decision making, directly or indirectly, in relation to the financial and operating policies of the entity, whether though the ownership of voting capital, by contract or otherwise.
227 “Core Assets” means the jetty and other assets strategic to the development and operation of the CT-3 and CT-3 Extension in Mundra Port that are set out in the detailed project report approved by the GMB, and as more particularly described in the Concession Agreement.
“Core Assets DOH” has the meaning set forth in Condition 3.2.3.
“Costs” means costs, charges, fees, expenses and disbursements (including without limitation any sales, value added, turnover, withholding or other tax on such amounts as aforesaid).
“Creditors” means the Primary Creditors, the Sponsor Affiliate Lenders and any other provider of Finance Debt to the Company.
“DSCR Condition” has the meaning set forth in Condition 4.34.
“Debt Documents” means each Primary Debt Document, each Subordinated Facility Agreement and any other agreement or instrument evidencing the terms of Subordinated Debt and any other document designated as such by the Security Trustee and the Company.
“Debt Service Cover Ratio” means, in relation to a Calculation Period ending on the relevant Calculation Date, the ratio of (i) CFADS plus any opening cash carried forward from the previous Calculation Date in the Operating Account to (ii) the sum of scheduled principal repayment (excluding any amounts refinanced, prepaid or voluntarily repaid and/or any amounts falling due under an overdraft or revolving facility which were available for simultaneous redrawing), interest payments to senior creditors and payments of any costs of recurring nature to senior creditors in relation to senior debt due or accrued during that period.
“Default” means an Event of Default or a Potential Event of Default.
“Defaulting Hedge Amounts” means any Hedge Termination Payment due to the occurrence of an event of default or termination event under the relevant Hedging Agreement in respect of which the Hedge Counterparty is the defaulting party or sole affected party together with any accrued interest on the Hedge Termination Payment.
“Delegate” means any agent or delegate appointed in writing by a Secured Party to act on behalf of such Secured Party under the Primary Debt Documents.
“Distribution” means any dividend, interest charges or, management fees or other fee (save for operations related fees and charges), loan, advance or other financial accommodation, payment or other distribution, or redemption, repurchase, defeasance, share buy-back, retirement or repayment relating to any share buy-back, capital reduction, Subordinated Debt or otherwise to or for the benefit of the Company or any Sponsor Affiliate Lender or any holder of the shares of the Company, excluding (i) reasonable corporate costs, (ii) reasonable directors’ fees and (iii) Operating Expenses.
“Distribution Account” has the meaning given to it in the Project Accounts Deed.
“Distribution Conditions” means at the time of the transfer of the relevant amount into the Distribution Account:
(a) no Sweep Event has occurred and is continuing;
(b) if such Distribution is made later than the date falling three years prior to the Maturity Date, such Distribution will be made only after meeting the requirement of the Senior Debt Restricted Amortization Account in accordance with Condition 4.31.3(j);
228 (c) the balance of the Company’s Senior Debt Service Reserve Account is not less than the amount required under Condition 4.32.3(g) and the Project Accounts Deed; and
(d) the DSCR Condition is satisfied.
“EBITDA” means the Company’s profit/(loss) for the relevant period adjusted for tax, depreciation and amortization expense, finance costs, foreign exchange (gains)/loss and infrastructure usage right charges, and less other income, each as calculated in accordance with Ind AS and derived from the most recent audited statutory financial statements delivered to the Security Trustee and the Noteholders (with a copy to the Note Trustee).
“EBITDA Forecast” means, with respect to any period from the relevant Calculation Date to the termination date of the Concession Agreement, the EBITDA forecast as determined by the Company on each Calculation Date.
“ECB Guidelines” means the Foreign Exchange Management (Borrowing and Lending) Regulations, 2018 of India, and the circulars issued thereunder from time to time including the Master Directions on External Commercial Borrowings, Trade Credits and Structures Obligations dated March 26, 2019 and the Master Directions on Reporting under Foreign Exchange Management Act, 1999 dated January 1, 2016, issued by the RBI, each as amended and/or updated and/or replaced by the RBI from time to time.
“Enforcement Action” means any of the following actions to:
(a) exercise any remedy under the Primary Debt Documents following an Event of Default which is continuing for the recovery of any amount owed by the Company including by way of set off and including:
(i) the exercise of any rights with respect to any Security Interests granted under the Security Documents; or
(ii) the exercise of any right of netting, set off or account combination against the Company in respect of any present and future liabilities, debts and other obligations at any time due, owing or incurred in connection with the Primary Debt Documents;
(b) initiate any insolvency, corporate insolvency resolution or other action (including to initiate any action or proceedings under the Insolvency and Bankruptcy Code, 2016 of India or any other analogous law for the time being in force), winding-up, liquidation, reorganization, administration or dissolution proceedings or any similar proceedings in each case that involves the Company and is in connection with the Primary Debt Documents, or any analogous procedure or step in any jurisdiction;
(c) sue for, commence or join any legal or arbitration proceedings against the Company to recover any present and future liabilities, debts and other obligations at any time due, owing or incurred in connection with the Primary Debt Documents;
(d) enter into any composition, compromise, assignment or arrangement with the Company which owes any present and future liabilities, debts and other obligations at any time due, owing or incurred, or has given any Security Interests against loss in respect of the present and future liabilities, debts and other obligations at any time due, owing or incurred (other than any action permitted under the terms of the Intercreditor Deed); or
(e) levy distress against the Company’s assets or undertaking or attach, levy execution, arrest or otherwise exercise any creditor’s process in respect of any asset or undertaking of any of them, in each case in connection with the Primary Debt Documents,
229 provided that upon occurrence of an Event of Default which is continuing, any notice issued by any Senior Secured Creditor to the Company to discharge their liabilities under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 of India and the rules made thereunder to preserve or protect the assets, rights or benefits secured under the Security Interest shall not constitute or be construed as an Enforcement Action, and may be exercised individually by such Senior Secured Creditor.
“Enforcement Notice” has the meaning given to it in the Intercreditor Deed.
“Enforcement Proceeds Account” has the meaning given to it in the Project Accounts Deed.
“Environment” means components of the earth, including:
(a) land, air and water;
(b) any layer of the atmosphere;
(c) any organic or inorganic matter and any living organism; and
(d) any human made or modified structure or area, and includes interacting natural ecosystems that include components referred to in paragraphs (a) to (d) of this definition.
“Environmental Laws” means any law relating to:
(a) the Environment (including any law relating to land use, planning, environmental assessment, pollutions, contamination, chemicals, waste, the use or presence of asbestos or dangerous goods or hazardous substances, building regulations, the occupation of buildings, heritage, species, flora and fauna or noise); or
(b) any aspect of protection of the Environment.
“Event of Default” has the meaning given in Condition 10.1.
“Event of Loss” means any loss to the business, operations, financial condition, assets or cash flow of the Company which is not covered by Insurance and could reasonably be expected to have a Material Adverse Effect.
“Excluded Accounts” shall mean the Statutory Reserve Account, any accounts opened for the purposes of managing any Excluded Payments and the Distribution Account.
“Excluded Payments” means:
(a) any Additional Senior Debt the proceeds of which are designated to be applied for a specified purpose;
(b) any Refinancing Debt;
(c) any Sponsor Affiliate Debt;
(d) the proceeds of a new equity contribution to or equity issuance by the Company;
(e) any Arrear Payments; and
230 (f) any insurance proceeds pertaining to public liability policies payable to relevant third parties or to the insured entity as indemnity for amounts paid by it to third parties.
“Existing Debt Documents” means:
(a) the US$180 million Facility Agreement dated July 26, 2018 entered into, inter alia, among the Company, Citibank N.A., Jersey Branch, DBS Bank Ltd. and Intesa Sanpaolo S.p.A. including each related financing and security document;
(b) the US$100 million Facility Agreement dated March 27, 2020 entered into, inter alia, among the Company and MUFG Bank, Ltd., Singapore Branch including each related financing document; and
(c) the US$50 million Foreign Currency Facility Agreement dated January 18, 2016 entered, inter alia, among the Company and the Export-Import Bank of India including each related financing and security document.
“Existing Indebtedness” means any Senior Secured Debt owed by the Company under the Existing Debt Documents.
“External Commercial Borrowings” means Finance Debt incurred in accordance with the ECB Guidelines.
“Extraordinary Resolution” has the meaning given to it in the Note Trust Deed.
“Facility Agreement” means each Senior Facility Agreement and each Subordinated Facility Agreement.
“Fee Letter” means any fee letter between (i) the Company and (ii) the Security Trustee, any Lender or any Representative on behalf of a Senior Secured Creditor Group.
“Finance Debt” means any indebtedness, present or future, actual or contingent in respect of any form of financial accommodation whatsoever, including:
(a) moneys borrowed (including overdrafts);
(b) moneys raised including moneys raised under or pursuant to any debenture, bond, bank guarantee facility, note or loan stock or other similar instrument;
(c) any acceptance, endorsement or discounting arrangement;
(d) receivables sold or discounted (otherwise than on a non-recourse basis);
(e) the acquisition cost of any asset or service to the extent payable more than 360 days after the time of acquisition or possession by the person liable as principal obligor for the payment thereof where the deferred payment is arranged primarily as a method of raising finance or financing or refinancing the acquisition of the asset or service acquired;
(f) finance leases, capital leases, credit sale or conditional sale agreements (whether in respect of land, buildings, plant, machinery, equipment or otherwise) which are treated as finance leases or capital leases in accordance with Ind AS but only to the extent of such treatment and other than land leases, but excluding operational leases which are treated as finance leases or capital leases in accordance with Ind-AS;
231 (g) the amount payable by the Company to any third person in respect of the redemption of any share capital or other securities issued by it (if the share capital or other securities are redeemable at the option of its holder or if the Company is otherwise obliged to redeem them, in each case, prior to or on the maturity date);
(h) swap, option, hedge, forward, futures or similar transaction (the amount of such Finance Debt being the mark-to-market value of the relevant transaction); or
(i) any guarantee, indemnity or similar assurance against financial loss of any person in respect of any indebtedness falling within paragraphs (a) to (i) (inclusive) of this definition, and so that, where the amount of Finance Debt is to be calculated or where the existence (or otherwise) of any Finance Debt is to be established:
(i) any undrawn amounts shall not be taken into account; and
(ii) in relation to any bank accounts subject to netting arrangements, the net balance shall be used.
For the the avoidance of doubt and notwithstanding anything herein to the contrary, land leases, concessions and sub-concessions shall not constitute “Finance Debt” or indebtedness, and shall not be prohibited by these Conditions and shall not be taken into account when calculating the amount of Finance Debt or indebtedness, or any ratio related thereto, under these Conditions.
“Financial Year” means the 12-month period ending on March 31, of each year.
“Fitch” means Fitch Ratings Inc.
“GMB” means the Gujarat Maritime Board.
“Good Industry Practice” means the exercise of the degree of skill, care and operating practice which would reasonably and ordinarily be expected from a skilled and experienced person engaged in the same type of undertaking as the Company under the same or similar circumstances.
“Government Authority” means a government, a government department, or a governmental, semi-governmental, statutory, administrative, parliamentary, provincial, public, municipal, local, judicial or quasi-judicial body.
“Hedge Counterparty” means each counterparty to a Hedging Agreement other than the Company.
“Hedge Termination Payment” means the net termination amount (however defined) payable by the Company pursuant to any Hedging Agreement.
“Hedging Agreement” means any agreement or instrument relating to the hedging of an interest rate exposure, currency exposure or commodity price exposure (including a swap, option, cap, collar or floor) or any other derivative or risk hedging instrument.
“Hedging Policy” means the initial hedging policy applicable to the Company set out in Condition 4.38, as such hedging policy may be amended from time to time by agreement between the Security Trustee (acting on the instructions of the Required Majority) and the Company.
“Immoveable Fixed Assets” shall mean all immoveable fixed assets of the Company other than the Core Assets.
232 “Immoveable Property” shall mean all land relating to CT-3 and CT-3 Extension leased to the Company under the Sub-Lease and Possession Agreement and all other immoveable properties and/or leasehold interest of the Company.
“Incur” means, with respect to any Finance Debt, to incur, create, issue, assume, guarantee or otherwise become liable for or with respect to, or become responsible for, the payment of, contingently or otherwise, such Finance Debt. The terms “Incurrence”, “Incurred” and “Incurring” have meanings correlative with the foregoing.
“Ind AS” means Indian Accounting Standards issued by the Ministry of Corporate Affairs, Government of India, as in effect from time to time.
“Indian Rupee” or “INR” means the lawful currency of the Republic of India.
“Infrastructure Services and Port Facilities Agreements” means (i) the infrastructure services and port facilities agreement dated June 29, 2013 executed between APSEZ and the Company; and (ii) the infrastructure services and port facilities agreement dated November 1, 2017 (as amended) executed between APSEZ and the Company, collectively, in each case as may be amended from time to time.
“Initial Issue Date” means the date on which the Initial Senior Notes are issued by the Company.
“Initial Note Documents” means:
(a) the Note Trust Deed;
(b) the Agency Agreement;
(c) the Initial Subscription Agreement; and
(d) each Initial Senior Note.
“Initial Security Documents” means the documents executed or to be executed pursuant to Condition 3.2.2.
“Initial Security Longstop DOH” has the meaning set forth in Condition 3.2.2.
“Initial Security Longstop POA” has the meaning set forth in Condition 3.2.2.
“Initial Senior Notes” means the Notes issued under the Initial Note Documents.
“Initial Subscription Agreement” means the subscription agreement in relation to the Initial Senior Notes issued by or to be issued by the Company dated December 14, 2020 between the Company and the purchasers named therein.
“Initial Termination Payment” means any Hedge Termination Payment made by the Company to a Hedge Counterparty pursuant to any Hedging Agreement following the repayment of any Senior Secured Debt which is the subject of the relevant Hedging Agreement, by applying the proceeds of the Notes.
“Insurance” means the insurance that each Company is required to obtain and maintain in accordance with Condition 4.13.
233 “Intercreditor Deed” means the Intercreditor Deed (as amended and/or supplemented from time to time) to be dated on or about December 21, 2020 between, among others, the Note Trustee, the Security Trustee and certain financial institutions named therein.
“Interest Period” has the meaning set forth in Condition 6.1.
“Issue Date” means:
(a) in respect of debt securities, the date on which such debt securities are issued, which includes the Initial Issue Date in respect of the Notes;
(b) in respect of a Loan Facility, the date on which the first utilization of the Loan Facility occurs; or
(c) in respect of any other Finance Debt, the date the relevant Finance Debt is first drawn down, issued, funded or utilized.
“Joint Venture Agreement” means the joint venture agreement dated October 31, 2011 between Mundi Limited, APSEZ and the Company setting out the rights and obligations of Mundi Limited and APSEZ in relation to the organization, operation and management of the Company and its business, as amended, restated, supplemented or otherwise modified from time to time.
“Lender” means any lender which is party to a Facility Agreement from time to time.
“Loan” means a loan made or to be made under a Loan Facility or the principal amount outstanding for the time being of that loan.
“Loan Facility” means a credit facility provided under a Facility Agreement (and, for the avoidance of doubt, does not include any Note Issuance).
“Material Adverse Effect” means any event, circumstance, occurrence or condition which has a material adverse effect on:
(a) the ability of the Company to perform its payment or other material obligations under the Notes;
(b) the business, operations or financial condition of the Company; or
(c) the legality validity, binding nature or enforceability of the whole or any material part of any of the Primary Debt Documents relating to the Notes.
“Material Documents” means the Sub-Concession Agreement and the Joint Venture Agreement.
“Moody’s” means Moody’s Investors Service, Inc.
“Non-Core Assets” has the meaning set forth in Condition 3.2.2.
“Non PAD Accounts” has the meaning set forth in Condition 4.31.1.
“Non PAD Accounts – Bill Discounting Exchange” means such accounts opened/ to be opened with other scheduled commercial banks for onward payment of bills discounting facilitated through exchanges.
234 “Non PAD Accounts – H2H Payment” means such accounts opened/ to be opened with other scheduled commercial banks which provide ’host to host’ services for making payments to vendors, salaries etc.
“Non PAD Accounts – Rail Freight” means such accounts opened/ to be opened with other scheduled commercial banks for making payments for rail freight charges to the relevant authorities.
“Non PAD Accounts – Regulatory Payment” means such accounts opened/ to be opened with other Scheduled Commercial Banks for making regulatory payments.
“Non PAD Accounts – Salary Payment” means such accounts opened/ to be opened with other Scheduled Commercial Banks for making payments of salaries.
“Non PAD Accounts – Statutory Payment Accounts” shall mean such accounts opened/ to be opened with other Scheduled Commercial Banks for making customs and other statutory payments.
“Note Issuance” means any offering or issuance of notes or bonds in the debt capital markets by the Company with substantially the same terms and conditions (other than as to maturity), which may take the form of a private placement, a Rule 144A/Regulation S issuance or any other public issuance outside of India.
“Offering Circular” means the offering circular dated December 14, 2020 relating to the Notes.
“Office Facilities Agreement” means the office facilities agreement dated July 1, 2013, as amended entered into by the Company with APSEZ to avail, inter alia, on a non-exclusive and sharing basis, various facilities, amenities and utilities including various departments, APSEZ’s employees and related office infrastructure for discharging the Company’s corporate function.
“Operating Account” means each operating account established or to be established and maintained by the Company in accordance with these Conditions and the Project Accounts Deed.
“Operating Account Waterfall” means the payment waterfall set out in Condition 4.31.
“Operating Expenses” means any Costs and Taxes of the Company incurred in connection with its operation of the Permitted Business and/or the issuance of the Notes, including:
(a) any payments under the Concession Agreement and the Sub-Concession Agreement;
(b) any premia payable in respect of Insurance;
(c) administrative costs (excluding distributions but including any amounts payable to meet reasonable directors’ fees);
(d) Costs in respect of Project Accounts;
(e) rail service charges, office service charges, waterfront royalties and revenues and any other charges and fees payable by the Company to APSEZ in the ordinary course of business, including pursuant to the Office Facilities Agreement and other contracts entered into with APSEZ; and
(f) fees of engineers, accountants, auditors, consultants and legal or other professional advisers, excluding for the avoidance of doubt, any capital expenditures and any non-cash foreign exchange gains and losses.
235 “Operating Revenue” means in respect of any period the operating revenue of the Company for that period, determined in accordance with Ind AS including the proceeds of any Permitted Disposals and any insurance.
“Payment Blockage” means:
(a) a senior default is subsisting in relation to non-payment of any amount due to a Senior Creditor; or
(b) a senior default subsists (except an Event of Default in respect of a non-payment of Subordinated Debt), and either:
(a) the Security Trustee (on the instructions of the Required Majority) delivers a notice (a “Payment Blockage Notice”) to each Representative of each Subordinated Creditor Group and Senior Creditor Group specifying the relevant default has occurred and is continuing and suspending payments of the Subordinated Debt; or
(b) the Company is otherwise aware that the Default subsists.
A Payment Blockage will subsist until the first to occur of:
(a) the date on which the Payment Blockage Notice is cancelled or withdrawn by written notice by the Security Trustee (acting on the instructions of the Required Majority) to each representative of each Subordinated Creditor Group and each Senior Creditor Group; or
(b) the date on which the relevant Default ceases to subsist as confirmed in a written notice by the relevant representatives of the Senior Secured Creditors.
“Permitted Businesses” means:
(a) owning and operating Specified Assets;
(b) maintenance of Specified Assets; and
(c) entering into any finance agreement for the purpose of financing or refinancing (whether directly or indirectly) any Specified Assets.
“Permitted Disposal” means:
(a) any disposal effected by way of the grant or creation of a Permitted Security Interest;
(b) the disposal of any asset of the Company at arm’s length and for fair value that is obsolete, surplus to requirements or no longer required for the proper and efficient operation of the Company’s business;
(c) any withdrawal from the Operating Account in connection with the prepayment of any Existing Indebtedness and any other withdrawals permitted by or made in accordance with the provisions of the Primary Debt Documents;
(d) the withdrawal or transfer of any amount from the Distribution Account;
236 (e) any other disposal of an asset if the Company provides a Required Certification to the Security Trustee in relation to the disposal and no Default is subsisting or would occur as a result of the disposal; and
(f) any disposals not otherwise permitted under paragraphs (a) to (e) above, which is at arm’s length and for fair value that in aggregate do not exceed US$25,000,000 (or its equivalent in another currency) in any Financial Year.
“Permitted Distribution” means a Distribution:
(a) funded by a Subordinated Debt or the proceeds of contribution to the share capital of the Company;
(b) provided that no Default subsists or would result from the proposed Distribution:
(i) from the Company to a Subordinated Lender for the payment or repayment of any Subordinated Facility Agreement where such payment or repayment is funded from the balance in its Distribution Account; or
(ii) funded by the proceeds of a Permitted Finance Debt; and
(c) not otherwise covered by any of paragraphs (a) to (b) above, provided that (i) no Default subsists or would result from the proposed Distribution and (ii) if the Distribution Conditions would be complied with on the date of the transfer of the relevant amount into the Distribution Account.
“Permitted Finance Debt” means Finance Debt, to the extent permitted under the Primary Debt Documents, arising under or in respect of:
(a) any finance leases entered into by the Company prior to the Initial Issue Date and any other finance leases (including any operational leases to the extent that they may be characterized as finance leases under Ind AS), hire purchase arrangements or similar facilities where the lease provider’s recourse is limited to the asset leased to the Company that is the lessee, and the total value of all such lease facilities entered into by the Company at any time does not exceed US$20,000,000 on an aggregate basis (or its equivalent in another currency) other than by reason of any change in the accounting treatment of any finance lease in accordance with Ind AS;
(b) the Primary Debt Documents;
(c) any trade credit arising in the ordinary course of trading;
(d) any guarantees or Hedging Agreement otherwise expressly permitted under the Primary Debt Documents, it being understood that the hedge counterparties under any such Hedging Agreement shall have the right to accede to the Intercreditor Agreement so that they shall rank pari passu with any Senior Debt and have the benefit of the Security;
(e) any Permitted Working Capital Facility;
(f) any Senior Debt;
(g) any Subordinated Debt;
(h) any bank guarantee to be provided to governmental authorities, licensors or suppliers in the ordinary course of business;
237 (i) any Finance Debt incurred for refinancing all or any part of the Notes or any other Permitted Finance Debt;
(j) any swap, option, hedge, forward, future or similar transactions entered into in the ordinary course of business including any marked to market value of any such transaction and any increase in obligations under any such derivative transaction arising from any refinancing, renewal, replacement or extension of any underlying Finance Debt which is the subject matter of that derivative transaction;
(k) any workers’ compensation claims, self-insurance obligations, bankers’ acceptances, performance bonds, surety bonds and similar obligations in the ordinary course of business;
(l) any bid bond in relation to the Company;
(m) any acceptance, endorsement or discounting arrangement which does not exceed 5.0 per cent. of Senior Secured Debt or Senior Unsecured Debt outstanding; and
(n) any other Finance Debt incurred with the prior written consent of the Security Trustee.
“Permitted Financial Accommodation” means:
(a) any financial accommodation or guarantee for the benefit of any person in accordance with the Primary Debt Documents;
(b) any Finance Debt or other financial accommodation provided to a Sponsor Affiliate Lender on or before the Initial Issue Date or made from amounts in the Distribution Account or by application of the proceeds of any Permitted Finance Debt (in each case where such application or accommodation is permitted by any Primary Debt Document) or any renewal, replacement or extension of any such financial accommodation;
(c) any guarantees for the benefit of the Company or with respect to Permitted Finance Debt of the Company;
(d) trade credit entered into in the ordinary course of business (including the provision of deferred payment terms to any other debtors in the ordinary course of business); or
(e) any other transaction which is permitted under Condition 4.24.
“Permitted Shareholder Transfer” has the meaning set forth in Condition 3.2.2.
“Permitted Shareholder Transfer Opinions” has the meaning set forth in Condition 3.2.2.
“Permitted Shareholder Transfer Security Documentation” has the meaning set forth in Condition 3.2.2.
“Permitted Security Interest” means:
(a) a lien or charge arising by operation of law and in the ordinary course of trading so long as the debt it secures is paid when due or contested in good faith and appropriately provisioned;
(b) a retention of title arrangement in connection with the acquisition of goods in the ordinary course of business (which terms must require payment within 360 days);
(c) bankers’ liens, rights of set-off or other netting arrangements and/or any Security Interest arising in respect of any Permitted Finance Debt;
238 (d) any lien for:
(i) rates, Taxes, duties or fees of any kind payable to a Government Authority; or
(ii) money payable for work performed by suppliers, mechanics, workmen, repairmen or employees and, in each case, arising in the ordinary course of business, either not yet due or being contested in good faith by the Company;
(e) any Security Interest created or arising under a Primary Debt Document;
(f) any Security Interest over an asset that has been acquired using Finance Debt by way of a finance that constitutes Permitted Finance Debt or by any operating lease;
(g) any Security Interest over an asset created before that asset was acquired by the Company but not in contemplation of its acquisition and where the amount secured by the Security Interest is not increased following the acquisition and (unless the Security Interest is otherwise a Permitted Security Interest) the Security Interest is discharged in full within 360 days of the acquisition;
(h) any Security Interest created over an asset in respect of any Permitted Finance Debt;
(i) any Security Interest created to secure the Existing Indebtedness incurred by the Company under the Existing Debt Documents;
(j) any Security Interest created or arising in connection with loan or financing agreements entered into between the Company and working capital lenders; or
(k) any other Security Interest created or granted with the prior written consent of the Security Trustee.
“Permitted Steps” means:
(a) the Trustee releases shares to the extent allowed pursuant to these Conditions, which does not lead to a Change of Control Trigger Event; and
(b) the purchaser of the shares undertakes to pledge the shares in favor of Trustee for the benefit of Senior Debt Lenders.
“Permitted Working Capital Facility” means any Finance Debt raised under one or more facilities for the purpose of financing working capital and/or general corporate purposes of the Company, the aggregate amount of which shall not, at any time, exceed US$35,000,000, and provided that the lender under such facility accedes to the Intercreditor Deed.
“Potential Event of Default” means any event or circumstance which, with the giving of notice, lapse of time, satisfaction of a condition or determination (or any combination of these) would be an Event of Default.
“Primary Creditor Group” means with respect to any Primary Debt Documents:
(a) under which one or more Loan Facilities are granted, the Lenders party to such Primary Debt Documents (so that the Lenders with respect to each such Facility Agreement shall constitute a separate Primary Creditor Group);
239 (b) under which a Note Issuance is issued, the holders holding the relevant debt securities (so that the holders with respect to each such Note Issuance shall constitute a separate Primary Creditor Group);
(c) that is a Secured Hedging Agreement, the Senior Secured Hedge Counterparty party to that agreement (so that each Senior Secured Hedge Counterparty shall constitute a separate Primary Creditor Group); or
(d) any other group of Primary Creditors that provide Finance Debt under any other Primary Debt Documents.
“Primary Creditors” means the Senior Creditors and any Subordinated Creditors and does not include any Sponsor Affiliate Lenders.
“Primary Debt” means all present and future liabilities, debts and other obligations at any time due, owing or incurred by the Company to any Primary Creditor under the Primary Debt Documents, both actual and contingent and whether incurred solely or jointly and as principal or surety or in any other capacity.
“Primary Debt Documents” means:
(a) each Senior Secured Document;
(b) each Senior Unsecured Document;
(c) each Subordinated Document;
(d) each Common Document; and
(e) any other document designated as a Primary Debt Document by the Security Trustee and the Company.
“Project Accounts” means the accounts established and being operated and/or to be established and operated pursuant to the Project Accounts Deed and includes the Capital Expenditure Reserve Account, the Enforcement Proceeds Account, the Operating Account, the Senior Debt Redemption Account, the Senior Debt Restricted Amortization Account, the Senior Debt Restricted Reserve Account, the Senior Debt Service Reserve Account, the Subordinated Debt Service Reserve Account, the Surplus Holdings Account, the Distribution Account, the Statutory Reserve Account and any other bank account opened as a sub-account of any of the above in accordance with the terms of the Project Accounts Deed and the Primary Debt Documents, except any accounts that are classified as the Non PAD Accounts.
“Project Accounts Deed” means:
(a) initially, the project accounts deed in a form satisfactory to the Company and the Security Trustee (acting on the instructions of the Representatives of each Primary Creditor Group) to be entered into between the Company, the Security Trustee and the Account Bank; and
(b) thereafter, and any replacement or additional project accounts deed designated as a “Project Accounts Deed” for the purposes of the Intercreditor Deed by the Company and the Security Trustee (acting on the instructions of the Required Majority).
240 “Project Documents” means all documents in relation to CT-3 and CT-3 Extension, including without limitation, (i) the Sub-Concession Agreement, (ii) the Sub-Lease and Possession Agreement, (iii) the Rail Service Agreement, and (iv) the Infrastructure Services and Port Facility Agreement, in each case, as amended from time to time.
“Project Life Cover Ratio” means the ratio of:
(a) the net present value (discounted using the Discount Rate) of the sum of (A) the EBITDA Forecast until the termination date of the Concession Agreement and (B) any residual value of assets of the Company (including (i) cash or cash equivalents other than cash standing to the credit of the Senior Debt Restricted Amortization Account, the Senior Debt Service Reserve Account, the Senior Debt Restricted Reserve Account, and the Senior Debt Redemption Account), (ii) the Terminal Value and (iii) any other indemnity or other payment due under the Concession Agreement); to
(b) Senior Debt minus any cash or cash equivalents standing to the credit of the Senior Debt Restricted Amortization Account, the Senior Debt Service Reserve Account, the Senior Debt Restricted Reserve Account and the Senior Debt Redemption Account.
For the purposes of this definition, “Discount Rate” shall mean the weighted average cost of Senior Debt outstanding on the date on which the Project Life Cover Ratio is calculated.
“Rail Services Agreement” means the rail service agreement dated July 1, 2013 read with the amendment dated July 31, 2018 executed between APSEZ and the Company.
“Rating Agency” means Fitch, Moody’s or S&P.
“RBI” means the Reserve Bank of India established under the RBI Act.
“RBI Act” means the Reserve Bank of India Act, 1934 of India.
“Refinancing Debt” means:
(a) the Senior Secured Refinancing Debt;
(b) the Senior Unsecured Refinancing Debt;
(c) the Subordinated Refinancing Debt; and
(d) any Additional Senior Unsecured Debt the proceeds of which will refinance all or any part of any Subordinated Debt and/or Senior Debt.
“Relevant Calculation Period” means:
(a) the period from the Initial Issue Date to (and including) March 31, 2021; and
(b) each six-month period thereafter.
“Representative” means each representative of a Primary Creditor Group appointed in accordance with any Primary Debt Document.
“Required Certification” means, in relation to any proposed amendment or waiver or other proposed action:
241 (a) subject to paragraph (b) of this definition, a certificate issued from any two of the Rating Agencies stating that effecting the relevant amendment or waiver or taking the relevant action would not cause the current rating of the Notes to be downgraded, or a confirmation from at least two of the Rating Agencies to the effect that they will not issue such a certificate because the relevant amendment, waiver or action is not a credit matter (or words substantially to that effect); or
(b) if any material aspect of the amendment or waiver relates to a technical matter, a confirmation from a reputable and independent technical adviser with appropriate qualifications and experience confirming that, in its reasonable opinion, the amendment or waiver would not have a material and adverse effect on the operations of the Company.
“Required Capex Reserve Account Balance” means the capital expenditure requirement of the Company to be funded through internal accruals in accordance with the funding plan for the next six months as set forth in the latest Compliance Certificate.
“Required Senior Debt Service Reserve Account Balance” means, in relation to the Company’s Senior Debt Service Reserve Account, at any time, the balance required for the Senior Debt Service Reserve Account, equal to the aggregate amount of:
(a) interest payable (or reasonably anticipated to be payable) by the Company (calculated by the Company for the relevant Senior Debt owed by it to the Senior Creditors under the relevant Primary Debt Documents and in relation to a Senior Debt denominated in a currency other than INR calculated on the basis of (i) the rate set out in the relevant Hedging Agreement in respect of the current or about to commence Interest Period at such time or (ii) (in the event where there is no relevant Hedging Agreement) the applicable rate as determined by the Company on the relevant Calculation Date) in respect of all its Senior Debt during the period commencing from that date and ending on the date six months thereafter (adjusting the amount of any cash reserve over which specific Security has been granted for all Senior Debt) in accordance with the Project Accounts Deed; and
(b) the applicable scheduled principal amount payable by the Company in respect of its Senior Debt (excluding, for the avoidance of doubt, any voluntary or mandatory prepayments, any scheduled balloon payments and any amounts falling due under an overdraft or revolving facility which were available for simultaneous redrawing) during the period commencing from that date and ending on the date falling six months thereafter.
“Required Subordinated Debt Service Reserve Account Balance” means such amount that may required to be maintained as debt service reserve for servicing of Subordinated Debt (if applicable for such Subordinated Debt) to the extent and in such manner not restricted under the Primary Debt Documents.
“Required Majority” means in relation to any consent, instruction, waiver or amendment, as defined in accordance with the relevant Primary Debt Document where such consent, instruction, waiver or amendment relates to such Primary Debt Document.
“Scheduled Commercial Banks” means banks in India that are included in the second schedule of the RBI Act.
“SEBI” means the Securities and Exchange Board of India established under the Securities and Exchange Board of India Act 1992 of India.
“SEBI Regulations” means the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 of India, the Securities and Exchange Board of India (Listing
242 Obligations and Disclosure Requirements) Regulations, 2015 of India and such other applicable rules, regulations, notifications and circulars issued by SEBI from time to time.
“Secured Hedging Agreement” means each Hedging Agreement entered into by the Company in compliance with the Intercreditor Deed.
“Secured Party” means the grantee of Security under each Security Document.
“Securities Act” means the U.S. Securities Act of 1933, as amended.
“Security” means the Security Interest granted under each Security Document.
“Security Document” means the Initial Security Documents and the Subsequent Security Documents.
“Security Interest” means a mortgage, charge, pledge, lien encumbrance, security interest or any other security agreement or arrangement having a similar effect.
“Security Period” means the period beginning on the Initial Issue Date and ending on the date on which all Primary Debt having benefit of the Security has been unconditionally and irrevocably paid and discharged in full and all Commitments under the Primary Debt Documents having benefit of the Security have been canceled or have expired.
“Security Trustee Agreement” means the Security Trustee Agreement (as amended and/or supplemented from time to time) to be dated on or about December 21, 2020 between, among others, the Company and the Security Trustee.
“Senior Creditor” means each Senior Secured Creditor and Senior Unsecured Creditor.
“Senior Creditor Group” means a Primary Creditor Group of Senior Creditors.
“Senior Debt” means both Senior Secured Debt and Senior Unsecured Debt.
“Senior Debt Redemption Account” has the meaning given to it in Condition 4.30.
“Senior Debt Refinance Date” means any date on which any outstanding Senior Debt is to be refinanced by the Company.
“Senior Debt Restricted Amortization Account” has the meaning given to it in the Project Accounts Deed.
“Senior Debt Restricted Reserve Account” has the meaning given to it in the Project Accounts Deed.
“Senior Debt Service Reserve Account” has the meaning given to it in the Project Accounts Deed.
“Senior Debt Service Reserve Account Balance” means the balance of the Senior Debt Service Reserve Account.
“Senior Document” means each Senior Secured Document and Senior Unsecured Document.
“Senior Facility Agreement” means any facility or facilities agreement under which the Company incurs Senior Secured Debt.
243 “Senior Lender” means any Lender under a Senior Facility Agreement from time to time.
“Senior Note” means any debt security issued under a Senior Note Document, including the Notes.
“Senior Note Document” means, in respect of a Senior Note Issuance, the documentation of that Senior Note Issuance.
“Senior Noteholder” means, in respect of a Senior Note Issuance, each person who is, for the time being, the holder of any Senior Note issued as part of that Senior Note Issuance.
“Senior Note Issuance” means:
(a) the issuance of the Notes by the Company; and
(b) any other issuance of debt securities under which the Company incur Senior Debt in accordance with Condition 4.
“Senior Secured Creditor” means:
(a) each Senior Lender;
(b) each Senior Noteholder;
(c) each Senior Secured Hedge Counterparty;
(d) each Representative of a Senior Secured Creditor Group;
(e) the Security Trustee; and
(f) each Account Bank, in each case, who is a party to the Intercreditor Deed, in each case, directly or through its Representative.
“Senior Secured Creditor Group” means a Primary Creditor Group of Senior Secured Creditors.
“Senior Secured Debt” means all present and future liabilities (actual or contingent) owing to the Senior Secured Creditors under the Senior Secured Documents.
“Senior Secured Document” means:
(a) each Common Document;
(b) each Security Document entered into as Security for the Senior Secured Debt;
(c) each Senior Note Document;
(d) each Senior Facility Agreement;
(e) each Existing Debt Document;
(f) each Senior Secured Hedging Agreement;
(g) each Fee Letter to which a Senior Creditor is a party;
244 (h) each Additional Senior Secured Debt Finance Document entered into in compliance with Condition 4; and
(i) each other document designated as a Senior Document by the Security Trustee and the Company.
“Senior Secured Hedge Counterparty” means, from time to time, any hedge counterparty which is party to the Intercreditor Deed in relation to a Senior Secured Hedging Agreement.
“Senior Secured Hedging Agreement” means each Hedging Agreement entered into by the Company in compliance with the Intercreditor Deed with a Senior Secured Hedge Counterparty.
“Senior Secured Refinancing Debt” means Additional Senior Secured Debt, the proceeds of which will refinance all or any part of the Senior Debt and/or Subordinated Debt.
“Senior Unsecured Creditors” means the creditors in relation to the Hedge Counterparty in relation to any Hedging Agreement (other than a Senior Secured Hedging Agreement) and any other person who is a creditor in respect of any Senior Unsecured Debt to the extent permitted under each Primary Debt Document.
“Senior Unsecured Debt” means all present and future liabilities (actual or contingent) owing to the Senior Unsecured Creditors under the Senior Unsecured Documents.
“Senior Unsecured Document” means the documents entered into or to be entered into between the Company and the relevant Senior Unsecured Creditors in relation to any Senior Unsecured Debt.
“Senior Unsecured Hedge Counterparty” means, from time to time, any hedge counterparty which is party to the Intercreditor Deed in relation to a Senior Unsecured Hedging Agreement.
“Senior Unsecured Hedging Agreement” means each Hedging Agreement entered into by the Company in compliance with the Intercreditor Deed with a Senior Unsecured Hedge Counterparty.
“Senior Unsecured Refinancing Debt” means Additional Senior Unsecured Debt, the proceeds of which will refinance all or any part of the Senior Debt and/or Subordinated Debt.
“Solvent” means, with respect to the Company, on a particular date, that on such date:
(a) it is able to, and has not admitted its inability to, pay its debts as they mature and has not suspended making payment on any of its debts;
(b) it has not, by reason of actual or anticipated financial difficulties, commenced, or does not intend to commence, negotiations with one or more of its creditors with a view to rescheduling or restructuring any of its indebtedness;
(c) no moratorium has been, or may, in the reasonably foreseeable future be, declared in respect of any of its indebtedness;
(d) no proceedings have been initiated under the Insolvency and Bankruptcy Code, 2016 of India, which are likely to result in the relevant tribunal, ordering the liquidation of the Company under the Insolvency and Bankruptcy Code, 2016 of India; and
(e) no action has been initiated against or is pending in relation to the “Corporate Debt Restructuring” mechanism of the RBI.
245 “Specified Assets” means the assets (both present and future) of the Company in relation to the operation of CT-3 and CT-3 Extension and any ancillary infrastructure assets related thereto.
“Sponsor Affiliate Debt” means any subordinated loans made available by any Sponsor Affiliate Lender and which are subordinated to the Senior Debt under the terms of the Intercreditor Deed.
“Sponsor Affiliate Debt Document” means any document entered into or to be entered into between the Company and a SponsorAffiliate Lender in relation to any Sponsor Affiliate Debt or, with respect to the Additional Sponsor Affiliate Debt, designated as such by the Company and the Security Trustee.
“Sponsor Affiliate Lender” means any of the lenders that are controlled by the Adani Group or TiL or any member thereof.
“Sponsor Subordination Period” means the period commencing on the date on which the Primary Debt is first drawn and ending on the date that all of the Primary Debt has been unconditionally and irrevocably paid and discharged in full and all Commitments under the Primary Debt Documents have been canceled or have expired.
“Statutory Reserve Account” means the current account of the Company maintained or established with the Account Bank and titled the Statutory Reserve Account, along with any sub-accounts thereof and all replacements of such account and sub-account.
“Sub-Concession Agreement” means the sub-concession agreement dated October 17, 2011 executed among APSEZ and the Company, as amended, restated, extended, replaced, supplemented or otherwise modified from time to time.
“Sub-Lease and Possession Agreement” shall mean the sub-lease and possession agreement to be entered into, inter alios, between APSEZ and the Company in relation to CT-3 and CT-3 Extension, as amended from time to time.
“Subordinated Creditor Group” means a Primary Creditor Group of Subordinated Creditors (other than Sponsor Affiliate Lenders).
“Subordinated Creditors” means:
(a) each Subordinated Noteholder;
(b) each Subordinated Lender;
(c) each Sponsor Affiliate Lender; and
(d) any other creditor that is a provider of Subordinated Debt under Subordinated Documents.
“Subordinated Debt” means any Additional Subordinated Debt and any Sponsor Affiliate Debt.
“Subordinated Debt Service Reserve Account” has the meaning given to it under the Project Accounts Deed.
“Subordinated Debt Service Reserve Account Balance” means the balance of the Subordinated Debt Service Reserve Account.
246 “Subordinated Document” means:
(a) each Security Document entered into as Security for the Subordinated Debt;
(b) each Subordinated Note Document;
(c) each Subordinated Facility Agreement;
(d) each Additional Debt Finance Document with respect to Additional Subordinated Debt that complies with Condition 4; and
(e) each other document designated as a Subordinated Document by the Company and the Security Trustee.
“Subordinated Facility Agreement” means any facility or facilities agreement under which the Company incurs Subordinated Debt permitted under the Primary Debt Documents.
“Subordinated Hedging Agreements” means a Hedging Agreement, entered into by the Company with the Subordinated Hedge Counterparty, for the purpose of availing hedging facilities in relation to the Subordinated Debt.
“Subordinated Hedge Counterparty” means, from time to time, any hedge counterparty which is party to the Intercreditor Deed in relation to a Subordinated Hedging Agreement.
“Subordinated Lender” means any lender under a Subordinated Facility Agreement from time to time.
“Subordinated Note” means, in respect of a Subordinated Note Issuance, any debt security issued as a part of that Subordinated Note Issuance.
“Subordinated Note Document” means, in respect of a Subordinated Note Issuance, the documentation of that Subordinated Note Issuance.
“Subordinated Noteholder” means, in respect of a Subordinated Note Issuance, each person who is, for the time being, the holder of any Subordinated Note issued as part of that Subordinated Note Issuance.
“Subordinated Note Issuance” means any Note Issuance under which the Company incur Subordinated Debt under and in accordance with Condition 4.
“Subordinated Refinancing Debt” means any Additional Subordinated Debt the proceeds of which will refinance all or any part of any Subordinated Debt and/or Senior Debt.
“Subsequent Security Documents” means the documents executed or to be executed pursuant to Condition 3.2.3.
“Subsidiary” means any company or other business entity of which the first company owns or controls (either directly or indirectly through another or other Subsidiaries) more than 50 per cent. of the issued share capital or other ownership interest having ordinary voting power to elect directors, managers or trustees of such company or other business entity, or any company or other business entity which at any time has its accounts consolidated with those of the first company, or which under Indian law, regulations or Ind AS from time to time, should have its accounts consolidated with those of the relevant company.
“Surplus Holdings Account” has the meaning given to it under the Project Accounts Deed.
247 “S&P” means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies, Inc.
“Tax” means any charges, deductions, duties (including stamp duty, financial institutions duty, transaction duty and bank account debit tax), fees, imposts, levies, taxes (including any consumption tax, goods and services tax and value added tax) and withholdings (together with any interest, penalties, fines and expenses in connection with any of them) imposed by any Government Authority.
“Terminal Value” means, without double counting:
(a) any payment from GMB to APSEZ, relating to the assets of the Company, as a result of a Normal Transfer or Early Termination under and as defined in the Concession Agreement, or
(b) any payment from APSEZ to the Company as a result of the Termination (as defined in the Concession Agreement).
“Transaction Date” means, with respect to the Incurrence of any Finance Debt, the date such indebtedness is to be Incurred.
“Transaction Security” means the Security Interests created or evidenced or expressed to be created or evidenced under or pursuant to the Security Documents to secure the relevant Senior Secured Debt.
“U.S.” or “United States” means the United States of America.
“U.S. dollars” or “US$” means the lawful currency of the United States of America.
248 DESCRIPTIONOFTHECOLLATERALANDSECURITYDOCUMENTS
Collateral
(I) Description of Collateral:
The obligations of the Issuer with respect to the Notes and the performance of all other obligations of the Issuer under the Note Trust Deed and the Notes will be secured by the Collateral, a brief description of which is set out below:
(a) a non-disposal undertaking in respect of Immovable Property (both present and future) until the creation and perfection of security interest in terms of sub-clause (d) below as per the timelines stipulated below;
(b) a non-disposal undertaking in respect of CoreAssets and Immovable Fixed Assets (both present and future) until the creation and perfection of security interest in terms of sub-clause (e) below as per the timelines stipulated below;
(c) a first ranking pari passu charge on:
(i) all tangible and intangible movable assets including accounts, book debts, current and non-current assets, cash flows, receivables (including monies that may be received pursuant to the APSEZ Undertaking), commissions and revenues of whatsoever nature and whenever arising, including those arising out of operation of CT-3 and CT-3 Extension (both present and future) not forming part of Core Assets;
(ii) the ProjectAccounts under the ProjectAccounts Deed (other than the Excluded Accounts) and amounts lying to the credit of such Project Accounts (both present and future);
(iii) the rights, title, interest and benefits of the Issuer under the APSEZ Undertaking;
(iv) the rights, title, interest and benefits of the Issuer under the Infrastructure Services and Port Facilities Agreements and Rail Services Agreement, including the right to use intangible assets forming part of common infrastructure or facilities granted to the Issuer by APSEZ;
(v) the rights, title, interest and benefits of the Issuer under the Sub-Concession Agreement and other related Project Documents (duly acknowledged and consented to by the relevant counterparties, if applicable), in each case, as amended, varied or supplemented from time to time;
(vi) all performance bonds, contractors’ guarantees and any letter of credit provided under the Project Documents;
(vii) the rights, title, interest and benefits of the Issuer under licenses, permits, approvals, consents and the authorizations obtained by the Issuer, to the extent they are capable of assignment under the respective terms thereof; and
(viii) the rights, title, interest and benefits of the Issuer under the insurance policies in relation to its assets (along with endorsement by a loss payee clause in favor of the Security Trustee).
249 (d) a first ranking pari passu mortgage over Immovable Property (both present and future);
(e) a first ranking pari passu charge on the Core Assets and Immovable Fixed Assets (both present and future);
In addition, the shareholders of the Issuer shall execute a non-disposal undertaking in favor of the Security Trustee with respect to 100% (one hundred percent) of the and preference share capital of the Issuer (“AICTPL Shares NDU”), which shall contain a specific carve-out allowing a shareholder to freely transfer its shares to any entity as long as such transfer does not result in a Change of Control.
In addition to the aforesaid, the Collateral shall also include such security interest as may be required to be created in the future, and such Collateral may be shared in the same manner as aforementioned with Senior Secured Debt of the Issuer in accordance with the Senior Note Documents.
(II) Timelines
The Collateral specified under paragraphs I (a), (b) and (c) above and the AICTPL Shares NDU, shall be created, and perfected (as applicable) by the Issuer and shareholders of the Issuer within a period of 90 (ninety) days from the Closing Date (the “Initial Security Longstop Date”).
The Collateral specified under Paragraphs I (d) and (e) above shall be created and perfected by the Issuer within a period of 180 (one hundred and eighty) days from the date on which the Issuer procures the relevant consents or approvals, including from the regulatory authorities in India and completes the relevant regulatory actions for that purpose (“Second Security Longstop Date”).
(III) Ranking
The Collateral will be a first charge ranking pari passu among the Noteholders, without any preference or priority and shall rank pari passu with all the Senior Secured Debt of the Issuer in accordance with the Senior Note Documents.
Security Documents
For the purpose of creating the Collateral, the following documents are proposed to be executed in favor of the Security Trustee, acting for the benefit of the Note Trustee and the Noteholders.
The Issuer may structure the creation and documentation of the Collateral to be efficient from a stamp duty perspective.
Security Trustee Agreement
The security trustee agreement will provide for the settlement of the beneficial trust in favor of the Security Trustee and appointment of the Security Trustee to act for the benefit of the Note Trustee. The security trustee agreement will be executed amongst Issuer, the Note Trustee and the Security Trustee. The security trustee agreement will contain a provision for the accession of any secured party to whom the Notes Trustee may assign its rights by way of execution of relevant deed(s) of accession.
Non-Disposal Undertaking by the Issuer
On or prior to the Initial Security Longstop Date, a non-disposal undertaking will be provided by the Issuer in relation to the Immovable Property, Core Assets and other Immovable Fixed Assets which undertaking shall be valid until the creation and perfection of security interest over such Immovable Property, Core Assets and other Immovable Fixed Assets in terms of the mortgage by deposit of title deeds and Deed of Hypothecation—Core Assets (as stipulated below).
250 Non-Disposal Undertaking by shareholders of Issuer
On or prior to the Initial Security Longstop Date, the AICTPL Shares NDU will be entered into by the shareholders of the Issuer which shall contain a specific carve-out allowing a shareholder to freely transfer its shares to any entity as long as such transfer does not result in a Change of Control.
Deed of Hypothecation—Non Core Assets
On or prior to the Initial Security Longstop Date, a deed of hypothecation, along with power of attorney, will be executed by the Issuer for the purpose of securing, by way of a charge over:
(i) all tangible and intangible movable assets including accounts, book debts, current and non-current assets, cash flows, receivables (including monies that may be received pursuant to the APSEZ Undertaking), commissions and revenues of whatsoever nature and whenever arising, including those arising out of operation of CT-3 and CT-3 Extension (both present and future) not forming part of Core Assets;
(ii) the Project Accounts under the Project Accounts Deed (other than the Excluded Accounts) and amounts lying to the credit of such Project Accounts (both present and future);
(iii) the rights, title, interest and benefits of the Issuer under the APSEZ Undertaking;
(iv) the rights, title, interest and benefits of the Issuer under the Infrastructure Services and Port Facilities Agreements and Rail Services Agreement, including the right to use intangible assets forming part of common infrastructure or facilities granted to the Issuer by APSEZ;
(v) the rights, title, interest and benefits of the Issuer under the Sub-Concession Agreement and other related Project Documents (duly acknowledged and consented to by the relevant counterparties, if applicable), in each case, as amended, varied or supplemented from time to time;
(vi) all performance bonds, contractors’ guarantees, and any letter of credit provided under the Project Documents;
(vii) the rights, title, interest and benefits of the Issuer under licenses, permits, approvals, consents and the authorizations obtained by the Issuer, to the extent they are capable of assignment under the respective terms thereof; and
(viii) the rights, title, interest and benefits of the Issuer under the insurance policies in relation to its assets (along with endorsement by a loss payee clause in favor of the Security Trustee).
Memorandum of Entry
On or prior to the Second Security Longstop Date, the Issuer shall create a mortgage over the Immovable Property by deposit of title deeds in relation to such Immovable Property with the Security Trustee accompanied by a declaration from its Director confirming that the deposit of title deeds with the Security Trustee has been made with the intention of, and for the purpose of, creating the security interest over such Immovable Property for securing the Notes.
Deed of Hypothecation—Core Assets
On or prior to the Second Security Longstop Date, the Issuer will execute a deed of hypothecation, along with related power of attorney, in favor of the Security Trustee for the purpose of securing, by way of a first ranking charge over Core Assets and other Immovable Fixed Assets.
251 Definitions
The terms “APSEZ Undertaking”, “Change of Control”, “Core Assets”, “Excluded Accounts”, “Immovable Fixed Assets”, “Immovable Property”, “Infrastructure Services and Port Facilities Agreements”, “Project Documents”, “Rail Services Agreement” and “Sub-Concession and Agreement” shall have the meaning assigned to such terms in the section titled “Terms and Conditions of the Notes” of this Offering Circular. The terms “Distribution Account” and “Project Accounts” shall have the meaning assigned to such terms in the Project Accounts Deed, a summary of which is set forth in this Offering Circular.
252 GLOBAL CERTIFICATES
Each Global Certificate contains provisions which apply to the Notes in respect of which it is issued while they are represented by the relevant Global Certificate, some of which modify the effect of the Conditions set out in this Offering Circular. The following is a summary of those provisions. Unless otherwise defined, terms defined in the Conditions have the same meaning below.
Form of the Notes
The Notes sold outside the United States in reliance on Regulation S (the “Regulation S Notes”) will be represented by a global Regulation S certificate in fully registered form (the “Regulation S Global Certificate”). The Regulation S Global Certificate will be registered in the name of a nominee of, and deposited on the Closing Date with, a common depositary for Euroclear Bank SA/NV (“Euroclear”) and Clearstream Banking S.A. (“Clearstream, Luxembourg”). See “Clearance and Settlement—Payments and Relationship of Participants with Clearing Systems.”
The Notes sold within the United States to QIBs in reliance on Rule 144A (the “Rule 144A Notes”) will be represented by a global Rule 144A certificate in fully registered form (the “Rule 144A Global Certificate”). The Rule 144A Global Certificate will be deposited, on the Closing Date, with a custodian for The Depository Trust Company (“DTC”), and registered in the name of Cede & Co., as nominee for DTC. See “Clearance and Settlement—Payments and Relationship of Participants with Clearing Systems.” Subject to certain exceptions, beneficial interests in the Rule 144A Global Certificate may only be held by persons who are QIBs, holding their interests for their own account or for the account of one or more QIBs. By acquisition of a beneficial interest in a Rule 144A Global Certificate, the purchaser thereof will be deemed to represent, among other things, that it is a QIB and that, if in the future it determines to transfer such beneficial interest, it will transfer such interest in accordance with the procedures and restrictions contained in the Rule 144A Global Certificate. See “Transfer Restrictions.”
The Regulation S Global Certificate and the Rule 144A Global Certificate are referred to herein as the “Global Certificates.” Beneficial interests in the Global Certificates will be limited to persons that have accounts with Euroclear, Clearstream, Luxembourg or DTC or persons that may hold interests through such participants. Beneficial interests in the Global Certificates will be shown on, and transfers thereof will be effected only through, records maintained in book-entry form by Euroclear, Clearstream, Luxembourg, DTC or their respective nominees (with respect to interests of participants) and the records of participants (with respect to interests of persons other than participants). Beneficial interests in the Global Certificates will be subject to certain restrictions on transfer set out therein and in the Agency Agreement and such Global Certificates will bear a legend as set out under “Transfer Restrictions.”
So long as the Notes are held in global form, Euroclear, Clearstream, Luxembourg and/or DTC (as applicable) or their respective nominees will be considered the sole holders of the Global Certificates for all purposes under the Note Trust Deed. As such, participants must rely on the procedures of Euroclear, Clearstream, Luxembourg and/or DTC (as applicable) and indirect participants must rely on the procedures of Euroclear, Clearstream, Luxembourg and/or DTC (as applicable), and the participants through which they own beneficial interests in the Global Certificates in order to exercise any rights of holders under the Note Trust Deed.
No beneficial interest in any Regulation S Global Certificate may be transferred to a person who takes delivery in the form of a beneficial interest in a Rule 144A Global Certificate unless (i) the transfer is to a person that is a QIB, (ii) such transfer is made in reliance on Rule 144A, and (iii) the transferor provides the relevant Registrar with a written certification substantially in the form set out in theAgencyAgreement to the effect that the transferor reasonably believes that the transferee is a QIB purchasing the beneficial interest for its own account or any account of a QIB in a transaction meeting the requirements of Rule 144A and that such transaction is in accordance with any applicable securities laws of any state of the United States. No beneficial interest in any Rule 144A Global Certificate may be transferred to a person who takes delivery in the form of a beneficial interest in a Regulation S Global Certificate unless
253 (i) the transfer is in an offshore transaction in reliance on Rule 904 of Regulation S, and (ii) the transferor provides the relevant Registrar with a written certification substantially in the form set out in the Agency Agreement to the effect that the transfer is being made in an offshore transaction in accordance with Regulation S.
Any beneficial interest in any Regulation S Global Certificate that is transferred to a person who takes delivery in the form of an interest in the corresponding Rule 144A Global Certificate will, upon transfer, cease to be an interest in such Regulation S Global Certificate and become an interest in such Rule 144A Global Certificate, and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such Rule 144A Global Certificate for as long as it remains such an interest. Any beneficial interest in any Rule 144A Global Certificate that is transferred to a person who takes delivery in the form of an interest in the corresponding Regulation S Global Certificate will, upon transfer, cease to be an interest in such Rule 144A Global Certificate and become an interest in such Regulation S Global Certificate and, accordingly, will thereafter be subject to all transfer restrictions and other procedures applicable to beneficial interests in such Regulation S Global Certificate for so long as it remains such an interest. No service charge will be made for any registration of transfer or exchange of Notes, but the Note Trustee may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith.
Upon receipt of the Global Certificates, Euroclear, Clearstream, Luxembourg and/or DTC, as applicable, (or their respective nominees) will credit, on its internal system, the respective face amount of the individual beneficial interests represented by each such Global Certificate to the accounts of persons who have accounts with Euroclear, Clearstream, Luxembourg and/or DTC, or persons that may hold interests through such participants.
Except in the limited circumstances described below, owners of beneficial interests in Global Certificates will not be entitled to receive physical delivery of certificated Notes.
Holders
For all purposes, each person who is for the time being shown in the records of Euroclear, Clearstream, Luxembourg and/or DTC (as applicable) as the holder of a particular principal amount of Notes in respect of which the Global Certificates have been issued (in which regard any certificate or other document issued by Euroclear, Clearstream, Luxembourg and/or DTC (as applicable) as to the principal amount of Notes represented by Global Certificates standing to the account of any person shall be conclusive and binding for all purposes) shall be recognized as the holder of such principal amounts of Notes (and the expressions “Noteholders”,“holding of Notes” and “holders of Notes” shall be construed accordingly).
Cancelation
Cancelation of any Note represented by a Global Certificate will be effected by reduction in the aggregate face amount of the Notes in the Register and by annotation of the appropriate schedule to that Global Certificate.
Payments
Payments of any amounts payable in respect of Notes represented by a Global Certificate shall be made without presentation or if no further payment falls to be made in respect of such Notes, against presentation and surrender of the relevant Global Certificate to or to the order of the Principal Paying Agent or to the order of such other Paying Agent as shall have been notified to the Noteholders for such purpose the amount or amounts as shall become due in respect of such Notes and otherwise to comply with the Conditions, save that the calculation is made in respect of the total aggregate amount of the Notes.
254 Each payment will be made to, or to the order of, the person whose name is entered on the Register at the close of business on the Clearing System Business Day immediately prior to the date for payment, where “Clearing System Business Day” means Monday to Friday inclusive except December 25 and January 1 and any day on which banks are permitted or required to be closed in the city of New York.
Calculation of Interest
So long as the Bonds are represented by a Global Certificate and such Global Certificate is held on behalf of a clearing system, the Company has promised, inter alia, to pay interest in respect of such Bonds from the Issue Date in arrear at the rates, on the dates for payment, and in accordance with the method of calculation provided for in the Conditions, save that the calculation is made in respect of the total aggregate amount of the Bonds represented by such Global Certificate.
Redemption at the Option of the Company
The options provided for in Conditions 7.2 and 7.4 of the Conditions shall be exercised by the Company giving notice to the Noteholders and the Note Trustee and the Principal Paying Agent within the time limits set out in and containing the information required by Condition 7.2 or, as the case may be, Condition 7.4 of the Conditions.
Noteholders’ Put Option
The Noteholders’ put option provided for in Condition 7.3 may be exercised by the holder of the relevant Global Certificate giving notice of the principal amount of Notes in respect of which the put option is exercised in accordance with Condition 7.3.
Notices
So long as the Notes are represented by any Global Certificate and such Global Certificate is held on behalf of Euroclear, Clearstream, Luxembourg or DTC, notices to Noteholders may be given by delivery of the relevant notice to Euroclear, Clearstream, Luxembourg or DTC (as applicable) for communication to entitled account holders in substitution for notification as required by the Conditions. Any such notice shall be deemed to have been given to the Noteholders on the day after the day on which such notice is delivered to the relevant clearing systems. So long as the Notes are listed on any stock exchange, notices shall also be published by the Company in accordance with the rules of such stock exchange.
Meetings
The registered holders of the Global Certificates in respect of the Notes will be treated as being two persons for the purposes of any quorum requirements of a meeting of Noteholders in respect of the Notes and, at any such meeting, as having one vote in respect of each US$1,000 in principal amount of Notes for which the relevant Global Certificate are issued.
Transfers
Transfers of book-entry interests in the Notes will be effected through the records of Euroclear, Clearstream, Luxembourg or DTC (as applicable) and their respective direct and indirect participants in accordance with the rules and procedures of Euroclear, Clearstream, Luxembourg or DTC (as applicable) and their respective direct and indirect participants.
255 Exchange for Definitive Certificates
Exchange
Registration of title to Notes initially represented by any Rule 144A Global Certificate in a name other than DTC will not be permitted in respect of such Notes unless DTC or any additional or alternative clearing system selected by the Company and approved by the Note Trustee, the Principal Paying Agent and the Registrar (an “Alternative Clearing System”) is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so).
Registration of title to Notes initially represented by any Regulation S Global Certificate in a name other than a nominee for the Common Depositary will not be permitted in respect of the Notes unless Euroclear and Clearstream, Luxembourg or any Alternative Clearing System on behalf of which the Notes evidenced by the relevant Regulation S Global Certificate may be held, is closed for business for a continuous period of 14 days (other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease business or does in fact do so.
Delivery
If any of the events described in the above two paragraphs under the heading “Exchange” occurs, the Company will, at its own expense, cause sufficient definitive Certificates to be executed and delivered to the Registrar for completion, authentication and dispatch to the relevant Noteholders following surrender of such Global Certificate. A person having an interest in any Rule 144A Global Certificate or Regulation S Certificate must provide the relevant Registrar with (a) a written order containing instructions and such other information as the Company and the Registrar may require to complete, execute and deliver such definitive Certificates and (b) in the case of any Rule 144A Global Certificate only, a fully completed, signed certification substantially to the effect that the exchanging holder is not transferring its interest at the time of such exchange or, in the case of a simultaneous sale pursuant to Rule 144A, a certification that the transfer is being made in compliance with the provisions.
Definitive Certificates issued in exchange for a beneficial interest in a Rule 144A Global Certificate shall bear the legends applicable to transfers pursuant to Rule 144A, as set out under “Transfer Restrictions.”
The relevant Registrar will not register the transfer of, or exchange of interests in, any Rule 144A Global Certificate or Regulation S Global Certificate for definitive Certificates for a period of 15 calendar days ending on the date for any payment of principal, premium or interest in respect of the Notes.
256 TAXATION
The information provided below does not purport to be a comprehensive description of all tax considerations which may be relevant to a decision to purchase the Notes. In particular, the information does not consider any specific facts of circumstances that may apply to a particular purchaser. Neither these statements nor any other statements in this Offering Circular are to be regarded as advice on the tax position of any holder of the Notes or of any person acquiring, selling or otherwise dealing with the Notes or on any tax implications arising from the acquisition, sale or other dealings in respect of the Notes. The statements do not purport to be a comprehensive description of all the tax considerations that may be relevant to a decision to purchase, own or dispose of the Notes and do not purport to deal with the tax consequences applicable to all categories of investors, some of which (such as dealers in securities) may be subject to special rules.
Prospective purchasers of Notes are advised to consult their own tax advisers as to the tax consequences of the purchase, ownership and disposition of Notes, including the effect of any state or local taxes, under the tax laws applicable in India and each country of which they are residents or countries of purchase, holding or disposition of the Notes. Additionally, in view of the number of jurisdictions where local laws may apply, this Offering Circular does not discuss the local tax consequences to a potential holder, purchaser and seller arising from the acquisition, holding or disposition of the Notes. Prospective investors must therefore inform themselves as to any tax, exchange control legislation or other laws and regulations valid relating to the subscription, holding or disposition of Notes at their place of ordinance, and the countries of which they are citizens or countries of purchase, holding or disposition of Notes.
Indian Taxation
The following is a summary of the existing principal Indian tax consequences for non-resident investors subscribing to the Notes. The summary is based on existing Indian taxation law and practice valid at the date of this Offering Circular and is subject to change, possibly with retroactive effect. The summary does not constitute legal or tax advice and is not intended to represent a complete analysis of the tax consequences under Indian law of the acquisition, ownership or disposal of the Notes. Prospective investors should, therefore, consult their own tax advisers regarding the Indian tax consequences, as well as the tax consequences under any other applicable taxing jurisdiction, of acquiring, owning and disposing of the Notes. This summary does not purport to provide tax advice to any entity.
Payments through India
Any payments the Company makes on the Notes, including additional amounts, made through India will be subject to the applicable regulations of the RBI.
Taxation of Interest
If the proceeds of the Notes are used for the purposes of the business of the Company in India, non-resident investors will be liable to pay tax on the interest paid on the Notes. Non-resident investors must pay tax on the interest at the rate of 5.0% under Section 115A(1)(a), as applicable, of the Income Tax Act, 1961 (the “IT Act”) (plus applicable surcharge, health and education cess) on interest paid on the Notes through India subject to and in accordance with the conditions set out in the IT Act as the Notes are long term bonds issued in foreign currency between October 1, 2014 and June 30, 2020 in accordance with Section 115A read with Section 194LC of the IT Act and Central Board of Direct Taxes Circular no. 15/2014 dated October 17, 2014.
The Finance Act, 2020 has amended Section 194LC of Income Tax Act, to (a) extend the period of rate of withholding tax of 5.0% on the interest payments against borrowing by way of issue of long-term bonds including infrastructure bonds from July 1, 2020 to June 30 2023 (and which will include Notes); and (b) reduce the withholding tax to 4.0% for interest payable to a non-residents on issues of any long term bonds or Rupee denominated bonds issued on or after April 1, 2020 but before July 1, 2023, which are listed only on a recognized stock exchange located in any International Financial Service Centre in India.
257 The rates of tax will stand reduced if the beneficial recipient is a resident of a country with which the GoI has entered into an agreement for granting relief of tax or for avoidance of double taxation (a Tax Treaty) and the provisions of such treaty, which provide for the taxation in India of income by way of interest at a rate lower than that stated above, are fulfilled. The interest payable will be subject to withholding taxes in India, subject to conditions as detailed in the section titled “—Withholding Tax” below.
A non-resident investor is obligated to pay such income tax in an amount equal to, or would be entitled to a refund of, as the case may be, any difference between amounts withheld in respect of interest paid on the Notes through India and its ultimate Indian tax liability for such interest, subject to and in accordance with the provisions of the IT Act. The non-resident Noteholders shall be obligated to provide all necessary information and documents, as may be required by the Company.
Withholding Tax
Interest payable on the Notes to non-residents is subject to a withholding tax in India at the rate of 20.0% (plus applicable surcharge and health and education cess). However, pursuant to Section 194LC of the IT Act, the Notes will be subject to a reduced withholding tax rate of 5.0% of the interest payable (plus various surcharge/cess) subject to fulfillment of the relevant conditions prescribed. This is subject to any lower rate of tax in terms of an applicable Tax Treaty.
Pursuant to the Terms and Conditions of the Notes, all payments of, or in respect of, principal and interest on the Notes, will be made free and clear of and without withholding or deduction on account of any present or future taxes within India unless it is required by law, in which case, pursuant to Condition 8, the Company will pay additional amounts as may be necessary in order that the net amounts received by the Noteholders after the withholding or deduction shall equal the respective amounts which would have been receivable in respect of the Notes in the absence of the withholding or deduction, subject to certain exceptions.
With respect to interest on the Notes that is not subject to taxes in India (where the proceeds of the issuance of the Notes are used for the purposes of business carried on by the Company outside India or otherwise), the Company may be required to apply annually for an exemption from withholding tax under Section 195(2) of the IT Act.
In respect of interest income on long term bonds to non-residents, pursuant to Section 206AA of the IT Act, the payee is not required to provide its permanent account number to the payer. Hence, the Noteholders being non-residents are not required to provide their permanent account number.
Taxation of Gains Arising on Disposition
Any gains arising to a non-resident investor from disposition of the Notes held (or deemed to be held) as a capital asset will generally be chargeable to income tax in India if the Notes are regarded as property situated in India. A non-resident investor generally will not be chargeable to income tax in India from a disposition of the Notes held as a capital asset, provided the Notes are regarded as being situated outside India. The issue as to where the Notes should properly be regarded as being situated is not free from doubt. The ultimate decision, however, will depend on the view taken by Indian tax authorities on the position with respect to the situs of the rights being offered in respect of the Notes, in terms of Section 9 of the IT Act. There is a possibility that the Indian tax authorities may treat the Notes as being located in India as the Company is incorporated in and resident in India.
If the Notes are regarded as situated in India by the Indian tax authorities, upon disposition of a Note:
(a) a non-resident investor, who has held the Notes for a period of more than 36 months (long-term capital asset) immediately preceding the date of their disposal, would be liable to pay capital gains tax at the rate of 10.0% of the capital gains (plus applicable surcharge health and education cess) in accordance with the provisions of the IT Act, 1961. These rates are subject to any beneficial provision of an applicable Tax Treaty;
258 (b) a non-resident investor who has held the Notes for 36 months or less would be liable to pay capital gains tax at a rate of up to 40.0% of capital gains in case of foreign companies and 30.0% in all other cases of capital gain (plus applicable surcharge, health and education cess). These rates are subject to any beneficial provision of an applicable Tax Treaty; and
(c) any income arising to a non-resident investor from the transfer of the Notes held as stock-in-trade would be considered as business income. Business income would be subject to income tax in India only to the extent it is attributable to a “business connection in India” or, where a Tax Treaty is applicable, to a “permanent establishment” of the non-resident investor in India. A non-resident investor would be liable to pay Indian tax on such income at a rate of up to 40.0% (plus applicable surcharge, health and education cess), depending on the legal status of the non-resident investor and his taxable income in India, subject to any beneficial provision of an applicable Tax Treaty.
If applicable under the tax law, tax shall be withheld by the person making any payment to a non-resident on long-term capital gains at 10.0% (plus applicable surcharge, health and education cess) and short-term capital gains at 30.0% or 40.0% (plus applicable surcharge health and education cess), of gross consideration unless a lower withholding tax certificate is obtained from the Indian tax authorities and furnished to the payer, depending on the legal status of the recipient of income, subject to any lower rate provided for by a Tax Treaty. Tax payable shall be computed in such manner as prescribed in this regard under the IT Act. For the purpose of tax withholding, the non-resident Noteholders shall be obligated to provide all prescribed information/documents, including tax residency certificate (issued by the tax authorities of the country in which the investor is resident) for claiming the Tax Treaty benefits.
Potential investors should, in any event, consult their own tax advisers on the tax consequences of transfer of the Notes.
Stamp Duty
A transfer of the Notes outside India will not give rise to any Indian stamp duty liability unless brought into India. Stamp duty would be payable if the Notes were brought into India for enforcement or for any other purpose. The amount of stamp duty payable would depend on the applicable state stamp act and the duty will have to be paid within a period of three months from the date the Notes are first received in India.
Certain U.S. Federal Income Tax Considerations to U.S. Holders
The following discussion is a summary of certain U.S. federal income tax consequences relevant to U.S. holders and non-U.S. holders (each as defined below) of the purchase, ownership and disposition of the Notes, but does not purport to be a complete analysis of all potential tax effects. The summary deals only with initial purchasers of the Notes at the “issue price” that will hold the Notes as capital assets. The “issue price” is the first price at which a substantial amount of the Notes is sold to the public for cash, excluding sales to bond houses, brokers or similar persons or organizations acting in the capacity of underwriters, placement agents or wholesalers. This discussion does not address the effects of any U.S. federal tax laws other than U.S. federal income tax laws (such as estate and gift tax laws) or any state, local or non-U.S. tax laws. This discussion is based upon the Internal Revenue Code of 1986, as amended (the “Code”), Treasury regulations issued thereunder, and judicial and administrative interpretations thereof, each as in effect on the date hereof, and all of which are subject to change, possibly with retroactive effect. No rulings from the U.S. Internal Revenue Service (the “IRS”) have been or are expected to be sought with respect to the matters discussed below. There can be no assurance that the IRS will not take a different position concerning the tax consequences of the purchase, ownership or disposition of the Notes or that any such position would not be sustained.
This summary assumes that the Notes will have an issue price equal to their stated redemption price at maturity or will be issued with less than a statutorily defined de minimis amount of original issue discount (“OID”) and, as such, assumes that the Notes will be considered to be issued without OID for U.S. federal income tax purposes, which we expect to be the case.
259 This discussion does not address all of the U.S. federal income tax consequences that may be relevant to a holder in light of such holder’s particular circumstances, including the impact of the Medicare tax on net investment income or the alternative minimum tax, or to holders subject to special rules under U.S. federal income tax laws, such as certain financial institutions, U.S. citizens or lawful permanent residents living abroad, insurance companies, dealers in securities or currencies, traders in securities, U.S. holders whose functional currency is not the U.S. dollar, U.S. holders who are subject to special tax accounting rules as a result of any item of gross income with respect to the Notes being taken into account in an applicable financial statement, tax-exempt entities, regulated investment companies, real estate investment trusts, entities or other arrangements treated as partnerships for U.S. federal income tax purposes and investors in such entities or arrangements, persons holding the Notes as part of a “straddle”, “hedge”, “conversion transaction” or other integrated transaction for U.S. federal income tax purposes and persons who have ceased to be U.S. citizens or lawful permanent residents.
For purposes of this discussion, a “U.S. holder” is a beneficial owner of a Note that is, for U.S. federal income tax purposes: (i) an individual who is a citizen or resident of the United States; (ii) a corporation created or organized in the United States or under the laws of the United States, any state thereof or the District of Columbia; (iii) any estate the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) any trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more U.S. persons have the authority to control all substantial decisions of the trust, or if a valid election is in place to treat the trust as a U.S. person. A“non-U.S. Holder” is a beneficial owner of Notes that is neither a U.S. holder nor a partnership.
If any entity or arrangement treated as a partnership for U.S. federal income tax purposes holds the Notes, the U.S. federal income tax treatment of a partner in the partnership generally will depend upon the status of the partner and the activities of the partnership. An entity or arrangement treated as a partnership for U.S. federal income tax purposes that is considering an investment in the Notes should consult their tax advisers regarding the U.S. federal income tax consequences to it and its partners of the purchase, ownership and disposition of the Notes.
The summary of U.S. federal income tax consequences set out below is for general information only. Prospective purchasers of the Notes should consult their tax advisers concerning the tax consequences of holding Notes in light of their particular circumstances, including the application of the U.S. federal income tax considerations discussed below, as well as the application of other U.S. federal, state, local, non-U.S. or other tax laws.
Characterization of the Notes
We are required to pay Additional Tax Amounts as described under “Terms and Conditions of the Notes—Taxation.” In addition, in certain circumstances (e.g., as described in “Terms and Conditions of the Notes—Redemption and Purchase—Change of Control Put Option” and “Terms and Conditions of the Notes—Redemption and Purchase—Redemption at the Option of the Company”), we may be obligated to make certain other additional payments on the Notes in excess of stated principal and interest. We believe (and the rest of this discussion assumes) that the amount of Additional Tax Amounts we will be required to pay on the Notes will generally be constant throughout the term of the Notes and that there is only a remote possibility that we will be obligated to make any other additional payments. Accordingly, we believe that the Notes should not be treated as contingent payment debt instruments. Assuming such position is respected, a U.S. holder would be required to include in income the amount of any such additional payments at the time such payments are received or accrued in accordance with such U.S. holder’s method of accounting for U.S. federal income tax purposes. Our position is binding on a holder, unless the holder discloses in the proper manner to the IRS that it is taking a different position. If the IRS successfully challenged this position, and the Notes were treated as contingent payment debt instruments, U.S. holders could be required to accrue interest income at a rate higher than their yield to maturity and to treat as ordinary income, rather than capital gain, any gain recognized on a sale, exchange, retirement, redemption or other taxable disposition of a Note. This disclosure assumes that the Notes will not be considered contingent payment debt instruments. U.S. holders are urged to consult their own tax advisers regarding the potential application to the Notes of the contingent payment debt instrument rules and the consequences thereof.
260 Payments of Stated Interest
Payments of stated interest on the Notes (including any Additional Tax Amounts paid in respect of withholding taxes and without reduction for any amounts withheld) generally will be taxable to a U.S. holder as ordinary income at the time that such payments are received or accrued, in accordance with such U.S. holder’s method of accounting for U.S. federal income tax purposes.
Foreign Tax Credit
AU.S. holder may be able to claim a credit against its U.S. federal income tax liability (or, at such holder’s election, a deduction in lieu of such credit) with respect to any non-U.S. withholding taxes deducted from a payment on the Notes. Stated interest income on a Note (including any additional amounts paid in respect of withholding taxes) generally will constitute foreign source income and generally will be considered “passive category income” for purposes of computing the foreign tax credit. There are significant complex limitations on a U.S. holder’s ability to claim foreign tax credits. U.S. holders should consult their tax advisers regarding the creditability or deductibility of any withholding taxes.
Sale, Exchange, Retirement or Other Taxable Disposition of Notes
Upon the sale, exchange, retirement or other taxable disposition of a Note, a U.S. holder generally will recognize gain or loss equal to the difference, if any, between the amount realized upon such disposition and such U.S. holder’s adjusted tax basis in the Note.AU.S. holder’s adjusted tax basis in a Note generally will be its U.S. dollar cost. The amount realized includes any amounts withheld (other than amounts withheld in respect of interest) but does not include any amount attributable to accrued but unpaid interest, which will be taxable as interest income to the extent not previously included in income. The amount realized on the retirement of a Note should be the U.S. dollar amount received by such Holder upon such retirement.
Gain or loss recognized upon the sale, exchange, retirement or other taxable disposition of a Note generally will be U.S. source capital gain or loss, and generally will be long-term capital gain or loss if the U.S. holder held the Note for more than one year on the date of disposition. Long-term capital gains of non-corporate U.S. holders (including individuals) are generally eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations. A U.S. holder may have insufficient foreign source income to utilize foreign tax credits attributable to any Indian withholding tax imposed on the sale or disposition. See “—Foreign Tax Credit.” Prospective purchasers should consult their tax advisors as to the foreign tax credit implications of the sale, exchange, retirement or other taxable disposition of the Notes.
Non-U.S. Holders
Subject to the discussion below under “Backup Withholding, Information Reporting and Other Reporting Requirements”, a non-U.S. holder generally should not be subject to U.S. federal income or withholding tax on payments on the Notes and gain from the sale, exchange, retirement or other taxable disposition of the Notes unless: (i) that payment and/or gain is effectively connected with the conduct by such non-U.S. holder of a trade or business in the U.S.; or (ii) in the case of gain realized on the sale or exchange of a Note by an individual non-U.S. holder, such holder is present in the U.S. for 183 days or more in the taxable year of the sale, exchange, retirement or other taxable disposition and certain other conditions are met.
Backup Withholding, Information Reporting and Other Reporting Requirements
In general, information reporting requirements will apply to payments of stated interest on the Notes and to the proceeds of the sale, exchange, retirement or other taxable disposition of the Notes paid by a U.S. paying agent or other U.S. intermediary. Backup withholding may apply to such payments if the U.S. holder fails to provide an accurate taxpayer identification number or a certification that it is not
261 subject to backup withholding or fails to comply with applicable certification requirements. Amounts withheld under the backup withholding rules are not additional taxes. The amount of any backup withholding from a payment to a U.S. holder will be allowed as a credit against such U.S. holder’s U.S. federal income tax liability and may entitle such U.S. holder to a refund, provided that the required information is timely furnished to the IRS. Certain U.S. holders are not subject to backup withholding. U.S. holders should consult their tax advisers as to their qualification for exemption from backup withholding and the process for claiming an exemption. U.S. holders should also consult their tax advisers about any other reporting obligations that may apply to the ownership or disposition of Notes, including reporting obligations related to the holding of certain specified foreign financial assets.
Non-U.S. holders may be required to comply with applicable certification procedures to establish that they are not U.S. holders in order to avoid the application of such information reporting requirements and backup withholding.
262 CLEARANCEANDSETTLEMENT
The information set out below is subject to any change in or reinterpretation of the rules, regulations and procedures of the Clearing Systems currently in effect. The information in this section concerning the Clearing Systems has been obtained from sources that the Company believe to be reliable, but neither the Company, nor the Joint Bookrunners, nor the Note Trustee nor the Agents takes any responsibility for the accuracy of this section. Investors wishing to use the facilities of any of the Clearing Systems are advised to confirm the continued applicability of the rules, regulations and procedures of the relevant Clearing System. Neither the Company nor any other party to the Agency Agreement will have any responsibility or liability for any aspect of the records relating to, or payments made on account of, beneficial ownership interests in the Notes held through the facilities of any Clearing System or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests.
Book-entry Ownership
The Notes will be evidenced on issue by a Regulation S Global Certificate (registered in the name of a nominee of, and deposited with, a common depository for Euroclear and Clearstream, Luxembourg) and a Rule 144A Global Certificate (registered in the name of a nominee of, and deposited with, a custodian for, DTC).
The Company, and a relevant U.S. agent appointed for such purpose that is an eligible DTC participant, will make the application to Euroclear or Clearstream for acceptance in its book-entry settlement system of the Notes represented by the Regulation S Global Certificate, and will make application to DTC for acceptance in its book-entry settlement system of the Notes represented by the Rule 144A Global Certificate. The Regulation S Global Certificate will have an ISIN and a Common Code and the Rule 144A Global Certificate will have a CUSIP, an ISIN and a Common Code. The Rule 144A Global Certificate will be subject to restrictions on transfer contained in a legend appearing on the front of such Global Certificate, as set out under “Transfer Restrictions.” In certain circumstances, as described below, transfers of interests in the Rule 144A Global Certificate may be made as a result of which such legend may no longer be required.
Upon the Global Certificates being registered in the name of a nominee of, and deposited with, a common depository or custodian for Euroclear, Clearstream, Luxembourg or DTC, Euroclear, Clearstream, Luxembourg or DTC (as applicable) will electronically record the nominal amount of the Notes held within its respective system. Investors may hold their beneficial interests in the Global Certificates directly through Euroclear, Clearstream, Luxembourg or DTC if they are participants in such respective systems, or indirectly through organizations which are participants in such respective systems (together, such direct and indirect participants of Euroclear, Clearstream, Luxembourg or DTC shall be referred to as “System Participants”). Those interests held through Euroclear or Clearstream, Luxembourg may also be subject to the procedures and requirements of such system.
Payments and Relationship of Participants with Clearing Systems
Payment of the principal, interest and premium, if any, on each Global Certificate registered in the name of the nominee of Euroclear, Clearstream, Luxembourg or DTC (as applicable) will be to, or to the order of, such nominee as the registered owner of such Global Certificate. The Company expects that, upon receipt of any payment in respect of Notes represented by a Global Certificate, Euroclear, Clearstream, Luxembourg or DTC or their respective common depository or custodian will immediately credit the relevant participants’ or account holders’ accounts in the relevant clearing system with payments in amounts proportionate to their respective beneficial interests in the face amount of the relevant Global Certificate as shown on the records of the relevant clearing system or its nominee. The Company also expects that payments by System Participants to owners of beneficial interests in a Global Certificate held through such System Participants will be governed by standing instructions and customary practices. Save as aforesaid, such persons shall have no claim directly against the Company in respect of payments due on the Notes for so long as the Notes are represented by such Global Certificate and the obligations of the
263 Note Trustee will be discharged by payment to the registered holder, as the case may be, of such Global Certificate in respect of each amount so paid. Neither the Company, nor the Note Trustee nor any Agent shall have any responsibility or liability for any aspect of the records relating to or payments made on account of ownership interests in any Global Certificate or for maintaining, supervising or reviewing any records relating to such ownership interests.
Transfer of Notes
Transfers of interests in the Global Certificates within Euroclear, Clearstream, Luxembourg and DTC will be in accordance with the usual rules and operating procedures of the relevant clearing system. The laws of some states in the United States require that certain persons take physical delivery in definitive form of securities. Consequently, the ability to transfer interests in any Rule 144A Global Certificate to such persons may be limited. As DTC can only act on behalf of participants, who in turn act on behalf of indirect participants, the ability of a person having an interest in any Rule 144A Global Certificate to pledge such interest to persons or entities that do not participate in DTC, or otherwise take actions in respect of such interest, may be affected by the lack of a physical certificate in respect of such interest.
Beneficial interests in any Regulation S Global Certificate may only be held through Euroclear or Clearstream, Luxembourg. In the case of Notes to be cleared through Euroclear, Clearstream, Luxembourg and/or DTC, transfers may be made at any time by a holder of an interest in any Regulation S Global Certificate to a transferee who wishes to take delivery of such interest through the corresponding Rule 144A Global Certificate, provided that any such transfer will, subject to the applicable procedures of Euroclear, Clearstream, Luxembourg and/or DTC from time to time, only be made upon receipt by the relevant Registrar or any Transfer Agent of a written certificate from Euroclear or Clearstream, Luxembourg, as the case may be, (based on a written certificate from the transferor of such interest) to the effect that such transfer is being made to a person that the transferor, and any person acting on its behalf, reasonably believes is a QIB within the meaning of Rule 144A purchasing the Notes for its own account or any account of a QIB in a transaction meeting the requirements of Rule 144A and in accordance with any applicable securities laws of any state of the United States. Any such transfer made thereafter of the Notes represented by such Regulation S Global Certificate will only be made upon request through Euroclear or Clearstream, Luxembourg by the holder of an interest in such Regulation S Global Certificate to the other agent of details of that account at DTC to be credited with the relevant interest in the corresponding Rule 144A Global Certificate.
Transfers at any time by a holder of any interest in any Rule 144A Global Certificate to a transferee who takes delivery of such interest through the corresponding Regulation S Global Certificate will, subject to the applicable procedures of Euroclear, Clearstream, Luxembourg and/or DTC from time to time, only be made upon delivery to the relevant Registrar or any Transfer Agent of a certificate setting forth compliance with the provisions of Regulation S and giving details of the account at Euroclear or Clearstream, Luxembourg, as the case may be, and DTC to be credited and debited, respectively, with an interest in each relevant Global Certificate.
Subject to compliance with the transfer restrictions applicable to the Notes described above and under “Transfer Restrictions”, cross-market transfers between DTC, on the one hand, and directly or indirectly through Euroclear or Clearstream, Luxembourg account holders, on the other, will be effected by the relevant clearing system in accordance with its rules and through action taken by the Common Depository or the custodian of the Global Certificates, the Registrars and the Paying Agents. On or after the Closing Date, transfers of Notes between account holders in Euroclear and/or Clearstream, Luxembourg and transfers of Notes between participants in DTC will generally have a settlement date of two business days after the trade date (T+2). The customary arrangements for delivery versus payment will apply to such transfers.
264 Cross-market transfers between account holders in Euroclear or Clearstream, Luxembourg and DTC participants will need to have an agreed settlement date between the parties to such transfer. As there is no direct link between DTC, on the one hand, and Euroclear and Clearstream, Luxembourg, on the other, transfers of interests between the Global Certificates will be effected through the relevant Paying Agent, the custodian of the Global Certificates, the relevant Registrar and any Transfer Agent receiving instructions (and, where appropriate, certification) from the transferor and arranging for delivery of the interests being transferred to the credit of the designated account for the transferee. Transfers will be effected on the later of (i) three business days after the trade date for the disposal of the interest in the relevant Global Certificate resulting in such transfer and (ii) two business days after receipt by a Paying Agent or a Registrar as the case may be, of the necessary certification or information to effect such transfer. In the case of cross-market transfers, settlement between Euroclear or Clearstream account holders and DTC participants cannot be made on a delivery versus payment basis. The securities will be delivered on a free-delivery basis and arrangements for payment must be made separately.
For a further description of restrictions on transfer of the Notes, see “Transfer Restrictions.” DTC will take any action permitted to be taken by a holder of Notes only at the direction of one or more DTC participants in whose accounts with DTC interests in the Global Certificates are credited and only in respect of such portion of the aggregate nominal amount of the relevant Global Certificate as to which such DTC participant or participants has or have given such direction. However, the custodian of the Global Certificates will surrender the relevant Global Certificate for exchange for individual definitive notes in certain limited circumstances.
DTC is a limited purpose trust company organized under the laws of the State of New York, a “banking organization” under the laws of the State of New York, a member of the U.S. Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code and a “clearing agency” registered pursuant to the provisions of Section 17A of the Exchange Act. DTC was created to hold securities for its participants and facilitate the clearance and settlement of securities transactions between participants through electronic computerized book-entry changes in accounts of its participants, thereby eliminating the need for physical movement of notes. Direct participants include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. Indirect access to DTC is available to others, such as banks, securities brokers, dealers and trust companies, that clear through or maintain a custodial relationship with a DTC direct participant, either directly or indirectly. Transfers of ownership or other interests in Notes in DTC may be made only through DTC participants. In addition, beneficial owners of Notes in DTC will receive all distributions of principal of and interest on the Notes from the Company through such DTC participant.
Euroclear and Clearstream, Luxembourg hold securities for participating organizations. They also facilitate the clearance and settlement of securities transactions between their respective participants through electronic computerized book-entry changes in the accounts of such participants. Euroclear and Clearstream, Luxembourg provide various services to their participants, including the safekeeping, administration, clearance, settlement, lending and borrowing of internationally traded securities. Euroclear and Clearstream, Luxembourg interface with domestic securities markets. Euroclear and Clearstream, Luxembourg participants are financial institutions such as underwriters, securities brokers and dealers, banks, trust companies and certain other organizations. Indirect access to Euroclear and Clearstream, Luxembourg is also available to others such as banks, brokers, dealers and trust companies that clear through or maintain a custodial relationship with a Euroclear and Clearstream, Luxembourg participant, either directly or indirectly. Although Euroclear, Clearstream, Luxembourg and DTC have agreed to the foregoing procedures in order to facilitate transfers of beneficial interests in the Global Certificates among participants and account holders of Euroclear, Clearstream, Luxembourg and DTC, they are under no obligation to perform or continue to perform such procedures, and such procedures may be discontinued at any time. Neither the Note Trustee nor any Agent will have any responsibility for the performance by Euroclear, Clearstream, Luxembourg or DTC or their respective direct or indirect participants or account holders of their respective obligations under the rules and procedures governing their operations.
265 While the Global Certificates are lodged with Euroclear, Clearstream, Luxembourg and/or DTC, Notes represented by individual definitive notes will not be eligible for clearing or settlement through Euroclear, Clearstream, Luxembourg or DTC.
Individual Definitive Notes
Registration of title to Notes in a name other than a custodian or its nominee for Euroclear, Clearstream, Luxembourg or DTC will be permitted only in the circumstances set forth in “Global Certificates—Exchange for Definitive Certificates.” In such circumstances, the Company will cause sufficient individual definitive Notes to be executed and delivered to the relevant Registrar for completion, authentication and dispatch to the Noteholder(s). A person having an interest in a Global Certificate must provide the relevant Registrar with certain information as specified in the Agency Agreement.
Pre-Issue Trades Settlement
It is expected that delivery of Notes will be made against payment therefor on the Closing Date, which will be more than two business days following the date of pricing. Under Rule 15c6-1 of the U.S. Exchange Act, trades in the U.S. secondary market generally are required to settle within T+2 unless the parties to any such trade expressly agree otherwise. Accordingly, since the Closing Date will be more than two business days following the date of pricing, purchasers who wish to trade the Notes in the U.S. between the date of pricing and the date that is two business days prior to the Closing Date will be required, by virtue of the fact that such Notes initially will settle beyond T+2, to specify an alternative settlement cycle at the time of any such trade to prevent a failed settlement. Settlement procedures in other countries will vary. Purchasers of Notes may be affected by such local settlement practices and, in the event that the Closing Date is more than two business days following the relevant date of pricing, purchasers of Notes who wish to trade Notes between the date of pricing and the date that is two business days prior to the Closing Date should consult their own adviser.
266 SUBSCRIPTIONANDSALE
The Joint Bookrunners have, pursuant to the Subscription Agreement dated December 14, 2020, entered into with the Company (the “Subscription Agreement”), agreed severally and not jointly, subject to the provisions of the Subscription Agreement, to procure subscribers for the principal amount of Notes set out opposite its name below:
Principal Amount of Joint Bookrunners Notes (US$) BarclaysBankPLC ...... 60,000,000 Citigroup Global Markets Inc...... 60,000,000 DBSBankLtd...... 60,000,000 MUFG SecuritiesAsia Limited ...... 60,000,000 StandardCharteredBank...... 60,000,000
Total ...... 300,000,000
The Joint Bookrunners initially propose to offer the Notes at the issue price listed on the cover page of this Offering Circular. The Company will pay a combined management and underwriting commission and selling concession to the Joint Bookrunners and will reimburse the Joint Bookrunners in respect of certain of their expenses. The Company has also agreed to indemnify the Joint Bookrunners, against certain liabilities incurred in connection with the issue and sale of the Notes. The Subscription Agreement provides that the obligations of the Joint Bookrunners are subject to certain conditions precedent and that the agreement may be terminated in certain circumstances prior to payment of the issue price of the Notes to the Company.
The Notes are a new issue of securities for which there currently is no market. The Joint Bookrunners have advised the Company that they intend to make a market in the Notes as permitted by applicable law. They are not obligated, however, to make a market in the Notes and any market-making may be discontinued at any time at the Joint Bookrunners’ sole discretion. Accordingly, no assurance can be given as to the development or liquidity of any market for the Notes.
The Joint Bookrunners and some of their affiliates have, from time to time, performed, and may in the future perform, certain commercial banking, investment banking and advisory and other banking services for the Company and/or their affiliates for which they have received or will receive customary fees and reimbursement for expenses. In particular, certain of the Joint Bookrunners and/or their respective affiliates are parties to certain financing agreements with us, and will be repaid with a portion of the proceeds from this Offering.
The Joint Bookrunners and their affiliates are full-service financial institutions engaged in various activities which may include securities trading, commercial and investment banking, financial advice, investment management, principal investment, hedging, financing and brokerage activities. In the ordinary course of their various business activities, the Joint Bookrunners and their affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investments and securities activities may involve securities and instruments of the Company, including the Notes.
267 The Joint Bookrunners or their affiliates that have a lending relationship with the Company routinely hedge their credit exposure to the Company consistent with their customary risk management policies. Typically, the Joint Bookrunners and their affiliates would hedge such exposure by entering into transactions which consist of either the purchase of credit default swaps or the creation of short positions in the Company’s securities, including, potentially, the Notes. Any such short positions could adversely affect future trading prices of the Notes. The Joint Bookrunners and their affiliates may make investment recommendations and/or publish or express independent research views (positive or negative) in respect of the Notes or other financial instruments of the Company, and may recommend to their clients that they acquire long and/or short positions in the Notes or other financial instruments.
The Joint Bookrunners and/or their affiliates may purchase the Notes for their own account and enter into transactions, including credit derivatives, such as asset swaps, re-packaging and credit default swaps relating to the Notes and/or other securities of the Company or their associates at the same time as the offer and sale of the Notes or in secondary market transactions. Such transactions would be carried out as bilateral trades with selected counterparties and separately from any existing sale or resale of the Notes to which this Offering Circular relates (notwithstanding that such selected counterparties may also be purchasers of the Notes).
The Joint Bookrunners or their affiliates may also purchase Notes for asset management and/or proprietary purposes but not with a view to distribution or may hold Notes on behalf of clients or in the capacity of investment advisers. While the Joint Bookrunners and their affiliates have policies and procedures to deal with conflicts of interests, any such transactions may cause a Joint Bookrunner or its affiliates or its clients or counterparties to have economic interests and incentives which may conflict with those of an investor in the Notes. The Joint Bookrunners or their affiliates may receive returns on such transactions and have no obligation to take, refrain from taking or cease taking any action with respect to any such transactions based on the potential effect on a prospective investor in the Notes.
If a jurisdiction requires that the offering of the Notes be made by a licensed broker or dealer and the Joint Bookrunners or any affiliate of the Joint Bookrunners is a licensed broker or dealer in that jurisdiction, such offering shall be deemed to be made by the Joint Bookrunners or such affiliate on behalf of the Company in such jurisdiction.
In connection with the issue of the Notes, Standard Chartered Bank may, to the extent permitted by applicable laws and directives, over-allot the Notes or effect transactions with a view to supporting the price of the Notes at a level higher than that which might otherwise prevail, but, in so doing, Standard Chartered Bank shall act as principal and not as agent of the Company. However, there is no assurance that Standard Chartered Bank will undertake stabilization action. Any loss or profit sustained as a consequence of any such over-allotment or stabilization shall be for the account of Standard Chartered Bank or, as the case may be, the Joint Bookrunners.
We expect that delivery of the Notes will be made against payment therefor on or about the closing date specified on the cover page of this Offering Circular, which will be on or about the fifth business day (being a business day in New York, Mumbai, Hong Kong and Singapore) following the pricing date of the Notes (this settlement cycle being referred to as “T+5”). Trades in the secondary market generally are required to settle in two business days, unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade Notes on the date of pricing or the next succeeding business day will be required, by virtue of the fact that the Notes initially will settle in T+5, to specify an alternate settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of the Notes who wish to trade the Notes on the date of pricing or succeeding business days should consult their own legal advisors.
Neither the Company nor any person acting on its behalf will issue, sell, offer or agree to sell, grant any option for the sale of, or otherwise dispose of, any debt securities of the Company or securities of the Company that are convertible into, or exchangeable for, the Notes or other debt securities, in any such case without the prior written consent of the Joint Bookrunners between the date hereof and the date which is fifth days after the Closing Date (both dates inclusive).
268 Selling Restrictions
Singapore
Each of the Joint Bookrunners has acknowledged that this Offering Circular has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each of the Joint Bookrunners has represented and agreed that it has not offered or sold any Notes or caused such Notes to be made the subject of an invitation for subscription or purchase and will not offer or sell such Notes or cause such Notes to be made the subject of an invitation for subscription or purchase, and has not circulated or distributed, nor will it circulate or distribute, this Offering Circular or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of such Notes, whether directly or indirectly, to any persons in Singapore other than (i) to an institutional investor (as defined in Section 4A of the SFA) pursuant to Section 274 of the SFA, (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA and (in the case of an accredited investor) Regulation 3 of the Securities and Futures (Classes of Investors) Regulations 2018, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the Notes are subscribed or purchased under Section 275 of the SFA by a relevant person which is:
(a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
(b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities or securities-based derivatives contracts (as defined in Section 2(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferable for six months after that corporation or that trust has acquired the Notes pursuant to an offer made under Section 275 of the SFA except:
1. to an institutional investor or to a relevant person, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
2. where no consideration is or will be given for the transfer;
3. where the transfer is by operation of law;
4. pursuant to Section 276(7) of the SFA; or
5. as specified in Regulation 37A of the Securities and Futures (Offers of Investments) (Securities and Securities-based Derivatives Contracts) Regulations 2018 of Singapore.
Any reference to the SFA is a reference to the Securities and Futures Act, Chapter 289 of Singapore and a reference to any term as defined in the SFA or any provision in the SFA is a reference to that term as modified or amended from time to time including by such of its subsidiary legislation as may be applicable at the relevant time.
269 United Kingdom
Each of the Joint Bookrunners has represented, warranted and agreed that
(i) it has only communicated or caused to be communicated and will only communicate or cause to be communicated an invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (the “FSMA”)) received by it in connection with the issue or sale of any Notes in circumstances in which section 21(1) of the FSMA does not apply to the Company; and
(ii) it has complied, and will comply, with all applicable provisions of the FSMA with respect to anything done by it in relation to the Notes in, from or otherwise involving the United Kingdom.
EEA and UK retail investors
Each Joint Bookrunner has represented and agreed that it has not offered, sold or otherwise made available and will not offer, sell or otherwise make available any Notes which are the subject of the offering contemplated by this Offering Circular to any retail investor in the EEA or the UK. For the purposes of this provision:
(a) the expression “retail investor” means a person who is one (or more) of the following:
(i) a retail client as defined in point (11) of Article 4(1) of Directive 2014/65/EU (as amended, “MiFID II”); or
(ii) a customer within the meaning of Directive (EU) 2016/97/EU (as amended, the “Insurance Distribution Directive”), where that customer would not qualify as a professional client as defined in point (10) of Article 4(1) of MiFID II.
(b) the expression “offer” includes the communication in any form and by any means of sufficient information on the terms of the offer and the Notes to be offered so as to enable an investor to decide to purchase or subscribe the Notes.
Hong Kong
Each of the Joint Bookrunners has represented and agreed that:
(i) it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any Notes other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance; and
(ii) it has not issued or had in its possession for the purposes of issue, and will not issue or have in its possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Notes, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Notes which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
270 Japan
The Notes have not been and will not be registered under the Financial Instruments and Exchange Act of Japan (Act No. 25 of 1948) (the “Financial Instruments and Exchange Act”). Accordingly, each Joint Bookrunner has represented and agreed that it has not, directly or indirectly, offered or sold and will not, directly or indirectly, offer or sell any Notes in Japan or to, or for the benefit of, any resident of Japan (which term as used herein means any person resident in Japan, including any corporation or other entity organized under the laws of Japan) or to, or for the benefit of, any resident of Japan, except pursuant to an exemption from the registration requirements of, and otherwise in compliance with the Financial Instruments and Exchange Act and other relevant laws and regulations of Japan.
United States
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Each Joint Bookrunner has represented and warranted that it has not offered or sold, and agrees that it will not offer or sell, any Notes constituting part of its allotment within the United States except in accordance with Rule 903 of Regulation S or Rule 144Aunder the Securities Act. Accordingly, neither it, its affiliates nor any persons acting on its or their behalf have engaged or will engage in any directed selling efforts with respect to the Notes. Terms used in this paragraph have the meaning given to them by Regulation S.
Each Joint Bookrunner has represented and agreed that neither it nor any of its affiliates (as defined in Rule 501(b) of Regulation D), nor any person acting on its or their behalf has engaged or will engage in any form of general solicitation or general advertising (as those terms are used in Rule 502(c) of Regulation D under the Securities Act) in connection with any offer and sale of the Notes in the United States.
Each Joint Bookrunner only may directly or through its U.S. broker-dealer affiliates arrange for the offer and resale of Notes in the United States only to investors it reasonably believes to be qualified institutional buyers (as defined in Rule 144A) in accordance with Rule 144A.
Each Joint Bookrunner has represented and warranted that it has not entered and agrees that it will not enter into any contractual arrangement with any distributor (as that term is defined in Regulation S) with respect to the distribution or delivery of the Notes, except with its affiliates or with the prior written consent of the Company.
In addition, until 40 days after the commencement of the offering of the Notes, an offer or sale of the Notes within the United States by any dealer (whether or not participating in the Offering) may violate the registration requirements of the Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A.
India
This Offering Circular has not been, nor will it be, filed, produced or published as an offer document (whether a prospectus in respect of a public offer or information memorandum or other offering material in respect of any private placement under the Companies Act, 2013, as amended, or any other applicable Indian laws) with any Registrar of Companies in India, the Securities Exchange Board of India, any Indian stock exchange or any other statutory or regulatory body of like nature in India, save and except for any information from any part of this Offering Circular which is mandatorily required to be disclosed or filed in India under any applicable Indian laws, guidelines or regulations, for the time being valid, including but not limited to, the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations 2015, and under the listing agreement with any Indian stock exchange pursuant to the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015, each as amended, supplemented or re-enacted and the rules framed thereunder or pursuant to the sanction of any
271 regulatory and adjudicatory body in India and the Notes will not be offered or sold, and have not been offered or sold, in India by means of any document, whether as a principal or agent nor have the Joint Bookrunners circulated or distributed, nor will they circulate or distribute, the Offering Circular or any other offering document or material relating to the Notes, directly or indirectly, to any person or the public or any member of the public in India or otherwise generally distributed or circulated in India. The Notes have not been offered or sold, and will not be offered or sold to any person, in India, including in circumstances which would constitute an advertisement, invitation, offer, sale or solicitation of an offer to subscribe for or purchase any securities (whether to the public or by way of private placement) within the meaning of the Companies Act, 2013, as amended, or any other applicable Indian laws for the time being valid.
The Notes will be offered and sold only (A) to (i) a person who is a resident of a FATF compliant jurisdiction or an IOSCO compliant jurisdiction or (ii) multilateral and regional financial institutions where India is a member country; or (iii) foreign branches or subsidiaries of Indian banks; and (B) in compliance with requirements specified by the Reserve Bank of India from time to time in relation to external commercial borrowings by Indian entities (including those set out under the ECB Guidelines) and are not otherwise prohibited under any applicable law or regulation from acquiring, owning or selling the Notes. Further, this Offering Circular or any other material relating to the Notes has not been and will not be circulated or distributed to any prospective investor who is not a resident of a FATF compliant jurisdiction or an IOSCO compliant jurisdiction and who is a person resident in India. This Offering Circular or any material relating to the Notes has not been and will not be circulated or distributed to any prospective investor who is not a resident of an FATF or IOSCO compliant jurisdiction, and the Notes will not be offered or sold or transferred and have not been offered or sold or transferred to any person who is not a resident of an FATF or IOSCO compliant jurisdiction.
For the purposes of this section, “ECB Guidelines”,“FATF compliant jurisdiction” and “IOSCO compliant jurisdiction” shall have the following meaning:
“ECB Guidelines”—the Foreign Exchange Management Act, 1999, as amended or the rules and regulations issued thereunder, including the Foreign Exchange Management (Borrowing or Lending) Regulations, 2018, as amended, and the rules, regulations, circulars or notifications issued by the RBI in connection with external commercial borrowings by Indian companies, including the Master Directions on External Commercial Borrowings, Trade Credits and Structured Obligations dated March 26, 2019, as amended, the circular on External Commercial Borrowings (ECB) Policy – Rationalization of End-use Provisions dated July 30, 2019 and the Master Direction on Reporting under Foreign Exchange Management Act, 1999 dated January 1, 2016, as amended.
“FATF compliant jurisdiction”—a country that is a member of FATF or a member of a FATF-style regional body; and should not be a country identified in the public statement of the FATF as (a) a jurisdiction having a strategic anti-money laundering or combating the financing of terrorism deficiencies to which counter measures apply; or (b) a jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the FATF to address the deficiencies.
“IOSCO compliant jurisdiction”—a country whose securities market regulator is a signatory to the IOSCO’s Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Securities and Exchange Board of India for information sharing arrangements.
272 TRANSFERRESTRICTIONS
As the following restrictions will apply to the Notes, investors should consult legal counsel prior to making any offer, resale, pledge or transfer of the Notes.
The Notes have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act. Accordingly, the Notes are being offered and sold only:
• within the United States to “qualified institutional buyers” in compliance with Rule 144A; and
• outside the United States in offshore transactions, in reliance upon Regulation S.
Purchasers of the Notes, including purchasers within the United States pursuant to Rule 144A and purchasers outside the United States pursuant to Regulation S, cannot transfer or resell the Notes to overseas branches or subsidiaries of Indian banks.
Rule 144A Notes
Each purchaser of the Notes within the United States pursuant to Rule 144A, by accepting delivery of this Offering Circular, will be deemed to have represented, agreed and acknowledged that:
1. It is (a) a qualified institutional buyer within the meaning of Rule 144A(a “QIB”), (b) acquiring such Notes for its own account or for the account of a QIB and (c) aware, and each beneficial owner of such Notes has been advised, that the sale of such Notes to it is being made in reliance on Rule 144A.
2. It understands and acknowledges that the Notes are being offered only in a transaction not involving any public offering in the United States, within the meaning of the Securities Act, and that such Notes have not been and will not be registered under the Securities Act or with any securities regulatory authority of any jurisdiction and (a) may not be offered, sold, pledged or otherwise transferred except (i) in accordance with Rule 144A to a person that it and any person acting on its behalf reasonably believe is a QIB purchasing for its own account or for the account of a QIB, (ii) in an offshore transaction in accordance with Rule 903 or Rule 904 of Regulation S or (iii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), in each case in accordance with any applicable securities laws of any State of the United States; (b) the purchaser will, and each subsequent purchaser is required to, notify any subsequent purchaser of such Notes from it of the resale restrictions referred to in (a) above; and (c) no representation can be made as to the availability of the exemption provided by Rule 144 under the Securities Act for resale of the Notes.
3. If it is a person other than a person outside the United States, it agrees that if it should resell or otherwise transfer the Notes, it will do so only:
• to the Company or any of its affiliates;
• inside the United States to a QIB in compliance with Rule 144A;
• outside the United States in compliance with Rule 903 or Rule 904 of Regulation S under the Securities Act;
• pursuant to the exemption from registration provided by Rule 144 under the Securities Act (if available); or
• pursuant to an effective registration statement under the Securities Act.
273 4. It understands that such Notes, unless otherwise agreed between the Company and the Note Trustee in accordance with applicable law, will bear a legend to the following effect:
“THISNOTEHASNOTBEENANDWILLNOTBEREGISTEREDUNDERTHEU.S. SECURITIES ACT OF 1933 (THE “SECURITIESACT”),ORWITHANYSECURITIES REGULATORY AUTHORITY OF ANY STATE OR OTHER JURISDICTION OF THEUNITED STATES, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (1) IN ACCORDANCE WITH RULE 144A UNDER THE SECURITIES ACT(“RULE 144A”)TOAPERSONTHATTHEHOLDERANDANYPERSONACTINGONITSBEHALF REASONABLYBELIEVEISAQUALIFIEDINSTITUTIONALBUYERWITHINTHEMEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OFA QUALIFIED INSTITUTIONAL BUYER, (2) IN AN OFFSHORE TRANSACTIONIN ACCORDANCE WITH RULE 903 OR RULE 904 OF REGULATION S UNDER THE SECURITIES ACT OR (3) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER (IF AVAILABLE),INEACHCASE INACCORDANCEWITHANYAPPLICABLESECURITIESLAWSOFANYSTATEOFTHE UNITEDSTATES.THEHOLDERWILL,ANDEACHSUBSEQUENTHOLDERISREQUIRED TO,NOTIFYANYSUBSEQUENTPURCHASEROFTHESENOTESFROMITOF THERESALE RESTRICTIONSREFERREDTOABOVE.NOREPRESENTATIONCANBEMADEASTOTHE AVAILABILITY OF THE EXEMPTION PROVIDED BY RULE 144 UNDER THE SECURITIES ACTFORRESALESOFTHISNOTE.”
5. The Company, the Registrars, the Joint Bookrunners and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements and, if any such acknowledgments, representations or agreements deemed to have been made by virtue of its purchase of the Notes are no longer accurate, it agrees to promptly notify us. If it is acquiring any Notes for the account of one or more QIBs, it represents that it has sole investment discretion with respect to each such account and it has full power to make the foregoing acknowledgments, representations and agreements on behalf of each such account.
6. It understands that the Notes offered in reliance on Rule 144A will be represented by the Rule 144A Global Certificate. Before any interest in any Rule 144A Global Certificate may be offered, sold, pledged or otherwise transferred to a person who takes delivery in the form of an interest in the corresponding Regulation S Global Certificate, it will be required to provide the relevant Registrar with a written certification (in the form provided in the terms and conditions of the Notes) as to compliance with applicable securities laws.
Prospective purchasers are hereby notified that sellers of the Notes may be relying on the exemption from the provisions of Section 5 of the Securities Act provided by Rule 144A.
Regulation S Notes
Each purchaser of the Notes outside the United States pursuant to Regulation S, by accepting delivery of this Offering Circular and the Notes, will be deemed to have represented, agreed and acknowledged that:
1. It is, or at the time such Notes are purchased will be, the beneficial owner of such Notes and (a) it is located outside the United States (within the meaning of Regulation S) and (b) it is not an affiliate of the Company or a person acting on behalf of such an affiliate.
2. It understands that such Notes have not been and will not be registered under the Securities Act.
3. The Company, the Registrars, the Joint Bookrunners and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and, if any such acknowledgments, representations or agreements deemed to have been made by virtue of its purchase of the Notes are no longer accurate, it agrees to promptly notify us.
274 LEGAL MATTERS
Allen & Overy (Asia) Pte Ltd will pass upon certain legal matters in connection with this Offering for the Company with respect to U.S. federal and English law. Sidley Austin LLP will pass upon certain legal matters in connection with this Offering for the Joint Bookrunners with respect to U.S. federal and English law.
Matters of Indian law will be passed upon for the Company by L&L Partners, Indian counsel to the Company and for the Joint Bookrunners by Cyril Amarchand Mangaldas, Indian counsel to the Joint Bookrunners.
275 INDEPENDENTACCOUNTANTS
S R B C & CO LLP, the independent auditors of the Company, have audited our financial statements as at and for Fiscal Years 2018, 2019 and 2020, prepared in accordance with Ind AS, included in this Offering Circular. S R B C & CO LLP has also performed a limited review of our unaudited interim condensed financial statements as at and for the six months ended September 30, 2020 prepared in accordance with Ind AS 34, included in this Offering Circular.
276 DESCRIPTIONOFCERTAINDIFFERENCESBETWEENINDASANDIFRS
The financial statements presented in this Offering Circular as at and for Fiscal Years 2018, 2019 and 2020 (collectively, the Audited Financial Statements) have been prepared in accordance with the Indian Accounting Standards (“Ind AS”) as notified under section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules, 2015, as amended from time to time, and other accounting principles generally accepted in India. The financial statements presented in this Offering Circular as at and for the six months ended September 30, 2020 (the Unaudited Interim Condensed Financial Statements) have been prepared in accordance with Indian Accounting Standard 34 “Interim Financial Reporting” (“Ind AS 34”) as notified under section 133 of the Companies Act, 2013 read with the Companies (Indian Accounting Standards) Rules, 2015, as amended from time to time and other accounting principles generally accepted in India. We refer to our Audited Financial Statements and our Unaudited Interim Condensed Financial Statements collectively herein as our “financial statements.”
The following summarizes certain general differences between Ind AS and IFRS that could have a significant impact on the financial position and operations of the Company if its financial statements were prepared under IFRS. Such differences involve methods for measuring amounts in the Audited Financial Statements and the Unaudited Interim Condensed Financial Statements, as well as additional disclosures required by IFRS. The summary below should not be considered exhaustive, as no attempt has been made by the Company to quantify the differences between Ind AS and IFRS, and therefore no impact assessment of Ind AS to IFRS has been undertaken by the Company. Had any such quantification or impact assessment been undertaken, other potential significant accounting and disclosure differences may have come to its attention, which are not identified below.
Potential investors should consult their own professional advisors for an understanding of the differences between Ind AS and IFRS and how those differences might affect our financial statements beginning on page F-1 of this Offering Circular.
277 Summary of Certain Differences
Particulars of the No. Standard TreatmentunderIFRS TreatmentunderIndAS
Presentation of Financial Statement 1. Primary requirement IAS 1 sets out the requirements The requirements for the for presentation of financial presentation of financial statements and the guidelines for statements are set out in Ind AS 1 their structure and content. and Schedule III to the Companies Act, 2013.
2. Statements of With regard to preparation of Ind AS 1 allows only the single comprehensive statement of profit and loss, IFRS statement approach and does not income/Statement of provides an option either to permit the two statements profit and loss follow the single statement approach. approach or to follow the two-statement approach. An entity For deletion of two statements may present a single statement of approach, consequential profit or loss and other amendments have been made in comprehensive income; other Ind AS also.
or
It may present the profit or loss section in a separate ‘statement of profit or loss’ which shall immediately precede the ‘statement of comprehensive income’, which shall begin with profit or loss.
3. Analysis of expenses IAS 1 requires an entity to Ind AS 1 and Schedule III to the in the statement of present an analysis of expenses Companies Act, 2013 requires profit and loss recognized in profit or loss using entities to present an analysis of a classification based on either expenses recognized in profit or their nature or their function loss using a classification based within the entity, whichever on their nature only. There is no provides the information that is option to use functional reliable and more relevant. classification for presentation of expenses.
4. Materiality and IAS 1 requires: Ind AS 1 modifies these aggregation requirements by adding the words • each material class of similar ‘except when required by law.’ items to be presented Hence, if the applicable law separately in the financial requires separate presentation/ statements; and disclosure of certain items, they are presented separately • items of a dissimilar nature or irrespective of materiality. function to be presented separately unless they are immaterial Also, IAS 1 states that specific disclosure need not be provided if the same is considered immaterial.
278 Particulars of the No. Standard TreatmentunderIFRS TreatmentunderIndAS
5. Current/ If an entity breaches a provision Ind AS 1 refers to breach of non-current of a long-term loan arrangement material provision, instead of any classification on on or before the period end with provision. This indicates that breach of debt the effect that the liability breach of immaterial provision covenant becoming payable on demand, the may not impact loan loan is classified as current classification. Further, under Ind liability. This is the case even if AS 1, waivers granted by the the lender has agreed, after the lender between the end of the period end and before the reporting period and the date of authorization of the financial approval of financial statements statements for issue, not to for issue are treated as adjusting demand payment as a event. A corresponding change has consequence of the breach. Such also been made in Ind AS 10. waivers granted by the lender or rectification of a breach after the end of the reporting period are considered as non-adjusting event and disclosed.
6. Applicability of EPS IAS 33 applies only to an entity This scope requirement has been whose ordinary shares or potential deleted in the Ind AS the ordinary shares are traded in a applicability or exemptions is public market or that files, or is governed by Companies Act, 2013 in the process of filing, its and the rules made thereunder. financial statements with a Since there is no exemption from securities commission or other disclosing EPS under the regulatory organization for the Companies Act, all companies purpose of issuing ordinary shares covered under Ind AS need to in a public market. disclose EPS.
7. Frequencyof In accordance with IAS 1, an Ind AS 1 does not permit entities reporting entity consistently prepares to use a periodicity other than one financial statements for one-year year to present their financial period. However, for practical statements. reasons, some entities prefer to report, for example, for a 52-week period. IAS 1 does not preclude this practice.
279 Particulars of the No. Standard TreatmentunderIFRS TreatmentunderIndAS
First-time Adoption 8. Deemedcost IFRS 1 permits a first-time Ind AS 101 also provides similar exemption for adopter to measure its items of deemed cost exemption. In property, plant and property, plant and equipment addition, if there is no change in equipment (PPE) at deemed cost at the the functional currency at the transition date. The deemed cost transition date, Ind AS 101 allows can be: a first-time adopter to continue with the Previous GAAP carrying • the fair value of the item at the value for all of its property, plant date of transition; or and equipment as recognized in the previous GAAP financial • a previous GAAP revaluation at statements at the transition date. or before transition date, if The same is used as deemed cost revaluation met certain criteria. at that date, after making adjustment relating to Similar exemption is also decommissioning liabilities. available for intangible assets (if active market exists) at cost. If an entity avails this option, no further adjustments to the deemed cost so determined is made. Similar exemption is also available for intangible assets.
9. Additional Under IFRS 1, an entity classifies Ind AS 101 provides the exemptions relating a lease based on the lease terms following additional exemptions: to composite leases that are valid at its date of and land lease transition based on the • When a lease includes both circumstances that existed at the land and building elements, a inception of the lease. No first-time adopter may assess exemption is available for the classification of each classification of composite leases. element as finance or operating lease at the date of transition to Ind AS based on the facts and circumstances existing as at that date.
• If there is any land lease classified as finance lease at the transition date, which was classified differently under previous GAAP, then the first- time adopter may recognize asset and liability at fair values on that date. Any difference between those fair values is recognized in retained earnings.
280 Particulars of the No. Standard TreatmentunderIFRS TreatmentunderIndAS
10. Exchange differences No such exemption is available in Under the erstwhile Indian GAAP, arising on long-term IFRS 1. companies recognize exchange monetary items differences arising on restatement IAS 21 requires exchange of foreign currency monetary differences arising on restatement items, both long term and short of foreign currency monetary term, in the profit or loss items, both long term and short immediately. Alternatively, they term, to be recognized in the are given an irrevocable option to income statement for the period. defer/capitalize exchange differences on long-term foreign currency monetary items.
For the companies applying second option under the erstwhile Indian GAAP, Ind AS 101 provides an additional option. They may continue to account for exchange differences arising on long-term foreign currency monetary items recognized in the financial statements for the period ending immediately before the beginning of first Ind AS reporting period using the previous GAAP accounting policy.
Ind AS 21 does not apply to exchange differences arising on such outstanding long-term foreign currency monetary items.
However, for any new long-term foreign currency monetary items recognized on or after beginning of first Ind AS reporting period, companies will be required to apply principles of Ind AS 21.
11. First-time adoption – IFRS 1 permits a first-time There is no such exemption under Exemption relating to adopter to apply the requirements Ind AS 101, since Indian GAAP borrowing cost of IAS 23 from the date of requires the borrowing cost transition or from an earlier date relating to qualifying assets to be as permitted by the transitional capitalized if the criteria laid requirements of IAS 23. down in AS 16 are fulfilled.
281 Particulars of the No. Standard TreatmentunderIFRS TreatmentunderIndAS
Leases* 12. Classification and Up to December 31, 2018: For periods up to March 31, 2019: presentation Lessees apply a dual recognition Lessees apply a dual recognition and measurement approach for all and measurement approach for all leases as per IFRS 17. leases as per Ind AS 17.
IFRS 16, Lessees applies a single Lessees classify a lease as a recognition and measurement finance lease if it transfers approach for all leases, with substantially all the risks and options not to recognize right-of- rewards incidental to ownership. use assets and lease liabilities for Otherwise a lease is classified as short-term leases and leases of an operating lease. Ind AS 17 low-value assets. does not deal with Presentation in the balance sheet. In the case of Balance Sheet – present right-of- Statement of profit or loss – use assets separately from other operating lease expense is assets. presented as a single item.
Lease liabilities are also presented Cash flow statement-for operating separately from other liabilities. leases, cash payments are included within operating Statement of profit or loss – activities. present interest expense on the lease liability separately from the The presentation of finance leases depreciation charge for the right- is similar to IFRS 16. of-use asset. Interest expense on the lease liability is a component For periods beginning on or after of finance costs, which paragraph April 1, 2019: 82(b) of Ind AS 1 Presentation of Financial Statements requires to Ind AS-116 – Leases has been be presented separately in the notified to be applicable for statement of profit or loss. Cash periods beginning on or after flow statement – For non-financial April 1, 2019 and there are no entities, classify cash payments major differences between IFRS for the principal portion of the 16 and Ind AS 116. lease liability within financing activities; cash payments for the interest portion of the lease liability as per the requirements of IAS 7 Statement of Cash Flows; and short-term lease payments, payments for leases of low-value assets and variable lease payments not included in the measurement of the lease liability within operating activities.
* The Ministry of Corporate Affairs, pursuant to its notification dated March 30, 2019, notified Ind-AS 116 Leases, which has been made effective from April 1, 2019.
282 Particulars of the No. Standard TreatmentunderIFRS TreatmentunderIndAS
13. Disclosure of IFRS 15 requires extensive Ind AS 115 contains all the reconciliation qualitative and quantitative disclosure requirement in IFRS between revenue and disclosures including those on 15. In addition, Ind AS 115 contracted price disaggregated revenue, requires presentation of a reconciliation of contract reconciliation between the amount balances, performance obligations of revenue recognized in and significant judgments. statement of profit or loss and the contracted price showing separately adjustments made to the contracted price, for example, on account of discounts, rebates, refunds, price concessions, incentives, bonus, etc. specifying the nature and amount of each such adjustment separately.
Borrowing Cost 14. Exchange differences In accordance with IAS 23, Ind AS 23 is similar to IAS 23. regarded as borrowing cost includes exchange However, Ind AS 23 provides adjustment to interest difference arising from foreign following additional guidance on costs currency borrowings to the extent manner of arriving at this that they are regarded as an adjustment: The adjustment should adjustment to interest costs. be of an amount equivalent to the However, it does not provide any extent to which the exchange loss specific guidance on measurement does not exceed the difference of such amounts. between the costs of borrowing in functional currency when compared to the costs of borrowing in a foreign currency. If there is an unrealized exchange loss which is treated as an adjustment to interest and subsequently there is a realized or unrealized gain in respect of the settlement or translation of the same borrowing, the gain to the extent of the loss previously recognized as an adjustment should also be recognized as an adjustment to interest.
283 Particulars of the No. Standard TreatmentunderIFRS TreatmentunderIndAS
Related Party Disclosures 15. Aggregation of IFRS does not provide any Ind AS 24 provides an additional transactions for guidance on the aggregation of guidance whereby items of similar disclosure transaction for disclosure. nature may be disclosed in aggregate by type of related party. However, this is not done in such a way as to obscure the importance of significant transactions. Hence, purchases or sales of goods are not aggregated with purchases or sales of fixed assets. Nor a material related party transaction with an individual party is clubbed in an aggregated disclosure.
Cash Flow Statement 16. Classification of For non-financial entities, interest Ind AS 7 does not give an option interest paid, and paid, and interest and dividends It requires non-financial entities interest and dividend received may be classified as to classify interest paid as part of received ‘operating activities. Alternatively, ‘financing activities’ and interest interest paid, and interest and and dividend received as dividends received may be ‘investing activities’. classified as ‘financing activities’ and ‘investing activities’, respectively.
17. Classification of Dividend paid is classified as Dividend paid may be classified dividend paid financing cash flows. either as operating or financing cash flows.
Separate Financial Statements 18. Definition of close As per IAS 24, “close members of Definition “close members of the members of the the family” of a person are those family” under Ind AS 24 is family of a person family members who may be similar. In addition to relations expected to influence, or be prescribed under IFRS, it includes influenced by, that person in their brother, sister, father and mother dealings with the entity. They may in sub-paragraph (a). include:
• the person’s spouse or domestic partner and children;
• children of the person’s spouse or domestic partner; and
• dependents of the person or the person’s spouse or domestic partner.
284 Particulars of the No. Standard TreatmentunderIFRS TreatmentunderIndAS
Segment Reporting 19. Applicability of IFRS 8 applies only to an entity This scope requirement has been operating segments whose ordinary shares or potential deleted in the Ind AS the ordinary shares are traded in a applicability or exemptions is public market or that files, or is governed by Companies Act, 2013 in the process of filing, its and the rules made thereunder. financial statements with a securities commission or other Currently, the Companies Act, regulatory organization for the 2013 does not exempt any purpose of issuing ordinary shares company (except few government in a public market. companies in defense sector) from presentation of segment information.
Employee Benefits 20. Employee Benefits – Market yields at the reporting The rate used to discount Discount rate period on high quality corporate post-employment benefit bonds are used as discount rates. obligations (both funded and In countries where there are no unfunded) shall be determined by deep markets for such bonds, reference to market yields at the market yields on government end of the reporting period on bonds are used. government bonds.
285 INDEX TO THE FINANCIAL STATEMENTS
Unaudited Interim Condensed Financial Statements as at and for the Six Months ended September 30, 2020 Report on Review of Unaudited Interim Condensed Financial Statements...... F-2 Interim Condensed Balance Sheet as at September 30, 2020 ...... F-4 Interim Condensed Statement of Profit and Loss for the Six Months Ended September 30, 2020...... F-5 Interim Condensed Changes in Equity for the Six Months Ended September30,2020 ...... F-6 Interim Condensed Statement of Cash Flow for the Six Months Ended September 30, 2020 ... F-7 Explanatory notes to the Interim Condensed Financial Statements as at and for the Six months endedSeptember30,2020 ...... F-8
Audited Financial Statements as at and for Fiscal Year 2020 IndependentAuditors’Report ...... F-18 Balance Sheet as at March 31, 2020 ...... F-27 Statement of Profit and Loss for the year ended March 31, 2020...... F-28 Statement of Changes in Equity for the year ended March 31, 2020 ...... F-29 Statement of Cash Flow for the year ended March 31, 2020 ...... F-30 Notes to the Financial Statements as at and for the year ended March31,2020...... F-31
Audited Financial Statements as at and for Fiscal Year 2019 IndependentAuditors’Report ...... F-70 Balance Sheet as at March 31, 2019 ...... F-80 Statement of Profit and Loss for the year ended March 31, 2019...... F-81 Statement of Changes in Equity for the year ended March 31, 2019 ...... F-82 Statement of Cash Flow for the year ended March 31, 2019 ...... F-83 Notes to the Financial Statements as at and for the year ended March31,2019...... F-84
Audited Financial Statements as at and for Fiscal Year 2018 IndependentAuditors’Report ...... F-115 Balance Sheet as at March 31, 2018 ...... F-123 Statement of Profit and Loss for the year ended March 31, 2018...... F-124 Statement of Changes in Equity for the year ended March 31, 2018 ...... F-125 Cash Flow Statement for the year ended March 31, 2018 ...... F-126 Notes to the Financial Statements as at and for the year ended March 31, 2018...... F-127
F-1 F-2 F-3 F-4 F-5 F-6 F-7 F-8 F-9 F-10 F-11 F-12 F-13 F-14 F-15 F-16 F-17 F-18 F-19 F-20 F-21 F-22 F-23 F-24 F-25 F-26 F-27 F-28 F-29 F-30 F-31 F-32 F-33 F-34 F-35 F-36 F-37 F-38 F-39 F-40 F-41 F-42 F-43 F-44 F-45 F-46 F-47 F-48 F-49 F-50 F-51 F-52 F-53 F-54 F-55 F-56 F-57 F-58 F-59 F-60 F-61 F-62 F-63 F-64 F-65 F-66 F-67 F-68 F-69 F-70 F-71 F-72 F-73 F-74 F-75 F-76 F-77 F-78 F-79 F-80 F-81 F-82 F-83 F-84 F-85 F-86 F-87 F-88 F-89 F-90 F-91 F-92 F-93 F-94 F-95 F-96 F-97 F-98 F-99 F-100 F-101 F-102 F-103 F-104 F-105 F-106 F-107 F-108 F-109 F-110 F-111 F-112 F-113 F-114 F-115 F-116 F-117 F-118 F-119 F-120 F-121 F-122 F-123 F-124 F-125 F-126 F-127 F-128 F-129 F-130 F-131 F-132 F-133 F-134 F-135 F-136 F-137 F-138 F-139 F-140 F-141 F-142 F-143 F-144 F-145 F-146 F-147 F-148 F-149 F-150 F-151 F-152 F-153 F-154 F-155 F-156 ISSUER
Adani International Container Terminal Private Limited Adani Corporate House, Shantigram Near Vaishno Devi Circle, S.G.Highway Ahmedabad, Gujarat, India - 382421
LEGALADVISERSTOTHECOMPANY as to English law and U.S. federal securities laws as to Indian law
Allen & Overy (Asia) Pte Ltd L&L Partners (formerly, Luthra & 50 Collyer Quay Luthra Law Offices) #09-01 One International Centre, Tower 2, Unit A2 OUE Bayfront 20th Floor, Elphinstone Road Singapore 049321 Senapati Bapat Marg Mumbai 400 013 India
LEGALADVISERSTOTHEJOINTGLOBALCOORDINATORSANDJOINTBOOKRUNNERS astoEnglishlawandU.S.federalsecuritieslaws astoIndian law Sidley Austin LLP Cyril Amarchand Mangaldas Level 31 70 St Mary Axe 4th floor, Prius Prestige Falcon Towers Six Battery Road London EC3A 8BE Platinum, 3rd floor Singapore 049909 United Kingdom D-3, District Centre, Brunton Road Saket, New Delhi Craig Park Layout 110017, India Victoria Layout Bengaluru 560025 India
LISTINGAGENT
Allen & Overy (Asia) Pte Ltd 50 Collyer Quay #09-01 OUE Bayfront Singapore 049321
NOTETRUSTEE PRINCIPAL PAYING AGENT AND TRANSFERAGENT
CiticorpInternationalLimited Citibank,N.A.,LondonBranch 20/F, Citi Tower, c/o Citibank, N.A., Dublin Branch One Bay East, 1 North Wall Quay 83 Hoi Bun Road, Dublin 1 Kwun Tong, Ireland Kowloon, Hong Kong
REGISTRAR
Citibank, N.A., London Branch c/o Citibank, N.A., Dublin Branch 1 North Wall Quay Dublin 1 Ireland
LEGALADVISERSTOTHENOTETRUSTEE as to English law
Linklaters 11th Floor Alexandra House, Chater Road Central, Hong Kong
SECURITYTRUSTEE
Catalyst Trusteeship Limited Branch Office at 810, 8th Floor, Kailash Building 26, Kasturba Gandhi Marg New Delhi -110001, India
INDEPENDENTAUDITORS
SRBC&COLLP 21st Floor, Privilon, Ambli BRT Road Behind Iskcon Temple, Off SG Highway Ahmedabad, Gujarat – 380 059 India