Placement Document Dated June 4, 2014 Not for Circulation and Strictly Confidential Serial Number: [●]
KSK ENERGY VENTURES LIMITED
Our Company was incorporated as KSK Energy Ventures Private Limited on February 14, 2001 under the Companies Act, 1956. Pursuant to a special resolution of its shareholders passed on February 9, 2002, our Company was converted into a public limited company and the word “private” was deleted from its name. Our Company became a private limited company pursuant to a special resolution of its shareholders passed on July 3, 2006, and the word “private” was added to its name. Subsequently, pursuant to a special resolution of the shareholders of our Company passed on January 19, 2008, our Company became a public limited company and the word “private” was deleted from its name. The Corporate Identification Number (CIN) of our Company is L45204AP2001PLC057199.
KSK Energy Ventures Limited (the “Company” or the “Issuer” or “KSK”) is issuing 40,404,040 equity shares of our Company of a face value of `10 each (the “Equity Shares”) at a price of `99 per Equity Share (the “Issue Price”), including a premium of `89 per Equity Share aggregating approximately `4,000 million (the “Issue”)*.
ISSUE IN RELIANCE UPON SECTION 42 OF THE COMPANIES ACT, 2013, READ WITH RULE 14 OF THE COMPANIES (PROSPECTUS AND ALLOTMENT OF SECURITIES) RULES, 2014 AND CHAPTER VIII OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009, AS AMENDED (THE “SEBI REGULATIONS”)
THE ISSUE AND DISTRIBUTION OF THIS PLACEMENT DOCUMENT IS BEING MADE TO QUALIFIED INSTITUTIONAL BUYERS (“QIBs”) AS DEFINED UNDER THE SEBI REGULATIONS IN RELIANCE UPON SECTION 42 OF THE COMPANIES ACT, 2013, READ WITH RULE 14 OF THE COMPANIES (PROSPECTUS AND ALLOTMENT OF SECURITIES) RULES, 2014 (TOGETHER, THE “PRIVATE PLACEMENT REGULATIONS”) AND CHAPTER VIII OF THE SEBI REGULATIONS. THIS PLACEMENT DOCUMENT IS PERSONAL TO EACH PROSPECTIVE INVESTOR AND DOES NOT CONSTITUTE AN OFFER OR INVITATION OR SOLICITATION OF AN OFFER TO THE PUBLIC OR TO ANY OTHER PERSON OR CLASS OF INVESTORS WITHIN OR OUTSIDE INDIA OTHER THAN TO QIBs.
YOU ARE NOT AUTHORIZED TO AND MAY NOT (1) DELIVER THIS PLACEMENT DOCUMENT TO ANY OTHER PERSON; OR (2) REPRODUCE THIS PLACEMENT DOCUMENT IN ANY MANNER WHATSOEVER. ANY DISTRIBUTION OR REPRODUCTION OF THIS PLACEMENT DOCUMENT IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS INSTRUCTION MAY RESULT IN A VIOLATION OF THE SEBI REGULATIONS OR OTHER APPLICABLE LAWS OF INDIA AND OTHER JURISDICTIONS.
INVESTMENTS IN EQUITY SHARES INVOLVE A DEGREE OF RISK AND PROSPECTIVE INVESTORS SHOULD NOT INVEST IN THE ISSUE UNLESS THEY ARE PREPARED TO TAKE THE RISK OF LOSING ALL OR PART OF THEIR INVESTMENT. PROSPECTIVE INVESTORS ARE ADVISED TO CAREFULLY READ “RISK FACTORS” BEFORE MAKING AN INVESTMENT DECISION RELATING TO THE ISSUE. EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS OWN ADVISORS ABOUT THE CONSEQUENCES OF AN INVESTMENT IN THE EQUITY SHARES BEING ISSUED PURSUANT TO THIS PLACEMENT DOCUMENT. PROSPECTIVE INVESTORS OF THE EQUITY SHARES OFFERED SHOULD CONDUCT THEIR OWN DUE DILIGENCE ON THE EQUITY SHARES. IF YOU DO NOT UNDERSTAND THE CONTENTS OF THIS PLACEMENT DOCUMENT YOU SHOULD CONSULT AN AUTHORIZED FINANCIAL ADVISER.
The Equity Shares are listed on the National Stock Exchange of India Limited (the “NSE”) and the BSE Limited (the “BSE”, together with the NSE, the “Stock Exchanges”). The closing price of the outstanding Equity Shares on the NSE and the BSE on June 2, 2014, was `112.55 and `112.15 per Equity Share, respectively. In-principle approvals under Clause 24(a) of the Equity Listing Agreements (as defined hereinafter) for listing of the Equity Shares have been received from each of the NSE and the BSE on June 2, 2014. Applications will be made for obtaining listing and trading approvals of the Equity Shares offered through this placement document (this “Placement Document”) to the Stock Exchanges. The Stock Exchanges assume no responsibility for the correctness of any statements made, opinions expressed or reports contained herein. Admission of the Equity Shares to trading on the Stock Exchanges should not be taken as an indication of the merits of the business of our Company or the Equity Shares.
A copy of the Preliminary Placement Document (as defined hereinafter) (which included disclosures prescribed under Form PAS-4 (as defined hereinafter)) has been delivered to the Stock Exchanges. A copy of this Placement Document (which includes disclosures prescribed under Form PAS-4) has also been filed with the Stock Exchanges. Our Company shall also make the requisite filings with the Registrar of Companies, Andhra Pradesh at Hyderabad (the “RoC”) and the Securities and Exchange Board of India (the “SEBI”) within the stipulated period as required under the Companies Act, 2013 and the Companies (Prospectus and Allotment of Securities) Rules, 2014. This Placement Document has not been reviewed by the SEBI, the Reserve Bank of India (the “RBI”), the Stock Exchanges, the RoC or any other regulatory or listing authority and is intended only for use by the QIBs. This Placement Document has not been and will not be registered as a prospectus with the RoC, will not be circulated or distributed to the public in India or any other jurisdiction, and will not constitute a public offer in India or any other jurisdiction. This Placement Document has been prepared by our Company solely for providing information in connection with the Issue.
Invitations, offers and sales of the Equity Shares shall only be made pursuant to the Preliminary Placement Document (as defined hereinafter) together with the respective Application Form (as defined hereinafter) and the Confirmation of Allocation Note (as defined hereinafter). For further details, see the section “Issue Procedure” on page 146. The distribution of this Placement Document or the disclosure of its contents without the prior consent of our Company to any person, other than QIBs and persons retained by QIBs to advise them with respect to their purchase of the Equity Shares is unauthorized and prohibited. Each prospective investor, by accepting delivery of this Placement Document, agrees to observe the foregoing restrictions and make no copies of this Placement Document or any documents referred to in this Placement Document.
The information on the website of our Company or any website directly or indirectly linked to the website of our Company does not form part of this Placement Document and prospective investors should not rely on such information contained in, or available through, any such website.
The Equity Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (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 and applicable state securities laws. The Equity Shares are being offered and sold outside the United States in offshore transactions in reliance on Regulation S under the Securities Act. For further information, see the sections “Selling Restrictions” and “Transfer Restrictions” on pages 157 and 162, respectively.
This Placement Document is dated June 4, 2014. GLOBAL COORDINATOR AND BOOK RUNNING LEAD MANAGER BOOK RUNNING LEAD MANAGER
*For further details of authority for the Issue, see the section “General Information” on page 205.
TABLE OF CONTENTS
NOTICE TO INVESTORS ...... 1 DISCLAIMER CLAUSE ...... 7 PRESENTATION OF FINANCIAL AND OTHER INFORMATION ...... 8 INDUSTRY AND MARKET DATA ...... 9 FORWARD-LOOKING STATEMENTS ...... 10 ENFORCEMENT OF CIVIL LIABILITIES ...... 11 EXCHANGE RATES ...... 12 DEFINITIONS AND ABBREVIATIONS ...... 13 DISCLOSURE REQUIREMENTS UNDER FORM PAS-4 PRESCRIBED UNDER THE COMPANIES ACT, 2013 ...... 20 SUMMARY OF BUSINESS ...... 22 SUMMARY OF THE ISSUE ...... 26 SELECTED FINANCIAL INFORMATION ...... 29 RISK FACTORS ...... 33 MARKET PRICE INFORMATION ...... 69 USE OF PROCEEDS...... 71 CAPITALIZATION AND INDEBTEDNESS ...... 72 CAPITAL STRUCTURE ...... 73 DIVIDENDS ...... 75 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...... 76 INDUSTRY OVERVIEW ...... 88 BUSINESS ...... 98 REGULATIONS AND POLICIES ...... 119 BOARD OF DIRECTORS AND SENIOR MANAGEMENT ...... 128 PRINCIPAL SHAREHOLDERS ...... 142 ISSUE PROCEDURE ...... 146 PLACEMENT ...... 155 SELLING RESTRICTIONS ...... 157 TRANSFER RESTRICTIONS ...... 162 THE SECURITIES MARKET OF INDIA ...... 163 DESCRIPTION OF EQUITY SHARES ...... 167 STATEMENT OF TAX BENEFITS ...... 173 LEGAL PROCEEDINGS ...... 184 INDEPENDENT STATUTORY AUDITORS ...... 204 GENERAL INFORMATION ...... 205 FINANCIAL INFORMATION ...... F-1 DECLARATION ...... 206
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NOTICE TO INVESTORS
Our Company has furnished and accepts full responsibility for all of the information contained in this Placement Document and confirms that to its best knowledge and belief, having made all reasonable enquiries, this Placement Document contains all information with respect to our Company, the Group (as defined hereinafter) and the Equity Shares that is material in the context of the Issue. The statements contained in this Placement Document relating to our Company, the Group and the Equity Shares are, in every material respect, true and accurate and not misleading. The opinions and intentions expressed in this Placement Document with regard to our Company, the Group and the Equity Shares are honestly held, have been reached after considering all relevant circumstances, are based on information presently available to our Company and are based on reasonable assumptions. There are no other facts in relation to our Company, the Group and the Equity Shares, the omission of which would, in the context of the Issue, make any statement in this Placement Document misleading in any material respect. Further, all reasonable enquiries have been made by our Company to ascertain such facts and to verify the accuracy of all such information and statements. Axis Capital Limited (the “Global Coordinator and Book Running Lead Manager”) and SBI Capital Markets Limited (the “Book Running Lead Manager”, and together with the Global Coordinator and Book Running Lead Manager, the “Lead Managers”), have not separately verified all of the information contained in this Placement Document (financial, legal or otherwise). Accordingly, neither the Lead Managers nor any of their respective shareholders, employees, counsel, officers, directors, representatives, agents or affiliates make any express or implied representation, warranty or undertaking, and no responsibility or liability is accepted by the Lead Managers or any of their respective shareholders, employees, counsel, officers, directors, representatives, agents or affiliates in connection with its investigation of the accuracy or completeness of the information contained in this Placement Document or any other information supplied in connection with our Company, the Group or the Equity Shares. Each person receiving this Placement Document acknowledges that such person has not relied on the Lead Managers or on any of their respective shareholders, employees, counsel, officers, directors, representatives, agents or affiliates in connection with its investigation of the accuracy of such information or its investment decision, and each such person must rely on its own examination of our Company, the Group or the merits and risks involved in investing in the Equity Shares.
No person is authorized to give any information or to make any representation not contained in this Placement Document and any information or representation not so contained must not be relied upon as having been authorized by or on behalf of the Lead Managers. The delivery of this Placement Document at any time does not imply that the information contained in it is correct as of any time subsequent to its date.
The Equity Shares have not been approved, disapproved or recommended by the U.S. Securities and Exchange Commission, any state securities commission in the United States or the securities commission of any non-U.S. jurisdiction or any other U.S. or non-U.S. regulatory authority. None of these authorities has passed on or endorsed the merits of the Issue or the accuracy or adequacy of this Placement Document. Any representation to the contrary is a criminal offence in the United States and may be a criminal offence in other jurisdictions.
The distribution of this Placement Document and the Issue may be restricted by law in certain countries or jurisdictions. As such, this Placement Document does not constitute, and may not be used for or in connection with, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorized, or to any person to whom it is unlawful to make such offer or solicitation. In particular, no action has been taken by our Company and the Lead Managers which would permit an offering of the Equity Shares or distribution of this Placement Document in any country or jurisdiction, other than India, where action for that purpose is required. Accordingly, the Equity Shares may not be offered or sold, directly or indirectly, and neither this Placement Document nor any offering materials in connection with the Equity Shares may be distributed or published in, or from, any country or jurisdiction, except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction.
In making an investment decision, prospective investors must rely on their own examination of our Company, the Group and the terms of the Issue, including the merits and risks involved. Investors should not construe the contents of this Placement Document as legal, tax, accounting or investment advice. Investors should consult their own counsel and advisors as to business, legal, tax, accounting and related matters concerning the Issue. In addition, neither our Company nor the Lead Managers are making any representation to any offeree or subscriber of the Equity Shares regarding the legality of an investment in the Equity Shares by such offeree or subscriber under applicable legal, investment or similar laws or regulations.
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Each subscriber of the Equity Shares in the Issue is deemed to have acknowledged, represented and agreed that it is eligible to invest in India and in our Company under Indian laws, including Chapter VIII of the SEBI Regulations and the Private Placement Regulations, and is not prohibited by the SEBI or any other statutory authority from buying, selling or dealing in the securities including the Equity Shares. Each subscriber of the Equity Shares in the Issue also acknowledges that it has been afforded an opportunity to request from our Company and review information relating to our Company and the Equity Shares. This Placement Document contains summaries of certain terms of certain documents, which are qualified in their entirety by the terms and conditions of such documents.
The information on our Company’s website www.ksk.co.in, any website directly and indirectly linked to the website of our Company or the website of the Lead Managers or their affiliates, does not constitute nor form part of this Placement Document. Prospective investors should not rely on the information contained in, or available through, such websites.
REPRESENTATIONS BY INVESTORS
References herein to “you” or “your” is to the prospective investors in the Issue.
By Bidding for and/or subscribing for any Equity Shares in the Issue, you are deemed to have represented, warranted, acknowledged and agreed to our Company and the Lead Managers, as follows:
You are a “QIB” as defined in Regulation 2(1)(zd) of the SEBI Regulations and not excluded pursuant to Regulation 86(1)(b) of the SEBI Regulations, having a valid and existing registration under applicable laws and regulations of India, and undertake to acquire, hold, manage or dispose of any Equity Shares that are Allocated to you in accordance with Chapter VIII of the SEBI Regulations and undertake to comply with the SEBI Regulations, the Companies Act (as defined hereinafter) and all other applicable laws, including any reporting obligations;
If you are not a resident of India, but a QIB, you are an Eligible FPI (as defined hereinafter) or an FII (including a sub-account other than a sub-account which is a foreign corporate or a foreign individual) or an FVCI, in each case having a valid and existing registration with the SEBI under the applicable laws in India or a multilateral or bilateral development financial institution, and are eligible to invest in India under applicable law, including the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended, and any notifications, circulars or clarifications issued thereunder, and have not been prohibited by the SEBI or any other regulatory authority, from buying, selling or dealing in securities;
If you are Allotted any Equity Shares in the Issue, you shall not, for a period of one year from the date of Allotment, sell any such Equity Shares, except on the Stock Exchanges;
You will make all necessary filings with appropriate regulatory authorities, including the RBI, as required pursuant to applicable laws;
You have made, or are deemed to have made, as applicable, the representations set forth under the sections “Transfer Restrictions” and “Selling Restrictions” on pages 162 and 157, respectively;
You are aware that the Equity Shares have not been and will not be registered through a prospectus under the Companies Act, the SEBI Regulations or under any other law in force in India. This Placement Document has not been reviewed or affirmed by the RBI, the SEBI, the Stock Exchanges, the RoC or any other regulatory or listing authority and is intended only for use by QIBs;
You are entitled to subscribe for, and acquire, the Equity Shares under the laws of all relevant jurisdictions that apply to you and you have: (i) fully observed such laws; and (ii) the necessary capacity; and (iii) obtained all necessary consents, governmental or otherwise, and authorizations and complied with all necessary formalities, to enable you to commit to participation in the Issue and to perform your obligations in relation thereto (including, without limitation, in the case of any person on whose behalf you are acting, all necessary consents and authorizations to agree to the terms set out or referred to in this Placement Document), and will honour such obligations;
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Neither our Company nor the Lead Managers or any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates are making any recommendations to you, or advising you regarding the suitability of any transactions, you may enter into in connection with the Issue and your participation in the Issue is on the basis that you are not, and will not, up to the Allotment of the Equity Shares, be a client of the Lead Managers. Neither the Lead Managers nor any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates have any duties or responsibilities to you for providing the protection afforded to their clients or customers or for providing advice in relation to the Issue and are not in any way acting in any fiduciary capacity;
You confirm that, either: (i) you have not participated in or attended any investor meetings or presentations by our Company or its agents (the “Company Presentations”) with regard to our Company or the Issue; or (ii) if you have participated in or attended any Company Presentations: (a) you understand and acknowledge that the Lead Managers may not have knowledge of the statements that our Company or its agents may have made at such Company Presentations and are, therefore, unable to determine whether the information provided to you at such Company Presentations may have included any material misstatements or omissions, and, accordingly you acknowledge that the Lead Managers have advised you not to rely in any way on any information that was provided to you at such Company Presentations, and (b) confirm that, to the best of your knowledge, you have not been provided any material information relating to our Company and the Issue that was not publicly available;
All statements other than statements of historical fact included in this Placement Document, including, without limitation, those regarding our Company’s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to our Company’s business), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding our Company’s present and future business strategies and environment in which our Company will operate in the future. You should not place undue reliance on forward-looking statements, which speak only as at the date of this Placement Document. Our Company assumes no responsibility to update any of the forward-looking statements contained in this Placement Document;
You are aware and understand that the Equity Shares are being offered only to QIBs and are not being offered to the general public, and the Allotment of the same shall be on a discretionary basis at the discretion of our Company and the Lead Managers;
You are aware that if you are Allotted more than five per cent of the Equity Shares in the Issue, our Company shall be required to disclose your name and the number of the Equity Shares Allotted to you to the Stock Exchanges and the Stock Exchanges will make the same available on their websites and you consent to such disclosures; also, if you are a top ten shareholder in our Company, our Company will be required to make a filing with the RoC within 15 days of the change, as per Section 93 of the Companies Act, 2013;
You have been provided a copy of this Placement Document and have read it in its entirety, including in particular, the section “Risk Factors” on page 33;
In making your investment decision, you have (i) relied on your own examination of our Company , the Group and the terms of the Issue, including the merits and risks involved, (ii) made your own assessment of our Company, the Group, the Equity Shares and the terms of the Issue based solely on the information contained in this Placement Document and have not relied upon any other disclosure or representation by our Company, its Directors, Promoters and affiliates, or any other party, (iii) consulted your own independent counsel and advisors or otherwise have satisfied yourself concerning, without limitation, the effects of local laws, (iv) received all information that you believe is necessary or appropriate in order to make an investment decision in respect of our Company and the Equity Shares, and (v) relied upon your own investigation and resources in deciding to invest in the Issue;
Neither the Lead Managers nor any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates, have provided you with any tax advice or otherwise made
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any representations regarding the tax consequences of purchase, ownership and disposal of the Equity Shares (including but not limited to the Issue and the use of proceeds from the Equity Shares). You will obtain your own independent tax advice from a reputable service provider and will not rely on the Lead Managers or any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates when evaluating the tax consequences in relation to the Equity Shares (including but not limited to the Issue and the use of proceeds from the Equity Shares). You waive, and agree not to assert any claim against our Company or the Lead Managers or any of their shareholders, directors, officers, employees, counsel, representatives, agents or affiliates with respect to the tax aspects of the Equity Shares or as a result of any tax audits by tax authorities, wherever situated;
You are a sophisticated investor and have such knowledge and experience in financial, business and investment matters as to be capable of evaluating the merits and risks of an investment in the Equity Shares. You are experienced in investing in private placement transactions of securities of companies in a similar nature of business, similar stage of development and in similar jurisdictions. You and any accounts for which you are subscribing to the Equity Shares (i) are each able to bear the economic risk of your investment in the Equity Shares, (ii) will not look to our Company and/or the Lead Managers or any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates for all or part of any such loss or losses that may be suffered in connection with the Issue, including losses arising out of non-performance by our Company of any of its respective obligations or any breach of any representations and warranties by our Company, whether to you or otherwise, (iii) are able to sustain a complete loss on the investment in the Equity Shares, (iv) have no need for liquidity with respect to the investment in the Equity Shares, and (v) have no reason to anticipate any change in your or their circumstances, financial or otherwise, which may cause or require any sale or distribution by you or them of all or any part of the Equity Shares. You acknowledge that an investment in the Equity Shares involves a high degree of risk and that the Equity Shares are, therefore, a speculative investment. You are seeking to subscribe to the Equity Shares in the Issue for your own investment and not with a view to resale or distribute;
If you are acquiring the Equity Shares to be issued pursuant to the Issue, for one or more managed accounts, you represent and warrant that you are authorized in writing, by each such managed account to acquire such Equity Shares for each managed account and to make (and you hereby make) the representations, warranties, acknowledgements and agreements herein for and on behalf of each such account, reading the reference to ‘you’ to include such accounts;
You are not a “Promoter” (as defined under the SEBI Regulations) of our Company or any of its affiliates and are not a person related to the Promoters, either directly or indirectly, and your Bid does not directly or indirectly represent the “Promoter”, or “Promoter Group” (as defined under the SEBI Regulations) of our Company or persons relating to the Promoter;
You have no rights under a shareholders’ agreement or voting agreement with the Promoters or persons related to the Promoters, no veto rights or right to appoint any nominee director on the Board of Directors, other than the rights acquired, if any, in the capacity of a lender not holding any Equity Shares (which shall not be deemed to be a person related to the Promoter);
You will have no right to withdraw your Bid after the Bid/Issue Closing Date (as defined hereinafter);
You are eligible, including without any limitation under any applicable law or regulation, to apply for and hold the Equity Shares Allotted to you together with any Equity Shares held by you prior to the Issue. Further, you confirm that your aggregate holding after the Allotment of the Equity Shares shall not exceed the level permissible as per any applicable regulation;
The Bid made by you would not result in triggering a tender offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended (the “Takeover Regulations”);
To the best of your knowledge and belief, your aggregate holding, together with other QIBs in the Issue that belong to the same group or are under common control as you, pursuant to the Allotment under the Issue shall not exceed 50 per cent of the Issue. For the purposes of this representation:
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(a). The expression ‘belong to the same group’ shall derive meaning from the concept of ‘companies under the same group’ as provided in sub-section (11) of Section 372 of the Companies Act, 1956 (as defined hereinafter); and
(b). ‘Control’ shall have the same meaning as is assigned to it by Regulation 2(1)(e) of the Takeover Regulations;
You shall not undertake any trade in the Equity Shares credited to your beneficiary account until such time that the final listing and trading approvals for such Equity Shares are issued by the Stock Exchanges, as applicable;
You are aware that (i) applications for in-principle approval, in terms of Clause 24(a) of the Equity Listing Agreements, for listing and admission of the Equity Shares and for trading on the Stock Exchanges, were made and approval has been received from each of the Stock Exchanges, and (ii) the applications for the final listing and trading approvals will be made only after Allotment. There can be no assurance that such final approvals for listing and trading in the Equity Shares will be obtained in time, or at all. Our Company shall not be responsible for any delay or non-receipt of such final approvals or any loss arising from such delay or non-receipt;
You are aware and understand that the Lead Managers have entered into a placement agreement with our Company, whereby the Lead Managers have, subject to the satisfaction of certain conditions set out therein, severally and not jointly, agreed to manage the Issue and use reasonable efforts to procure subscriptions for the Equity Shares on the terms and conditions set forth therein;
You understand that the contents of this Placement Document are exclusively the responsibility of our Company, and neither the Lead Managers nor any person acting on their behalf has or shall have any liability for any information, representation or statement contained in this Placement Document or any information previously published by or on behalf of our Company and will not be liable for your decision to participate in the Issue based on any information, representation or statement contained in this Placement Document or otherwise. By participating in the Issue, you agree to the same and confirm that the only information you are entitled to rely on, and on which you have relied in committing yourself to acquire the Equity Shares is contained in this Placement Document, such information being all that you deem necessary to make an investment decision in respect of the Equity Shares, you have neither received nor relied on any other information, representation, warranty or statement made by or on behalf of the Lead Managers or our Company or any of their respective affiliates or any other person, and none of the Lead Managers, our Company or any other person will be liable for your decision to participate in the Issue based on any other information, representation, warranty or statement that you may have obtained or received;
You understand that the Lead Managers do not have any obligation to purchase or acquire all or any part of the Equity Shares purchased by you in the Issue or to support any losses directly or indirectly sustained or incurred by you for any reason whatsoever in connection with the Issue, including non- performance by us of any of our respective obligations or any breach of any representations or warranties by us, whether to you or otherwise;
You are eligible to invest in India under applicable law, including the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended, and any notifications, circulars or clarifications issued thereunder, and have not been prohibited by the SEBI or any other regulatory authority, from buying, selling or dealing in securities;
You are, at the time the Equity Shares are purchased pursuant to Regulation S, located outside of the United States (within the meaning of Regulation S) and you are not an affiliate of the Company, or a person acting on behalf of such an affiliate;
You are purchasing the Equity Shares in an offshore transaction meeting the requirements of Rule 903 or 904 of Regulation S;
You agree that any dispute arising in connection with the Issue will be governed by and construed in accordance with the laws of India, and the courts in Hyderabad, India shall have exclusive jurisdiction
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to settle any disputes which may arise out of or in connection with the Preliminary Placement Document and this Placement Document;
Each of the representations, warranties, acknowledgements and agreements set out above shall continue to be true and accurate at all times up to and including the Allotment, listing and trading of the Equity Shares in the Issue;
You agree to indemnify and hold our Company and the Lead Managers and their respective officers, directors, affiliates, associates and representatives harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the foregoing representations, warranties, acknowledgements and undertakings made by you in this Placement Document. You agree that the indemnity set forth in this paragraph shall survive the resale of the Equity Shares by, or on behalf of, the managed accounts; and
Our Company, the Lead Managers, their respective affiliates, associates and others will rely on the truth and accuracy of the foregoing representations, warranties, acknowledgements and undertakings, which are given to the Lead Managers on their own behalf and on behalf of our Company, and are irrevocable.
OFFSHORE DERIVATIVE INSTRUMENTS
Subject to compliance with all applicable Indian laws, rules, regulations, guidelines and approvals in terms of Regulation 22 of the SEBI FPI Regulations (as defined hereinafter), FPIs (which includes FIIs), other than Category III Foreign Portfolio Investor (as defined hereinafter) and unregulated broad based funds, which are classified as Category II foreign portfolio investor (as defined under the SEBI FPI Regulations) by virtue of their investment manager being appropriately regulated, may issue, subscribe or otherwise deal in offshore derivative instruments (as defined under the SEBI FPI Regulations as any instrument, by whatever name called, which is issued overseas by an FPI against securities held by it that are listed or proposed to be listed on any recognised stock exchange in India, as its underlying) (all such offshore derivative instruments are referred to herein as “P-Notes”) directly or indirectly, only in the event that (i) such offshore derivative instruments are issued only in favour of those entities which are regulated by any appropriate foreign regulatory authorities in the countries of their incorporation; and (ii) such offshore derivative instruments are issued after compliance with ‘know your client’ norms. An FPI is also required to ensure that no issue or transfer of any offshore derivative instrument is made by or on behalf of it to any persons that are not regulated by an appropriate foreign regulatory authority. P-Notes have not been, and are not being offered, or sold pursuant to this Placement Document. This Placement Document does not contain any information concerning P-Notes or the issuer(s) of any P-notes, including, without limitation, any information regarding any risk factors relating thereto.
Any P-Notes that may be issued are not securities of our Company and do not constitute any obligation of, claims on or interests in our Company. Our Company has not participated in any offer of P-Notes, or in the establishment of the terms of any P-Notes, or in the preparation of any disclosure related to any P-Notes. Any P- Notes that may be offered are issued by, and are the sole obligations of, third parties that are unrelated to our Company. Our Company and the Lead Managers do not make any recommendation as to any investment in P- Notes and do not accept any responsibility whatsoever in connection with any P-Notes. Any P-Notes that may be issued are not securities of the Lead Managers and do not constitute any obligations of, or claims on the Lead Managers. Affiliates of the Lead Managers which are FPIs may purchase, to the extent permissible under law, the Equity Shares in the Issue, and may issue P-Notes in respect thereof.
Prospective investors interested in purchasing any P-Notes have the responsibility to obtain adequate disclosures as to the issuer(s) of such P-Notes and the terms and conditions of any such P-Notes from the issuer(s) of such P-Notes. Neither the SEBI nor any other regulatory authority has reviewed or approved any P-Notes or any disclosure related thereto. Prospective investors are urged to consult their own financial, legal, accounting and tax advisors regarding any contemplated investment in P-Notes, including whether P-Notes are issued in compliance with applicable laws and regulations.
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DISCLAIMER CLAUSE
Disclaimer Clause of the Stock Exchanges
As required, a copy of this Placement Document has been submitted to each of the Stock Exchanges. The Stock Exchanges do not in any manner:
(i) warrant, certify or endorse the correctness or completeness of the contents of this Placement Document;
(ii) warrant that the Equity Shares will be listed, or will continue to be listed, on the Stock Exchanges; or
(iii) take any responsibility for the financial or other soundness of our Company, its Promoters, its management or any scheme or project of our Company; and it should not for any reason be deemed or construed to mean that this Placement Document has been cleared or approved by the Stock Exchanges. Every person who desires to apply for, or otherwise acquire any Equity Shares, may do so pursuant to an independent inquiry, investigation and analysis and shall not have any claim against the Stock Exchanges whatsoever, by reason of any loss which may be suffered by such person consequent to, or in connection with, such subscription/acquisition, whether by reason of anything stated or omitted to be stated herein, or for any other reason whatsoever.
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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
In this Placement Document, unless otherwise specified or 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 the Issue, references to ‘KSK’, the ‘Company’, our ‘Company’, or the ‘Issuer’ are to KSK Energy Ventures Limited and references to ‘we’, ‘us’, ‘our’ or the ‘Group’ are to KSK Energy Ventures Limited, the Subsidiaries and the Joint Venture, on a consolidated basis, as described in this Placement Document.
In this Placement Document, all references to “Indian Rupees”, “Rs.” and “`” are to the legal currency of India, all references to “U.S. dollars”, “USD” and “US$” are to the legal currency of the United States of America. All references herein to the ‘U.S.’ or the ‘United States’ are to the United States of America and its territories and possessions and all references to “India” are to the Republic of India and its territories and possessions. References to the singular also refers to the plural and one gender also refers to any other gender, wherever applicable, and the words “Lakh” or “Lac” mean “100 thousand”, the word “million” means “10 lakh” and the word “billion” means “1,000 million”. All references herein to the ‘Government’ or ‘GoI’ or the ‘Central Government’ or the ‘State Government’ are to the Government of India, central or state, as applicable.
Our Company publishes its financial statements in Indian Rupees. This Placement Document includes the Company’s audited consolidated financial statements as of and for the years ended March 31, 2014, 2013 and 2012 (collectively, the “Audited Financial Statements”). The Audited Financial Statements have been prepared in accordance with accounting principles generally accepted in India, or Indian GAAP and the Companies Act, 1956, and have been audited by the Auditors in accordance with the applicable generally accepted auditing standards in India prescribed by the ICAI. Our Company does not quantify the impact of U.S. GAAP or International Financial Reporting Standards (“IFRS”) on the financial data included in this Placement Document, nor does our Company provide a reconciliation of its financial statements to U.S. GAAP or IFRS. Each of U.S. GAAP and IFRS differ in certain significant respects from Indian GAAP. Accordingly, the degree to which the financial statements prepared in accordance with Indian GAAP included in this Placement Document will provide meaningful information is entirely dependent on the reader’s familiarity with the respective accounting practices. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures presented in this Placement Document should accordingly be limited. See the section “Risk Factors” on page 33.
In this Placement Document, certain monetary thresholds have been subjected to rounding adjustments; accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them.
The financial year of our Company commences on April 1 of each calendar year and ends on March 31 of the succeeding calendar year, so, unless otherwise specified or if the context requires otherwise, all references to a particular ‘Financial Year’ or ‘Fiscal Year’ or ‘FY’ or ‘Fiscal’ are to the twelve month period ended on March 31 of that year.
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INDUSTRY AND MARKET DATA
Information regarding market position, growth rates and other industry data and certain industry forecasts pertaining to the businesses of our Company contained in this Placement Document consists of estimates based on data reports compiled by government bodies, recognized industry sources, professional organisations and analysts, data from other external sources and knowledge of the markets in which our Company operates. Unless stated otherwise, the statistical information included in this Placement Document relating to the industry in which our Company operates has been reproduced from various trade, industry and government publications and websites.
This data is subject to change and cannot be verified with certainty due to limits on the availability and reliability of the raw data and other limitations and uncertainties inherent in any statistical survey. Neither our Company nor the Lead Managers have independently verified this data and do not make any representation regarding the accuracy or completeness of such data. In many cases, there is no readily available external information (whether from trade or industry associations, government bodies or other organisations) to validate market-related analysis and estimates, so our Company has relied on internally developed estimates. While our Company believes its internal estimates to be reasonable, such estimates have not been verified by any independent sources and neither our Company nor the Lead Managers can assure potential investors as to their accuracy.
The extent to which the market and industry data used in this Placement Document is meaningful depends on the reader’s familiarity with and understanding of the methodologies used in compiling such data.
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FORWARD-LOOKING STATEMENTS
Certain statements contained in this Placement Document that are not statements of historical facts constitute ‘forward-looking statements’. Investors can generally identify forward-looking statements by terminology such as ‘aim’, ‘anticipate’, ‘believe’, ‘continue’, ‘can’, ‘could’, ‘estimate’, ‘expect’, ‘intend’, ‘may’, ‘objective’, ‘plan’, ‘potential’, ‘project’, ‘pursue’, ‘shall’, ‘should’, ‘will’, ‘would’, ‘will likely result’, ‘will continue’, ‘will achieve’, ‘is likely’, ‘expected to’, or other words or phrases of similar import. Similarly, statements that describe the strategies, objectives, plans or initiatives of our Company are also forward-looking statements. However, these are not the exclusive means of identifying forward-looking statements.
All statements regarding our Company’s expected financial conditions, results of operations, business plans and prospects are forward-looking statements. These forward-looking statements include statements as to our Company’s business strategy, planned projects, revenue and profitability (including, without limitation, any financial or operating projections or forecasts), new business and other matters discussed in this Placement Document that are not historical facts. These forward-looking statements contained in this Placement Document (whether made by our Company or any third party), are predictions and involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements of our Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or other projections. All forward-looking statements are subject to risks, uncertainties and assumptions about our Company that could cause actual results to differ materially from those contemplated by the relevant forward-looking statement. Important factors that could cause the actual results, performances and achievements of our Company to be materially different from any of the forward- looking statements include, among others:
compliance with government regulations, including of the Ministry of Power and Ministry of Coal; the availability of necessary funds on reasonable terms; changes to the tariff regulations; the availability of power evacuation facilities; our ability to procure adequate fuel supplies and a reliable supply of water to our power projects; our ability to collect amounts due from our customers, including state utilities; our ability to establish off-take arrangements on acceptable terms; changes in the international coal markets, coal prices and other macroeconomic factors; and our ability to effectively manage foreign currency fluctuations and increases in interest rates.
Additional factors that could cause actual results, performance or achievements of our Company to differ materially include, but are not limited to, those discussed under the sections “Risk Factors”, “Industry Overview”, “Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 33, 88, 98 and 76, respectively.
The forward-looking statements contained in this Placement Document are based on the beliefs of management, as well as the assumptions made by, and information currently available to, management of our Company. Although our Company believes that the expectations reflected in such forward-looking statements are reasonable at this time, it cannot assure investors that such expectations will prove to be correct. Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements. In any event, these statements speak only as of the date of this Placement Document or the respective dates indicated in this Placement Document and our Company undertakes no obligation to update or revise any of them, whether as a result of new information, future events, changes in assumptions or changes in factors affecting these forward looking statements or otherwise. If any of these risks and uncertainties materialise, or if any of our Company’s underlying assumptions prove to be incorrect, the actual results of operations or financial condition of our Company could differ materially from that described herein as anticipated, believed, estimated or expected. All subsequent forward-looking statements attributable to our Company are expressly qualified in their entirety by reference to these cautionary statements.
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ENFORCEMENT OF CIVIL LIABILITIES
Our Company is a public limited liability company incorporated under the laws of India. All of the Directors and the senior management personnel named herein are residents of India and all or a substantial portion of the assets of our Company and such persons are located in India. As a result, it may be difficult or may not be possible for investors outside India to effect service of process upon our Company or such persons in India, or to enforce judgments obtained against such parties outside India.
Recognition and enforcement of foreign judgments is provided for under Section 13 and Section 44A of the Code of Civil Procedure, 1908, as amended (the “Civil Procedure Code”), on a statutory basis. Section 13 of the Civil Procedure Code provides that a foreign judgment shall be conclusive regarding any matter directly adjudicated upon between the same parties or parties litigating under the same title, 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 recognise the law of India in cases in 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 then in force in India.
India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. However, Section 44A of the Civil Procedure Code provides that a foreign judgment rendered by a superior court (within the meaning of that section) in any jurisdiction outside India which the Government has by notification declared to be a reciprocating territory, may be enforced in India by proceedings in execution as if the judgment had been rendered by a competent court in India. However, Section 44A of the Civil Procedure Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalties and does not include arbitration awards.
Each of the United Kingdom of Great Britain and Northern Ireland, Republic of Singapore and Hong Kong has been declared by the Government to be a reciprocating territory for the purposes of Section 44A of the Civil Procedure Code, but the United States of America has not been so declared. A judgment of a court in a jurisdiction which is not a reciprocating territory may be enforced only by a fresh suit upon the judgment and not by proceedings in execution. The suit must be brought in India within three years from the date of the foreign 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 is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with public policy of India. Further, any judgment or award for payment of amounts denominated in a foreign currency would be converted into Rupees on the date of such judgment or award and not on the date of payment. 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, and any such amount may be subject to tax in accordance with applicable laws.
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EXCHANGE RATES
Fluctuations in the exchange rate between the Rupee and foreign currencies will affect the foreign currency equivalent of the Rupee price of the Equity Shares on the Stock Exchanges. These fluctuations will also affect the conversion into foreign currencies of any cash dividends paid in Rupees on the Equity Shares.
The following table sets forth information with respect to the exchange rates between the Rupee and the U.S. dollar (in ` per US$ 1.00), for the periods indicated. The exchange rates are based on the reference rates released by the RBI, which are available on the website of the RBI. No representation is made that any Rupee amounts could have been, or could be, converted into U.S. dollars at any particular rate, the rates stated below, or at all.
On May 30, 2014, the exchange rate (the RBI reference rate) was `59.03 to US$ 1.00. (Source: www.rbi.org.in)
Period end Financial Year: 2012 51.16 2013 54.39 2014 60.10
Quarter ended: June 30, 2013 59.70 September 30, 2013 62.78 December 31, 2013 61.90 March 31, 2014 60.10
Month ended: May 30, 2014 59.03 April 30, 2014 60.34 March 31, 2014 60.10 February 28, 2014 62.07 January 31, 2014 62.48 December 31, 2013 61.90 (Source: www.rbi.org.in)
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DEFINITIONS AND ABBREVIATIONS
This Placement Document uses the definitions and abbreviations set forth below, which you should consider when reading the information contained herein.
The following list of certain capitalized terms used in this Placement Document is intended for the convenience of the reader/prospective investor only and is not exhaustive.
The terms defined in this Placement Document shall have the meaning set forth in this chapter, unless specified otherwise in the context thereof, and references to any statute or regulations or policies shall include amendments thereto, from time to time.
Company Related Terms
Term Description Our Company / the Company / the KSK Energy Ventures Limited, a public limited company incorporated Issuer / KSK / KSK Energy under the Companies Act, 1956 and having its registered office at 8-2- Ventures 293/82/A/431/A, Road No.22, Jubilee Hills, Hyderabad – 500 033, Andhra Pradesh, India We / us / our / the Group KSK Energy Ventures Limited, the Subsidiaries and the Joint Venture, on a consolidated basis, as described in this Placement Document Articles / Articles of Association Articles of association of our Company, as amended from time to time Auditors Umamaheswara Rao & Co., Chartered Accountants, Hyderabad, the statutory auditors of our Company Board of Directors / Board The board of directors of our Company or any duly constituted committee thereof, including the QIP Committee Directors The directors of our Company Equity Shares The equity shares of our Company of a face value of `10 each Joint Venture / Sitapuram SPV Sitapuram Power Limited KSK Energy KSK Energy Limited, a company incorporated under the laws of Mauritius Memorandum/Memorandum of Memorandum of association of our Company, as amended from time to Association time Preference Shares The preference shares of our Company of a face value of `10 each Promoter Group Promoter group of our Company as per the definition provided in Regulation 2(1)(zb) of the SEBI Regulations Promoters Promoters of our Company namely Mr. K.A. Sastry, Mr. S. Kishore and KSK Energy QIP Committee The QIP Committee of the Board constituted on May 24, 2014 for taking certain actions related to the Issue. Registered Office The registered office of our Company is located at 8-2-293/82/A/431/A, Road No.22, Jubilee Hills, Hyderabad – 500 033, Andhra Pradesh, India SPV Special Purpose Vehicle, and for the purpose of this Placement Document, comprises the Subsidiaries and the Joint Venture and references to a particular SPV is to such Subsidiary or Joint Venture (for instance, reference to the Arasmeta SPV means the Arasmeta Captive Power Company Private Limited) Subsidiaries The direct and indirect subsidiaries of our Company comprising: 1. Arasmeta Captive Power Company Private Limited 2. Bheri Hydro Power Company Private Limited 3. Field Mining and Ispats Limited 4. JR Power Gen Private Limited 5. Kameng Dam Hydro Power Limited 6. KSK Dibbin Hydro Power Private Limited 7. KSK Dinchang Power Company Private Limited 8. KSK Electricity Financing India Private Limited 9. KSK Jameri Hydro Power Private Limited 10. KSK Mahanadi Power Company Limited 11. KSK Narmada Power Company Private Limited
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Term Description 12. KSK Upper Subansiri Hydro Energy Limited 13. KSK Vidarbha Power Company Private Limited 14. KSK Wardha Infrastructure Private Limited 15. KSK Wind Energy Private Limited 16. Sai Maithili Power Company Private Limited 17. Sai Power Pte Ltd 18. Sai Regency Power Corporation Private Limited 19. Sai Wardha Power Limited 20. Tila Karnali Hydro Electric Company Private Limited 21. VS Lignite Power Private Limited
Issue Related Terms
Term Description Allocated/ Allocation The allocation of Equity Shares following the determination of the Issue Price to QIBs on the basis of the Application Form submitted by them, by our Company in consultation with the Lead Managers and in compliance with Chapter VIII of the SEBI Regulations Allot/ Allotment/ Allotted Unless the context otherwise requires, the issue and allotment of Equity Shares to be issued pursuant to the Issue Allottees QIBs to whom Equity Shares are issued and Allotted pursuant to the Issue Application Form The form (including any revisions thereof) pursuant to which a QIB shall submit a Bid for the Equity Shares in the Issue Bid(s) Indication of interest of a Bidder including all revisions and modifications thereto, as provided in the Application Form, to subscribe for the Equity Shares in the Issue Bid Amount The highest value of the optional Bids as indicated in the Application Form and payable by the Bidder upon submission of the Bid Bid/Issue Closing Date June 4, 2014, which is the last date up to which the Application Forms shall be accepted Bid/Issue Opening Date June 2, 2014 Bid/Issue Period Period between the Bid/Issue Opening Date and the Bid/Issue Closing Date, inclusive of both days, during which prospective Bidders can submit their Bids Bidder Any prospective investor, being a QIB, who makes a Bid pursuant to the terms of the Preliminary Placement Document and the Application Form Book Running Lead Manager SBI Capital Markets Limited CAN or Confirmation of Allocation Note or advice or intimation to the QIBs confirming Allocation of Note Equity Shares to such QIBs after determination of the Issue Price and requesting payment for the entire applicable Issue Price for all Equity Shares Allocated to such QIBs Closing Date The date on which Allotment of Equity Shares pursuant to the Issue shall be made, i.e. on or about June 6, 2014 Cut-off Price The Issue Price of the Equity Shares to be issued pursuant to the Issue which shall be finalised by our Company in consultation with the Lead Managers Designated Date The date of credit of Equity Shares to the QIB’s demat account, as applicable to the respective QIB Equity Listing Agreement(s) The agreement entered into by our Company with each of the Stock Exchanges in relation to listing of the Equity Shares to be issued pursuant to the Issue, on each of the Stock Exchanges Escrow Agreement Agreement dated June 4, 2014 entered into among our Company, the Escrow Bank and the Lead Managers for collection of the Bid Amounts and for remitting refunds, if any, of the amounts collected, to the Bidders Escrow Bank Axis Bank Limited Escrow Bank Account The account titled “KSK Energy Ventures – QIP Escrow Account” with
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Term Description regard to any money received towards the subscription of the Equity Shares, opened with the Escrow Bank, subject to the terms of the Escrow Agreement Floor Price The floor price of `103.80 which has been calculated in accordance with Chapter VIII of the SEBI Regulations. The QIP Committee of the Board, on June 4, 2014, approved a discount of `4.80 to the Floor Price of `103.80 in accordance with the approval of the shareholders accorded on May 24, 2014 and Regulation 85(1) of the SEBI Regulations Global Coordinator and Book Axis Capital Limited Running Lead Manager Investment Company Act The U.S. Investment Company Act of 1940, and the related rules and regulations Issue The offer, issue and Allotment of 40,404,040 Equity Shares to QIBs pursuant to Chapter VIII of the SEBI Regulations and the Private Placement Regulations Issue Price `99 per Equity Share Issue Size The issue of 40,404,040 Equity Shares aggregating approximately `4,000 million Lead Managers The Global Coordinator and Book Running Lead Manager and the Book Running Lead Manager Mutual Fund A mutual fund registered with the SEBI under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996 Mutual Fund Portion 10 per cent of the Equity Shares proposed to be Allotted in the Issue, which is available for Allocation to Mutual Funds Pay-in Date The last date specified in the CAN for payment of application monies by the successful Bidders Placement Agreement Placement agreement dated June 2, 2014, entered into by our Company and the Lead Managers Placement Document This placement document dated June 4, 2014 to be issued by our Company in accordance with Chapter VIII of the SEBI Regulations and the Private Placement Regulations and any addenda or corrigenda thereto Preliminary Placement Document The preliminary placement document dated June 2, 2014, issued in accordance with Chapter VIII of the SEBI Regulations and the Private Placement Regulations QIBs or Qualified Institutional Qualified institutional buyers as defined under Regulation 2(1)(zd) of Buyers the SEBI Regulations QIP Qualified institutions placement under Chapter VIII of the SEBI Regulations Qualified Purchasers A “qualified purchaser” as defined under the Investment Company Act Regulation S Regulation S under the Securities Act Relevant Date June 2, 2014, date on which the QIP Committee of the Board decided to open the Issue Rule 144A Rule 144A under the Securities Act SBICAP SBI Capital Markets Limited Securities Act The U.S. Securities Act of 1933, and the related rules and regulations Stock Exchanges The NSE and the BSE
Industry Related Terms
Term Description
APERC Andhra Pradesh Electricity Regulatory Commission APM Administered Price Mechanism APPCC Andhra Pradesh Power Coordination Committee APSPDCL Andhra Pradesh Southern Power Distribution Company Limited APTRANSCO Transmission Corporation of Andhra Pradesh Limited APTEL The Appellate Tribunal for Electricity
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Term Description
BPT Agreement Bulk Power Transmission Agreement CEA The Central Electricity Authority CERC The Central Electricity Regulatory Commission CLB Company Law Board CSIDC Chhattisgarh State Industrial Development Corporation Limited CTU Central Transmission Utility DC Direct Current EIA Environmental Impact Assessment EPC Engineering Procurement Construction IPPs Independent Power Producers kV Kilovolt kWh Kilowatt Hours MERC Maharashtra Electricity Regulatory Commission MC Rules The Mineral Concession Rules, 1960, as amended MSEDCL Maharashtra State Electricity Distribution Company Limited MSETCL Maharashtra State Electricity Transmission Company Limited MTPA Million Tonnes Per Annum MW Megawatt NREDCAP New and Renewable Energy Development Corporation of Andhra Pradesh OERC Orissa Electricity Regulatory Commission OPTCL Orissa Power Transmission Company Limited PLF Plant Load Factor PDA Power Delivery Agreement PPA Power Purchase Agreement RIL Reliance Infrastructure Limited SERC State Electricity Regulatory Commissions ST Commission Chhattisgarh State Scheduled Tribes Commission STU State Transmission Utility T&D Transmission and Distribution
Conventional and general terms
Term Description “$”, “U.S. dollar” or The legal currency of the United States “US$” AGM Annual General Meeting AIF Alternate Investment Funds A.P. The State of Andhra Pradesh Arbitration Act The Arbitration and Conciliation Act, 1996 AS Accounting Standards issued by the Institute of Chartered Accountants of India Audited Financial The audited consolidated financial statements of our Company as of and for the years Statements ended March 31, 2014, 2013 and 2012 BOC Act The Building and Other Construction Workers’ Welfare Cess Act, 1996 BSE BSE Limited CAGR Compound annual growth rate CBI The Central Bureau of Investigation CCI Competition Commission of India CDSL Central Depository Services (India) Limited CESTAT Custom Excise and Service Tax Appellate Tribunal CIN Corporate Identity Number CGAP Consultative Group to Assist the Poor CLB Company Law Board CRAR Capital Risk to Asset Ratio Cr.P.C The Code of Criminal Procedure, 1973 Calendar Year Year ending on December 31
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Term Description Category III Foreign An FPI registered as a category III foreign portfolio investor under the SEBI FPI Portfolio Investor Regulations Civil Procedure Code The Code of Civil Procedure, 1908 Companies Act The Companies Act, 1956 or the Companies Act, 2013, as applicable Companies Act, 1956 The Companies Act, 1956 and the rules made thereunder (without reference to the provisions thereof that have ceased to have effect upon notification of the Notified Sections) Companies Act, 2013 The Companies Act, 2013 and the rules made thereunder, to the extent in force pursuant to notification of the Notified Sections Competition Act The Competition Act, 2002 Contract Labour Act Contract Labour (Regulation and Abolition) Act, 1970 Crore 10 million Depositories NSDL and CDSL Depositories Act The Depositories Act, 1996 Depository Participant A depository participant as defined under the Depositories Act or DP DP ID Depository participant identity DTA Deferred Tax Asset EBITDA Earnings before interest, tax, depreciation and amortization ECB External Commercial Borrowing ECS Electronic clearing service EGM Extraordinary general meeting EPS Earnings per share ERC Act The Electricity Regulatory Commission Act, 1998 EU European Union Electricity Act The Electricity Act, 2003 Electricity Rules The Electricity Rules, 2005 Electricity Supply Act The Electricity (Supply) Act, 1948 Eligible FPIs FPIs that are eligible to participate in the Issue and does not include qualified foreign investors and Category III Foreign Portfolio Investors who are not allowed to participate in the Issue Factories Act Factories Act, 1948 FEMA The Foreign Exchange Management Act, 1999, together with rules and regulations thereunder FEMA 20 Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000 FDI Foreign Direct Investment FIPB Foreign Investment Promotion Board FIR First Information Report FII Regulations The Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995 FIIs Foreign Institutional Investors as defined under the SEBI FPI Regulations FPIs Foreign portfolio investors as defined under the SEBI FPI Regulations and includes a person who has been registered under the SEBI FPI Regulations. Any foreign institutional investor or qualified foreign investor who holds a valid certificate of registration is deemed to be a foreign portfolio investor till the expiry of the block of three years for which fees have been paid as per the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995 Financial Year or Fiscal Period of 12 months ended March 31 of that particular year Year or Fiscal Form PAS-4 Form PAS-4 as prescribed under the Companies (Prospectus and Allotment of Securities) Rules, 2014 FVCI Foreign Venture Capital Investors as defined under the Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000 registered with the SEBI GAAP Generally Accepted Accounting Principles GAIL Gas Authority of India Limited
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Term Description GDP Gross Domestic Product General Meeting AGM or EGM GoI or Government Government of India HUF Hindu Undivided Family ICAI Institute of Chartered Accountants of India ICRA ICRA Limited IFRS International Financial Reporting Standards Indian GAAP Generally Accepted Accounting Principles in India Insider Trading The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations Regulations, 1992 IPC The Indian Penal Code,1860 IPO Initial Public Offering IRDA Insurance Regulatory and Development Authority I.T. Act The Income Tax Act, 1961 KYC Know Your Customer Land Acquisition Act The Land Acquisition Act, 1894 Ltd. Limited MCA Ministry of Corporate Affairs, GoI MIS Management Information Systems MMDR Act The Mines and Minerals (Development and Regulation) Act, 1957 MOEF The Ministry of Environment and Forests, Government of India MoPNG The Ministry of Petroleum and Natural Gas, Government of India MoU Memorandum of Understanding NEFT National Electronic Fund Transfer NGO Non Governmental Organization Net Worth Net worth comprises share capital and reserves and surplus and is adjusted for miscellaneous expenditure to the extent not written off NMP The National Mineral Policy, 2008 Non-Resident or NR A person resident outside India, as defined under the FEMA and includes a Non- Resident Indian Notified Sections Sections of the Companies Act, 2013 that have been notified by the Government of India NSDL National Securities Depository Limited NSE National Stock Exchange of India Limited OCB or Overseas A company, partnership, society or other corporate body owned directly or indirectly Corporate Body to the extent of at least 60 per cent by NRIs including overseas trusts in which not less than 60 per cent of the beneficial interest is irrevocably held by NRIs directly or indirectly and which was in existence on October 3, 2003 and immediately before such date was eligible to undertake transactions pursuant to the general permission granted to OCBs under the FEMA. OCBs are not allowed to invest in the Issue Official Gazette The official gazette of India or a State P.A. Per annum PAN Permanent Account Number allotted under the I.T. Act PMLA Prevention of Money Laundering Act, 2002 Private Placement Section 42 of the Companies Act, 2013, read with Rule 14 of the Companies Regulations (Prospectus and Allotment of Securities) Rules, 2014 RBI Reserve Bank of India RBI Act The Reserve Bank of India Act, 1934 Re. One Indian Rupee RoC or Registrar Registrar of Companies, Andhra Pradesh at Hyderabad `, Rs., INR, Rupees Indian Rupees RTGS Real Time Gross Settlement S&P Standard & Poor’s SCRA The Securities Contracts (Regulation) Act, 1956 SCRR The Securities Contracts (Regulation) Rules, 1957 SEBI The Securities and Exchange Board of India established under the SEBI Act SEBI Act The Securities and Exchange Board of India Act, 1992
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Term Description SEBI FPI Regulations The Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 SEBI Regulations The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 SEZ Special Economic Zone SEZ Act The Special Economic Zones Act 2005 SLP Special Leave Petition SPCB State Pollution Control Board SPV Special Purpose Vehicle U.S. United States of America U.S. GAAP Generally accepted accounting principles in the United States of America VCF A Venture Capital Fund as defined and registered with the SEBI under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 or the erstwhile Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996, as the case may be
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DISCLOSURE REQUIREMENTS UNDER FORM PAS-4 PRESCRIBED UNDER THE COMPANIES ACT, 2013
The table below sets out the disclosure requirements as provided in Form PAS-4 and the relevant pages in this Placement Document where these disclosures, to the extent applicable, have been provided.
S. Disclosure Requirements Relevant Page No. of this Placement Document 1. GENERAL INFORMATION a. Name, address, website and other contact details of the Company indicating both 208 registered office and corporate office b. Date of incorporation of the Company 205 c. Business carried on by the Company and the Subsidiaries with the details of branches 98-118 or units, if any d. Brief particulars of the management of the Company 128-141 e. Names, addresses, DIN and occupations of the Directors 128-130 f. Management’s perception of risk factors 33-68 g. Details of default, if any, including therein the amount involved, duration of default 184 and present status, in repayment of – i) statutory dues ii) debentures and interest thereon iii) deposits and interest thereon iv) loan from any bank or financial institution and interest thereon h. Names, designation, address and phone number, email ID of the nodal/ compliance 208 officer of the Company, if any, for the private placement offer process 2. PARTICULARS OF THE OFFER a. Date of passing of board resolution 205 b. Date of passing of resolution in the general meeting, authorizing the offer of 205 securities c. Kinds of securities offered (i.e. whether share or debenture) and class of security 26 d. Price at which the security is being offered including the premium, if any, along with 26 justification of the price e. Name and address of the valuer who performed valuation of the security offered Not Applicable f. Amount which the company intends to raise by way of securities 73 g. Terms of raising of securities: i) Duration, if applicable Not Applicable ii) Rate of dividend Not Applicable iii) Rate of interest Not Applicable iv) Mode of payment Not Applicable v) Repayment Not Applicable h. Proposed time schedule for which the offer letter is valid 14 i. Purposes and objects of the Issue 71 j. Contribution being made by the Promoters or Directors either as part of the issue or 71 separately in furtherance of such objects k. Principle terms of assets charged as security, if applicable Not Applicable 3. DISCLOSURES WITH REGARD TO INTEREST OF DIRECTORS, LITIGATION ETC. a. Any financial or other material interest of the Directors, Promoters or key managerial 140 personnel in the Issue and the effect of such interest in so far as it is different from the interests of other persons b. Details of any litigation or legal action pending or taken by any Ministry or 203 Department of the Government or a statutory authority against any Promoter of the Company during the last three years immediately preceding the year of the circulation of the offer letter and any direction issued by such Ministry or Department or statutory authority upon conclusion of such litigation or legal action c. Remuneration of Directors (during the current year and last three financial years) 133-134 d. Related party transactions entered during the last three financial years immediately 86
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S. Disclosure Requirements Relevant Page No. of this Placement Document preceding the year of circulation of offer letter including with regard to loans made or, guarantees given or securities provided e. Summary of reservations or qualifications or adverse remarks of auditors in the last 87 five financial years immediately preceding the year of circulation of offer letter and of their impact on the financial statements and financial position of the Company and the corrective steps taken and proposed to be taken by the Company for each of the said reservations or qualifications or adverse remark f. Details of any inquiry, inspections or investigations initiated or conducted under the 203 Companies Act or any previous company law in the last three years immediately preceding the year of circulation of offer letter in the case of Company and all of the Subsidiaries. Also if there were any prosecutions filed (whether pending or not) fines imposed, compounding of offences in the last three years immediately preceding the year of the offer letter and if so, section-wise details thereof for the Company and all of the subsidiaries g. Details of acts of material frauds committed against the Company in the last three 203 years, if any, and if so, the action taken by the Company 4. FINANCIAL POSITION OF THE COMPANY a. The capital structure of the Company in the following manner in a tabular form: 73 (i)(a) the authorized, issued, subscribed and paid up capital (number of securities, 73 description and aggregate nominal value) (b) size of the present offer 73 (c) paid up capital 73 (A) after the offer 73 (B) after conversion of convertible instruments (if applicable) Not Applicable (d) share premium account (before and after the offer) 73 (ii) the details of the existing share capital of the Company in a tabular form, indicating 73-74 therein with regard to each allotment, the date of allotment, the number of shares allotted, the face value of the shares allotted, the price and the form of consideration Provided that the Company shall also disclose the number and price at which each of Not Applicable the allotments were made in the last one year preceding the date of the offer letter separately indicating the allotments made for considerations other than cash and the details of the consideration in each case b. Profits of the company, before and after making provision for tax, for the three F-1 – F-109 financial years immediately preceding the date of circulation of offer letter c. Dividends declared by the Company in respect of the said three financial years; 75; 86 interest coverage ratio for last three years (Cash profit after tax plus interest paid/interest paid) d. A summary of the financial position of the Company as in the three audited balance 29-32 sheets immediately preceding the date of circulation of offer letter e. Audited Cash Flow Statement for the three years immediately preceding the date of 30-32 circulation of offer letter f. Any change in accounting policies during the last three years and their effect on the 79 profits and the reserves of the Company 5. A DECLARATION BY THE DIRECTORS THAT - 207 a. the company has complied with the provisions of the Act and the rules made thereunder b. the compliance with the Act and the rules does not imply that payment of dividend or interest or repayment of debentures, if applicable, is guaranteed by the Central Government c. the monies received under the offer shall be used only for the purposes and objects indicated in the Offer letter.
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SUMMARY OF BUSINESS
The summary information from this Placement Document may not contain all of the information that you should consider in making your investment decision. You should read this summary together with the more detailed information, including our financial statements and related notes, elsewhere in this Placement Document. You should carefully consider, among other things, the matters discussed in “Risk Factors” for an understanding of the risks associated with the purchase of the Equity Shares.
Overview
We are a power project development company in India, with experience in developing and operating multiple power plants across India. We operate in the power generation business and have long-term fuel access to our various power plants. Our power projects are in various phases of operation and development, including operational power projects, a power project under construction and power projects in the planning phases. We were established in 2001 to capitalize on the emerging opportunities in the Indian power sector and focus on developing, operating and maintaining power projects. We supply power through a combination of long-term, medium-term and short-term PPAs to a combination of industrial consumers and state-owned entities in India. In the fiscal year 2014, we had total consolidated revenues from operations of `21,118.01 million and incurred losses of `1,628.89 million.
Our promoter company, KSK Energy, is incorporated and registered in Mauritius, and is a wholly-owned subsidiary of KSK Power Ventur plc, an Isle of Man incorporated entity that is currently listed on the London Stock Exchange. We are a listed subsidiary of KSK Power Ventur plc. Our individual Promoters, Mr. S. Kishore and Mr. K.A. Sastry, prior to setting up the Company, have been involved in the development of power projects in various advisory and consultant roles.
We currently have (i) six power plants (aggregating 872 MW) and one unit of 600 MW (that is part of our 3,600 MW Mahanadi power plant with an aggregate of six units), that are fully operational and (ii) five remaining units of the 3,600 MW Mahanadi power plant (aggregating 3,000 MW) that are currently under various stages of construction. In addition, certain other thermal, solar and hydro power projects, including outside India, are in various stages of planning.
Key Milestones
Year Milestone 2014 Mahanadi SPV entered into PPA dated February 26, 2014 with the Paschimanchal, Purvanchal, Madhyanchal and Dakshinanchal Distribution Companies of Uttar Pradesh for 1,000 MW power supply. Mahanadi SPV executed a fuel supply agreement dated March 19, 2014 with South Eastern Coalfields Limited (“SECL”) for the supply of approximately 5 MTPA coal. 2013 Mahanadi SPV entered into PPA dated November 27, 2013 with the Tamil Nadu Generation and Distribution Corporation Limited (“TANGEDCO”) for 500 MW power supply. Mahanadi SPV entered into PPA dated October 18, 2013 with the Chhattisgarh State Power Trading Company Limited for 225 MW power supply. First 600 MW unit of the 3,600 MW project of the Mahanadi SPV in the State of Chhattisgarh commissioned. New initiatives on solar power generation undertaken by the Group. 2012 Mahanadi SPV entered into PPA dated July 31, 2012 with the Central, Eastern, Southern and Northern Distribution Companies of Andhra Pradesh for 400 MW power supply. Wardha SPV (formerly, Wardha Power Company Limited) secured long-term coal supplies from Western Coal Fields Limited (“WCL”) and upon commissioning of the units, a fuel supply agreement dated April 3, 2012 was entered for the supply of 1.625 MTPA from the Bellora Naigaon, Urdhan and Ukni blocks. 2011 Wardha SPV became fully operational - entered into a medium-term PPA to supply power
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Year Milestone to Reliance Infrastructure Limited (“RIL”). The Promoter and the Promoter Group complete an open offer to acquire additional 20% of the Equity Shares of the Company increasing their shareholding to 74.94%. Arasmeta power plant unit of 43 MW commenced power generation. 2010 Mahanadi SPV entered into PPA with Gujarat Urja Vikas Nigam Limited (“GUVNL”) for supply of 1,010 MW coal based on coal supplies from the Morga-II block by Gujarat Mineral Development Corporation Limited (“GMDC”). VS Lignite power project commissioned. 2009 Coal supply agreement dated February 10, 2009 entered with Goa Industrial Development Corporation Limited (“GIDC”) that enhanced the capacity of the Chhattisgarh project of the Mahanadi SPV by 1,800 MW to 3,600 MW. The Mahanadi SPV entered into an Implementation Agreement dated August 13, 2009 with the GoC. 2008 Initial public offering of the Equity Shares of the Company. 2007 Sai Regency power plant commenced commercial operations under the “open cycle” mode in March 2007 and under the “combined cycle” mode in September 2007. 2006 First unit of Arasmeta power plant commissioned. Coal supply and investment agreement dated November 16, 2006 entered into with GMDC for supplies to proposed 1,800 MW Chhattisgarh project. KSK Energy lists on AIM Market of London Stock Exchange.
Our Strengths
Fuel Access Security
One of the key factors in the power generation sector is the availability of adequate amounts of quality and cost- efficient fuel through the lifetime of a power plant. We have entered into private-public partnerships with government enterprises for accessing fuel for our power plants that are operational and our power projects that are currently under construction or planning. Towards this end, we have secured fuel linkages from government- owned companies for our operational projects. For example, we have secured coal supplies from GMDC and GIDC for our Mahanadi power plant, and have secured a tapering coal linkage from SECL in the interim. We have also secured coal supplies from WCL for our Wardha Warora power plant on cost-plus basis. We believe that these arrangements not only translate into confirmed access to adequate quantities of fuel reserves but also enable the host states of such mineral development corporations to access part of the power generated at attractive prices.
Sustainable Business Model
We conduct our business solely through SPVs incorporated specifically for holding and operating our power projects. Our dedicated and group captive power plants are often developed to align with our consumers’ requirements and hence we share equity shareholding in these SPVs with a select group of plant-specific consumers and strategic partners. For example, we own a 73.92% equity interest in the Sai Regency SPV, and the remaining equity shareholding is held by various captive consumers. Our consumers or strategic partners who hold equity interests in our SPVs typically hold preference shares or equity shares with restrictive dividend rights. This ownership structure results in lower than anticipated capital outlay for us, while simultaneously allowing us to retain all or a majority of the economic interest in the underlying power plant. We continue to explore other feasible capital structuring options for our power projects.
Currently, we have entered into primary off-take arrangements with our industrial consumers and/or state- owned distribution companies, while providing state-owned utility companies with surplus power. We intend to utilize an optimal mix of off-take arrangements with state-owned and industrial consumers for our power projects. We believe that this mix will enable us to tap into the unregulated as well as the regulated space of the Indian power generation market. Tapping into the regulated space will ensure revenues by implementation of
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take-or-pay structures into long-term PPAs, while catering to industrial consumers on short-term to medium- term PPAs, whether on a dedicated captive basis or on a group captive basis, will open our tariff structures to market demand and supply dynamics, resulting in opportunities to shift to a superior mix of consumers and to capitalize on increases in tariffs.
Committed Power Off-Take and Established Relationships with our Consumers
We generally enter into long-term, medium-term and short-term PPAs with our consumers, depending on their requirements. Typically, our long-term agreements provide that consumers purchase power generated in pre- determined quantities at pre-determined rates and surplus power, if any, may then be sold to other third parties in the unregulated market. This arrangement allows us to ensure that our consumers are locked-in for a particular period while enabling us to take advantage of market rates for surplus power. In the case of our medium and short-term PPAs, our relationships with our consumers facilitate renewal of our PPAs along with permitting us to increase tariffs according to prevailing market conditions.
In addition, our strategy of sharing equity participation with our consumers in the SPVs that operate the power plants catering to their respective needs has resulted in long-term relationships with our consumers. As a result of this business model, we believe we demonstrate our commitment to our consumers and to their industries.
We have recently entered into PPAs with four UP Distribution Companies (“UP Discoms”) and TANGEDCO which we believe are significant among the PPAs executed pursuant to Case-I bidding procedure through the tariff-based competitive bidding process of the GoI.
Experience and Proven Management and Execution Skills
We have experience in operating captive and independent power plants in India. We have, along with our operational power plants, experience in commissioning power plants with a total capacity of 1,472 MW of power to date. In addition, our individual Promoters, Mr. S. Kishore and Mr. K.A. Sastry have been involved in power project development in various advisory and consultant roles.
As a result, we believe that we have demonstrated the skills necessary in developing and operating power projects and have also established a qualified and experienced team to undertake the development and operation of power projects in India. We believe that our experience, together with the experience of our Promoters and other companies in the Group in project implementation provides us with a competitive advantage in this industry.
Our Strategies
Capitalize on the Growth of the Indian Power Generation Sector
The power sector in India has historically been characterized by power shortages that have worsened over time. According to the CEA, the gap between power demand and supply for the period from April 2013 to March 2014 across India was 6,103 MW. We believe that our power projects will play a role in the growth of the Indian power sector and contribute in achieving the GoI’s vision for the power sector. In addition to the power projects that we are currently operating, constructing or planning, we intend to develop or acquire additional power projects in the future.
Continue to Focus on our Sustainable Business Model
Opening the power generation sector in India to the private sector has increased the involvement of market dynamics in the operation and maintenance of power projects across the country. In order to remain competitive we will continue, and propose, to undertake the following steps:
• continue to evaluate and gauge competitive opportunities in the power sector that we can enter into;
• consolidate our position in the power sector by increasing our portfolio of power projects;
• focus on fuel security, through the use of various types of fuel from separate sources;
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• continue to enter into strategic relationships with our consumers or fuel suppliers in establishing SPVs to operate the power projects; and
• focus on entering into appropriate arrangements for the supply of water and transport infrastructure.
Developer Driven Business Model
We intend to continue to focus on a developer driven business model. We intend to establish power projects with cost-efficient, sustainable, long-term sources of fuel. In addition, we intend to continue to invest in the captive power projects of our consumers by setting up dedicated power projects matching, as much as possible, their power requirements. We intend to continue to partner with our key large consumers, procuring joint equity participation in SPVs operating the specific power projects. We believe that this will continue to enable us to enter into long-term PPAs with consumers for confirmed power supply entitlements. In addition, we will continue to focus on entering into short-term to medium-term PPAs with respect to our balance power availability to actualize potential revenue increases or bridge interim power surpluses.
Secure Fuel Access
Having a dedicated, cost-efficient and established fuel supply arrangement for a power plant is fundamental to its success. Our strategy has been to establish dedicated fuel supply arrangements prior to setting up a power plant and continue to develop such arrangements during the operation of the plant. We try to ensure that we have adequate supplies of cost-efficient fuel through captive fuel sources, long-term contracts with private parties or with state mineral development corporations to meet our power projects’ needs. While we believe that we have adequate quantities of fuel to sustain our operational power plants and power projects under construction, we will continue to explore other options and sources for procuring and strengthening our fuel supplies.
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SUMMARY OF THE ISSUE
The following is a general summary of the terms of the Issue. This summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information appearing elsewhere in this Placement Document, including the sections “Risk Factors”, “Use of Proceeds”, “Placement”, “Issue Procedure” and “Description of the Equity Shares” on pages 33, 71, 155, 146 and 167, respectively.
Issuer KSK Energy Ventures Limited
Face Value `10 per Equity Share
Issue Size Issue of 40,404,040 Equity Shares, aggregating approximately `4,000 million
Date of Board Resolution May 1, 2014
Date of Shareholders’ Resolution May 24, 2014
Floor Price `103.80 per Equity Share. The QIP Committee of the Board, on June 4, 2014, approved a discount of `4.80 to the Floor Price of `103.80 in accordance with the approval of the shareholders accorded on May 24, 2014 and Regulation 85(1) of the SEBI Regulations.
Issue Price `99 per Equity Share
Eligible Investors QIBs as defined in regulation 2(1)(zd) of the SEBI Regulations and not excluded pursuant to Regulation 86 of the SEBI Regulations. For further details, see the sections “Issue Procedure – Qualified Institutional Buyers” and “Transfer Restrictions” on pages 149 and 162.
Equity Shares issued and outstanding 372,630,454 Equity Shares immediately prior to the Issue
Equity Shares issued and outstanding Immediately after the Issue, 413,034,494 Equity Shares will be immediately after the Issue issued and outstanding
Listing Our Company has obtained in-principle approvals in terms of Clause 24(a) of the Equity Listing Agreements, for listing of the Equity Shares issued pursuant to the Issue from the Stock Exchanges. Our Company will make applications to each of the Stock Exchanges to obtain final listing and trading approvals for the Equity Shares after Allotment of the Equity Shares in the Issue.
Lock-up Our Company has agreed that, other than the issue and allotments of Warrants and/or Equity Shares upon exercise of Warrants pursuant to a preferential issue approved by the shareholders of our Company on May 24, 2014, it will not, without the prior written consent of the Lead Managers, from the date of the Placement Agreement and for a period of up to 30 days from the Closing Date, directly or indirectly: (a) issue, offer, lend, sell, pledge, contract to sell or issue, sell any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any Equity Shares, or any securities convertible into or exercisable or exchangeable for the Equity Shares or publicly announce an intention with respect to any of the foregoing; (b) enter into any swap or other agreement that transfers, directly or indirectly, in whole or in part, any of the economic consequences of ownership of the Equity Shares or any securities convertible into or exercisable or
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exchangeable for the Equity Shares; or (c) announce any intention to enter into any transaction whether any such transaction described in (a) or (b) above is to be settled by delivery of the Equity Shares, or such other securities, in cash or otherwise, provided, however, that the foregoing restrictions shall not be applicable to any issuance, sale, transfer or disposition of Equity Shares by the Company to the extent such issuance, sale, transfer or disposition is required by Indian law.
The Promoters and members of the Promoter Group of the Company holding Equity Shares of the Company have also agreed, that they will not, without the prior written consent of the Lead Managers, for a period of 30 days from the Closing Date, directly or indirectly: (a) issue, offer, lend, sell, pledge, contract to sell or issue, sell any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any Equity Shares, or any securities convertible into or exercisable or exchangeable for the Equity Shares or publicly announce an intention with respect to any of the foregoing; (b) enter into any swap or other agreement that transfers, directly or indirectly, in whole or in part, any of the economic consequences of ownership of the Equity Shares or any securities convertible into or exercisable or exchangeable for the Equity Shares; or (c) announce any intention to enter into any transaction whether any such transaction described in (a) or (b) above is to be settled by delivery of the Equity Shares, or such other securities, in cash or otherwise, provided, however, that the foregoing restrictions shall not be applicable to any issuance, sale, transfer or disposition of Equity Shares to the extent such issuance, sale, transfer or disposition is required by Indian law, provided further that the foregoing restriction shall be applicable to the Warrants (including Equity Shares issued upon exercise of Warrants) issued pursuant to the preferential issue approved by the shareholders on May 24, 2014.
For further details, see the section “Placement” on page 155.
Transferability Restrictions The Equity Shares being Allotted pursuant to the Issue shall not be sold for a period of one year from the date of Allotment, except on the floor of the Stock Exchanges. For further details, see the section “Transfer Restrictions” on page 162.
Use of Proceeds The gross proceeds from the Issue is approximately `4,000 million. The net proceeds from the Issue, after deducting fees, commissions and expenses of the Issue, will be approximately `3,897.86 million. For further details, see the section “Use of Proceeds” on page 71.
Risk Factors See the section “Risk Factors” on page 33 for a discussion of risks you should consider before deciding whether to subscribe for the Equity Shares.
Pay-In Date Last date specified in the CAN sent to the QIBs for payment of application money for the Equity Shares pursuant to the Issue.
Closing The Allotment of the Equity Shares offered pursuant to the Issue is expected to be made on or about June 6, 2014 (the “Closing Date”).
Ranking The Equity Shares being issued pursuant to the Issue shall be subject to the provisions of the Memorandum of Association and Articles of Association and shall rank pari passu with the existing Equity
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Shares.
The shareholders of our Company will be entitled to participate in dividends and other corporate benefits, if any, declared by our Company after the Closing Date, in compliance with the Companies Act, 2013, the Equity Listing Agreements and other applicable laws and regulations. Shareholders of our Company may attend and vote in shareholders’ meetings on the basis of one vote for every Equity Share held. For further details, see the section “Description of Equity Shares” on page 167.
Security Codes for the Equity Shares ISIN INE143H01015 BSE Code 532997 NSE Code KSK
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SELECTED FINANCIAL INFORMATION
The summary consolidated financial information as of and for the three years ended March 31, 2014, 2013 and 2012 set forth below has been derived from our financial statements included elsewhere in this Placement Document which have been audited by Umamaheswara Rao & Co., Chartered Accountants. Our financial statements are prepared and presented in accordance with Indian GAAP. For a summary of our significant accounting policies and the basis of the presentation of our financial statements, please refer to the notes to the financial statements included in this Placement Document.
The summary financial information set forth below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Financial Information” on pages 76 and F-1, respectively.
Summary Consolidated Balance Sheet Information as at March 31, 2014, 2013 and 2012
(All amounts in Indian Rupees million, except share data and where otherwise stated)
Particulars As at March As at March As at March 31, 2014 31, 2013 31, 2012 I EQUITY AND LIABILITIES 1 Shareholders' funds (a) Share capital 4,396.30 4,726.30 4,726.30 (b) Reserves and surplus 25,511.59 27,290.86 25,879.58 29,907.89 32,017.16 30,605.88 2 Minority interest 6,810.13 6735.18 5,283.39 3 Non-current liabilities (a) Long-term borrowings 1,17,080.40 111,632.09 80,543.51 (b) Deferred tax liabilities (net) 65.88 227.31 175.47 (c) Other long term liabilities 4,355.21 3,271.65 2,616.47 (d) Long-term provisions 23.61 51.14 46.66 1,21,525.10 115,182.19 83,382.11 4 Current liabilities (a) Short-term borrowings 18,531.98 17,982.23 18,924.14 (b) Trade payables 5,243.76 2,163.39 2,073.50 (c) Other current liabilities 36,057.81 27,558.62 30,926.40 (d) Short-term provisions 175.03 92.85 245.87 60,008. 58 47,797.09 52,169.91
2,18,251.70 201,731.62 171,441.29 II. ASSETS 1 Non-current assets (a) Fixed assets (i) Tangible assets 76,960.81 44,963.75 46,108.13 (ii) Intangible assets 2,060.57 2,041.22 2,044.30 (iii) Capital work in progress 92,619.45 105,871.75 66,601.69 (iv) Intangible assets under 1.01 6.53 development 3.79 (b) Non-current investments 215.81 215.81 215.81 (c) Deferred tax assets (net) 3,320.73 1,910.89 1,069.69 (d) Long-term loans and advances 8,064.46 12,120.98 16,564.37 (e) Other non-current assets 3,149.77 2,552.81 2,095.04 1,86,395.39 169,678.22 134,705.56 2 Current assets (a) Current investments - 172.06 221.69 (b) Inventories 1,493.52 1,510.71 1,232.11 (c) Trade receivables 9,201.52 5,597.08 3,802.36 (d) Cash and bank balances 8,693.22 14,656.47 20,323.08
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(e) Short-term loans and advances 10,497.27 8,535.29 9,681.15 (f) Other current assets 1,970.78 1,581.79 1,475.34 31,856.31 32,053.40 36,735.73
2,18,251.70 201,731.62 171,441.29
Summary Consolidated Profit and Loss Statement Information for the years ended March 31, 2014, 2013 and 2012
(All amounts in Indian Rupees million, except share data and where otherwise stated) For the year For the year For the year Si. Particulars ended March ended March ended March no. 31, 2014 31, 2013 31, 2012
I Revenue from operations 21,118.01 22,070.20 19,476.41 II Other income 1,365.52 1,006.96 1,116.38 III Total revenue (I+II) 22,483.53 23,077.16 20,592.79 IV Expenses Cost of fuel consumed 11,978.78 10,695.64 9,988.60 Manufacturing expenses 1,522.50 1,314.50 1,096.97 Employee benefits expenses 463.42 431.65 432.95 Other expenses 1,781.52 1,444.46 1,302.67 Finance costs 7,216.12 6,017.67 5,388.72 Depreciation and amortisation expenses 2,929.73 2,264.68 2,163.30 Total expenses 25,892.07 22,168.60 20,373.21 Profit / (loss) before exceptional items and tax (III (3,408.54) 908.56 219.58 V - IV) VI Exceptional items - - 923.52 VII Profit / (loss) before tax (V-VI) (3,408.54) 908.56 1,143.10 VII . Tax expense / (income) I Current tax For the year 145.53 164.48 374.23 In respect of earlier years (0.85) 0.38 2.60 Less : MAT credit entitlement (101.02) (140.46) (80.03) Deferred tax (1,571.27) (789.36) (656.77) Total tax expense / (income) (1,527.61) (764.96) (359.97) Profit / (loss) for the year before minority interest (1,880.93) 1,673.52 1,503.07 IX (VII - VIII) Minority interest (252.04) 167.72 189.50 Profit / (loss) for the year after minority interest (1,628.89) 1,505.80 1,313.57 X Earnings / (Loss) per share: Basic and diluted -face value of `10 per share (Rs.) (4.62) 3.79 3.28
Summary Consolidated Cash Flow Statement for the years ended March 31, 2014, 2013 and 2012
(All amounts in Indian Rupees million, except share data and where otherwise stated)
As at March As at March As at March 31, 2014 31, 2013 31, 2012 CASH FLOW FROM OPERATING ACTIVITIES Profit /(loss) before tax (3,408.54) 908.56 1,143.10 Adjustments for Depreciation and amortisation expenses 2,929.73 2,264.68 2,163.30 Finance cost 7,216.12 6,017.67 5,388.72 Interest income (966.79) (980.73) (888.24)
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As at March As at March As at March 31, 2014 31, 2013 31, 2012 Dividend income (0.90) (1.28) (13.23) Loss / (profit) on sale of assets, net (26.14) 24.71 (241.39) Profit on sale of investment (0.12) (3.41) (3.98) Bad debts / advances written off / provision for doubtful 21.17 234.37 230.00 Liquidated damages - - (679.61) Unrealised foreign exchange differences 29.73 31.21 26.57 Liability no longer required written back (13.66) (18.76) (19.35) Others, net - - (1.76) Operating profit before working capital changes 5,780.60 8,477.02 7,104.13 Adjustments for working capital Inventories 17.19 (278.60) (468.83) Trade receivables (3,604.44) (1,889.53) (1,740.33) Loan and advances (2,558.69) (112.57) (2,779.08) Other assets (356.57) (442.45) (291.70) Trade payables 2,874.74 109.01 506.57 Other liabilities and provisions 111.42 37.66 (23.29) Cash generated from operations 2,264.25 5,900.54 2,307.47 Income tax paid (335.36) (334.05) (289.42) Net cash from operating activities 1,928.89 5,566.49 2,018.05 CASH FLOW FROM INVESTING ACTIVITIES
Purchase of fixed assets including capital work-in- (12,028.95) (17,719.34) (31,506.96) progress and capital advances
Sale of fixed assets 41.49 262.46 0.33 Cash flow on sale of wind mills undertaking 51.49 604.96 1,566.33 Advance received against sale of assets 708.00 - - Acquisition of minority interest - (1.30) - Gain on dilution of interest in subsidiary to minority - - 1.44 Purchase of non-current investments - - (3.00) (Purchase) / sale of current investments, net 172.18 53.04 (22.36) (Investment) / redemption of bank deposit (having 394.31 (346.05) (35.61) original maturity more than three months) (Investment) / redemption of bank deposit (held as 6,884.76 2,275.86 (5,734.08) margin money or security against guarantees or Advance for investment (611.60) (1,106.30) (325.19) Inter corporate deposit - given (1,182.40) (980.10) (1,867.28) Inter corporate deposit - refund 1,503.44 1,080.17 1,581.84 Interest received 2,014.07 2,386.51 1,681.36 Dividend received 97.75 22.15 26.16 Net cash used in investing activity (1,955.46) (13,467.94) (34,637.02) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from share issue and application money in 2,212.08 280.17 3,060.21 subsidiary to minority interest Redemption of preference share capital (387.86) - - Repayment of share application money in subsidiary (30.00) (1,750.00) - Payment of dividend and dividend tax (93.60) (93.24) (92.98) Proceeds from long term borrowings 42,316.60 37,300.32 48,525.11 Repayment of long term borrowings (31,879.67) (17,350.64) (10,067.98) Proceeds from / (repayment of) short term borrowings, 4,061.93 364.32 4,014.46 Payment of finance costs (15,884.90) (14,397.45) (10,363.23) Net cash from financing activities 314.58 4,353.48 35,075.59 Net (decrease) / increase in cash and cash equivalents 288.01 (3,547.97) 2,456.62 Effect of exchange rate changes 0.95 (1.54) 0.07 Cash and cash equivalents at the beginning of the year 1,440.83 4,990.34 2,533.65 Cash and cash equivalents at the end of the year 1,729.79 1,440.83 4,990.34
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Notes 31 March 31 March 31 March 2014 2013 2012 Cash and cash equivalents includes: Cash in hand 3.57 24.38 7.78 Balances with banks: On current account 1,719.02 1,200.22 4,956.77 On deposit account 7.20 216.23 25.79 1,729.79 1,440.83 4,990.34
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RISK FACTORS
An investment in equity shares involves a high degree of risk. You should carefully consider all of the information in this Placement Document, including the risks and uncertainties described below, before making an investment in our Equity Shares.
If any of the following risks, or other risks that are currently not known or now deemed not relevant or immaterial, actually occurs, our business, profitability, financial condition and results of operations could suffer, the trading price of our Equity Shares could decline, and you may lose all or part of your investment. The risks and uncertainties described in this section are not the only risks and uncertainties that we currently face. Unless otherwise stated, we are not in a position to specify or quantify the financial or other risks mentioned herein. In making an investment decision, prospective investors must rely on their own examination of the Company, other members of the Group and the terms of the Issue, including the risks involved.
This Placement Document contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the considerations described below and elsewhere in this Placement Document.
Internal Risk Factors
There is outstanding litigation against members of the Group and any adverse decision may have a significant effect on our business, financial condition and results of operations.
There are certain proceedings pending in various courts, tribunals and other authorities at different levels of adjudication against members of the Group. The amounts claimed in these proceedings have been disclosed in our consolidated financial statements to the extent ascertainable, excluding contingent liabilities but including amounts claimed jointly and severally from parties. We can give no assurance that these legal proceedings will be decided in our favor. Should any new development arise, such as orders against us by any courts or tribunals or other authorities, the Group may need to make additional provisions in its financial statements that could increase expenses and current liabilities. Further, we may be unable to quantify all the claims in which we or any members of the Group are involved. Any adverse decision may have a significant effect on our business, financial condition and results of operations. For further details, see the section “Legal Proceedings” on page 184.
Some of our financing agreements require the prior consent of our lenders for undertaking any further issue of the Equity Shares, including for the Issue, and we have not received consents for the Issue from such lenders.
Under some of our financing documents, we require consents from the relevant lenders to issue the Equity Shares. As of the date of this Placement Document, we require prior consent from certain lenders to undertake the Issue and we have not received consents from such lenders.
Undertaking the Issue and effecting any changes in our capital structure, without obtaining the consent of the respective lenders constitutes a default by us under the relevant financing documents which will entitle the respective lenders to call a default against us and enforce remedies under the terms of the financing documents, which include, among others, acceleration of repayment of the amounts outstanding under the financing documents, payment of additional interest, enforcement of the security interests created under the financing documents and taking possession of the secured assets. There can be no assurance that the lenders who have not provided consents will not initiate action under the terms of the relevant financing documents at any time. Such actions may trigger other consequences, including potential winding-up claims against the Company. A default by us under the terms of any financing document may also trigger a cross-default under our other financing documents, or any other agreements or instruments containing cross-default provisions. If all or a part of our outstanding indebtedness is accelerated, we may not have cash to repay such indebtedness, which could adversely impact our ability to operate as a going-concern.
Any default as described above or a consequence of such default under the financing documents referred to above may, individually or in the aggregate, have a material and adverse effect on the Group’s business, results of operations, liquidity, financial condition and credit rating and may negatively impact our ability to obtain financing or could have an adverse effect on our ability to execute other agreements or to raise or borrow
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capital. Such defaults or other consequences from any such default may also result in a decline in the trading price of the Equity Shares and you may lose all or part of your investment.
We have, and may in the future be, requested for information and documents by various investigative agencies.
In light of recent investigations and enquiries ordered by courts or the GoI with respect to the coal, power and associated sectors, including inquiries and investigations into the affairs of parties with which we may have contractual arrangements, we have, and may in the future be, requested by various investigative agencies, including the Central Bureau of Investigation (“CBI”), to provide information and documents. For example, we have been requested by the CBI to provide copies of the fuel supply agreement, power purchase agreements, arbitration-related documents, and related correspondence, with GAIL (India) Limited (“GAIL”) in relation to one of our SPVs. We cannot predict the outcome of such investigations and cannot assure you that the business of our counterparties under investigation will not be affected by any such outcome. This could affect the ability of our counterparties to perform their contractual obligations, which in turn, could affect our business, reputation, financial condition and results of operation.
We have limited experience in developing and operating large power projects and managing the high level of growth we project for our business and if we are unsuccessful in these endeavours, our business, reputation, financial condition, cash flows and results of operations may be adversely affected.
We currently have six power plants (aggregating 872 MW) and one unit of 600 MW (that is part of the 3,600 MW KSK Mahanadi power plant with an aggregate of six units that are operational and five remaining units of the 3,600 MW KSK Mahanadi power project aggregating 3,000 MW that are under construction). We have commissioned power projects that are capable of generating 1,472 MW of power, comprising less than 33% of our total expected power generation capacity of 4,472 MW upon completion of the remaining five units of the 3,600 MW KSK Mahanadi power project. A summary of our operational power plants and projects under construction are set out below:
Number of Aggregate Status of Projects Projects Existing/Proposed Installed Capacity (MW)
Operational 6 872 Projects under construction (one unit of 600 MW commissioned and the balance 1 3,600 five units of 600 MW each to be commissioned)
If we are unable to complete construction of the balance units and address all associated requirements to operate our power plants at their optimum Plant Load Factor (“PLF”) or at all, our business, reputation, financial condition, cash flows and results of operations could be materially and adversely affected. We are dependent on the performance of our operating power plants, particularly the KSK Mahanadi and the Wardha Warora power plants. Due to economic downturn and other factors, some of our operating plants, such as Wardha Warora power plant have experienced lower performance. Our income from sale of energy has decreased primarily on account of a decrease in sales in the Wardha Warora power plant which has adversely affected our financial position and results of operations. In addition, the Arasmeta power plant recorded low performance as a result of low off-take by the captive consumer and non-renewal of the PPA. Further, continued uncertainty exists as to the availability of adequate and timely supplies of raw materials at prices that have been built into the project cost estimates and of expected quality, receipt of necessary permissions and clearance for the project and the ability to raise adequate finance to meet the short-term and long-term requirements of the project.
We do not have the experience that demonstrates our ability to develop and manage large-scale power projects including our ability to manage the growth of our business at the rate we project for the next few years. In addition, we are in the process of acquiring land, procuring environmental approvals, entering into financial agreements and obtaining detailed project reports for our planned projects. Any inability to effectively manage and operate our operational power plants or develop or operate our planned power projects could adversely affect our business, prospects, financial condition and results of operations.
The development of new projects involves various risks, including among others, regulatory risk, construction risk, financing risk and the risk that these projects may prove to be unprofitable. In addition, we may need to
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undergo changes to our operations as a result of developing new projects, in order to integrate the new projects into our business, and to ensure that the new projects comply with the conditions under our power purchase agreements (“PPAs”) and other agreements. Entering into any new project may pose significant challenges to our management, administrative, financial and operational resources. We cannot provide you with any assurance that we will succeed in any new project or that we will recover our investments.
There can be no assurance that we will receive sufficient supply of fuel to operate our power plants or that in the case of delays or non-receipt of fuel supplies attributable to the suppliers, we will be adequately compensated. Consequently, the commissioning of our power plant under construction may be delayed. In the event that the commissioning of our projects is delayed beyond the timelines specified in our government approvals, our approvals may lapse and we may be required to obtain fresh approvals which may not be granted in a timely manner or at all.
We have limited experience in constructing, managing and operating hydro-electric and solar power plants, and in operations and support activities relating to mining of coal blocks. We also have limited experience in wind power projects. We had made certain advances in 2011 with respect to the development of certain wind power projects which services were not provided to us and consequently the agreement with the service provider was terminated and the amounts advanced by us were written off. See also the section “Legal Proceedings” on page 184. Further, we have no prior experience in constructing, managing and operating power plants of the scale we are currently constructing and planning. Accordingly, we may be subject to risks associated with developing, constructing and managing these various projects such as:
our ability to raise capital to finance these projects on commercially viable terms or at all;
our ability to hire and retain skilled personnel, of whom there may be a shortage;
our ability to adapt to changes in technology;
the future competitive environment for the power industry in India and other jurisdictions where we may set up our power plants;
adverse developments in the area surrounding our operations;
continued engagement with our various contractors, both for construction and operation of our various power projects;
economic and political environment in India and other jurisdictions where we may set up our power plants;
regulations and policies relating to the power sector in India and other jurisdictions where we may set up our power plants; and
the diversion of our management's attention from our existing businesses.
We also have planned hydro projects in Nepal. Any presence outside India will subject us to additional risks, including among others currency fluctuations, cost structures and cultural and language factors associated with managing and coordinating our operations outside India, compliance with a wide range of laws, regulations and practices that we may not be familiar with, including uncertainties associated with changes in laws, regulations and practices and their interpretation, exposure to expropriation or other government actions and political, economic and social instability. The cost of complying with government regulations can be substantial.
We may also need to incur additional capital expenditure for developing, constructing and managing these projects, which may adversely affect our business, financial condition and results of operations. Furthermore, if we are unsuccessful in these endeavours, our business, reputation, financial condition, cash flows and results of operations may be adversely affected.
Our inability to manage growth could disrupt our business and reduce our profitability.
A principal component of our strategy is to continue to grow by expanding the size and scope of our existing business, as well as the development of new power projects and acquisition of other power projects. This growth strategy will place significant demands on our management, financial and other resources. It will require us to
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continuously develop and improve our operational, financial and internal controls. Continuous expansion increases the challenges involved in financial management, recruitment, training and retaining high quality human resources, preserving our culture, values and entrepreneurial environment, and developing and improving our internal administrative infrastructure. An inability to manage such growth could disrupt our business plans and adversely affect our business prospects and results of operations.
Our power projects have long gestation periods before they become operational and it may take several years before we realize any benefits or returns on our investments. In addition, the time and costs involved in completing a power project may be subject to substantial increases which could have a material adverse effect on our business, financial condition, cash flows and results of operations.
We operate commissioned power plants capable of generating 1,472 MW of power and we have power projects at various stages of construction and planning. These under construction and planned plants have long gestation periods of typically two to seven years, due to the process involved in commissioning power projects. This process typically includes the process of obtaining detailed project reports, applying for and obtaining government approvals, permission for acquiring land, environmental approvals and approvals for the use of water, entering into fuel supply agreements, evacuation agreements, financing agreements, etc. Further, power plants typically require months or even years after being commissioned before positive cash flows can be generated, if at all. As a result, the probable impact of our under development or planned power projects on our financial performance is difficult to evaluate. In addition, given the amount of developmental activity in the power sector in India, the commercial viability of our power projects that are not operational may need to be re- evaluated and we may not be able to realize any benefits or returns on investments as estimated.
The scheduled completion dates for our projects are estimates and are subject to delays and other risks, including, among other things, contractor performance shortfalls, unforeseen engineering problems, disputes with workers, force majeure events, unanticipated cost increases or changes in scope and delays in obtaining certain property rights, fuel supply and government approvals and consents, any of which could give rise to delays, cost over-runs or the termination of a project’s development and/or a breach of the financial covenants imposed by our lenders. In case of such delays, we may also be required to request certain of our lenders to defer the schedule of repayment in respect of our loans, which may or may not be approved by such lenders. While we may seek to minimize the risk from contractor performance by including liquidated damages, guarantees and warranties in our contracts for delays and sub-standard workmanship and shortfall in performance, we cannot ensure that all potential liabilities are covered or that the damages that may be claimed from such contractors will be adequate to cover any cost over-runs and any loss of profits resulting from such delays, shortfalls and disruptions.
There can be no assurance that these projects will be completed in the time expected, or at all, or that their gestation periods will not be affected by any or all of these or other factors. In addition, failure to complete a project according to its original specifications or on schedule, if at all, may give rise to potential liabilities and could render certain benefits available under various government statutes, such as deduction of 100% of the profits derived from power generation being unavailable and concessional customs duties on imports being unavailable, as a result of which our returns on investments may be lower than originally expected.
Further, the time and costs involved in completing a project may be subject to substantial increases due to various factors including delays in procuring debt financing, shortages of materials, equipment, skilled personnel and labor, adverse weather conditions, natural disasters, labor disputes, disputes with contractors, accidents, changes in government priorities and policies, government inaction or policy paralysis, changes in market conditions, delays in obtaining the requisite licenses, permits and approvals from the relevant authorities and other unforeseeable problems and circumstances. For example, there have been delays in completing certain units of the VS Lignite power plant and the Wardha Warora power plant. Also, our estimates of cost and time required to complete a project may not be accurate. Such estimates are also based on current conditions and may therefore be subject to revisions. Any of these factors may lead to delays in, or prevent the completion of our projects or result in costs substantially exceeding those originally budgeted for, which could have a material adverse effect on our business, financial condition, cash flows and results of operations.
Our projects require significant capital expenditure and if we are unable to obtain the necessary funds on acceptable terms, or at all, we may not be able to operate our projects and our business may be adversely affected.
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The development of power projects is a capital intensive business and our projects require significant additional capital. Our estimated project cost in respect of our projects under construction and planned projects is substantial and we estimate we will need to raise significant amounts of debt and equity to finance these projects. If we are unable to obtain the necessary funds on acceptable terms, or at all, we may not be able to develop our projects. The funding requirements and project costs for our projects are based on management estimates. The implementation of our projects is subject to a number of variables, and the actual amount of capital required to implement these projects may differ from our estimates. We cannot guarantee that the funding requirements of any particular project will not substantially exceed these estimates. If the funding requirements of a particular project increase, we will need to look for additional sources of finance, which may not be readily available, or may not be available on attractive terms, or may not be available at all, which may have an adverse effect on the profitability of that project.
Our ability to finance our capital expenditure plans is subject to a number of risks, contingencies and other factors, some of which are beyond our control, including tariff regulations, borrowing or lending restrictions, if any, imposed by the Reserve Bank of India (the “RBI”), general economic and capital market conditions (including exchange rate fluctuations).
Difficult conditions in the global capital markets and the economy may cause us to experience limited availability of funds and in the absence of sufficient liquidity, we may not be able to complete our power project under construction or develop additional projects, which would adversely affect our growth plans and results of operations.
Changes in the global and Indian credit and financial markets have recently significantly diminished the availability of credit and led to an increase in the cost of financing. In many cases, the markets have exerted downward pressure on the availability of liquidity and credit capacity. With limited or no overseas borrowing possible given the current global credit scenario, we depend significantly on domestic Rupee borrowing to finance our various projects. Given the large-scale infrastructure projects currently under development in India and the associated increased demand for capital for these projects, and given the limited depth of the local debt market, there may be a sharp decrease in the availability of domestic financing and refinancing, as well as more onerous restrictions on entity/group exposure norms that could affect our potential borrowing capabilities from specific institutions in the future. In addition, there could be limited incremental credit available to us domestically, and hence debt financing could suffer on account of increased competition, increased costs as well as more rigid covenants.
We will need liquidity for future growth and development of our business and may have difficulty accessing the financial markets, which could make it more difficult or expensive to obtain financing in the future. Without sufficient liquidity, we may not be able to develop additional projects, which would adversely affect our results of operations. We cannot assure you that we will be able to raise additional financing on acceptable terms in a timely manner or at all. Our failure to renew existing funding or arrangements to obtain additional financing on acceptable terms in a timely manner could adversely affect our planned capital expenditure, business and results of operations including our growth prospects.
We may be unable to realize the mega power project status related tax and other benefits, as a result of which, our business, financial condition, cash flows and results of operations may be materially and adversely affected.
The Government of India has granted “mega power project” status to two units of 600 MW each of our KSK Mahanadi power project in 2010. Provisional status has been granted to the balance four units of 600 MW each. Mega power project status enables us to benefit from certain exemptions on excise duty and customs duty on import of goods and services for setting up the power project. These benefits will help us reduce the cost of equipment and improve our profit margins once we commence operations. In order to qualify for final mega power project benefits, PPAs must be tied-up for at least 65% installed capacity/net capacity under competitive bidding and up to 35% through regulated tariff within five years from the date of import of goods and services. While we have signed additional PPAs recently in respect of the KSK Mahanadi power project, which will need to be verified and approved by the Ministry of Power, if we do not obtain approval in a timely manner or are denied such benefits, the duty component of the project cost for this power plant is expected to increase. Additionally, the costs of the KSK Mahanadi power project may be higher than our original estimates and we may require additional funds to complete construction of the power project; we may be required to refund the benefits received under the provisional mega power project status; and the completion of the power project may
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be delayed. An occurrence of these events could materially and adversely affect our business, financial condition, cash flows and results of operations.
A number of government-related entities act as our regulators, customers, open access providers, and this may give rise to conflicts of interest which may adversely affect our business.
We have entered into contracts with government entities and state governments and other customers. Potential conflicts of interest may arise from the fact that such government authorities play multiple roles in our business model. For example, the Maharashtra State Electricity Distribution Company Limited (“MSEDCL”) is a customer of Sai Wardha Power Limited (the “Wardha SPV”) and, also has a role in making available open access for supplies to captive consumers. We cannot assure you that the potential conflict of interest will not continue to arise in the future and any disputes arising therefrom will be resolved in a manner favorable to us. See, for example, details of our dispute with the MSEDCL in the section “Legal Proceedings” on page 184. Any such situation may restrict our operations and materially and adversely affect our business, prospects, financial condition, cash flows and results of operations.
We may encounter problems relating to the operations of our SPVs.
As a consequence of client requirements and to mitigate risks associated with projects, our current operations are conducted through various SPVs, in certain of which we share equity participation with certain partners. This trend is likely to continue in the future. Many significant decisions on the development model, revenues and costs are taken in close consultation with our partners and could be subject to extensive negotiations. Although we typically retain key rights with respect to control of the power projects by equity ownership and majority board presence, there can be no guarantee that any disagreement with the other equity interest holders will be resolved in our favor or in a timely manner. Also, the equity interest holders in these SPVs hold participatory rights, which entail a risk that significant decisions may not be resolved quickly and may require heavy negotiation.
If the other equity interest holders fail to perform their obligations satisfactorily, the relevant SPV may be unable to perform adequately or deliver its contracted services. In this case, we may be required to make additional investments and/or make alternate arrangements or provide additional services to ensure the adequate performance and delivery of the contracted services as we are subject to joint and several liability as a member of the SPV in most of our projects. We may also be required to purchase the other equity interest holders’ shares, but in such cases, we may not be able to enforce the equity interest holders’ obligations to transfer their equity holding to us for their performance failure. For example, Lafarge India Private Limited (“LIPL”) is required to transfer its shareholding to us upon non-renewal of the PPA with Arasmeta Captive Power Company Private Limited (the “Arasmeta SPV”). However, this has been disputed and the shares held by LIPL in the Arasmeta SPV have not been transferred as on date. For further details of our dispute with LIPL, see the section “Legal Proceedings” on page 184. Any additional obligations could result in reduced profits or, in some cases, significant losses for us. The inability of an equity interest holder to continue with a project due to financial or legal difficulties could mean that we may be required to bear increased and possibly sole responsibility for the completion of the project and bear a correspondingly greater share of the financial risk of the project.
Additionally, some of our shareholders’ agreements, memoranda of understanding with state governments and coal supply and investment agreements with certain state mineral development corporations may require us to sell our entire shareholding or dilute our shareholding in such SPVs. For example, our shareholders’ agreement with Zuari Cement Limited (“ZCL”) for the Sitapuram SPV gives ZCL the option to require us to sell our entire shareholding in the Sitapuram SPV to ZCL or its nominees after the third anniversary of commercial operations of the Sitapuram power plant, which was March 1, 2011. Further, the Government of Arunachal Pradesh (“GoAP”) has the option to acquire a minority interest in some of our planned hydro-electric power projects in the State of Arunachal Pradesh. Any transfer of our equity interests in such SPVs as indicated above, could reduce our income and cash flows and reduce our ability to meet with our operating expenses. For further details, see the section “Business” on page 98.
In addition, in the event that we decide to terminate our relationship with the other equity interest holders in our SPVs, we may be required to offer them a right of first refusal for all our equity holding in the SPV. There can be no assurance that we will be able to obtain a fair value for our equity holdings, or at all.
There may be a conflict of interest, and we may have disagreements, with the other shareholders in our SPVs.
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To the extent there are disagreements between us and our partners regarding the business and operations of an SPV, we cannot assure you that we will be able to resolve them in a manner that will be in our best interests. Under the terms of certain shareholders’ agreements, minority interest holders have veto rights, and any decision taken by such minority interest holders may not be beneficial for us. Our partners in our SPVs may:
be unable or unwilling to fulfil their obligations, whether of a financial nature or otherwise; have economic or business interests or goals that are inconsistent with ours; take actions contrary to our instructions or requests, or contrary to our policies and objectives; take actions that are not acceptable to regulatory authorities; have financial difficulties; or have disputes with us.
In certain instances, ongoing disputes with our business partners, who have nominated directors to the boards of our SPVs, could also affect our ability to conduct board and committee meetings at which the presence of such nominee is required. The inability to conduct such meetings at regular intervals could also place us in breach of the requirements under the Companies Act.
Any of the foregoing could have a material adverse effect on our business, prospects, financial condition, cash flows and results of operations.
In the SPVs in which we have a minority interest, such as the Sitapuram SPV in which we own a 49% equity interest, we may be unable to influence the business operations and decision making, which could have a material adverse effect on our financial condition and results of operations.
The Company and certain of our SPVs have experienced losses in prior periods and may continue to do so in the future, which could have a material adverse effect on our business, prospects, financial condition and results of operations.
The Company has experienced losses in fiscal year 2014 to the extent of `1,628.89 million on a consolidated basis. In addition, certain SPVs have also experienced losses in the past. For instance, the Arasmeta SPV, the VS Lignite Power Private Limited (the “VS Lignite SPV”), the Wardha SPV and KSK Mahanadi Power Company Limited (the “Mahanadi SPV”) incurred losses of `155.56 million, `262.21 million, `3,205.35 million and `375.79 million in fiscal year 2014. In the financial years ended March 31, 2013 and March 31, 2014, the accumulated losses of the Wardha SPV exceeded 50% of the net worth of the Wardha SPV.
For further details, see the section “Financial Information” on page F-1.
We also depend on dividends or other distributions from our SPVs for our cash flows.
We have equity interests in the SPVs that operate our power projects. Our financial condition and results of operations depend on the dividends or other distributions we receive from our SPVs. We currently have six operational power plants and one project that is under construction and various power projects that are at various stages of planning for which we are continuously looking to secure debt financing and considering the long gestation period involved in commissioning power projects, our Company does not expect to receive dividends or other distributions from a number of our SPVs in the near future. As a result, in the event of non-receipt of dividends or other distributions from these SPVs, we may have insufficient income and cash flows to declare and pay dividends to our shareholders or to meet our operating expenses.
We may, as part of our efforts to raise funds, sell interests in one or more of our Subsidiaries.
As part of our funding exercises, we may sell all or part of our interests in one or more of our Subsidiaries to third parties. Following the sale of all or part of our interest in our Subsidiaries, our equity interest in the assets held by such Subsidiaries would be reduced by a corresponding amount. Although we would receive the proceeds of any sale of shares in a Subsidiary, there can be no assurance that such proceeds will accurately reflect the value of such Subsidiary to our business or that our share price will not fall as a result of such sale of interests. Further, in certain instances, the inability to realize the additional costs of power from our customers could adversely affect the cash flows, working capital and financial viability of an SPV, which may necessitate the sale or other disposal of such SPV. There can be no assurance that the proceeds of any sale of interests in a
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Subsidiary will be reinvested in our business and that the benefits of such proceeds will accrue to our shareholders to the extent of the benefits generated by the sold interests or at all.
We have substantial borrowings and intend to incur further borrowings in connection with the development of our power projects and may not be able to meet our obligations under these debt financing arrangements.
As of March 31, 2014, our consolidated total indebtedness was `151,344.64 million. This high degree of leverage (i) renders us more vulnerable to downturns in our business, which is subject to general economic conditions in India, inflation and other factors; (ii) limits our ability to obtain additional financing, if required; and (iii) limits our ability to refinance existing indebtedness on terms favorable to us. Any of these factors could have a significant impact on our business and results of operations.
Also, with respect to the KSK Mahanadi power plant, we have not secured the entire debt requirement for the project completion. There can be no assurance that we will be able to arrange additional financing on terms that would be acceptable to us, or at all. Any delay or inability to obtain the balance funding in a timely manner could expose the project to various other risks.
In addition, our lenders have certain rights to determine how we operate our projects, which, among other things, restricts our ability to raise additional debt or equity, pay dividends, make investments, engage in transactions with affiliates, sell assets or acquire other businesses. In certain cases, until the repayment of the amounts due to them under the relevant financing agreements, certain of our lenders have the right to appoint nominees to the board of the Company or to the boards of our SPVs. Upon a default in repayment, certain of our lenders also have a right to convert the debt into the equity of our SPVs and as such take control of such SPVs. These debt obligations are secured by a combination of security interests over the assets of the Company and our SPVs and hypothecation of movables and future receivables, as well as a pledge over our equity shares and our equity interest in our SPVs. Our financing agreements also contain cross-default provisions, whereby a default of any of the covenants under a financing agreement would result in an acceleration of our repayment obligations under our debt facilities. For more information regarding our indebtedness, see the section “Management’s Discussion and Analysis of Financial Condition and Results of Operation - Indebtedness” on page 76. There can be no assurance that we will be able to comply with these financial or other covenants in the future.
Certain of our SPVs have also issued optionally convertible redeemable debentures to third parties with terms specified therein. For example, under the debenture subscription agreement entered into by the VS Lignite SPV with a third party, such third party has a default put option pursuant to which the SPV may be required to buy back the debentures and a right to convert the debentures into equity in the event that the SPV fails to redeem the debentures or honor the put option.
Our ability to meet our debt service obligations and to repay our outstanding borrowings will depend primarily upon the cash flows from our business. There can be no assurance that we will generate sufficient cash to enable us to service our existing or proposed borrowings, comply with covenants or fund our other liquidity needs. Furthermore, adverse developments in the Indian credit markets or a reduced perception of our creditworthiness in the credit markets could increase our debt service costs and the overall cost of our funds. If we fail to meet our debt service obligations or financial or other covenants required under the financing documents, our lenders could declare us in default under the terms of our borrowings, accelerate the maturity of our obligations, enforce the security interest, take possession of the project assets or substitute themselves or their nominees under any document in relation to the project. There can be no assurance that, in the event of any such acceleration, we will have sufficient resources to repay these borrowings. Failure to meet our obligations under the debt financing arrangements could have an adverse effect on our cash flows, business and results of operations.
Increases in interest rates may adversely affect our results of operations.
We are exposed to interest rate risk. A substantial part of the indebtedness incurred by us carry interest at floating rates with the provision for periodic reset of interest rates. We typically do not enter into any swap or interest rate hedging transactions in connection with such loan agreements to mitigate our interest rate exposure. We cannot assure you that we will be able to enter into interest rate hedging contracts or other financial arrangements to mitigate our exposure to interest rate fluctuations on commercially reasonable terms or any of such agreements we enter into will protect us fully against our interest rate risk. Any increase in interest rates may have an adverse effect on our business prospects, financial condition and results of operations.
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The Company has given guarantees in relation to certain debt facilities provided to our SPVs, which if invoked may materially and adversely affect our business, results of operations, cash flows and financial condition. Additionally, our Promoter has given corporate guarantees in relation to certain debt facilities provided to us, which if revoked may require alternative guarantees, repayment of amounts due or termination of the facilities.
The Company has given corporate guarantees in relation to certain debt facilities availed of by the SPVs. Guarantees in respect of indebtedness of the SPVs are recognized in our financial statements as contingent liabilities. In the event these guarantees are called upon, our business, results of operations, cash flows and financial condition may be adversely affected.
Additionally, our Promoter has given corporate guarantees in relation to certain debt facilities availed of by us or the SPVs. In the event that any of the guarantees provided by our Promoter are revoked, the lenders for such facilities may require alternate guarantees, repayment of amounts outstanding under such facilities, or even terminate such facilities. We may not be successful in procuring guarantees satisfactory to the lenders, and as a result may need to repay outstanding amounts under such facilities or seek additional sources of capital, which could affect our financial condition and cash flows.
We have pledged, have agreed to pledge and will continue to pledge a portion of our shares in certain of our SPVs in favor of lenders, who may exercise their rights under the respective pledge agreements in events of default. Further, as of March 31, 2014, our Equity Shares, consisting 69.57% of the pre-Issue paid-up share capital, have also been pledged or otherwise encumbered by our Promoter Company and another member of our Promoter Group.
We have pledged a portion of the shares we hold in each of the Arasmeta SPV, Sai Regency Power Corporation Private Limited (the “Sai Regency SPV”), the VS Lignite SPV, the Sitapuram SPV, the Wardha SPV, Sai Maithili Power Company Private Limited (the “Sai Maithili SPV”) and the Mahanadi SPV, and may pledge a certain percentage of shares we hold in each of the SPVs being developed and planned, in favor of the lenders as security for the loans provided to these SPVs. Additionally, in one of our power plants, we have also provided a second charge in our shareholding in favor of one of our customers. If the SPVs default on their obligations under the relevant financing documents, the lenders may enforce the share pledges, have the shares transferred to their names and acquire management control over the pledged companies. If this happens, we will lose the value of any such pledged shares and we will no longer be able to recognize any revenue attributable to them. In addition, if we lose control of any of our SPVs, our ability to implement our overall business strategy would be adversely affected. Additionally, as of March 31, 2014, our Promoter Company and another member of our Promoter Group have pledged and otherwise encumbered our Equity Shares constituting 69.57% of the pre- Issue paid-up share capital of the Company, to certain financial institutions. Any default under the financing documents may result in the financial institutions selling the Equity Shares pledged to them in the open market, thereby diluting the shareholding of our Promoter Group. The sale of such Equity Shares, or the perception that such sales may occur, may result in the trading price of our Equity Shares being adversely impacted.
Our Promoter Group has the ability to determine the outcome of any shareholder resolution.
After the completion of the Issue, our Promoter Group will hold between 67% and 70% of our outstanding Equity Shares. As a result, our Promoters will continue to exercise significant influence over our corporate decisions and control over us, including the election or removal of our Directors, declaration of dividends and determination of other matters to be decided by our shareholders. Thus our Promoters may influence aspects of our business such as management decisions on strategy and operations by delaying, deferring or causing a change of our control or our capital structure, or by delaying, deferring or causing a merger, a consolidation, a takeover or other business combination involving us, or by discouraging or encouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. As a result, our Promoters may take actions that may conflict with our interests or the best interests of our other shareholders.
The interests of our Promoters and our Promoter Group companies may cause conflicts of interest in the operation of our business.
There may be conflicts of interest between us and the other group companies, including companies in which our Promoters hold an equity interest or those which are controlled by our Promoters. Conflicts may arise in the ordinary course of our decision-making. Among other situations, conflicts may arise in connection with our negotiations and dealings with such companies with respect to services that they provide to us and the
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arrangements that we may enter into with them. For example, our Promoter company, KSK Energy, holds 100% of the shareholding in KSK Energy Company Private Limited. KSK Energy Company Private Limited operates an independent mineral business, and also engages in businesses that are ancillary to the power generation business pursued by us. Also, KSK Energy Company Private Limited derives annuities in the form of project development and support fees from the various power plant SPVs. This could result in a conflict of interest between us and KSK Energy Company Private Limited, and our business strategy, positioning and operations could be adversely affected. In addition to the above, conflicts may also arise in the allocation of resources, including key personnel, contractors and intellectual property between other Promoter Group companies and us.
Poor financial health of state-owned entities could adversely affect their ability to pay us. Further, political or financial pressures could cause state-owned entities to renegotiate our contracts and could adversely affect their ability to pay us.
A substantial part of our aggregate income for the fiscal year 2014 came from the supply of electricity to distribution companies in the states of Andhra Pradesh and Maharashtra. Further, we have entered into PPAs with state-owned entities in the states of Tamil Nadu, Uttar Pradesh, Gujarat and Chhattisgarh with respect to portions of the expected capacity of our KSK Mahanadi power project that is currently under construction.
We may experience delays in receipt of payments from these state-owned entities. For example, the MSEDCL has withheld amounts due and has failed to comply with the regulations governing such withholdings with respect to the Wardha Warora power plant. For details of the dispute with MSEDCL, see the section “Legal Proceedings” on page 184. In addition, we cannot assure you that the state governments will honour their guarantees for the payment obligations of the respective state-owned entities, which are our customers.
Delays in recovering the amounts due under these off-take arrangements could adversely affect our operational cash flows. We cannot assure you that the payments we are entitled to receive under our off-take arrangements will not be subject to reductions, delay or default by state-owned entities. Any such reductions, delays or defaults, if material, could materially and adversely affect our business, prospects, financial condition, cash flows and results of operations.
Furthermore, government authorities, as well as the relevant state electricity boards and utility companies, establish electricity rates and effect rate increases periodically. In the past, several state governments, including the governments of the states in which our operating power plants are located, have announced their intention to provide free electricity to farmers which could adversely impact our state-owned customers’ ability to pay us for supply of electricity. Political pressures or new regulations may lead to re-negotiation of our off-take agreements with state-owned entities at reduced rates.
Due to their poor financial health (including as a result of high aggregate technical and commercial losses and inadequate tariffs), state-owned entities may also reduce their off-take and resort to load shedding, rather than purchasing power from us. This may result in a decline in revenues from state-owned entities, in particular under short-term PPAs.
We may face revenue realization risks from our existing and future consumers.
Currently, a portion of our total power capacity generated from our operational power plants is sold to our captive consumers, while the remaining is sold to state owned distribution companies. Going forward, we believe a significant part of our revenues may be derived from sale of power to state-owned distribution companies, their successor distribution companies and other public and private procurers. There can be no assurance that these entities will be able to pay us at all times in a timely fashion, if at all. We are also exposed to the risks associated with entering into arrangements with other public and private buyers of our power with weak credit histories, including industry consumers. Currently, we have entered into PPAs for the smaller power plants and have not entered into PPAs for the power that we will be able to generate once all our power projects are operational. Any change in the financial position of our current or future consumers that adversely affects their ability to off-take the contracted quantities of power and pay us or any non-renewal of a PPA by an existing customer may adversely affect our own financial position and results of operations. For example, in Fiscal Years 2013 and 2014, the Arasmeta power plant recorded low performance, both in terms of PLF and revenues, as a result of low off-take by the captive consumer and non-renewal of the PPA that expired in December 2013 and early termination of another PPA with the captive consumer. As a result, the Arasmeta SPV was also constrained to enter into alternative off-take arrangements.
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The Company may also be unable to realize project development fees pursuant to agreements with SPVs as a result of the SPV failing to achieve relevant project milestones. For instance, under the project development agreement with JR Power Gen Private Limited, the Company was entitled to a 2% project development fee on the total estimated project cost which was interlinked with milestones relating to the progress of the project. Due to a dispute with a minority shareholder in the SPV, the project progress was delayed and the realization of project development fees by the Company was deferred.
We may not be able to establish new off-take arrangements for our power projects on terms acceptable to us or at all.
Our project SPVs sell their output through PPAs, and are therefore vulnerable to market forces to determine the price and amount of power they sell. In many cases either PPAs have not been entered into or a significant portion of the projects in which we have an interest do not have fixed price long-term off-take agreements. We have entered into long-term (generally, seven years or more), medium-term (generally, one year or more, but less than seven years) and short-term PPAs (generally, less than one year) for the operational power plants and our power project under construction. While we have PPA commitments with respect to various state government entities with respect to our larger thermal projects and hydro power projects, we have not entered into PPAs for these projects.
The structure of our off-take agreements may expose us to certain risks.
We have entered into long-term PPAs for certain of our operational power plants and intend to enter into additional long-term PPAs for our power projects that are under construction or planning. Under a long-term PPA, we typically sell power generated from a power plant to the consumers at pre-determined tariffs. In the power generation business, there are often restrictions on a company’s ability to, among other things, increase prices at short notice, sell interests to third parties and undertake expansion initiatives with other consumers. Accordingly, if there is an industry-wide increase in tariffs, we will not be able to renegotiate the terms of the PPAs to take advantage of the increase in tariffs. In addition, in the event of costs of coal, transportation, taxes, duties and other increases in costs due to higher financing charges, we do not have the ability to reflect a corresponding increase in our tariffs. Therefore, the prices at which we supply power may have little or no relationship with the costs incurred in generating power, which means that our margins will fluctuate significantly. This limits our business flexibility, exposes us to an increased risk of unforeseen business and industry changes and could have an adverse effect on our business, prospects, financial condition and results of operations.
We also expect to enter into short-term PPAs, which may create additional variability in our revenues and could expose our business to risks of market fluctuations in demand and price for power. Risks associated with our PPAs could have an adverse effect on our business, prospects, financial condition and results of operations.
Under its coal supply and investment agreement with the GMDC, the Mahanadi SPV has agreed to offer 1,010 MW of its annual power generation output to GMDC or, at the option of GMDC, to Gujarat Urja Vikas Nigum Limited (“GUVNL”) at a price determined in accordance with the agreement. The Company and the Mahanadi SPV have entered into a memorandum of understanding with the Government of Chhattisgarh (“GoC”) and the Chhattisgarh State Electricity Board (“CSEB”), dated February 15, 2008, to facilitate the project development activities relating to the KSK Mahanadi power project. Under this memorandum of understanding and subsequent implementation agreement dated August 13, 2009, we are required to provide 5% / 7.50% of the net power generated to GOC or its nominated agency, on an annualized basis, at variable energy prices determined by the relevant electricity regulatory commission. Similarly, under its coal supply agreement with GIDC, the Mahanadi SPV is required to supply the higher of either 15% of the actual power generated or 240 MW, to GIDC or other nominated state entities at tariff determined by the relevant electricity regulatory commission. For the first six years, the GIDC is also be entitled to a “first right of refusal” on 10% of actual power generated from coal supplied by GIDC.
Further, under the memoranda of understanding with the GoAP for our planned hydro-electric power projects, we are required to provide free power to the GoAP up to 14% of the total power generated. Over and above this free power, the GoAP shall have the first right to purchase power generated from the project. In the future, similar arrangements with governmental entities may also have onerous terms, which could adversely affect our business, financial condition and results of operations.
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In addition, certain of our PPAs could be subject to the provisions of the National Tariff Policy and associated execution difficulties, including compliance with the guidelines and associated requirements of tariff bidding.
Certain terms of our PPAs that we believe present risks to our business are as follows:
PPAs only provides for very limited instances in which penalties are the relevant power purchaser's principal remedy for our failure to perform the contractual obligations. This means that any material failures by us are likely to constitute events of default under our PPAs and, upon expiration of the relevant cure periods, give such purchaser the right to terminate these agreements.
We may have “deliver-or-pay” obligations under the PPAs. If we fail to deliver the annual contracted quantity of power to our customers, our customer may source the fuel from third parties and we may be required to compensate the customer for any differential tariff paid for such alternative source of power.
PPAs may be terminated before the end of its term due to the default of either party and the remedies available to us, including a claim for damages and the right to force the government or our power purchaser to buy our power plant, may not adequately compensate us.
Penalties may be imposed in the form of reduced capacity or energy payments from our customers where (i) we supply less than the contracted capacity, or (ii) we provide electricity for less than the agreed number of hours in a year.
If a force majeure event affecting our customer or a governmental force majeure event prevents us from supplying electricity to the relevant customer, such customer may opt in its sole discretion to either continue to make its capacity payment (that is, the payment that is designed to allow us to recover our fixed costs for constructing and operating the power plant over the life of the contract) to us for up to six months or require us to sell our power plants as per the terms of the PPA.
We may be required to offer rebates or incentives to our customers in the event that payments by such customers under the PPAs are made prior to the scheduled payment dates.
The terms of our off-take arrangements may not match the terms of our financing arrangements.
The duration of our off-take arrangements may not match the duration of the related financing arrangements and we may be exposed to refinancing risk. In the event of an increase in interest rates, our debt service cost may increase at the time of refinancing our loan facilities and other financing arrangements, but our revenues under the relevant PPA may not correspondingly increase. In addition, a PPA may expire or be terminated and we may not have sufficient revenues to meet our debt service obligations or be able to arrange sufficient borrowings to refinance those obligations on commercially acceptable terms, or at all. This mismatch between the financing arrangements and the corresponding PPAs may adversely affect our business, financial condition and results of operations.
Certain of our agreements contain onerous terms.
We enter into agreements with various state governments, state utility companies and industrial consumers. Some of the terms under these agreements are onerous and require us to undertake certain responsibilities and meet with certain conditions that may or may not be beneficial to our business. For example, under the memorandum of understanding with the GOC and CSEB to facilitate the project development activities relating to the KSK Mahanadi power project, we are required to pay all rehabilitation and resettlement costs in connection with the development of the power project and employ people from the State of Chhattisgarh in accordance with the policies of the GOC. In addition, we are required to earmark certain amounts for environmental upgrades and social upliftment of the surrounding villages. Similarly, for KSK Dibbin Hydro Power Private Limited (the “Dibbin SPV”), 50% of the jobs at various levels in the Dibbin SPV are required to be reserved for local tribal people. In addition, we are required to earmark certain amounts for social work in accordance with the National Policy on Rehabilitation and Settlement, 2003, adhere to local state laws and are required to make a deposit per unit of power generated to the welfare funds of the state governments for the benefit of the local population. In addition, some of our captive PPAs contain onerous terms with which we must comply, such as the maintenance of private limited company status for our SPVs, which we may not be able to comply with as a listed public company. If we are unable to satisfy any or all of the conditions as
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specified, we may be in violation of the terms of these agreements, have to undergo heavy negotiation that may not be fruitful and ultimately be adversely affected in our ability to develop these power projects.
Our agreements with certain third parties also contain restrictions and impose obligations on us, including consent requirements before we undertake certain actions. We may require consents from third parties under our agreements, including for the Issue, which we have not obtained. Any failure by us to obtain the required consents from third parties may adversely affect our relationship with them and our business.
If we do not operate our facilities efficiently, we may incur increased costs, our revenues may be adversely affected and we may face penalties under the terms of the PPAs that we have or will enter into.
Our profitability is largely a function of how effectively we are able to manage our costs during the terms of our contracts and our ability to operate our power plants at optimal levels. If we are unable to manage our costs effectively or operate our power plants at optimal levels, our business prospects, financial condition and results of operations may be adversely affected. Also, as part of our commitment to our consumers under certain of our PPAs, we are committed to supply power in cases of deficit on account of the inoperation of the power plant. We would need to source power from alternate sources in such events, perhaps at substantially higher costs, which could affect our results of operations and business.
PPAs generally require a power supplier to guarantee certain minimum performance standards, such as power plant availability, generation capacity, net energy units as well as performance on heat rate and auxiliary consumption parameters. The tariffs we charge are also typically arrived at assuming a certain calorific value and heat rate and other technical factors including fixed fuel supply costs. If our facilities do not meet the required performance standards, our consumers will not reimburse us for any increased costs arising as a result of our power plants’ failure to operate within the agreed norms, which in turn may affect our results of operations. Part load operations can result in significantly higher heat rates for the generating station and consequently higher fuel consumption which cannot be passed through to the customers, thus affecting profit margins. Further, non-availability or non-renewal of open access by the local utilities could impair our ability to operate and deliver the relevant contracted power to our customers, resulting in significant underutilization of the units, which may adversely affect our revenues and profits.
In addition to the performance requirements specified in our PPAs and other agreements, national and state regulatory bodies and other statutory and government mandated authorities may from time to time impose minimum performance standards upon us. Failure to meet these requirements could expose us to the risk of penalties, and we may not receive certain agreed upon incentives that may adversely affect our revenues.
Changes to tariff regulations may adversely affect our results of operations and our cash flow from operations.
The statutory and regulatory framework for the power sector in India has changed significantly. Power tariffs in India are currently established through competitive bidding or determined by central or state regulators. Although we expect that tariffs with respect to some of the power plants will be determined through a process of competitive bidding, it is possible that some projects we develop in the future will be subject to central or state tariff regulation or will be subject to tariff anticipation and negotiation by beneficiary states (where power plants are located or states whose mineral development corporations have entered into agreements with us for fuel supply). Also, with a part of our current power off-take arrangements being with industrial consumers, any adverse regulations by the state or central regulators on the availability-based-tariff regime and time-of-day charge regimes could have an impact on our pricing strategies, could potentially reduce our revenues, business and profitability. Under the Electricity Act, state governments have inherent powers to regulate, although the primary function is that of the Central Electricity Regulatory Commission's (“CERC”), and in case of shortage of power in the state where our projects could be located, the states may impose restriction on sale of power to parties outside the state, thereby creating shortfall in performance of our power supply obligations as well as loss of potential opportunities. Similarly, delay in commissioning may entail payment of differential tariffs or provide compensation to procurers under the PPAs that could have an adverse impact on profitability and cash flows.
The GoI has notified the national power tariff policy that deals with various parameters with respect to the fixation of power tariffs, such as providing adequate return on investment to the power generator and supplier and ensuring reasonable user charges for the consumers. It provides uniform guidelines for the state electricity regulatory commissions for the fixation of tariffs for their respective entities as well as the CERC. These
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guidelines include a detailed methodology for determination of the different components of the tariff and also lay down the parameters for what types of charges are subject to escalation and those that are not. Once the tariff for a power project under construction or an operating power plant has been approved by the state electricity regulatory commission or the CERC, any changes or revisions to the tariff due to factors such as cost over-runs or delays in the project implementation can only be revised by filing a petition to review the tariff with the appropriate state electricity regulatory commission or the CERC. There can be no assurance that any such petition to revise the tariff, for reasons such as project cost over-runs or delays in project implementation or for any other reason, will be approved. Further, no mechanism currently exists to facilitate recoveries on account of the additional project costs being incurred due to force majeure events including: (i) devaluation of the India Rupee against the U.S. Dollar and (ii) delays in land acquisition and construction of railway line for coal transportation. Further, pursuant to the July 2013 amendment to the New Coal Distribution Policy of 2007, increased tariffs are applicable on account of domestic coal shortages (and consequent short supplies under coal linkages). There cannot be any assurance that we will be compensated adequately, or at all, for such tariff escalations and cost over-runs. In situations where we incur additional costs in the implementation of a power project or the operation of our power plants and are unable to obtain the approval of the state electricity regulatory commissions or the CERC for increased tariffs, our financial condition, cash flows and results of operation may be adversely affected.
Our ability to increase revenues depends to a certain extent on the existence of transmission infrastructure with sufficient capacity to transmit the generating capacity of our operational power plants and under development and planned power projects.
Evacuation or “wheeling of” power from each of our power projects to our consumers poses significant challenges due to transmission constraints. Evacuating power to the nearest sub-station is either our responsibility or the responsibility of a procurer, depending upon the arrangements made for a particular project. Further evacuation infrastructure from the sub-station to high voltage transmission lines needs to be made available by the relevant authorities. For example, our Sai Regency power plant was unable to supply power at optimum levels due to inadequate evacuation infrastructure from the sub-station to the high voltage transmission line at the time the power plant was commissioned. If such transmission lines are not made available by the time our power projects are ready to commence operation, it could adversely affect our financial position and results of operations.
In addition, we are undertaking the development of hydro-electric power projects that are located in the State of Arunachal Pradesh, a remote area with inhospitable terrain and extreme weather conditions. Facilities to wheel power from these hydro-electric power projects currently do not exist. Furthermore, a significant part of the transmission infrastructure in the States of Arunachal Pradesh, Orissa and Chhattisgarh are currently either under development or do not exist. There can be no assurance that there will be adequate evacuation infrastructure in place by the time we are ready to commission our under development or planned power projects, or at all.
Under the terms of some of our PPAs, we are required to ensure long-term open access for the delivery of power to the end customers. Where there is no long-term open access, our ability to deliver electricity to our customers may be impacted. Our inability to deliver power could result in penalties under the terms of the PPA or the termination of the PPA or force us to sell the power generated on a spot basis in the open market on terms that may not be favorable to us.
If these transmission constraints continue, our ability to supply electricity to off-takers, distribution utilities and other large purchasers who purchase power from us could be adversely affected. As a result, any transmission constraints could have an adverse effect on the level of revenues we generate from our power generation business.
Our current operations and our expansion plans have significant fuel requirements and we may not be able to ensure that adequate fuel will be available to meet our power generation requirements.
Many of our current power plants rely on a single fuel supplier for their entire fuel requirement. This dependence on a single fuel supplier (often a government controlled entity) exposes our power plants to serious vulnerabilities, such as non-supply due to reserves depletion, pro-rata scaling down of supply to all customers, onerous contractual terms (such as no penalties for short supply while enjoying comfort of minimum guaranteed off-take or payments in respect thereof). For example, the fuel supply agreements with WCL guaranteed quality of coal with calorific content of approximately 4,700 kcal per kg and appropriate price adjustments for any
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quality deficiencies. Pursuant to a letter dated July 10, 2013, WCL offered to execute a fuel supply agreement for the balance quantity of 0.635 MTPA, subject to fulfilment of certain conditions. The Wardha SPV has contested this before the Competition Commission of India on grounds of abuse of dominant position by WCL. The matter is currently before the Director General for investigation. For further details, see “Legal Proceedings” on page 184. Also, our operating power plants have experienced shortages in supply from the various fuel suppliers under their respective contracts, which has required us to source part of our fuel requirement from the open market, often at prices that are substantially higher than the contractual linkage prices. Such problems could continue to persist or further increase exposing our power plants to the risk of idle capacity, low operating PLFs and associated loss of value, unless alternative arrangements are made therefor.
The success of our operations will depend on, among other things, having varied fuel sources and our ability to source fuel at competitive prices for our thermal power plants. While we have entered into long-term fuel supply agreements with certain state mineral development corporations, mining activities and supply of fuel by such state mineral development corporations is contingent upon receipt by them of the necessary mining approvals and clearances (including forest and other environmental clearances). We have not secured definitive fuel supplies for all our planned power projects.
In addition, most of our operational and upcoming thermal power projects currently rely on, and will rely on, single fuel suppliers for their entire fuel requirements through captive fuel supplies or long-term contracts. Some of these fuel suppliers may have limited experience in exploiting coal blocks and may be operating in jurisdictions where they have limited or no operating histories. As a result, there can be no assurance about the performance capabilities, financial condition and continued commitment of our fuel suppliers. Certain of our fuel suppliers have received show cause notices from the GoI expressing its dissatisfaction with respect to the limited or no progress on the work related to the exploration and production of the coal blocks allotted to them and seeking responses from these state corporations that are our fuel suppliers as to why such allotted blocks should not be de-allocated. Failure to provide a satisfactory response to such show cause notices could result in the GoI taking penal action including the cancellation of the allocation of the coal blocks. We cannot assure you that such replies will be to the satisfaction of the GoI or no adverse action will be taken by the GoI with respect to such coal blocks.
In the case of the natural gas supply arrangement with GAIL for our 58 MW natural gas based Sai Regency power plant in Tamil Nadu, the gas supply agreements expire in December 2015 and July 2014, with renewal to be mutually agreed between the parties. Our fuel supply agreements for our Arasmeta power plant and the Sitapuram power plant are also valid for limited periods, and there can be no assurance that these fuel supply agreements will be renewed on terms favorable to us, or at all. Additionally, we are currently awaiting execution of the fuel supply agreement for the balance quantity of 2.49 MTPA for our KSK Mahanadi power project. In case of any non-renewal by GAIL or our other fuel suppliers, failure to enter into agreements with the relevant subsidiaries of Coal India Limited or failures to enter into definitive fuel supply agreements with the state mining development corporations, we would need to make alternative arrangements in a timely manner and any delay could adversely affect revenues from our projects including revenues from the Sai Regency, Arasmeta, Sitapuram and Wardha Warora power projects and future revenues from planned power projects.
This dependence on single fuel suppliers for each of our power projects also limits our ability to seek legal recourse which can take several years and considerable expense to resolve, if at all. Failure to obtain sufficient fuel supplies for any of our power projects will have an adverse effect on our business, financial condition and results of operations. There can be no assurance that we will be able to obtain gas or coal supplies in sufficient quantities and on commercially acceptable terms, or at all.
Further, our agreements with various government entities could be subject to ad hoc actions by the counter parties, including termination.
We undertake activities for collaboration with government entities and incur significant costs with no guarantee that such expenditures will result in actual commercial benefit. The government entities could chose to unilaterally terminate the collaboration or agreement, which would result in our undertaking or resisting extensive litigation for enforcement of our rights or a settlement alternative that may not be fully in line with our interests.
Alternative sources of fuel for our power projects may be expensive or not readily available.
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We rely primarily on coal sourced from Coal India Limited (“CIL”) and its subsidiaries under fuel supply agreements and coal linkages. Under the current policy, this supply is linked to the volume of power contracted under the long-term PPAs. In addition, we procure coal through CIL's e-auction process, the open market and imports from third parties or pursuant to our coal supply agreements. Our counterparties may fail to honor their fuel supply commitments and we could face difficulties in obtaining coal for our coal-based power plants. Further, the quantity of coal available to us through CIL’s e-auction process is subject to the demand for such coal from purchasers. If the demand for coal available through CIL’s e-auction is high, we may be unable to source coal in sufficient quantities. We may also face delays in obtaining contracted quantities of coal from coal blocks. If our counterparties fail to honor their commitment, there can be no assurance that we will be able to make alternate arrangements for coal in the quantities or qualities we need, or at all.
The price of coal procured through CIL’s e-auction process and the open market as well as imported coal varies based on the notified price determined from time to time and competition. Accordingly, we may be subject to price fluctuations of coal, which may lead to an increase in our expenses and materially and adversely affect our business, financial condition, cash flows and results of operations. The import of coal is also expensive due to the cost of transport, exchange rate fluctuations and fluctuations in global coal price, among other factors. The Government of India has proposed the formation of an independent regulatory body through the introduction of the Coal Regulatory Authority Bill, 2013. It is expected that the new regulatory authority will have no power in the determination of fuel rates, which will continue to vest with the coal producers. However, the regulatory authority will be empowered to specify the principles and methodology for determining the price of raw coal and washed coal and any other by-products generated during washing. Any sharp increase in the prices of coal by its producers pursuant to the principles and methodology framed under the Coal Regulatory Authority Bill, 2013, may adversely affect our business, financial condition, cash flows and results of operations.
In the event that we are unable to obtain long-term coal linkages or enter into fuel supply agreements, or the quality of coal allocated to us is not of the expected calorific value, or our coal suppliers default on their obligations to us under any fuel supply agreements we may enter into in the future, or we fail to satisfy any of the terms and conditions under our current and any future fuel supply agreements, then we may be required to make alternative arrangements for coal supply for our coal based power plants. Although in certain instances we are entitled to pass on additional fuel costs to our customers when our domestic suppliers fail to meet their coal supply obligations, there is no guarantee that such customers will be willing to continue purchasing power at the increased costs. In relation to the power generated by the KSK Mahanadi and Arasmeta power plants, the amount of coal cost pass through will depend on the CERC review of the tariff and the extent of relief granted.
There can be no assurance that we will be able to obtain coal supplies both in sufficient quantities, acceptable qualities, and on commercially acceptable terms, or at all. We may also have to purchase coal at a significantly higher price from the market for carrying out our operations, which could have an adverse effect on our business, financial condition, cash flows and results of operations.
In June 2013, the GoI revised the natural gas price upwards. In January 2014, the GoI announced the Domestic Natural Gas Pricing Guidelines, 2014 that came into effect from April 2014 and will be valid for a period of five years. Under these guidelines the price for natural gas will be determined based on international prices prevailing at the time and will be determined on a quarterly basis. While the PPA with respect to the Sai Regency power plant enables us to pass through fuel costs to our customers, we may not be able to pass on the increase in the cost of natural gas to our customers. This is likely to make, capacity augmentation of our existing gas-based power plant or development of new gas-based power plants difficult or impossible. As a result, the commercial viability of our Sai Regency power plant may be reduced vis-à-vis our other power plants.
We may not be able to identify or correct any defects or irregularities in title to the lands upon which we have developed and intend to develop our power projects.
The validity and/or ownership of land title and/or land use/occupancy rights within concession area(s) in which we or our suppliers operate and/or may operate in the future can be uncertain and may be contested. There is no assurance that we or our suppliers will be able to acquire satisfactory title and/or rights to the concession areas, where we presently, or may in the future, operate. Disputes over acquisition of title and/or rights may arise, such as claims by former owners and/or their heirs or relations. In particular, rights to land that has been aggregated from the holdings of many small occupants or land belonging to indigenous or tribal people may give rise to disputes. In the event we or our suppliers are not able to obtain satisfactory title and/or rights to the relevant concession areas, our power generation capacity will be affected, which may in turn, materially and adversely affect our business, financial condition, results of operations, cash flows and prospects. Furthermore, we may be
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required to incur additional expenditure in paying compensation to displaced persons while acquiring land required for our mining operations, which could materially and adversely affect our business, financial condition, cash flows and results of operations.
Our coal supplies could be affected by the GoI cancelling mining rights of our suppliers or our mining concessions.
The mining rights of our suppliers may be revoked by the GoI, which could cause delays in the commissioning of our projects or, in respect of our operational projects, require us to obtain coal supplies from other, more expensive sources or require us to suspend operations (thereby affecting our ability to meet our power delivery obligations to our customers). Similarly, the GoI could revoke our coal mining concessions (including if it determines that the development of the coal mine has been unsatisfactory or if we are unable to fulfil the conditions under the coal concession agreements). For instance, in relation to the VS Lignite SPV, the GoI has de-allocated the Lunsara lignite block in 2011. If any of our or our suppliers’ coal mining concessions are revoked, our business, financial condition, cash flows and results of operations could be materially and adversely affected.
Estimates of coal reserves are subject to assumptions, and if the actual amounts of such reserves are less than estimated, our results of operations and financial condition may be adversely affected.
We have entered into long-term fuel supply agreements with multiple state mineral development corporations, and currently have one lignite block allocated to us. The blocks from which the state mineral development corporations source their coal are not operational and will require mining and exploration support on our part. In addition, reserve estimates and the calorific value of the coal reserves of our fuel suppliers are based on various assumptions, such as interpretation of geological data obtained from sampling techniques and projected rates of production in the future. Further, these semi-explored blocks would require further confirmatory drilling based on which the actual reserves and production levels including the calorific values may differ significantly from the original estimates. The initial phase of development before production may take longer than we anticipate and could lead to delays in power project production schedules. The economic feasibility of exploiting a discovery may change as a result of changes in the market price for coal during the development period. If the quantity or quality of our fuel suppliers’ coal reserves has been overestimated, we may have to source the required coal in the open market. Prices for coal in the open market may exceed the cost at which we currently obtain coal and may not be available at short notice, which would cause our costs to increase and cause delays in obtaining adequate fuel and consequently adversely affect our business, financial condition and results of operations.
Certain of the state mineral development corporations may not proceed to executing a definitive fuel supply agreement or may seek to appeal or defend litigation with respect to our rights under various memoranda of understanding. Additionally, the actual costs incurred in development, construction as well as operating the power plants, mines and ancillary infrastructure may exceed planned budgets and our power plants maybe expected to absorb such additional costs.
Substantial changes in international coal markets, coal prices and other macroeconomic factors including foreign exchange rates, could have an adverse impact on our ability to source reasonably priced coal from the open market.
In certain circumstances, we are required to source coal from the open market, including through imports. The price at which we can source coal through the open market is dependent on the global market prices of coal, and we may be unable to pass on any price increases to our customers. Sale prices and volumes in the worldwide coal market depend predominantly on the prevailing and expected levels of demand for and supply of coal. A number of factors beyond our control influence the demand for coal, the most significant of these being the prevailing level of worldwide demand for energy, forward selling activity and general global economic conditions and political trends. Further, coal is sold throughout the world based principally on a U.S. dollar price. Consequently, an unfavourable fluctuation of the U.S. dollar against the Indian rupee or any change in the U.S. dollar coal price may negatively impact our results of operations and cash flows.
The successful operation of our power plants depends on reliable and stable supply of water to the power plants. In the event of water shortages, the power plants may be required to reduce their water consumption, which would reduce their power generation capability.
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Our power projects under operation, construction and development will require substantial amounts of water, which is critical to the operations of these power plants. While we have received water allocation for all our power projects under operation and construction, in the event of water shortages at various sources from which our power projects are required to draw water, our power projects may be required to reduce their water consumption, which would reduce their power generation capability. In the event the water supply to our power projects from the various sources falls below the required amount, we may be required to arrange alternate sources of water for our power projects. There can be no assurance that we will be able to make such alternate arrangements on acceptable terms or at all. There can also be no assurance that we will be able to source water for our power projects under development, in sufficient quantities or at all.
Our success depends on the smooth supply of fuel, raw materials and water to our power projects, which are subject to various uncertainties and risks.
We depend on various forms of transport, such as roadways, railways and pipelines to receive fuel, raw materials and water during the construction and operation of our power projects. For example, we are dependent on the uninterrupted supply of coal and water to our power plants in order to generate power on a continuous basis. Similarly, during the construction of our power projects, we are dependent on the supply of cement, steel, plant and machinery in order to construct our various projects. The building of transportation infrastructure entails obtaining approvals, rights of way and development by the Government or the state governments and their nominated agencies. As a result, we will have no control over the construction, operation and maintenance of the transportation infrastructure. There can be no assurance that such transportation infrastructure will be constructed in a timely manner, operated on a cost effective basis and maintained at adequate levels, which will impact the estimated commissioning dates for our project under construction. Also, the amount of water that our operational project and the project under construction are entitled to consume, pursuant to water supply agreements we have entered into for such projects, is often subject to the availability of excess water. In the event of water shortages, our power projects may be required to reduce their water consumption, which would reduce their power generation capability.
In addition, for certain of our power projects, we have been mandated by the off-taker or the respective agencies to develop dedicated backup evacuation infrastructure for which we have not secured the necessary permissions, including the rights of way. Similarly, extensive transport infrastructure is required for the delivery of fuel, raw materials and water to our KSK Mahanadi power project and will be required for our hydro power projects in Arunachal Pradesh and Nepal. Undertaking such development will require significant capital expenditure and active engagement with the Government and its agencies responsible for organizing transport infrastructure and related technologies. For instance, various group companies were required to undertake the construction and development of such support infrastructure to our KSK Mahanadi power project, which entailed significant capital expenditure and resultant indebtedness. The Mahanadi SPV may be required to service these common infrastructure facilities prior to, and independent of, the commissioning of all the six units.
There can be no assurance that these transportation facilities will be available or even adequate to support our operations or the construction of our power projects that are currently under construction, or will be in the future. Further, disruptions of transportation services because of weather-related problems, strikes, lock-outs, inadequacies in the road or rail infrastructure, or other events could impair the ability of our suppliers to deliver fuel and raw materials. We can provide no assurance that such disruptions due to the occurrence of any of the factors cited above will not occur in the future.
In addition, we are dependent on third party logistics providers. If we are unable to anticipate potential risks or delays involved in the planning and execution of various ancillary and support infrastructure that facilitates uninterrupted operations of our power plants, our business, financial condition and results of operations could be adversely affected.
The viability and level of power generation from our solar power plant is dependent on the amount of solar irradiation and our ability to generate maximum power output from available solar irradiation.
Viability of solar power plant is primarily dependent on the amount of solar irradiation at the power plant site and the technology that is used to make use of the radiation effectively. Accordingly, variations due to weather and seasons could reduce the amount of solar irradiation in our power plant site. In addition, our inability to source good quality photovoltaic cells for our future solar power plant could materially and adversely affect our ability to generate maximum power output from our solar power plant. Consequently, a decrease in the amount
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of solar irradiation at the power plant site and our inability to make use of the radiation effectively could impair our ability to achieve PLF.
The PLF of a solar power plant may also be affected indirectly due to a grid failure, since the generation of power from solar power plant cannot be stored and during grid outage, the power generated cannot be evacuated. This can result in the loss of power fed into the grid. In the event of decrease of the PLF of our solar power plant, our revenues, cash flows and profitability from the solar power generation business could be materially and adversely affected.
Several of our large capacity projects are geographically concentrated.
Once all our power projects are commissioned, we shall have our coal-based power plants in the State of Chhattisgarh (aggregating 3,686 MW), which will aggregate to substantial part of our total capacity while our remaining power plants will be spread across other states in India. Any significant social, political or geological disruption in the State of Chhattisgarh, any disruption due to increased naxal activities or changes in the state or local governments, even on a short term basis, could impair our ability to meet our obligations under the PPAs and other agreements on a timely basis, which could have an adverse effect on our business and results of operations.
The operations of our power plants may be adversely affected by any breakdown of equipment, civil structure and / or transmission systems including grid failures.
The breakdown or failure of generation equipment, civil structure or other equipment can disrupt generation of electricity by any of our power plants and result in performance being below expected levels. In addition, the development or operation of our power projects may be disrupted for reasons that are beyond our control, including explosions, fires, earthquakes and other natural disasters, breakdown, failure or sub-standard performance of equipment, improper installation or operation of equipment, accidents, operational problems, transportation interruptions, other environmental risks, and labor disputes. Further, any breakdown or failure of transmission systems can disrupt transmission of electricity by our power plants to the applicable point of evacuation. In the event that we fail to supply the minimum guaranteed power at the delivery points specified in our PPAs, in terms of our “supply or pay” obligations under such PPAs, we may be required to pay for the deficient minimum guaranteed power or the cost differential for the power procured by the consumer from alternate sources. A breakdown in our KSK Mahanadi power plant could have an adverse impact on our business, financial condition and results of operation.
Power generation facilities are also subject to mechanical failure and equipment shutdowns. In such situations, undamaged units may be dependent on or interact with damaged sections or units and, accordingly, will also be shut down. We rely on sophisticated and complex machinery built by third parties that may be susceptible to malfunction. Although, in certain cases manufacturers are required to compensate us for certain equipment failures and defects and we typically have 12 to 18 month workmanship warranties in our contracts, such arrangements may not fully compensate us for the damage that we suffer as a result of equipment failures and defects or penalties under our agreements with our consumers and do not generally cover indirect losses such as loss of profits or business interruption. If such events occur, the ability of our power plants to supply electricity to off-takers may be adversely affected. In the event any power generation facility is significantly damaged or forced to shut down for a significant period of time, this would have an adverse effect on our business, financial condition and results of operations.
We depend on a limited number of contractors or specialist agencies to develop and operate our projects, some of whom supply sophisticated and complex machinery to us.
We depend on the availability and skills of a limited number of third party contractors for the development, construction and operation and maintenance of our power projects. For example, we have entered into operations and maintenance agreements with Operational Energy Group India Private Limited (“OEG”) for certain of our operating projects. In addition, we have sourced some of our turbines and generators for our operational power plants from Bharat Heavy Electricals Limited. Additionally, for our project under construction, we have entered into EPC agreements with SEPCO Electric Power Construction Corporation (“SEPCO”) which in turn has sourced boilers, turbines and generators from Dongfang Electric Corporation, Harbin Electric Power Company and Shanghai Boiler Works.
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This dependence on a limited number of contractors and suppliers exposes our power projects to vulnerabilities such as non-supply of spares and key equipment depletion, scaling down of supply and an inability to obtain alternative spares or equipment at short notice, which will have an adverse effect on our business, financial condition and results of operations.
Additionally, we do not have direct control over the quality or timing of services, equipment or supplies provided by these contractors although we retain a supervisory role in overseeing their operations. In addition, as a result of increased industrial development in India in recent years, the demand for contractors with specialist design, engineering and project management skills and services has increased manifold, resulting in a shortage and increasing costs of such contractors. As a result, we may be unable to hire domestic or international contractors with significant experience in India, a proper reference base, with an established track record and with adequate working capital facilities to complete construction, installation and commissioning of our projects. There can be no assurance that such skilled and experienced contractors will continue to be available at reasonable rates or at all and will be able to complete our projects within the schedules contemplated by us, and we may be exposed to risks relating to the quality or timing of their services, equipment and supplies. Concentration of imports and specialists from certain countries, including the People’s Republic of China, can affect our business, including when there is a change in the political, social or economic factors in such country, leading to shut-down or longer gestation periods of our power plants for non-availability of spares or delays in equipment supplies. For example, the recent restrictions and delays with respect to the issuance of visas and work permits, as well as extensive immigration checks on Chinese personnel being brought in for project execution provides an additional risk of delay in project execution. The inability of such turn-key contractors in identifying and engaging necessary local personnel or sub-contractors on a timely basis could significantly delay the anticipated schedule of power plant commissioning and associated financial results thereof.
In addition, we require the continued support of certain original equipment manufacturers, as mentioned above, to supply necessary services and parts to maintain our projects at affordable costs. If we are unable to procure the required services or parts from these manufacturers (for example, as a result of the bankruptcy of the manufacturer or a disruption in supplies), on the schedule contemplated, or from alternative sources, or at all, or if the cost of these services or parts exceeds the budgeted cost, there may be an adverse effect on our business, financial condition and results of operations.
There can be no assurance that our contractors will be able to complete the construction of our projects on time, within budget or to the specifications and standards set out in contracts with them. For example, with respect to our EPC contract with SEPCO for construction of our KSK Mahanadi power project, we cannot assure you that the construction milestones for our power projects will be met by SEPCO, or that the power projects will be completed on time. To the extent our contractors do not deliver as per schedule and to agreed specification, we may be liable to other parties, including our power customers and the entities that have granted us the concessions. Although our contracts with third parties require our contractors to pay liquidated damages if they are unable to perform to specification and in a timely manner, there can be no assurance that the compensation (if any) that we actually receive will fully offset our own damages and liability to other parties. Any damage to us or liability that we face as a result of the failure of our contractors to perform to specification and in a timely manner would adversely affect our business prospects, financial condition and results of operations. Further, if the third-party contractors fail to achieve monthly extraction volumes of coal, or otherwise fail to perform their obligations, there could be delays in our coal production, which could adversely affect our operating results and cash flows.
Additionally, there can be no assurance that any cost over-runs or additional liabilities in connection with the development, expansion, conversion or relocation of new or existing power projects would be fully or partly offset by our third-party contractors, suppliers or insurance policies that we maintain. Delays in the completion and commercial operations of our power projects under construction or development due to third party contractors' default could increase the financing costs associated with the construction and cause our forecasted budgets to be exceeded. In addition, failure to complete a power project according to its original specifications or schedule, may give rise to potential liabilities and, as a result, our returns on investments may be lower than originally expected. Any delay, cost over-runs or liabilities in the development, construction or operation of any of our or their material new projects or existing projects is likely to materially and adversely affect our business, prospects, financial condition, cash flows and results of operations.
Activities in the power generation business can be dangerous and can cause injury to people or property in certain circumstances.
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The power generation business requires individuals to work under potentially dangerous circumstances, with volatile and often highly flammable materials and for hydro-electric power projects, in inhospitable terrain. If improperly handled or subjected to unsuitable conditions, high voltage electricity can hurt or kill employees or other persons and cause damage to our properties and the properties of others. This could subject us to disruptions in our business, legal and regulatory difficulties and costs and liabilities which could adversely affect our results of operations and our reputation.
In certain countries, there have been attempts by claimants to argue that the high-voltage transmission of electricity can have an adverse effect on the health of people who spend time near transmission infrastructure. If any such claim were to be brought against us and succeed, our business and financial condition could be adversely affected.
Our senior management team and technical staff often travel to our power projects. Often, our power projects are located in remote areas, which increases the risk of injury, as a result of lack of travel infrastructure or otherwise.
Our results of operations could be adversely affected by strikes, work stoppages or increased wage demands by our employees or the employees of our fuel suppliers or any other kind of disputes with our employees.
We currently employ many employees at our power projects. There can be no assurance that we will not experience disruptions to our operations due to disputes or other problems with our work force, which may adversely affect our business and results of operations. Furthermore, efforts by labor unions may divert management’s attention and result in increased costs. We may be unable to negotiate acceptable collective bargaining agreements with those who have chosen to be represented by unions, which could lead to union- initiated work stoppages, including strikes, which could adversely affect our business and results of operations.
Our fuel suppliers could face similar issues with their employees, which could affect their ability meet their delivery obligations in a timely manner. For instance, there was a decline in power generation and PLF of the Sitapuram power plant due to the inability of Singareni Collieries Company Limited to supply coal to the Sitapuram SPV on account of a 40-day strike in 2012.
We enter into contracts with independent contractors to complete specified assignments and these contractors are required to source the labor necessary to complete such assignments. Although we do not engage these laborers directly, it is possible under Indian law that we may be held responsible for wage payments or the provision of certain facilities to laborers engaged by contractors should the contractors default on wage payments and/or provision of certain facilities. Any requirement to make such payments or provide such facilities may adversely affect our business, financial condition and results of operations.
Mining in India is highly regulated.
Under the Mines and Minerals (Development and Regulation) Act, 1957 and the Mineral Concession Rules, 1960, as amended, prospecting licenses and mining leases for coal and lignite can be granted by the State Governments with the concurrence of the Central Government. A mining lease is granted for a minimum period of 20 years and a maximum period of 30 years. A mining lease can be renewed for periods not exceeding 20 years with the previous approval by the Central Government. Accordingly, extraction of coal is possible once the respective state mineral development corporations enter into mining lease agreements with the state where the coal block is located.
If the state mineral development corporations do not enter into a mining lease within the time period stipulated or if we are unable to secure new leases for future projects, or if the leases are renegotiated on terms that are less advantageous to us, our anticipated fuel supplies would be affected and our operations and financial condition may be adversely affected.
Mining operations are subject to additional risks.
We have limited experience in operating mining blocks. Mining operations are subject to hazards and risks normally associated with the exploration, development and production of natural resources, any of which could disrupt our operations or cause damage to persons or property. The occurrence of industrial accidents, such as explosions, fires, transportation interruptions and inclement weather as well as any other events with negative
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environmental consequences, could adversely affect our operations by disrupting our ability to extract minerals from the mines we operate or exposing us to significant liability. We may incur significant costs, which may not be adequately covered by insurance that could have an adverse effect on our results of operations and financial condition.
Variations in hydrological conditions, meteorological changes and geological uncertainties may adversely affect our results of operations.
Neither we nor our Promoters have experience in building and operating hydro-electric power projects. We currently have multiple planned hydro-electric power projects in Arunachal Pradesh wherein power generation is dependent on the amount of rainfall, sunshine, snow melt and river flows in those regions, which vary considerably from quarter to quarter and from year to year. The levels of hydro-electric production can, therefore, vary from period to period. In years of less favorable hydrological conditions, hydro-electric plants generate less electricity, which reduces the amount of electricity that they are able to generate and sell. Furthermore, the advent of climate change can cause conditions that may result in unusual hydrological variations and extremities. Any adverse hydrological condition could render us unable to meet the requirements of our PPAs. Conversely, if hydrological conditions are such that too much rainfall occurs at any one time, such as during the monsoon, water may flow too quickly and at volumes in excess of a particular hydro-electric power plant’s designated flood levels, which may result in shutdowns. Any of these events could reduce our revenues from the sale of electricity, which could have an adverse effect on our business, financial condition and results of operations.
Extensive geological investigation is carried out by independent engineers before commencing civil works for our projects. In certain of our projects, further studies and investigations over the last few months have revealed implementation capacities that are lower than the capacities that we have contracted for. This would have an adverse impact on the total capacity in MWs of the hydro power plants being developed. While the Techno Economic Clearance by the CEA provides the decisive construction capacities of the projects, we cannot rule out the possibility that we may be required to significantly scale down the power plants capacities in line with various requirements, regulatory or otherwise. While past studies have not indicated any adverse geological features such as major faults, thrusts or highly stressed rock mass, occurrences of such adverse geological conditions in the future cannot be ruled out. Furthermore, the conclusions of independent geological investigations are subject to uncertainties. As a result, we may be required to undertake additional work to commission our projects, such as digging more tunnels than anticipated, resulting in delays and us having to incur additional costs. In addition, we may have based our bids on Government data, which may be subject to change.
While we have selected our hydro-electric sites on the basis of output projections, there can be no assurance that the water flows will be consistent with our projections, or that the water flow required to generate the projected outputs will exist or will be adequate. There can be no assurance that the long-term historical water availability will remain unchanged in the future or that no material hydrological event will impact the current hydrological conditions at our project sites.
Hydro-electric operations can also be affected by the buildup of silt and sediment that can accumulate behind dam walls, which prevent the silt from being washed further down the river. While we propose to use “runners”, a component in a hydro-electric plant meant to collect silt, it is not easily available, contributes significantly to the operating costs of the power plant and may require the power plant to be shut down for repairs or replacement. Excess levels of silt can also occur in waterways due to changes in environmental conditions. High concentrations of silt in water can cause erosion problems in hydro-electric turbines or can lead to blockages in the turbines themselves. Any such damage or blockage may require us to shut down the plant which will mean we are unable to generate power that may lead to a reduction in revenue, including associated efficiency incentive payments.
Accordingly, adverse hydrological conditions whether seasonal or for an extended period of time, which result in lower, inadequate and/or inconsistent water flow may render our prospective hydro-electric power stations incapable of generating adequate electrical energy, thus affecting our results of operations and financial condition.
Our income from our hydro-electric power projects may be reduced to the extent that we are required to supply power free of charge or may decline in the future if the respective state governments increase the
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amount of power to be provided free of charge. This could materially and adversely affect our business, financial condition, cash flows and results of operations.
In respect of our planned hydro power projects in the State of Arunachal Pradesh, we are generally expected to provide a portion of the power generated from such projects to the state government free of cost. Additionally, in certain instances each project affected family is required to be provided a certain quantity of electricity free of cost (or payment in lieu thereof, as determined by the State Electricity Regulatory Commission). If the state government of Arunachal Pradesh increases the amount of power to be provided free of charge, revenue generated by such hydro power project may decline. As a result, our business, financial condition and results of operations could be materially and adversely affected.
We are subject to various Indian taxes and also receive certain tax benefits offered by the Government. Our profitability may be reduced due to any adverse changes in the general tax policies or if tax benefits were reduced or withdrawn.
Taxes and other levies imposed by the Government that may affect the power sector include customs duties, electricity duty, entry tax, income tax and other levies.
In accordance with and subject to the condition specified in Section 80 IA of the Income Tax Act, 1961, we are entitled to deduction of 100% of profits derived from the generation, distribution or transmission of power for any ten consecutive assessment years out of 15 years beginning from the year in which power is generated or transmission or distribution of power is commenced, provided that this generation or transmission or distribution occurs before March 31, 2014. The Wardha Warora power project has received approval to be developed as a sector-specific SEZ, and the KSK Mahanadi power project has received an in-principle mega power project status and subsequent final and provisional Mega certificates thereafter. While estimating costs of the KSK Mahanadi power project, we have assumed that we will be entitled to the income tax, customs duty and excise duty exemption. There can be no assurance that the Government will extend the period of availability for such tax benefits and if such tax benefits become unavailable, our taxes could increase and our results of operations could be adversely affected.
Additionally, the Government has recently proposed a new tax code that would replace the existing tax provisions. If enacted as proposed, there are certain provisions that could have a negative impact on our business and our assets, and could seriously affect the economic value of our business and activities.
Our thermal power generation business carries inherent risks of environmental damage. Our costs of compliance with environmental laws are expected to be significant, and the failure to comply with new environmental laws could adversely affect our results of operations.
Our projects are subject to national and state environmental laws and regulations, which govern the discharge, emission, storage, handling and disposal of a variety of substances that may be used in or result from our operations. Environmental law and regulation of industrial activities in India may become more stringent, and the scope and extent of new environmental regulations, including their effect on our operations, cannot be predicted with any certainty. In case of any change in environmental, or pollution regulations, such as the imposition of carbon taxes and other such levies on thermal power generation, we may be required to incur significant amounts on, among other things, environmental monitoring, pollution control equipment and emissions management. We may also be required to bear additional expenditure for the establishment of additional infrastructure, such as laboratory facilities for monitoring pollution impact and effluent discharge and effluent treatment or recycling plants. Such additional costs may adversely affect our results of operations. In addition, failure to comply with environmental laws may result in the assessment of penalties and fines against us by regulatory authorities. The commencement of environmental actions against us or the imposition of any penalties or fines on us as a result thereof may have an adverse effect on our business, prospects and results of operations.
We expect to generate a considerable amount of ash and greenhouse gases in our thermal power plants, which are significant contributors to environmental pollution and global warming. There are limited options for utilizing ash and therefore the demand for ash is currently low. While we continue to explore methods to utilize or dispose of ash, our ash utilization activities may be insufficient to dispose of the ash we expect to generate. We may be subject to a Government requirement that 100% of the fly ash produced through our generation activities must be gainfully utilized. Compliance with this requirement, as well as any future norms with respect to ash utilization, may add to our capital expenditure and operating expenses.
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Environmental damage may also result from the development of hydro-electric projects. In the past, certain environmental organizations have expressed opposition to hydro-electric power stations based on the allegation that they cause the killing of aquatic life and have adverse effects on waterways. Certain hydro-electric projects use dams to create large reservoirs over what used to be dry land. This can lead to environmental issues connected to the destruction of wildlife habitats, resettlement of persons, increased sediment in rivers and the production of methane from submerged forest. Due to these factors, environmental regulators may impose restrictions on our operations that would limit our ability to generate revenues.
In the event that our power generation operations cause any environmental hazard or result in the contamination of the environment, we could be subject to substantial civil and criminal liability and other regulatory consequences, including being liable for certain costs related to hazardous materials, such as costs for health or environment related claims, or removal or treatment of such substances and/or claims and litigation from our current or former employees or other persons for injuries arising from exposure to materials or other hazards at the power plants. We may also be the subject of public interest litigation in India relating to allegations of environmental pollution by our plants, as well as cases having potential criminal and civil liability filed by state pollution control authorities. If such cases are determined against us, there could be an adverse effect on our business and operations.
The construction and operation of power projects or mines may face opposition from local communities and other parties.
The construction and operation of power projects and mines has, in the past, faced opposition from the local communities where these projects are located and from special interest groups. In particular, the public, the forest authorities and other authorities may oppose mining operations due to the perceived negative impact it may have on the environment. We were in the past, made party to a public interest litigation which we have since settled to operate our Sai Regency power plant. We have not had to undertake any resettlement and rehabilitation programs for our mining activities at the Gurha (East) in relation to the VS Lignite power plant, however, as our mining activity increases and we start to infringe on local habitations, we will have to resettle the local inhabitants. There can be no assurance that there will not be any objection or dispute in relation to such resettlement, including litigation which may entail us having to suspend mining operations until the dispute is resolved. Significant opposition by local communities, NGOs and other parties, at public hearings or otherwise, to the construction of our power projects may adversely affect our results of operations and financial condition.
We may not be able to acquire sufficient land for our projects.
We have not commenced acquiring land for some of our planned power projects. We expect that we will require a substantial amount of land for the same. Due to some of these power plants being adjacent to each other, we intend to use common land for the ancillary support infrastructure. We are unable to provide an estimate of our land requirements for our three hydro-electric power projects that are being planned or are under development as the GoAP is required to facilitate the land acquisition. There can be no assurance that such land acquisitions will be completed in a timely manner, on terms that are commercially acceptable to us, or at all. Our ability to identify and acquire suitable sites is dependent on a number of factors that are beyond our control. These factors include the availability of suitable land, the willingness of landowners to sell land and/or assign development rights on terms attractive to us, the ability to obtain an agreement to sell from all the owners where land has multiple owners, the availability and cost of financing, encumbrances on targeted land, government directives on land use and obtaining permits and approvals for land acquisition and development. There may be local protests or resistance for any land that we need to or intend to acquire or lease, including land that may be acquired by local governments. For instance, writ petitions have been initiated challenging the land acquisition proceedings initiated by the Government of Rajasthan in favor of the VS Lignite SPV (formerly Marudhar Power Private Limited) and the Mahanadi SPV. With respect to the coal supply agreements entered into with state mineral development corporations, although the coal blocks have been allotted in favor of such mineral development corporations, there could be potential risks associated with acquisition of land for mine exploration and actual mining land that could involve protracted government land acquisition processes.
We are in the process of acquiring land required for developing our power projects under construction. Our land requirement in India involves land held by private individuals (acquired pursuant to the Land Acquisition Act, 1894 of India, now repealed pursuant to the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (the “Land Acquisition Act”)), forest land (expected to be diverted for use in the relevant project to the state government by MoEF, Government of India, and leased out by the
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state government for the relevant project) and government land (held by the state government or its various departments and expected to be leased out by the state government to the relevant project after receiving consent from the relevant department of the state government).
We cannot assure you that we will be able to acquire the land best suited for our projects, in which case we may need to settle for alternative land, which may impair our operations. We cannot assure you that such acquisitions will be completed in a timely manner, on terms that are commercially acceptable to us, or at all. Several of the parcels of land on which our power projects are situated were acquired by the Government of India or the relevant state governments under the Land Acquisition Act and were thereafter awarded to us under the provisions of the Land Acquisition Act. Land acquired by the state governments in India may remain subject to disputes after it is transferred to us. Furthermore, there can be no assurance that we will obtain clear title to the land on which our power projects are located and we do not have title insurance for any of our land.
We enjoy only leasehold rights over the underlying land on which certain of our power plants and projects are located. If these lease agreements are not renewed or terminated, our business, financial condition, cash flows and results of operations could be materially and adversely affected.
The whole or part of the underlying land on which our power projects are located, have been leased from third parties. Although we have entered into long-term lease agreements with respect to these lands, there is a risk that the lease agreements may not be renewed or could be terminated early in the event of a default. We are involved in disputes with certain third parties from whom we may have leased project land. For instance, we have entered into lease agreements with LIPL (with which there is a pending dispute) in respect of the land on which the Arasmeta power project is located. In the event that the lessors do not renew the lease agreements at the expiry of their term or if they terminate the lease agreement for any reason, our business, financial condition and results of operations and cash flows could be materially and adversely affected.
Differential dividend rights in the share capital of certain of our SPVs, namely the Arasmeta SPV, the Sitapuram SPV, the Sai Regency SPV, the VS Lignite SPV and the Wardha SPV may be constrained or terminated and the shareholders of such SPVs have additional voting rights due to non-payment of dividend by the SPVs.
Certain of our SPVs, namely the Arasmeta SPV, the Sitapuram SPV, the Sai Regency SPV, the VS Lignite SPV and the Wardha SPV, have in the past issued shares with differential dividend rights to their shareholders. Under the provisions of the Companies Act, 1956, a subsidiary of a public company could issue shares with differential rights only upon fulfilment of certain conditions under the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001. Under the provisions of the Companies Act, 2013, a company (including private companies) can issue equity shares with differential voting rights only upon fulfilment of certain conditions under the Companies (Share Capital and Debentures) Rules, 2014.
These SPVs may not be in compliance with the conditions under the Companies (Issue of Share Capital with Differential Voting Rights) Rules, 2001 and we may need to terminate these arrangements with the SPVs’ shareholders or recapitalize the equity shareholding of such SPVs. In addition, the change of status of our SPVs to public limited companies may contravene our agreements with our consumers, and consequently we may need to amend these agreements or obtain a waiver of those provisions, which our consumers may not agree to give.
Our future power projects may not be able to issue equity shares with differential rights without complying with the conditions under the Companies Act 2013 and the Companies (Share Capital and Debentures) Rules, 2014. Further, our existing and future SPVs will be able unable to convert their existing equity share capital into equity share capital carrying differential voting rights and vice-versa.
The preference shareholders of the Wardha SPV, the VS Lignite SPV, the Sai Regency SPV and the Sitapuram SPV, have not been paid dividends accrued to them for a period of more than two years. Accordingly, such preference shareholders have the right to vote on all the resolutions placed before the shareholders of such SPVs (and not just on matters affecting the rights of preference shareholders). Accordingly, our partners may have a greater role in the business and operations of such SPVs.
Our success largely depends on our senior management and our ability to attract and retain our key personnel.
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Our success depends on the continued services and performance of the members of our management team and other key employees. If one or more members of our senior management team were unable or unwilling to continue in their present positions, those persons could be difficult to replace with competent employees and our business could be adversely affected. Moreover, we do not own any key person insurance. Competition for senior management in the power development sector in India is intense, and we may not be able to retain our existing senior management or attract and retain new senior management in the future. As such, any loss of our senior management personnel or key employees could adversely affect our business, results of operations and financial condition.
Our quarter-on-quarter financial results may not be comparable.
The nature of the power generation sector is subject to many variables such as disruptions to power supply due to scheduled or unscheduled outages. In addition, due to us commissioning our power projects at different periods, our power projects will start generating revenues at different periods of time resulting in our quarter-on- quarter financial results not being comparable.
Our financial results may be subject to seasonal variations.
Our revenues and results may be affected by seasonal factors. For example, inclement weather, including during monsoon season, may delay or disrupt development of our power projects undergoing construction at such times. Further, some of our power consumers have businesses which are seasonal in nature, such as cement manufacturing, and a downturn in demand for power by such consumers could reduce our revenue during such periods. Since a large part of our planned power plants involve thermal power generation, there could be potential risks in the form of shortfalls and resultant variation in future revenues.
In addition, tariffs for hydro-electric power generation vary seasonally, partially because the availability of such power depends on the level of water. We therefore expect that tariffs for hydro-electric power would be reduced during the monsoon season. However, the substantial rainfall during these months generally leads to high power generation because sufficient water is available to allow our power stations to be operated at full capacity.
Our flexibility in managing our operations is limited by the regulatory environment in which we operate. This environment is undergoing reform and we may not be able to respond effectively.
The infrastructure sector in India, particularly the power sector, is highly regulated. The regulatory framework, which consists of regulations and directives issued by government authorities, has changed significantly in recent years and the impact and ramifications of these changes are still unclear. We expect that certain additional reforms, including change of the current regulatory bodies and existing legal framework, will take place in the next few years. There can be no assurance that we will be able to respond in a timely and effective manner to the changes taking place in the sectors in which we operate and any future regulatory changes. In the power sector, the Electricity Act provides for significant deregulation. Whereas the Government presently owns a majority of the generation business and nearly all transmission and distribution businesses and there are only a limited number of distribution licensees and independent power producers, such as us, the Electricity Act permits new generation plants to come into existence without restriction, except for limited approval requirements for hydro-electric power projects.
In addition to complying with regulations and directives, we are also required to maintain all approvals, licenses, registrations and permissions for operating our businesses. Any adverse change in the applicable regulations, any material breach by us, of one or more of the concession agreements, or any failure to obtain an approval, license, registration or permit, could result in our concessions being terminated, which in turn would have a material adverse effect on our business, prospects, financial condition, cash flows and results of operations. Further, we are restricted by both the applicable regulations and our contractual agreements in our ability to, among other things, increase prices, sell our interests to third parties, undertake expansions and contract with other customers. These restrictions limit our flexibility in operating our business, which could have a material adverse effect on our business, prospects, financial condition and results of operations. The nature of our business requires us to apply for, and renew, certain approvals on a regular basis to ensure our compliance with applicable laws and the continued operation of our power plants and development of our power projects.
We require certain approvals, licenses, registrations, permissions and recommendations for operating our business, some of which may have expired and for which we may have either made, or are in the process of
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making, an application for obtaining the approval or its renewal. We cannot assure you that we will apply for, and acquire, the necessary approvals in a timely manner, or at all.
We are also required to obtain certain regulatory clearances and approvals to commence and carry out construction of our power projects. We have recently experienced delays in the issue of environmental and forest clearances. Any inability and delay in obtaining such approvals may cause delay in power project completion. If we fail to obtain, retain or comply with any such approval, license, registration, permission or recommendation, or renewal thereof, in a timely manner, or at all, our business may be adversely affected. Furthermore, our government approvals and licenses are subject to numerous conditions, some of which are onerous and require us to make substantial expenditure. If we fail to comply, or a regulator claims we have not complied with these conditions, our business, prospects, financial condition, cash flows and results of operations would be materially adversely affected.
Changes in technology may affect our business by making our equipment or plants less competitive or obsolete.
Our future success will depend in part on our ability to respond to technological advances and emerging power generation industry standards and practices on a cost-effective and timely basis. The development and implementation of such technology entails technical and business risks. For example, with increasing global concerns on carbon emissions and potential mitigation through clean development mechanisms, carbon credits and certified emissions, we may not stand to gain substantially from usage of new emerging technologies that our competition could choose to use. There can be no assurance that we will be able to successfully implement new technologies or adapt our processing systems to customer requirements or emerging industry standards. If we are unable, for technical, legal, financial or other reasons, to adapt in a timely manner to changing market conditions, customer requirements or technological changes, our business and financial performance could be adversely affected.
Changes in technology and high fuel costs may make newer generation plants or equipment more competitive than ours or may require us to make additional capital expenditures to upgrade our facilities. In addition, there are other technologies that can produce electricity, most notably fuel cells, micro turbines, windmills and photovoltaic (solar) cells. If we are unable, for technical, financial or other reasons, to adapt in a timely manner to changing market conditions, customer requirements or technological changes, our business, financial performance and the trading price of our Equity Shares could be adversely affected.
As per our consolidated financial statements, we have a number of contingent liabilities, and our profitability could be adversely affected if any of these contingent liabilities materialize.
Our contingent liabilities as of March 31, 2014 amounted to `9,800.22 million as per our consolidated financial statements and consisted of the following:
(` in million) As at March 31, 2014 Particulars (Consolidated)
Claims not acknowledged as debt 593.30 Outstanding bank and corporate guarantees 9,206.92 Total 9,800.22
If any of these contingent liabilities materialize, our profitability may be adversely affected. For more detailed descriptions of our contingent liabilities, see the section “Financial Information” on F-1.
We have entered into certain related party transactions and continue to rely on our Promoters and Promoter Group companies for certain key development and support activities and guarantees.
Our power projects have relied upon and will continue to depend upon the services of our Promoters and our Promoter Group with respect to the development and support, including the identification, negotiation and conclusion of the various facilities, agreements, access and support infrastructure for our power projects. The SPVs operating the power projects have entered into long term binding contracts for payment of project
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development and support fees to our Promoter company, KSK Energy, as consideration for these services by our Promoters. We will not derive any economic benefit from these payments. Such payments by the SPVs would be a part of their operational expenditure and payable irrespective of the profitability of the SPVs and could affect the SPVs’ ability to make any dividend payments to us. Additionally, the Promoter Group companies are involved in setting up various support infrastructure facilities required by the Mahanadi SPV, which would necessitate periodic payments for utilization of such infrastructure facilities. In addition, our Promoters have in the past provided personal guarantees to certain lenders for debt incurred by us. Our Promoters may not provide similar guarantees for us in the future, which could adversely affect our ability to procure debt financing.
Certain properties, including the land on which we are constructing our power projects and our registered office are not owned by us and we enjoy only a leasehold right over these properties.
Some of our power projects have been constructed on land that has been leased to us. Upon the termination of the lease, we are required to return the land to the owners. We may not be able to recover the amount paid as security to the land owners or the costs incurred for the construction and development of the power project during the lease period. Further, these lease agreements typically have a clause where the lease may, but is not required to, be extended with the consent of the parties. In the event that the owners do not wish to renew the lease agreements, our business, financial condition and results of operations could be materially and adversely affected.
In addition, the premises on which our registered office is situated has been leased to us until January 31, 2017. If our landlord does not renew the lease or decides to terminate the lease, we may suffer a disruption in our operations.
Our business is subject to extensive government regulation and requires periodic approvals and renewals and changes in these regulations or in their implementation could disrupt our operations and adversely affect our results of operation.
Our business is subject to extensive government regulation by, among others, the Ministry of Power and the Ministry of Environment and Forests and the State Pollution Control Board, as well as pursuant to a number of laws and regulations such as the Electricity Act. In addition, we require certain approvals, licenses, registrations and permissions for operating our business, some of which may have expired and for which we may have made an application for obtaining the approval or its renewal. If we fail to obtain or retain any of these approvals or licenses, or renewals thereof, in a timely manner, or at all, our business may be adversely affected. Furthermore, our government approvals and licenses are subject to numerous conditions, some of which may be onerous and require us to make substantial expenditure. For example, we may be required by our approvals, to undertake additional activities such as utilization of fly ash or development of a green belt and we may need to incur additional effort and expenses to undertake such activities. If we fail to comply, or a regulator claims that we have not complied, with these conditions, our business, financial condition and results of operations could be adversely affected.
There can be no assurance that we will be able to apply for any licenses in a timely manner, or at all, or obtain such permits or approvals at such times as may be required, and there can be no assurance that the relevant authorities will issue or transfer any such permits or approvals in the time frames anticipated by us. Further, we cannot assure that the licenses issued to us would not be subject to suspension or revocation for non-compliance or alleged non-compliance with any terms or conditions thereof, or pursuant to any regulatory action. Any failure to apply for and obtain or renew the required permits or approvals, or any suspension or revocation of any of the licenses and approvals that have been or may be issued to us, may result in the interruption of the operation of our existing plants or impede execution of our proposed projects.
There can be no assurance that we will be able to obtain and comply with all necessary licenses, permits and approvals required for our plants, or that changes in the governing regulations or the methods of implementation will not occur.
We may not have sufficient insurance coverage to cover all possible losses.
While we maintain insurance coverage in respect of our power projects against possible material damage and consequential business interruption in accordance with the market practice in India, we cannot assure adequate coverage against all possible losses and risks to which the projects are exposed. Insurance policies may not provide any or adequate coverage against such risks and are subject to certain conditions, exclusions,
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deductibles and limits on coverage. Also, certain events are not insurable on commercially reasonable terms or at all. There can be no assurance that the operation or the construction of our power projects will not be affected by any of the incidents and hazards listed above, or that the terms of our insurance policies will cover or be adequate to cover any damage caused by any such incidents and hazards.
We cannot guarantee the accuracy of statistical and other information with respect to India, the Indian economy or the Indian power industry contained in this Placement Document.
Statistical and other information in this Placement Document relating to India, the Indian economy or the Indian power industry have been derived from various government publications and other publicly available sources that we believe to be reliable. However, we cannot guarantee the quality or reliability of such source of materials. The data has not been prepared or independently verified by us, the Lead Managers or any of our or their respective affiliates or advisors and, therefore, we make no representation as to the accuracy of such facts and statistics, which may not be consistent with other information compiled within or outside India. These facts and other statistics include the facts and statistics included in the section “Industry Overview” on page 88. Due to possibly flawed or ineffective collection methods or discrepancies between published information and market practice and other problems, the statistics herein may be inaccurate or may not be comparable to statistics produced for other economies and should not be unduly relied upon. Further, there is no assurance that they are stated or compiled on the same basis or with the same degree of accuracy as may be the case elsewhere. In all cases, investors should give consideration as to how much weight or importance they should attach to, or place on, such facts or statistics.
External Risk Factors
We face significant competition as a result of deregulation of the Indian power sector.
We operate in an increasingly competitive environment. This is particularly the case because of the deregulation of the Indian power sector and increased private sector investment. The Electricity Act, certain licensing requirements for power generation, provided for open access to transmission and distribution networks and also facilitated additional capacity generation through captive power plants. These reforms provide opportunities for increased private sector participation in power generation. Specifically, the open access reform enables private power generators to sell power directly to distribution companies and, ultimately to end consumers, enhancing the financial viability of private investment in power generation. As a result, we face significant competition with other Indian companies seeking to expand their power generation business as well as international power companies while negotiating or bidding for power projects. We also compete with central and state power utilities. Competitive bidding for power procurement further increases the competition among power generators. Our competitors may have greater resources than we do and may be able to achieve better economies of scale, allowing them to bid at more competitive rates. We may face the pressure of decreased margins due to such competition. Furthermore, there could be additional changes in terms of tariff policies, the unbundling of the State Electricity Boards, restructuring of companies in the power sector, open access and parallel distribution, and licensing requirements for, and tax incentives applicable to, companies in the power sector. There can be no assurance that we will be able to compete effectively, and our failure to do so could result in an adverse effect on our business, prospects, financial condition and results of operations.
The Electricity Act, 2003 and the Hydro Power Policy, 2008 have introduced measures that may result in increased competition for us.
The statutory and regulatory framework for the Indian power sector generally, and the hydro-electric power sector specifically, has changed significantly in recent years and there may be more changes in the next few years. Proposed changes in power tariff policy based on the CERC’s Approach Paper by public notice dated June 25, 2013, the unbundling of the state electricity boards of India and consequent restructuring of companies in the power sector, open access and parallel distribution, and liberalized licensing requirements for, and tax incentives applicable to, companies in the hydro-electric power sector may provide opportunities for increased private sector involvement in power generation. For instance, the Electricity Act, removes licensing requirements for thermal power generators, provides for open access to transmission and distribution networks, and removes restrictions on the right to build captive generation power plants. Specifically, the open access reforms enable the generators to sell their output directly to the distribution companies, and ultimately, to the consumers and may increase the financial viability of private investment in power generation. A key objective of the Hydro Power Policy 2008 is to encourage and increase private investment in the development of
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hydropower by providing financial benefits such as an income tax holiday for ten years and duty-free import of capital goods to developers of mega hydropower projects.
The Hydro Power Policy, 2008 also seeks to encourage joint ventures with private developers, the use of an independent power producer model and promotes power trading by speeding up the clearance procedures. Large Indian businesses that already have a presence in the Indian power sector, specifically in captive power generation, may seek to expand their operations in the hydro-electric power sector. The power sector in India may also attract increased investment from international companies with greater resources and assets than us which may be able to achieve better economies of scale, allowing them to bid profitably at more competitive rates. In addition, there may be increased competition from Central and State power utilities. This competition may result in a material adverse effect on our business, prospects and financial condition.
Political, economic and social changes in India could adversely affect our business.
The Government has traditionally exercised and continues to exercise significant influence over many aspects of the economy. Our business, and the market price and liquidity of our shares, may be affected by changes in the Government’s policies, including taxation. Social, political, economic or other developments in or affecting India, acts of war and acts of terrorism could also adversely affect our business.
In the year ended March 31, 2014, we generated all of our income in India. Our business, and the market price and liquidity of the Equity Shares, are therefore directly affected by the Indian market, which in turn may be affected by foreign exchange rates and controls, interest rates, changes in Government policy, taxation, social and civil unrest and other political, economic or other developments in or affecting India.
India has also witnessed civil disturbances in recent years. While these civil disturbances have not directly affected the operations of our project companies, it is possible that future civil unrest, as well as other adverse social, economic and political events in India, could also adversely affect us. India has also experienced social unrest, naxalite violence and communal disturbances in some parts of the country. If such tensions occur in places where we operate or in other parts of the country, leading to overall political and economic instability, it could adversely affect our business, results of operations, financial condition and the trading price of our Equity Shares. Further, the split of the state of Andhra Pradesh into the states of Andhra Pradesh and Telengana may create uncertainties for our business and results of operation.
Our growth is dependent on the Indian economy.
Our performance and the growth of our business are dependent on the performance of the Indian economy. India’s economy could be adversely affected by a general rise in interest rates, currency exchange rates, adverse conditions affecting agriculture, commodity and electricity prices or various other factors. A slowdown in the Indian economy could adversely affect our business, including our ability to implement our strategy and increase our participation in the power sector. The Indian economy is currently in a state of transition and it is difficult to predict the impact of certain fundamental economic changes upon our business. Conditions outside India, such as slowdowns in the economic growth of other countries or increases in the price of oil, has an impact on the growth of the Indian economy, and government policy may change in response to such conditions. While recent governments have been keen on encouraging private participation in the infrastructure sector, any adverse change in policy could result in a slowdown of the Indian economy. Additionally, these policies will need continued support from stable regulatory regimes that stimulate and encourage the investment of private capital into infrastructure development. Further, since infrastructure services in India have historically been provided by central or state governments without charge or at a nominal charge, the growth of the private infrastructure industry will be impacted by consumer income levels and the extent to which they would be willing to pay, or can be induced to pay for, infrastructure services. Any downturn in the macroeconomic environment in India or in the infrastructure sector could adversely affect the price of our shares, our business and results of operations.
If the rate of Indian price inflation increases, our results of operations and financial condition may be adversely affected.
The majority of our direct costs are incurred in India. In the event of a high rate of inflation, our costs, such as salaries, travel costs and related allowances, which are typically linked to general price level, may increase. However, we may not be able to increase the tariffs that we charge sufficiently to preserve operating margins. Accordingly, high rates of inflation in India could increase our employee costs and decrease our operating
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margins, which could have an adverse effect on our results of operations. Some of our PPAs provide for reimbursement of increases in operation and maintenance costs, based on certain pre-defined parameters. Any increase in our O&M costs over and above the reimbursable amount may adversely affect our profitability.
Any downgrading of India’s debt rating by a domestic or international rating agency could adversely affect our business.
India's sovereign currency long-term debt is currently rated (i) "BBB-" (negative) by Standard & Poor's, (ii) "BBB-" (stable) by Fitch and (iii) "Baa3" (stable) by Moody's. These ratings reflect an assessment of the Government's overall financial capacity to pay its obligations and its ability or willingness to meet its financial commitments as they become due.
No assurance can be given that Standard & Poor's, Fitch, Moody's or any other statistical rating organization will not downgrade the credit ratings of India. Further, there could be a downgrading of our overseas Subsidiaries or of the host country, where our overseas Subsidiary is located. Any such downgrade would result in India's sovereign debt rating or that of the other countries where we operate being rated speculative grade, which could 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 have an adverse effect on our project expenditure plans, business and financial performance and future cash flows.
Any adverse revisions to India’s credit ratings for domestic and international debt by domestic or international rating agencies 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 harm our business and financial performance, ability to obtain financing for capital expenditures and the price of our Equity Shares.
There may have been delays in, or we may have failed to comply with, certain filing requirements under the listing agreements.
In respect of listed companies, the listing agreements with the stock exchanges set out various compliance requirements, including with respect to corporate governance reporting. In the past, we may have failed to file the relevant compliance reports with the Stock Exchanges within the time prescribed under the listing agreements, or at all. For any such non-compliance the stock exchanges could take action against us for breach of the listing agreements, including levying penalties or, in extreme circumstances, ordering us to be delisted.
The Companies Act, 2013 has effected significant changes to the existing Indian company law framework and the SEBI has introduced changes to the listing agreement, which are effective from October 1, 2014, which may subject us to greater compliance requirements and increase our compliance costs.
A majority of the provisions and rules under the Companies Act, 2013 have recently been notified and have come into effect from the date of their respective notification, resulting in the corresponding provisions of the Companies Act, 1956 ceasing to have effect. The Companies Act, 2013 has brought into effect significant changes to the Indian company law framework, such as in the provisions related to issue of capital (including provisions in relation to issue of securities on a private placement basis), disclosures in offer document, corporate governance norms, accounting policies and audit matters, related party transactions, introduction of a provision allowing the initiation of class action suits in India against companies by shareholders or depositors, a restriction on investment by an Indian company through more than two layers of subsidiary investment companies (subject to certain permitted exceptions), prohibitions on loans to directors, insider trading and restrictions on directors and key managerial personnel from engaging in forward dealing. We may also need to spend, in each financial year, at least 2.0% of our average net profits during the three immediately preceding financial years towards corporate social responsibility activities. As a result of the changes brought about by the Companies Act, 2013 to the provisions relating to accounting policies, going forward, we may also be required to apply a different rate of depreciation. Further, the Companies Act, 2013 imposes greater monetary and other liability on our Company and Directors for any non-compliance. To ensure compliance with the requirements of the Companies Act, 2013, we may need to allocate additional resources, which may increase our regulatory compliance costs and divert management attention.
The Companies Act, 2013 has introduced certain additional requirements which do not have corresponding provisions under the Companies Act, 1956. Accordingly, we may face challenges in interpreting and complying with such requirements due to limited jurisprudence in respect of the relevant provisions. In the event our interpretation of such provisions of the Companies Act, 2013 differs from, or contradicts with, any judicial
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pronouncements or clarifications issued by the Government in the future, we may face regulatory actions or we may be required to undertake remedial steps. Additionally, some of the provisions of the Companies Act, 2013 overlap with other existing laws and regulations (such as the corporate governance norms and insider trading regulations issued by the SEBI). Recently, the SEBI issued revised corporate governance guidelines which are effective from October 1, 2014. Pursuant to the revised guidelines, we will be required to, inter alia, appoint at least one woman director on our Board, establish a vigilance mechanism for directors and employees and reconstitute certain committees in accordance with the revised guidelines. We may face difficulties in complying with any such overlapping requirements. Further, we cannot currently determine the impact of provisions of the Companies Act, 2013 or the revised the SEBI corporate governance norms, which are yet to come in force. Any increase in our compliance requirements or in our compliance costs may have an adverse effect on our business and results of operations.
Risks Related To Our Equity Shares
After the Issue, our Equity Shares may experience price and volume fluctuations.
The price of the Equity Shares may fluctuate from time to time for various reasons, and the value of the Equity Shares can go down as well as up. The price at which the Equity Shares will trade after the Issue will be determined by market forces and may be influenced by many factors, including:
our financial results and the financial results of the companies in the businesses we operate in;
the history of, and the prospects for, our business and the sectors and industries in which we compete;
an assessment of our management, our past and present operations, and the prospects for, and timing of, our future revenues and cost structures;
the present state of our development; and
the valuation of publicly traded companies that are engaged in business activities similar to ours.
In addition, the Indian stock market has from time to time experienced significant price and volume fluctuations that have affected the market prices for the securities of Indian companies. As a result, investors in the Equity Shares may experience a decrease in the value of the Equity Shares regardless of our operating performance or prospects.
Any future issuance of Equity Shares or securities convertible into Equity Shares by us may dilute your shareholding and adversely affect the trading price of the Equity Shares.
Any future issuance of Equity Shares or other securities convertible into Equity Shares by us may dilute your shareholding in our Company, adversely affect the trading price of our Equity Shares and our ability to raise capital through an issue of our securities. In addition, any perception by investors that such issuances or sales might occur could also affect the trading price of our Equity Shares. Additionally the disposal, pledge or encumbrance of Equity Shares by any of our major shareholders, or the perception that such transactions may occur may affect the trading price of the Equity Shares. No assurance may be given that we will not issue Equity Shares or that such shareholders will not dispose of, pledge or encumber their Equity Shares in the future.
Our shareholders have passed a resolution authorizing issuance and allotment of 15,00,00,000 Warrants (“Warrants”) on a preferential allotment basis to KSK Energy Limited, a promoter company incorporated in Mauritius either directly or through any of its affiliates or subsidiaries in India or outside India, which shall be exercisable into Equity Shares of the Company at the option of the Warrant holder at an issue/exercise price of `70 per Equity Share (which price may be lower than the Issue Price) no later than 18 months from the date of their allotment in accordance with the SEBI Regulations or other provisions of the law as may be prevailing at the time of allotment of equity shares/ exercise of warrants. The Company proposes the allotment of the Warrants after the completion of the Issue, subject to receipt of applicable approvals, including the FIPB and the Stock Exchanges. There can be no assurance that the proposed issue of Warrants will be completed. The preferential allotment will dilute the current shareholders and also could lead to a change in shareholding pattern of the Company. There is also possibility that Promoter may not be able to bring additional funds to exercise their Warrant option which means that their shareholding may reduce in the Company.
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Currency exchange rate fluctuations may affect the value of our Equity Shares.
The exchange rate between the Indian Rupee and the U.S. Dollar has changed substantially in recent years and may fluctuate substantially in the future. Fluctuations in the exchange rate between the U.S. Dollar and the Indian Rupee may affect the value of your investment in the Equity Shares. Specifically, if there is a change in relative value of the Indian Rupee to the U.S. Dollar, each of the following values will also be affected: the U.S. Dollar equivalent of the Indian Rupee trading price of our equity shares in India; the U.S. Dollar equivalent of the proceeds that you would receive upon the sale in India of any of our Equity Shares; and the U.S. Dollar equivalent of cash dividends, if any, on our equity shares, which will be paid only in Indian Rupees.
You may be unable to convert Indian Rupee proceeds into U.S. Dollars or any other currency or the rate at which any such conversion could occur could fluctuate. In addition, our market valuation could be seriously harmed by the devaluation of the Indian Rupee, if U.S. investors analyze our value based on the U.S. Dollar equivalent of our financial condition and results of operations.
Economic developments and volatility in securities markets in other countries may cause the price of our Equity Shares to decline.
The Indian economy and its securities markets are influenced by economic developments and volatility in securities markets in other countries. Investors’ reactions to developments in one country may have adverse effects on the market price of securities of the companies located in other countries, including India. For instance, the economic downturn globally has adversely affected market prices in the world’s securities markets, including the Indian securities markets. Negative economic developments, such as rising fiscal or trade deficits, or a default on sovereign debt, in other emerging markets may affect investor confidence and cause increased volatility in Indian securities markets and indirectly affect the Indian economy in general.
There are restrictions on daily movements in the price of the Equity Shares, which may adversely affect a shareholder’s ability to sell, or the price at which it can sell, Equity Shares at a particular point in time.
We may be subject to a daily “circuit breaker” imposed by all stock exchanges in India, which does not allow transactions beyond specified increases or decreases in the price of the Equity Shares. This circuit breaker operates independently of the index-based market-wide circuit breakers generally imposed by the SEBI on Indian stock exchanges. The maximum movement allowed in the price of our shares before the circuit breaker is triggered is determined by the stock exchanges based on the historical volatility in the price and trading volume of the Equity Shares.
The stock exchanges do not inform us of the triggering point of the circuit breaker in effect from time to time, and may change it without our knowledge. This circuit breaker limits the upward and downward movements in the price of the Equity Shares. As a result of this circuit breaker, no assurance may be given regarding your ability to sell your Equity Shares or the price at which you may be able to sell your Equity Shares at any particular time.
The Equity Shares are subject to transfer restrictions under U.S. securities laws.
The Equity Shares are being offered in transactions not required to be registered under the Securities Act. Therefore, the Equity Shares may be transferred or resold only in a transaction registered under or exempt from the registration requirements of the Securities Act and in compliance with any other applicable securities laws.
There is no guarantee that our Equity Shares will be listed on the Indian stock exchanges in a timely manner, or at all, and prospective investors will not be able to immediately sell their Equity Shares on a Stock Exchange.
In accordance with Indian law and practice, final approval for listing and trading of our Equity Shares will not be applied for or granted until after our Equity Shares have been issued and allotted. Such approval will require the submission of all other relevant documents authorizing the issuance of our Equity Shares. Accordingly, there could be a failure or delay in listing our Equity Shares on the NSE and BSE, which would adversely affect your ability to sell our Equity Shares.
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Investors may be subject to Indian taxes arising out of capital gains on the sale of the Equity Shares.
Capital gains arising from the sale of the Equity Shares are generally taxable in India. Any gain realized on the sale of the Equity Shares on a stock exchange held for more than 12 months will not be subject to capital gains tax in India if securities transaction tax, or STT, has been paid on the transaction. STT will be levied on and collected by an Indian stock exchange on which the Equity Shares are sold. Any gain realised on the sale of the Equity Shares held for more than 12 months by an Indian resident, which are sold other than on a recognised stock exchange and as a result of which no STT has been paid, will be subject to capital gains tax in India. Further, any gain realised on the sale of the Equity Shares held for a period of 12 months or less will be subject to capital gains tax in India. Capital gains arising from the sale of the Equity Shares will be exempt from taxation in India in cases where an exemption is provided under a treaty between India and the country of which the seller is a resident. Generally, Indian tax treaties do not limit India’s ability to impose tax on capital gains. As a result, residents of other countries may be liable for tax in India as well as in their own jurisdictions on gains arising from a sale of the Equity Shares.
Foreign investors are subject to foreign investment restrictions under Indian law that limits our ability to attract foreign investors, which may adversely impact the market price of the Equity Shares.
Under foreign exchange regulations currently in force in India, transfers of shares between non-residents and residents are freely permitted (subject to certain exceptions) if they comply with the pricing and reporting requirements specified by the RBI. If the transfer of shares is not in compliance with such pricing or reporting requirements and does not fall under any of the exceptions referred to above, then the prior approval of the RBI will be required. Additionally, shareholders who seek to convert Rupee proceeds from a sale of shares in India into foreign currency and repatriate that foreign currency from India, will require a no objection or a tax clearance certificate from the income tax authority. We cannot assure you that any required approval from the RBI or any other Government agency can be obtained on any particular terms or at all.
Under Indian law, the total holdings of all foreign institutional investors ("FIIs") and their sub-accounts cannot exceed 24% of the paid-up equity capital of an Indian company unless such company, pursuant to the approval of its board of directors and a special resolution of its shareholders, authorises an increase of this amount up to the sectoral cap. A prior intimation to the RBI of such increase is also required. The RBI monitors the ceilings on FIIs’ investments in Indian companies on a daily basis and has prescribed cut-off points that are two percentage points lower than the FII cap. When the aggregate net purchases of equity shares of the company by FIIs reaches the cut-off point, the RBI issues a caution notice prohibiting FIIs to purchase shares of the company without prior approval of the RBI. The ability of FIIs to purchase the Equity Shares may be restricted in the event that the aggregate shareholding of FIIs in the Company increases reaches the cut-off point. This may adversely affect the market price of the Equity Shares and your ability to sell or purchase the Equity Shares.
An investor will not be able to sell any of our Equity Shares purchased in the Issue other than on a recognized Indian stock exchange for a period of 12 months from the date of issue of such Equity Shares.
Pursuant to the SEBI Regulations, for a period of 12 months from the date of the issue of our Equity Shares in the Issue, investors purchasing our Equity Shares in the Issue may only sell their Equity Shares on the NSE or the BSE and may not enter into any off-market trading in respect of their Equity Shares. We cannot be certain that these restrictions will not have an impact on the price of our Equity Shares.
Certain shareholders have a significant shareholding in the Company. Any future sales of Equity Shares by our Promoters or major shareholders may adversely affect the trading price of our Equity Shares.
Except for the customary lock-up on the Company’s ability to issue equity or equity linked securities and the lock-up of securities of the Promoters discussed in the section “Placement” on page 155, there is no restriction on our ability to issue Equity Shares (including pursuant to the preferential allotment of Warrants) or our principal shareholders’ ability to dispose of their Equity Shares, and there can be no assurance that we will not issue Equity Shares or that any such shareholder will not dispose of, encumber, or pledge, its Equity Shares. Future issuances of Equity Shares may dilute your shareholding and may adversely affect the trading price of our Equity Shares. Such securities may also be issued at prices below the then current market price of our Equity Shares. Sales of Equity Shares by our major shareholders may also adversely affect the trading price of our Equity Shares. The prospect of any such issuances or sales may have the same impact.
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Risks Relating to our Business in General
The extent and reliability of Indian infrastructure could adversely affect our results of operations and financial condition.
India’s physical infrastructure is less developed than that of many developed nations. Any congestion or disruption with its port, rail and road 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 and financial condition.
If more stringent labor laws or other industry standards in the jurisdictions in which we operate become applicable to us, our profitability may be adversely affected.
We are subject to a number of stringent labor laws and restrictive contractual covenants related to levels of employment. India has stringent labor legislation that protects the interests of workers, including legislation that sets forth detailed procedures for dispute resolution and employee removal and legislation that imposes financial obligations on employers upon retrenchment. In addition, the GoI is considering introducing a reservation policy to the private sector in India, pursuant to which all private sector companies operating in India would be required to reserve a certain percentage of jobs for the economically underprivileged population in the states where such companies are incorporated. If this policy is adopted, our ability to hire employees of our choice may be affected due to restrictions on our pool of potential employees and competition for these employees. We are also subject to certain industry standards regarding our employees, particularly with regard to overtime and transportation of employees. Our employees may also in the future form unions. If labor laws or industry standards become more stringent or are more strictly enforced or if our employees unionize, it may become difficult for us to maintain flexible human resource policies, discharge employees or downsize, any of which could have an adverse effect on our business, results of operations, financial condition and cash flows.
Natural disasters could have an adverse effect on the Indian economy our business and the trading price of our Equity Shares.
India has experienced natural disasters such as earthquakes, a tsunami, el nino, floods and droughts in the past few years. In the event of a natural disaster of a significant scale, we could suffer significant losses. The extent and severity of these natural disasters determines their impact on the Indian economy and infrastructure. Prolonged spells of below normal rainfall or other natural calamities could adversely affect the Indian economy, our business and the trading price of our Equity Shares.
Our ability to raise foreign capital may be constrained by Indian law.
As an Indian company, we are subject to exchange controls that regulate borrowing in foreign currencies. Such regulatory restrictions limit our financing sources for our power projects under development or acquisitions and other strategic transactions, and hence could constrain our ability to obtain financing on competitive terms and refinance existing indebtedness. In addition, we cannot assure you that the required approvals will be granted to us without onerous conditions, or at all. Limitations on foreign debt may have a material adverse impact on our business growth, financial condition and results of operations.
A third party could be prevented from acquiring control of us because of the anti-takeover provisions under Indian law.
There are provisions in Indian law that may discourage a third party from attempting to take control over us, even if a change in control would result in the purchase of your Equity Shares at a premium to the market price or would otherwise be beneficial to you. Under the takeover regulations an acquirer has been defined as any person who, directly or indirectly, acquires or agrees to acquire shares or voting rights or control over a company, whether individually or acting in concert with others. These provisions may discourage or prevent certain types of transactions involving an actual or threatened change in control of us.
An outbreak of an infectious disease or any other serious public health concerns in Asia or elsewhere could have an adverse effect on our business and results of operations.
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The outbreak of an infectious disease in Asia or elsewhere or any other serious public health concerns could have a negative impact on the economies, financial markets and business activities, which could have an adverse effect on our business. The outbreak in 2003 of Severe Acute Respiratory Syndrome in Asia and the outbreak of avian influenza, or bird flu, across Asia and Europe, have adversely affected a number of countries and companies including us. We can give no assurance that a future outbreak of an infectious disease among humans or animals or any other serious public health concerns will not have an adverse effect on our business.
Significant differences exist between Indian GAAP 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 Indian GAAP contained in this Placement Document.
Our audited financial statements contained in this Placement Document have been prepared and presented in accordance with Indian GAAP and no attempt has been made to reconcile any of the information given in this Placement Document to any other principles or to base it on any other standards. Indian GAAP differs from accounting principles and auditing standards with which prospective investors may be familiar in other countries, such as U.S. GAAP and IFRS. Significant differences exist between Indian GAAP and U.S. GAAP and IFRS, which may be material to the financial information prepared and presented in accordance with Indian GAAP contained in this Placement Document. Accordingly, the degree to which the financial information included in this Placement Document will provide meaningful information is dependent on your familiarity with Indian GAAP and the Companies Act. Any reliance by persons not familiar with Indian GAAP on the financial disclosures presented in this Placement Document should accordingly be limited.
We may be affected by competition law in India and any adverse application or interpretation of the Competition Act could adversely affect our business.
The Competition Act, 2002, as amended (the “Competition Act”), regulates practices having an appreciable adverse effect on competition in the relevant market in India. Under the Competition Act, any formal or informal arrangement, understanding or action in concert, which causes or is likely to cause an appreciable adverse effect on competition is considered void and results in the imposition of substantial monetary penalties. Further, any agreement among competitors which directly or indirectly involves the determination of purchase or sale prices, limits or controls production, supply, markets, technical development, investment or provision of services, shares the market or source of production or provision of services by way of allocation of geographical area, type of goods or services or number of customers in the relevant market or directly or indirectly results in bid-rigging or collusive bidding is presumed to have an appreciable adverse effect on competition. The Competition Act also prohibits abuse of a dominant position by any enterprise.
On March 4, 2011, the Government issued 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 Competition Commission of India (the “CCI”). Additionally, on May 11, 2011, the CCI issued Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011, as amended, which sets out the mechanism for implementation of the merger control regime in India.
The Competition Act aims to, among others, prohibit all agreements and transactions which may have an appreciable adverse effect on competition 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 India if such agreement, conduct or combination has an appreciable adverse effect on competition in India.
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MARKET PRICE INFORMATION
As at the date of this Placement Document, 372,630,454 Equity Shares are issued and outstanding. The Equity Shares have been listed and traded on the BSE and the NSE since July 14, 2008.
(i) The following tables set forth the reported high, low and average market prices and the trading volumes of the Equity Shares on the Stock Exchanges on the dates on which such high and low prices were recorded for calendar years 2011, 2012 and 2013:
BSE Calendar High Date of Volume on date of Total turnover Low Date of low Volume on date of Total tunrover Average price Year (`) high High on date of high (`) Low on date of low (` for the year (Number of Equity (` million) (Number of Equity million) (`) Shares traded on Shares traded on the date of high) the date of low) 2011 136.9 3-Jan-11 25,173 3.35 33.4 20-Dec- 13,580 0.46 99.18 5 0 11 2012 80.50 21-Feb- 83,612 6.53 35.0 4-Jan-12 6,868 0.25 60.12 12 0 2013 70.20 10-Jan- 376,694 25.52 41.4 28-Mar- 3,815 0.16 54.66 13 0 13
NSE Calendar High Date of Volume on date of Total turnover on Low Date of Volume on date of Total turnover on Average price Year (`) high High date of high (` (`) low Low date of low (` for the year (Number of Equity million) (Number of Equity million) (`) Shares traded on the Shares traded on the date of high) date of low) 2011 136.7 4-Jan-11 77,487 10.17 33.35 20-Dec-11 44,722 1.52 99.22 2012 81.00 21-Feb-12 202,933 15.91 35.05 4-Jan-12 19,973 0.72 60.12 2013 70.20 10-Jan-13 763,404 51.69 41.00 28-Mar- 5,649 0.24 54.66 13 (Source: www.bseindia.com and www.nseindia.com)
Notes:
1) High based on maximum intra day high, low based on minimum intra day low and average prices are of the daily closing prices. 2) In case of two days with the same high or low price, the date with the higher volume has been considered.
(ii) The following tables set forth the reported high, low and average market prices and the trading volumes of the Equity Shares on the Stock Exchanges on the dates on which such high and low prices were recorded during each of the last six months:
BSE Month year High (`) Date of high (Volume on Total Low (`) Date of low (Volume on Total turnover Average date of High) turnoveron date of Low) on date of low price for the Number of date of high Number of (` million) month (`) Equity (` million) Equity Shares Shares traded on traded on date of high date of low Dec-13 69.80 31-Dec-13 18,653 1.26 61.00 2-Dec-13 24,233 0.02 63.68 Jan-14 80.05 9-Jan-14 177,155 13.21 58.30 31-Jan-14 19,388 1.15 65.53 Feb-14 62.00 7-Feb-14 53,773 3.27 53.65 26-Feb-14 8,787 0.48 56.37 Mar-14 69.75 31-Mar-14 672,189 43.00 53.80 4-Mar-14 4,607 0.25 59.49 Apr-14 74.00 1-Apr-14 99,697 7.08 66.40 16-Apr-14 8,064 0.55 68.98 May-14 119.70 26-May-14 53,549 5.62 69.00 2-May-14 51,531 3.71 89.39
NSE Month year High (`) Date of high (Volume on Total Low (`) Date of low (Volume on Total turnover Average date of High) turnover on date of Low) on date of low price for the Number of date of high Number of (` million) month (`) Equity (` million) Equity Shares Shares traded on the traded on the date of high date of low Dec-13 69.95 31-Dec-13 42,690 2.89 60.10 2-Dec-13 60,407 3.79 63.68 Jan-14 80.00 9-Jan-14 443,079 33.07 58.10 30-Jan-14 1,588,546 95.29 65.60 Feb-14 61.90 7-Feb-14 92,389 5.62 53.25 26-Feb-14 21,298 1.16 56.36 Mar-14 69.75 31-Mar-14 970,705 62.71 53.60 3-Mar-14 21,434 1.17 59.53 Apr-14 73.75 1-Apr-14 291,085 20.72 65.60 16-Apr-14 15,971 1.08 69.03 May-14 118.00 21-May-14 188,493 20.33 67.75 2-May-14 141,040 10.12 89.56 (Source: www.bseindia.com and www.nseindia.com)
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Notes:
1) High based on maximum intra day high, low based on minimum intra day low and average prices are of the daily closing prices. 2) In case two days with the same high or low price, the date with the higher volume has been considered.
(iii) The following table set forth the details of the number of Equity Shares traded and the volume of business transacted during the last six months and the calendar years 2011, 2012 and 2013 on the Stock Exchanges:
Period Number of Equity Shares Traded Volume of Business Transacted (In ` million) BSE NSE BSE NSE Calendar year 2011 26,514,270 42,773,100 2,719.27 4,241.43 Calendar year 2012 16,730,165 17,555,963 1,011.80 1,044.11 Calendar year 2013 17,644,042 10,325,930 998.73 580.15 Dec-13 1,195,077 447,965 77.28 29.16 Jan-14 6,225,820 10,901,678 406.84 719.03 Feb-14 253,928 512,214 14.68 29.53 Mar-14 955,002 3,421,637 60.11 209.65 Apr-14 1,984,785 1,145,982 138.14 80.27 May-14 1,006,795 3,666,238 94.88 347.36 (Source: www.bseindia.com and www.nseindia.com)
(iv) The following table sets forth the market price on the Stock Exchanges on May 2, 2014, the first working day following the approval of the Board of Directors for the Issue:
BSE NSE Open High Low Close Number of Turnover Open High Low Close Number of Turnover Equity Shares (` million) Equity Shares (` million) traded traded 70.00 73.80 69.00 70.65 51,531 3.71 69.45 73.90 67.75 70.80 1,41,040 10.21 (Source: www.bseindia.com and www.nseindia.com)
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USE OF PROCEEDS
The gross proceeds from the Issue is approximately `4,000 million. The net proceeds of the Issue, after deduction of management fees, placement fees, selling commission, offer fees, discounts and commissions, if any, but before deduction of other expenses associated with the Issue, are estimated to be approximately `3,897.86 million (the “Net Proceeds”). For further details, see the section “Placement” on page 155.
Subject to compliance with applicable laws and regulations, our Company intends to use the Net Proceeds (i) to fund the Company and its Subsidiaries’ and the Joint Venture (including any Subsidiary or Joint Venture incorporated or acquired in the future), (ii) to meet any additional capital expenditures, operational expenditure and working capital with respect to various projects, and (iii) for general corporate purposes.
We intend to use the Net Proceeds in compliance with all applicable laws and regulations, including any applicable foreign investment laws and regulations.
In accordance with the policies instituted by our Board, our management will have flexibility in deploying the Net Proceeds received by us from the Issue. Pending utilization for the purposes described above, our Company intends to invest the funds in accordance with applicable laws and regulations.
Our Promoters or Directors are not making any contribution either as part of the Issue or separately in furtherance of the objects of the Issue.
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CAPITALIZATION AND INDEBTEDNESS
The following table sets forth the Company’s capitalization and total debt as on March 31, 2014, and as adjusted to give effect to the Issue. This table should be read in conjunction with the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on page 76 and other financial information contained in the section “Financial Information” on page F-1.
As of March 2014 Pre- As Adjusted for the Issue(2) Issue (audited) (` in Million ) (` in Million)
(A) Share holders’ funds Share capital 4,396.30 4,800.34 Reserves and Surplus(1) 25,511.59 29,002.93 Total Share holders’ funds (A) 29,907.89 33,803.27
(B) Non-current liabilities Long term borrowings 117,080.40 117,080.40 Deferred tax liabilities 65.88 65.88 Other long term liabilities 4,355.21 4,355.21 Long term provisions 23.61 23.61 Total Non-current liabilities (B) 121,525.10 121,525.10
(C) Current liabilities Short term borrowings 18,531.98 18,531.98 Trade payables 5,243.76 5,243.76 Other current liabilities 36,057.81 36,057.81 Short-term provisions 175.03 175.03 Total Current liabilities (C) 60,008.58 60,008.58
Total (A+B+C) 211,441.57 215,336.95
(1) Reserves and surplus is net of adjustments for estimated issue expenses of approximately `104.62 million. (2) Considering the issue of 40,404,040 Equity Shares at `99 per Equity Share pursuant to the Issue. Note: Our Company has sought the approval of the FIPB for the issue of 15,00,00,000 warrants on a preferential allotment basis to our Company’s non-resident Promoter, KSK Energy Limited, either directly or through any of its affiliates or subsidiaries in India or outside India, at an exercise price of ` 70 per Equity Share, and our Company proposes to complete the preferential allotment of warrants after the completion of the Issue, subject to receipt of applicable approvals including from the FIPB and the Stock Exchanges.
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CAPITAL STRUCTURE
The capital structure of our Company as at the date of this Placement Document is set forth below: (In `, except share data) Aggregate value at face value A AUTHORIZED SHARE CAPITAL 4,000,000,000 Equity Shares 40,000,000,000 1,031,500,000 Preference Shares 10,315,000,000
B ISSUED, SUBSCRIBED AND PAID-UP CAPITAL BEFORE THE ISSUE 372,630,454 Equity Shares 3,726,304,540 67,000,000 Preference Shares 670,000,000
C PRESENT ISSUE IN TERMS OF THIS PRELIMNARY PLACEMENT DOCUMENT (1) 40,404,040 Equity Shares aggregating approximately `4,000 million 404,040,400
D PAID-UP CAPITAL AFTER THE ISSUE 413,034,494 Equity Shares 4,130,344,940 67,000,000 Preference Shares 670,000,000
E SECURITIES PREMIUM ACCOUNT Before the Issue 18,682,044,527 After the Issue 22,173,383,447
(1) The Issue has been authorized by the Board of Directors on May 1, 2014 and by the Shareholders pursuant to their resolution dated May 24, 2014. Our Company has sought the approval of the FIPB for the issue of 15,00,00,000 warrants on a preferential allotment basis to our Company’s non-resident Promoter, KSK Energy Limited, either directly or through any of its affiliates or subsidiaries in India or outside India, at an exercise price of `70 per Equity Share, and our Company proposes to complete the preferential allotment of warrants after the completion of the Issue, subject to receipt of applicable approvals including the FIPB and the Stock Exchanges.
Equity Share Capital History of our Company
The history of the equity share capital of our Company is provided in the following table:
Date of Allotment No. of Equity Shares Face Value (`) Issue price Form of Consideration Allotted per Equity Share (`) February 14, 2001 10,800 10 10 Cash
January 9, 2002 89,200 10 10 Cash
June 14, 2003 3,552,350 10 10 Cash
February 27, 2004 2,191,500 10 10 Cash
March 30, 2004 5,600,000 10 10 Cash
June 19, 2004 556,150 10 10 Cash
September 30, 2004 73,850 10 10 Cash
October 27, 2004 12,000,000* 10 -- Conversion of Preference Shares into Equity Shares
October 27, 2004 1,250,000 10 10 Cash
March 30, 2005 4,450,000 10 10 Cash
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Date of Allotment No. of Equity Shares Face Value (`) Issue price Form of Consideration Allotted per Equity Share (`) November 5, 2006 90,000,000 10 17 Cash
November 5, 2006 Buy back of 29,773,850 Equity Shares at par from K&S Consulting Group Private Limited, pursuant to a resolution of the Board of Directors dated November 5, 2006
January 27, 2007 1,026,602 10 17 Cash
January 18, 2008 30,000,000** 10 -- Conversion of Preference Shares into Equity Shares
January 19, 2008 70,195,429# 10 -- Bonus issue
January 25, 2008 102,965,709 10 34.55 Cash
June 3, 2008 17,306,000 10 240 Cash
July 5, 2008 34,611,000 10 240 Cash
November 17, 2009 26,525,714 10 194.50 Cash
Total 372,630,454 - - Cash
*Conversion of 11% optionally convertible redeemable Preference Shares to Equity Shares held by K&S Consulting Group Private Limited. ** Conversion of 7% optionally convertible redeemable Preference Shares to Equity Shares held by KSK Energy Limited Mauritius. # Bonus issue in the ratio of 580:1000 to KSK Energy Limited
Preference Share Capital History of our Company
The history of the preference share capital of our Company is provided in the following table:
Date of No. of Preference Face Value Issue price Form of Consideration Allotment Shares Allotted (`) per Preference Share (`) 11% Optionally Convertible Cumulative Redeemable Preference Shares June14, 2003 3,652,350* 10 10 Cash March 30, 2004 5,600,000* 10 10 Cash June 19, 2004 2,747,650* 10 10 Cash October 27, 1,250,000** 10 10 Cash 2004 7% Optionally Convertible Cumulative Redeemable Preference Shares November 5, 30,000,000# 10 10 Cash 2006 8% Cumulative Redeemable Preference Shares October 1, 2010 100,000,000## 10 10 Cash Total *12,000,000 11% optionally convertible cumulative redeemable Preference Shares of `10 each were converted into 12,000,000 Equity Shares of `10 on October 27, 2004. **1,250,000 11% optionally convertible cumulative redeemable Preference Shares of `10 each were redeemed at par value on November 7, 2006. # 30,000,000 7% optionally convertible cumulative redeemable Preference Shares of `10 each were converted into 30,000,000 Equity Shares of `10 on January 18, 2008. ##8% cumulative redeemable Preference Shares were issued to L&T Infrastructure Finance Company Limited in terms of the subscription agreement dated September 17, 2010. The Preference Shares are required to be compulsorily redeemed in three tranches, beginning at the end of the third year from the date of issue and allotment of the Preference Shares. 33 million Preference Shares were redeemed on March 29, 2014.
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DIVIDENDS
The declaration and payment of dividends, if any, will be recommended by the Board of Directors and approved by the shareholders of our Company at their discretion, subject to the provisions of the Articles of Association and the Companies Act. The recommendation, declaration and payment of dividends, if any, will depend on a number of factors, including but not limited to results of operations, capital requirements, general financial condition, contractual restrictions, applicable Indian legal restrictions and other factors that may be considered relevant by the Board of Directors.
Our Company has not paid any dividend to equity shareholders in the past and it has not stated any dividend policy. However, subject to aforementioned factors our Company may consider declaring and paying dividends in the future.
The Company has declared dividend on 8% cumulative redeemable preference shares for the past three years as follows:
Year ended 2014 2013 2012 Face Value of Preference 10 10 10 Share (per Share) Dividend on Preference 93.47 (including tax) 92.98 (including tax) 93.17 (including tax) Shares (in ` million) Dividend Rate for 8% 8% 8% Preference Shares (%)
The amounts paid or not paid as dividends in the past are not necessarily indicative of the dividend policy of the Company or dividend amounts, if any, in the future. The form, frequency and amount of future dividends will depend on our revenues, cash flows, financial condition (including capital position) and other factors and shall be at the discretion of our Board and subject to the approval of our shareholders.
For a summary of certain Indian and United States federal tax consequences of dividend distributions to shareholders, see the section “Statement of Tax Benefits” on page 173. For a description of our regulation of dividends, see the section “Description of Equity Shares” on page 167.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations is based upon, and should be read in conjunction with, our audited consolidated financial statements for the Fiscal Years 2012, 2013 and 2014, including the schedules, annexures and notes thereto included in the section “Financial Information” on page F-1. Our audited consolidated financial statements are prepared in accordance with Indian GAAP. Indian GAAP differs in certain material respects from IFRS and U.S. GAAP. See “Risk Factors – Risks Relating to our Business in General – Significant differences exist between Indian GAAP 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 Indian GAAP contained in this Placement Document.” on page 68.
Our fiscal year ends on March 31 of each year. Accordingly, all references to a particular fiscal year are to the twelve month period ended March 31 of that year.
The following discussion and analysis contains forward-looking statements that involve risks and uncertainties. For additional information regarding such risks and uncertainties, see the section “Forward-Looking Statements” and “Risk Factors” on pages 10 and 33, respectively.
Overview
We are a power project development company in India, with experience in developing and operating multiple power plants across India. We operate in the power generation business and have long-term fuel access to our various power plants. Our power projects are in various phases of operation and development, including operational power projects, a power project under construction and power projects in the planning phases. We were established in 2001 to capitalize on the emerging opportunities in the Indian power sector and focus on developing, operating and maintaining power projects. We supply power through a combination of long-term, medium-term and short-term PPAs to a combination of industrial consumers and state-owned entities in India. In the fiscal year 2014, we had total consolidated revenues from operations of `21,118.01 million and incurred losses of `1,628.89 million.
Our promoter company, KSK Energy, is incorporated and registered in Mauritius, and is a wholly-owned subsidiary of KSK Power Ventur plc, an Isle of Man incorporated entity that is currently listed on the London Stock Exchange. We are a listed subsidiary of KSK Power Ventur plc. Our individual Promoters, Mr. S. Kishore and Mr. K.A. Sastry, prior to setting up the Company, have been involved in the development of power projects in various advisory and consultant roles.
We currently have (i) six power plants (aggregating 872 MW) and one unit of 600 MW (that is part of our 3,600 MW Mahanadi power plant with an aggregate of six units), that are fully operational and (ii) five remaining units of the 3,600 MW Mahanadi power plant (aggregating 3,000 MW) that are currently under various stages of construction. In addition, certain other thermal, solar and hydro power projects, including outside India, are in various stages of planning.
Significant Factors Affecting Our Results of Operations
As a power project development company, our financial condition and results of operations are affected by numerous factors, the following of which are of particular importance:
General economic and business conditions
As a company operating in India, we are affected by the general economic conditions in the country and in particular the factors affecting the power industry and the power projects we develop. The growth of the Indian economy has slowed with the GDP growing at 6.7% in the fiscal year 2012, 4.5% in the fiscal year 2013 and 4.9% in the fiscal year 2014. This slowdown in growth, together with other factors, has affected our results of operations. Conditions outside India, such as slowdowns in the economic growth of other countries or increases in the price of oil, have an impact on the growth of the Indian economy. Conditions in India, including government policy, also impact growth of the economy. We believe that growth in the overall economy in India, if it occurs, will propel demand in the power industry in the future. We also believe that demand in this industry
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will continue to outpace domestic supply for the foreseeable future, which may cause Indian policy makers and domestic producers to focus their efforts on growth in this industry. The overall economic growth has in the past and will continue to impact the results of our operations and our growth prospects.
Dependence on the regulatory framework
The growth of the power industry in India as well as our business is dependent on stable government policies and prudent regulations. Power generation has historically been the domain of the central and state governments and has been constrained by various factors, such as shortages of public funding, political considerations and issues of transparency and accountability. Changes in government policies have facilitated the entry of private capital into the Indian power industry and have led to rapid growth in the sector. For example, the 12th five-year plan envisages a thrust on investment in infrastructure, with greater participation from the private sector. Of the projected investment in infrastructure, approximately 29% is envisaged in the power sector, of which 47% is expected from the private sector. Further, the Government's focus has also led to an increase in captive power generation capacity in India. For example, the Electricity Act exempts captive power generators from license requirements. For further details, see the section “Industry Overview” on page 88. We believe that if the policy and regulatory reforms move in the right direction, our growth and financial condition and results of operations will be positively affected.
Competition
We face intense competition both with respect to setting up new projects and selling excess power that we produce from our existing power plants that are not subject to long‐term PPAs. We expect competition to intensify due to possible new entrants in the market, expansion projects by existing competitors and our entry into new markets where we may compete with well‐established power companies. We believe this may affect our financial condition and results of operations.
Availability of cost effective funding
Our ability to grow in the power sector depends largely on cost effective avenues of funding and will be primarily met through increased borrowing from external sources and the incurrence of new debt. Our debt service costs as well as our overall cost of funding depends on many external factors, including developments in the Indian credit market and, in particular, interest rate movements and the existence of adequate liquidity in the debt markets. With the growth of our operations, we have had to increasingly access commercial borrowings.
Changes in the Indian and global credit and financial markets have recently significantly diminished the availability of credit and led to an increase in the cost of financing. In many cases, the markets have exerted downward pressure on the availability of liquidity and credit capacity. Given the large‐scale infrastructure projects currently under development in India and the associated increased demand for capital for these projects, and given the limited depth of the local debt market, there has been a decrease in the availability of domestic financing and refinancing, as well as more onerous restrictions on entity/group exposure levels which may affect our potential borrowing capabilities from specific institutions in the future. In addition, with the RBI’s current sectoral caps, there could be limited incremental credit available to us domestically, and hence debt financing could suffer on account of increased competition, increased costs as well as more onerous covenants.
We believe that going forward the availability of sources of cost effective funding will be crucial and the non‐availability of such funding on favourable terms could adversely affect our business, financial condition and results of operations.
Availability, quality and price of fuel supply
The ability to source quality fuel at desirable prices is one of the key components in the success of our business. Our operational power plants and our power project under construction rely on single fuel suppliers for their entire fuel requirements either through captive fuel supplies or through long‐term contracts. In certain of our projects, dependence on a single fuel supplier makes our operations dependent on factors such as depletion of reserves, contractual terms and the ability to obtain alternative fuel at short notice and on commercially reasonable terms. In addition, our coal‐based power plants utilize boilers for the production of steam which are configured for a certain grade of coal, making the success of our business dependent in part on our ability to source the appropriate grade of fuel for the particular plant and machinery specifications.
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Availability and cost of land
The success of our business is dependent on, among other things, the availability and cost of procuring land for our planned power projects. Our financial condition depends in part on obtaining affordable land in close proximity to fuel sources and proper power evacuation facilities where we can construct and operate our power projects. Any government regulations that restrict the availability of land, local protests or other activities that prevent us from having access to land, or increased competition for land may therefore adversely affect our ability to implement or operate our power projects.
Availability of water
Water is critical to the operations of our power projects. The amount of water that our operational and under‐construction power projects are entitled to consume, pursuant to water supply agreements we have entered into for such projects, is often subject to the availability of excess water. In the event of water shortages, our power projects may be required to reduce their water consumption, which in turn would reduce their power generation capability.
Availability of infrastructure for evacuation and open access permissions
Evacuation or “wheeling” of power from each of our power plants to our consumers poses significant challenges due to transmission constraints. Evacuating power to the nearest sub‐station is either our responsibility or the responsibility of a procurer, depending upon the arrangements made for a particular project. Further, evacuation infrastructure from the sub‐station to high voltage transmission lines needs to be made available by the relevant authorities. Additionally, the grant by local state utilities of open access permissions as provided for under the Electricity Act are required to enable our supply of power to our consumers. For example, in our Wardha Warora power plant, our supplies were constrained due to delays in the grant of open access permissions and inadequacy of the quantum in respect of which such open access was granted. Non-availability of transmission lines by the time our power plants are ready to commence operation or delay or non-renewal in open access permissions, adversely affects our financial position and results of operations.
Availability of transportation network
We depend on various forms of transport, such as roadways, railways and pipelines to receive fuel, raw materials and water during the construction and operation of our power plants. For example, we are dependent on the uninterrupted supply of fuel and water to our power plants in order to generate power on a continuous basis. Similarly, during the construction of our power plants, we are dependent on the supply of cement, steel, plant and machinery and power in order to construct our various projects.
Ability to enter into PPAs and the terms thereof; Ability of customers to pay under the terms of the PPA
Mostly, we supply power under PPAs which provide for, among other things, pre‐determined tariff, the amount of power we are obligated to sell and amount of power our consumers are obligated to purchase. There are restrictions on our ability to, among other things, increase tariffs at short notice, sell power to third parties or undertake expansion initiatives with other consumers. Tariff, in many cases, is also regulated and with limited price escalation provisions, which could adversely affect us if our expenditures increase. In addition, we have and may in the future have customers that are state owned enterprises. These entities or other customers may not make timely payments, or at all. Our margins and our results of operations are affected by the terms of our PPAs. Any change in the financial position of our current or future consumers that adversely affects their ability to off-take the contracted quantities of power and pay us or any non-renewal of a PPA by an existing customer may adversely affect our own financial position and results of operations.
Performance of our operating power plants
We are dependent on the performance of our operating power plants, and particularly the KSK Mahanadi power plant and Wardha power plants. Due to economic downturn and other factors, some of our operating plants, such as Wardha Warora power plant have experienced lower performance. Our income from sale of energy has decreased primarily on account of a decrease in sales in the Wardha Warora power plant which has adversely affected our financial position and results of operations. In addition, the Arasmeta power plant recorded low performance as a result of low off-take by the captive consumer and non-renewal of the PPA. .
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Breakdown of plant or equipment
The breakdown or failure of generation equipment, civil structure or other equipment, and the unavailability or costs of replacements, can disrupt generation of power and result in performance being below expected levels. Power generation facilities are also subject to mechanical failure and equipment shutdowns. In such situations, undamaged units may be dependent on or interact with damaged sections or units and, accordingly, are also subject to being shut down. We rely on sophisticated and complex machinery built by third parties that may be susceptible to malfunction. If such events occur, the ability of our power plants to supply electricity to off‐takers may be adversely affected.
Compliance with environmental laws and regulations
Our projects are subject to national and state environmental laws and regulations, which govern the discharge, emission, storage, handling and disposal of a variety of substances that may be used in or result from our operations. In case of any change in environmental or pollution laws and regulations, such as the imposition of carbon taxes and other such levies on power generation, we may be required to incur significant amounts on, among other things, environmental monitoring, pollution control equipment and emissions management. We may also be required to bear additional expenditure for the establishment of additional infrastructure, such as laboratory facilities for monitoring pollution impact and effluent discharge and effluent treatment or recycling plants. In addition, failure to comply with environmental laws may result in the assessment of penalties and fines against us by regulatory authorities.
Tax holidays – 80 IA benefit; Mega Power Project Status
In accordance with and subject to the condition specified in Section 80 IA of the Income Tax Act, 1961, we are entitled to a deduction of 100% of profits derived from the generation, distribution or transmission of power for any ten consecutive assessment years out of 15 years beginning from the year in which the project generated power or commenced transmission or distribution of power, provided that this generation or transmission or distribution occurs before March 31, 2014. For details of the tax benefits available to us, see the section “Statement of Tax Benefits” on page 173. In respect of our power plants which are expected to be commissioned in future, we may not be entitled to the benefit under Section 80 IA, as this will be dependent upon the sunset period in respect of Section 80 IA being extended beyond March 31, 2014.
The KSK Mahanadi power project has received an in-principle mega power project status and subsequent final and provisional “mega power project” certificates thereafter. While estimating costs of the KSK Mahanadi power project, we have assumed that we will be entitled to the income tax, customs duty and excise duty exemption. The Government may not extend the period of availability for such tax benefits and if such tax benefits become unavailable, our taxes could increase and our results of operations could be adversely affected.
Significant Accounting Policies
Our consolidated financial statements have been prepared and presented in accordance with Indian GAAP under the historical cost convention on the accrual basis. Indian GAAP comprises accounting standards notified by the GoI under Section 211 (3C) of the Companies Act, 1956 other pronouncements of the Institute of Chartered Accountants of India, the provisions of the Companies Act and guidelines issued by the SEBI. Certain key accounting policies that are relevant and specific to the Company’s business and operations have been described in the section, “Financial Information – Notes to Consolidated Accounts” on page F-1.
Recent Changes in Accounting Policies
There have been no changes in the Company’s accounting policies during the last three financial years.
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FINANCIAL PERFORMANCE FOR FISCAL 2013 AND 2014
Revenues
Sales and operating income (` in million) Particulars Fiscal 2014 % of total Fiscal 2013 % of total revenue revenue Sales and operating income 21,118.01 94% 22,070.20 96% Other income 1,365.52 6% 1,006.96 4% Total 22,483.53 100% 23,077.16 100%
The total sales and operating income have decreased by 4% from `22,070.20 million for the fiscal year 2013 to `21,118.01 million for the fiscal year 2014. The breakdown of the sales and operating income was as follows:
(` in million) Particulars Fiscal 2014 % of total Fiscal 2013 % of total revenue revenue Income from sale of energy 20,933.40 99.41% 21,910.62 99.28% Project development fee 67.46 0.32% 123.75 0.56% Corporate support services 46.69 0.22% 2.19 0.01% Other operating income 10.46 0.05% 33.64 0.15% Total 21,118.01 100% 22,070.20 100%
Income from sale of energy
Income from sale of energy is primarily from our Subsidiaries. The income from sale of energy in fiscal 2014 reported 4% negative growth over the fiscal 2013. The decrease in income from sale of energy was primarily on account of a decrease in sales in the Wardha Warora power plant. However, decrease in sales in Wardha Warora power plant has been offset to a certain extent on account of commencement of commercial operations of the first 600 MW unit of the KSK Mahanadi power project.
The overall units of power generated, number of units sold and average realization has been demonstrated in the table below:
Particulars Fiscal 2014 Fiscal 2013 Units generated (units in million) 5,755 5,546 Sale of energy (` in million) 20,993 21,911 Average realization (per unit) 4.33 4.63
Income from project development services
Decrease in our income from project development services from `123.75 million during fiscal 2013 to `67.46 million during fiscal 2014 reflects the maturity of our assets portfolio from under construction assets to operational assets.
Other income
Our income from other sources increased to `1,365.52 million for the fiscal year 2014 as compared to `1,006.96 million for the fiscal year 2013 as outlined below: (` in million) Particulars Fiscal 2014 Fiscal 2013 Interest Income 966.79 980.73 Dividend Income 0.90 1.28 Insurance claim received 353.49 - Miscellaneous income 44.34 24.95 Total 1,365.52 1,006.96
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Increase in income from other sources was primarily on account of payments received in fiscal year 2014 against insurance claims made in two of our Subsidiaries. However, increase in income from other sources has been offset to a certain extent due to decrease in interest income on surplus funds parked in deposit and advances.
Expenditure
Generation and operating expenses (` in million) Particulars Fiscal 2014 Fiscal 2013 Consumption of fuel 11,978.78 10,695.64 Other manufacturing expenses 1,522.50 1,314.50 Total 13,501.28 12,010.14
The total generation and operating expenses indicated an increase of 12% from `12,010.14 million in fiscal 2013 to `13,501.28 million in fiscal 2014. The increase is mainly on account of commencement of commercial operation of the KSK Mahanadi power plant’s first unit of 600 MW. However, the increase was offset to a certain extent on account of lower production in the Wardha Warora power plant.
Employee benefit expenses and other expenses (` in million) Particulars Fiscal 2014 Fiscal 2013 Employee benefit expenses 463.42 431.65 Other expenses 1,781.52 1,444.46 Total 2,244.94 1,876.11
The employee benefit expenses and other expenses have registered an increase of 20% from `1,876.11 million in fiscal 2013 to `2,244.94 million in fiscal 2014. The increase is mainly on account of increase in open access charges incurred in connection with the sale of power to captive customers in the Wardha Warora power plant, increase in foreign exchange losses and administrative costs associated with the commencement of commercial operation of the KSK Mahanadi power plant’s first unit.
Finance costs (` in million) Particulars Fiscal 2014 Fiscal 2013 Gross finance costs 18,186.13 14,679.81 Less : Capitalized to fixed assets 10,970.01 8,662.14 Net Finance costs 7,216.12 6,017.67
The gross finance costs increased to `18,186.13 million in fiscal 2014 from `14,679.81 million in fiscal 2013 reflecting a 24% increase year on year. During the fiscal 2014, the Group had mobilized additional average borrowing of `17,863.42 million to finance its capital expenditure and working capital requirements resulting in increased finance costs of `3,506.32 million. However, after capitalizing the directly attributable cost to fixed assets, the net increase in finance costs as reflected above is `1,198.45 million.
Depreciation and amortization expenses
Depreciation and amortization expenses had increased from `2,264.68 million in fiscal 2013 to `2,929.73 million in fiscal 2014 mainly on account of commencement of commercial operation of the KSK Mahanadi power plant’s first unit.
Taxes
The Group made effective use of various tax benefits available in India, including certain special benefits for companies in the power sector, and such benefits have resulted in lower effective tax rate in some of our operating Subsidiaries. The tax provided on a consolidated basis amounted to (`1,527.61) million (including MAT credit of `101.02 million) for fiscal 2014 as against (`764.96) million (including MAT credit of `140.46
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million) for fiscal 2013. The increase in tax income is mainly on account of carry forward of losses in the Wardha Warora power plant, VS Lignite power plant and the KSK Mahanadi power plant. For further details of the tax benefits available to us, see the section “Statement of Tax Benefits” on page 173.
Earnings / (loss) per Share
The Earnings / (Loss) per share for fiscal 2014 stood at ` (4.62), which showed a decrease of 222% over the previous year. This significant decrease is due to lower performance of our operational plants, and the Wardha Warora power plant in particular.
Segmental analysis
The Group is currently engaged in two business segments, namely, power generation and power development. Net revenues from its power generation segment have decreased from `21,944.26 million in fiscal 2013 to `21,003.86 million in fiscal 2014. Net revenues from its project development segment have decreased from `125.94 million in fiscal 2013 to `114.15 million in fiscal 2014. The power generation segment contributed 99% revenue of the Group’s total revenue in both Fiscal Years 2014 and 2013.
Financial position and cash flows
The capital employed of the Group was `190,126 million as at March 31, 2014 and increased by `15,431 million as compared to March 31, 2013. The Group incurred `21,758 million towards capital expenditure during fiscal 2014. The major expenditure was incurred on continuous construction and development activities at our 6 x 600 MW Mahanadi power plant.
The loan portfolio of the Group comprises a combination of domestic and foreign currency loans. The aggregate outstanding indebtedness as at March 31, 2014 stood at `151,345 million and increased by `15,585 million compared to fiscal 2013. The increase is mainly on account of disbursement of term loans and foreign currency loans in the KSK Mahanadi power plant and VS Lignite power plant for ongoing construction activities and working capital requirements. Apart from these, during fiscal year 2014, the Wardha Warora power plant also refinanced its existing borrowing with External Commercial Borrowing.
Net customer receivables as at March 31, 2014 stood at `9,202 million as compared to `5,597 million in previous year. Increase in trade receivables is mainly attributable to commencement of commercial operation of KSK Mahanadi power plant’s first unit and outstanding billing disputes with certain customers. For further details of such disputes, see the section “Legal Proceedings” on page 184.
Cash accruals from operations were lower in fiscal 2014 by `3,638 million as compared to fiscal 2013 mainly due to lower performance of the Wardha Warora power plant. Proceeds from sale of short term investments, sale of surplus lands, dividend and interest income aided cash generation during the year fiscal 2014. Apart from deployment of cash for capital expenditure, the Group repaid some of its long term loans amounting to `31,880 million and availed fresh disbursement of borrowings amounting to `42,317 million. Consequently, there was net cash inflow of `289 million for the fiscal 2014.
Capital Expenditures
As per our consolidated financial statements, the incremental gross fixed assets and capital work-in-progress during the Fiscal Years 2014, 2013 and 2012 was `21,757.50 million, `40,444.61 million and `47,904.32 million, respectively. We believe that we will have sufficient capital resources from our operations, the net proceeds of the Issue and other financings from banks, financial institutions and other lenders to meet our capital requirements for at least the next 12 months.
Our Investments
We have certain investments outside the Group, which as per our consolidated financial statements aggregated to `215.81 million, `387.87 million and `437.50 million as of Fiscal Years 2014, 2013 and 2012, respectively.
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Indebtedness
The following table summarizes our outstanding indebtedness, on a consolidated basis as of Fiscal Years 2014, 2013 and 2012:
` in million Borrowings Fiscal 2014 Fiscal 2013 Fiscal 2012 Long-term borrowings Secured Debentures 850.00 - - Term loans 95,304.15 83,329.81 59,810.09 Foreign currency loans 20,696.25 28,070.92 20,226.99 Hire purchase loans - 1.36 6.43 Unsecured Loans and advances from related parties - - 270.00 Deferred payment liabilities 230.00 230.00 230.00 Total (A) 117,080.40 111,632.09 80,543.51 Short-term borrowings Secured Loans repayable on demand 4,742.75 6,332.51 7,074.28 Foreign currency loans 2,405.31 1,497.77 488.07 Loans against letters of credit 4,748.00 2,145.92 4,344.82 Loan against deposit 4,383.55 7,586.20 6,579.30 Unsecured Loans repayable on demand 2,252.37 419.83 437.67 Total (B) 18,531.98 17,982.23 18,924.14
Current maturity of long term debt (C ) 15,732.26 6,146.24 16,150.01
Total (A + B + C ) 151,344.64 135,760.56 115,617.66
FINANCIAL PERFORMANCE FOR FISCAL 2012 AND 2013:
Revenues
Sales and operating income (` in million) Particulars Fiscal 2013 % of total Fiscal 2012 % of total revenue revenue Sales and operating income 22,070.20 96% 19,475.90 95% Other income 1,006.96 4% 1,116.34 5% Total 23,077.16 100% 20,592.79 100%
The total sales and operating income have increased by 13% from `19,475.90 million for the fiscal year 2012 to `22,070.20 million for the fiscal year 2013. The breakdown of the sales and operating income was as follows:
(` in millions) Particulars Fiscal 2013 % of total Fiscal 2012 % of total revenue revenue Income from sale of energy 21,910.62 99.28% 19,065.90 97.90% Project development fee 123.75 0.56% 393.09 2.02% Corporate support services 2.19 0.01% 2.19 0.01% Other operating income 33.64 0.15% 14.72 0.07% Total 22,070.20 100% 19,475.90 100%
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Income from sale of energy
Income from sale of energy is primarily from our Subsidiaries. The income from sale of energy in fiscal 2013 reported 15% growth over the fiscal 2012. The increase in sale of energy was mainly derived from higher plant load factor in the Wardha Warora power plant. In addition other power plants, such as Sitapuram, Sai Regency and Arasmeta have also witnessed growth both in terms of realization per unit of power sold and the number of units sold.
The overall units of power generated, number of units sold and average realization has been demonstrated in the table below:
Particulars Fiscal 2013 Fiscal 2012 Units generated (units in million) 5,546 4,862 Sale of energy (` in million) 21,911 19,066 Average realization (per unit) 4.63 4.57
Income from project development services
Decrease in our income from project development services from `393.09 million during fiscal 2012 to `123.75 million during fiscal 2013 reflects the maturity of our assets portfolio from under construction assets to operational assets.
Other income
Our income from other sources decreased to `1,006.96 million for the fiscal year 2013 as compared to `1,116.34 million for the fiscal year 2012 as outlined below: (` in million) Particulars Fiscal 2013 Fiscal 2012 Interest Income 980.73 888.24 Dividend Income 1.28 13.61 Net gain on sale of investments 3.41 3.98 Miscellaneous income 21.54 210.51 Total 1,006.96 1,116.34
Decrease in other income in fiscal 2013 was primarily on account of payments received against insurance claims and other claims in fiscal 2012. However, the decrease has been offset to a certain extent due to increase in interest income on surplus funds parked in deposit and advances.
Expenditure
Generation and operating expenses (` in million) Particulars Fiscal 2013 Fiscal 2012 Consumption of fuel 10,695.64 9,992.29 Other manufacturing expenses 1,314.50 1,082.38 Total 12,010.14 11,074.67
The total generation and operating expenses indicated an increase of 8% from `11,074.67 million in fiscal 2012 to `12,010.14 million in fiscal 2013. The increase is mainly on account of increase in the number of units of power generated and increase in average fuel cost from `2.34 per unit to `2.43 per unit. Such increase in operating expenses was also on account of completion of a full year of operation of all four units of the Wardha Warora power plant, as against operation for a part of the year during the fiscal year 2012.
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Employee benefit expenses and other expenses (` in million) Particulars Fiscal 2013 Fiscal 2012 Employee benefit expenses 431.65 432.63 Other expenses 1,444.46 1,313.34 Total 1,876.11 1,745.97
The employee benefit expenses and other expenses have registered an increase of 7% from `1,745.97 million in fiscal 2012 to `1,876.11 million in fiscal 2013. The increase is mainly on account of increase in open access and transmission charges incurred in connection with supplies to captive customers.
Finance costs
The finance costs increased from `5,388.72 million in fiscal 2012 to `6,017.67 million in fiscal 2013 reflecting a 12% increase year on year. Increase in finance cost is mainly on account of increase in borrowing cost in the Wardha Warora power plant due to a full year of operation of all four units as against operation for part of the year during fiscal 2012.
Depreciation and amortization expenses
Depreciation and amortization expenses increased from `2,163.30 million in fiscal 2012 to `2,264.68 million in fiscal 2013 mainly on account of a full year of operation of some of the project assets commissioned during the fiscal 2012.
Taxes
The Group made effective use of various tax benefits available in India, , including certain special benefits for companies in the power sector, and such benefits have resulted in lower effective tax rate in some of our major operating subsidiaries. The tax provided on consolidated basis amounted to (`764.96) million (including MAT credit of (`140.46) million) for fiscal 2013 as against (`359.97) million (including MAT credit of (`80.03) million) for fiscal 2012. The increase in tax is mainly on account of carry forward of losses in the Wardha Warora power plant.
Earnings per Share
The Earnings per share for fiscal 2013 were Rs 3.79, which showed an increase of 16% over the fiscal 2012. The increase is mainly due to higher performance of our operational plants and reduction in tax expenses due to effective tax planning measures.
Segmental analysis
The Group is currently engaged in two business segments, namely, project development and power generation. Net revenues from its power generation segment have increased from `19,080.62 million in fiscal 2012 to `21,944.26 million in fiscal 2013. Net revenue from its project development segment has decreased from `395.28 million in fiscal 2012 to `125.94 million in fiscal 2013. The power generation segment contributed 99% revenue of the Group’s total revenue in fiscal year 2013 and 98% revenue of the Group’s total revenue in fiscal year 2012.
Financial Position and cash flows
The overall capital employed of the Group stood at `174,695 million as at March 31, 2013 and increased by `20,363 million as compared to March 31, 2012. The Group incurred `17,719 million towards capital expenditure during fiscal 2013. The major expenditure was incurred on construction and development activities at our 3,600 MW Mahanadi power plant and commissioning of our 10 MW solar plant in Rajasthan.
The loan portfolio of the Group comprises a combination of domestic and foreign currency loans. The aggregate outstanding indebtedness as at March 31, 2013 stood at `135,760 million and increased by `20,143 million compared to fiscal 2012. The increase is mainly on account of disbursement of term loans and foreign currency loans in the Wardha Warora power plant, KMPCPL and SMPCPL for ongoing construction activities and
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working capital requirements. Apart from these, during fiscal year 2013, certain Subsidiaries also refinanced their existing borrowings.
Net customer receivables as at March 31, 2013 stood at `5,597 million, which includes `1,999 million of receivables that are not yet contractually due as at March 31, 2013.
Cash accruals from the operations were higher at `5,566 million in fiscal 2013 as compared to fiscal 2012 mainly due to efficient working capital management. Proceeds from sale of short term investments, sale of surplus lands, dividend and interest income aided cash generation during fiscal 2013. Apart from deployment of cash for capital expenditure, the Group repaid some of its long-term loans amounting to `17,350 million. Consequently, there was net cash outflow of `3,550 million for fiscal 2013.
Contractual Obligations and Commercial Commitments
As per our consolidated financial statements, the following table summarizes our contractual obligations and commercial commitments on capital accounts which are not provided for as of the periods indicated: (` in million) Particulars Fiscal 2014 Fiscal 2013 Fiscal 2012 Contractual obligations on capital accounts not provided 59,098.00 57,809.76 77,259.13 for
Contingent Liabilities
The following table provides our contingent liabilities as of the period indicated: (` in million) Particulars Fiscal 2014 Claims not acknowledged as debt 593.30 Bank Guarantees and Corporate guarantees outstanding 9,206.92 Total 9,800.22
Off-Balance Sheet Arrangements
We do not have any off‐balance sheet arrangements, derivative instruments or other relationships with unconsolidated entities that would have been established for the purpose of facilitating off-balance sheet arrangements.
Interest coverage ratio
The interest coverage ratio, which we define as cash profit after tax plus interest paid/interest paid, for the Fiscal Years 2012, 2013 and 2014 was `1.24, `1.22 and `0.62, respectively.
Related Party Transactions
For details in relation to the related party transactions entered into by our Company during the last three Financial Years, as per the requirements under Accounting Standard 18 issued by the Institute of Chartered Accountants in India, see the section “Financial Information” on page F-1.
Quantitative and Qualitative Disclosure about Market Risk
Market risk is the risk of loss related to adverse changes in market prices, including interest rate risk, foreign exchange risk, inflation and commodity risk. We are exposed to different degrees of these risks in the normal course of our business.
Interest Rate Risk
We currently have floating rate indebtedness and also maintain deposits of cash and cash equivalents with banks and other financial institutions and thus are exposed to market risk as a result of changes in interest rates. As of March 31, 2014, a substantial part of the indebtedness incurred by us carried interest at floating rates with the provision for periodic reset of interest rates. Upward fluctuations in interest rates increase the cost of both
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existing and new debts. It is likely that in the current fiscal year and in future periods our borrowings and interest rate expenses will rise substantially given our growth plans.
Foreign Exchange Risk
We are exposed to changes in the fair value of our foreign exchange rate sensitive financial instruments and borrowings, including forward foreign exchange swaps which we own. We have experienced foreign exchange losses in the past, for example in fiscal 2014. As of March 31, 2014, `33,951 million of our total indebtedness was denominated in foreign currency.
Price of Fuel
As our power projects enter commercial operation, we will be dependent upon our suppliers for our coal. With respect to those PPAs where fuel is not a complete pass through expense, we will be subject to fluctuations in the price of coal at rates fixed by such companies, despite the fact that we have entered into long‐term fuel supply arrangements with multiple state mineral development corporations that own captive blocks.
Auditors Qualification
There have been no qualifications or adverse remarks of auditors on the financial statements of the Company in the last five financial years immediately preceding the year of circulation of this Placement Document.
Political Contributions/ Donations
Members of our Group have made contributions/donations to political parties within the limit prescribed under Section 293A of the Companies Act, 1956.
(` In Millions) Particular Fiscal 2014 Fiscal 2013 Fiscal 2012 Political Contributions / - - 39.50 Donations
Corporate Social Responsibility
The Group’s corporate social responsibility efforts include the following:
At our various power project locations, we have contributed to the welfare of the local communities by taking up various social causes. Through a collaborative initiative with a charitable trust, we have set up a cardiac hospital at Raipur, offering free of charge services. In fiscal 2014, the hospital completed more than 3,000 free cardiac consultations and more than 300 cardiac surgeries free of cost.
The Group has organized mobile health clinics, medical screening / diagnosis camps and emergency ambulance services. The Group has also undertaken pond deepening works, rain water harvesting, projects to make drinking water available, rural electrification and rural connectivity initiatives.
The Group has organized vocational training and education scholarships.
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INDUSTRY OVERVIEW
Unless otherwise indicated, all financial and statistical data relating to the Indian Economy in the following discussion is derived from the Monthly Review of the Indian Economy, Central Statistical Organization. Unless otherwise indicated, all financial and statistical data relating to the power industry in India in the following discussion is derived from the Ministry of Power's website and the CEA’s General Review. The data may have been re-classified by us for the purpose of presentation. Unless otherwise indicated, the data presented excludes captive capacity and generation. The term "units" as used herein refers to kilowatt-hours (kWh).
Overview of the Indian Economy
India is the fourth largest economy in the world in terms of purchasing power parity terms, after the United States of America, European Union and China. (Source: 2013 est. as per CIA World Fact book) The following chart presents a comparison of India’s GDP real growth rate and GDP (PPP) with the real growth rates of certain other countries for the year 2013 est.
Country GDP (PPP) (Bill $) GDP Real Growth rate
United States of America 16,720 1.60% European Union 15,840 0.10% China 13,390 7.70% India 4,962 4.70% Japan 4,729 2.00% Germany 3,227 0.50% Russia 2,553 1.30% Brazil 2,442 2.50% United Kingdom 2,387 1.80% France 2,276 0.30% (Source: CIA World Fact book)
As per the Advance Estimates released by the Central Statistics Office (CSO), the Indian economy is estimated to have registered a growth rate of 4.9 per cent in 2013-14 (in terms of GDP at factor cost at constant prices). The growth is significantly lower in comparison to the decadal average of 7.6 per cent during 2004-05 to 2013- 14. (Source: Macro-Economic Framework Statement, 2014-15)
A moderate recovery is likely to set in 2014-15 broadly in line with the RBI’s indicated projections in January 2014. However, data revisions for previous quarters and the consequent changes in base effects impart uncertainty to the growth trajectory ahead. The pace of recovery, nevertheless, is likely to be modest. The recovery is likely to be supported by investment activity picking up due to part resolution of stalled projects and improved business and consumer confidence. Manufacturing PMI, for the month of February 2014, touched a year’s high on the back of higher output and new orders. The rural demand base is likely to shore up demand following record agricultural output. In addition, external demand is expected to improve further during 2014-15 stemming from encouraging prospects for global growth, notwithstanding some recent loss in export growth momentum. (Source: Macro-economic and Monetary Developments 2014-15, RBI). The GoI has identified the power sector as a key sector of focus to promote sustained industrial growth.
The Energy Sector
Introduction
Power sector in India has made rapid progress both in the Installed Capacity and Transmission and Distribution System. The total Power generating capacities of utilities and non-utilities as on March 31st, 2014 was 243,028 MW. (Source: Executive Summary: Power Sector - March 2014, CEA, Ministry of Power, Govt. of India) The country has been facing power shortages in spite of the manifold growth over the years. The GoI lays special emphasis on reduction of transmission and distribution losses and demand side management to optimally utilize the limited resources. Concerted efforts are going on to bridge this gap of demand and supply through policy initiatives, private sector participation and development of Ultra Mega Power Projects (UMPPs). The objectives
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of power sector development include providing sufficient, reliable and inexpensive power. The per capita consumption of energy in India is one of the lowest in the world. For 2010, per capita consumption of electricity was 884 units per year as at 2012. This has been estimated to have moved marginally to 917.2 units by 2013 (Source: Growth of Electricity Sector in India from 1947-2013, CEA, Ministry of Power, Govt. of India, July, 2013)
The state of preparedness of the country for generation of the energy it requires and the quality or efficiency of the technology used in the generation can be well analyzed by the indicators of installed capacity and capacity utilization, respectively. The power sector in India had an installed capacity of 243 Gigawatt (GW) as of March 2014 recording an increase of 7.9% over that of April 2013. Captive power plants generate an additional 39.37 GW. Thermal power plants constitute 69.2% of the installed capacity, hydroelectric about 16.7% and rest being a combination of wind, small hydro-plants, biomass, waste-to-electricity plants, and nuclear energy. India generated about 966 BU electricity during 2013-14 fiscal. (Source: Executive Summary: Power Sector - March 2014, CEA, Ministry of Power, Govt. of India) Continued economic development, lifestyle changes and a growing population are increasing the demand for energy in India.
Power shortages have adversely affected the country's economy. Power shortages in India have adversely impacted multiple industries like agriculture, manufacturing, services etc. Improvement of this sector is essential for the economic well-being of the country and enhancement of the quality of life of citizens.
Key Issues Facing the Electricity Sector
High level of network and financial losses
The power utilities in India suffer from a high level of transmission and distribution losses (estimated at 23.65% for 2011-2012) largely due to network losses including theft and technical problems, and financial losses from non collection. This has led to financial degradation and worsening performance of the public power utilities and has also resulted in inadequate financial resources for capacity augmentation. (Source: Growth of Electricity Sector in India from 1947-2013, CEA, Ministry of Power, Govt. of India, July, 2013)
Inadequate transmission capacity
Inadequate transmission capacity in the country has led to regional surpluses being inefficiently utilized to meet deficits elsewhere.
Generation Capacity
India has a total installed capacity of 243,028 MW as of March 31, 2014. The table below illustrates the installed capacity by fuel type across the state, private and central sectors up to March 31, 2014:
Installed capacity as of March 31, 2014 (Figures in MW) Renew- able Energy Thermal Nuclear Sources Total
Sector Hydro Coal Gas Diesel Total ` State 27482.00 53828.00 6548.32 602.61 60978.93 - 3726.77 92187.70 Private 3726.77 45520.38 8168.00 597.14 54285.52 - 25735.78 82715.30 Central 10355.41 45925.01 7065.53 - 52990.54 4780.00 - 68125.9 Total 40,531.41 145273.39 21781.85 1,199.75 168254.99 4780.00 29462.55 243028.95 (Source: Executive Summary: Power Sector - March 2014, CEA, Ministry of Power, Govt. of India)
Despite significant achievement in the electricity sector, India continues to face a considerable gap between demand and supply. The electricity sector is divided into five power regions, North, North East, West, East and
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South. The following table depicts the peak deficit scenario for the period between April 2013 – March 2014 across different regions in India:
Peak Demand Fiscal Year (MW) Peak Supply (MW) (Deficit) (Deficit) %
North 45,934 42,774 (3,160) (6.9) West 41,335 40,331 (1,004) (2.4) South 39,015 36,048 (2,967) (7.6) East 15,885 15,528 (357) (2.2) North-East 2,164 2,048 (116) (5.4) All India 135,918 129,815 (6,103) (4.5) (Source: Executive Summary: Power Sector - March 2014, CEA, Ministry of Power, Govt. of India)
The table below illustrates the actual available power supply in each region.
Actual Power Supply (Figures in net MU) Region March 2014 April 2013 to March 2014
Require- Avail- Surplus/ (Deficit) Require- Avail- Surplus/ (Deficit) ment ability ment ability (MU) (MU) (MU) (%) (MU) (MU) (MU) (%)
Northern 23,486 22,403 (1,083) (4.6) 309,423 290,839 (18,584) (6.0) Western 25,030 24,753 (277) (1.1) 294,626 291,823 (2,803) (1.0) Southern 25,920 24,349 (1,571) (6.1) 277,204 258,404 (18,800) (6.8) Eastern 9,495 9,403 (92) (1.0) 108,105 106,682 (1,423) (1.3) North-Eastern 1,027 952 (75) (3.6) 12,687 11,866 (821) (6.5) All India 84,958 81,860 (3,098) (3.6) 1,002,045 959,614 (42,431) (4.2) (Source: Executive Summary: Power Sector - March 2014, CEA, Ministry of Power, Govt. of India)
12th Five Year Plan Projections
The 12th Five Year Plan generation capacity addition targets are set forth in the table below.
Figures in MW Thermal Sector Hydro (coal, lignite, gas) Nuclear Total
Central 6,004 14,878 5,300 26,182 State 1,608 13,922 - 15,530 Private 3,285 43,540 - 46,825 All India 10,897 72,340 5,300 88,537 (Source: Executive Summary: Power Sector - March 2014, CEA, Ministry of Power, Govt. of India)
The capacity additions up to March 2014 of the 12th Plans are as follows:
Thermal Achievement Sector Hydro (coal, lignite, gas) Nuclear Total %
Central 1,288.01 6,683.30 0 7,971.31 30.45 State 102.00 7,233.00 - 7,335.00 47.23 Private 169.00 22,972.50 - 23,141.50 49.42
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All India 1,559.01 36,888.80 0 38,447.81 43.43 (Source: Executive Summary: Power Sector - March 2014, CEA, Ministry of Power, Govt. of India)
Gap between Demand and Supply
The gap between requirement and supply of electricity varies across India, with states in the Western Region facing the largest shortages. The following table displays the scenario between power demand and supply for the period from April 2013 to March 2014 across different states and regions in India:
Power Power State/Region Requirement Availability Power Surplus/(Deficit)
(in MU) (in MU) (in MU) (%) Chandigarh 1,574 1,574 0 0 Delhi 26,867 26,791 -76 -0.3 Haryana 43,463 43,213 -250 -0.6 Himachal Pradesh 9,079 8,873 -206 -2.3 Jammu and Kashmir 15,613 12,187 -3,426 -21.9 Punjab 47,802 47,065 -737 -1.5 Rajasthan 58,191 58,030 -161 -0.3 Uttar Pradesh 94,890 81,613 -13,277 -14 Uttarakhand 11,944 11,493 -451 -3.8 Northern Region 3,09,423 2,90,839 -18,584 -6 Chhattisgarh 18,932 18,800 -132 -0.7 Gujarat 88,497 88,488 -9 0 Madhya Pradesh 49,377 49,352 -25 -0.1 Maharashtra 1,26,288 1,23,672 -2,616 -2.1 Daman and Diu 2,252 2,252 0 0 Dadra and Nagar Haveli 5,390 5,388 -2 0 Goa 3,890 3,871 -19 -0.5 Western Region 2,94,626 2,91,823 -2,803 -1 Andhra Pradesh 95,660 89,034 -6,626 -6.9 Karnataka 64,165 58,068 -6,097 -9.5 Kerala 21,568 21,042 -526 -2.4 Tamil Nadu 93,465 87,938 -5,527 -5.9 Puducherry 2,342 2,318 -24 -1 Lakshadweep 48 48 0 0 Southern Region 2,77,204 2,58,404 -18,800 -6.8 Bihar 15,535 14,903 -632 -4.1 DVC 17,356 17,243 -113 -0.7 Jharkhand 7,142 7,006 -136 -1.9 Orissa 24,919 24,507 -412 -1.7 West Bengal 42,733 42,603 -130 -0.3 Sikkim 420 420 0 0 Andaman-Nicobar 240 180 -60 -25 Eastern Region 1,08,105 1,06,682 -1,423 -1.3 Arunachal Pradesh 552 517 -35 -6.3 Assam 7,544 7,062 -482 -6.4 Manipur 579 548 -31 -5.4 Meghalaya 1,794 1,604 -190 -10.6 Mizoram 446 430 -16 -3.6 Nagaland 577 561 -16 -2.8
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Power Power State/Region Requirement Availability Power Surplus/(Deficit)
Tripura 1,195 1,144 -51 -4.3 N. Eastern Region 12,687 11,866 -821 -6.5 All India 10,02,045 9,59,614 -42,431 -4.2 (Source: Executive Summary: Power Sector - March 2014, CEA, Ministry of Power, Govt. of India)
The gap between demand and supply has been increasing, leading to increased power shortages. The following table highlights the peak deficit over the years:
Fiscal Year Peak Deficit (MW)
9th Plan end 9,252 2002-03 9,945 2003-04 9,508 2004-05 10,254 2005-06 11,463 2006-07 13,897 2007-08 18,073 2008-09 13,024 2009-10 15,157 2010-11 12,031 2011-12 13,815 2012-13 12,159 2013-14 6,103 (Sources: Growth of Electricity Sector in India from 1947-2013, CEA, Ministry of Power, Govt. of India, July, 2013; Executive Summary: Power Sector - March 2014, CEA, Ministry of Power, Govt. of India)
Projected Installed Capacity
As set forth below, the GoI has projected the required support level of installed capacity and electricity generation by 2031-2032 as 962 GW and 1,207 GW, based on growth rates of 8.00% and 9.00%, respectively.
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Installed Capacity Projection
1400 1207 1200
1000 962 785 800 GW 655 600 445 510
400 303 331 200
0 2016-17 2021-22 2026-27 2031-32 Year
8% GDP Growth 9% GDP Growth
(Source: Integrated Energy Policy, Report of the Expert Committee, Planning Commission, Planning Commission, Government of India, August 2006)
Transmission Formation of the National Grid
India’s plan for improving transmission involves creating a national grid to facilitate transmission of electricity among the five regions. This task has been assigned to Power Grid Corporation of India Limited (“Power Grid”), which is India’s central transmission utility that manages the national grid. The transmission and distribution system is a three tier structure consisting of regional grids, state grids and distribution networks. The five regional grids, structured on a geographical contiguity basis, facilitate transfer of power from a power surplus state to a power deficit state. The regional grids also facilitate the optimal scheduling of maintenance outages and better co-ordination between the power plants. The regional grids are to be gradually integrated to form a national grid, whereby surplus power from a region could be transferred to another region facing power deficits, thereby facilitating a more optimal utilization of national generating capacity.
Most inter-regional and inter-state transmission links are owned and operated by Power Grid although some are jointly owned with SEBs. Power Grid is the central transmission utility of India and possesses one of the largest transmission networks in the world. Power Grid has a pan-India network presence of 1,07,214 circuit kms of transmission network, 185 extra high voltage alternation current and high voltage direct current substations, and a total transformation capacity of 2,06,338 MVA. (Source: http://powergridindia.com)
By the end of 11th plan, the country has a total inter-regional transmission capacity of about 28,000 MW which is expected to be enhanced to about 65,000 MW at the end of 12th plan. (Source: http://powergridindia.com)
State grids and distribution networks are primarily owned and operated by the respective SEBs or state governments (through state electricity departments). State distribution networks are managed at the state level and continue to be affected by high aggregate technical and commercial (“AT&C”) losses estimated to be approximately 23.65% (provisionally) for FY 2011 -12, which implies that 23.65% of power entering the system was lost during distribution. A direct consequence of the high AT&C losses is the sub-par financial condition of many of the SEBs, thereby constraining the SEBs from making optimal investments in generation and in upgrading the transmission and distribution (“T&D”) network. (Source: Growth of Electricity Sector in India from 1947-2013, CEA, Ministry of Power, Govt. of India, July, 2013)
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Power Reform and Restructuring
To attract private investment, power sector reforms were initiated in 1991 to encourage competition in power generation and transmission and distribution under an independent and transparent regulatory regime. As a result, CERC, at the national level, and SERCs, at the state level, were established. The GoI’s intent is to provide a conducive policy environment to encourage free and fair competition in each area of the power industry and to attract capital from all sources, public and private, domestic and foreign, which it has deemed important for India to meet its energy needs. These power reforms include, among other things, deregulation of the price of commercial energy resources, an increase of competition through institutional, legislative and regulatory reforms and reduced subsidies to state owned producers.
Legal, policy and regulatory framework
Regulators
Under the Indian constitution, “electricity” is in the concurrent list, which means that both the central and state legislatures have jurisdiction and can adopt regulations. Under the Electricity Act, the intra-state power sector (transmission, distribution, and trading) is regulated by SERCs and the inter-state power sector is regulated by CERC. The regulatory system consists of:
CERC regulating all matters where more than one state is involved including fixing the tariffs of generating plants, inter-state transmission of electricity, adjudicating disputes for distribution companies and transmission licensees that fall within its jurisdiction and to specify a National Grid code; SERC regulating generation and distribution of electricity within a state; and an appellate tribunal (being the court of appeal against the orders of the appropriate regulatory commission).
In addition, the CEA is responsible for power planning for the country, advising the GoI and regulatory commissions, and specifying technical specifications for establishing new installations and grid safety.
The legislative framework is governed by the Electricity Act. This along with subsequent policies, including the NTP and the NEP, broadly defines the policy landscape.
Electricity Act, 2003
Given the GoI’s focus on attracting more private investment to the power sector, the Electricity Act was enacted in, 2003, which consolidated the laws relating to generation, transmission, distribution, trading and use of electricity and replaced the earlier legislations. The intent of the Electricity Act is to provide for the reforms agenda to proceed on all fronts. The Electricity Act envisaged altering the market structure to be conducive to greater competition and availability of choice to consumers. The Electricity Act attempts to move the market to a more efficient and demand-supply determined outcome by enabling competition under a strong and predictable regulatory regime. In connection with the trading of power, trading was recognized as a distinct activity for the first time, and a restriction was imposed on transmission companies being allowed to engage in trading.
Some key features of the Electricity Act are as follows:
The GoI is to prepare a National Electricity Plan in consultation with state governments. Provision for license free generation and distribution in rural areas. De-licensing of generation and permitting generation by captive units. Hydro-electric projects would, however, need clearance from the CEA. Transmission utilities established at the central and state levels. Provision for private licensees in transmission and entry into distribution through an independent network. Open access in transmission. Open access in distribution to be introduced in phases, with surcharges for current level of cross subsidy to be gradually phased out along with cross subsidies and obligations to supply. SERCs to frame regulations within one year regarding phasing of Open access. From January 2004 Open access
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is required to be granted on the distribution network (subject to capacity constraints) to consumers with loads above 1 MW. SERCs must be established by each state government. Trading as an activity is recognized as distinct from transmission and distribution with the safeguard of CERC and SERCs being authorized to restrict trading margins, if necessary. Provision for reorganization or continuance of SEBs. Metering of all electricity supplied made mandatory. An appellate tribunal is established to hear appeals against decisions of CERC and SERCs.
The Electricity Act was amended in 2007. The amendments broadly relate to:
the term “elimination” has been omitted in relation to cross-subsidies; captive units will not require a license to supply power to any user; strict action against unauthorized usage of power; and power theft has been recognized as a criminal offense, punishable under Section 173 of the Code of Criminal Procedure, 1973.
Under the Electricity Act, the cross-subsidy surcharge and cross-subsidies would be progressively reduced and eliminated. In the tariff policy issued in January 2006, the Government suggested that by the end of 2010-2011, tariffs should be +/- 20.00% of the cost of supply, in conjunction with the Electricity Act, which envisaged a complete elimination of cross-subsidies. For this, the policy suggested that SERCs prepare a road map to achieve this target. However, the amendment to the Electricity Act suggests that cross-subsidies would be reduced gradually, and not completely eliminated, in accordance with the earlier provision of “elimination of cross-subsidy”. Therefore, the amendment is likely to allow states to be more lenient in setting targets for cross- subsidy reduction. Consequently, this may act as a setback to the reformation process, since elimination of cross-subsidies is an important pre-requisite for tariff rationalization and improving the financial condition and results of state utilities.
The amendments related to penalties for unauthorized usage of power and recognition of power theft as an offence punishable under Section 173 of the Code of Criminal Procedure, 1973, are to ensure strict action against power theft. These amendments simplify the process of identifying those consumers stealing power, as well as increase the assessment amount, which is intended to help curb losses in the system. This is expected to further strengthen the drive by respective state utilities to eliminate power theft and improve operational efficiencies. According to the CEA, India faced T&D losses of 23.65% in Financial Year 2011-2012, which implies that approximately one third of the power is lost due to theft, pilferage and technical inefficiencies. A large part of the power lost is through theft and unaccounted agricultural consumption. Therefore, focused efforts towards eliminating theft of power can help reduce distribution losses substantially. (Source: Growth of Electricity Sector in India from 1947-2013, CEA, Ministry of Power, Govt. of India, July, 2013)
Policy Initiatives
From time to time, the Ministry of Power has made key policy announcements in an effort to stimulate the sector and attract private sector participation. Some of the key policy initiatives are as follows:
National Electricity Policy, 2005 (“NEP”)
In 2005, the GoI announced the National Electricity Policy for the power sector, as per the mandate of Section 3 of the Electricity Act. The NEP, while establishing guidelines for the accelerated development of the electricity sector, aims at providing reliable supply of electricity to all by 2012, and at the same time promises to protect the interest of all consumers and other stake holders. Some key features of the NEP are as follows:
Creation of adequate generation capacity with a spinning reserve (additional capacity utilized only under certain circumstances and generally deriving revenues in excess of ordinary tariffs) of at least 5.00% by 2012, with availability of installed capacity at 85.00%. To promote power market development, a part of new generating capacity could be sold outside of long term purchase agreements. Full development of hydro-electricity potential. Choice of fuel for thermal generation to be based on economics and supply of electricity. Development of the National Grid.
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Availability Based Tariff to be extended to the state level for better grid discipline through economic signaling. Special emphasis on time reduction of transmission and distribution losses. Reliability and quality of power supply to be monitored by SERCs. Exploitation of non-conventional energy sources such as small hydro-electricity, solar, biomass and wind for additional power generation capacity. Adoption of a technology system for ensuring correct billing to consumers. Efficient implementation of stringent measures against theft of electricity. Transmission capacity to have redundancy level and margins as per international standards. Adequate transitional financial support for reforming power utilities. Encouragement for private sector participation in distribution.
National Tariff Policy (“NTP”)
On January 6, 2006, the GoI announced the NTP as directed by Section 3 of the Electricity Act, and in continuation of the NEP. The NTP stipulates that all future power requirements should be procured competitively by distribution licensees except in cases of expansion of existing projects or where there is a state controlled or state owned developer involved, in which case regulators will need to resort to tariffs determined by reference to standards of CERC, provided that expansion of generating capacity by private developers for this purpose will be restricted to a one-time addition of not more than 50.00% of the existing capacity. Under the NTP, tariffs for all new generation and transmission projects, including public sector projects, will be decided on the basis of competitive bidding after five years.
Competition
Part of the GoI’s objective in implementing the policies described above is to encourage competition in the power sector. The policies directly affect competition in the following manner:
All future procurement of power has to be contracted through competitive bidding by distribution licensees, even in the case of the public sector, where competitive bidding should be utilized by 2011. Regulated pricing applies when competitive bidding has not been adopted. Open access on the common carrier principle is allowed on transmission networks, and since January 2009 is mandated by law to be phased in on distribution networks. This enables competition in procurement of bulk power as well as in retail supply to large consumers who will soon be able to contract supply on their own. 100.00% foreign direct investment is permitted in power generation (except nuclear), transmission, distribution and trading. There is no limit on the project cost and quantum.
Also as a result of the Electricity Act and GoI’s policies, some state utilities are being unbundled, or in some cases privatized to achieve commercialization and to efficiently handle different aspects of generation, transmission and distribution.
Fuel Options
Coal
The share of Coal and petroleum is expected to be about 66.8 per cent in total commercial energy produced and about 56.9 per cent in total commercial energy supply by 2021-22. The demand for coal is projected to reach 980 MT during the 12th Plan period, whereas domestic production is expected to touch 795 MT in the terminal year (2016-17). Even though the demand gap will need to be met through imports, domestic coal production will also need to grow at an average rate of 8% compared to about 4.6% in the Eleventh Five Year Plan. The share of crude oil in production and consumption is expected to be 6.7% and 23% respectively by 2021-22.
Deregulation and the opening of the sector to private participation is aimed at encouraging state owned coal utilities to improve performance and attract investments to upgrade and open new mines.
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Natural gas
In 2011-12, India was the fourth largest consumer in the world of crude oil and natural gas, after the United States, China, and Russia. India’s energy demand continued to rise inspite of slowing global economy. Petroleum demand in the transport sector is expected to grow rapidly in the coming years with rapid expansion of vehicle ownership. While India’s domestic energy resource base is substantial, the country relies on imports for a considerable amount of its energy use, particularly for crude petroleum.
Natural gas is increasingly used in combined cycle gas turbine power stations in view of the high efficiencies resulting from the use of advanced technology gas turbines. Natural gas is a relatively minor fuel in India’s primary energy consumption. However, it is expected to become a preferred fuel. Natural gas is estimated to become a larger part of India's fuel sources by 2025 due to its ease of use and less polluting nature. Under its New Exploration Licensing Policy, the GoI allocated blocks for the exploration of gas which has resulted in the discovery of large gas reserves.
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BUSINESS Overview
We are a power project development company in India, with experience in developing and operating multiple power plants across India. We operate in the power generation business and have long-term fuel access to our various power plants. Our power projects are in various phases of operation and development, including operational power projects, a power project under construction and power projects in the planning phases. We were established in 2001 to capitalize on the emerging opportunities in the Indian power sector and focus on developing, operating and maintaining power projects. We supply power through a combination of long-term, medium-term and short-term PPAs to a combination of industrial consumers and state-owned entities in India. In the fiscal year 2014, we had total consolidated revenues from operations of `21,118.01 million and incurred losses of `1,628.89 million.
Our promoter company, KSK Energy, is incorporated and registered in Mauritius, and is a wholly-owned subsidiary of KSK Power Ventur plc, an Isle of Man incorporated entity that is currently listed on the London Stock Exchange. We are a listed subsidiary of KSK Power Ventur plc. Our individual Promoters, Mr. S. Kishore and Mr. K.A. Sastry, prior to setting up the Company, have been involved in the development of power projects in various advisory and consultant roles.
We currently have (i) six power plants (aggregating 872 MW) and one unit of 600 MW (that is part of our 3,600 MW Mahanadi power plant with an aggregate of six units), that are fully operational and (ii) five remaining units of the 3,600 MW Mahanadi power plant (aggregating 3,000 MW) that are currently under various stages of construction. In addition, certain other thermal, solar and hydro power projects, including outside India, are in various stages of planning.
Key Milestones
Year Milestone 2014 Mahanadi SPV entered into PPA dated February 26, 2014 with the Paschimanchal, Purvanchal, Madhyanchal and Dakshinanchal Distribution Companies of Uttar Pradesh for 1,000 MW power supply. Mahanadi SPV executed a fuel supply agreement dated March 19, 2014 with South Eastern Coalfields Limited (“SECL”) for the supply of approximately 5 MTPA coal. 2013 Mahanadi SPV entered into PPA dated November 27, 2013 with the Tamil Nadu Generation and Distribution Corporation Limited (“TANGEDCO”) for 500 MW power supply. Mahanadi SPV entered into PPA dated October 18, 2013 with the Chhattisgarh State Power Trading Company Limited for 225 MW power supply. First 600 MW unit of the 3,600 MW project of the Mahanadi SPV in the State of Chhattisgarh commissioned. New initiatives on solar power generation undertaken by the Group. 2012 Mahanadi SPV entered into PPA dated July 31, 2012 with the Central, Eastern, Southern and Northern Distribution Companies of Andhra Pradesh for 400 MW power supply. Wardha SPV (formerly, Wardha Power Company Limited) secured long-term coal supplies from Western Coal Fields Limited (“WCL”) and upon commissioning of the units, a fuel supply agreement dated April 3, 2012 was entered for the supply of 1.625 MTPA from the Bellora Naigaon, Urdhan and Ukni blocks. 2011 Wardha SPV became fully operational - entered into a medium-term PPA to supply power to Reliance Infrastructure Limited (“RIL”). The Promoter and the Promoter Group complete an open offer to acquire additional 20% of the Equity Shares of the Company increasing their shareholding to 74.94%. Arasmeta power plant unit of 43 MW commenced power generation. 2010 Mahanadi SPV entered into PPA with Gujarat Urja Vikas Nigam Limited (“GUVNL”) for supply of 1,010 MW coal based on coal supplies from the Morga-II block by Gujarat
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Year Milestone Mineral Development Corporation Limited (“GMDC”). VS Lignite power project commissioned. 2009 Coal supply agreement dated February 10, 2009 entered with Goa Industrial Development Corporation Limited (“GIDC”) that enhanced the capacity of the Chhattisgarh project of the Mahanadi SPV by 1,800 MW to 3,600 MW. The Mahanadi SPV entered into an Implementation Agreement dated August 13, 2009 with the GoC. 2008 Initial public offering of the Equity Shares of the Company. 2007 Sai Regency power plant commenced commercial operations under the “open cycle” mode in March 2007 and under the “combined cycle” mode in September 2007. 2006 First unit of Arasmeta power plant commissioned. Coal supply and investment agreement dated November 16, 2006 entered into with GMDC for supplies to proposed 1,800 MW Chhattisgarh project. KSK Energy lists on AIM Market of London Stock Exchange.
Our Strengths
Fuel Access Security
One of the key factors in the power generation sector is the availability of adequate amounts of quality and cost- efficient fuel through the lifetime of a power plant. We have entered into private-public partnerships with government enterprises for accessing fuel for our power plants that are operational and our power projects that are currently under construction or planning. Towards this end, we have secured fuel linkages from government- owned companies for our operational projects. For example, we have secured coal supplies from GMDC and GIDC for our Mahanadi power plant, and have secured a tapering coal linkage from SECL in the interim. We have also secured coal supplies from WCL for our Wardha Warora power plant on cost-plus basis. We believe that these arrangements not only translate into confirmed access to adequate quantities of fuel reserves but also enable the host states of such mineral development corporations to access part of the power generated at attractive prices.
Sustainable Business Model
We conduct our business solely through SPVs incorporated specifically for holding and operating our power projects. Our dedicated and group captive power plants are often developed to align with our consumers’ requirements and hence we share equity shareholding in these SPVs with a select group of plant-specific consumers and strategic partners. For example, we own a 73.92% equity interest in the Sai Regency SPV, and the remaining equity shareholding is held by various captive consumers. Our consumers or strategic partners who hold equity interests in our SPVs typically hold preference shares or equity shares with restrictive dividend rights. This ownership structure results in lower than anticipated capital outlay for us, while simultaneously allowing us to retain all or a majority of the economic interest in the underlying power plant. We continue to explore other feasible capital structuring options for our power projects.
Currently, we have entered into primary off-take arrangements with our industrial consumers and/or state- owned distribution companies, while providing state-owned utility companies with surplus power. We intend to utilize an optimal mix of off-take arrangements with state-owned and industrial consumers for our power projects. We believe that this mix will enable us to tap into the unregulated as well as the regulated space of the Indian power generation market. Tapping into the regulated space will ensure revenues by implementation of take-or-pay structures into long-term PPAs, while catering to industrial consumers on short-term to medium- term PPAs, whether on a dedicated captive basis or on a group captive basis, will open our tariff structures to market demand and supply dynamics, resulting in opportunities to shift to a superior mix of consumers and to capitalize on increases in tariffs.
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Committed Power Off-Take and Established Relationships with our Consumers
We generally enter into long-term, medium-term and short-term PPAs with our consumers, depending on their requirements. Typically, our long-term agreements provide that consumers purchase power generated in pre- determined quantities at pre-determined rates and surplus power, if any, may then be sold to other third parties in the unregulated market. This arrangement allows us to ensure that our consumers are locked-in for a particular period while enabling us to take advantage of market rates for surplus power. In the case of our medium and short-term PPAs, our relationships with our consumers facilitate renewal of our PPAs along with permitting us to increase tariffs according to prevailing market conditions.
In addition, our strategy of sharing equity participation with our consumers in the SPVs that operate the power plants catering to their respective needs has resulted in long-term relationships with our consumers. As a result of this business model, we believe we demonstrate our commitment to our consumers and to their industries.
We have recently entered into PPAs with four UP Distribution Companies (“UP Discoms”) and TANGEDCO which we believe are significant among the PPAs executed pursuant to Case-I bidding procedure through the tariff-based competitive bidding process of the GoI.
Experience and Proven Management and Execution Skills
We have experience in operating captive and independent power plants in India. We have, along with our operational power plants, experience in commissioning power plants with a total capacity of 1,472 MW of power to date. In addition, our individual Promoters, Mr. S. Kishore and Mr. K.A. Sastry have been involved in power project development in various advisory and consultant roles.
As a result, we believe that we have demonstrated the skills necessary in developing and operating power projects and have also established a qualified and experienced team to undertake the development and operation of power projects in India. We believe that our experience, together with the experience of our Promoters and other companies in the Group in project implementation provides us with a competitive advantage in this industry.
Our Strategies
Capitalize on the Growth of the Indian Power Generation Sector
The power sector in India has historically been characterized by power shortages that have worsened over time. According to the CEA, the gap between power demand and supply for the period from April 2013 to March 2014 across India was 6,103 MW. We believe that our power projects will play a role in the growth of the Indian power sector and contribute in achieving the GoI’s vision for the power sector. In addition to the power projects that we are currently operating, constructing or planning, we intend to develop or acquire additional power projects in the future.
Continue to Focus on our Sustainable Business Model
Opening the power generation sector in India to the private sector has increased the involvement of market dynamics in the operation and maintenance of power projects across the country. In order to remain competitive we will continue, and propose, to undertake the following steps:
• continue to evaluate and gauge competitive opportunities in the power sector that we can enter into;
• consolidate our position in the power sector by increasing our portfolio of power projects;
• focus on fuel security, through the use of various types of fuel from separate sources;
• continue to enter into strategic relationships with our consumers or fuel suppliers in establishing SPVs to operate the power projects; and
• focus on entering into appropriate arrangements for the supply of water and transport infrastructure.
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Developer Driven Business Model
We intend to continue to focus on a developer driven business model. We intend to establish power projects with cost-efficient, sustainable, long-term sources of fuel. In addition, we intend to continue to invest in the captive power projects of our consumers by setting up dedicated power projects matching, as much as possible, their power requirements. We intend to continue to partner with our key large consumers, procuring joint equity participation in SPVs operating the specific power projects. We believe that this will continue to enable us to enter into long-term PPAs with consumers for confirmed power supply entitlements. In addition, we will continue to focus on entering into short-term to medium-term PPAs with respect to our balance power availability to actualize potential revenue increases or bridge interim power surpluses.
Secure Fuel Access
Having a dedicated, cost-efficient and established fuel supply arrangement for a power plant is fundamental to its success. Our strategy has been to establish dedicated fuel supply arrangements prior to setting up a power plant and continue to develop such arrangements during the operation of the plant. We try to ensure that we have adequate supplies of cost-efficient fuel through captive fuel sources, long-term contracts with private parties or with state mineral development corporations to meet our power projects’ needs. While we believe that we have adequate quantities of fuel to sustain our operational power plants and power projects under construction, we will continue to explore other options and sources for procuring and strengthening our fuel supplies.
Summary of our Power Projects
The table below provides an overview of our power plants which are currently either operational or under construction:
Existing/ Proposed Project Name of Installed Off-Take Our Equity Name Project SPV Location Capacity# Status Fuel Supply Arrangements Shareholding
Operational Power Plants
Arasmeta Arasmeta Chhattisgarh 86 MW (2 x Commissioned Agreements Long-term PPA 51% Captive 43 MW) with SECL with Power coal based Chhattisgarh Company State Power Private Distribution Limited Company Limited Sai Regency Sai Regency Tamil Nadu 58 MW Commissioned Agreement Long-term 73.92% Power natural gas with GAIL PPAs with Corporation based (India) multiple captive Private Limited industrial Limited consumers Sitapuram Sitapuram Andhra Pradesh 43 MW Commissioned Agreement Long-term PPA 49% Power coal based with with ZCL; Limited* Singareni short-term Collieries arrangement Company with local Limited utility for (“SCCL”) surplus power VS Lignite VS Lignite Rajasthan 135 MW Commissioned Allotted the Long-term 74% Power lignite based Gurha (East) PPAs with Private block by the multiple captive Limited GoI industrial consumers; short-term arrangement with local utility for surplus power Wardha Sai Wardha Maharashtra 540 MW (4 Commissioned Agreement Long-term 83.93% Warora Power x 135 MW) with WCL PPAs with Limited coal based multiple captive industrial
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Existing/ Proposed Project Name of Installed Off-Take Our Equity Name Project SPV Location Capacity# Status Fuel Supply Arrangements Shareholding
consumers Sai Maithili Sai Maithili Rajasthan 10 MW solar Commissioned - Long-term PPA 52% Power power with NTPC Company project Vidyut Vyapar Private Nigam Limited Limited
Power Projects Under Construction**
Mahanadi KSK Chhattisgarh 3,600 MW Unit 1: Agreement PPAs with 85.63% Mahanadi (6 x 600 Commissioned with GMDC Andhra Pradesh Power MW) coal Balance units for Morga-II distribution Company based under coal block; companies, Limited construction agreement Chhattisgarh with GIDC State Power for Gare Trading Pelma-III Company coal block; Limited, tapering coal GUVNL, linkage with TANGEDCO SECL and UP Discoms ______# Installed capacity means the total generating capacity of the power plants as determined by the relevant governmental authority for the power plants that are operational or as specified in the EPC contract for the power plant that is under construction. * Joint venture with ZCL. ** One unit of the Mahanadi power project has been commissioned.
Description of Our Power Projects
Details of our commissioned, under construction and planned power projects are set forth below.
86 MW Arasmeta Power Plant – Arasmeta, Chhattisgarh
Introduction
This power plant is a coal-based thermal power plant with the capability of generating 86 MW (2x43 MW) of power and is situated at Gopal Nagar, Janjgir-Champa District, Chhattisgarh. This project was executed at a total capital cost of `4,880 million and was funded through the Arasmeta SPV. We currently hold a 51% equity interest in the Arasmeta SPV through our wholly owned subsidiary, KSK Electricity Financing India Private Limited (“KEFIPL”). The remaining 49% equity shareholding is currently held by LIPL. LIPL holds equity shares that have preferential dividend rights of 0.1% of the face value of such equity shares. We are entitled to the balance of the distributable dividends payable by the Arasmeta SPV.
The Arasmeta SPV has requested for change in its status from the category of a captive power producer to an IPP. This request has been appraised by the Standing Linkage Committee (Long-Term) of the Ministry of Coal of the GoI, and is currently under process.
Financing
We, LIPL and the Arasmeta SPV entered into a shareholders’ agreement dated February 10, 2005 and a supplemental shareholders’ agreement dated November 1, 2007, pursuant to which we invested `385.05 million and LIPL invested `369.95 million in the equity share capital of the Arasmeta SPV.
Debt for the project was secured from IDFC and the SBI for the initial 43 MW phase. Financing for the second 43 MW phase was provided by L&T Infrastructure Finance Company Limited, together with IDFC and the SBI.
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Fuel Supply
The Arasmeta SPV had entered into a coal supply agreement dated June 24, 2008 with SECL, which was valid for five years from July 1, 2008. SECL was required to supply 224,652 tonnes of coal per year to the Arasmeta SPV from its mines situated at Korba, Chhattisgarh. The coal supplied was to be of a specified quality as stipulated in the agreement. The coal supplied by SECL was for exclusive use at the Arasmeta power plant. The coal supply agreement was renewed up to December 31, 2013 and SECL was required to supply 224,652 tonnes of coal per year from SECL mines in any coalfield and/or from international sources. Pending further renewal, coal supplies from SECL under this fuel supply agreement continue.
The Arasmeta SPV has also entered into coal supply agreement dated September 13, 2012 with SECL for an annual contracted quantity of 218,100 tonnes to be supplied by SECL from any coal block of SECL and/or from international sources. The agreement is valid for a period of five years from the first delivery date.
Power Generation
The Arasmeta power plant utilizes coal as its primary fuel and comprises power generating units of 86 MW capacity (2x43 MW), configured as two atmospheric fluidized bed control type boilers and one steam turbine generator of the condensing type, coupled to an alternator for the production of power. The first unit was commissioned in November 2006 and the second unit in September 2011. The PLF for the Arasmeta power plant was 45% for the year ended March 31, 2014.
Off-Take Arrangements
The Arasmeta SPV has previously entered into PPAs for the supply of power to LIPL. The PPA for the initial 43 MW generated by the first unit was entered into with LIPL on February 10, 2005, which was valid until December 31, 2013 and, renewable thereafter. Once an additional unit of 43 MW was set up, another PPA was executed with LIPL on November 1, 2007, which is valid for a period of 7½ years and, renewable thereafter.
With non-renewal of the first PPA by LIPL:, as well as early termination of the second PPA sought by LIPL, the Arasmeta SPV has entered into a PPA dated December 9, 2013 with the Chhattisgarh State Power Distribution Company Limited for the supply of 75 MW of power by the Arasmeta SPV, subject to approval of the Chhattisgarh State Electricity Regulatory Commission. The approval has since been granted on May 7, 2014.
We have challenged the early termination of the PPA by LIPL. For further details, see the section “Legal Proceedings” on page 184.
Power Evacuation
The power plant is connected to the state grid at the Akaltara sub-station of the Chhattisgarh State Power Transmission Company Limited. The power generated at the power plant is stepped up to 132 kV at the power station switchyard.
Water Supply
The water requirements for the Arasmeta power plant are met through water drawn from the Lilagarh River. The Arasmeta SPV has entered into an agreement dated February 20, 2006 with the GOC for a 30 year license to draw 175,000 cubic meters of water per month for use by the power plant, with a monthly “take or pay” obligation of 90% of such quantity.
Operations and Maintenance
The Arasmeta SPV has entered into a letter of intent dated March 15, 2014 with Powermech Projects Limited for round the clock operation and maintenance of the main plant, coal handling plant and ash handling plant with all the systems/sub-systems/auxiliaries (but excluding central control room operations).
Property
LIPL entered into a 15 year lease with the Arasmeta SPV on February 11, 2005, for 24.08 acres and a 14 year lease dated January 31, 2006 for 9.66 acres of land owned by LIPL and required for the project, renewable for a
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subsequent five year term. The Arasmeta SPV has also entered into a lease for 99 years with the Chhattisgarh State Industrial Development Corporation for 6.79 acres of land utilized by the Arasmeta power plant. Additionally, the Arasmeta SPV has purchased freehold land of 3.84 acres.
Insurance
The Arasmeta SPV maintains industrial all risk (that includes material damage and loss of profits insurance) and transit insurance policies for the power plant.
58 MW Sai Regency Power Plant – Kalugurani, Tamil Nadu
Introduction
This power plant is a natural gas-based combined cycle power plant with the capability of generating 58 MW of power. The power plant is situated in the Kalugurani village, in the district of Ramanathapuram in Tamil Nadu, India. This project was executed at a total capital cost of `2,199.70 million and was funded through the Sai Regency SPV. We currently hold a 73.92% equity stake in the Sai Regency SPV through our wholly-owned subsidiary, KEFIPL. The remaining 26.08% equity shareholding is held by several industrial consumers who are entitled to the power generated by the Sai Regency power plant. These industrial consumers hold equity shares that have restricted dividend rights of 0.01% of the face value of such equity shares. We are entitled to the balance of the distributable dividends payable by the Sai Regency SPV. These industrial consumers operate in several industries, including textiles, chemicals and pharmaceuticals.
The Sai Regency SPV had acquired 18.90 MW of wind-power generators in 2011, which have since been divested to Lotus Clean Power Venture Private Limited pursuant to a sump sale agreement dated May 2, 2014.
Financing
The term loans for the Sai Regency power project were originally from the SBI and six other state banks, with SBI acting as the security agent for the other banks, pursuant to a common loan agreement dated August 3, 2005 for an aggregate amount of `1,300 million. These facilities were subsequently refinanced by the SBI (the “SBI Facility”) which provided take-out financing for the Sai Regency SPV. The Sai Regency SPV is currently seeking additional financing to enable refinancing of the SBI Facility. The Sai Regency SPV has also availed of a term loan and overdraft facility from Punjab National Bank for an aggregate amount of `1,600.00 million.
Fuel Supply
The Sai Regency SPV has entered into a Gas Sales and Transmission Agreement dated December 20, 2010 with GAIL (India) Limited (“GAIL”) for the sale and purchase/transmission of natural gas. Subject to its availability, the Sai Regency SPV may purchase a maximum of up to 268,000 standard cubic meters of gas per day. This agreement came into effect on January 1, 2011 and will remain valid until December 31, 2015, unless extended by the parties.
In addition, on October 25, 2008, the Sai Regency SPV signed a term sheet for the purchase of natural gas from GAIL. Pursuant to such term sheet, the Sai Regency SPV entered into a Gas Sales Agreement on December 20, 2010 with GAIL for purchase of natural gas from Kanjirangudi and Palk Bay Shallow fields in the Cauvery basin owned by ONGC for the supply of 72,000 standard cubic meters of gas. The validity of this Agreement has been extended up to July 10, 2014 pursuant to a side letter dated March 25, 2014 and the term may be extended further subject to gas availability and agreement with the upstream supplier (ONGC).
Power Generation
The Sai Regency power plant utilizes natural gas as its primary fuel and comprises one gas turbine generator set with gross power output of 39.20 MW and one steam turbine generator set with gross power output of 18.75 MW with associated heat recovery steam generator boiler. The Sai Regency power plant commenced commercial operations under the “open cycle” mode in March 2007 and under the “combined cycle” mode in September 2007. The PLF for this plant was 88% for the year ended March 31, 2014.
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Off-Take Arrangements
Currently, the Sai Regency SPV has off-take agreements with the following consumers:
Power Power Consumer Date of Agreement/Arrangement Entitlement Chemplast Sanmar Limited May 23, 2006, amended on February 10 MW 26, 2010 Precot Meridian Limited July 31, 2007, amended on August 14, 3 MW 2010 and September 20, 2011 Brakes India Limited April 12, 2005, amended on February 10 MW 23, 2010 Orchid Chemicals & Pharmaceuticals Limited May 23, 2006 and August 16, 2007, 6 MW amended on March 1, 2010 The Lakshmi Mills Company Limited July 4, 2005, amended on July 18, 2005 7 MW and January 1, 2010 Jagannath Textile Company Limited December 12, 2005, amended on 6 MW September 1, 2010 El Forge Limited August 25, 2005 2 MW Harshini Textiles Limited February 18, 2006 1 MW Light Alloy Products Limited February 18, 2008 1 MW Sundaram Clayton Limited August 20, 2012 5 MW MRF Limited August 14, 2012 5 MW TVS Srichakra Limited December 17, 2011 2 MW Total 58 MW
As per the off-take agreements, the consumers are obliged to pay for deficient off-take of energy on a monthly basis and the Sai Regency SPV is obligated to pay for any shortfall in supply of energy, subject to annual reconciliation.
Power Evacuation
The Sai Regency SPV has entered into a Revised Energy Wheeling Agreement dated May 15, 2014 with the TANGEDCO for the parallel operation of the Sai Regency SPV’s captive generating plant and wheeling of energy from the plant to the destination of its use through the transmission/distribution network of the TANGEDCO through 110 kV lines. This agreement is for a term of one year from the date of the agreement and may be extended for further periods based on mutual agreement of the parties.
Water Supply
The water requirements for the Sai Regency power plant are met through water provided by South Ganga Water Technologies Private Limited. The Sai Regency SPV entered into an agreement with South Ganga Water Technologies Private Limited to draw 250,000 litres of potable water per day for the power plant.
Operations and Maintenance
The Sai Regency SPV and OEG entered into operation and maintenance agreements on February 26, 2007, appointing OEG as the O&M contractor for a period of 12 years, with a renewal option at the end of the term upon mutual agreement of the parties. The agreements provide for OEG to serve as the O&M services provider for a one-time mobilization fee and annual fees.
Property
The Sai Regency SPV owns freehold land measuring 19.18 acres at Kalugurani village, Ramanthapuram, Tamil Nadu.
Insurance
The Sai Regency SPV maintains an industrial all risk insurance policy (which includes material damage), and a transit insurance policies for the power plant.
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43 MW Sitapuram Power Plant – Dondapadu, Andhra Pradesh
Introduction
This power plant is coal-based with the capability of generating 43 MW of power. The power plant is situated in Dondapadu, Andhra Pradesh, India and was commissioned in March 2008. This project was executed at a total capital cost of `1,590.00 million and has been funded through the Sitapuram SPV. We currently hold a 49% equity stake in the Sitapuram SPV through our wholly-owned subsidiary, KEFIPL. The remaining equity shareholding is currently held by ZCL. ZCL is in the business of manufacturing cement and is the exclusive consumer of the power generated by the Sitapuram power plant.
Financing
Pursuant to a share subscription and shareholders’ agreement dated July 21, 2005, among us, ZCL, Shri Vishnu Cements Limited (“SVCL”, since merged with ZCL) and the Sitapuram SPV, we invested `200.00 million, and ZCL and SVCL jointly contributed `280.00 million as capital contributions in the Sitapuram SPV. The share subscription and shareholders’ agreement provides for a buyout option for ZCL and SVCL, specifying that at any time after three years from the date of commercial operation of the power plant, both parties can require us to sell all of our equity shares in the Sitapuram SPV to them and concurrently terminate the share subscription and shareholders’ agreement and the PPA.
Further, `1,110.00 million of the project cost was initially financed through secured term loans from IDFC, Indian Overseas Bank and Industrial Development Bank of India Limited. The term loans have been refinanced by SBI in March 2013 at an interest rate of 2.70% above the base rate and is repayable in 40 quarterly installments. In addition to the term loan amount of `1,110.00 million, SBI has also sanctioned fund and non- fund based facilities aggregating to `287.50 million.
Fuel Supply
The Sitapuram SPV entered into a fuel supply agreement with SCCL in April 2008 to obtain coal supply. The agreement with SCCL was initially valid for a period of two years from April 1, 2008 and was renewed in 2010 and 2012. The fuel supply agreement has been renewed again in April 2014 for the supply of 212,850 tonnes per annum of coal and is valid for a period of three years until March 31, 2017.
Power Generation
The Sitapuram power plant utilizes coal as its primary fuel and contains a power generating unit of 43 MW capacity, configured as two atmospheric fluidized bed control type boilers and one steam turbine generator of condensing type. The station cooling system is of the closed loop type consisting of a cooling tower with associated basin and pumps. The PLF for this plant was 91% for the year ended March 31, 2014.
Off-Take Arrangements
The Sitapuram SPV entered into a long-term PPA dated July 21, 2005, with ZCL and SVCL, which is valid for ten years from the date of commercial operation of the power plant unless renewed for an additional five years at the discretion of ZCL and SVCL.
The PPA also provides that the Sitapuram SPV is obligated to generate and supply an aggregate of 250 million kWh of energy to ZCL and SVCL annually and ZCL and SVCL have the obligation to consume 250 million kWh annually and between 19 to 23 million kWh per month. The Sitapuram power plant also acts as a load manager for ZCL and arranges supplies of power as required. However, the Sitapuram SPV is entitled to sell the balance power to third parties, which is currently being provided to the local utility.
There is a pending dispute between ZCL and the Sitapuram SPV in relation to certain billing matters and disposal of surplus power. For further details, see the section “Legal Proceedings” on page 184.
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Power Evacuation
The power generated at the power plant is delivered through the nearest Transmission Corporation of Andhra Pradesh Limited (“APTRANSCO”) sub-station for wheeling power to the ZCL cement plant. In this connection, pursuant to a gift deed dated March 20, 2007, the Sitapuram SPV and SVCL had jointly donated 18.85 cents of land to APTRANSCO for the purpose of constructing, operating and maintaining an electrical switching station to be used exclusively for the evacuation of power generated by the Sitapuram power plant.
In February 2008, the APTRANSCO granted the Sitapuram SPV long-term open access for transmission of 26 MW of power from the Sitapuram power plant to ZCL through APTRANSCO’s grid for a term of ten years. In December 2012, 8 MW open access has been surrendered. Further, in September 2012, APTRANSCO and Southern Power Distribution Company of Andhra Pradesh Limited entered into a long-term open access agreement with the Sitapuram SPV in relation to the evacuation of an additional 5 MW of power generated by the Sitapuram power plant to ZCL’s cement plant, which is valid until February 28, 2018. The Sitapuram SPV currently has open access in respect of an aggregate of 23 MW for undertaking contracted power supplies to ZCL.
Water Supply
Pursuant to an agreement dated March 4, 2014 with the Government of Andhra Pradesh, the Sitapuram SPV has been permitted to draw 6,000 KL of water per day from the River Krishna for consumptive use for a period of ten years.
Operations and Maintenance
The Sitapuram SPV and Enmas O&M Services Private Limited entered into an operations agreement and a maintenance agreement, each dated April 13, 2007, which are valid for 15 years and seven years, respectively, with a renewal option at the end of each term upon mutual agreement of the parties. The agreements provide for Enmas O&M Services Private Limited to serve as the O&M services provider in exchange for a one-time mobilization fee and annual fees.
Property
Pursuant to a lease deed dated December 21, 2005, ZCL has provided the Sitapuram SPV with 26.665 acres of land for usage by the power plant for a period of 30 years, for an annual consideration of `100 per acre.
Insurance
The Sitapuram SPV maintains industrial all risk insurance (including in respect of material damage and business interruption) and transit insurance policies for the power plant.
135 MW VS Lignite Power Project – Gurha, Bikaner, Rajasthan
Introduction
This power project is a lignite-based power project with the capability of generating 135 MW of power. The power project is situated in Gurha Village, Bikaner District in the State of Rajasthan, India. The power project was commissioned during 2010. The total cost of the power project was `8,670.00 million and was funded through the VS Lignite SPV. We currently hold a 74% equity interest in the VS Lignite SPV through our wholly owned subsidiary, KEFIPL. The remaining 26% equity interest is held by several industrial consumers who are entitled to purchase power from the VS Lignite SPV. These consumers operate in several industries, including textiles, cement, tyres and automobiles.
Financing
Pursuant to share subscription agreements with the VS Lignite SPV, each captive consumer of the VS Lignite power project has agreed to invest in voting equity and preference shares of the VS Lignite SPV in proportion to their entitlement to the power generated from the power project. The equity and preference shares to be held by the captive consumers have preferential dividend rights of 0.01% of the face value of such shares. We are entitled to the balance of the distributable dividends payable by the VS Lignite SPV. As of March 31, 2014, a
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total amount of `1,000 million has been invested by us and various captive consumers as equity investment in the VS Lignite SPV and `1,230 million in the preference share capital of the VS Lignite SPV.
Secured debt financing has been obtained from IDFC, Rural Electrification Corporation Limited (“REC”), Housing and Urban Development Corporation Limited (“HUDCO”), Bank of Baroda Limited (“Bank of Baroda”) and SBI pursuant to various facility agreements entered into by the VS Lignite SPV in accordance with the terms and conditions therein.
The VS Lignite SPV has also entered into a debenture subscription agreement dated March 25, 2014, pursuant to which 6,400 secured optionally convertible debentures of `100,000 each have been issued to L&T Fincorp Limited.
Fuel Supply
The VS Lignite SPV was allotted the Gurha (East) Lignite Block by the GoI, Ministry of Coal in July 2005, which has geological reserves of 22 million tonnes.
The VS Lignite SPV had entered into a mining lease agreement with the Government of Rajasthan for a period of 30 years with effect from August 25, 2008. The lease is for 1,241.25 hectares situated at Gurha, Sub-District Kolayat, District Bikaner, Rajasthan. The period of the lease may be renewed mutually for a further term of 30 years. Additionally, the VS Lignite SPV had been allocated the Lunsara lignite block in Rajasthan on February 7, 2007, which was de-allocated on June 28, 2011.
Power Generation
The VS Lignite power project will utilize one 135 MW steam turbine-generator with one lignite-fired circulating fluidized bed type boiler for generation of power. The PLF for this plant was 76% for the year ended March 31, 2014.
Off-Take Arrangements
The VS Lignite SPV has entered into power delivery agreements (“PDAs”) for the supply of power to the following captive consumers:
1. Balakrishna Industries 2. Suzuki Textiles Limited 3. Nahar Industrial Enterprise Limited 4. Reliance Chemotex Industries Limited 5. APM Industries Limited (Unit Orient Syntex) 6. JK Cement Limited 7. JK Lakshmi Cement Limited 8. J K Tyre and Industries Limited 9. Maharaja Shree Umaid Mills 10. Lafarge India Private Limited 11. National Engineering Industries Limited 12. Raajratna Metal Industries Limited
Additionally, the VS Lignite SPV is required to restrict power supplies within the state of Rajasthan and currently undertakes balance supplies to the local state utility.
There is a pending dispute between the VS Lignite SPV and the captive consumers in relation to certain billing matters, including in relation to the pass through of certain duties and levies. For further details, see the section “Legal Proceedings” on page 184.
Power Evacuation
The power generated at the power project will be delivered to the nearby industrial plants through 220 kV feeders. To service those consumers whose plants are located remotely from the VS Lignite power project, the VS Lignite SPV has applied to the Rajasthan Rajya Vidyut Prasaran Nigam Limited for long-term open access to the state and national electricity grid. On July 16, 2009, the VS Lignite SPV was given permission by the
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Rajasthan Rajya Vidyut Prasaran Nigam Limited for long-term open access on the intra-state transmission and distribution system for transmission and distribution of power from its 135 MW plant, to the extent of 99 MW, and has entered a long-term open access connection agreement for use of transmission system with the Rajasthan Rajya Vidyut Prasaran Nigam Limited.
Water Supply
The VS Lignite SPV entered into an agreement dated August 8, 2007 with the Government of Rajasthan for a license to draw and use water by the power project. The license is for a term of 30 years from the date of commercial operations of the project and allows the VS Lignite SPV to draw water from the Indira Gandhi Nahar Canal.
Operations and Maintenance
The VS Lignite SPV issued a letter of intent on March 3, 2014 to Powermech Projects Limited for round the clock operation and maintenance of the main plant, the coal/lignite handling plant, the lime handling plant and the ash handling plant. The central control room operations are being handled by the engineers of the VS Lignite SPV. The term of the O&M agreement with Powermech Projects Limited is five years from March 3, 2014.
Property
The VS Lignite SPV acquired freehold land aggregating to 252.94 hectares at Gurha and Raneri villages, in the district of Bikaner, Rajasthan for its power plant. In addition, it has acquired freehold land in Gurha (East) Village, Rajasthan for its lignite block.
Insurance
The VS Lignite SPV maintains industrial all risk insurance (including in respect of material damage and business interruption) and transit policies for the power plant.
540 MW Wardha Warora Power Project – Warora, Chandrapur, Maharashtra
Introduction
This power project is coal-based with the capacity of generating 540 MW of power, comprising four generator units of 135 MW each. The power project is situated in Warora Growth Centre, District Chandrapur, Maharashtra, India. The power project was constructed in two phases of 270 MW each, Units 1 and 2 (constituting Phase-I) as IPP and Units 3 and 4 (constituting Phase-II) as captive power plant. Phase-I was commissioned in 2010 and Phase-II during 2011. This power project was completed with a capital cost of `28,430.00 million and is funded through the Wardha SPV.
We hold 83.93% equity interest in the Wardha SPV and the balance is held by captive consumers.
Special Economic Zone (SEZ)
By a letter dated March 14, 2008 the GoI, Ministry of Commerce and Industry had granted approval to the Wardha SPV for the development, operation and maintenance of a power sector SEZ at B2 Maharashtra Industrial Development Corporation, Warora Growth Centre, Warora, Chandrapur, Maharashtra over an area of 102.159 hectares. By a letter dated October 1, 2008, all the facilities and entitlements admissible to a unit in an SEZ were extended by the Development Commissioner, SEEPZ, SEZ to the Wardha SPV, including for the establishment of a unit in the power sector SEZ at B2 Maharashtra Industrial Development Corporation, Warora Growth Centre developed by the Wardha SPV. This approval was renewed on June 21, 2012 and is valid until June 4, 2015.
Financing
The final project cost was `28,430 million, which has been funded through a Rupee term loan of `19,319 million from a consortium of lenders that include REC, HUDCO, Bank of India, UCO Bank, Indian Overseas Bank and Oriental Bank of Commerce, subordinated debt of USD 40.00 million from Standard Chartered Bank and equity contributions by us. A part of the Rupee term loan availed of from REC, HUDCO, Bank of India, UCO Bank,
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Indian Overseas Bank and Oriental Bank of Commerce has been refinanced, pursuant to an external commercial borrowing facility of USD 250.00 million approved by the RBI, from Standard Chartered Bank and IDBI Bank Limited.
Fuel Supply
The Wardha SPV has secured long-term coal supplies from WCL on a cost-plus basis for an aggregate quantity of 2.26 MTPA pursuant to a letter of assurance dated April 9, 2010. Upon commissioning of the units, a fuel supply agreement dated April 3, 2012 was entered for the supply of 1.625 MTPA from the Bellora Naigaon, Urdhan and Ukni blocks. The fuel supply agreements guaranteed quality of coal with calorific content of approximately 4,700 kcal per kg and appropriate price adjustments for any quality deficiencies. Pursuant to a letter dated July 10, 2013, WCL offered to execute a fuel supply agreement for the balance quantity of 0.635 MTPA, subject to fulfilment of certain conditions. The Wardha SPV has contested this before the Competition Commission of India on grounds of abuse of dominant position by WCL. The matter is currently before the Director General for investigation. For further details, see “Legal Proceedings” on page 184.
The Wardha SPV currently procures coal from the open market (including through imports) to meet the shortfall in its fuel requirements.
Power Generation
The Wardha Warora power project utilizes coal in pulverized form as its primary fuel, and uses regenerative, single reheat rankine cycles for power generation. The PLF for this plant was 55% for the year ended March 31, 2014.
Off-Take Arrangements
The Wardha SPV has executed long-term PDAs and obtained necessary open access for power enabling supplies to the following captive consumers:
1. Viraj Profiles Limited 2. Bebitz Flanges Works Private Limited 3. Mahindra & Mahindra Limited 4. Mahindra Vehicle Manufacturers Limited 5. Mahindra Forgings Limited 6. Mahindra Hinoday Industries Limited 7. Mahindra Sanyo Special Steels Limited 8. RL Steels & Energy Limited 9. India Steel Works Limited 10. Sona Alloys Private Limited 11. Mahalaxmi TMT Private Limited
Additionally, the Wardha SPV has committed power supplies to the following captive consumers (open access to these consumers is yet to be provided):
1. Facor Steels Limited 2. Graphite India Limited 3. Air Liquide India Holding Private Limited 4. Orchid Chemicals & Pharmaceuticals Limited 5. Spentex Industries Limited
The Wardha SPV has, pursuant to a medium-term PPA (that has been entered into through a competitive bidding process), undertaken supplies of power between April 2011 and March 2014 from Phase-I of the project to RIL, the distribution licensee in the state of Maharashtra. RIL sought to procure power from Vidarbha Industries Power Limited, a sister concern of RIL. The Wardha SPV has objected and filed a petition before the Maharashtra Electricity Regulatory Commission (“MERC”) seeking to continue its supplies to RIL. For further details, see “Legal Proceedings” on page 184.
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Power Evacuation
Power generated by the Wardha Warora power project is evacuated from a 220 kV Warora sub-station. The Wardha SPV has obtained approval from the Maharashtra State Electricity Development Company Limited to evacuate the 540 MW of power.
The Wardha SPV had applied to the Maharashtra State Electricity Transmission Company Limited (“MSETCL”) for open access under the Electricity Act for undertaking power supplies to various captive consumers. Open access was granted for a portion of the requested capacity on January 11, 2012. Open access was provided for Fiscal Years 2013 and 2014. However, initially the MSETCL did not renew such open access for fiscal 2015. The Wardha SPV obtained such renewal recently after the intervention of the Bombay High Court and the MERC. For further details, see “Legal Proceedings” on page 184.
Water Supply
The Wardha SPV has entered into an agreement with MIDC for a license to draw and use water for the power project. The license allows the Wardha SPV to draw 43 million litres of water per day from the Wardha River. The water is being transported through a pipeline from the Wardha River to the Wardha Warora power project. The Wardha SPV has also signed a Tripartite Agreement dated November 1, 2013 with MIDC and GMR Emco for construction of a permanent weir and allied works on the Wardha River for drawal of water from the Wardha River.
Operations and Maintenance
The Wardha SPV has entered into an agreement dated December 31, 2009 with Korea Plant Service and Engineering Company Limited (“KPSECL”) for total operation and maintenance of the plant, excluding the coal handling plant and the ash handling plant. The central control room operations are being handled by the engineers of the Wardha SPV. The term of the O&M agreement with KPSECL is ten years from the commercial operation date of the last unit of the power plant.
Property
The Wardha SPV has entered into a 95 year lease with the Maharashtra Industrial Development Corporation (“MIDC”) dated August 17, 2007 for a plot measuring 94.46 hectares in the Warora Growth Centre, District Chandrapur, Maharashtra and a lease deed dated July 22, 2010 for additional land measuring 45.86 hectares. The Wardha SPV also owns 5.41 hectares of freehold land.
Insurance
The Wardha SPV maintains industrial all risk insurance (including in respect of material damage and business interruption) and transit policies for the power plant.
10 MW Sai Maithili Power Project – Bikaner, Rajasthan
Introduction
This is a 10 MW solar photovoltaic power project located in Gurha Village, Kolayat Tehsil, Bikaner District, Rajasthan, India. The power project was constructed under Jawaharlal Nehru National Solar Mission initiated by the GoI. The plant was commissioned on February 26, 2013 and is the first grid-connected solar power project in the Group. This project was executed at a total capital cost of `999.81 million and has been funded through the Sai Maithili SPV.
We currently hold 52% equity interest in the Sai Maithili SPV and the remaining equity interest is held by other Promoter group companies.
Financing
The 10 MW solar power project is funded through a combination of debt and equity, of which `370.00 million is funded through equity and `630.00 million is through debt financing. Pursuant to a loan agreement dated October 5, 2012, IDBI Bank Limited has provided the Sai Maithili SPV with a term loan of `630.00 million. The
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Sai Maithili SPV has also secured sanction for a loan from Export-Import Bank of the United States pursuant to a term sheet dated February 25, 2012 for an amount of US$8.97 million.
Power Generation
The Sai Maithili power project uses thin film photovoltaic modules based on the Copper Indium Gallium Selenide (CIGS) technology. The photovoltaic modules have been procured from MiaSolé (USA). As of March 31, 2014, the PLF for the Sai Maithili power project was 21%.
Off-Take Arrangements
The power generated by the project is being supplied to NTPC Vidyut Vyapar Nigam Limited pursuant to a long-term power purchase agreement dated January 27, 2012 and is valid for a period of 25 years.
Power Evacuation
The power generated by the Sai Maithili power project is transmitted through a 33 kV bay allocation in 132 kV sub-station at Kolayat pursuant to a transmission agreement dated July 18, 2012 with the Rajasthan Rajya Vidyut Prasaran Nigam Limited.
Operations and Maintenance
The Sai Maithili SPV has entered into an operations and maintenance agreement dated February 26, 2014 with Refex Energy Limited in respect of the Sai Maithili power project which is valid for a period of four years. The scope of work includes managing operations and preventive and corrective maintenance.
Property
The project was constructed on land owned by the VS Lignite SPV, which has been mortgaged to IDBI Bank Limited as security for the `630.00 million term loan provided by IDBI Bank Limited to the Sai Maithili SPV. The Sai Maithili SPV has been granted the right to use such land for a period of 25 years by the VS Lignite SPV pursuant to a memorandum of understanding dated May 25, 2013.
Insurance
The Sai Maithili SPV maintains industrial all risk insurance (including in respect of material damage and business interruption).
3,600 MW Mahanadi Power Project –Nariyara Village, Chhattisgarh
Introduction
We are developing a 3,600 MW coal based power project in the state of Chhattisgarh. The original project was an 1,800 MW power project based on coal supplies from the Morga-II coal block by GMDC. With the availability of additional fuel from GIDC from the Gare Pelma Sector III coal block in Chhattisgarh, an additional 1,800 MW of power generation capacity at the same location has been added.
Previously, Wardha Power Company Limited had commenced the implementation of two power projects, a 540 MW (4 x 135 MW) coal-based power project located at Warora, Maharashtra and a 3,600 MW (6 x 600 MW) coal-based power project located at Nariyara, Chhattisgarh (“Chhattisgarh Project”). With a view to provide greater business focus on each of these projects and in the best interests of the companies, their respective shareholders, creditors and employees, the Chhattisgarh Project was demerged from Wardha Power Company Limited (since renamed Sai Wardha Power Limited) into KSK Mahanadi Power Company Limited, through a Scheme of Arrangement approved by the High Court of Andhra Pradesh, Hyderabad. We currently hold 85.63% equity interest in the Mahanadi SPV and the remaining equity interest is held by the other Promoter group companies.
The first 600 MW unit was commissioned during 2013 and the second 600 MW unit is expected to be commissioned in 2014.
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Financing
The original estimated cost of the project was `161,900 million. It is funded through debt, sub-debt and equity in the ratio of 75:5:20. The financing mix entailed senior debt of `121,420 million, sub-debt of `8,100 million and equity of `32,380 million. The senior debt has been tied up with a consortium of 26 Indian banks and financial institutions with Power Finance Corporation as the leader of the consortium. The sub-debt has been sanctioned by eight Indian banks and financial institutions. The equity requirement was expected to be met from equity infusion by us and internal accruals of the Group companies and other strategic investors.
The Mahanadi SPV has executed a financing agreement dated April 3, 2014 for availing an external commercial borrowing facility of USD 100.00 million from India Infrastructure Finance Company (UK) Limited to part finance the cost of import of capital equipment and machinery for setting up the power plant.
With various developments, including the significant depreciation of the Indian Rupee, the completion of the project requires additional funding that is currently under assessment and finalization by Power Finance Corporation and will be funded by debt and equity, as may be finalized by the Mahanadi SPV and the consortium of its existing lenders.
Construction of the Facility
The Mahanadi SPV has selected SEPCO Electric Power Construction Corporation (a 100% subsidiary of Shandong Electric Nuclear Power Corporation Group Corp.), an EPC contractor from China engaged in power plant design and construction, as the contractor to undertake design, supply and provide engineering and construction services for the Mahanadi power project. SEPCO has entered into five agreements with the Mahanadi SPV, each dated April 1, 2009, for the provision of such services. Under these agreements, SEPCO will supply the Mahanadi power project with necessary equipment and materials and render such services as are required for the plant to generate aggregate power of 3,600 MW (six units of 600 MW each). This project will be commissioned unit-wise. The first of the six units of 600MW each has been completed and commissioned. The Company follows a “differentiated EPC string approach” where the core units (i.e., #3 and #4) are commissioned first and then the other units are taken up for commissioning thereafter. This also necessitates set up and construction of common infrastructure for each of the three unit blocks (i.e., #7 and #8) as well as for all the six units (#9) as illustrated below:
We believe that while as a result of this approach, we will incur significant initial capital expenditure, it will also result in easier and faster access to materials and common infrastructure set up at the construction site.
Fuel Supply
The plant is designed for use of domestic coal (Grade-F). The coal requirement is estimated to be 15 MTPA at 80% PLF at a gross calorific value of 3,800 kcal/kg and gross station heat rate of 2,240 kcal/kWh.
The domestic coal will be primarily sourced from two coal blocks, namely, Gare Pelma-III and Morga-II. Gare Pelma-III has been allocated to GIDC and Morga-II to GMDC for the supply of coal to the Mahanadi SPV. In the interim, a tapering coal linkage from Coal India Limited is expected to provide for the project’s coal requirements.
Morga-II Coal Block
GMDC has been allotted the Morga-II coal block in Chhattisgarh by the Ministry of Coal, GoI, which has geological reserves of 350 million tonnes. We have entered into a coal supply and investment agreement dated November 16, 2006 with GMDC. Under the terms of the coal supply and investment agreement, as amended by the first amendment dated April 21, 2007 and the second amendment dated August 31, 2007, the Mahanadi SPV
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is entitled to 7 MTPA of coal from the Morga-II coal block on prices to be mutually agreed, commencing three years from the beginning of commercial mining of the block. Pursuant to subsequent amendments, the entitlement of the Mahanadi SPV has been revised to such quantity as is adequate to generate 1,750 MW of power. The coal supply and investment agreement is valid for 30 years from the commencement of supply of coal subject to certain conditions contained therein.
Forest clearance was denied to GMDC by the MOEF in June 2010 due to the “No-Go” policy of the MOEF. However pursuant to the decision of Group of Ministers, the “No-Go” policy was withdrawn in September 2012 and the GOC was asked to forward the proposals for diversion of forests for consideration of forest clearance on the merits of each case. The GOC thereafter forwarded the proposal for forest clearance for prospecting license at the Morga-II coal block to GMDC for reconsideration by the MOEF in January 2013. The Group of Ministers has recommended in February 2013 that forest clearance be accorded to the proposal for prospecting in the Morga-II block on a priority basis based on the request of the GOC. In May 2013, the MOEF has accorded forest clearance for prospecting and for exploratory drilling and the prospecting license was issued to GMDC on December 12, 2013.
Gare Pelma Sector III Coal Block
The Ministry of Coal, GoI has allotted the Gare Pelma Sector III coal block to GIDC, which has geological reserves of 210 million tonnes. We have entered into a coal supply contract dated February 10, 2009 with the GIDC, which is valid for 30 years from the date of commencement of coal supply by GIDC. The coal supply will be exclusively for the Mahanadi project and the Mahanadi SPV will not have the right to resell the coal, unless agreed to in writing by GIDC. The guaranteed contracted quantity of coal supply is 9 MTPA (+ 10%).
The mine plan was approved by the Ministry of Coal in May 2010. Stage-I forest clearance was obtained by GIDC in April 2011, environmental clearance in May 2013 for a peak capacity of 6.5 MTPA and Stage-II forest clearance in September 2013.
Coal Linkage
Pursuant to the coal linkage dated November 12, 2008 and a Letter of Assurance dated June 11, 2009, the Mahanadi SPV was awarded a tapering coal linkage of 7.49 MTPA of coal from SECL. The Mahanadi SPV has executed a fuel supply agreement dated March 19, 2014 with SECL for the supply of approximately 5 MTPA coal.
Other Sources
Pending commencement of fuel supplies under the SECL coal linkage, as well as supplies by GMDC and GIDC from the Morga II and Gare Pelma blocks, respectively, the Mahanadi SPV currently procures coal from the open market (including through imports) to meet the shortfall in its fuel requirements.
Power Generation
The Mahanadi power project will utilize coal as its primary fuel, and will consist of steam turbine generator units, along with its boilers and plant. From the date of commissioning until March 31, 2014, the PLF for the first unit of the Mahanadi power project was 62%.
Off-Take Arrangements
The Mahanadi SPV has entered into an Implementation Agreement dated August 13, 2009 with the GOC providing for supply of 5%/7.5% of the net power generated to the GOC or its nominated agency, on an annualized basis, at variable energy prices determined by the relevant electricity regulatory commission. On October 18, 2013, a PPA for 225 MW of power at variable energy prices has been entered by the Mahanadi SPV with the Chhattisgarh State Power Trading Company Limited.
Pursuant to the coal supply and investment agreement with GMDC and competitive bidding of GUVNL, the Mahanadi SPV has entered into a PPA with GUVNL for supply of 1,010 MW based on coal supplies from the Morga-II block by GMDC.
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Pursuant to a coal supply agreement with GIDC, after the supply of power to the GOC, the Mahanadi SPV is required to supply the higher of 15% of the actual power generated and 240 MW to GIDC. For the first six years of the coal supply contract, GIDC is also entitled to a “first right of refusal” on 10% of actual power generated by the Mahanadi power project.
Additionally, PPAs have been entered into with various state distribution companies, the details of which are as under:
S. No. Name of the Company Power Term Entitlement 1. PPA dated July 31, 2012 with the Central, Eastern, 400 MW Three years Southern and Northern Distribution Companies of Andhra Pradesh 2. PPA dated November 27, 2013 with the TANGEDCO 500 MW 15 years 3. PPA dated February 26, 2014 with the Paschimanchal, 1,000 MW 25 years Purvanchal, Madhyanchal and Dakshinanchal Distribution Companies of Uttar Pradesh
Water Supply
Water allocation for 100 MCM per annum was obtained by the Mahanadi SPV from the Water Resource Department, GOC as a combination of drawal from Basantpur anicut and Seorinarayan anicut.
In addition to construction support for the anicut, water transportation and storage infrastructure consisting of pumping stations, intermediate reservoirs and pipeline systems over 60 kms were required to be undertaken for drawal of water for the project. KSK Water Infrastructure Private Limited, member of the Promoter group, has undertaken the works.
Operations and Maintenance
The operation and maintenance contracts signed by the Mahanadi SPV are as under:
S. No. O&M Contract O&M Service Provider 1. Field Operation and Mechanical Maintenance of boiler, Powermech Projects Limited coal mills, raw coal feeders, soot blowing system, Ash Handling Plant, fans, ESP, fuel oil system, HP and LP valves, ducts and dampers and turbo generator, associated systems, associated auxiliaries and allied equipment for units 3 and 4 dated July 2, 2013 2. Comprehensive Operation and Maintenance for Ash Globus Engineers Handling Plant with all sub systems/auxiliaries of 6x600 MW power project dated February 18, 2014 3. Field Operation and Maintenance of all equipment of Ion Exchange India Limited balance of plant, associated systems and associated auxiliaries (excluding Ash Handling Plant and Coal Handling Plant) and Chemistry Operations dated November 27, 2013 4. Comprehensive Operation and Maintenance for Coal McNally Bharat Engineering Handling Plant with all sub systems/auxiliaries of 6x600 Company Limited MW power project dated December 6, 2013 5. Field Operation and Maintenance of electrical systems Voltech O and M Services Private with all sub systems/auxiliaries, Maintenance of all Limited controls and instrumentation equipment, associated systems, associated auxiliaries (except Ash Handling
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Plant and Coal Handling Plant) dated January 4, 2014
Property
The total land required for the project is 2,132 acres, which includes 946 acres of land to which we have acquired a leasehold interest from the Chhattisgarh State Industrial Development Corporation and the balance 1,186 acres of land to which we have freehold title. The project land has been mortgaged in favour of the lenders.
Insurance
The Mahanadi SPV maintains industrial all risk (including material damage and loss of profit insurance) and transit insurance policies for the operational unit of the Mahanadi power project. In respect of the units under construction, the Mahanadi SPV maintains erection all risk insurance.
Planned Projects We propose to develop certain other thermal, hydro and solar power projects, which are at various stages of planning and development. Certain of our planned projects are summarized below:
Hydro Power projects in Arunachal Pradesh
120 MW KSK Dibbin Power Project
The Dibbin power project is expected to be a 120 MW hydro power project on the Bichom River in the West Kameng District of Arunachal Pradesh. The project has been planned as a run-of-the-river base load plant consisting of two units of 60 MW each. The project is proposed to be implemented through the Dibbin SPV. KEFIPL had entered into a memorandum of agreement with the Government of Arunachal Pradesh (“GoAP”) in January 2007 for the development of the project on a build, own, operate and transfer basis for a lease period of 40 years from the commercial operation date.
We have entered into a memorandum of understanding dated March 28, 2014 with NEEPCO, a public-sector company, for setting up a joint venture for the implementation of the project, pursuant to which NEEPCO has agreed to invest in the Dibbin SPV by subscribing for 30% of the share capital of the Dibbin SPV and will also have the right to nominate two directors to the board of the Dibbin SPV.
1,800 MW Upper Subansiri Power Project
The Upper Subansiri project is expected to be an 1,800 MW hydro power project on the Subansiri River in Arunachal Pradesh. The project is proposed to be implemented through an SPV, KSK Upper Subansiri Hydro Energy Limited. We have entered into a memorandum of agreement dated March 18, 2010 with the GoAP to develop the project on a build, own, operate and transfer basis for a lease period of 40 years from the commercial operation date. A Detailed Project Report for the project is being prepared by Hydro Power Institute, Russia and we are exploring options for a suitable joint venture partner for the construction of this power project.
306 MW Kameng Basin Power Projects
Two hydro projects of 50 MW and 256 MW are proposed to be implemented in Arunachal Pradesh by two SPVs, KSK Jameri Hydro Power Private Limited and KSK Dinchang Power Company Private Limited, respectively, under a memorandum of understanding with the GoAP for the development of the projects on a build, own, operate and transfer basis for a lease period of 40 years from the commercial operation date.
Hydro Power Projects in Nepal
860 MW Tila-I and Tila-II and 566 MW Bheri-I, Bheri-II and Bheri-III
We have obtained survey licenses and are undertaking initial exploratory work in relation to these projects through two SPVs, the Tila Karnali Hydro Electric Company Private Limited and Bheri Hydro Power Company Private Limited, respectively.
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Thermal Power Projects
The Group will continue its pursuit of the 1,980 MW JR Power Project in Orissa based on the fuel supply agreement that was entered into with PIPDIC. Further progress with respect to this project is dependent upon PIPDIC’s resolution of issues concerning its mining license for the Naini coal block.
Solar Power Projects
We have obtained Letters of Intent dated April 29, 2013 and May 31, 2013 from TANGEDCO to set up a 50 MW DC solar power project in the State of Tamil Nadu. A PPA has not been executed as yet.
Plant and Machinery
We carry out our business through SPVs and as on March 31, 2014, the Company did not own any plant and machinery.
Marketing
We directly market power to state utilities and industrial captive consumers. Our supplies to state utilities are pursuant to underlying fuel supply agreements or participation in competitive bidding for power supplies to various distribution companies across India under short-term, medium-term or long-term PPAs.
Consumers with a significant requirement of power in a single location or several in nearby locations are offered the opportunity to utilize our power projects on a dedicated captive basis. These power projects allow the consumers to obtain significant voting equity interests, but with limited dividend rights, in the SPVs operating the power projects along with catering to the consumers’ load and energy requirements. These rights assure the consumers of secured access to cost-effective power.
We also offer group captive solutions to industrial consumers whose power requirements are not large enough to warrant dedicated captive plants, but where a group of consumers could utilize a power project and collectively off-take power generated from the plant, in proportion to their respective equity interests in the SPV operating the power project. In both the captive and group captive scenarios, we act as an outsourced developer in facilitating the setup of such power projects.
Environmental Matters
We believe that the heightened level of environmental and quality concerns among insurance underwriters, regulators and environment protection groups is leading to greater inspection and safety requirements of power projects. Increasing environmental concerns have created a demand for power projects that conform to stricter environmental standards. We maintain operating standards at all of our power projects that emphasize operational safety, quality maintenance, continuous training of our employees and compliance with laws and regulations. While we outsource our power plant operations to O&M contractors, we believe that the operations of our power projects are in substantial compliance with applicable environmental laws and regulations. However, such laws and regulations are frequently changed and may impose stricter requirements in the future. In addition, the interpretation or application of any existing laws and regulations may change, and such change may also have the effect of imposing stricter requirements and more costs on us.
Social Responsibility
The Group’s corporate social responsibility efforts include the following:
At our various power project locations, we have contributed to the welfare of the local communities by taking up various social causes. Through a collaborative initiative with a charitable trust, we have set up a cardiac hospital at Raipur, offering free of charge services. In fiscal 2014, the hospital completed more than 3,000 free cardiac consultations and more than 300 cardiac surgeries free of cost.
The Group has organized mobile health clinics, medical screening / diagnosis camps and emergency ambulance services. The Group has also undertaken pond deepening works, rain water harvesting, projects to make drinking water available, rural electrification and rural connectivity initiatives.
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The Group has organized vocational training and education scholarships.
Employees
As of March 31, 2014, we had 1,274 employees, as compared to 1,308 employees as of March 31, 2013. The following table shows the function and the number of our employees as of March 31, 2014:
S.No. Category Description Strength
1 Accounts & Finance Group 100 2 Admin, HR & Legal 123 3 Information Technology 56 4 Operations/Technical 794 5 Business Development 15 6 Mining 52 7 General Management, Fund Team 134 Total 1,274
In line with growth in our business, we expect to recruit people for various functions and in particular people with technical expertise over the next few years both from the industry and from reputed engineering colleges across India.
Competition
We compete with Indian and foreign companies operating in the power business. Some of our competitors may have more experience than us in the development and operation of power projects. In addition, a number of these companies may have more resources than us. We face competition both with respect to setting up new projects and selling excess power that we produce from our existing power plants that are not subject to long- term PPAs. We face competition from companies such as NTPC Limited, Reliance Energy Limited, GMR Energy Limited, Adani Power Limited, Lanco Infratech Limited, Indiabulls Power Limited, Tata Power Limited and CESC, among others.
Intellectual Property
We own the trademark associated with the logo appearing on the front cover of this Placement Document, which has been registered with the Trademarks Registry. Such registration is valid until October 10, 2016. This trademark has been in use by us since February 2001.
Properties
The Company has leasehold right or a license or right to use the properties described below:
Address Primary Use 8-2-293/82/A/431/A, Road No.22, Jubilee Hills, Hyderabad – 500 033 Registered Office Extension of Corporate Ground Floor, Plot No.1123, Road No.54, Jubilee Hills, Hyderabad – 500 033 Office Extension of Corporate First Floor, Plot No.1123, Road No.54, Jubilee Hills, Hyderabad – 500 033 Office
The terms of the leases executed by us are varied. In most of the lease agreements executed by us, there is an option to renew the lease for a further period, usually at an increased rate of rent. We do not own any property in our own name.
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REGULATIONS AND POLICIES
The following is a summary of certain relevant regulations and policies that are currently applicable to the business carried on by us. The regulations and policies set out below are not exhaustive and are only intended to give general information to investors and are neither designed nor intended to be a substitute for professional advice.
Legislation governing the Generation and Transmission of Electricity
Electricity, being an entry in the Concurrent List (Entry 38, List III) of the Seventh Schedule to the Constitution of India, is governed by the laws of both the GoI and the state governments. The central legislation governing the sector is the Electricity Act, a comprehensive legislation governing various aspects of the power sector including transmission, supply and use of electricity and CERC and SERCs.
Authorities under the Electricity Act
The CEA is constituted under the Electricity Act and comprises members appointed by the GoI to perform the functions and duties prescribed by the GoI. Among other functions, the CEA is to (a) specify technical standards for construction of electrical plants, electric lines and connectivity to the grid; (b) specify grid standards for operation and maintenance of transmission lines; (c) specify the conditions for installation of meters for transmission and supply of electricity; (d) advise the GoI on matters relating to the National Electricity Policy; and (e) advise the appropriate government and commission on all technical matters relating to the generation, transmission and distribution of electricity. The Electricity Act also provides for a CERC and a State Electricity Regulatory Commission (“SERC”) for each state. Among other functions, the CERC is responsible for: (a) regulation of inter-state transmission of electricity; (b) determination of tariff for inter-state transmission of electricity; (c) issuing of licenses to function as a transmission licensee with respect to inter-state operations; and (d) specifying and enforcing standards with respect to the quality, continuity and reliability of service by a licensee. SERCs perform the similar functions at the state level. The Electricity Act also provides for the establishment of a Joint Commission by an agreement between two or more state governments or by the central government in respect of one or more union territories and one or more state governments. The Joint Commission shall determine tariff in respect of the participating states or union territories separately and independently.
The Electricity Act also provides for the establishment of an Appellate Tribunal for Electricity that shall hear appeals against the order of the adjudicating officer or the appropriate commission under the Electricity Act.
Electricity Rules, 2005
The Electricity Rules, 2005, as amended (the “Electricity Rules”) issued on June 8, 2005, under the provisions of the Electricity Act, state that no power plant shall qualify as a captive power plant unless:
not less than 26% of the ownership is held by captive users; and
not less than 51% of the aggregate electricity generated in such plant, determined on an annual basis, is consumed for captive use.
In case of a generating station owned by a company formed as a SPV for such generating station:
the electricity required to be consumed by captive users shall be determined with reference to such unit or units identified for captive use and not with reference to the generating station as a whole; and
the equity shares to be held by the captive users shall not be less than 26% of the proportionate equity interest of the company related to the generating unit or units identified as the captive generating plant.
Under the Electricity Rules, the National Load Despatch Centre, the Regional Load Despatch Centre or the State Load Despatch Centre may give appropriate directions for maintaining the availability of the transmission system of a transmission licensee and such licensee shall comply with such directions.
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Generation
Any generating company may establish, operate and maintain a generating station without obtaining a license under the Electricity Act, if it complies with the technical standards relating to connectivity with the grid. Approvals from the central government, state government and the techno-economic clearance from the Central Electricity Authority (“CEA”) have been done away with for any power plant, except for hydroelectric projects, which still require CEA approval if their capital expenditure is above the threshold determined by the Central Government from time to time. Generating companies are now permitted to supply electricity to any licensee and to consumers, subject to availing open access to the transmission and distribution systems and payment of charges on wheeling as may be specified by the appropriate regulatory commission.
In addition, no restriction has been placed on setting up of a captive power plant by any person for his own use or an association of persons for their own use. Under the Electricity Act, captive users are exempt from payment of surcharge for transmission and wheeling of power from the captive plant to the destination of the use by the captive user. Further, the Electricity (Amendment) Act, 2007 has stated that no license shall be required for supply of electricity generated from a captive generating plant to any licensee in accordance with the provisions of the Electricity Act and rules and regulations made thereunder and to any consumer subject to the regulations specified under the Electricity Act.
The notification dated August 9, 2007 issued by the Ministry of Power, specifies that States could assist developers through MoUs to secure land, obtain the requisite environment and other clearances and achieve financial closure.
Transmission
Transmission, both at the inter-state and intra-state levels, is a regulated activity requiring a license. The Electricity Act, 2003 requires the central government to designate one government company as the Central Transmission Utility (“CTU”), which would function as a transmission licensee. Similarly, each state government would designate one government company as the State Transmission Utility (“STU”), which would also function as a transmission licensee.
The CTU and STU shall be responsible for transmission of electricity, planning and co-ordination of the transmission system, providing non-discriminatory open-access to any user and developing a co-ordinated, efficient and integrated inter-state and intra-state transmission system respectively.
Trading
Trading in electricity is a regulated activity requiring a license under the Electricity Act 2003. Trading has been defined as purchase of electricity for resale which may involve wholesale or retail supply.
The license will be awarded by the appropriate commission, based on certain requirements relating to capital adequacy, credit worthiness and technical parameters. The appropriate commission also has the right to fix the trading margin in intra-state trading of electricity.
The National and Regional Load Despatch Centres, Central and State Transmission Utilities and other transmission licensees are not permitted to engage in the business of trading in electricity.
Tariff Policy
The Tariff Policy (the “Tariff Policy”) was notified by the Central Government on January 6, 2006 pursuant to Section 3 of the Electricity Act. The CERC and the SERCs are guided by the Tariff Policy while determining the tariff. The key features of the Tariff Policy are as follows:
(i) adoption of a two-part tariff structure for all long term contracts;
(ii) procurement of future power requirements is required to be through competitive bidding;
(iii) procurement of electricity separately for base load requirements and peak load requirements, in order to facilitate setting up of generation capacities to meet peak load requirements;
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(iv) PPAs should ensure adequate and bankable payment security arrangements to the generating companies;
(v) in case of coal based generating stations, the cost of the project will also include reasonable costs of setting up coal washeries, coal beneficiation system and dry ash handling and disposal systems; and
(vi) optimal development of the transmission network to promote efficient utilization of generation and transmission assets and to attract the required investments in the transmission sector and providing adequate returns.
Gas Allocation Policy
The Gas Allocation Policy was enacted in 2008 by the Ministry of Petroleum and Natural Gas, Government of India. Under the Gas Allocation Policy, priority among allocation is provided to (i) existing gas based urea plants, (ii) existing gas based LPG plants, (iii) power plants, and (iv) city gas distribution projects for supply of Piped Natural Gas and Compressed Natural Gas.
Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2014
These regulations apply in all cases where tariff for a generating station or a unit thereof and a transmission system or an element thereof including communication system used for inter-State transmission of electricity is required to be determined by the Central Electricity Regulatory Commission (the “Commission”).
These regulations have come into force on April 1, 2014, and unless reviewed earlier or extended by the Commission, shall remain in force for a period of five years from April 1, 2014 to March 31, 2019. Provided that where a project or a part thereof, has been declared under commercial operation before the date of commencement of these regulations and whose tariff has not been finally determined by the Commission till that date, tariff in respect of such project or such part thereof for the period ending March 31, 2014 shall be determined in accordance with the Central Electricity Regulatory Commission (Terms and Conditions of Tariff) Regulations, 2009 as amended from time to time.
Central Electricity Regulatory Commission (Open Access in inter-State Transmission) Regulations, 2008
The Central Electricity Regulatory Commission (Open Access in inter-State Transmission) Regulations, 2008 apply to applications made for grant of open access for energy transfer schedules commencing on or after April 1, 2008 for use of the transmission lines or associated facilities with such lines on the inter-State transmission system. The regulations state that a long-term customer shall have first priority for using the inter-State transmission system for the designated use. The regulations apply for utilization of surplus capacity available thereafter on the inter-State transmission system by virtue of (i) inherent design margins; (ii) margins available due to variation in power flows; and (iii) margins available due to in-built spare transmission capacity created to cater to future load growth or generation addition.
National Electricity Policy
The National Electricity Policy (the “NEP”) was notified by the Central Government on February 12, 2005, pursuant to Section 3 of the Electricity Act.
The main objectives that the NEP seeks to achieve are as follows:
Energy and peaking shortages to be overcome and adequate spinning reserve to be available;
Reliable supply of power of specified standards in an efficient manner and at reasonable rates;
Financial turnaround and commercial viability of the electricity sector; and
Protection of consumers’ interests.
In respect of hydro-electric generation projects, the NEP calls for commitment of the Government towards ensuring debt financing of longer tenure and review of procedures for land acquisition, and other
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approvals/clearances for speedy implementation of such projects. Further, in respect of thermal electricity generation, the NEP recommends establishing new generating stations near fuel sources, for example, pithead locations or load centers, and medium to long term fuel supply agreements, especially with respect to imported fuels, to ensure commercial viability and security of supply.
New Coal Distribution Policy, 2007
On October 18, 2007, the Ministry of Coal notified the New Coal Distribution policy that provides for, inter alia, guidelines for distribution and pricing of coal to various consumers and sectors and replacement of the linkage system with fuel supply agreements and letters of assurance. The policy states that 100% of the quantity in accordance with the normative requirement of the consumers would be considered for supply of coal through fuel supply agreements executed by Coal India Limited at fixed prices which will be notified by Coal India Limited.
Guidelines for Allocation of Coal Blocks/Coal Linkages for Power Sector
On October 21, 2009, the Ministry of Power issued an official memorandum in relation to the methodology for allocating coal linkage for 12th Plan projects in view of the shortage of coal and the number of power projects proposed for commissioning during the 12th Plan awaiting linkage. The memorandum prescribes a set of priorities and pre-qualifications for projects for coal linkage. On March 18, 2011, the Ministry of Power issued another official memorandum amending certain pre-qualifications in relation to the coal linkage policy for projects in the 12th Plan with unit size less than 200 MW. These amendments include, inter alia, that coal linkage will not be available for power projects of Central and State PSUs and IPPs with unit size less than 200 MW except Captive Power Projects.
Mining Regulations
The Mines and Minerals (Development and Regulations) Act, 1957, as amended, (the “MMDR Act”), the Mineral Concession Rules, 1960, as amended, (the “MC Rules”), and the Mineral Conservation and Development Rules, 1988, as amended, (the “MCD Rules” and collectively with the MMDR Act and the MC Rules, the “Mining Regulations”), govern mining rights and the operations of mines in India. The MMDR Act was enacted to provide for the development and regulation of mines and minerals under the control of India and it lays down the substantive law pertaining to the grant, renewal and termination of reconnaissance, mining and prospecting licenses. The MC Rules outline the procedures for obtaining a prospecting license or a mining lease, the terms and conditions of such licenses and the model form in which they are to be issued. The MCD Rules lay down guidelines for ensuring mining is carried out in a scientific and environmentally friendly manner.
The GoI announced a revised National Mineral Policy in 2008, amending the National Mineral Policy, 1993. The aims of the National Mineral Policy include, among others, to achieve zero waste mining, transparency in allocation of concessions, promote research and development in minerals, establish appropriate educational and training facilities for human resources development to meet the manpower requirements of the mineral industry and development of an inventory of resources and reserves, a mining tenement registry and a mineral atlas. At the same time, the GoI has made, and proposes to make, various amendments to India’s mining laws and regulations to reflect the principles underlying the National Mineral Policy.
Grant of a Mining Lease
Only the government of the applicable state may grant a mining lease. The mining lease deed governs the terms on which the lessee may use the land for the purpose of mining operations. If the land on which the mines are located belongs to third parties, the lessee must acquire the surface rights relating to the land from such third parties. If such third party refuses to grant the required surface rights to the lessee, the lessee is entitled to inform the state government and deposit with the state government compensation for the acquisition of the surface rights. If the state government deems that such amount is fair and reasonable, the state government has the power to order the occupier to permit the lessee to enter the land and carry out such operations as may be necessary for the purpose of mining. For determining what constitutes a fair amount of compensation payable to the private party, state governments are guided by the principles of the Land Acquisition Act. In case of land owned by the government, the surface right to operate in the lease area is granted by the government upon application as per the norms of that state government.
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In respect of minerals listed in the First Schedule of the MMDR Act, prior approval of the GoI is required to be obtained by the state government for entering into the mining lease. The lease can be executed only after obtaining the approval from the Indian Bureau of Mines for a mining plan for a period of five years. No person can acquire one or more mining leases for any mineral or prescribed group of associated minerals in a state covering a total area of more than 10 square kilometers. However, the GoI may, if necessary in the interest of development of any mineral, relax this requirement.
The maximum term of a mining lease is 30 years and the minimum term is 20 years. A mining lease may be renewed for further periods of 20 years. Renewals made in contravention of the provisions of the MMDR Act or any rules or orders made thereunder shall be void. The MC Rules provide that if a lessee uses the minerals for its own industry, then such lessee is generally entitled to a renewal of its mining lease for a period of 20 years, unless it applies for a lesser period. The lessee is required to apply to the relevant state government for the renewal of the mining lease at least one year prior to the expiry of the mining lease. Any delay in applying for a renewal of the mining lease may be condoned by the applicable state government provided that the application for renewal is made prior to expiry of the mining lease. In the event that the state government does not make any orders relating to an application for renewal prior to the expiration of the mining lease, the mining lease is deemed to be extended until such time the state government makes the order on the application for renewal.
Protection of the Environment
The MMDR Act also deals with the measures required to be taken by the lessee for the protection of the environment from the adverse effects of mining. The MCD Rules require every lessee to take all possible precautions for the protection of the environment and control of pollution while conducting mining operations in any area. The required environmental protection measures include, among others, prevention of water pollution, measures in respect of surface water, prevention of air pollution, noise levels and impact on flora.
The National Mineral Policy, 2008 further emphasizes that no mining lease would be granted to any party without a proper mining plan, including an environmental management plan approved and enforced by statutory authorities. The environment management plan should adequately provide for controlling the environmental damage and restoration of mined areas and for planting trees according to the prescribed norms.
Labor Conditions
Working conditions of mine laborers are regulated by the Mines Act, 1952, as amended from time to time, which sets forth standards of work, including number of hours of work, leave requirements, medical examination, weekly days of rest, night shift requirements and other requirements to ensure the health and safety of workers employed in mines.
Royalties
Royalties on the minerals removed or consumed or dead rent in respect of the leased area, whichever is higher, are payable to the relevant state government by the lessee in accordance with the MMDR Act. The royalty is computed in accordance with a prescribed formula. The GoI has been granted powers to modify the rate of royalty and the rate of dead rent under the MMDR Act, but may not do so more than once every three years.
In addition, the lessee must pay the occupier of the surface land over the mining lease an annual compensation determined by the state government. The amount depends on whether the land is agricultural or non-agricultural.
In addition to the Mining Regulations, coal mining is also regulated by the Coal Mines (Nationalization) Act, 1973, as amended (the “Coal Act”). Under the Coal Act, private companies are permitted only to undertake captive mining. Further, under the Coal Act, such captive mining should be for the following purposes: (i) production of iron and steel, (ii) generation of power, and (iii) washing of coal. Additionally, the Coal Mines Regulations, 1957, as amended (the “Coal Mines Regulations”) deal with the qualifications required for appointment to the posts of inspectors, managers, safety officers, engineers etc. in a coal mine. The Coal Mines Regulations also sets out the duties and responsibilities of the workmen and the various officials.
Provisions of the Mines Act, 1952 and the Coal Mines (Conservation and Development) Act, 1974 also govern coal mining operations.
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Labor Legislation
As part of our business, we are required to comply from time to time with certain laws in relation to the employment of labor. A brief description of certain labor legislations which are applicable to our operations is set forth below:
Industrial Disputes Act, 1947
The Industrial Disputes Act, 1947 (“ID Act”) provides the procedure for investigation and settlement of industrial disputes. When a dispute exists or is apprehended, the relevant State Government may refer the dispute to a labor court, tribunal or board of conciliation and by an order prohibit the continuance of any strike or lock-out in connection with such dispute which may be in existence on the date of reference. The ID Act specifies that the tribunals and labor courts shall have the powers of a civil court under the Code of Civil Procedure, 1908. The ID Act also prescribes a procedure for the voluntary reference of disputes (existing or apprehended) by the employer and workmen to arbitration. Further, establishments having 20 or more workmen are required to constitute a grievance settlement machinery, consisting of equal number of members from the employer and the workmen, for the resolution of disputes arising out of individual grievances.
Factories Act, 1948
The Factories Act, 1948, as amended (the “Factories Act”), defines a ‘factory’ to be any premises on which on any day in the previous 12 months, ten or more workers are or were working and in which a manufacturing process is being carried on or is ordinarily carried on with the aid of power; or where at least 20 workers are or were working on any day in the preceding 12 months and in which a manufacturing process is being carried on or is ordinarily carried on without the aid of power. State Governments prescribe rules with respect to the submission of plans, their approval for the establishment of factories and the registration and licensing of factories.
The Factories Act provides that the ‘occupier’ of a factory (defined as the person who has ultimate control over the affairs of the factory and in the case of a company, any one of the directors) shall ensure the health, safety and welfare of all workers while they are at work in the factory, especially in respect of safety and proper maintenance of the factory such that it does not pose health risks, the safe use, handling, storage and transport of factory articles and substances, provision of adequate instruction, training and supervision to ensure workers’ health and safety and safe working conditions. If there is a contravention of any of the provisions of the Factories Act or the rules framed thereunder, the occupier and manager of the factory may be punished with imprisonment or with a fine or with both.
Minimum Wages Act, 1948
The Minimum Wages Act, 1948, as amended, provides a framework for State Governments to stipulate the minimum wage applicable to a particular industry. The minimum wage may consist of a basic rate of wages and a cost of living allowance; or a basic rate of wages and the cash value of the concessions in respect of supplies of essential commodities; or an all-inclusive rate allowing for the basic rate, the cost of living allowance and the cash value of the concessions, if any. Employees are to be paid for overtime at overtime rates stipulated by the appropriate government. Contravention of the provisions of the Bonus Act by a company is punishable with imprisonment 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.
Payment of Bonus Act, 1965
Pursuant to the Payment of Bonus Act, 1965, as amended (the “Bonus Act”), an employee in a factory or in any establishment where 20 or more persons are employed on any day during an accounting year, who has worked for at least 30 working days in a year is eligible to be paid a bonus. Contravention of the provisions of the Bonus Act by a company is punishable with imprisonment 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.
Employees State Insurance Act, 1948
The Employees State Insurance Act, 1948, as amended (the “ESI Act”), provides for certain benefits to employees in case of sickness, maternity and employment injury. All employees in establishments covered by
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the ESI Act are required to be insured, with an obligation imposed on the employer to make certain contributions in relation thereto. In addition, every factory and establishment to which the ESI Act applies is also required to register itself under the ESI Act and the employers are required to maintain prescribed records and registers.
Contract Labor (Regulation and Abolition) Act, 1970
The Contract Labor (Regulation and Abolition) Act, 1970, as amended (the “CLRA”), requires establishments that employ, or have employed on any day in the previous 12 months, 20 or more workmen as contract labor to be registered and prescribes certain obligations with respect to the welfare and health of contract labor. The CLRA requires the principal employer of an establishment to which it applies to make an application to the registering officer in the prescribed manner for registration of the establishment. In the absence of registration, contract labor cannot be employed in the establishment. Likewise, every contractor to whom the CLRA applies is required to obtain a license and not to undertake or execute any work through contract labor except under and in accordance with the license issued. To ensure the welfare and health of contract labor, the CLRA imposes certain obligations on the contractor including the establishment of canteens, rest rooms, drinking water, washing facilities, first aid facilities and payment of wages. However, in the event the contractor fails to provide these amenities, the principal employer is under an obligation to provide these facilities within a prescribed time period. Penalties, including both fines and imprisonment, may be imposed for contravention of the provisions of the CLRA.
Employees Provident Fund and Miscellaneous Provisions Act, 1952
The Employees Provident Fund and Miscellaneous Provisions Act, 1952, as amended, provides for the institution of compulsory provident fund, pension fund and deposit linked insurance funds for the benefit of employees in factories and other establishments. Liability is placed both on the employer and the employee to make certain contributions to the funds mentioned above.
Payment of Gratuity Act, 1972
Under the Payment of Gratuity Act, 1972, as amended, an employee who has been in continuous service for a period of five years will be eligible for gratuity upon his retirement, resignation, superannuation, death or disablement due to accident or disease. The entitlement to gratuity in the event of death or disablement is not contingent upon an employee having completed five years of continuous service. The maximum amount of gratuity payable may not exceed `1,000,000.
Environmental Legislation
We are required under applicable law to ensure that our operations are compliant with environmental legislation such as the Water (Prevention and Control of Pollution) Act, 1974, as amended (the “Water Act”), the Air (Prevention and Control of Pollution) Act, 1981, as amended (the “Air Act”) and the Environment (Protection) Act, 1986, as amended (the “EPA”). The Water Act aims to prevent and control water pollution. It provides for the constitution of a Central Pollution Control Board (“CPCB”) and SPCBs. The functions of the CPCB include coordination of activities of the SPCBs, collecting data relating to water pollution and the stipulation of measures for the prevention and control of water pollution and prescription of standards for streams or wells. The SPCBs are responsible for the planning of programs for, among other things, the prevention and control of pollution of streams and wells, collecting and disseminating information relating to water pollution and its prevention and control; inspection of sewage or trade effluents, works and plants for their treatment and to review the specifications and data relating to plants set up for treatment and purification of water; and laying down standards for treatment of trade effluents to be discharged. This legislation prohibits any person from establishing any industry, operation or process or any treatment and disposal system, which is likely to discharge trade effluents into a stream, well or sewer without the prior consent of the relevant SPCB.
The CPCB and the SPCBs constituted under the Water Act are to perform functions under the Air Act for the prevention and control of air pollution. The Air Act aims to prevent and control air pollution. It is mandated under the Air Act that no person may, without the prior consent of the relevant SPCB, establish or operate any industrial plant in an air pollution control area.
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The Environment Act has been enacted for the protection and improvement of the environment. It empowers the Government to take measures to protect and improve the environment such as by laying down standards for emission or discharge of pollutants. The Government may make rules for regulating environmental pollution.
The Environment Impact Assessment Notification S.O. 1533, 2006, as amended (the “EIA Notification”)
The EIA Notification issued under the EPA and the Environment (Protection) Rules, 1986 provides that the prior approval of the MOEF or State Environment Impact Assessment Authority as the case may be, is required in the event of any new project or activities and for the expansion or modernization of existing projects or activities specified in the EIA Notification. The EIA Notification states that obtaining of prior environmental clearance includes a maximum of four stages, i.e., screening, scoping, public consultation and appraisal.
An application for environmental clearance is made after the identification of prospective site(s) for the project and/or activities to which the application relates but before commencing any construction activity, or preparation of land, at the site by the applicant. Certain projects which require approval from the State Environment Impact Assessment Authority may not require an Environment Impact Assessment Report.
The prior environmental clearance granted for a project or activity is valid for a period of ten years in the case of River Valley projects, project life as estimated by Expert Appraisal Committee or State Level Expert Appraisal Committee subject to a maximum of 30 years for mining projects and five years in the case of all other projects and activities. This period of validity may be extended by the regulatory authority concerned by a maximum period of five years.
The mining of minerals in a leased area of 50 hectares or more; coal or lignite based thermal power plants with a capacity of 500 MW or more; and hydro-electric power plants with a capacity of 50 MW or more, requires clearance from the MOEF. The mining of minerals in a leased area of five hectares or more, but less than 50 hectares; coal or lignite based thermal power plants with a capacity of more than 50 MW, but less than 500 MW; and hydro-electric power plants with a capacity of 25 MW or more, but less than 50 MW requires clearance from State Environment Impact Assessment Authority.
Hazardous Wastes (Management, Handling and Transboundary Movement) Rules, 2008
The Hazardous Wastes (Management, Handling and Transboundary Movement) Rules, 2008, as amended, impose an obligation on each occupier generating hazardous waste to handle such hazardous wastes in a safe and environmentally sound manner. Every person who is engaged in the handling of hazardous wastes is required to obtain an authorization from the relevant SPCB. The occupier and operator of the facility shall be liable for all damages caused to the environment or a third party due to improper handling or disposal of the hazardous wastes and the SPCB may levy financial penalties for violation of these rules.
Public Liability Insurance Act, 1991
The Public Liability Insurance Act, 1991, as amended (the “Public Liability Act”) imposes liability on the owner or controller of hazardous substances for any damage arising out of an accident involving such hazardous substances. A list of ‘hazardous substances’ covered by the legislation has been enumerated by the Government by way of a notification. The owner or handler is also required to take out an insurance policy insuring against liability under the legislation. The rules made under the Public Liability Act mandate that the employer has to contribute towards the Environment Relief Fund, a sum equal to the premium paid on the insurance policies. This amount is payable to the insurer.
Fiscal Regulations
Section 80-IA of the Income Tax Act, 1961, as amended, provides that, while computing the total income of an assessee includes any profits and gains derived by an undertaking including an undertaking set up for generation of power, 100% deduction of the profit and gains derived from such business is allowed, subject to certain conditions depending upon the type of business conducted by the undertaking. This deduction is permitted during any ten consecutive assessment years out of the first 15 years from the commencement of operation of the infrastructure facility. This benefit is not applicable when the concerned undertaking is formed by the splitting up or reconstruction of a business already in existence or by the transfer to a new business of machinery or plant previously used for any purpose.
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Under the Foreign Trade (Development and Regulation) Act, 1992, the central government is empowered to periodically formulate the Export and Import Policy (EXIM Policy) and amend it thereafter whenever it deems fit. All exports and imports are required to be in compliance to such EXIM Policy.
Foreign Investment Regulation
Under the Consolidated Foreign Direct Policy issued by the Department of Industrial Policy and Promotion, Ministry of Finance, GoI on April 17, 2014 (the “FDI Policy”), foreign direct investment is allowed up to 100% in respect of projects relating to generation and distribution of power. Foreign direct investment up to 100% is also permitted in respect of coal and lignite mining for captive consumption by power projects. Downstream investments by Indian companies which are not owned or controlled by resident entities are required to comply with the FDI Policy and notify the Secretariat for Industrial Assistance, the Department of Industrial Policy and Promotion and the Foreign Investment Promotion Board.
The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013
The Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (the “New Land Acquisition Act”) has repealed the Land Acquisition Act, 1894. The provisions of the New Land Acquisition Act relating to land acquisition, compensation, rehabilitation and resettlement apply when the appropriate government acquires land for its own use, hold and control, including for PSUs and for public purpose and includes all infrastructure projects including activities such as electricity generation, transmission and distribution. In addition, the New Land Acquisition Act also applies when an appropriate government acquires land for public private partnership projects or for private companies, provided the acquisition is for a public purpose. The New Land Acquisition Act provides a process for land acquisition for industrialization, development of essential infrastructural facilities and urbanization together with provisions for fair compensation for, and rehabilitation and resettlement of, affected families whose land has been acquired or is proposed to be acquired or those who are affected by such acquisition.
Compensation payable to the affected families is up to four times of the market value of lands acquired in rural areas, and twice the market value of lands acquired in urban areas. Market value will be the higher of: (i) market value, if any, specified in the Indian Stamp Act, 1899; (ii) average sale price for similar type of land situated in nearby areas; or (iii) consented amount of compensation in case of acquisition of lands for private companies or for public private partnership projects.
Other Regulations
Boilers Act, 1923
The Boilers Act, 1923, as amended and the rules made thereunder, i.e., the Indian Boiler Regulations, 1950, as amended, cover various aspects of material and equipment utilized in the manufacture of boilers for use in India and the registration, operation and repair of boilers in India.
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BOARD OF DIRECTORS AND SENIOR MANAGEMENT
Board of Directors
The Articles of Association provide that until otherwise determined by our Company in a general meeting of shareholders, pursuant to a special resolution, the number of directors on our Board of Directors shall not be less than three (3) and not more than twelve (12). Clause 49 of our Equity Listing Agreements requires that at least half of our Board should comprise non-executive directors. In addition, Clause 49 of the Equity Listing Agreements requires that if our chairman is a non-executive director, at least one-third of our Board should be comprised of independent directors and in case he is an executive director, at least half of our Board should be comprised of independent directors. Our Board of Directors currently consists of eight (8) Directors, which includes six (6) non-executive Directors and three (3) of such non-executive directors are also independent directors.
The Companies Act, 2013, provides that not less than two-thirds of the total number of directors, excluding the independent directors, shall be liable to retire by rotation. One-third of the directors shall automatically retire every year at the annual general meeting and shall be eligible for re-appointment. The directors to retire by rotation shall be decided based on those who have been longest in office, and as between persons appointed on the same day, the same shall be decided by mutual agreement or by draw of lots. The independent directors may be appointed for a maximum of two terms of up to five consecutive years each; however, such directors are eligible for re-appointment after the expiry of three years of ceasing to be an independent director provided that such directors are not, during the three year period, appointed in or associated with the company in any other capacity, either directly or indirectly. Any reappointment of independent directors, inter alia, requires the approval of the shareholders by way of a special approval. Under the Equity Listing Agreement, we will also be required to have a woman director on our Board from October 1, 2014.
The Board of Directors is authorized by the Articles to appoint any person as an additional Director. Such a Director shall hold office only up to the date of the next annual general meeting, or the last date on which the annual general meeting should have been held, whichever is earlier, but shall be eligible for appointment as a director at that meeting in accordance with the provisions of the Companies Act, 2013. The Companies Act, 2013, further provides that in the event that a Director (an “Original Director”) is absent for a continuous period of not less than three (3) months from India, the Board shall appoint another Director (an “Alternate Director”) for and in place of the Original Director.
The table below provides certain information regarding the Board of Directors as of the date of this Placement Document:
S. Name, Address, DIN, Term, Nationality and Occupation Age Designation No. (in years) 1. Mr. T.L. Sankar 80 Non-Executive Chairman and Address: Plot No. 23, Independent Vivekananda Enclave Director Sagar Society, Road No. 2 Banjara Hills Hyderabad – 500 034
DIN: 00121570 Term: NA Nationality: Indian Occupation: Retired Civil Servant
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S. Name, Address, DIN, Term, Nationality and Occupation Age Designation No. (in years) 2. Mr. S.R. Iyer 74 Independent Director
Address: Flat No. R.3, Rao Mansions, 17 “A” Cross, 8th Main Road Malleswaram Bangalore – 560 055
DIN: 00580437 Term: NA Nationality: Indian Occupation: Management Consultant
3. Mr. Girish Nilkanth Kulkarni 47 Independent Director
Address: 701, Saket Apartment 104, M.B. Raut Marg, Shivaji Park, Dadar (West) Mumbai – 400 028
DIN: 00062382 Term: NA Nationality: Indian Occupation: Professional 4. Mr. K.A. Sastry 54 Whole-time Director
Address: 84, Siddartha Nagar, P.O. Vengala Rao Nagar Hyderabad – 500 038
DIN: 00006566 Term: 5 years (From 31.03.2010) Nationality: Indian Occupation: Industrialist 5. Mr. S. Kishore 51 Whole-time Director
Address: B3, Subhagya Apartments Gagan Mahal Colony Domalguda, Hyderabad – 500 029
DIN: 00006627 Term: 5 years (From 31.03.2010) Nationality: Indian Occupation: Industrialist 6. Mr. K. Bapi Raju 50 Non-Executive Director
Address: Flat No-G1, Swarna Heavens, 8-2-287/13/A, Road No-14, Banjara Hills Hyderabad – 500034
DIN: 00940849 Term: NA Nationality: Indian Occupation: Professional
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S. Name, Address, DIN, Term, Nationality and Occupation Age Designation No. (in years) 7. Mr. Tanmay Das 43 Non-Executive Director
Address: 8-2-293/82/III/550, F.No. 301, Vamsee Valley View Residency, Opp. Apollo Hospital II Gate, Jubilee Hills, Hyderabad – 500 033
DIN: 00680042 Term: NA Nationality: Indian Occupation: Professional 8. Mr. Anil Kumar Kutty 60 Non-Executive Director
Address: 125, Prashasan Nagar Road No. 72, Jubilee Hills Hyderabad - 500033
DIN: 00055634 Term: NA Nationality: Indian Occupation: Retired Civil Servant
Brief Biographies of the Directors
Mr. T.L. Sankar
Mr. T.L. Sankar, 80, is the Non-Executive Chairman and Independent Director of our Company. He has a Master of Science degree in Physical Chemistry from the University of Madras and a Master of Arts degree in Development Economics from Williams College, USA. He has worked for four decades as a senior civil servant and was awarded the Padma Bhushan, one of the highest civilian awards given by the Government of India in 2004. While in service, he was the Secretary of the Fuel Policy Committee (1970-75), the Principal Secretary of the Working Group on Energy Policy (1978-79), a member of the Advisory Board on Energy, Government of India and a member of the Integrated Energy Policy Committee formed by the Planning Commission, Government of India. He was also the Energy Secretary to the Government of Andhra Pradesh and the Chairman of the Andhra Pradesh State Electricity Board. He was the founder and Chairman of the Andhra Pradesh Gas Power Corporation Limited and headed the Gas Price Revision Committee of the Government of India in 1996. In addition, he has worked with the United Nations as an advisor on energy issues to the Governments of Sri Lanka, Tanzania, Jamaica, North Korea and Bangladesh and has headed the Asian Development Bank’s Asian Energy Survey.
Mr. S.R. Iyer
Mr. S. R. Iyer, 74, is the Independent Director of our Company. He has a Bachelor of Science degree from the University of Pune and is a Certified Associate of the Indian Institute of Bankers. He has over 40 years of experience in the banking industry. He was the first Executive Chairman of the Credit Information Bureau (India) Limited. Prior to that, he was the Managing Director of the State Bank of Mysore and the Managing Director of the State Bank of India. He was also a director on the boards of all the seven associate banks of the State Bank of India and also on the boards of two overseas and six domestic subsidiaries of the State Bank of India. He has also served as a director of National Stock Exchange of India Limited and GE Capital Business Process Management Services Private Limited. He is presently associated with the National Dairy Development Board as a member of its Investment Committee and is the Chairman of Can Fin Homes Limited
Mr. Girish Nilkanth Kulkarni
Mr. Girish Nilkanth Kulkarni, 47, is an Independent Director of our Company. He has a Bachelor of Science degree in Engineering from the Indian Institute of Technology, Mumbai and a Post Graduate Diploma in Business Administration from the Indian Institute of Management, Ahmedabad. He has approximately 20 years of operating and investment experience in different aspects of the Indian capital markets. He started his
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professional career as a project finance officer with ICICI Limited, after which he became the head of equity sales, trading and research at ICICI Securities Limited. Mr. Kulkarni has been involved in numerous IPOs in the Indian capital markets and several mergers and acquisition assignments. He is an advisor to the India Technology Fund, an early stage venture fund investing in technology companies. He is also the founder and Managing Director of Suyash Advisors, the India advisor to Monsoon Capital, an India dedicated alternative asset fund managing for investment in public and private equities and real estate projects in India.
Mr. K.A. Sastry
Mr. K.A. Sastry, 54, is a Whole-time Director and one of the Promoters of our Company. He has a Bachelor of Commerce degree from Osmania University, Hyderabad, and is a Chartered Accountant. He leads the project execution and operations activities in addition to being responsible for financial accounting, taxation and human resources functions. Prior to incorporating our Company, he advised many companies on financial consulting, audit, company law and foreign investment regulations.
Mr. S. Kishore
Mr. S. Kishore, 51, is a Whole-time Director and one of the Promoters of our Company. He has a Bachelor of Commerce degree from Osmania University, Hyderabad, and is a Chartered Accountant. He leads the business development and capital raising (both equity and debt) initiatives of the Group. Prior to incorporating our Company, he was a financial advisor and consultant for major domestic as well as international businesses in emerging technology areas and advised multiple energy companies/ utilities/ market entrants since the early 1990s. He has also been associated with various reforms and regulatory initiatives of the Government of India and has served on various committees.
Mr. K. Bapi Raju
Mr. K. Bapi Raju, 50, is a Non-Executive Director of our Company. He has a Bachelor of Science degree in Electronics and Communications from Andhra University and has more than two decades of experience in the information technology industry. He leads the corporate affairs function of the Group and is also actively involved in formulating its corporate strategy.
Mr. Tanmay Das
Mr. Tanmay Das, 43, is a Non-Executive Director of our Company. He has a Bachelor of Science degree in Electrical Engineering from the University College of Engineering, Burla, a Postgraduate Diploma in Management from the Xavier’s Institute of Management, Bhubaneshwar, and is a Chartered Financial Analyst. He has more than 15 years of experience in project finance, fund management and development of generation assets. He oversees the hydro power business and asset management activities of the Group.
Mr. Anil Kumar Kutty
Mr. Anil Kumar Kutty, 60, is a Non-Executive Director of our Company. He has a Masters degree in Solid State Physics from Delhi University and has over 30 years of experience in various sectors and specifically, over 12 years in the power sector. He is an officer of the 1978 batch of the Indian Administrative Service. He has handled many key assignments in the power sector during his tenure in the Government of Andhra Pradesh and the Government of India. In the capacity of Member Secretary, Andhra Pradesh State Electricity Board (“APSEB”), from 1996 to 1999, in addition to his duties as head of commercial and administration departments, he was also in charge of the power sector reforms in Andhra Pradesh. Thereafter, he was the first Chairman and Managing Director of Transmission Corporation of Andhra Pradesh Limited (APTRANSCO) and Chairman of the successor distribution companies which came into existence after the unbundling of APSEB. From 2002 to 2007, he worked as Joint Secretary in the Ministry of Power, Government of India wherein he handled policy and other issues relating to, among others, hydropower and related national and international water issues, transmission, IPPs, private power sector, national level monitoring of operation and fuel supply for power plants, vigilance and security. He has served as the Government nominee director on the boards of Power Grid Corporation of India, Central Power Research Institute, National Power Training Institute, NHPC Limited, THDC India Limited, Nathpa Jhakri (SJVNL), NHDC Limited, North Eastern Electric Power Corporation Limited (NEEPCO), Bhakra Beas Management Board (BBMB), Tala Hydro Power Authority, Bhutan. He has also represented the Government of India at the World Energy Conference in Australia, the SAARC summits in Islamabad and New Delhi and other international conferences.
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Relationship with other Directors
None of the Directors are related to each other.
Borrowing Powers of the Board of Directors
Our Company has resolved, by way of a special resolution passed at an EGM held on February 7, 2008, that the Board is authorized to borrow monies from banks or financial institutions and other persons, firms or bodies corporate, subject to an absolute monetary limit of `75,000 million at any given point of time.
Shareholding of Directors
As per the Articles of Association of our Company, the Directors are not required to hold any qualification shares of our Company. Other than Mr. Girish Nilkanth Kulkarni, who holds 100 Equity Shares and Mr. Anil Kumar Kutty who holds 375 Equity Shares in their individual capacity, none of our Directors hold any Equity Shares in our Company.
Interest of the Directors
Our Directors may be deemed to be interested to the extent of any fees payable to them for attending meetings of the Board or a committee thereof as well as to the extent of any reimbursement of expenses payable to them under our Articles of Association. Our Directors may also be deemed to be interested to the extent of remuneration paid to them for services rendered as an officer or employee of our Company.
Our Directors may also be regarded as interested in the Equity Shares held by them, if any, or that may be subscribed by or allotted to their relatives or the companies, firms or trusts, in which they are interested as directors, members, partners, trustees or promoters. Our Directors may also be deemed to be interested to the extent of any dividend payable to them and other distributions in respect of the said Equity Shares.
There are no existing or potential conflicts of interest between any duties owed to our Company by the Directors and the private interests or external duties of the Directors. As part of their investment portfolio, certain of the Directors may from time to time hold direct or beneficial interests in securities of our Company or other companies, with which our Company has engaged or may engage in transactions, including those in the ordinary course of business. Our Company does not believe that the holdings in such other companies create a conflict of interest because transactions typically engaged between the issuers of such securities and our Company are not likely to have a material effect on the prices of such securities.
Except as disclosed in this Placement Document, and except to the extent of shareholding in our Company, our Directors do not have any economic interest in our Company. As of March 31, 2014, there were no outstanding transactions other than in the ordinary course of business undertaken by our Company in which the Directors were interested parties.
Except as otherwise disclosed in this Placement Document, our Company has not entered into any contract, agreement or arrangement in which any of the Directors are interested, directly or indirectly, and no payments have been made to them in respect of any such contracts, agreements or arrangements or are proposed to be made. Furthermore, the Directors or their relatives and any entity in which the Directors are interested have not taken any loans from our Company.
Terms of Appointment and Compensation of the Directors
Executive Directors
Mr. S. Kishore
Our Company re-appointed Mr. S. Kishore as a Whole-time Director for the period April 1, 2010 to March 31, 2015. His re-appointment was approved by our Board in the board meeting held on January 30, 2010, and by the shareholders at the general meeting held on September 6, 2010. His appointment letter dated April 1, 2010 provides that he will be paid an overall gross remuneration of `9,000,000 per annum, inclusive of perquisites and benefits. He is also entitled to a commission not exceeding 1.5% of the net profits of the Company,
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computed in accordance with Sections 349 and 350 and other applicable provisions of the Companies Act, 1956. In addition to the annual remuneration, he may also be paid an amount equivalent to such percentage of the profit generated by the Company, if any, as may be decided by the Company.
Mr. K. A. Sastry
Our Company re-appointed Mr. K.A. Sastry as Whole-time Director for the period April 1, 2010 to March 31, 2015. His re-appointment was approved by our Board in the board meeting held on January 30, 2010 and by the shareholders at the general meeting held on September 6, 2010. His appointment letter dated April 1, 2010 provides that he will be paid an overall gross remuneration of `9,000,000 per annum, inclusive of perquisites and benefits. He is also entitled to a commission not exceeding 1.5% of the net profits of the Company, computed in accordance with Sections 349 and 350 and other applicable provisions of the Companies Act, 1956. In addition to the annual remuneration, he may also be paid an amount equivalent to such percentage of the profit generated by the Company, if any, as may be decided by the Company.
The following table sets forth the compensation paid by our Company to the executive Directors during the current Financial Year 2015 (to the extent applicable) and the Financial Years 2014, 2013 and 2012:
Financial Year Remuneration Perquisites and Commission Total (` in million) Allowances (` in million) (` in million) (` in million) 2015 (to the extent applicable)*
Mr. S. Kishore 1.5 N.A. N.A. 1.5 Mr. K. A. Sastry 1.5 N.A. N.A. 1.5 2014
Mr. S. Kishore 7.5 N.A. N.A. 7.5 Mr. K. A. Sastry 7.5 N.A. N.A. 7.5 2013
Mr. S. Kishore 9 N.A. N.A. 9 Mr. K. A. Sastry 9 N.A. N.A. 9 2012 Mr. S. Kishore 9 N.A. N.A. 9 Mr. K.A. Sastry 9 N.A. N.A. 9 * Remuneration paid to Mr. S. Kishore and Mr. K.A. Sastry for the months of April-May, 2014.
Non-Executive Directors
Under the Companies Act, 2013, all non-executive Directors, other than independent Directors, are liable to retire by rotation.
The non-executive Directors are not paid any remuneration. However, our Company will, subject to the provisions of the Companies Act and other applicable laws and regulations, pay each non-executive Director sitting fees to attend meetings of our Board and any committee of our Board. Our Company will also reimburse such Directors for out-of-pocket expenses to attend such meetings and perform their role as a Director. These Directors may also be paid commissions and any other amounts as may be decided by our Board in accordance with the provisions of the Articles of Association, the Companies Act and other applicable laws and regulations.
The following tables set forth the compensation paid by our Company to the Non-Executive Directors during the current Financial Year 2015 (to the extent applicable) and for the Financial Years 2014, 2013 and 2012:
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Financial Year 2015
Name of the Directors Perquisites Sitting Fees Total (` in million) (` in million) (` in million) Mr. T.L. Sankar N.A. 0.06 0.06 Mr. S.R. Iyer N.A. 0.04 0.04 Mr. K. Bapi Raju N.A. N.A. N.A. Mr. Tanmay Das N.A. N.A. N.A. Mr. Girish Nilkanth Kulkarni N.A. N.A. N.A. Mr. Anil Kumar Kutty N.A. N.A. N.A.
Financial Year 2014
Name of the Directors Perquisites Sitting Fees Total (` in million) (` in million) (` in million) Mr. T.L. Sankar N.A. 0.16 0.16 Mr. S.R. Iyer N.A. 0.12 0.12 Mr. K. Bapi Raju N.A. N.A. N.A. Mr. Tanmay Das N.A. N.A. N.A. Mr. Girish Nilkanth Kulkarni N.A. 0.08 0.08 Mr. Anil Kumar Kutty N.A. N.A. N.A.
Financial Year 2013
Name of the Directors Perquisites Sitting Fees Total (` in million) (` in million) (` in million) Mr. T.L. Sankar N.A. 0.18 0.18 Mr. S.R. Iyer N.A. 0.18 0.18 Mr. K. Bapi Raju N.A. N.A. N.A. Mr. Tanmay Das N.A. N.A. N.A. Mr. Girish Nilkanth Kulkarni N.A. 0.12 0.12 Mr. Anil Kumar Kutty N.A. N.A. N.A.
Financial Year 2012
Name of the Directors Perquisites Sitting Fees Total (` in million) (` in million) (` in million) Mr. T.L. Sankar N.A. 0.16 0.16 Mr. S.R. Iyer N.A. 0.16 0.16 Mr. K. Bapi Raju N.A. N.A. N.A. Mr. Tanmay Das N.A. N.A. N.A. Mr. Girish Nilkanth Kulkarni N.A. 0.08 0.08 Mr. Anil Kumar Kutty N.A. N.A. N.A.
*Mr. Abhay M Nalawade N.A. 0.08 0.08 *Mr. Abhay M Nalawade resigned on August 12, 2011
Changes in the Board during the last three years
Name of the Director Date of Change Reasons for change Girish Nilkanth Kulkarni September 13, 2013 Re-appointed as a Director (liable to retire by rotation) Anil Kumar Kutty September 13, 2013 Re-appointed as a Director (liable to retire by rotation) K. Bapi Raju September 1, 2012 Re-appointed as a Director (liable to retire by rotation)
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Name of the Director Date of Change Reasons for change Tanmay Das September 1, 2012 Re-appointed as a Director (liable to retire by rotation) S.R. Iyer September 1, 2012 Re-appointed as a Director (liable to retire by rotation) Girish Nilkanth Kulkarni September 17, 2011 Re-appointed as a Director (liable to retire by rotation) S.R. Iyer September 17, 2011 Re-appointed as a Director (liable to retire by rotation) Anil Kumar Kutty September 17, 2011 Re-appointed as a Director (liable to retire by rotation) Abhay M. Nalawade August 12, 2011 Resignation Henry Klein June 30, 2011 Resignation
Corporate Governance
Other than certain delays that may have occurred with respect to certain reporting requirements to the Stock Exchanges, our Company has been complying with the applicable requirements of corporate governance norms, including the Equity Listing Agreements in relation to the constitution of the Board and committees thereof. The corporate governance framework is based on an effective independent Board, separation of the supervisory role of the Board from the executive management team and proper constitution of committees of the Board. The Board of Directors functions either as a full Board or through various committees constituted to oversee specific areas.
The Board has held four meetings during the Financial Year 2014.
Committees of the Board
We have constituted the following committees of the Board, among others: the Audit Committee, the Nomination and Remuneration Committee, the Stakeholders’ Relationship Committee and the Corporate Social Responsibility Committee (the “CSR Committee”), to oversee certain areas and functions of executive management.
Audit Committee
The purpose of the Audit Committee is to ensure the objectivity, credibility and correctness of our Company’s financial reporting and disclosure processes, internal controls, risk management policies and processes, tax policies, compliance and legal requirements and associated matters. The Audit Committee consists of the following:
1) Mr. S.R. Iyer, Chairman; 2) Mr. T.L. Sankar; and 3) Mr. Girish Nilkanth Kulkarni.
The terms of reference of the Audit Committee are as follows:
1. Oversight of the Company’s financial reporting process and the disclosure of its financial information to ensure that the financial statement is correct, sufficient and credible;
2. Recommendation for appointment, remuneration and terms of appointment of auditors of the company;
3. Approval of payment to statutory auditors for any other services rendered by the statutory auditors;
4. Reviewing, with the management, the annual financial statements and auditor's report thereon before submission to the Board for approval, with particular reference to: a. Matters required to be included in the Director’s Responsibility Statement to be included in the Board’s report in terms of clause (c) of sub-section 3 of section 134 of the Companies Act, 2013; b. Changes, if any, in accounting policies and practices and reasons for the same;
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c. Major accounting entries involving estimates based on the exercise of judgment by management; d. Significant adjustments made in the financial statements arising out of audit findings; e. Compliance with listing and other legal requirements relating to financial statements; f. Disclosure of any related party transactions; g. Qualifications in the draft audit report;
5. Reviewing, with the management, the quarterly financial statements before submission to the Board for approval;
6. Reviewing, with the management, the statement of uses / application of funds raised through an issue (public issue, rights issue, preferential issue, etc.), the statement of funds utilized for purposes other than those stated in the offer document / prospectus / notice and the report submitted by the monitoring agency monitoring the utilisation of proceeds of a public or rights issue, and making appropriate recommendations to the Board to take up steps in this matter;
7. Review and monitor the auditor’s independence and performance and effectiveness of audit process;
8. Approval or any subsequent modification of transactions of the company with related parties;
9. Scrutiny of inter-corporate loans and investments;
10. Valuation of undertakings or assets of the company, wherever it is necessary;
11. Evaluation of internal financial controls and risk management systems;
12. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems;
13. Reviewing the adequacy of internal audit function, if any, including the structure of the internal audit department, staffing and seniority of the official heading the department, reporting structure coverage and frequency of internal audit;
14. Discussion with internal auditors of any significant findings and follow up there on;
15. Reviewing the findings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board;
16. Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern;
17. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors;
18. To review the functioning of the Whistle Blower mechanism;
19. Approval of appointment of CFO (i.e., the whole-time Finance Director or any other person heading the finance function or discharging that function) after assessing the qualifications, experience and background, etc., of the candidate; and
20. Carrying out any other function as is mentioned in the terms of reference of the Audit Committee.
The Audit Committe has held 4 meetings during the Financial Year 2014.
Nomination and Remuneration Committee
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The Terms of Reference of the Nomination and Remuneration Committee shall include the following:
Formulation of the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees;
Formulation of criteria for evaluation of Independent Directors and the Board;
Devising a policy on Board diversity; and
Identifying persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, and recommend to the Board their appointment and removal. The company shall disclose the remuneration policy and the evaluation criteria in its Annual Report.
The Nomination and Remuneration Committee consists of the following:
1) Mr. Girish Nilkanth Kulkarni, Chairman; 2) Mr. T.L. Sankar; and 3) Mr. K.A. Sastry.
The Nomination and Remuneration Committee has not held any meetings during the Financial Year 2014.
Stakeholders’ Relationship Committee
The Stakeholders’ Relationship Committee is responsible for the redressal of shareholder grievances. The Stakeholders’ Relationship Committee consists of the following:
1) Mr. Tanmay Das, Chairman; 2) Mr. S. Kishore; and 3) Mr. K.A. Sastry.
The Committee performs inter alia the role / functions as are set out in Clause 49 of the Equity Listing Agreements with the Stock Exchanges and its terms of reference are as follows:
To redress the grievances of shareholders, debenture holders and other security holders; and
To resolve the grievances of the security holders of the company including complaints related to transfer of shares, non-receipt of balance sheet, non receipt of declared dividends.
The Stakeholders’ Relationship Committee has held One meeting during the Financial Year 2014.
Corporate Social Responsibility Committee In accordance with the requirements of the Companies Act, 2013, a Corporate Social Responsibility Committee has been constituted. The Corporate Social Responsibility Committee consists of the following:
1. Mr. T.L. Sankar, Chairman; 2. Mr. Anil Kumar Kutty; and 3. Mr. Tanmay Das.
The terms of reference of the Committee are as follows:
To formulate and recommend a Corporate Social Responsibility Policy to the Board which shall indicate the activities to be undertaken by the company in line with schedule VII of the Companies act, 2013;
To recommend the amount of expenditure to be incurred on the activities; and
To monitor the Corporate social responsibility policy from time to time.
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Vigil Mechanism
Pursuant to the provisions of Section 177(9) of the Companies Act, 2013, and the Rules notified thereunder, the Board of Directors have decided to have in place a vigil mechanism for the directors and employees to report their genuine concerns or grievances.
Senior Management
In addition to Mr. S. Kishore and Mr. K. A. Sastry, the following are our senior management personnel. For a brief profile of Mr. S. Kishore and Mr. K.A. Sastry, please see “Brief Biographies of our Directors.”
Mr. S. Venkatesh, Deputy Head – Operations
Mr. Venkatesh, 50, has a Bachelor’s degree in Commerce from Osmania University, Hyderabad and is a Chartered Accountant and a Cost Accountant with approximately 16 years of experience in development of Power Plant, Project Concept, Financial structuring and subsequent operational experience in the two power plants namely RVK SPV and Kasargod SPV. He worked with Instrumentation Limited before joining the Company in April 2006.
Mr. N.S. Ramachandran, Financial Controller
Mr. Ramachandran, 63, has a Bachelor’s degree in Science from Madurai University and is a Chartered Accountant and has approximately 37 years of experience in the field of finance. Before joining our Company in April 2006, he worked with Indian Oil Corporation, General Electric Company Limited, IBP Company Limited, Hindustan Zinc Limited, Andhra Pradesh Gas Power Corporation Limited and PT Ispat Indo, Indonesia.
Mr. Ramakrishnan N., Senior General Manager – Business Development
Mr. Ramakrishnan, 52, has a degree in Physics from Madras University and has qualified as a Chartered Accountant, Cost and Works Accountant and Company Secretary. He has over 28 years of experience in Accounting, Finance and Business development. Earlier he has worked with Kilburn Electrical, L&T-Mc Neill and Mont Blank Financial Services. He joined our Group in March 2011.
Mr. G. Sreenivas Rao, Chief Information Officer
Mr. Rao, 53, holds a Masters Degree in Computer Science Engineering and Masters Degree in Statistical Quality Control from BITS Pilani. He has also taught young Engineers at BITS Pilani. He has around 24 years of experience in the field of Information Technology and has worked with Companies including Saudi Aramco, Structural Dynamic Research Corporation (USA), Maugistics (USA), Cordy’s and APTECH. He joined our Group in November 2007.
Mr. V. Sambasiva Rao, Head – Accounts
Mr. Rao, 61, has a Bachelor’s degree in Commerce from Osmania University and is a Chartered Accountant. He has approximately 36 years of experience in Finance and accounts. He previously worked with Bambino Agro Industries Limited, as Executive Director (Finance), prior to this he worked with DCL Polyesters Limited, Godavari Fertilizers and Chemicals Limited, National Aluminium Company Limited, Electronics Corporation of India Limited and Andhra Pradesh Industrial Infrastructure Corporation Limited. He has joined our Group in October 2006.
Mr. K.V. Krishna Murthy, Deputy Chief Financial Officer
Mr. K.V. Krishna Murthy, 37, is a graduate of Commerce and MBA from Satya Sai Institute of Higher Learning, Prashnati Nilayam. He joined the Company in June 2004. He is heading the Risk and Regulatory Group at KSK and has experience in power sector. He has experience in risk management, regulatory, commercial bidding, joint venture management and international exposure in business laws and contracts.
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Mr. Shishir Kalkonde, Head – Fuel Resources
Mr. Shishir, 37, is a graduate of Commerce from University of Pune and a Chartered Accountant. He joined KSK group in November 1998 and handled various initiatives. He is presently looking after management of coal, lignite and other fuels for generation of power.
Mr. B.N. Prakash, General Manager – Finance
Mr. Prakash, 58, has a Bachelor’s degree in Technology from Madras University and Masters in Textile Technology from Kanpur University and has more than 30 years of experience in Project Appraisal, Banking and Consultancy field. Presently, he is the head of the Company’s Financial Services Group and his responsibilities include debt raising, structuring, evaluating projects, etc.
Mr. M.S. Phani Sekhar, Company Secretary and Compliance Officer
Mr. Phani, 33, holds a Master degree in Commerce from Andhra University, Vizag and a Law degree from Osmania University, Hyderabad, and is an Associate Member of the Institute of Company Secretaries of India. He has over eight years of experience in secretarial, legal, corporate governance and compliance fields. Mr. Phani has joined the group in March, 2006.
Changes in the Senior Management Personnel during the last three years
Name of the senior Designation Date of Appointment/ management personnel appointment/Change Resignation M.S. Phani Sekhar Company Secretary May 1, 2014 Appointment D. Suresh Babu Company Secretary October 15, 2013 Resignation
Ramesh Kumar President – Operations April 25, 2013 Resignation
M.S. Phani Sekhar Assistant Company November 1, 2011 Resignation Secretary
D. Suresh Babu Company Secretary October 31, 2011 Appointment
Muralidharan M General Manager – October 31, 2011 Resignation Mechanical
Subramanyam K Senior General Manager October 31, 2011 Resignation Projects
Rohit Raj Mathur Head – Corporate July 9, 2011 Resignation Communications
M.S. Phani Sekhar Assistant Company June 9, 2011 Appointment Secretary
Narendra Mehra Company Secretary June 9, 2011 Resignation
Interest of Senior Management Personnel
Our senior management personnel do not have any economic interest in our Company other than to the extent of the remuneration or benefits to which they are entitled, as per their terms of appointment and reimbursement of expenses incurred by them during the ordinary course of business, and to the extent of their shareholding, if any, in our Company. Except as disclosed below, our senior management personnel do not hold any shares in the Company:
Name of the Personnel Number of shares held S. Venkatesh 400 N.S. Ramachandran 233 Ramakrishnan N 200
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G. Sreenivas Rao 25* Shishir Kalkonde 4,400 B.N. Prakash 500 M.S. Phani Sekhar 2,225 * Mrs. G. Alivelu Manga, wife of Mr. G. Sreenivas Rao also holds 25 Equity Shares in our Company.
Other than as disclosed in this Placement Document, as of March 31, 2014, there were no outstanding transactions other than in the ordinary course of business undertaken by our Company in which the senior management personnel were interested parties. None of the senior management personnel of our Company are related to any of the Directors or other senior management personnel our Company.
Other than as disclosed in this Placement Document, our Company or any other member of the Group has not entered into any contract, agreement or arrangement in which any of the senior management personnel are interested, directly or indirectly, and no payments have been made to them in respect of any such contracts, agreements or arrangements or are proposed to be made.
Policy on Disclosures and Internal Procedure for Prevention of Insider Trading
In compliance with the Insider Trading Regulations, our Board has approved the “Code of Conduct for Prevention of Insider Trading”.
Other Confirmations
None of the Directors, Promoters or senior management personnel of our Company has any financial or other material interest in the Issue.
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Organisational Chart of our Company
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PRINCIPAL SHAREHOLDERS
The shareholding pattern of our Company as of March 31, 2014 is detailed in the table below:
S. Category of Number of Total Number of Total Shareholding Equity Shares No Shareholder Shareholders number of Equity as a Percentage of Pledged or otherwise Equity Shares held Total Number of Encumbered Shares in de Equity Shares materialized % of % of form Equity Equity Shares Shares (A+B) (A+B+C) (IX)= (VIII)/ (IV)*10 (I) (II) (III) (IV) (V) (VI) (VII) (VIII) 0 PROMOTER AND PROMOTER (A) GROUP (1) INDIAN (a) Individual /HUF 0 0 0 0.00 0.00 0 0.00 Central Government/State (b) Government(s) 0 0 0 0.00 0.00 0 0.00 (c) Bodies Corporate 1 79345007 79345007 21.29 21.29 79336715 99.99 Financial (d) Institutions / Banks 0 0 0 0.00 0.00 0 0.00 (e) Others 0 0 0 0.00 0.00 0 0.00
Sub-Total A(1) : 1 79345007 79345007 21.29 21.29 79336715 99.99
(2) FOREIGN Individuals (NRIs/Foreign (a) Individuals) 0 0 0 0.00 0.00 0 0.00 (b) Bodies Corporate 2 199887670 199887670 53.64 53.64 179904192 90.00 (c) Institutions 0 0 0 0.00 0.00 0 0.00 Qualified Foreign (d) Investor 0 0 0 0.00 0.00 0 0.00 (e) Others 0 0 0 0.00 0.00 0 0.00 Sub-Total A(2) : 2 199887670 199887670 53.64 53.64 179904192 90.00 Total A=A(1)+A(2) 3 279232677 279232677 74.94 74.94 259240907 92.84
PUBLIC (B) SHAREHOLDING (1) INSTITUTIONS (a) Mutual Funds /UTI 8 12135112 12135112 3.26 3.26 0 0.00 Financial (b) Institutions /Banks 10 11956481 11956481 3.21 3.21 0 0.00 Central Government / State (c) Government(s) 0 0 0 0.00 0.00 0 0.00 Venture Capital (d) Funds 0 0 0 0.00 0.00 0 0.00 Insurance (e) Companies 0 0 0 0.00 0.00 0 0.00 Foreign Institutional (f) Investors 28 18663657 18663657 5.01 5.01 0 0.00
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S. Category of Number of Total Number of Total Shareholding Equity Shares No Shareholder Shareholders number of Equity as a Percentage of Pledged or otherwise Equity Shares held Total Number of Encumbered Shares in de Equity Shares materialized % of % of form Equity Equity Shares Shares (A+B) (A+B+C) Foreign Venture (g) Capital Investors 0 0 0 0.00 0.00 0 0.00 Qualified Foreign (h) Investor 0 0 0 0.00 0.00 0 0.00 (i) Others 0 0 0 0.00 0.00 0 0.00 Sub-Total B(1) : 46 42755250 42755250 11.47 11.47 0 0.00
NON- (2) INSTITUTIONS (a) Bodies Corporate 346 20114307 20114307 5.40 5.40 0 0.00 (b) Individuals (i) Individuals holding nominal share capital upto Rs.1 lakh 13503 2799797 2799784 0.75 0.75 0 0.00 (ii) Individuals holding nominal share capital in excess of Rs.1 lakh 33 928507 928507 0.25 0.25 0 0.00 (c) Others FOREIGN BODIES 2 26374531 26374531 7.08 7.08 0 0.00 NON RESIDENT INDIANS 186 127301 127301 0.03 0.03 0 0.00 CLEARING MEMBERS 93 298084 298084 0.08 0.08 0 0.00 Qualified Foreign (d) Investor 0 0 0 0.00 0.00 0 0.00
Sub-Total B(2) : 14163 50642527 50642514 13.59 13.59 0 0.00
Total B=B(1)+B(2) : 14209 93397777 93397764 25.06 25.06 0 0.00
Total (A+B) : 14212 372630454 372630441 100.00 100.00 0 0.00
Shares held by custodians, against which Depository Receipts have been (C) issued
Promoter and (1) Promoter Group 0 0 0 0.00 0.00 0 0.00 (2) Public 0 0 0 0.00 0.00 0 0.00
GRAND TOTAL (A+B+C) : 14212 372630454 372630441 100.00 0.00 259240907 69.57
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Statement showing shareholding of persons belonging to the “Promoter and Promoter Group” category as of March 31, 2014 is detailed in the table below:
S. Name of the Details of Equity Shares Encumbered Equity Shares Details of warrants Details of Convertible Total shares No Shareholder held Securities (including Number As a % of Number of As a As a % of Number of As a % Number of As a % underlying of Equity grand total Equity Per- grand total Warrants total Convertibl total Shares assuming Shares (A)+(B)+(C) Shares centage (A)+(B)+(C) held number e Securities number of full conversion of sub- of held Convertible of warrants and clause (I)(a) Warrants Securities convertible of the of the same securities) as a same class % of Diluted class Share Capital 1. KSK Energy 191222031 51.32 179904192 94.08 48.28 0 0.00 0 0.00 51.32 Limited 2. KSK Power 8665639 2.33 0 0.00 0.00 0 0.00 0 0.00 2.33 Holdings Limited 3. KSK Energy 79345007 21.29 79336715 99.99 21.29 0 0.00 0 0.00 21.29 Company Private Limited 27923677 74.94 259240907 92.84 69.57 0 0.00 0 0.00 74.94
Statement showing shareholding of persons belonging to the “Public” category and holding more than 1% of the total number of Equity Shares as of March 31, 2014 is detailed in the table below. Each shareholder identified below is both the holder on record and the beneficial owner with sole power to vote and invest in the Equity Shares listed next to its name below:
Shares as a Details of warrants Details of convertible securities Total shares percentage of total (including underlying number of shares % w.r.t total shares assuming full Sr. As a % total Number of Name of the Number of {i.e., Grand Total number of conversion of No. Number of number of convertible shareholder shares (A)+(B)+(C) convertible warrants and warrants held warrants of securities indicated in securities of the convertible the same class held Statement at para same class securities) as a % of (I)(a) above} diluted 1 LB Mauritius IV Ltd 18500000 4.96 0 0.00 0 0.00 4.96
2 LB Mauritius III Ltd 7874531 2.11 0 0.00 0 0.00 2.11
3 GMO Emerging 6548360 1.76 0 0.00 0 0.00 1.76 Domestic Opportunities Fund 4 HDFC Trustee 5949935 1.60 0 0.00 0 0.00 1.6 Company Limited - HDFC Prudence Fund 5 HDFC Trustee 4461952 1.20 0 0.00 0 0.00 1.2 Company Limited - HDFC Infrastructure fund 6 Life Insurance 4001256 1.07 0 0.00 0 0.00 1.07 Corporation Of India 7 M/s. Vidya Investment 3801824 1.02 0 0.00 0 0.00 1.02 And Trading Co Pvt Ltd M/s. Prazim Trading And Investment Co Pvt Ltd 8 M/s. Napean Trading 3800000 1.02 0 0.00 0 0.00 1.02 And Investment Co Pvt Ltd M/s. Tarish Investment And Trading Co Pvt Ltd Total 54937858 14.74 0 0.00 0 0.00 14.74
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Statement showing holding of securities (including shares, warrants, convertible securities) of persons (together with PAC) belonging to the category “Public” and holding more than 5% of the total number of Equity Shares of our Company as of March 31, 2014. – Not applicable.
Statement showing top 10 shareholders of our Company as of March 31, 2014 is detailed in the table below:
Sr. Name of the Shareholder Number of Equity Shares as a Percentage of No. Equity Shares Total Number of Shares (%) 1. KSK Energy Limited 191222031 51.32 2. KSK Energy Company Private Limited 79345007 21.29 3. LB Mauritius IV Ltd 18500000 4.96 4. KSK Power Holdings Limited 8665639 2.33 5. LB Mauritius III Ltd 7874531 2.11 6. GMO Emerging Domestic Opportunities Fund 6548360 1.76 HDFC Trustee Company Limited - HDFC 7. 5949935 1.60 Prudence Fund HDFC Trustee Company Limited - HDFC 8. 4461952 1.20 Infrastructure 9. Life Insurance Corporation of India 4001256 1.07 M/S Vidya Investment And Trading Co Private 10. 3801824 1.02 Limited Total 330170535 88.66
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ISSUE PROCEDURE
The following is a summary intended to present a general outline of the procedure relating to the application, payment, Allocation and Allotment of the Equity Shares to be issued pursuant to the Issue. The procedure followed in the Issue may differ from the one mentioned below, and investors are presumed to have apprised themselves of the same from our Company or the Lead Managers. Investors are advised to inform themselves of any restrictions or limitations that may be applicable to them. See the sections “Selling Restrictions” and “Transfer Restrictions” on pages 157 and 162, respectively.
Qualified Institutions Placement
The Issue is being made to QIBs in reliance upon the Private Placement Regulations and Chapter VIII of the SEBI Regulations through the mechanism of a QIP. Under the Private Placement Regulations and Chapter VIII of the SEBI Regulations, a company may issue equity shares to QIBs pursuant to a QIP mechanism provided that certain conditions are met by the company. Certain of these conditions are set out below:
the shareholders of the issuer have passed a special resolution approving such QIP. Such special resolution must specify (a) that the allotment of securities is proposed to be made pursuant to the QIP; and (b) the relevant date;
equity shares of the same class of such issuer, which are proposed to be allotted through the QIP, are listed on a recognized stock exchange in India having nation-wide trading terminals for a period of at least one year prior to the date of issuance of notice to its shareholders for convening the meeting to pass the above-mentioned special resolution;
the aggregate of the proposed QIP and all previous qualified institutions placements made by the issuer in the same financial year does not exceed five times the net worth (as defined in the SEBI Regulations) of the issuer as per the audited balance sheet of the previous financial year;
the issuer shall be in compliance with the minimum public shareholding requirements set out in the SCRR;
the issuer shall have completed allotments with respect to any prior offer or invitation made by the issuer or shall have withdrawn or abandoned any prior invitation or offer made by the issuer;
the issuer shall offer to each Allottee at least such number of the securities in the issue which would aggregate to at least ` 20,000 calculated at the face value of the securities.
At least 10 per cent of the Equity Shares issued to QIBs must be Allotted to Mutual Funds, provided that, if this portion, or any part thereof to be allotted to Mutual Funds remains unsubscribed, it may be Allotted to other QIBs.
Prospective purchasers will be required to make certain certifications in order to participate in the Issue including that they are outside the U.S. and purchasing the Equity Shares in an offshore transaction (as defined in Regulation S). For further details, see the sections “Selling Restrictions” and “Transfer Restrictions” on pages 157 and 162, respectively.
Investors are not allowed to withdraw their Bids after the Bid/Issue Closing Date.
Additionally, there is a minimum pricing requirement under the SEBI Regulations. The Floor Price shall not be less than the average of the weekly high and low of the closing prices of the related Equity Shares quoted on the stock exchange during the two weeks preceding the relevant date. However, a discount of up to five per cent of the Floor Price is permitted in accordance with the provisions of the SEBI Regulations.
The “relevant date” referred to above, for the Allotment, will be the date of the meeting in which the Board or the committee of Directors duly authorized by the Board decides to open the Issue; and “stock exchange” means any of the recognized stock exchanges in India on which the Equity Shares of the Issuer of the same class are listed and on which the highest trading volume in such Equity Shares has been recorded during the two weeks immediately preceding the relevant date.
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Our Company has applied for and received the in-principle approvals of the BSE and the NSE each dated June 2, 2014, under Clause 24 (a) of its Equity Listing Agreements for the listing of the Equity Shares on the Stock Exchanges. Our Company has also delivered a copy of the Preliminary Placement Document to, and has filed a copy of this Placement Document with, the Stock Exchanges.
Our Company shall also make the requisite filings with the RoC and the SEBI within the stipulated period as required under the Companies Act, 2013 and the Companies (Prospectus and Allotment of Securities) Rules, 2014.
The Issue has been authorized by (i) the Board, pursuant to resolutions passed on May 1, 2014, and (ii) the shareholders, pursuant to resolutions passed under Section 62(1)(c) of the Companies Act, 2013, and then applicable notified sections of the Companies Act, 2013 on May 24, 2014.
The Equity Shares will be allotted within 12 months from the date of the shareholders’ resolution approving the QIP and within 60 days from the date of receipt of subscription money from the relevant QIBs.
The Equity Shares issued pursuant to the QIP must be issued on the basis of the Preliminary Placement Document and this Placement Document that contains all material information including the information specified in Schedule XVIII of the SEBI Regulations and the requirements prescribed under Form PAS-4. The Preliminary Placement Document and this Placement Document are private documents provided to only select investors and are required to be placed on the website of the concerned Stock Exchanges and of our Company with a disclaimer to the effect that it is in connection with an issue to QIBs and no offer is being made to the public or to any other category of investors.
The minimum number of allottees for each QIP shall not be less than:
two, where the issue size is less than or equal to ` 2.5 billion; and
five, where the issue size is greater than ` 2.5 billion.
No single allottee shall be allotted more than 50 per cent of the issue size.
QIBs that belong to the same group or that are under common control shall be deemed to be a single allottee. For details of what constitutes “same group” or “common control”, see the section “Issue Procedure— Application Process—Application Form” on page 151.
The Equity Shares have not been and will not be registered, listed or otherwise qualified in any other jurisdiction outside India and may not be offered or sold, and Bids may not be made by persons in any such jurisdiction, except in compliance with the applicable laws of such jurisdiction.
Issue Procedure
1. Our Company and the Lead Managers shall circulate copies of the Preliminary Placement Document and the serially numbered Application Form, either in electronic or physical form to the QIBs and the Application Form will be specifically addressed to such QIBs. In terms of Section 42(7) of the Companies Act, 2013, our Company shall maintain complete records of the QIBs to whom the Preliminary Placement Document and the serially numbered Application Form have been dispatched. Our Company will make the requisite filings with RoC and the SEBI within the stipulated time period as required under the Companies Act, 2013.
2. Unless a serially numbered Preliminary Placement Document along with the serially numbered Application Form is addressed to a particular QIB, no invitation to subscribe shall be deemed to have been made to such QIB. Even if such documentation were to come into the possession of any person other than the intended recipient, no offer or invitation to offer shall be deemed to have been made to such person and any application that does not comply with this requirement shall be treated as invalid.
3. Bidders shall submit Bids for, and our Company shall issue and Allot to each Allottee at least such number of Equity Shares in the Issue which would aggregate to at least ` 20,000 calculated at the face value of the Equity Shares.
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4. QIBs may submit an Application Form, including any revisions thereof, during the Bidding Period to the Lead Managers.
5. QIBs will be required to indicate the following in the Application Form:
name of the QIB to whom Equity Shares are to be Allotted;
number of Equity Shares Bid for;
price at which they are agreeable to subscribe for the Equity Shares, provided that QIBs may also indicate that they are agreeable to submit a Bid at “Cut-off Price”; which shall be any price as may be determined by our Company in consultation with the Lead Managers at or above the Floor Price or the Floor Price net of such discount as approved in accordance with SEBI Regulations;
details of the depository account to which the Equity Shares should be credited; and
a representation that it is outside the United States and purchasing the Equity Shares in an offshore transaction.
Note: Each sub-account of an FII other than a sub-account which is a foreign corporate or a foreign individual will be considered as an individual QIB and separate Application Forms would be required from each such sub-account for submitting Bids.
6. Once a duly completed Application Form is submitted by a QIB, such Application Form constitutes an irrevocable offer and cannot be withdrawn after the Bid/Issue Closing Date. The Bid/Issue Closing Date shall be notified to the Stock Exchanges and the QIBs shall be deemed to have been given notice of such date after receipt of the Application Form.
The Bids made by asset management companies or custodians of Mutual Funds shall specifically state the names of the concerned schemes for which the Bids are made. In case of a Mutual Fund, a separate Bid can be made in respect of each scheme of the Mutual Fund registered with the SEBI.
7. Upon receipt of the Application Form, after the Bid/Issue Closing Date, our Company shall determine the final terms, including the Issue Price of the Equity Shares to be issued pursuant to the Issue in consultation with the Lead Managers. Upon determination of the final terms of the Equity Shares, the Lead Managers will send the serially numbered CAN along with this Placement Document to the QIBs who have been Allocated the Equity Shares. The dispatch of a CAN shall be deemed a valid, binding and irrevocable contract for the QIB to pay the entire Issue Price for all the Equity Shares Allocated to such QIB. The CAN shall contain details such as the number of Equity Shares Allocated to the QIB and payment instructions including the details of the amounts payable by the QIB for Allotment of the Equity Shares in its name and the Pay-In Date as applicable to the respective QIB. Please note that the Allocation will be at the absolute discretion of our Company and will be based on the recommendation of the Lead Managers.
8. Pursuant to receiving a CAN, each QIB shall be required to make the payment of the entire application monies for the Equity Shares indicated in the CAN at the Issue Price, only through electronic transfer to our Company’s designated bank account by the Pay-In Date as specified in the CAN sent to the respective QIBs. No payment shall be made by QIBs in cash. Please note that any payment of application money for the Equity Shares shall be made from the bank accounts of the relevant QIBs applying for the Equity Shares. Monies payable on Equity Shares to be held by joint holders shall be paid from the bank account of the person whose name appears first in the application. Pending Allotment, all monies received for subscription of the Equity Shares shall be kept by our Company in a separate bank account with a scheduled bank and shall be utilised only for the purposes permitted under the Companies Act, 2013.
9. Upon receipt of the application monies from the QIBs, our Company shall Allot Equity Shares as per the details in the CAN sent to the QIBs.
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10. After passing the resolution for Allotment and prior to crediting the Equity Shares into the depository participant accounts of the successful Bidders, our Company shall apply to the Stock Exchanges for listing approvals. Our Company will intimate to the Stock Exchanges the details of the Allotment and apply for approvals for listing of the Equity Shares on the Stock Exchanges prior to crediting the Equity Shares into the beneficiary account maintained with the Depository Participant by the QIBs.
11. After receipt of the listing approvals of the Stock Exchanges, our Company shall credit the Equity Shares Allotted pursuant to the Issue into the Depository Participant accounts of the respective Allottees.
12. Our Company will then apply for the final trading approvals from the Stock Exchanges.
13. The Equity Shares that would have been credited to the beneficiary account with the Depository Participant of the QIBs shall be eligible for trading on the Stock Exchanges only upon the receipt of final trading and listing approvals from the Stock Exchanges.
14. Upon receipt of intimation of final trading and listing approval from the Stock Exchanges, our Company shall inform the Allottees of the receipt of such approval. Our Company and the Lead Managers shall not be responsible for any delay or non-receipt of the communication of the final trading and listing permissions from the Stock Exchanges or any loss arising from such delay or non- receipt. Final listing and trading approvals granted by the Stock Exchanges are also placed on their respective websites. QIBs are advised to apprise themselves of the status of the receipt of the permissions from the Stock Exchanges or our Company.
Qualified Institutional Buyers
Only QIBs as defined in Regulation 2(1)(zd) of the SEBI Regulations and not otherwise excluded pursuant to Regulation 86(1)(b) of the SEBI Regulations are eligible to invest. Currently, under Regulation 2(1)(zd) of the SEBI Regulations, a QIB means:
alternate investment funds registered with the SEBI;
Eligible FPIs;
foreign venture capital investors registered with the SEBI;
insurance companies registered with Insurance Regulatory and Development Authority;
insurance funds set up and managed by army, navy or air force of the Union of India; and
insurance funds set up and managed by the Department of Posts, India.
multilateral and bilateral development financial institutions;
Mutual Fund;
pension funds with minimum corpus of ` 250 million;
provident funds with minimum corpus of ` 250 million;
public financial institutions as defined in Section 4A of the Companies Act, 1956 (Section 2(72) of the Companies Act, 2013);
scheduled commercial banks;
state industrial development corporations;
the National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of the Government published in the Gazette of India; and
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venture capital funds registered with the SEBI.
Eligible non-resident QIBs can participate in the Issue under Schedule 1 of FEMA 20.
FIIs (other than a sub-account which is a foreign corporate or a foreign individual) and Eligible FPIs are permitted to participate through the portfolio investment scheme under Schedule 2 and Schedule 2A of FEMA 20, respectively, in the Issue. FIIs and Eligible FPIs are permitted to participate in the Issue subject to compliance with all applicable laws and such that the shareholding of the FPIs do not exceed specified limits as prescribed under applicable laws in this regard.
In terms of the SEBI FPI Regulations, the issue of Equity Shares to a single FPI or an investor group (which means the same set of ultimate beneficial owner(s) investing through multiple entities) is not permitted to exceed 10 per cent of our post-Issue Equity Share capital. Further, in terms of the FEMA 20, the total holding by each FPI shall be below 10 per cent of the total paid-up Equity Share capital of our Company and the total holdings of all FPIs put together shall not exceed 24 per cent of the paid-up Equity Share capital of our Company. The aggregate limit of 24 per cent may be increased up to the sectoral cap by way of a resolution passed by the Board of Directors followed by a special resolution passed by the Shareholders of our Company.
Eligible FPIs are permitted to participate in the Issue subject to compliance with conditions and restrictions which may be specified by the Government from time to time. The existing investment limit for FIIs in our Company is 24 per cent of the paid up capital of our Company.
An FII who holds a valid certificate of registration from the SEBI shall be deemed to be an FPI until the expiry of the block of three years for which fees have been paid as per the FII Regulations. An FII or a sub-account may participate in the Issue, until expiry of its registration as an FII or sub-account or until it obtains a certificate of registration as an FPI, whichever is earlier. If the registration of an FII or sub-account has expired or is about to expire, such FII or sub-account may, subject to payment of conversion fees as applicable under the SEBI FPI Regulations, participate in the Issue. An FII or sub-account shall not be eligible to invest as an FII after registering as an FPI under the SEBI FPI Regulations.
In terms of the FEMA 20, for calculating the aggregate holding of FPIs in a company, holding of all registered FPIs as well as holding of FIIs (being deemed FPIs) shall be included.
Allotments to FVCIs, VCFs and AIFs in the Issue are subject to the rules and regulations that are applicable to them, including in relation to lock-in requirements.
Under Regulation 86(1)(b) of the SEBI Regulations, no Allotment shall be made pursuant to the Issue, either directly or indirectly, to any QIB being, or any person related to, the Promoters. QIBs which have all or any of the following rights shall be deemed to be persons related to the Promoters:
rights under a shareholders’ agreement or voting agreement entered into with the Promoters or persons related to the Promoters;
veto rights; or
a right to appoint any nominee director on the Board.
Provided, however, that a QIB which does not hold any shares in our Company and which has acquired the aforesaid rights in the capacity of a lender shall not be deemed to be related to the Promoters.
Our Company and the Lead Managers are not liable for any amendment or modification or change to applicable laws or regulations, which may occur after the date of this Placement Document. QIBs are advised to make their independent investigations and satisfy themselves that they are eligible to apply. QIBs are advised to ensure that any single application from them does not exceed the investment limits or maximum number of Equity Shares that can be held by them under applicable law or regulation or as specified in this Placement Document. Further, QIBs are required to satisfy themselves that their Bids would not eventually result in triggering a tender offer under the Takeover Regulations.
Note: Affiliates or associates of the Lead Managers who are QIBs may participate in the Issue in compliance with applicable laws.
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Application Process
Application Form
QIBs shall only use the serially numbered Application Forms (which are addressed to them) provided by our Company and the Lead Managers in either electronic form or by physical delivery for the purpose of making a Bid (including revision of a Bid) in terms of the Preliminary Placement Document.
By making a Bid (including the revision thereof) for Equity Shares through Application Forms and pursuant to the terms of the Preliminary Placement Document, the QIB will be deemed to have made the following representations and warranties and the representations, warranties and agreements made under the sections “Notice to Investors”, “Representations by Investors”, “Selling Restrictions” and “Transfer Restrictions” on pages 1, 2, 157, and 162, respectively:
1. The applicant confirms that it is a QIB in terms of Regulation 2(1)(zd) of the SEBI Regulations and is not excluded under Regulation 86 of the SEBI Regulations, has a valid and existing registration under the applicable laws in India (as applicable) and is eligible to participate in the Issue;
2. The QIB confirms that it is not a Promoter and is not a person related to the Promoters, either directly or indirectly and its Application Form does not directly or indirectly represent the Promoters or Promoter Group or persons related to the Promoters;
3. The QIB confirms that it has no rights under a shareholders’ agreement or voting agreement with the Promoters or persons related to the Promoters, no veto rights or right to appoint any nominee director on the Board other than those acquired in the capacity of a lender which shall not be deemed to be a person related to the Promoters;
4. The QIB acknowledges that it has no right to withdraw its Bid after the Bid/Issue Closing Date;
5. The QIB confirms that if Equity Shares are Allotted through the Issue, it shall not, for a period of one year from Allotment, sell such Equity Shares otherwise than on the Stock Exchanges;
6. The QIB confirms that the QIB is eligible to Bid and hold Equity Shares so Allotted. The QIB further confirms that the holding of the QIB, does not and shall not, exceed the level permissible as per any applicable regulations applicable to the QIB;
7. The QIB confirms that its Bids would not eventually result in triggering a tender offer under the Takeover Regulations;
8. The QIB confirms that together with other QIBs in the Issue that belongs to the same group or are under same control, the Allotment to the QIB shall not exceed 50 per cent of the Issue Size. For the purposes of this statement:
a. The expression “belongs to the same group” shall derive meaning from the concept of “companies under the same group” as provided in sub-section (11) of Section 372 of the Companies Act, 1956; and
b. “Control” shall have the same meaning as is assigned to it by Regulation 2(1)(e) of the Takeover Regulations;
9. The QIBs shall not undertake any trade in the Equity Shares credited to its beneficiary account maintained with the Depository Participant until such time that the final listing and trading approvals for the Equity Shares are issued by the Stock Exchanges.
QIBS MUST PROVIDE THEIR DEPOSITORY ACCOUNT DETAILS, PAN, THEIR DEPOSITORY PARTICIPANT’S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER, E-MAIL ID, BENEFICIARY ACCOUNT NUMBER IN THE APPLICATION FORM. QIBS MUST ENSURE THAT THE NAME GIVEN IN THE APPLICATION FORM IS EXACTLY THE SAME AS THE NAME IN
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WHICH THE DEPOSITORY ACCOUNT IS HELD. FOR THIS PURPOSE, ELIGIBLE SUB ACCOUNTS OF AN FII WOULD BE CONSIDERED AS AN INDEPENDENT QIB.
Demographic details such as address and bank account will be obtained from the Depositories as per the Depository Participant account details given above.
The submission of an Application Form by a QIB shall be deemed a valid, binding and irrevocable offer for the QIB to pay the entire Issue Price for the Equity Shares (as indicated by the CAN) and becomes a binding contract on the QIB upon issuance of the CAN by our Company in favour of the QIB.
Submission of Application Form
All Application Forms must be duly completed with information including the number of Equity Shares applied for. All Application Forms duly completed along with payment and a copy of the PAN card or PAN allotment letter shall be submitted to the Lead Managers as per the details provided in the respective CAN. The Application Form shall be submitted to the Lead Managers either through electronic form or through physical delivery at the following address:
Name of the Address Contact person Email Phone (telephone and Lead fax) Managers Axis Capital 1st Floor, Axis G. Venkatesh [email protected] Tel: +91 22 4325 4587 Limited House, C-2 Wadia Fax: +91 22 4325 International 5599 Centre, P.B. Marg, Worli, Mumbai – 400 025, Maharashtra,
SBI Capital 202, Maker Nithin [email protected] Tel: +91 22 2217 8300 Markets Tower 'E,' Cuffe Kanuganti/Shikha Limited Parade, Mumbai Agarwal Fax: +91 22 2218 400 005 8332
The Lead Managers shall not be required to provide any written acknowledgement of receipt of the Application Form.
Permanent Account Number or PAN
Each QIB should mention its PAN allotted under the IT Act in the Application Form. Applications without this information will be considered incomplete and are liable to be rejected. QIBs should not submit the GIR number instead of the PAN as the Application Form is liable to be rejected on this ground.
Pricing and Allocation
Build up of the Book
The QIBs shall submit their Bids (including the revision of bids) within the Bidding Period to the Lead Managers. Such Bids cannot be withdrawn after the Bid/Issue Closing Date. The book shall be maintained by the Lead Managers.
Price Discovery and Allocation
Our Company, in consultation with the Lead Managers, shall determine the Issue Price, which shall be at or above the Floor Price. However, our Company may offer a discount of not more than five per cent on the Floor Price in terms of Regulation 85 of the SEBI Regulations.
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After finalization of the Issue Price, our Company shall update the Preliminary Placement Document with the Issue details and file the same with the Stock Exchanges as the Placement Document.
Method of Allocation
Our Company shall determine the Allocation in consultation with the Lead Managers on a discretionary basis and in compliance with Chapter VIII of the SEBI Regulations.
Bids received from the QIBs at or above the Issue Price shall be grouped together to determine the total demand. The Allocation to all such QIBs will be made at the Issue Price. Allocation to Mutual Funds for up to a minimum of 10 per cent of the Issue Size shall be undertaken subject to valid Bids being received at or above the Issue Price.
THE DECISION OF OUR COMPANY IN CONSULTATION WITH THE LEAD MANAGERS IN RESPECT OF ALLOCATION SHALL BE FINAL AND BINDING ON ALL QIBS. QIBS MAY NOTE THAT ALLOCATION OF EQUITY SHARES IS AT THE SOLE AND ABSOLUTE DISCRETION OF OUR COMPANY AND QIBS MAY NOT RECEIVE ANY ALLOCATION EVEN IF THEY HAVE SUBMITTED VALID APPLICATION FORMS AT OR ABOVE THE ISSUE PRICE. NEITHER OUR COMPANY NOR THE LEAD MANAGERS ARE OBLIGED TO ASSIGN ANY REASON FOR ANY NON-ALLOCATION.
CAN
Based on the Application Forms received, our Company, in consultation with the Lead Managers, in their sole and absolute discretion, shall decide the QIBs to whom the serially numbered CAN shall be sent, pursuant to which the details of the Equity Shares Allocated to them and the details of the amounts payable for Allotment of such Equity Shares in their respective names shall be notified to such QIBs. Additionally, a CAN will include details of the relevant Escrow Bank Account into which such payments would need to be made, address where the application money needs to be sent, Pay-In Date as well as the probable designated date, being the date of credit of the Equity Shares to the respective QIB’s account.
The eligible QIBs would also be sent a Placement Document either in electronic form or by physical delivery along with the serially numbered CAN.
The dispatch of this Placement Document and the serially numbered CAN to the QIBs shall be deemed a valid, binding and irrevocable contract for the QIB to furnish all details that may be required by the Lead Managers and to pay the entire Issue Price for all the Equity Shares Allocated to such QIB.
QIBs are advised to instruct their Depository Participant to accept the Equity Shares that may be Allotted to them pursuant to the Issue.
Bank Account for Payment of Application Money
Our Company has opened the “KSK Energy Ventures – QIP Escrow Account” with Axis Bank Limited in terms of the arrangement among our Company, the Lead Managers and Axis Bank Limited as escrow bank. The QIB will be required to deposit the entire amount payable for the Equity Shares Allocated to it by the Pay-In Date as mentioned in, and in accordance with, the respective CAN.
Payments are to be made only through electronic fund transfer.
Note: Payments through cheques are liable to be rejected.
If the payment is not made favouring the “KSK Energy Ventures – QIP Escrow Account” within the time stipulated in the CAN, the Application Form and the CAN of the QIB are liable to be cancelled.
Our Company undertakes to utilise the amount deposited in “KSK Energy Ventures – QIP Escrow Account” only for the purposes of (i) adjustment against Allotment of Equity Shares in the Issue; or (ii) repayment of application money if our Company is not able to Allot Equity Shares in the Issue.
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In case of cancellations or default by the QIBs, our Company, the Lead Managers have the right to reallocate the Equity Shares at the Issue Price among existing or new QIBs at their sole and absolute discretion.
Designated Date and Allotment of Equity Shares
The Equity Shares will not be Allotted unless the QIBs pay the Issue Price to the “KSK Energy Ventures – QIP Escrow Account” as stated above.
The Equity Shares in the Issue will be issued and Allotment shall be made only in dematerialized form to the Allottees. Allottees will have the option to re-materialise the Equity Shares, if they so desire, as per the provisions of the Companies Act and the Depositories Act.
Our Company, at its sole discretion, reserves the right to cancel the Issue at any time up to Allotment without assigning any reason whatsoever.
Following the Allotment and credit of Equity Shares into the QIBs’ Depository Participant accounts, our Company will apply for final trading and listing approvals from the Stock Exchanges.
In the case of QIBs who have been Allotted more than five per cent of the Equity Shares in the Issue, our Company shall disclose the name and the number of the Equity Shares Allotted to such QIB to the Stock Exchanges and the Stock Exchanges will make the same available on their website.
The Escrow Bank shall release the monies lying to the credit of the Escrow Bank Account to our Company after Allotment of Equity Shares to QIBs.
In accordance with the Companies Act, 2013, in the event that our Company is unable to issue and Allot the Equity Shares offered in the Issue or there is a cancellation of the Issue within 60 days from the date of receipt of application money from a QIB, our Company shall repay the application money within 15 days from expiry of 60 day period, failing which our Company shall repay that money to such QIBs with interest at the rate of 12 per cent per annum from expiry of the sixtieth day.
Other Instructions
Right to Reject Applications
Our Company, in consultation with the Lead Managers, may reject Bids, in part or in full, without assigning any reason whatsoever. The decision of our Company and the Lead Managers in relation to the rejection of Bids shall be final and binding.
Equity Shares in Dematerialized form with NSDL or CDSL
The Allotment of the Equity Shares in the Issue shall be only in dematerialized form (i.e., not in physical certificates but be fungible and be represented by the statement issued through the electronic mode).
A QIB applying for Equity Shares to be issued pursuant to the Issue must have at least one beneficiary account with a Depository Participant of either NSDL or CDSL prior to making the Bid. Allotment to a successful QIB will be credited in electronic form directly to the beneficiary account (with the Depository Participant) of the QIB.
Equity Shares in electronic form can be traded only on the stock exchanges having electronic connectivity with NSDL and CDSL. The Stock Exchanges have electronic connectivity with NSDL and CDSL.
The trading of the Equity Shares to be issued pursuant to the Issue would be in dematerialised form only for all QIBs in the demat segment of the respective Stock Exchanges.
Our Company and the Lead Managers will not be responsible or liable for the delay in the credit of Equity Shares to be issued pursuant to the Issue due to errors in the Application Form or otherwise on part of the QIBs.
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PLACEMENT
Placement Agreement
The Lead Managers have entered into a Placement Agreement with our Company, pursuant to which the Lead Managers have agreed to manage the Issue and to act as placement agent in connection with the proposed Issue and procure subscription for Equity Shares to be placed with the QIBs, pursuant to Chapter VIII of the SEBI Regulations and the Private Placement Regulations.
The Placement Agreement contains customary representations and warranties and conditions precedent, as well as indemnities from our Company and is subject to termination in accordance with the terms contained therein.
Applications shall be made to list the Equity Shares issued pursuant to the Issue and admit them to trading on the Stock Exchanges. No assurance can be given as to the liquidity or sustainability of the trading market for such Equity Shares, the ability of holders of the Equity Shares to sell their Equity Shares or the price at which holders of the Equity Shares will be able to sell their Equity Shares.
This Placement Document has not been, and will not be, registered as a prospectus with the RoC and, no Equity Shares issued pursuant to the Issue will be offered in India or overseas to the public or any members of the public in India or any other class of investors, other than QIBs.
In connection with the Issue, the Lead Managers (or their respective affiliates) may, for its own accounts, subscribe to the Equity Shares or enter into asset swaps, credit derivatives or other derivative transactions relating to the Equity Shares to be issued pursuant to the Issue at the same time as the offer and sale of the Equity Shares, or in secondary market transactions. As a result of such transactions, the Lead Managers may hold long or short positions in such Equity Shares. These transactions may comprise a substantial portion of the Issue and no specific disclosure will be made of such positions.
From time to time, the Lead Managers and their respective affiliates may engage in transactions with and perform services of our Company in the ordinary course of business and have engaged, or may in the future engage, in commercial banking and investment banking transactions with our Company or its affiliates, for which they have received compensation and may in the future receive compensation. The members of the Group have entered into financing arrangements with the affiliates of each of the Lead Managers. For further details, see the section “Financial Information” on page F-1.
Axis Bank Limited was the co-book running lead manager for our Company’s initial public offering in 2008 and was the book running lead manager for the qualified institutions placement undertaken by our Company in 2009.
Lock-up
Our Company has agreed that, other than the issue and allotments of Warrants and/or Equity Shares upon exercise of Warrants pursuant to a preferential issue approved by the shareholders of our Company on May 24, 2014, it will not, without the prior written consent of the Lead Managers, from the date of the Placement Agreement and for a period of up to 30 days from the Closing Date, directly or indirectly: (a) issue, offer, lend, sell, pledge, contract to sell or issue, sell any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any Equity Shares, or any securities convertible into or exercisable or exchangeable for the Equity Shares or publicly announce an intention with respect to any of the foregoing; (b) enter into any swap or other agreement that transfers, directly or indirectly, in whole or in part, any of the economic consequences of ownership of the Equity Shares or any securities convertible into or exercisable or exchangeable for the Equity Shares; or (c) announce any intention to enter into any transaction whether any such transaction described in (a) or (b) above is to be settled by delivery of the Equity Shares, or such other securities, in cash or otherwise, provided, however, that the foregoing restrictions shall not be applicable to any issuance, sale, transfer or disposition of Equity Shares by the Company to the extent such issuance, sale, transfer or disposition is required by Indian law.
The Promoters and members of the Promoter Group of the Company holding Equity Shares of the Company have also agreed, that they will not, without the prior written consent of the Lead Managers, for a period of 30 days from the Closing Date, directly or indirectly: (a) issue, offer, lend, sell, pledge, contract to sell or issue, sell
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any option or contract to purchase, purchase any option or contract to sell or issue, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any Equity Shares, or any securities convertible into or exercisable or exchangeable for the Equity Shares or publicly announce an intention with respect to any of the foregoing; (b) enter into any swap or other agreement that transfers, directly or indirectly, in whole or in part, any of the economic consequences of ownership of the Equity Shares or any securities convertible into or exercisable or exchangeable for the Equity Shares; or (c) announce any intention to enter into any transaction whether any such transaction described in (a) or (b) above is to be settled by delivery of the Equity Shares, or such other securities, in cash or otherwise, provided, however, that the foregoing restrictions shall not be applicable to any issuance, sale, transfer or disposition of Equity Shares to the extent such issuance, sale, transfer or disposition is required by Indian law, provided further that the foregoing restriction shall be applicable to the Warrants (including Equity Shares issued upon exercise of Warrants) issued pursuant to the preferential issue approved by the shareholders on May 24, 2014.
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SELLING RESTRICTIONS
General
The distribution of this Placement Document and the offer, sale or delivery of the Equity Shares is restricted by law in certain jurisdictions. Persons who come into possession of this Placement Document are advised to take legal advice with regard to any restrictions that may be applicable to them and to observe such restrictions. This Placement Document may not be used for the purpose of an offer or sale in any circumstances in which such offer or sale is not authorized or permitted.
No action has been taken or will be taken in any jurisdiction by our Company or the Lead Managers that would permit a public offering of the Equity Shares or the possession, circulation or distribution of this Placement Document or any other material relating to our Company or the Equity Shares in the Issue in any jurisdiction where action for such purpose is required. Accordingly, the Equity Shares in the Issue may not be offered or sold, directly or indirectly, and neither this Placement Document nor any other offering material or advertisements in connection with the Equity Shares issued pursuant to the Issue may be distributed or published, in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction and will not impose any obligations on our Company or the Lead Managers. The Issue will be made in compliance with the applicable SEBI Regulations and the Companies Act, 2013. Each subscriber of the Equity Shares in the Issue will be required to make, or will be deemed to have made, as applicable, the acknowledgments and agreements as described under “Transfer Restrictions” on page 162.
Australia
This Placement Document is not a disclosure document under Chapter 6D of the Corporations Act 2001 (9th) (the “Australian Corporations Act”), has not been lodged with the Australian Securities & Investments Commission and does not purport to include the information required of a disclosure document under the Australian Corporations Act. (i) The offer of Equity Shares under this Placement Document is only made to persons to whom it is lawful to offer Equity Shares without disclosure to investors under Chapter 6D of the Australian Corporations Act under one or more exemptions set out in Section 708 of the Australian Corporations Act; (ii) this Placement Document is made available in Australia to persons as set forth in Clause (i) above; and (iii) by accepting this offer, the offeree represents that the offeree is such a person as set forth in Clause (ii) above and agrees not to sell or offer for sale within Australia any Offered Equity Share sold to the offeree within 12 months after their transfer to the offeree under this Placement Document.
Nothing contained in this Placement Document is intended to constitute investment, legal, tax, accounting or other professional advice. This Placement Document is for your information only and nothing in this Placement Document is intended to endorse or recommend a particular course of action. You should consult with an appropriate professional for specific advice rendered on the basis of your situation.
Bahrain
All applications for investment should be received, and any allotments should be made, in each case from outside Bahrain. This Placement Document has been prepared for private information purposes of intended investors only who will be high net worth individuals and institutions. The Company has not made and will not make any invitation to the public in the Kingdom of Bahrain and this Placement Document will not be issued, passed to, or made available to the public generally. The Bahrain Monetary Agency (“BMA”) has not reviewed, nor has it approved, this Placement Document or the marketing of Equity Shares in the Kingdom of Bahrain. Accordingly, Equity Shares may not be offered or sold in Bahrain or to residents thereof except as permitted by Bahrain law.
Cayman Islands
No offer or invitation to purchase Equity Shares may be made to the public in the Cayman Islands.
European Economic Area
In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), an offer of Equity Shares to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the Equity Shares which has been
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approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that an offer of Equity Shares to the public in that Relevant Member State at any time may be made:
to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
to any legal entity which has two or more of (i) an average of at least 250 employees during the last financial year, (ii) a total balance sheet of more than €43,000,000 and (iii) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts; or
in any other circumstances which do not require the publication by the Company of a prospectus pursuant to Article 3(2) of the Prospectus Directive.
Provided that no such offer of Equity Shares shall result in the requirement for the publication by the Company or the Lead Managers of a prospectus pursuant to Article 3 of the Prospectus Directive.
For the purposes of this provision, the expression an “offer of Equity Shares to the public” in relation to any of the Equity Shares in any Relevant Member States means the communication in any form and by any means, of sufficient information on the terms of the offer and the Equity Shares to be offered so as to enable an investor to decide to purchase or subscribe for the Equity Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
Hong Kong
The Equity Shares may only be offered or sold in Hong Kong (i) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) (“SFO”) and any rules made under the SFO, or (ii) in other circumstances which do not result in the document being a 'prospectus' as defined in the Companies Ordinance (Cap. 32) or which do not constitute an offer to the public within the meaning of that Ordinance; and
The Lead Managers have not issued, or had in their possession for the purposes of issue, and will not issue, or have in their possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Equity Shares, which is directed at, or the contents of which are likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Equity Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made under the SFO.
Japan
The Equity Shares have not been and will not be registered under the Securities and Exchange Law of Japan (Law. No. 25 of 1948 as amended) (the “SEL”) and disclosure under the SEL has not been and will not be made with respect to the Equity Shares. No Equity Shares have, directly or indirectly, been offered or sold, and may not, directly or indirectly, be offered or sold 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 others for re-offering or re-sale, directly or indirectly in Japan or to, or for the benefit of, any resident of Japan except (1) pursuant to an exemption from the registration requirements of the SEL and (2) in compliance with any other relevant laws, regulations and governmental guidelines of Japan.
Jordan
This Placement Document has not been and will not be filed with the Jordanian Securities Commission. This Placement Document has not been and will not be distributed, and offers to sell, and sales of the Equity Shares will not be made to more than 30 Jordanian residents. It may not be used for a public offering in Jordan of the Equity Shares. Offers of the Equity Shares are being made from outside Jordan on a private one-on-one contact basis to pre-identified potential investors in Jordan by persons who are not resident within Jordan and accordingly no registration, local prospectus filing and local agent requirements apply. This Placement
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Document is strictly for private use by its holder and may not be passed on to third parties or otherwise distributed publicly.
Korea
The Equity Shares have not been registered under the Korean Securities and Exchange Law, and the Equity Shares acquired in connection with the distribution contemplated hereby may not be offered or sold, directly or indirectly, in Korea or to or for the account of any resident thereof, except as otherwise permitted by applicable Korean laws and regulations, including, without limitation, the Korean Securities and Exchange Law and the Foreign Exchange Transaction Laws.
Kuwait
This Placement Document is being provided solely for information purposes upon the request of the recipient and for his convenience. Receipt of this Placement Document does not constitute an offer to sell the securities referred to herein. No private or public offering of the securities mentioned here is being made in Kuwait, and no agreement relating to the sale of securities will be conducted in Kuwait. No mass-media means of contact are being used to market the securities. The securities are being offered for sale only to qualified institutional investors and sophisticated, high net-worth individuals. Neither the securities nor the placement have been licensed by the Kuwait Ministry of Commerce and Industry.
Malaysia
No approval of the Securities Commission of Malaysia has been or will be obtained in connection with the offer and sale of the Equity Shares in Malaysia nor will any prospectus or other offering material or document in connection with the offer and sale of the Equity Shares be registered with the Securities Commission of Malaysia. Accordingly, the Equity Shares may not be offered or sold, directly or indirectly, nor may any document or other material in connection therewith be distributed in Malaysia.
Mauritius
The Equity Shares may not be offered or sold, directly or indirectly, to the public in Mauritius. Neither this Placement Document nor any offering material or information contained herein relating to the offer of Equity Shares may be released or issued to the public in Mauritius or used in connection with any such offer. This Placement Document does not constitute an offer to sell Equity Shares to the public in Mauritius and is not a prospectus as defined under the Companies Act 2001.
New Zealand
This Placement Document is not a prospectus. It has not been prepared or registered in accordance with the Securities Act 1978 of New Zealand (the “New Zealand Securities Act”). This Placement Document is being distributed in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money, within the meaning of section 3(2)(a)(ii) of the New Zealand Securities Act (“Habitual Investors”). By accepting this Placement Document, each investor represents and warrants that if they receive this Placement Document in New Zealand they are a Habitual Investor and they will not disclose this Placement Document to any person who is not also a Habitual Investor.
Qatar
The Equity Shares have not been offered, sold or delivered, and will not be offered, sold or delivered at any time, directly or indirectly, in the state of Qatar in a manner that would constitute a public offering. This Placement Document has not been reviewed or registered with Qatari Government Authorities, whether under Law No. 25 (2002) concerning investment funds, Central Bank resolution No. 15 (1997), as amended, or any associated regulations. Therefore, this Placement Document is strictly private and confidential, and is being issued to a limited number of sophisticated investors, and may not be reproduced or used for any other purposes, nor provided to any person other than recipient thereof.
Saudi Arabia
This Placement Document may not be distributed in the Kingdom of Saudi Arabia except to such persons as are permitted under the Offers of Securities Regulations issued by the Capital Market Authority. The Capital
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Market Authority does not make any representation as to the accuracy or completeness of this Placement Document, and expressly disclaims any liability whatsoever for any loss arising from, or incurred in reliance upon, any part of this Placement Document. Prospective purchasers of the Equity Shares offered hereby should conduct their own due diligence on the accuracy of the information relating to the Equity Shares. If you do not understand the contents of this Placement Document, you should consult an authorized financial adviser.
Switzerland
This Placement Document does not constitute an issue prospectus pursuant to Art. 652a of the Swiss Code of Obligations. The Equity Shares will not be listed on the SWX Swiss Exchange, and therefore, this Placement Document does not comply with the disclosure standards of the Listing Rules of the SWX Swiss Exchange. Accordingly, the Equity Shares may not be offered to the public in or from Switzerland, but only to a selected and limited group of investors, which do not subscribe the Shares with a view to distribution to the public. The investors will be individually approached by a Lead Manager.
This Placement Document is personal to each offeree and does not constitute an offer to any other person. This Placement Document may only be used by those persons to whom it has been handed out in connection with the offer described herein and may neither directly nor indirectly be distributed or made available to other persons without the express consent of the Issuer. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in or from Switzerland.
Singapore
This Placement Document has not been registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter 289 of Singapore (the “Securities and Futures Act”). The Equity Shares may not be offered or sold or made the subject of an invitation for subscription or purchase nor may this Placement Document or any other document or material in connection with the offer or sale or invitation for subscription or purchase of any Equity Shares be circulated or distributed, whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor or other person falling within Section 274 of the Securities and Futures Act, (ii) to a relevant person, or any person pursuant to Section 275(1A) of the Securities and Futures Act, and in accordance with the conditions specified in Section 275 of the Securities and Futures Act, or (iii) otherwise than pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act.
Each of the following relevant persons specified in Section 275 of the Securities and Futures Act which has subscribed or purchased Equity Shares, namely a person who is: (i) a corporate (which is not an accredited investor) 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 (ii) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, should note that shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the Equity Shares under Section 275 of the Securities and Futures Act except: (i) to an institutional investor under Section 274 of the Securities and Futures Act or to a relevant person, or any person pursuant to Section 275(1A) of the Securities and Futures Act, and in accordance with the conditions, specified in Section 275 of the Securities and Futures Act; (ii) where no consideration is given for the transfer; or (iii) by operation of law.
United Arab Emirates
This Placement Document is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose.
By receiving this Placement Document, the person or entity to whom it has been issued understands, acknowledges and agrees that this Placement Document has not been approved by the UAE. Central Bank, the UAE. Ministry of Economy and Planning or any other authorities in the UAE., nor has the placement agent, if any, received authorization or licensing from the UAE. Central Bank, the UAE. Ministry of Economy and Planning or any other authorities in the UAE to market or sell securities within the UAE. No marketing of any financial products or services has been or will be made from within the UAE and no subscription to any securities, products or financial services may or will be consummated within the UAE. It should not be assumed that the placement agent, if any, is a licensed broker, dealer or investment advisor under the laws applicable in the UAE, or that it advises individuals resident in the UAE as to the appropriateness of investing in or
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purchasing or selling securities or other financial products. The interests in the Equity Shares may not be offered or sold directly or indirectly to the public in the UAE. This does not constitute a public offer of securities in the UAE in accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended) or otherwise.
By receiving this Placement Document, the person or entity to whom it has been issued understands, acknowledges and agrees that the Equity Shares have not been and will not be offered, sold or publicly promoted or advertised in the Dubai International Financial Centre other than in compliance with laws applicable in the Dubai International Financial Centre, governing the issue, offering or sale of securities. The Dubai Financial Services Authority has not approved this Placement Document nor taken steps to verify the information set out in it, and has no responsibility for it.
Nothing contained in this Placement Document is intended to constitute investment, legal, tax, accounting or other professional advice. This Placement Document is for your information only and nothing in this Placement Document is intended to endorse or recommend a particular course of action. You should consult with an appropriate professional for specific advice rendered on the basis of your situation.
United Kingdom
The Lead Managers:
(a) have not offered or sold, and prior to the expiry of a period of six months from the issue date of any Equity Shares, will not offer or sell any securities of the Company to persons in the United Kingdom except to 'qualified investors' as defined in section 86(7) of the Financial Services and Markets Act 2000 (“FSMA”) or otherwise in circumstances which have not resulted in an offer to the public in the United Kingdom;
(b) have complied and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the Equity Shares in, from or otherwise involving the United Kingdom; and
(c) in the United Kingdom, 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 FSMA) to persons that are 'qualified investors' and who are (a) 'investment professionals' falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the “Order”) or (b) high net worth entities and/or other persons to whom it may lawfully be communicated falling within Article 49(2)(a) to (d) of the Order in circumstances in which Section 21(1) of the FSMA does not apply to the Company.
United States
The Equity Shares have not been and will not be registered under the Securities Act or any state securities laws in the United States and may not be offered or sold within the United States except in certain transactions exempt from, or not subject to, the registration requirements of the Securities Act and applicable U.S. state securities laws.
The Equity Shares are being offered and sold outside the United States in offshore transactions in reliance on Regulation S under the Securities Act. Terms used in this paragraph have the meaning given to them in Regulation S.
Each purchaser of the Equity Shares offered by this Placement Document will be deemed to have made the representations, agreements and acknowledgements as described under “Transfer Restrictions”.
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TRANSFER RESTRICTIONS
Investors are advised to consult with legal counsel prior to purchasing any Equity Shares or making any resale, pledge or transfer of such Equity Shares.
Resales of Equity Shares, except on the Stock Exchanges, are not permitted for a period of one year from the date of Allotment, pursuant to Chapter VIII of the SEBI Regulations. Since the following additional restrictions will apply, investors are advised to consult legal counsel prior to making any resale, pledge or transfer of the Company’s Equity Shares.
Subject to the foregoing, by accepting this Placement Document and purchasing any Equity Shares in this Issue, you are deemed to have represented, warranted, acknowledged and agreed with the Company and the Lead Managers as follows:
you have received a copy of the Preliminary Placement Document and such other information as you deem necessary to make an informed decision and that you are not relying on any other information or the representation concerning the Company or the Equity Shares and neither the Company nor any other person responsible for this document or any part of it or the Lead Managers will have any liability for any such other information or representation; you are purchasing the Equity Shares in an offshore transaction meeting the requirements of Rule 903 or 904 of Regulation S and you agree that you will not offer, sell, pledge or otherwise transfer such Equity Shares except in an offshore transaction complying with Regulation S or pursuant to any other available exemption from registration under the Securities Act and in accordance with all applicable securities laws of the states of the United States and any other jurisdiction, including India; you are authorised to consummate the purchase of the Equity Shares in compliance with all applicable laws and regulations; you acknowledge (or if you are a broker-dealer acting on behalf of a customer, your customer has confirmed to you that such customer acknowledges) that such Equity Shares have not been and will not be registered under the Securities Act; you certify that either (A) you are, or at the time the Equity Shares are purchased will be, the beneficial owner of the Equity Shares and are located outside the United States (within the meaning of Regulation S) or (B) you are a broker-dealer acting on behalf of your customer and your customer has confirmed to you that (i) such customer is, or at the time the Equity Shares are purchased will be, the beneficial owner of the Equity Shares, and (ii) such customer is located outside the United States (within the meaning of Regulation S); and the Company, the Lead Managers, their respective affiliates and others will rely upon the truth and accuracy of your representations, warranties, acknowledgements and undertakings set out in this Placement Document, each of which is given to (a) each of the Lead Managers on its own behalf and on behalf of the Company, and (b) to the Company, and each of which is irrevocable and, if any of such representations, warranties, acknowledgements or undertakings deemed to have been made by virtue of your purchase of the Equity Shares are no longer accurate, you will promptly notify the Company.
Any resale or other transfer or attempted resale or other transfer, made other than in compliance with the above stated restrictions will not be recognised by the Company.
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THE SECURITIES MARKET OF INDIA
The information in this section has been extracted from documents available publicly on the website of the SEBI and the Stock Exchanges and has not been prepared or independently verified by our Company or the Lead Managers or any of their respective affiliates or advisors.
Indian Stock Exchanges
Indian stock exchanges are regulated primarily by the SEBI, as well as by the Government acting through the Ministry of Finance, Capital Markets Division, under the Securities and Exchange Board of India Act, 1992, as amended (the “SEBI Act”), the Securities Contracts (Regulation) Act, 1956, as amended (the “SCRA”) and the Securities Contracts (Regulation) Rules, 1957, as amended (the “SCRR”). On June 20, 2012, the SEBI, in exercise of its powers under the SCRA and the SEBI Act, notified the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 (the “SCR (SECC) Rules”), which regulate, inter alia, the recognition, ownership and governance in stock exchanges and clearing corporations in India together with providing for minimum networth requirements for stock exchanges. The SCRA, the SCRR and the SCR (SECC) Rules along with various rules, bye-laws and regulations of the respective stock exchanges, regulate the recognition of stock exchanges, the qualifications for membership thereof and the manner, in which contracts are entered into, settled and enforced between members of the stock exchanges.
The SEBI Act empowers the SEBI to regulate the Indian securities markets, including stock exchanges and intermediaries in the securities markets, promote and regulate self-regulatory organizations and prohibit fraudulent and unfair trade practices. Regulations and guidelines concerning minimum disclosure requirements by public companies, investor protection, insider trading, substantial acquisitions of shares and takeover of companies, buy-backs of securities, employee stock option schemes, stockbrokers, merchant bankers, underwriters, mutual funds, foreign institutional investors, foreign portfolio investors, credit rating agencies and other securities market participants have been notified by the SEBI.
There are recognized stock exchanges in India. Most of the stock exchanges have their own governing board for self regulation. The BSE and the NSE together hold a dominant position among the stock exchanges in terms of the number of listed companies, market capitalization and trading activity.
With effect from April 1, 2003, the stock exchanges in India operate on a trading day plus two, or T+2, rolling settlement system. At the end of the T+2 period, obligations are settled with buyers of securities paying for and receiving securities, while sellers transfer and receive payment for securities. For example, trades executed on a Monday would typically be settled on a Wednesday. In order to contain the risk arising out of the transactions entered into by the members of various stock exchanges either on their own account or on behalf of their clients, the stock exchanges have designed risk management procedures, which include compulsory prescribed margins on the individual broker members, based on their outstanding exposure in the market, as well as stock-specific margins from the members.
Listing
The listing of securities on a recognized Indian stock exchange is regulated by the applicable Indian laws including the Companies Act, the SCRA, the SCRR, the SEBI Act, the various guidelines and regulations issued by the SEBI and the listing agreements of the respective stock exchanges. The SCRA empowers the governing body of each recognized stock exchange to suspend or withdraw admission to dealings in the securities of a company for a breach of, or non-compliance with, any of the conditions of admission to dealings or for any other reason, subject to the issuer receiving prior written notice of such intent of the exchange and a reasonable opportunity to show cause against the proposed action. The SEBI also has the power to make or amend the bye- laws of the recognized stock exchanges in India, to supersede a recognized stock exchange’s governing body and withdraw recognition of a recognized stock exchange.
Pursuant to an amendment dated June 4, 2010 to the SCRR, all listed companies (except public sector companies) are required to maintain a minimum public shareholding of at least 25 per cent. Any listed company which had public shareholding of less than 25 per cent at the time of commencement of the amendment dated June 4, 2010 to the SCRR was required to increase its public shareholding to at least 25 per cent within a period of three years from the date of such commencement. The SCRR also provides that if the public shareholding in a listed company falls below 25 per cent at any time, such company is required to bring the public shareholding to 25 per cent within a maximum period of 12 months from the date of such fall in the manner prescribed by the
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SEBI. Consequently, a listed company may be delisted from the stock exchanges for not complying with the minimum public shareholding requirement. Our Company is in compliance with this minimum public shareholding requirement.
Delisting
The SEBI has notified the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009, as amended in relation to the voluntary and compulsory delisting of equity shares from the stock exchanges. In addition, certain amendments to the SCRR have also been notified in relation to delisting.
Index-Based Market-Wide Circuit Breaker System
In order to restrict abnormal price volatility in any particular stock, the SEBI has instructed stock exchanges to apply daily circuit breakers which do not allow transactions beyond a certain level of price volatility. The index based market-wide circuit breaker system (equity and equity derivatives) applies at three stages of the index movement, at 10 per cent, 15 per cent and 20 per cent. These circuit breakers, when triggered, bring about a coordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the SENSEX of the BSE or the S&P CNX NIFTY of the NSE, whichever is breached earlier. With effect from October 1, 2013, the Stock Exchanges, shall on a daily basis translate the 10 per cent, 15 per cent and 20 per cent circuit breaker limits of market wide index variation based on the previous days’ closing level of the index.
In addition to the market-wide index-based circuit filters, there are currently in place individual scrip-wise price bands of 20 per cent movements either up or down for all scrips in the compulsory rolling settlement. However, no price bands are applicable on scrips on which derivative products are available or scrips included in indices on which derivative products are available.
The stock exchanges in India can also exercise the power to suspend trading during periods of market volatility. Margin requirements are imposed by stock exchanges that are required to be maintained by the stockbrokers.
BSE
Established in 1875, the BSE is the oldest stock exchange in India. The BSE was the first stock exchange in India to obtain permanent recognition from the Government under the SCRA. It has evolved over the years into its present status as one of the premier stock exchanges of India.
NSE
The NSE was established by financial institutions and banks to provide nationwide online, satellite-linked, screen-based trading facilities with market-makers and electronic clearing and settlement for securities including government securities, debentures, public sector bonds and units. It has evolved over the years into its present status as one of the premier stock exchanges of India. The NSE was recognized as a stock exchange under the SCRA in April 1993 and commenced operations in the wholesale debt market segment in June 1994. The capital market (equities) segment commenced operations in November 1994 and operations in the derivatives trading (index futures) segment commenced in June 2000.
Internet-based Securities Trading and Services
Internet trading takes place through order routing systems, which route client orders to exchange trading systems for execution. Stockbrokers interested in providing this service are required to apply for permission to the relevant stock exchange and also have to comply with certain minimum conditions stipulated under applicable law. The NSE became the first exchange to grant approval to its members for providing internet based trading services. Internet trading is possible on both the “equities” as well as the “derivatives” segments of the NSE.
Trading Hours
Trading on both the BSE and the NSE occurs from Monday through Friday, from 9.15 a.m. to 3.30 p.m. Indian Standard Time. The BSE and the NSE are closed on public holidays. The recognized stock exchanges have been permitted by the SEBI to set their own trading hours (in cash and derivatives segments) subject to the condition
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that (i) the trading hours are between 9 a.m. and 5 p.m.; and (ii) the stock exchange has in place risk management system and infrastructure commensurate to the trading hours.
Trading Procedure
In order to facilitate smooth transactions, the BSE replaced its open outcry system with the BSE On-line Trading facility in 1995. This automated screen based trading in securities was put into practice nation-wide. This has enhanced transparency in dealings and has assisted considerably in smoothening settlement cycles and improving efficiency in back-office work.
NSE has introduced a fully automated screen based trading system called National Exchange for Automated Trading (“NEAT”), which adopts the principle of an order driven market. NEAT reduces jobbing spreads and transaction costs.
Takeover Regulations
Disclosure and mandatory bid obligations for listed Indian companies under Indian law are governed by the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended (the “Takeover Regulations”), which provides specific regulations in relation to substantial acquisition of shares and takeover. Once the equity shares of a company are listed on a stock exchange in India, the provisions of the Takeover Regulations will apply to any acquisition of the company’s shares/voting rights/control. The Takeover Regulations prescribes certain thresholds or trigger points in the shareholding a person or entity has in the listed Indian company, which give rise to certain obligations on part of the acquirer. Acquisitions up to a certain threshold prescribed under the Takeover Regulations mandate specific disclosure requirements, while acquisitions crossing particular thresholds may result in the acquirer having to make an open offer of the shares of the target company. The Takeover Regulations also provides for the possibility of indirect acquisitions, imposing specific obligations on the acquirer in case of such indirect acquisition.
Prohibition of Insider Trading Regulations
The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, as amended (the “Insider Trading Regulations”), have been notified by the SEBI to prohibit and penalize insider trading in India. An insider is prohibited from dealing either on his own behalf or on behalf of any other person, in the securities of a listed company when in possession of unpublished price sensitive information. The Insider Trading Regulations also provide disclosure obligations for shareholders holding more than a predefined percentage, persons who are promoters or part of the promoter group and directors and officers, with respect to their shareholding in the company, and the changes therein. The definition of “insider” includes any person who has received or has had access to unpublished price sensitive information in relation to securities of a company or any person reasonably expected to have access to unpublished price sensitive information in relation to securities of a company and who is or was connected with the company or is deemed to have been connected with the company.
Depositories
The Depositories Act, 1996, as amended, provides a legal framework for the establishment of depositories to record ownership details and their regulation. Further, the SEBI framed regulations in relation to, among other things, the registration of such depositories, the registration of participants as well as the rights and obligations of the depositories, participants, companies and beneficial owners. The depository system has significantly improved the operation of the Indian securities markets.
Derivatives (Futures and Options)
Trading in derivatives is governed by the SCRA, the SCRR and the SEBI Act. The SCRA was amended with effect from February 22, 2000 to include derivatives contracts within the term “securities”, as defined under the SCRA. Trading in derivatives in India takes place either on separate and independent derivatives exchanges or on a separate segment of an existing stock exchange. The derivatives exchange or derivatives segment of a stock exchange functions as a self-regulatory organisation under the supervision of the SEBI. Derivatives products were introduced in phases in India, starting with equity derivative contracts in June 2000 and index options, stock options and stock futures in June 2001, July 2001 and November 2001, respectively. The SEBI, by a circular dated August 6, 2008, as modified by its circular dated March 24, 2009, has issued guidelines on
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exchange traded currency derivatives. The circular lays down the framework for the launch of exchange traded currency futures in terms of eligibility norms for existing and new exchanges and their clearing corporations or clearing houses, eligibility criteria for members of such exchanges or clearing corporations or clearing houses, product design, risk management measures, surveillance mechanism and other related issues.
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DESCRIPTION OF EQUITY SHARES
The following is information relating to the Equity Shares including a brief summary of the Memorandum and Articles of Association, the Companies Act, 1956 and the Companies Act, 2013. Prospective investors are urged to read the Memorandum and Articles of Association carefully, and consult with their advisers, as the Memorandum and Articles of Association and applicable Indian law, and not this summary, govern the rights attached to the Equity Shares.
General
The authorized capital of the Company is `50,315,000,000 divided into 4,000,000,000 Equity Shares of `10 each and 1,031,500,000 Preference Shares of `10 each. As of the date of this Placement Document 372,630,454 Equity Shares were issued and outstanding.
Dividend
Under the Companies Act, 2013, unless the board recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. Subject to certain conditions specified in the Companies Act, 2013, no dividend can be declared or paid by a company for any financial year except out of the profits of the company for that year determined in accordance with the provisions of the Companies Act, 2013 or out of the undistributed profits of previous Fiscal Years or out of both, arrived at in accordance with the provisions of the Companies Act, 2013, or out of money provided by the Central Government or a state Government for payment of dividend by the Company in pursuance of a guarantee given by that government. Pursuant to the Equity Listing Agreement, listed companies are required to declare and disclose their dividends on per share basis only. The dividend recommended by the Board and approved by the shareholders at a general meeting is distributed and paid to shareholders in proportion to the paid-up value of their shares as at the record date for which such dividend is payable. In addition, the board may declare and pay interim dividends. Under the Companies Act, 2013, dividends can only be paid in cash to shareholders listed on the register of shareholders on the date which is specified as the “record date” or “book closure date”. No shareholder is entitled to a dividend while unpaid calls on any of his shares are outstanding.
Dividends must be paid within thirty days from the date of the declaration and any dividend that remains unpaid or unclaimed after that period must be transferred within seven days to a special unpaid dividend account held at a scheduled bank. Any money that remains unpaid or unclaimed for seven years from the date of such transfer must be transferred by the Company to the Investor Education and Protection Fund established by the Government and thereafter any claim with respect thereto will lapse.
The Company may, before the declaration of any dividend in any financial year, transfer such percentage of its profits for that financial year as it may consider appropriate to the reserves of the Company. The Companies Act, 2013 and the Companies (Declaration of Dividend) Rules, 2014, provide that if the profit for a year is insufficient, the dividend for that year may be declared out of free reserves, subject to certain conditions prescribed under those legislations.
Capitalization of Profits
As provided in the Articles of Association of the Company, the Company in a general meeting (on recommendation of the Board) may resolve that it is desirable to capitalize any part of the amount for the time being standing to the credit of the Company's reserve accounts or to the credit of the profit and loss accounts or otherwise available for distribution; and that such sum be accordingly set free for distribution in the specified manner amongst the shareholders who would have been entitled thereto and distributed by way as such dividend and in the same proportion.
Any issue of bonus shares by a listed company would be subject to the guidelines issued by the SEBI. The relevant SEBI guidelines prescribe that no company shall, pending conversion of compulsorily convertible securities, issue any shares by way of bonus unless a similar benefit is extended to the holders of such compulsorily convertible securities, through a proportionate reservation of shares. Further, in order to issue bonus shares, a company should not have defaulted in the payment of interest or principal in respect of fixed deposits and interest on existing debentures or principal on redemption thereof and should have sufficient reason to believe that it has not defaulted in respect of any statutory dues of the employees. The declaration of bonus
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shares in lieu of a dividend cannot be made. A bonus issue may be made out of free reserves built out of genuine profits or share premium collected in cash and not from reserves created by revaluation of fixed assets.
The issue of bonus shares must take place within fifteen days from the date of approval by the board, if the articles of association of a company do not require such company to seek shareholders’ approval for capitalization of profits or reserves for making bonus issues. If a company is required to seek shareholders’ approval for capitalization of profits or reserves for making bonus issues, then the bonus issue should be implemented within two months from the date of the board meeting wherein the decision to issue bonus shares was taken subject to shareholders’ approval.
Pre-emptive Rights and Alteration of Share Capital
Subject to the provisions of the Companies Act, 2013, the Company can increase its share capital by issuing new shares. Such new shares must be offered to existing shareholders registered on the record date in proportion to the amount paid-up on those shares at that date. The offer shall be made by notice specifying the number of shares offered and the date (being not less than fifteen days and not exceeding thirty days from the date of the offer) after which the offer, if not accepted, will be deemed to have been declined. After such date the Board may dispose of the shares offered in respect of which no acceptance has been received, in such manner as they think is not disadvantageous to to the shareholders and the Company. The offer is deemed to include a right exercisable by the person concerned to renounce the shares in favor of any other person provided that the person in whose favor such shares have been renounced is approved by the Board in their absolute discretion.
However, under the provisions of the Companies Act, 2013 and the Companies (Share Capital and Debentures) Rules, 2014, new shares may be offered to any persons, whether or not those persons include existing shareholders or employees to whom shares are allotted under a scheme of employees stock options, either for cash or for consideration other than cash, if a special resolution to that effect is passed by the shareholders of the Company in a general meeting. The issue of the Equity Shares pursuant to the Issue has been approved by a special resolution of the Company’s shareholders and such shareholders have waived their pre-emptive rights with respect to such Equity Shares.
The Company’s issued share capital may, among other things, be increased by the exercise of warrants attached to any of the Company’s securities entitling the holder to subscribe for shares.
The Articles of Association provide that the Company may consolidate or sub-divide the Company’s share capital or cancel shares which have not been taken up by any person. The Company can also alter its share capital by way of a reduction of capital, in accordance with the Companies Act, 2013.
Preference Shares
Preference share capital is that part of the paid-up capital of the company which fulfils both the requirements below:
with respect to dividends, it carries or will carry a preferential right to be paid a fixed amount or an amount calculated at a fixed rate; and
with respect to capital, it carries or will carry on a winding-up of the company or repayment of capital, a preferential right to be repaid the amount of the capital paid-up or deemed to have been paid-up, subject to the provisions of the Companies Act, 2013.
Preference shares must be redeemed within 30 years of issue, subject to the redemption of a minimum 10% of such preference shares per year from the 21st year onwards or earlier, on proportionate basis, at the option of the preference shareholders. Under the Companies Act, 2013, the Company may issue redeemable preference shares but:
no such shares may be redeemed except out of profits otherwise available for dividends or out of the proceeds of a fresh issue of shares made for the purposes of the redemption;
no such shares may be redeemed unless they are fully paid;
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the premium, if any, payable on redemption shall have been provided for out of the Company’s profits or security premium account, before the shares are redeemed;
where any such shares are redeemed out of the profits of the Company, there shall, out of profits which would otherwise have been available for dividends, be transferred to a reserve fund, to be called the Capital Redemption Reserve Account, a sum equal to the nominal amount of the shares redeemed; and
the provisions of the Companies Act, 2013 relating to the reduction of the share capital of the Company shall, except as provided under Section 55 of the Companies Act, 2013, apply as if such reserve account were paid-up share capital of the Company.
General Meetings of Shareholders
The Company must hold its annual general meeting each year within 15 months of the previous annual general meeting and within six months after the end of each accounting year. The Registrar of Companies may extend this period in special circumstances at the Company’s request. The Board may convene an extraordinary general meeting of shareholders when necessary and shall convene such a meeting at the request of a shareholder or shareholders holding in the aggregate not less than 10% of the Company’s issued paid-up capital.
Written notices convening a meeting setting out the date and place of the meeting and its agenda must be given to members at least twenty one days prior to the date of the proposed meeting and where any special business is to be transacted at the meeting an explanatory statement shall be annexed to the notice as required under the Companies Act, 2013. A general meeting may be called after giving shorter notice if consent is received, in writing or by electronic mode, from shareholders holding not less than 95% of the Company’s paid- up capital. The Company’s general meetings are held in Hyderabad.
A listed company intending to pass a resolution relating to matters such as, but not limited to, an amendment in the objects clause of the memorandum of association, a buy-back of shares under the Companies Act, 2013, the giving of loans or extending a guarantee in excess of limits prescribed under the Companies Act, 2013 is required to pass the resolution by means of a postal ballot instead of transacting the business in the general meeting of the company. A notice to all the shareholders must be sent along with a draft resolution explaining the reasons thereof and requesting them to send their assent or dissent in writing on a postal ballot within a period of thirty days from the date of such notice. Shareholders may exercise their right to vote at general meetings or through postal ballot by voting through e-voting facilities in accordance with the circular dated April 17, 2014 issued by the SEBI and the Companies Act, 2013. Under the Companies Act, 2013, unless, the Articles of Association provide for a larger number: (i) five shareholders present in person, if the number of shareholders as on the date of meeting is not more than 1,000; (ii) 15 shareholders present in person, if the number of shareholders as on the date of the meeting is more than 1,000 but up to 5,000; and (iii) 30 shareholders present in person, if the number of shareholders as on the date of meeting exceeds 5,000, shall constitute a quorum for a general meeting of the Company. The quorum requirements applicable to shareholder meetings under the Companies Act, 2013 have to be physically complied with.
Voting Rights
At a general meeting upon a show of hands, every member holding shares and entitled to vote and present in person has one vote. Upon a poll, the voting rights of each shareholder entitled to vote and present in person or by proxy is in the same proportion to such shareholder’s share of the paid-up equity capital of the Company.
Ordinary resolutions may be passed by simple majority of those present and voting. Special resolutions require that the votes cast in favor of the resolution must be at least three times the votes cast against the resolution. The Companies Act, 2013 provides that to amend the articles of association of a company, a special resolution is required to be passed in a general meeting.
A shareholder may exercise his voting rights by proxy to be given in the form required by the Articles of Association. The instrument appointing a proxy is required to be lodged with us at least 48 hours before the time of the meeting, or in case of a poll, not less that 24 hours before the time appointed for taking the poll. A shareholder may, by a single power of attorney, grant a general power of representation regarding several general meetings of shareholders. Any shareholder may appoint a proxy. A corporate shareholder is also entitled to nominate a representative to attend and vote on its behalf at general meetings. A proxy may not vote except
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on a poll and does not have a right to speak at meetings. A shareholder which is a legal entity may appoint an authorized representative who can vote in all respects as if a member both on a show of hands and a poll.
The Companies Act, 2013 allows the Company to issue shares with differential rights as to dividend, voting or otherwise, subject to certain conditions. In this regard, the law requires that for a company to issue shares with differential voting rights, the company must have, inter alia, had distributable profits in terms of the Companies Act, 2013 for the last three financial years and the company must not have defaulted in filing annual accounts and annual returns for the immediately preceding three financial years.
Register of Shareholders and Record Dates
The Company is obliged to maintain a register of shareholders at its Registered Office, unless a special resolution is passed in a general meeting authorizing the keeping of the register at any other place within the city, town or village in which the Registered Office is situated or any other place in India in which more than one-tenth of the total shareholders entered in the register of members reside. The Company recognizes as shareholders only those persons whose names appear on the register of shareholders and cannot recognize any person holding any share or part of it upon any express, implied or constructive trust, except as permitted by law. In the case of shares held in physical form, transfers of shares are registered on the register of shareholders upon lodgment of the share transfer form duly complete in all respects accompanied by a share certificate or, if there is no certificate, the letter of allotment in respect of shares transferred together with duly stamped transfer forms. In respect of electronic transfers, the depository transfers shares by entering the name of the purchaser in its books as the beneficial owner of the shares. In turn, the name of the depository is entered into the Company’s records as the registered owner of the shares. The beneficial owner is entitled to all the rights and benefits as well as the liabilities with respect to the shares held by a depository.
For the purpose of determining the shareholders, the register may be closed for periods not exceeding 45 days in any one year or 30 days at any one time at such times, as the Board may deem expedient in accordance with the provisions of the Companies Act, 2013. Under the listing agreements of the Stock Exchanges on which the Company’s outstanding shares are listed, the Company may, upon at least seven working days’ advance notice to such stock exchanges, set a record date and/or close the register of shareholders in order to ascertain the identity of shareholders. The trading of shares and the delivery of certificates in respect thereof may continue while the register of shareholders is closed.
Under the Companies Act, 2013, the Company is also required to maintain a register of debenture holders and a register of any other security holders.
Annual Report and Financial Results
The annual report must be presented at the annual general meeting. The report includes financial information, a corporate governance section and management’s discussion and analysis and is sent to the company’s shareholders.
Under the Companies Act, 2013, the Company must file its balance sheet and profit and loss account with the Registrar of Companies within thirty days from the date of the annual general meeting. The Companies Act, 2013 also requires listed companies to place their financial statements, including consolidated financial statements, if any, and all other documents required to be attached thereto, on their website. As required under the listing agreements, copies are required to be simultaneously sent to the Stock Exchanges on which the shares are listed. The Company must also publish its financial results in at least one English language daily newspaper circulating in the whole or substantially the whole of India and also in a daily newspaper published in the language of the region of the Registered Office (i.e., Telugu).
Transfer of Shares
Shares held through depositories are transferred in the form of book entries or in electronic form in accordance with applicable SEBI regulations. These regulations provide the regime for the functioning of the depositories and their participants and set out the manner in which the records are to be kept and maintained and the safeguards to be followed in this system. Transfers of beneficial ownerships of shares held through a depository are exempt from stamp duty.
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The SEBI requires that for trading and settlement purposes shares should be in book-entry form for all investors, except for transactions that are not made on a stock exchange and transactions that are not required to be reported to the stock exchange.
The securities of the Company are freely transferable, subject to the provisions of the Companies Act, 2013. If a public company without sufficient cause refuses to register a transfer of shares within thirty days from the date on which the instrument of transfer or intimation of transmission, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board seeking to register the transfer. The Company Law Board is proposed to be replaced with the National Company Law Tribunal with effect from a date that is yet to be notified.
Pursuant to the listing agreements, in the event that a transfer of shares is not effected within 15 days or where the Company has failed to communicate to the transferee any valid objection to the transfer within the stipulated time period of 15 days, the Company is required to compensate the aggrieved party for the opportunity loss caused by the delay.
A transfer may also be by transmission. Subject to the provisions of the Articles, any person becoming entitled to shares in consequence of the death or insolvency of any member may, upon producing such evidence as may from time to time properly be required by the Board, be registered as a member in respect of such shares, or may, subject to the regulations as to transfer contained in the Articles, transfer such shares. The Articles of Association provide that the Company shall charge no fee for registration of transfer, transmission, probate, succession certificate and letters of administration, certificate of death or marriage, power of attorney or other similar document.
Acquisition by the Company of its own Shares
A company is prohibited from acquiring its own shares unless the consequent reduction of capital is effected by an approval of at least 75% of its shareholders, voting on it in accordance with the Companies Act, 2013 and sanctioned by the High Court of competent jurisdiction (or the National Company Law Tribunal once it is notified). Subject to certain conditions, a company is prohibited from giving, whether directly or indirectly and whether by means of loan, guarantee, provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person for any shares in the company or its holding company. However, pursuant to the Companies Act, 2013, a company has been empowered to purchase its own shares or other specified securities out of its free reserves, the securities premium account or the proceeds of any fresh issue of shares or other specified securities (other than the kind of shares or other specified securities proposed to be bought back) subject to certain conditions, including:
the buy-back should be authorized by the Articles of Association of the company;
a special resolution has been passed in a general meeting authorizing the buy-back (in the case of listed companies, by means of a postal ballot);
the buy-back is limited to 25% of the total paid-up capital and free reserves;
the debt owed by the company is not more than twice the capital and free reserves after such buy-back; and
the buy-back is in accordance with the Securities and Exchange Board of India (Buy-Back of Securities) Regulations 1998, as amended.
A board resolution will constitute sufficient corporate authorization for a buy-back that is for less than 10% of the total paid-up equity capital and free reserves of the company. A company buying back its securities is required to extinguish and physically destroy the securities so bought back within seven days of the last date of completion of the buy-back. Further, a company buying back its securities is not permitted to buy back any securities for a period of one year from the buy-back or to issue the same kind of shares or specified securities for six months subject to certain limited exceptions.
A company is also prohibited from purchasing its own shares or specified securities through any subsidiary company including its own subsidiary companies or through any investment company. Further, a company is prohibited from purchasing its own shares or specified securities, if the company is in default in the repayment of deposit or interest, in the redemption of debentures or preference shares, in payment of dividend to
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a shareholder, in repayment of any term loan or interest payable thereon to any financial institution or bank or in the event of non-compliance with certain other provisions of the Companies Act, 2013.
Liquidation Rights
Subject to the rights of creditors, of employees and of the holders of any other shares entitled by their terms of issue to preferential repayment over the shares, in the event of winding up of the Company, the holders of the Equity Shares are entitled to be repaid the amounts of capital paid-up or credited as paid-up on such shares. All surplus assets after payments due to employees, the holders of any preference shares and other creditors belong to the holders of the Equity Shares in proportion to the amount paid-up or credited as paid-up on such shares respectively at the commencement of the winding-up.
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STATEMENT OF TAX BENEFITS
To The Board of Directors KSK Energy Ventures Limited 8 2 293 / 82 / A / 431 / A, Road No 22, Jubilee Hills, Hyderabad, Andhra Pradesh, 500033
Date: 31st May, 2014
Dear Sirs
Statement of possible tax benefits available to KSK Energy Ventures Limited and its shareholders
We hereby confirm that the enclosed Annexure, prepared by KSK Energy Ventures Limited ('the Company'), states the possible tax benefits available to the Company and the shareholders of the Company under the Income- tax Act, 1961 ('Act'), the Wealth Tax Act, 1957 presently in force in India and the Gift Tax Act, 1958 (is abolished, not presently in force). Several of these benefits are dependent on the Company or its shareholders fulfilling the conditions prescribed under the relevant provisions of the relevant Act. Hence, the ability of the Company or its shareholders to derive the tax benefits is dependent upon fulfilling such conditions, which, based on the business imperatives, the Company or its shareholders may or may not fulfill.
The benefits discussed in the enclosed Annexure are not exhaustive and the preparation of the contents stated is the responsibility of the Company's management. We are informed that this statement is only intended to provide general information to the investors and hence, is neither designed nor intended to be a substitute for professional tax advice. In view of the individual nature of the tax consequences, the changing tax laws, each investor is advised to consult his or her own tax consultant with respect to the specific tax implications arising out of their participation in the issue.
Our confirmation is based on the information, explanations and representations obtained from the Company and on the basis of our understanding of the business activities and operations of the Company .
We do not express and opine or provide any assurance as to whether:
1. the Company or its shareholders will continue to obtain these benefits in future; or
2. the conditions prescribed for availing the benefits, where applicable, have been/would be met.
For Umamaheswara Rao & Co Chartered Accountants Firm Registration No. 004453S
S.Venugopal Partner Membership No. 205565 Hyderabad, Date: 31st May, 2014
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A (i) Special tax benefits available to the Company under the Income Tax Act, 1961 (‘the Act’)
There are no company specific special tax benefits available to the Company. Tax benefits mentioned below in A (ii) are general tax benefits available to all the companies subject to fulfillment of specified conditions.
A (ii) General Benefits available to the Company under the Act:
1. Under section 10(34) of the Act, any income by way of dividends referred to in section 115-O received by the Company from another domestic company/ companies is exempt from income-tax.
However, in view of the provisions of section 14A of Act, no deduction is allowed in respect of any expenditure incurred in relation to earning such dividend income. The quantum of such expenditure liable for disallowance is to be computed in accordance with the provisions of section 14A read with Rule 8D of the Income-tax Rules, 1962 (“the IT Rules”).
Also, section 94(7) of the Act provides that losses arising from the sale/ transfer of shares or units purchased within a period of three months prior to the record date and sold/ transferred within three months (in case of shares) or nine months (in case of units) respectively after such date, will be ignored to the extent dividend income on such shares or units is claimed as tax exempt.
2. Further, as per section 94(8) of the Act, if an investor purchases units within three months prior to the record date for entitlement of bonus, and is allotted bonus units without any payment on the basis of holding original units on the record date and such person sells/redeems the original units within nine months of the record date, then the loss arising from sale/ redemption of the original units will be ignored for the purpose of computing income chargeable to tax and the amount of loss ignored shall be regarded as the cost of acquisition of the bonus units.
3. By virtue of section 10(35) of the Act, the following income shall be exempt in the hands of the company:
(a) Income received in respect of the units of a Mutual Fund specified under clause (23D) of section 10; or (b) Income received in respect of units from the Administrator of the “specified undertaking”; or (c) Income received in respect of units from the “specified company”.
However this exemption does not apply to any income arising from transfer of units of the Administrator of the specified undertaking or of the specified company or of a mutual fund, as the case may be. For this purpose: i. “Administrator” means the Administrator as referred to in clause (a) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002.
ii. “Specified Company” means a company as referred to in clause (h) of section 2 of the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002;
However, in view of the provisions of section 14A of Act, no deduction is allowed in respect of any expenditure incurred in relation to earning such dividend income. The quantum of such expenditure liable for disallowance is to be computed in accordance with the provisions of section 14A read with Rule 8D of the Income-tax Rules, 1962 (“the IT Rules”).
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4. As per the provisions of section 10 (38) of the Act, the long term capital gains (gain arising on transfer of long term capital asset) arising to the Company from the transfer of shares or a unit of a equity oriented fund, where the transaction of sale of such share or unit is entered into in a recognized stock exchange in India on or after October 1, 2004 and chargeable to Securities Transaction Tax, will be exempt from tax in the hands of the Company. The equity shares or units of an equity oriented fund are treated as long term assets if it is held for a period of more than 12 months prior to the date of transfer.
However the income by way of long-term capital gain of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB of the Act.
For this purpose ‘Equity Oriented Fund’ means a fund:
(a) where the investible funds are invested by way of equity shares in domestic companies to the extent of more than sixty-five per cent of the total proceeds of such fund; and
(b) which has been set up under a scheme of Mutual Fund specified under clause (23D) of section 10.
For this purpose, the percentage of equity share holding shall be computed with reference to the annual average of the monthly averages of the opening and closing figures.
5. Under section 48 of the Act, if the investments in shares are sold after being held for not less than twelve months, the gains, if any, will be treated as long-term capital gains and the gains will be calculated by deducting from the gross consideration, the indexed cost of acquisition and indexed cost of improvement. The indexed cost of acquisition / improvement refers to the cost of acquisition / improvement adjusted by the cost of inflation index, as prescribed from time to time.
6. As per section 54EC of the Act and subject to the conditions and to the extent specified therein, long-term capital gains [not covered under section 10(38) of the Act] arising on the transfer of a long-term capital asset will be exempt from tax subject to the limit of `50 lakhs in a year if the capital gains are invested in a “long term specified asset” within a period of six months after the date of such transfer.
For the above purposes a “long term specified asset” inter-alia means any bond, redeemable after three years and issued on or after the first day of April 2007 by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988, or by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956.
7. Under section 112 of the Act, and other relevant provisions of the Act, long term capital gains [not covered under section 10(38) of the Act], arising on transfer of shares/ units, shall be taxed at a rate of 20% (plus applicable surcharge and education cess). The tax shall however, not exceed 10% (plus applicable surcharge and education cess) without indexation, if the transfer is made of a listed security or unit or zero coupon bond.
8. The long term capital gains on transfer of assets other than shares/ units shall be chargeable to tax at the rate of 20 percent (plus applicable surcharge and education cess) of the capital gains computed after indexing the cost of acquisition /improvement.
Where the gross total income includes long term capital gains referred to above, the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such long term capital gains.
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9. As per the provisions of section 111A of the Act the short term capital gains arising from the transfer of equity shares or unit of an equity oriented fund, where the transaction of sale of such share/ unit is entered into in a recognized stock exchange in India and chargeable to Securities Transaction Tax will be chargeable to tax at the rate of 15% (plus applicable surcharge and education cess).
Where the gross total income includes short term capital gains referred to above, the deduction under Chapter VI-A shall be allowed from the gross total income as reduced by such short term capital gains.
For the purpose of this section, ‘equity oriented fund’ shall have meaning as assigned to it in explanation to section 10(38).
10. Under section 32 of the Act, the Company is entitled to claim depreciation, subject to conditions specified therein, at the prescribed rate on its specified assets used for its business.
Further, an additional depreciation of 20% can be claimed on new machinery or plant subject to fulfillment of certain conditions.
The unabsorbed depreciation shall be carried forward for set off in subsequent years without any time limit
11. As per section 35(2AB), the Company can claim 200% of expenditure incurred on scientific research (not being expenditure in the nature of cost of any land or building), on in-house research and development facility as approved by the prescribed authority.
12. Under section 35D of the Act, the Company will be entitled to a deduction equal to 1/5th of the expenditure incurred of the nature specified in the said section, by way of amortisation over a period of 5 successive years, beginning with the previous year in which the business commences or after the commencement of its business in connection with the extension of its industrial undertaking or in connection with setting up a new industrial unit, subject to the stipulated limits.
13. As per provisions of section 35DDA of the Act, where the company makes payment to an employee in connection with his voluntary retirement of services, it shall be allowed a deduction of an amount equal to one-fifth of such payment for each of the five successive previous years beginning with the previous year in which the payment has been made.
14. The amount of tax paid under section 115JB by the Company for any assessment year commencing from 01 April 2006 and any subsequent assessment year, will be available as credit to the extent specified in section 115JAA for ten years succeeding the assessment year in which MAT credit becomes allowable in accordance with the provisions of Section 115JAA of the Act.
15. As per section 70 of the Act, short-term capital loss can be set-off against short-term as well as long-term capital gains of the said year. Balance loss, if any, could be carried forward for eight years for claiming set-off against subsequent years’ short term as well as long term capital gains. Long term capital loss suffered during the year can be set-off only against long-term capital gains. Balance loss, if any, could be carried forward for eight years for claiming set-off against subsequent years’ long term capital gains
16. Section 72 of the Act provides that the business loss for any assessment year, to the extent not set off against income under any head of income in the said year, could be carried forward for eight assessment years (immediately following the assessment year for which the loss was first computed) for claiming set off against the profits and gains of business or profession of subsequent years. Unabsorbed depreciation, if any, for any assessment year can be carried forward and set off against any source of income of subsequent assessment years as per section 32 of the Act.
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17. Under section 79 of the Act, the carry forward and set off of business losses of a listed company would not be impacted on a change in shareholding pattern of the company.
A (iii) Tax Rates
18. The normal tax rate applicable to the Company is 30%. Minimum alternate tax (MAT) rate applicable to the company is 18.5%
Surcharge at the rate of 5% is applicable, if the total income exceeds `1 Crore but does not exceed `10 Crores.
Surcharge at the rate of 10% is applicable, if the total income exceeds `10 Crores.
Education cess of 3% is chargeable on tax plus surcharge.
A (iv) Dividend distribution tax (“DDT”)
19. Tax on distributed profits of domestic companies is charged at 15% (plus applicable surcharge and education cess)
As per sub‐section (1A) to section 115-O, the domestic company will be allowed to set‐off the dividend received from its subsidiary company during the financial year against the dividend distributed by it, while computing the DDT if:
a. the dividend is received from its subsidiary;
b. where such subsidiary is a domestic company, the subsidiary has paid dividend distribution tax under section 115-O on such dividend; or
c. where such subsidiary is a foreign company, the tax is payable by the domestic company under section 115BBD on such dividend.
Also, the same amount of dividend shall not be taken into account for reduction more than once.
For the purpose of this sub‐section, a company shall be a subsidiary of another company, if such other company holds more than half in nominal value of the equity share capital of the company.
B Benefits available to the shareholders of the Company under the Act:
B (i) Special Tax Benefits available to Shareholders of the Company
There are no special tax benefits available to the members of the Company.
B (ii) General Tax Benefits available to Resident Shareholders
20. Under section 10(34) of the Act, any income by way of dividends referred to in section 115-O received from a domestic company is exempt from income tax.
However, in view of the provisions of section 14A of Act, no deduction is allowed in respect of any expenditure incurred in relation to earning such dividend income. The quantum of such expenditure liable for disallowance is to be computed in accordance with the provisions section 14A read with Rule 8D of the IT Rules.
Also, section 94(7) of the Act provides that losses arising from the sale/ transfer of shares purchases within a period of three months prior to the record date and sold/ transferred within three months after such date, will be ignored to the extent dividend income on such shares is claimed as tax exempt.
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21. As per the provisions of section 10(38) of the Act any Long Term Capital Gains arising from the transfer of shares, where the transaction of sale of such shares is entered into in a recognized stock exchange in India on or after October 1, 2004 and chargeable to Securities Transaction Tax, will be exempt from tax. The equity shares or units of an equity oriented fund are treated as long term assets if it is held for a period of more than 12 months prior to the date of transfer.
However, the income by way of Long Term Capital Gains of a company shall be taken into account in computing the book profit and income-tax payable under section 115JB of the Act.
22. Under section 48 of the Act, if the investments in shares are sold after being held for not less than twelve months, the gains, if any, will be treated as long-term capital gains and the gains will be calculated by deducting from the gross consideration, the indexed cost of acquisition and indexed cost of improvement. The indexed cost of acquisition / improvement refers to the cost of acquisition/ improvement adjusted by the cost of inflation index, as prescribed from time to time.
23. Under section 112 of the Act, and other relevant provisions of the Act, long term capital gains [not covered under section 10(38) of the Act], arising on transfer of shares/ units, shall be taxed at a rate of 20% (plus applicable surcharge and education cess). The tax shall however, not exceed 10% (plus applicable surcharge and education cess) without indexation, if the transfer is with respect to a listed security or unit or zero coupon bond.
24. In case of an individual or a Hindu Undivided Family, where the total taxable income as reduced by the long term capital gains is less than the basic exemption limit, the long term capital gains will be reduced to the extent of the shortfall and only the balance long term capital gains will be subject to tax in accordance with the proviso to sub section (1) of section 112 of the Act.
25. As per section 54EC of the Act and subject to the conditions and to the extent specified therein, long-term capital gains (in cases not covered under section 10(38) of the Act) arising on transfer of a long-term capital asset will be exempt from tax subject to the limit of Rs 50 lakhs in a year if the capital gains are invested in a “long term specified asset” within a period of six months after the date of such transfer.
For the above purposes a “long term specified asset” inter-alia means any bond, redeemable after three years and issued on or after the first day of April 2007 by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988, or by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956.
26. As per the provisions of section 54F of the Act, long term capital gains [not covered under section 10(38)] arising on transfer of shares of the Company held by an individual or Hindu Undivided Family will be exempt from tax if the net consideration is utilised, within a period of one year before, or two years after the date of transfer, in the purchase of a residential house, or for construction of a residential house within three years.
27. Short-term capital gains arising on transfer of the shares (i.e. held for less than 12 months) of the Company will be chargeable to tax at the rate of 15% (plus applicable surcharge and education cess) as per the provisions of section 111A of the Act, if securities transaction tax is chargeable on such transaction. In case of an individual or Hindu Undivided Family, where the total taxable income as reduced by short-term capital gains is below the basic exemption limit, the short-term capital gains will be reduced to the extent of the shortfall and only the balance short-term capital gains will be subjected to such tax in accordance with the proviso to sub-section (1) of section 111A of the Act.
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28. The short-term capital gains accruing to the shareholders of the Company on transfer of the shares of the Company otherwise than as mentioned in Paragraph 27 above shall be chargeable to the capital gains tax at the normal tax rate applicable.
29. As per section 70 of the Act, Short Term Capital Loss suffered during the year is allowed to be set-off against short term as well as Long Term Capital Gain of the said year. Balance loss, if any, could be carried forward for eight years for claiming set-off against subsequent years’ short term as well as long term capital gains. Long Term Capital Loss suffered during the year is allowed to be set-off against Long Term Capital Gains only. Balance loss, if any, could be carried forward for eight years for claiming set-off against subsequent years’ Long Term Capital Gains only.
30. Where the business income of an assessee includes profits and gains of business arising from transactions on which securities transaction tax has been charged, such securities transaction tax shall be deductible expense from business income as per the provisions of section 36(1)(xv) of the Act.
B (iii) Tax Rates of Resident Shareholders:
31. (i) Individuals, HUFs, BOI and Association of Persons: The income tax exemption limit for the assessment year 2014-15 is `2,00,000/‐
(ii) Senior Citizens:
a) For individual residents of India above the age of 60 years but below 80 years, the income tax exemption limit for the assessment year 2014-15 is `2,50,000/‐
b) For individual residents of India above the age of 80 years, the income tax exemption limit for the assessment year 2014-15 is `5,00,000/‐
Surcharge at the rate of 10% is applicable, if the total income exceeds `1 Crore.
Education cess is 3% for all the above categories.
B (iv) General Tax Benefits available to Non-resident Indians / Non residents shareholders (Other than FIIs)
32. Under section 10(34) of the Act, any income by way of dividends referred to in section 115 Or received from a domestic company is exempt from income tax.
However, in view of the provisions of section 14A of Act, no deduction is allowed in respect of any expenditure incurred in relation to earning such dividend income. The quantum of such expenditure liable for disallowance is to be computed in accordance with the provisions of section 14A read with Rule 8D of the IT Rules.
Also, section 94(7) of the Act provides that losses arising from the sale/ transfer of shares purchases within a period of three months prior to the record date and sold/ transferred within three months after such date, will be ignored to the extent of dividend income on such shares is claimed as tax exempt.
33. As per section 10(38) of the Act, long term capital gains arising to the shareholder from the transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund, where such transaction is chargeable to securities transaction tax, will be exempt in the hands of shareholders. However, the said exemption will not be available to a member being a company while computing the book profit and the tax payable under section 115JB of the Act.
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34. In accordance with, and subject to section 48 of the Act, capital gains arising on transfer of shares of the Company which are acquired in convertible foreign exchange shall be computed by converting the cost of acquisition, expenditure in connection with such transfer and full value of the consideration received or accruing as a result of the transfer into the same foreign currency as was initially utilised in the purchase of shares and the capital gains computed in such foreign currency shall be reconverted into Indian currency, such that the aforesaid manner of computation of capital gains shall be applicable in respect of capital gains accruing / arising from every reinvestment thereafter and sale of shares of the Company.
35. As per section 111A of the Act, short term capital gains arising from the sale of equity shares or units of an equity oriented mutual fund, will be chargeable to tax at the rate of 15% (plus applicable surcharge and education cess), if securities transaction tax is chargeable on such transaction.
36. Under section 112 of the Act, long term capital gains [not covered under section 10(38) of the Act], arising on transfer of shares/ units, shall be taxed at a rate of 20% (plus applicable surcharge and education cess). The tax shall however, not exceed 10% (plus applicable surcharge and education cess) without indexation, if the transfer is with respect to a listed security or unit or zero coupon bond.
37. As per section 54EC of the Act and subject to the conditions and to the extent specified therein, long-term capital gains (in cases not covered under section 10(38) of the Act) arising on the transfer of a long-term capital asset will be exempt from tax subject to the limit of `50 lakhs in a year if the capital gains are invested in a “long term specified asset” within a period of six months after the date of such transfer.
For the above purposes a “long term specified asset” inter-alia means any bond, redeemable after three years and issued on or after the first day of April 2007 by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988, or by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956.
38. As per the provisions of section 54F of the Act, long term capital gains (in cases not covered under section 10(38)) arising on the transfer of the shares of the Company held by an individual or Hindu Undivided Family will be exempt from tax if the net consideration is utilised, with in a period of one year before, or two years after the date of transfer, in the purchase of a residential house, or for construction of a residential house within three years after the date of transfer. 39. Where the business income of an assessee includes profits and gains of business arising from transactions on which securities transaction tax has been charged, such securities transaction tax shall be a deductible expense from business income as per the provisions of section 36(1)(xv) of the Act.
40. As per Section 70 of the Act, short-term capital loss suffered during the year is allowed to be set- off against short-term as well as long-term capital gains of the said year. Balance loss, if any, could be carried forward for eight years for claiming set-off against subsequent years’ short-term as well as long-term capital gains. Long-term capital loss suffered during the year is allowed to be set-off against long-term capital gains. Balance loss, if any, could be carried forward for eight years for claiming set- off against subsequent years’ long term capital gains.
41. The tax rates and consequent taxation mentioned below will be further subject to any benefits available under the Tax Treaty, if any, between India and the country in which the non-resident has fiscal domicile. As per the provisions of section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the Double Taxation Avoidance Agreement (“DTAA”) to the extent they are more beneficial to the non-resident. The Tax Treaty benefits could be availed subject to compliance with the prescribed conditions under the Act.
42. Besides the above benefits available to non-residents, Non-Resident Indians (NRIs) have the option of being governed by the provisions of Chapter XII-A of the Act which inter alia entitles them to certain benefits in respect of income from shares of an Indian Company acquired, purchased or subscribed to in convertible foreign exchange.
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43. As per section 115A of the Act, where the total income of a Non-resident (not being a company) or of a foreign company includes dividends (other than dividends referred to in section 115O of the Act), tax payable on such income shall be aggregate of amount of income-tax calculated on the amount of income by way of dividends included in the total income, at the rate of 20 per cent (plus applicable surcharge and education cess).
44. In accordance with section 115E of the Act, income from investment or income from long- term capital gains on transfer of assets other than specified asset shall be taxable at the rate of 20% (plus applicable surcharge and education cess). Income by way of long term capital gains in respect of a specified asset (as defined in section 115C (f) of the Act), shall be chargeable at 10% (plus applicable surcharge and education cess).
45. In accordance with section 115F of the Act, subject to the conditions and to the extent specified therein, long-term capital gain arising from transfer of shares of the company acquired out of convertible foreign exchange, and on which securities transaction tax is not chargeable, shall be exempt from capital gains tax, if the net consideration is invested within six months of the date of transfer in any specified asset.
46. In accordance with section 115G of the Act, it is not necessary for a Non resident Indian to file a return of income under section 139(1) of the Act, if his total income consists only of investment income earned on shares of the company acquired out of convertible foreign exchange or income by way of long term capital gains earned on transfer of shares of the company acquired out of convertible foreign exchange or both, and the tax has been deducted at source from such income under the provisions of Chapter XVII-B of the Act.
47. As per section 115H of the Act, where a non-resident Indian becomes assessable as a resident in India, he may furnish a declaration in writing to the Assessing Officer, along with his return of income for that year under section 139 of the Act to the effect that the provisions of Chapter XII-A shall continue to apply to him in relation to such investment income derived from the specified assets for that year and subsequent assessment years until such assets are transferred or converted into money.
48. In accordance with section 115-I of the Act, where a Non Resident Indian opts not to be governed by the provision of Chapter XII-A for any assessment year, his total income for that assessment year (including income arising from investment in the company) will be computed and tax will be charged according to the other provisions of the Income-tax Act.
B (v) General Tax Benefits available to Foreign Institutional Investors (FIIs)
49. Under section 10(34) of the Act, any income by way of dividends referred to in section 115 O received from a domestic company is exempt from income tax.
However, in view of the provisions of section 14A of the Act, no deduction is allowed in respect of any expenditure incurred in relation to earning such dividend income. The quantum of such expenditure liable for disallowance is to be computed in accordance with the provisions of section 14A read with Rule 8D of the IT Rules.
Also, section 94(7) of the Act provides that losses arising from the sale/ transfer of shares purchases within a period of three months prior to the record date and sold/ transferred within three months after such date, will be ignored to the extent dividend income on such shares is claimed as tax exempt.
50. As per section 10(38) of the Act, long term capital gains arising from the transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund, where such transaction is chargeable to securities transaction tax, will be exempt.
51. Under section 115AD(1)(b)(iii) of the Act, income by way of long-term capital gains arising from the transfer of shares held in the Company not covered under Paragraph 50 above will be chargeable to tax at the rate of 10% (plus applicable surcharge and education cess) without indexation benefit.
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52. As per section 115AD read with section 111A of the Act, short term capital gains arising from the sale of equity shares of the Company transacted through a recognized stock exchange in India, where such transaction is chargeable to securities transaction tax, will be taxable at the rate of 15% (plus applicable surcharge and education cess).
53. Under section 115AD(1)(b)(ii) of the Act, income by way of short- term capital gains arising from the transfer of shares held in the Company not covered under Paragraph 52 above will be chargeable to tax at the rate of 30% (plus applicable surcharge and education cess).
54. As per section 196D(2) of the Act, no deduction of tax at source will be made in respect of income by way of capital gain arising from the transfer of securities referred to in section 115AD.
55. The tax rates and consequent taxation mentioned above will be further subject to any benefits available under the Tax Treaty, if any between India and the country in which the FII has fiscal domicile. As per the provisions of section 90(2) of the Act, the provisions of the Act would prevail over the provisions of the Tax Treaty to the extent they are more beneficial to the FII. The Tax Treaty benefits could be availed subject to compliance with the prescribed conditions under the Act.
56. As per section 70 of the Act, short-term capital loss suffered during the year is allowed to be set-off against short-term as well as long-term capital gains of the said year. Balance loss, if any, could be carried forward for eight years for claiming set-off against subsequent years’ short-term as well as long-term capital gains. Long-term capital loss suffered during the year is allowed to be set-off against long-term capital gains. Balance loss, if any, could be carried forward for eight years for claiming set- off against subsequent years’ long-term capital gains.
57. Where the business income of an assessee includes profits and gains of business arising from transactions on which securities transaction tax has been charged, such securities transaction tax shall be a deductible expense from business income as per the provisions of section 36(1) (xv) of the Act.
58. As per section 54EC of the Act and subject to the conditions and to the extent specified therein, long- term capital gains (in cases not covered under section 10(38) of the Act) arising on the transfer of a long-term capital asset will be exempt from tax subject to the limit of `50 lakhs in a year if the capital gains are invested in a “long term specified asset” within a period of six months after the date of such transfer.
For the above purposes a “long term specified asset” inter-alia means any bond, redeemable after three years and issued on or after the first day of April 2007 by the National Highways Authority of India constituted under section 3 of the National Highways Authority of India Act, 1988, or by the Rural Electrification Corporation Limited, a company formed and registered under the Companies Act, 1956.
B (vi) General Tax Benefits available to Mutual Funds
59. Under section 10(34) of the Act, any income by way of dividends referred to in section 115-O of the Act received from a domestic company is exempt from income tax.
In view of the provisions of section 14A of the Act, no deduction is allowed in respect of any expenditure incurred in relation to earning such dividend income. The quantum of such expenditure liable for disallowance is to be computed in accordance with the provisions of section 14A read with Rule 8D of the IT Rules.
Also, section 94(7) of the Act provides that losses arising from the sale/ transfer of shares purchases within a period of three months prior to the record date and sold/ transferred within three months after such date, will be ignored to the extent dividend income on such shares is claimed as tax exempt.
60. Under section 10(23D) of the Act, any income of:
a. A Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 or regulations made there under;
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b. Such other Mutual Fund set up by a public sector bank or a public financial institution or authorized by the Reserve Bank of India and subject to such conditions as the Central Government may, by notification in the Official Gazette, specify in this behalf will be exempt from income-tax.
B (vii) General Tax Benefits available to Venture Capital Companies / Funds
61. Any income received by venture capital companies or venture capital funds set up to raise funds for investment in a venture capital undertaking registered with the Securities and Exchange Board of India, subject to conditions specified in section 10(23FB) of the Act, is eligible for exemption from income-tax. However, the income distributed by the Venture Capital Companies/ Funds to its investors would be taxable in the hands of the recipient.
62. As per Section 14A, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. Also, Section 94(7) of the Act provides that losses arising from the sale/ transfer of shares or units purchased within a period of three months prior to the record date and sold/ transferred within three months or nine months respectively after such date, will be ignored to the extent dividend income on such shares or units is claimed as tax exempt.
C Benefits available to the shareholders of the Company under the Wealth Tax Act, 1957
63. Shares of the company held by the shareholders will not be treated as an asset within the meaning of section 2 (ea) of the Wealth Tax Act, 1957. Hence, shares are not liable to wealth tax.
D Benefits available to the shareholders of the Company under the Gift Tax Act, 1958
64. Gift tax is not leviable in respect of any gifts made on or after October 1, 1998. Therefore, any gift of shares will not attract gift tax under the Gift Tax Act, 1958. However, as per section 56(1)(vii)(c) of the Act, gift of shares to an individual or Hindu undivided family would be taxable in the hands of the donee as “Income From Other Sources” subject to the provisions of the Act.
Notes:
i. The above statement of possible direct tax benefits / consequences and sets out the possible tax benefits available to the Company and its shareholders under the current tax laws presently in force in India. Several of these benefits are dependent on the company or its shareholders fulfilling the conditions prescribed under the relevant tax laws. ii. The above Statement of possible tax benefits sets out the provisions of law in a summary manner only and is not a complete analysis or list of all potential tax consequences and the tax benefits listed above are not exhaustive. iii. The stated benefits will be available only to the sole/first named holder in case the shares are held by joint holders. iv. In respect of non-residents, the tax rates and the consequent taxation mentioned above shall be further subject to any benefits available under the Double Taxation Avoidance Agreements, if any, between India and the country in which the non-resident has fiscal domicile. v. In view of the individual nature of tax consequences, each investor is advised to consult his/her/its own tax advisor with respect to specific tax consequences of his/her/its participation in the scheme. vi. The enclosed statement does not incorporate the effect of the proposed Direct Taxes Code on the Company and its shareholders, as the Code has not yet been enacted.
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LEGAL PROCEEDINGS
Our Company, its Subsidiaries and the Joint Venture are subject to various legal proceedings from time to time, mostly arising in the ordinary course of their business. Except as described below, the Company and its Subsidiaries and Joint Venture are not involved in any pending legal proceedings, and the Company is not aware of any threatened legal proceeding, which if determined adversely, could result in a material adverse effect on the business, financial condition or results of operations of the Group taken as a whole. Our Company has no outstanding defaults in relation to statutory dues payable, dues payable to holders of any debentures and interest thereon, and in respect of deposits and interest thereon, defaults in repayment of loans from any bank or financial institution and interest thereon.
I Pending Litigation involving KSK Energy Ventures Limited (the “Company” or “KSKEVL”)
A. Against the Company
Nil
B. By the Company
(1) The Company received a show cause notice from the Superintendent of Service Tax which was confirmed by the Commissioner under an appeal, for an amount of `218,853,801.00, being the service tax due and payable. The Company filed an appeal against the notice before the Custom Excise and Service Tax Appellate Tribunal (“CESTAT”), Bengaluru. The matter had not been heard and pending admission of the appeal, the Superintendent of Central Excise issued a letter dated January 8, 2013, to the Company, threatening coercive steps for recovery of the impugned amount, in pursuant of a circular issued by the Central Board of Excise and Customs dated January 1, 2013 that prescribed guidelines to initiate recovery of demands after 30 days of notice if no stay has been granted. The Company filed a writ petition (W.P. No. 1110/2013) before the High Court of Andhra Pradesh challenging the letter dated January 8, 2013 on the grounds that the appeal against the show cause notice was still pending before the CESTAT tribunal for hearing and also challenged the constitutionality of the circular issued by the Central Board of Excise and Customs. The writ petition was admitted and stay granted till the disposal of the stay application by the CESTAT. The writ petition in relation to the constitutional validity of the circular is currently pending.
II Litigations involving the Subsidiaries and the Joint Venture Company
1. ARASMETA CAPTIVE POWER COMPANY PRIVATE LIMITED (“ACPCPL”)
A. Against ACPCPL
(1) LIPL had filed an arbitration application (No. 24 of 2012) before the High Court of Chhattisgarh for appointment of an arbitrator, which was opposed by ACPCPL. Pursuant to its order dated July 22, 2013, the High Court of Chhattisgarh appointed a sole arbitrator. ACPCPL has contended that the dispute with LIPL is a billing dispute and is not arbitral in accordance with the terms of the Power Purchase Agreements entered into between the two parties. The claim petition by LIPL and the counter and counter claim petitions by ACPCPL have been filed before the arbitrator. The dispute, inter alia, relates to the consequence of termination of a power purchase agreement that expired during the course of the pending litigations between LIPL and ACPCPL, and as per which, the Equity Shares held by LIPL are required to be transferred to the Company for a total consideration of Re. 1., which has been disputed by LIPL. LIPL has instead sought for damages for return of the investment together with interest at 18% per annum. The arbitration proceedings are pending for adjudication.
(2) LIPL filed a contempt petition pursuant to contempt case (civil) No. 190 of 2012 before the High Court of Chhattisgarh alleging that the order of a district judge, Janjgir, in M.J.C. No. 5 of 2012, dated April 26, 2012, under a section 9 petition filed by LIPL, granting ex-parte temporary injunction to the petitioner and directing ACPCPL to continue to supply power to LIPL, had not been implemented by ACPCPL. ACPCPL had issued notice dated April 24, 2012 to LIPL and
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disconnected power supply to LIPL from April 25, 2012, for non-payment of approximately `600.00 million, as agreed under the power purchase agreement entered into with LIPL.
ACPCPL filed an appeal on April 28, 2012 before the High Court of Chhattisgarh pursuant to Arbitration Appeal No. 23 of 2012, against the interim order dated April 26, 2012. The interim order of the High Court dated May 8, 2012, in this Arbitration Appeal No. 23 of 2012 provided that ACPCPL should continue to supply electricity to LIPL, and LIPL shall make all payments to ACPCPL within three days from the date of receipt of bills. Simultaneously, ACPCPL had moved an application before the district judge on April 28, 2012 for suspension of its order dated April 26, 2012, on the ground that the same is not implementable.
LIPL filed another contempt petition (Contempt Case (Civil) No. 211 of 2012) before the High Court of Chhattisgarh, alleging that the order of the High Court dated May 8, 2012 in Arbitration Appeal No. 23 of 2012 was not implemented by ACPCPL.
Subsequently, the section 9 petition, M.J.C. No. 5 of 2012, was disposed by the district judge, pursuant to order dated May 17, 2012, directing ACPCPL to supply power to LIPL and LIPL to make the payment regularly and directing that the matter should be referred to the coordination committee or for arbitration or any other available forum for quick resolution, and such order was valid for five months with effect from May 17, 2012.
ACPCPL filed an Arbitration Appeal No. 29 of 2012 before the High Court of Chhattisgarh, against the final order of the district judge dated May 17, 2012 in M.J.C. No. 5 of 2012. An interim order dated July 23, 2012 was granted by the High Court directing ACPCPL to supply power to LIPL and LIPL to make the payment regularly within three days of receipt of bills, failing which ACPCPL was entitled to disconnect the power supply. The order also stayed the contempt proceedings filed by LIPL pending at such time. The Arbitration Appeal No. 29 of 2012 and Contempt Cases (Civil) nos. 190 of 2012 and 211 of 2012 are currently pending for disposal.
LIPL filed a special leave petition before the Supreme Court of India (SLP (Civil) No. 22917/2012), challenging the interim order dated July 23, 2012 in Arbitration Appeal No. 29 of 2012. The Supreme Court pursuant to order dated August 1, 2012, directed that status quo, as on date, should be maintained. The SLP has subsequently been withdrawn by LIPL on February 14, 2014 as arbitration proceedings had commenced.
ACPCPL has filed a contempt petition (Contempt Case (Civil) No. 195 of 2013) before the Supreme Court against LIPL and its officials alleging that LIPL and its officials violated the status quo order dated August 1, 2012. The matter is pending for disposal.
(3) A civil suit no. 5B of 2013 was filed by Ms. Surjit Kaur and Others against R.D. Transport and ACPCPL, in the District Court, Korba, for recovery of `65,679.00, alleging that R.D. Transport engaged the lorry services owned by her for coal transportation and had not paid the transport charges. ACPCPL is contesting the matter and has stated that it gave the work order for transportation to R.D. Transport and there is no privity of contract between ACPCPL and the plaintiff. The matter is currently pending for disposal.
B. By ACPCPL
(1) The Labour Authorities under the provisions of the Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 and Building and Other Construction Workers’ Welfare Cess Act, 1996, amended (the “BOC Act”), issued a demand notice dated December 3, 2010, for payment of `20.00 million from ACPCPL as cess at the rate of one per cent on the basis that the project cost is tentatively `2000.00 million. ACPCPL is contesting the demand notice pursuant to W.P. No. 7503 of 2010 filed before the High Court of Chhattisgarh, on the ground that its construction activities are governed by the Factories Act, 1948, as amended (the “Factories Act”) and the provisions of the BOC Act are not applicable to it. The writ petition has been admitted and stay has been granted. The matter is currently pending for disposal.
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2. SAI REGENCY POWER CORPORATION PRIVATE LIMITED (“SRPCPL”)
A. Against SRPCPL
Nil
B. By SRPCPL
(1) SRPCPL preferred an appeal pursuant to Civil Appeal No. 39333 of 2009 before the Supreme Court of India, inter alia praying to set aside the common order dated September 22, 2009, passed by the Appellate Tribunal for Electricity (“APTEL”), in Appeal Nos. 171 of 2008, 172 of 2008 and I.A. Nos. 233 of 2008, 234 of 2008, 10 of 2008 and 117 of 2009. SRPCPL was not a party in the said appeals before the APTEL. While disposing the said appeals, APTEL observed that the proviso to Rule 3(1)(a)(ii) of the Electricity Rules, 2005, (the “Electricity Rules”) relating to special conditions for “cooperative societies” and “association of persons” (an “AOP”) should be applied to a special purpose vehicle. SRPCPL has contended that the APTEL failed to appreciate that an AOP and an SPV cannot be equated. SPV constitute a distinct and separate category from co-operative societies and AOPs, and have been treated as such by the Electricity Rules. Clause (b) of Sub-Rule (1) of Rule (3) of the Electricity Rules deals with the case of a generating station, owned by a company formed as a special purpose vehicle for such a generating station. According to this provision, only the unit(s) of such a generating station identified for captive use, and not the entire generating station, are required to satisfy the conditions that not less than 26% of the ownership of the power plant is held by captive users and not less than 51% on an annual basis of the aggregate electricity generated by the unit(s) of the generating station identified for captive use, is consumed by them. The special conditions under the provisos to Rule 3(1)(a)(ii) have no application to the case of a power plant set up by an SPV and cannot be considered for the interpretation of Rule 3(1)(b) of the Electricity Rules as observed by the APTEL. SRPCPL’s appeal was admitted and tagged to another matter arising in appeal to the APTEL’s order dated September 22, 2009, where stay of operation of the APTEL order had already been granted. The appeals are currently pending for disposal.
(2) SRPCPL had entered into agreements with Gas Authority of India Limited (“GAIL”) dated February 21, 2002, as amended, to meet SRPCPL’s gas requirements for the production of electricity. Gas supply was to commence from February 20, 2005 and the agreement was valid till December 31, 2010, and a particular price mechanism was specified under the agreements in accordance with circulars issued by the Ministry of Petroleum and Natural Gas. As per circulars dated June 20, 2005 and June 27, 2006, GAIL was required to supply gas at an administered price mechanism (“APM”) to the priority sectors including electricity generation companies complying with the condition that such electricity generated would be supplied to the grid for distribution to the consumers through the public utilities / licensed distribution companies. Subsequently, after expiry of the previous agreement, fresh agreements were executed on April 1, 2011, whereunder the gas would continue to be supplied to SRPCPL under the APM. However, on November 29, 2011, GAIL issued a letter to SRPCPL stating that for the gas supplied to SRPCPL by GAIL, APM is not applicable, and with retrospective effect from the date of the first agreement, non- APM charges would be applicable, and accordingly issued two debit notes each dated December 19, 2011 for `586,634,899.00 for the period July 1, 2005 to March 31, 2010 and `39,061,301.00 for the period April 1, 2011 to November 15, 2011 to SRPCPL. Aggrieved by the demands raised by GAIL, SRPCPL filed a section 9 petition (O.M.P. 55/2012) before the High Court of Delhi for an injunction pending arbitration. Pursuant to the order dated January 20, 2012, the High Court granted interim injunction and subsequently allowed the petition pursuant to its order dated September 9, 2012, confirming the interim order pending arbitration. A sole arbitrator was appointed for the adjudication of disputes. Claims and counter claims were filed by the parties and arguments have been completed before the arbitrator. The matter is now reserved for passing the award.
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3. VS LIGNITE POWER PRIVATE LIMITED (“VSLP”)
A. Against VSLP
(1) Gain Singh and others filed a writ petition (W.P. No. 6555 of 2007) in the High Court of Rajasthan at Jodhpur. The petitioners are residents of the village of Tehsil Kolayat in Bikaner district. They have contended that the power plant set up by VSLP has broken the water reservoir/dam without conversion of the nature of the land and without payment of the charges of conversion, though land which is catchment area cannot be converted for any other purpose. The crops are not getting adequate water for irrigation and the villagers are not getting sufficient drinking water. Alleging infringement of Articles 14 and 21 of the Constitution of India, the petitioners are seeking a direction to VSLP not to destroy the dam, not to close the entry and exit to the petitioners’ fields and not to dig any tube wells in the area that would affect the water levels. In its reply, VSLP stated that the land of the dam/pond was not registered in the revenue records and that it had taken all necessary permits and licenses from the State Government before undertaking the project, including the commencement of land acquisition proceedings. The matter is currently pending for disposal.
(2) Mr. Sunil Kumar Gehlot filed a writ petition (W.P. No. 8198/2007) challenging the land acquisition proceedings initiated by the State Government of Rajasthan and impleaded the State of Rajasthan, the Land Acquisition Officer cum Sub Divisional Officer, Bikaner and VSLP. The petitioner purchased adjoining pieces of agricultural land aggregating 39 bighas. The petitioner then applied for setting up and operating a brick kiln, which permission was granted. The State Government issued a declaration dated September 28, 2007 for acquiring his land in order to set up a lignite based power plant there. The petitioner contended that the Government can acquire the land for a private company under Chapter VII of the Land Acquisition Act, 1894, only for the purpose of erection of dwelling houses for the workmen employed by the company or for the provision of amenities directly connected therewith and that in the instant case, the land was being acquired to set up the power plant. VSLP filed its counter stating that the acquisition of the land in question is solely for a public purpose of generation of electricity and that power generation is a public purpose as mentioned in the National Electricity Policy 2003 declared by the Central Government. The matter is currently pending for disposal.
(3) A batch of 111 Civil Writ Petitions (W.P. 764 of 2008 and all other related petitions) have been filed against the State of Rajasthan and VSLP before the High Court of Rajasthan, challenging the land acquisition proceedings initiated by the Government of Rajasthan in favor of VSLP and seeking a stay on the land acquisition proceedings on the grounds that the Government of Rajasthan does not have the power to acquire land for a private limited company unless it is for a public purpose. The petitioners have, as an alternative prayer, claimed that the valuation of the land should be enhanced from the amounts stated by the Government of Rajasthan in its notification of May 2, 2007. The cumulative amount claimed by them is `193.00 million. The petitioners have prayed that the Government of Rajasthan provide the petitioners with irrigated land or compensation in lieu thereof, and have also prayed for the stay of the acquisition proceedings. VSLP filed detailed counters independently in each of the cases. VSLP has entered into a compromise arrangement with 97 petitioners by way of compromise agreements for total acquisition, compromise agreements for part acquisition, part de-acquisition and compromise agreements for total de-acquisition. The remaining 14 petitions are still pending for disposal.
(4) Four separate writ petitions (W.P. 6351 of 2009 and batch) have been filed before the High Court of Rajasthan, by Mr. Kumbaram, Mr. Magharam, Mr. Asuram, Mr. Chorulal and others respectively, challenging the acquisition of lands by the Government of Rajasthan. Of the four writ petitions, the High Court of Rajasthan, by an order dated July 15, 2009, has permitted the respective petitioners in three of the writ petitions to withdraw their petitions, and has dismissed the respective writ petitions. However, a writ petition filed by Mr. Khumba Ram is still pending for disposal.
(5) Certain captive consumers filed a company petition (No. 24 of 2013) before the Company Law Board (“CLB”), Chennai, wherein they alleged oppression and mismanagement under Sections 397 and 398 of the Companies Act, 1956, on the grounds that the business proposed to be transacted at the EGM to be held on April 15, 2013, was against their interests and should not be
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allowed to be conducted. Further, the petitioners requested that the proposed resolutions at the EGM should be restrained from being passed. As per the directions of the CLB dated June 17, 2013, the EGM was postponed to July 8, 2013, after a fresh issuance of notice of the meeting. The resolution proposed by the petitioners at the EGM, as resolution 2(b) for the conversion of redeemable preference shares held by them to equity shares, was not passed and all other proposed resolutions, including for conversion of class B preference shares to class B equity shares under resolution 2(a), were approved. After hearing, the CLB rejected the interim application of the petitioners for stay of the resolutions passed at the EGM pursuant to its order dated August 5, 2013. The petitioners, thereafter, filed a company appeal before the High Court of Andhra Pradesh, pursuant to Company Appeal No. 19 of 2013. The appeal was disposed on April 15, 2014, with the High Court stating that the VSLP is allowed to issue fresh equity; however, resolution 2(a) passed at the EGM, shall be kept on hold till the disposal of the company petition by the CLB. The company petition is pending for disposal.
(6) Mr. Manoj Kumar Kanunga and three others filed a company petition (No. 4 of 2010) before the CLB, Chennai under Section 397 and 398 of the Companies Act, 1956, claiming that they are shareholders of VSLP, and alleging oppression and mismanagement. The company petition was dismissed by the CLB pursuant to its order dated May 25, 2012. Aggrieved by the dismissal of the company petition, the petitioners filed a company appeal (No. 10 of 2012) before the High Court of Andhra Pradesh. After hearing the arguments, the company appeal was disposed by the High Court pursuant to its order dated April 23, 2013, remanding the matter back to the CLB for adjudication only in relation to the issues of (i) rectification of the register of members for restoration of shareholding, and (ii) enhancement of initial share capital. All other observations of the CLB were confirmed by the High Court. Further, the High Court order directed the CLB to consider all the observations made by the High Court in its order while adjudicating the issues on merits, including that the remedy under Sections 397 and 398 of the Companies Act, 1956, is not intended to enable aggrieved shareholders to take action contrary to the decision taken by controlling shareholders and the Sections should not be allowed to be misused. Aggrieved by the order of the High Court, VSLP has filed an SLP before the Supreme Court pursuant to SLP No. 28840 of 2013 which is currently pending for adjudication. The company petition as remanded by the high court to the CLB, Chennai, for adjudication of two issues, is also pending for disposal.
(7) Two captive consumers of VSLP have filed separate writ petitions (No. 14583 of 2013 by J.K. Lakshmi Cement and No. 14586 of 2013 by Modern Insulators), before the High Court of Rajasthan at Jodhpur, against the Jodhpur Vidyut Vitaran Nigam Limited, a distribution company, challenging the levy and demand of electricity duty, cross subsidy and surcharge, amounting to approximately `210,086,694.00 and `6,077,975.00, respectively, calculated under the principle of proportionality of consumption based on the APTEL order (this issue is currently pending before the Supreme Court in various matters), on the ground that they are exempt from the above mentioned demands, as they are captive consumers of VSLP. VSLP has been named as a respondent in the writ petitions. The writ petitions are pending for disposal.
(8) Four separate suits have been filed by four individuals against VSLP seeking permanent injunction restraining VSLP from interfering with the possession on lease hold land by the plaintiffs. VSLP was awarded lease for mining lignite on May 22, 2008 for a certain area of land and a mining lease agreement was executed between VSLP and the State Government of Rajasthan, duly registered on August 25, 2008 before the Sub-Registrar, Kolayat. The plaintiffs contend that earlier the State Government of Rajasthan had given lease hold rights to them for 20 years over a certain portion of the land for mining clay, that the lease was valid until March 21, 2006, an application of renewal of lease is pending in some cases with the authorities and in some cases it was renewed for further period and that the lease executed in favour of VSLP is null and void as no notice has been given to the firm before granting mining rights to VSLP. VSLP has filed replies in all four cases and as well in the interim petitions, stating that the most of the land allotted for mining to VSLP was acquired by the State Government of Rajasthan by due process of law. No temporary injunction has been granted in the matters so far. The matters are currently pending for disposal.
(9) Certain disputes arose between VSLP and Modern Insulators, who was the captive consumer of VSLP, under certain power delivery agreements, which were referred for arbitration before a three member arbitral tribunal. The arbitral tribunal rejected the contentions of Modern Insulators in its award dated June 14, 2012. Aggrieved by the award, Modern Insulators filed an application
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(C.M.A No. 35 of 2012) under Section 34 of the Arbitration Act, 1996, before the Additional District Judge, Abu Road, Rajasthan, inter alia, praying (a) to set aside the observations of the arbitral tribunal against the petitioner in its arbitral award dated June 14, 2012, including in relation to the termination of the power delivery agreement entered into with VSLP; (b) VSLP to restore power supply; and (c) to restore 3,85,186, equity shares of Modern Insulators forfeited by VSLP. VSLP has filed preliminary objections challenging the maintainability of the application filed by Modern Insulators. Arguments have been completed and the matter is reserved for orders.
(10) LIPL was previously a captive consumer of VSLP. However, the power delivery agreement between LIPL and VSLP was terminated by VSLP pursuant to a communication dated January 16, 2012, for non-compliance of the terms of the power delivery agreement by LIPL. LIPL filed a suit (O.S. No. 259 of 2013) before the Civil Court at Hyderabad, challenging the proposed conduct of an EGM on April 15, 2013 and the proposed agenda for the meeting. A temporary injunction application I.A. 820 of 2013 was also filed together with the suit, inter alia, praying for ad-interim injunction of the proposed EGM and the agenda mentioned in the notice circulated in relation to the EGM, as such action would defeat their interests in the company. Certain other captive consumers had separately moved a company petition before the CLB, Chennai, on the same issue, wherein in accordance with the CLB directions, the EGM was conducted on July 8, 2013. The temporary injunction application filed by LIPL was dismissed by the civil court on December 16, 2013. The suit is currently pending for disposal.
B. By VSLP
(1) VSLP preferred an appeal by way of an impleading application, in Civil Appeal No. 39333 of 2009 before the Supreme Court of India, inter alia praying to set aside the common order dated September 22, 2009, passed by the APTEL, in Appeal Nos. 171 of 2008, 172 of 2008 and I.A. Nos. 233 of 2008, 234 of 2008, 10 of 2008 and 117 of 2009. VSLP was not a party in the said appeals before APTEL. While disposing the said appeals, APTEL observed that the proviso to Rule 3(1)(a)(ii) of the Electricity Rules relating to special conditions for “cooperative societies” and AOPs should be applied to an SPV. VSLP has contended that the APTEL failed to appreciate that an AOP and an SPV cannot be equated. Special purpose vehicles constitute a distinct and separate category from co-operative societies and AOPs, and have been treated as such by the Electricity Rules. Clause (b) of Sub-Rule (1) of Rule (3) of the Electricity Rules deals with the case of a generating station, owned by a company formed as a special purpose vehicle for such a generating station. According to this provision, the unit(s) of such a generating station identified for captive use, and not the entire generating station, is required to satisfy the conditions that not less than 26% of the ownership of the power plant is held by captive users and not less than 51% on an annual basis of the aggregate electricity generated by the unit(s) of the generating station identified for captive use, is consumed by them. The special conditions under the provisos to Rule 3(1)(a)(ii) have no application to the case of a power plant set up by an SPV and cannot be considered for the interpretation of Rule 3(1)(b) of the Electricity Rules as observed by the APTEL. VSLP’s appeal was admitted and tagged to another matter arising in appeal to the APTEL’s order dated September 22, 2009, where stay of operation of the APTEL order had already been granted. VSLP was impleaded as an intervener in the civil appeal pursuant to the order dated March 14, 2011. The appeal is currently pending for disposal.
(2) VSLP has filed two separate SLPs (SLP No. 10035 of 2013 and SLP No. 14971 of 2013) before the Supreme Court in relation to land tax demand notices received for the years 2011-2012 and 2010-2011, respectively.
(i) The Assessing Authority issued a demand notice dated January 11, 2012, pursuant to which a demand of `8,567,175.00 was calculated as land tax for the year 2011-2012 for the lands of VSLP, wherein VSLP holds certain mining leases, under the Rajasthan Finance Act, 2006 (the “2006 Finance Act”). VSLP filed a writ petition (W.P. No. 5012 of 2012) challenging the demand and also the constitutional validity of the Rajasthan Land Tax Rules, 2006. The writ petition was dismissed by the high court of Rajasthan on November 9, 2012 together with various other writ petitions challenging the demand of land tax under Sections 47 and 49 of the 2006 Finance Act.
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(ii) The Assessing Authority issued a demand notice dated June 4, 2010, pursuant to which a demand of `6,239,725.00 was calculated as land tax for the year 2010-2011 for the lands of VSLP, wherein VSLP holds certain mining leases, under the 2006 Finance Act. VSLP filed a writ petition (W.P. No. 6287 of 2010) challenging the demand and also the constitutional validity of the Rajasthan Land Tax Rules, 2006. The writ petition was dismissed by the high court of Rajasthan on February 18, 2013.
Both the SLPs are admitted by the Supreme Court and stay has been granted under interim applications filed by VSLP in each of the SLPs, on deposit of 30% of the demand amount. The SLPs are currently pending for disposal.
(3) VSLP has filed a writ petition (W.P. No. 13000 of 2011) challenging the demand notice dated November 29-30, 2011 issued by the Tehsildar, under the Rajasthan Colonization (General/Colony) Conditions, 1955, demanding a sum of `45.683.00 million towards the balance of conversion charges along with interest, for the land given by the Government of Rajasthan to VSLP for mining purposes. VSPL had earlier paid `2 million under protest on July 12, 2010. The writ was admitted and stay has been granted on January 9, 2012 subject to deposit of `5 million. The matter is pending for disposal.
(4) Disputes had arisen between VSLP and certain of its captive consumers relating to billing and supply of power as agreed under the power delivery agreements entered into between them. The disputes were referred to arbitration before a three member arbitral tribunal. The arbitral award was passed on June 14, 2012 and inter alia held that the tariff stipulated in the power delivery agreements could not be revised, and VSLP was not entitled to pass on any cost of business to the captive consumers including any taxes / cess and obliged VSLP to supply minimum guaranteed power on monthly basis. VSLP filed applications under Section 34 of the Arbitration Act, to set aside the arbitral award to the extent it is adverse to the interest of VSLP, before the District Judge, Jaipur. Orders were passed in two batches on December 24, 2012 and on March 16, 2013, upholding the award. Aggrieved by the orders, VSLP has filed appeals under Section 37 of the Arbitration Act before the High Court of Rajasthan at Jaipur. The appeals are currently pending for hearing and disposal.
(5) VSLP has filed an application before the Rajasthan Electricity Regulatory Commission against four of its distribution companies for adjudication of a dispute with regard to the purchase of surplus power by the distribution companies from VSLP. VSLP has proposed entering into long term power purchase agreements for the supply of its surplus 60 MW of power at `4.51 per kwh, the rate determined through tender process for 25 years into a power purchase agreement reflecting the above terms. The application is currently pending for admission and hearing.
4. SITAPURAM POWER LIMITED (“SPL/SITAPURAM”)
A. Against Sitapuram
(1) APTRANSCO and Andhra Pradesh Southern Power Distribution Company Limited (“APSPDCL”), and Andhra Pradesh Electricity Regulatory Commission (“APERC”) have filed two separate appeals before the Supreme Court (Civil Appeal No. 837 of 2011 and Civil Appeal No. 10304 of 2011 respectively) challenging the order dated November 19, 2010 of APTEL in Appeal No. 8 of 2010 filed by SPL and Zuari Cement Limited (“ZCL”).
SPL had entered into a Long-Term Open Access Agreement with APTRANSCO and APSPDCL dated February 26, 2008, in terms of which, SPL has a contracted capacity of 26,000 KW for transmitting and wheeling the electricity from its power plant to its captive power consumer, ZCL. SPL and ZCL challenged the methodology of billing during outages of the plant adopted by APTRANSCO and APSPDCL before the APERC, as being against the “non-discriminatory” principle governing the open access regime under the provisions of the Electricity Act, 2003 and the Interim Balancing and Settlement Code for Open Access Transactions Regulations, 2006. SPL and ZCL claimed that ZCL should not be penalized unnecessarily and that demand charges should be restricted to actual consumption in each time block during the outage periods. The APERC rejected the petition filed by SPL and ZCL, pursuant to its order dated August 19, 2009. Aggrieved
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by the APERC Order, SPL and ZCL filed an appeal (No. 8 of 2010) before the APTEL. The said appeal was allowed pursuant to order dated November 19, 2010 by setting aside the order of the APERC and holding that the levy of demand charges was not in accordance with law.
The civil appeals filed by APTRANSCO and APSPDCL, and APERC, have been admitted by the Supreme Court. The Supreme Court has specifically rejected stay of the APTEL order pursuant to its order dated February 11, 2011. The matters are currently pending for final disposal.
During the interregnum period, until disposal of the appeal by APTEL, APTRANSCO and APSPDCL had collected penal demand charges of `181,756,066.00. Since the APTEL order was not stayed by the Supreme Court, SPL and ZCL were entitled to a refund of the penal charges collected from them. SPL and ZCL has filed a writ petition before the High Court of Andhra Pradesh (W.P. No. 12199 of 2013) challenging the inaction of the APTRANSCO and APSPDCL in not refunding the amount of `181,756,066.00. SPL has sought for a direction for repayment of the amount due it with interest. Pursuant to interim directions from the High Court of Andhra Pradesh dated June 7, 2013, approximately `119.10 million have been recovered by way adjustment from the bills payable. However, a writ appeal was filed by APSPDCL against the above-mentioned interim orders. The writ appeal was disposed on September 25, 2013, setting aside the interim order dated June 7, 2013, with prospective effect and directions to dispose of the writ petition no. 12199 of 2013. The writ petition is reserved for final orders.
(2) Certain disputes arose between SPL and ZCL in relation to the computation of gross calorific value of coal used and its impact on the variable cost of power, and other disputes relating to billing and supply. The parties approached the High Court of Andhra Pradesh to appoint an arbitrator. A sole arbitrator has been appointed pursuant to order dated July 12, 2013 in Arbitration Application 11 of 2013. The parties have filed their respective claim statement, counter statement and counter claim. The arbitration proceedings are pending for adjudication.
B. By Sitapuram
(1) A writ petition (W.P. No. 20732 of 2007) was filed by Sitapuram before the High Court of Andhra Pradesh against the Central Power Distribution Company of Andhra Pradesh Limited, the Central Power Distribution Company of Andhra Pradesh Limited, the Superintending Engineer (Operation Circle) Central Power Distribution Company of Andhra Pradesh Limited and the APTRANSCO. A 43 MW coal based power plant at Sitapuram in Nalgonda District in Andhra Pradesh commenced its activities in June 2007 and the bill for the month of August was `11.82.00 million, which included penal charges of `9.08 million. Sitapuram alleged that the Central Power Distribution Company failed to implement the “Reverse Power Relay” which would not allow Sitapuram to draw power in excess of 3,125 KVA. Sitapuram sought a direction from the High Court to the respondents not to pay the penalty, and to prevent them from discontinuing power supply to the power plant. The High Court asked the respondents to show cause as to why the application should not be allowed, and directed them not to disconnect the power supply, provided Sitapuram paid `3.00 million towards penal demand charges within three weeks of the order. The matter is currently pending.
(2) SPL filed a writ petition before the High Court of Andhra Pradesh (W.P. No. 242 of 2010) against certain State authorities alleging inaction despite representations to the authorities to stop illegal erection of a flag post encroaching on the main entrance to the power plant at Dondapadu village, by the workers’ union of ENMAS, O&M Services Private Limited. The High Court has granted an interim order dated April 15, 2010 directing maintenance of status quo. The writ petition is pending for disposal.
(3) SPL filed a writ petition before the High Court of Andhra Pradesh (W.P. No. 29114 of 2013) challenging the demand of `65.664 million together with interest by the Andhra Pradesh Power Coordination Committee (“APPCC”) pursuant to notice dated September 26, 2013 towards compensation for alleged non supply of power from January 1, 2012 to May 31, 2012 in accordance with the letter of intent issued to SPL on September 27, 2011. The alleged letter of intent had been returned by SPL on November 9, 2011, clearly stating that since SPL was not in a position to supply the power in terms of the letter of intent it had not accepted the letter of intent.
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The writ was admitted and stay of demand granted pursuant to order dated February 26, 2014. The writ is pending for final disposal.
(4) ZCL had filed a petition, Arbitration O.P. No. 160 of 2013, under Section 9 of the Arbitration Act before the civil court at Hyderabad contending that SPL had unilaterally reduced the capacity of power supplied by it from 31 MW to 23 MW in contravention of the power purchase agreement executed between ZCL and SPL, and that the power supplied should be restored to 31 MW with retrospective effect and consequential injunction restraining SPL not to create any third party rights. The petition was allowed pursuant to order dated November 29, 2011. Aggrieved by this order, SPL has filed an arbitration appeal before the High Court of Andhra Pradesh (CMA 403 of 2014). The appeal is currently pending for disposal.
(5) SPL has filed an injunction suit before the Junior Civil Judge at Huzurnagar (O.S. No. 199 of 2013) against Mr. Sudhakar Reddy and others, on the grounds that they are regularly creating nuisance before the gate of SPL’s power plant at Dondapadu village, by parking vehicles before the gate, intimidating the employees and interfering with the activities of SPL. Temporary injunction was granted pursuant to order dated October 26, 2013, and the suit is pending for disposal.
5. SAI WARDHA POWER LIMITED (“SWPL”)
A. Against SWPL
(1) Graphite India Limited (“GIL”) filed an application for the appointment of an arbitrator under Section 11(6) of the Arbitration Act for adjudication of disputes relating to buyback/return of share capital. GIL and SWPL had entered into a power delivery agreement and a share subscription agreement each dated March 20, 2008, and as amended. GIL claims that the power delivery agreement has been terminated by them pursuant to notice dated September 16, 2011, for non- completion of the project in time. The claim has been disputed by SWPL stating that the power has been scheduled in favour of GIL. The High Court of Bombay appointed a sole arbitrator pursuant to order dated April 22, 2013. The claim statement, counter claim statement and counter claim have been filed. As per the claim statement, GIL has claimed `56.00 million towards refund of the share capital and buy back the shares of GIL, and `1,572,941,000.00 towards the damages incurred by them. SWPL has filed a counter claim praying that the alleged notice of termination terminating the power delivery agreement be set aside and the declaration that the PDA subsists, and that the arbitrator should appoint a chartered accountant to determine the ‘take or pay’ obligations of GIL. The arbitration proceedings are pending for adjudication.
(2) EMCO (GMR) filed an appeal before the APTEL pursuant to Appeal No. 304 of 2013 aggrieved by the MERC order dated August 28, 2013 in case No. 34 of 2013 relating to evacuation of power and payment of charges by EMCO, requesting that the state transmission utility should take the connectivity for the evacuation of power to it by EMCO. SWPL has been named as one of the respondents in the appeal and no relief has been sought against SWPL. The appeal is pending for disposal.
(3) A public interest litigation has been filed by Mr. Priyadarshan Chandrasekhar before the High Court of Bombay, Nagpur pursuant to PIL No. 36 of 2011 challenging the closure of Koradi power generating station by alleging that the said closure was only to accommodate SWPL’s evacuation of power from the Warora sub-station pursuant to the order dated January 13, 2011, of MERC in Case 28 of 2010. The State of Maharashtra, Maharashtra State Power Generation Company Limited, Maharashtra State Electricity Transmission Company Limited, Maharashtra State Electricity Distribution Company Limited, Koradi Thermal Power Station and SWPL have been named as parties in the PIL. No relief has been sought against SWPL in the PIL. The respondents’ claim that the power plant was closed because of environmental issues as per the directives of the pollution control board. Pursuant to the order of the High Court dated May 9, 2012, PIL No. 36 of 2011 has been listed for consideration with another pending matter, PIL No. 73 of 2010. The matter is currently pending for disposal.
(4) A writ petition was filed by Mr. Jayant Moreswar Temurde, before the High Court of Bombay, Nagpur pursuant to W.P. No. 3648 of 2013, alleging inaction of the collector and other district
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authorities in reopening a road passing through SWPL’s power plant, which is an SEZ, despite an alternate road having been provided by SWPL for the use of the public. The new developed road has been handed over to the Zilla Parishad and the Department of Roads and Buildings, with the approval of the district collector, Chandrapur. The Commissioner for Land Revenue, Maharashtra has approved and granted permission to the district collector for extinguishing the rights of the public to the road under dispute pursuant to order dated April 4, 2014, and to submit his report before the High Court. The writ petition is pending for disposal.
A civil suit has also been filed by Mr. Temurde and others before the civil judge, Warora, pursuant to R.C.S. No. 90 of 2010, for declaration and consequential perpetual injunction to not cause any obstruction for use and enjoyment of the disputed road as it is a customary road, including by closure of the road at the end points by SWPL. A temporary injunction application has been filed for restraining SWPL’s use of the road. However, no orders have been passed as of date. The suit is pending for disposal.
(5) A writ petition has been filed by Mr. Pranit Kale and another before the High Court of Bombay, Nagpur (W.P. No. 5307 of 2013) challenging the order of the district judge dismissing the appeal (M.C.A. No. 21 of 2010) pursuant to order dated October 21, 2010, filed by him challenging the rejection of the interim injunction application by the junior civil judge in R.C.S No. 66 of 2010 on September 15, 2010. In the civil suit filed by him, Pranit Kale has claimed that he is the rightful owner of the land measuring 3.21 hectares, in survey No. 328, village Tulana and challenging the sale deed dated January 30, 2010 by the first defendant, Mr. Gopal Kale in favour of SWPL, and has prayed for consequential relief of possession and perpetual injunction. Presently both the writ petition and the civil suit are pending for disposal.
(6) A civil suit R.C.S. No. 64 of 2008was filed by Mr. Sarubhai S. Sarate and others before the Civil Judge, Warora for declaration that they are the legal heirs of Late Mr. Sambha Bajirao Yerme and other reliefs relating to inheritance of certain lands. These lands were previously acquired by MIDC from Defendants 4 to 11, and lease agreement was executed in favour of SWPL. In addition to the land acquisition costs of the MIDC, SWPL also paid an amount of `0.831 million to Defendants 4 to 11 for the acquisition of the lands in survey numbers 121, 130 and 131 under registered agreements. The plaintiffs allege that they have a share in the land in survey Nos. 93/2, 121, 130 and 131 of Mouza Naideo village, along with defendants 4 to 11 named in the suit, and have claimed compensation proportionate to their share in the lands, as paid to defendants 4 to 11. The suit is pending for disposal.
(7) A suit S.C.S. No. 10 of 2012, was filed by Mr. Maroti Bakde before the civil judge, Kelapur, Maharashtra against SWPL claiming damages of `1.1 million alleging that his lands of 1.33 hectares in Dandgaon village were eroded and washed away resulting in loss of his crop because of breaches in the dam constructed by SWPL during the monsoon season in the year 2011. SWPL is contesting the matter and the suit is pending for disposal.
(8) The Regional Provident Fund Commissioner (the “RPFC”), Hyderabad issued a notice dated April 29, 2013 under Section 7A of the Employees’ Provident Fund and Miscellaneous Provisions Act, 1952, for production of records for an enquiry and verification with regard to compliance with contributions to provident fund, pension fund etc, by SWPL from April 2007 to April 2012. The complete record has been produced before the RPFC and is under verification by the RPFC.
(9) Six complainants have separately filed complaints under the Maharashtra Recognition of Trade Unions and Prevention of Unfair Labour Practices Act, 1972, before the Labour Court, Chandrapur pursuant to complaint Nos. 92 to 97 of 2013, alleging that they are the workers working under the house keeping contractor M/s NN Group who is providing contract housekeeping service to SWPL, and the present complaint has been filed challenging the termination of their employment by their employer, M/s. NN Group, and seeking for regularization of their employment. SWPL is contesting the matter on grounds that the complaint is against M/s. NN Group, who is a registered contractor under applicable laws, and the complaint is not tenable against SWPL under the provisions of the Contract Labour Act. The matters are pending for disposal.
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B. By SWPL
(1) SWPL has filed a civil appeal (Civil Appeal No. 4145 of 2012) before the Supreme Court as it was aggrieved by the order of APTEL dated December 2, 2011 in Appeal No. 85 of 2011 upholding the order of the MERC dated June 1, 2011 in Case No. 29 of 2010 wherein MERC rejected the petition of SWPL and directed it to pay the amount of `90,406,120.00 in accordance with the notice dated March 30, 2010 received from Maharashtra State Electricity Transmission Company Limited (“MSETCL”) within four weeks together with interest. SWPL had filed a petition dated June 7, 2010 before the MERC challenging MSETCL’s communication dated March 30, 2010 demanding payment towards system strengthening charges amounting to `5.50 million and transmission charges from December 19, 2009 (i.e., from the readiness of evacuation arrangement) to March 30, 2010, amounting to `90,406,120.00 for cancellation of the Bulk Power Transmission Agreement (the “BPT Agreement”), as SWPL proposes to sell the power under Short Term Open Access granted by the State Load Despatch Centre, instead of under the Long Term Open Access, as decided earlier by cancelling the BPT Agreement. SWPL has made payment of the total amount to MSETCL pending disposal of the appeal.
(2) SWPL has filed an appeal (Civil Appeal No. 5919 of 2013) before the Supreme Court contending that Maharashtra State Electricity Distribution Company Limited (“MSEDCL”) is liable for payment of `640.10 million as dues towards power purchase dues payable under the PPA dated May 13, 2009 as amended, and to make further payment of `44.40 million on account of loss suffered due to wrongful imposition of penalty and illegally withholding payment. Due to delay in commissioning of the project and to avoid penalty for non-delivery as per the PPA, SWPL proposed to supply power from an alternate source and the proposal was accepted by MSEDCL. Subsequently, MSEDCL withheld the payments disputing the rate of power supplied from the alternate source. SWPL had filed a petition before the MERC, which rejected SWPL’s contentions pursuant to order dated April 30, 2012, against which, SWPL filed an appeal no. 136 of 2012 before the APTEL, which also rejected SWPL’s contentions pursuant to order dated April 8, 2013. Aggrieved by the order of the APTEL, SWPL has filed the appeal before the Supreme Court. The matter is pending for disposal.
(3) SWPL has filed an appeal (Appeal No. 70 of 2013) before the APTEL aggrieved by the MERC order dated December 27, 2012, approving procurement of power to an extent of 1090 MW from India Bulls Realtech Limited and Adani Power Maharashtra Limited, contrary to the provisions of Sections 62 and 63 of the Electricity Act, and without following the principles of transparency and fair play in determination of price for the procurement of power. SWPL was not a party to the proceedings before the MERC. As the rights of SWPL with respect to its participation to sell power are affected by the decision of the MERC, SWPL has filed the appeal. The matter is pending for disposal.
(4) SWPL has filed a review petition (No. 61 of 2014) before the MERC, challenging the procurement of power by RIL from Vidarbha Industries Power Limited, a sister concern of RIL on the grounds that the tariff indicated by Vidarbha Industries was higher than the tariff already made available by SWPL. The MERC pursuant to its order dated January 17, 2014 in Petition No. 91 of 2013 had dismissed SWPL’s petition. Aggrieved by the order, SWPL has filed this review petition. The matter is currently pending for disposal.
(5) SWPL has filed an appeal (Appeal No. 202 of 2013) before the APTEL against RIL for redressal against failure to make payments in terms of the PPA dated June 4, 2010. SWPL had filed Case No. 38 of 12 before the MERC, and claimed payment of capacity charges wrongly deducted by RIL for an amount of `31,618,972.00 and for directions to take all actions as required by the power purchase agreement. The MERC rejected the contentions of SWPL pursuant to its order dated June 5, 2013, and aggrieved by this order, SWPL filed the appeal. The appeal is pending for disposal.
(6) SWPL has filed an appeal (Appeal No. 316 of 2013) before the APTEL against MSEDCL and another, challenging the MERC order dated September 23, 2013 dismissing the MERC case No. 117 of 12, filed by SWPL in relation to the applicability of cross subsidy surcharge. SWPL has filed the appeal to set aside the order of the MERC and, inter alia, (i) for quashing of all claims raised by MSEDCL imposing cross subsidy surcharge from the captive consumers of SWPL as
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delay was caused by MSEDCL in granting open access to the captive users, (ii) for directions that the principle of proportional consumption of power by captive users is not applicable in SWPL’s case as it is an SPV, and (iii) for directions to MSEDCL that cross subsidy surcharge could not be calculated or imposed mid-way through a financial year on a monthly basis, without verifying the power generation and consumption on an annual basis in accordance with the Electricity Act. The appeal is pending for disposal.
(7) SWPL has filed a writ petition (W.P. No. 1859 of 2014) before the High Court of Bombay at Nagpur, inter alia, claiming for refund of `608,192,862.00, together with interest as applicable, collected by the MSEDCL towards cross subsidy surcharge for the period of April 2013 to November 2013. SWPL had filed a petition before the MERC, case no. 34 of 2014, wherein pursuant to order dated March 26, 2014, the MERC had stated that MSEDCL had inadvertently collected and retained the amount under cross subsidy surcharge, and the matter should be mutually resolved by the parties. Further, processing of open access was withheld by MSEDCL seeking concurrence of SWPL for the above claim amount, which was resisted by SWPL. The writ petition is pending for disposal.
(8) SWPL has filed an appeal (Appeal No. 288 of 2013) before the APTEL challenging the MERC order dated August 13, 2013 in case No. 39 of 2012 in relation to claims arising from “change in law” as defined in the power purchase agreement dated June 4, 2010 between SWPL and RIL. In the case before MERC, SWPL had challenged the inaction of RIL for not making payment of amounts aggregating to `276.30 million up to March 2012, in accordance with the “change in law” provisions of the power purchase agreement. The MERC has rejected SWPL’s claims. The appeal is pending for disposal.
(9) SWPL has filed a writ petition before the High Court of Bombay, Nagpur (W.P. No. 2321 of 2012) against MIDC and the Labour Authorities under the BOC Act, challenging the demand notices dated August 26, 2011 and March 29, 2012 for payment of cess at the rate of one per cent on the construction cost amounting to `10,804,320.00. SWPL has contested the demand notice on the ground that its construction activities are governed by the Factories Act, and the provisions of the BOC Act will not be applicable to it. The writ petition has been admitted and the matter is pending for disposal.
(10) SWPL has filed a writ petition before the High Court of Bombay at Nagpur (W.P. No. 2703 of 2013) challenging the notice received from Western Coalfields Limited (“WCL”) and others pursuant to the letter dated April 18, 2013, attaching three debit notes amounting to `30,957,089.00, being the Central Excise duty on “Royalty” and “Stowing Excise Duty” in respect of sale of coal prior to March 1, 2013. The dispute arose as the Central Excise Department held that “Royalty” and “Stowing Excise Duty” should not be included in the nature of “Other Taxes”, as had been considered by WCL, and such values should be included in the calculation of the transaction value. Coal India Limited, the parent company of WCL, had directed that the cost of such duty should be recovered from SWPL for the period since March 1, 2013. However, WCL has also passed on the cost of such duty to SWPL for coal supplied in the period of March 1, 2013 to February 28, 2013. SWPL is concerned that if it does not make the required payments for the period prior to March 1, 2013, any payments made by it for future purchase of coal could instead be used for adjusting the pending impugned amount and filed the said writ petition, for quashing of notice dated April 18, 2013 and interim order of stay against the letter dated April 18, 2013 and directing WCL to not appropriate any future payments for coal delivery orders. An interim stay was granted pursuant to an order dated May 21, 2013. The writ petition is pending disposal.
(11) SWPL is pursuing a claim against WCL and Coal India Limited (“CIL”) before the Competition Commission of India in relation to the fuel supply agreements with WCL. SWPL has alleged that WCL has abused its dominant position by, inter alia, increasing the price of the coal to be supplied under the fuel supply agreements arbitrarily, resorting to discriminatory pricing, delaying the execution of the fuel supply agreements (during which period SWPL was required to source coal from more expensive sources and which delays resulted in certain customers invoking the bank guarantees provided in respect of supply of coal), supplying inferior quality coal and insistence on onerous conditions. SWPL has sought, among others, a declaration that WCL has abused its dominant position, imposition of a penalty on WCL, modification of the contractual provisions relating to pricing in accordance with the original agreement of the parties and deletion of one-
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sided/anti-competitive provisions from the fuel supply agreements. SWPL has also sought interim relief, inter alia, restraining WCL from supplying coal from the Bellora Naigon, Ukni and Urdhan mines to any third party unless the entire contracted quantity of coal has been supplied to SWPL. By an order dated January 22, 2014, the CCI directed the Director General, Competition Commission of India to undertake an investigation into the alleged abuse of dominant position by WCL and CIL, and to submit a report, which is currently pending.
(12) SWPL has filed an injunction suit before the Civil Judge, Warora (R.C.S. No. 127 of 2009) against Mr. Sunil Kataria restraining him and any other person on his behalf from interfering with the 220 kV transmission lines set up by SWPL for evacuation of power. The defendant had previously issued legal notices dated October 8, 2009 and October 23, 2009, to SWPL, claiming that he is the owner of the land in survey number 86/1 lying between two towers set up by SWPL, being land converted to non-agricultural land on July 20, 2009, and threatened to remove the lines/conductors passing over such land if SWPL did not purchase it from him. Ex-parte temporary injunction was granted by the civil judge in the suit pursuant to order dated November 7, 2009, and confirmed by the order dated June 23, 2010, against which the defendant has preferred an appeal, M.C.A. No. 16 of 2010, before the District Judge. No stay has been granted to him against the temporary injunction. The suit filed by SWPL and the appeal filed by Mr. Kataria are both pending for disposal.
(13) SWPL has filed a suit before the Civil Judge, Warora (R.C.S. No. 63 of 2010) for permanent injunction against Mr. Moreshwar Temburde and Mr. Jayant Temburde, as they along with 200- 300 persons forcibly entered the Warora power plant premises of SWPL when a meeting with the sub-divisional magistrate was on-going on the premises, and attacked the employees of SWPL and damaged vehicles and the property of SWPL. SWPL had filed a police complaint registered as crime no. 109/2010 under Sections 143, 147, 149, 34, 186, and 427 of the IPC. SWPL expects that the defendants will continue to initiate such disturbances and have therefore approached the civil judge for injunction orders restraining them entering SWPL’s premises, including within the vicinity of the premises. The suit is currently pending for disposal.
(14) SWPL has filed a civil suit before the Civil Judge, Warora (Spl. C.S. No. 34 of 2011) against Sumanbai Govindrao Bhadghare and others for recovery of an amount of `8.00 million along with interest amounting to `10,522,500.00 along with any future interest that may arise together with an application for temporary injunction restraining the defendants from selling their other properties to any third parties pending disposal of the suit. SWPL had purchased the land by paying an amount of `14.00 million to the defendants under the registered sale deed dated September 16, 2009. SWPL later came to know that the sale deed was registered for `6.00 million only, and the defendants had defrauded SWPL to the amount of `8.00 million. No order has been passed in relation to the injunction application and the suit is pending for disposal.
(15) SWPL has filed a suit before the Civil Judge, Warora (R.C.S. No. 114 of 2012) for injunction restraining the defendant, EMCO Energy (GMR) Energy Limited, and any person(s) acting on its behalf, from interfering in the property leased to SWPL by MIDC at Plot B-4 at MIDC Growth Centre, Warora, and restraining the defendant from constructing any fence or any other obstruction on the property leased to SWPL. SWPL’s application for temporary injunction was rejected by the trial court on April 4, 2012. On an appeal (M.C.A. 10 of 2012) filed by SWPL, the district court set aside the trial court order and directed the parties to maintain status quo till disposal of the suit. The matter is pending for disposal.
(16) SWPL has filed a suit before the Civil Judge, Warora (R.C.S. No. 120 of 2012) against Mr. Kuldeep Singh, an ex-employee, for recovery of `414,789.00 towards certain amounts due and payable to SWPL. Mr. Kuldeep Singh had left the services abruptly and without providing appropriate notice period, while working as AGM-Security at SWPL’s site. The suit is pending for disposal.
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6. KSK MAHANADI POWER COMPANY LIMITED (“KMPCL”)
A. Against KMPCL
(1) A writ petition (W.P. No. 4589 of 2011) has been filed by Mr. Ram Kumar Kedia before the High Court of Chhattisgarh challenging the notification for land acquisition issued under Section 4, Section 6 declaration, and the award dated December 23, 2010, under the Land Acquisition Act, 1894, acquiring his land of 0.607 hectares at Tarod village, alleging that such award had been passed without his consent and without being given an opportunity of being heard. Further, the writ petition alleges that due process for acquiring land was not complied with. The respondents, including KMPCL, have contended that the allegations in the writ petition are false, the land was acquired by General Manager, Department of Industries and Commerce, for industrial development, the land has been leased to KMPCL, and the writ petition has been filed after passing of the award and taking of possession of the land. The writ petition is pending for disposal.
(2) A writ petition (W.P. No. 4590 of 2011) has been filed by Mr. Yogendra Singh before the High Court of Chhattisgarh challenging the notification for land acquisition issued under Section 4, Section 6 declaration, and the award dated December 23, 2010, under the Land Acquisition Act, 1894, acquiring his land of 1.215 hectares at Tarod village, alleging that such award had been passed without his consent and without being given an opportunity of being heard. Further, the writ petition alleges that due process for acquiring land was not complied with. The respondents, including KMPCL, have contended that the allegations in the writ petition are false, the land was acquired by General Manager, Department of Industries and Commerce, for industrial development, the land has been leased to KMPCL, and the writ petition has been filed after passing of the award and taking of possession of the land. The writ petition is pending for disposal.
(3) A writ petition (W.P. No. 2165 of 2011) has been filed by Mr. Jagannath before the High Court of Chhattisgarh challenging the notification for land acquisition issued under, inter alia, Section 4, Section 6 declaration, and the award dated December 23, 2010, under the Land Acquisition Act, 1894, acquiring his land aggregating to 3.67 hectares at Amora village, alleging that such award had been passed without his consent and without being given an opportunity of being heard. The respondents, including KMPCL, have contended that the allegations in the writ petition are false, the land was acquired by General Manager, Department of Industries and Commerce, for industrial development, the land has been leased to KMPCL, and the writ petition has been filed after passing of the award and taking of possession of the land. The writ petition is pending for disposal.
(4) A writ petition (W.P. No. 673 of 2013) has been filed by Mr. Parmeshwar Singh before the High Court of Chhattisgarh challenging the notification for land acquisition issued under Section 4, Section 6 declaration, and the award dated December 23, 2010, under the Land Acquisition Act, 1894, acquiring 2.20 acres of his land, including multi-crop land in Latia village, alleging that such award had been passed without his consent and without being given an opportunity of being heard, and he had suffered losses because of cutting down of trees on his property etc. The respondents, including KMPCL, have contended that the allegations in the writ petition are false, the land was acquired by General Manager, Department of Industries and Commerce, for industrial development, the land has been leased to KMPCL, and the writ petition has been filed after passing of the award and taking of possession of the land. The writ petition is pending for disposal. The writ petition was initially dismissed pursuant to order dated July 8, 2013, for non-compliance of the orders of the High Court. The petitioner filed a restoration petition pursuant to MCC No. 815 of 2013. The restoration petition is pending for disposal.
(5) A writ petition (W.P. No. 789 of 2013) has been filed by Mr. Duryodhan before the High Court of Chhattisgarh challenging the notification for land acquisition issued under Section 4, Section 6 declaration, and the award dated December 23, 2010, under the Land Acquisition Act, 1894, acquiring his land aggregating to 0.238 hectares at Nariyara village, alleging that such award had been passed without his consent and without being given an opportunity of being heard. The respondents, including KMPCL, have contended that the allegations in the writ petition are false, the land was acquired by General Manager, Department of Industries and Commerce, for industrial development, the land has been leased to KMPCL, and the writ petition has been filed after passing of the award and taking of possession of the land. Further, the petitioner had earlier filed a writ
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petition, W.P. No. 4040 of 2011 which had been dismissed by the High Court pursuant to order dated September 7, 2011. The writ petition No. 789 of 2013 is currently pending for disposal.
(6) A writ petition (W.P. No. 1291 of 2013) has been filed by Mr. Dhandas before the High Court of Chhattisgarh challenging the notification for land acquisition issued under Section 4, Section 6 declaration, and the award dated December 23, 2010, under the Land Acquisition Act, 1894, acquiring his land at Rogda village, alleging that such award had been passed without his consent and without being given an opportunity of being heard. The respondents, including KMPCL, have contended that the allegations in the writ petition are false, the land was acquired by General Manager, Department of Industries and Commerce, for industrial development, the land has been leased to KMPCL, and the writ petition has been filed after passing of the award and taking of possession of the land. The writ petition is pending for disposal. Further, the petitioner had earlier filed a writ petition No. 7853 of 2011 which he had subsequently unconditionally withdrawn as the issue had been referred to the district judge for enhancement of compensation under Section 18(2) of the Land Acquisition Act. The writ petition is pending for disposal.
(7) A writ petition (W.P. No. 1717 of 2013( has been filed by Mr. Sanjeev Kumar Sahoo before the High Court of Chhattisgarh claiming additional compensation for his land aggregating to 0.36 acres at Nariyara village, acquired by the state government and for issuance of an employment card in accordance with the state rehabilitation scheme. The writ petition is pending for disposal.
(8) A suit (No. 12A of 2009) has been filed by Mr. Dasarath and others before the Civil Judge, Janjgir, against Anupriya Bai and others for declaration and consequential perpetual injunction on land aggregating to 0.42 acres in Nariyara village claiming that Mr. Munda Yadav, the deceased husband of Anupriya Bai, had sold the land under contention by way of unregistered sale deed in 1957, to Mr. Punavram. The plaintiffs are claiming that they are the legal heirs of Mr. Punavram. After the death of Mr. Munda Yadav, his wife Anupriya Bai had sold the land standing on her name in the revenue records to Mr. Ganapatlal Sahoo, who after mutation of his name in the revenue records had sold the land to KMPCL on November 17, 2008 and the owner’s name was mutated in the revenue records. KMPCL is contesting the suit and the matter is pending for disposal.
(9) Two separate suits have been filed by Sadana Singh and Manjula Singh before the Civil Judge, Janjgir (suit No. 4A of 2011 and suit No. 3A of 2011) respectively, against Shyam Saroj Singh, KMPCL and another for declaration and permanent injunction claiming that Sadana Singh and Manjula Singh are the owners of the suit land aggregating 4.259 hectares in Murlidi village, and each of their names was reflected in the revenue records of 1990, and Mr. Shyam Saroj Singh, whose name was reflected in the revenue records subsequent to 1990, did not have any title to the suit property. Of the total suit land, 0.50 hectares was acquired by the land acquisition officer from Shyam Saroj Singh and compensation was paid to him. Thereafter, the 0.5 hectares of land has been given on lease to KMPCL. KMPCL is contesting the suit. The suit is pending for disposal.
(10) An application (MJC 4 of 2009) has been filed by the defendants Smt. Vijayalakshmi Singh and others before the Civil Judge, Janjgir, under Order 9 Rule 13 of the Code of Civil Procedure 1908, as amended, for setting aside the ex-parte judgment in civil suit 40A of 2008, in relation to the declaration of title of 23.18 acres of land at Nariyara village, filed by Mr. Krishnakumar against Vijayalakshmi Singh and others, pursuant to which Krishnakumar and others had been decreed as owners of the suit property and the land was mutated in their name on July 8, 2009. KMPCL purchased the suit land on July 10, 2009 from Mr. Krishnakumar and others and got the land mutated in the name of the KMPCL. The application is pending for disposal.
Subsequently, Smt. Vijayalakshmi Singh filed an appeal before the sub-divisional officer, Janjgir, against the order of the tehsildar dated July 8, 2009, allowing the mutation in the name of owner of the suit property in favour of Mr. Krishnakumar. The appeal was allowed on May 6, 2010, and set aside the mutation done by the tehsildar in favour of Mr. Krishnakumar. While passing the order, the sub-divisional officer did not make KMPCL a party to the appeal, and no opportunity was provided for a hearing to KMPCL, despite the land records reflecting KMPCL as the owner of the suit property. Aggrieved by the order, KMPCL is contesting the matter in appeal before the commissioner, land revenue. The appeal is pending for disposal.
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A fresh suit has also been filed by Smt. Vijayalakshmi Singh and others before the district judge, Janjgir (Suit No. 8A of 2012) against Mr. Krishnakumar and others, including KMPCL that the sale deed dated July 10, 2009 registered in favour of KMPCL should be declared as null and void. KMPCL is contesting the suit. The matter is pending for disposal.
(11) A suit has been filed by Shakunthala Singh and Sandhya Singh before the civil judge, Akaltara, No. 10A of 2011, against the State of Chhattisgarh and KMPCL for declaration and possession of the suit property aggregating 0.28 acres in Basantpur village in the name of the plaintiffs and permanent injunction against KMPCL accessing the property, alleging KMPCL, while carrying on its work in adjacent lands, had encroached on the land belonging to the plaintiffs. A temporary injunction application filed by the plaintiffs was rejected by the court on March 6, 2012. KMPCL is contesting the matter and the suit is pending for disposal.
(12) A petition has been filed by Mr. Niranjan Singh and others before the District Court Judge, Janjgir, under sec. 18(2) of the Land Acquisition Act pursuant to Petition No. 14 of 2012, against the State of Chhattisgarh and others, for enhancement of compensation, alleging that their lands to an extent of 1.83 acres in Tarod village, were acquired without payment of proper compensation. Since the lands are acquired lands, KMPCL has submitted that it is not a proper and necessary party to the suit. The petition is pending for disposal.
(13) A complaint has been filed by the labour officer before the Labour Court cum Judicial Magistrate, Janjgir pursuant to case No. 69/BOC/2012 against KMPCL, alleging non-compliance of payment of cess under the BOC Act. KMPCL has contended that the BOC Act is not applicable to it and the present case for non-compliance has been filed after the High Court of Chhattisgarh has granted stay of demand pursuant to order dated December 16, 2010, under the BOC Act in W.P. No. 7484 of 2010 on the ground that the BOC Act is not applicable to KMPCL. The matter is pending for disposal.
(14) The Chhattisgarh State Scheduled Tribe Commission (the “ST Commission”), suo motu, in 2012 took on record a newspaper clipping published in local daily ‘Patrika’ on January 16, 2012, alleging that KMPCL had illegally grabbed tribal land belonging to Mr. Bhog Sai, without payment of compensation and had not provided any employment to him, and issued notice to KMPCL to submit response in the matter. KMPCL has submitted that the land was validly purchased pursuant to a registered sale deed dated January 31, 2009, after Mr. Bhog Sai had obtained permission from the collector for selling the land. Further, Mr. Bhog Sai had been provided employment with a sub-contractor of KMPCL. The matter is pending for disposal.
(15) The ST Commission issued a notice dated March 13, 2012 to KMPCL, based on a complaint forwarded to it by the Chhattisgarh chief minister’s office. The complaint was sent anonymously by certain villagers of Rogda village alleging that KMPCL had, during 2008 and 2009, purchased their lands at lower price through force and demanding adequate compensation. KMPCL has submitted that while purchasing the lands, it paid the market rates and the anonymous complaint has been made to extract more money in view of market rates having increased due to development of industry. The matter is pending for disposal.
(16) Garhan Bai has filed a suit before the Civil Judge, Akaltara pursuant to Civil Suit No. 2B of 2012 against KMPCL claiming to be the absolute owner of agricultural land situated at Akaltara village aggregating to 0.679 hectares, and alleging that KMPCL has, while constructing a railway line adjacent to the plaintiff’s land, excavated her agricultural land to the extent of five feet, due to which the said land is not useful for cultivation. She has claimed pecuniary losses of `50,000.00 towards damages incurred by her since 2011. KMPCL is contesting the matter and the suit is pending for disposal.
Garhan Bai has filed another suit before the Civil Judge, Akaltara Civil Suit No. 54 A of 2012 against KMPCL, claiming declaration of title and restoration and possession of the suit property. The matter is pending for disposal.
(17) A suit has been filed by Mr. Amar Singh before the Civil Judge, Akaltara pursuant to civil suit No. 4 of 2012 against Mrs. Jagarmati and others, and has also made KMPCL as a party to the suit, for declaration as the legitimate successor of the first defendant, Mrs. Jagarmati, from whom land was
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acquired by the State under land acquisition after making proper compensation and has demanded employment in KMPCL under the rehabilitation and resettlement policy. KMPCL and the State are contesting the matter. The suit is pending for disposal.
(18) The ST Commission issued a show cause notice to KMPCL in 2012, based on a complaint filed by Mr. Samaru Ram Tandon, wherein he alleged that he is an ex-serviceman and was allotted agricultural land of 9.50 acres in village Nariyara and that his land was acquired by the government without compensation, which was subsequently to KMPCL. He has made the complaint for payment of compensation. The State and KMPCL are contesting the matter. The matter is pending for disposal.
(19) Two separate petitions (O.P. No. 23 of 2013 and O.P. No. 26 of 2013) have been filed by Mr. Savan Kumar and Mr. Rakesh before the Motor Accident Claims Tribunal, Bilaspur, against Reliance General Insurance Company Limited and KMPCL respectively, each claiming compensation of `2,260,000.00 along with interest. The petitioners allege that while driving a two wheeler, a vehicle belonging to KMPCL hit them from behind, and they received serious injuries and sustained heavy medical expenditure towards their treatment and loss of earnings. KMPCL is contesting the matter and the petitions are pending for disposal.
(20) The Commissioner, Land Revenue, Bilaspur suo motu in 2013 initiated review of the orders passed by the Collector, Janjgir, relating to the conversion of lands belonging to persons considered as scheduled tribes, and pursuant to 110 registered sale deeds for sale of lands in villages Rogda, Amora, Nariyara, Tarod of Akaltara tahsil to KMPCL. KMPCL has filed its preliminary objections and is contesting the matter together with the district administration which is defending the conversion orders passed by it. All the matters are pending for disposal.
(21) An interlocutory application was filed in 2013 to implead KMPCL as a party to the pending Civil Suit No. 93A of 2011, filed by Mr. Kodaram against Goribai and others before civil court, Akaltara for declaration of ownership of suit land. The suit land was acquired under land acquisition proceedings and compensation was paid to Goribai and others, as per the revenue records, and possession of the suit land was given on lease to KMPCL. KMPCL is contesting the matter. The suit is pending for disposal.
(22) Mr. Samay Das Avinashi filed an appeal in 2013, A73/A-19/12-13, before the Commissioner, Land Revenue, Bilaspur challenging the orders of the collector dated March 26, 2010 and March 4, 2011 allotting 120.633 hectares to GMIDC in Dongakarod village and alleging that such land had been illegally transferred to KMPCL and is against Section 237 (1) of Chhattisgarh Land Revenue Code, 1959, as the land is “Nistari” land (land kept for the use of the public such as for grazing etc.) which cannot be converted. KMPCL together with the district administration is contesting the matter on various grounds. The matter is pending for disposal.
(23) A suit (Civil Suit No. 65A of 2013) has been filed by Mr. Dwaraka Das before the Civil Judge, Akaltara against KMPCL for a declaration that the sale deed dated September 24, 2008 executed by him selling 0.80 acres of land in Tarod village to KMPCL is null and void on the ground that the person representing KMPCL at the time of execution of the sale deed did not have proper authority to do so. KMPCL is contesting the matter and the suit is pending for disposal.
(24) A suit (CS No. 1B of 2014) has been filed by AB Consultants before the Civil Judge, Raipur against KMPCL claiming an amount of `9,82,125 along with interest alleging that the amounts claimed are the dues payable in pursuance of the agreement for the works done relating to access and connectivity to the national highway. KMPCL is contesting the matter as the suit is not maintainable in view of the arbitration clause and jurisdictional clause in the agreement which provides jurisdiction to the courts at Hyderabad in relation to any dispute pursuant to the agreement, and is also contesting the suit on the merits of the case. The matter is pending for disposal.
B. By KMPCL
(1) A petition (Petition No. 13 of 2014) has been filed by KMPCL before the APERC to adjudicate disputes under the PPA dated July 31, 2012 with the four distribution companies in Andhra
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Pradesh for supply of 400 MW of power in relation to liquidated damages for alleged delay in commencement of supply of power by KMPCL. KMPCL has filed the petition for (i) declaration that the liquidated damages amounting to `236.00 million by the distribution companies is not tenable; (ii) declaration that the invoking of the performance bank guarantee of `189.60 million and `236.00 million as illegal and contrary to the terms of the PPA and for refund of the same together with interest, and (iii) declaration that the distribution companies have acted contrary to the terms of the PPA and have not fulfilled their obligations. The matter is pending for disposal.
On the same matter, the four distribution companies in Andhra Pradesh have filed Petition No. 14 of 2014, seeking directions from the APERC that amount of `663.10 million paid to KMPCL under the PPA towards transmission charges and capacity charges is illegal. The matter is pending for disposal.
(2) The Labour Authorities under the provisions of the BOC Act, issued a demand notice dated October 15, 2010, for payment of `20.00 million from KMPCL as cess at the rate of one per cent on the basis that the project cost is tentatively `2000.00 million. KMPCL is contesting the demand notice through the Writ Petition, W.P. No. 7484 of 2010, filed before the High Court of Chhattisgarh, on the ground that its construction activities are governed by the Factories Act, and the provisions of the BOC Act will not be applicable to it. The writ petition has been admitted and stay has been granted pursuant to order December 16, 2010. The matter is currently pending for disposal.
(3) KMPCL has filed a writ petition (W.P. No. 2205 of 2011) before the High Court of Chhattisgarh challenging the levy, demand and collection of registration charges amounting to `15,979,945.00 with respect to two lease deeds executed by the Government of Chhattisgarh dated May 14, 2010 for an extent of 173.777 hectares and July 14, 2010 for an extent of 207.465 hectares, wherein levy of stamp duty was specifically exempted by the Department of Industries, Government of Chhattisgarh, pursuant to letters dated July 21, 2010 and April 24, 2010. KMPCL has claimed a refund of the said amount deposited on August 18, 2010 under protest on the ground that the registration charges payable by it were only `50.00 each. The writ petition is pending for disposal.
(4) KMPCL has filed a writ appeal before the High Court (W.A. 1087 of 2012) challenging the order of a single bench dated September 4, 2012 wherein the Court had allowed the Writ Petition No. 781 of 2010 filed by Ms. Ritu Kedia quashing the acquisition of petitioner’s lands, aggregating 0.40 acres in Latia village, on an erroneous view along with other writs not related to the issue and related to different acquisitions. The writ petition was filed challenging the notifications issued under Sections 4 and 6 of the Land Acquisition Act on the grounds that the acquisition notification under Section 4 does not contain adequate details and the acquisition is not for public purpose. The writ petition was filed after passing of the award and possession had been taken by the GMDIC and subsequently the land was given by way of registered lease to KMPCL as no interim stay order had been passed by the court. The State of Chhattisgarh and CSIDC have also filed separate writ appeals. All the appeals are pending for disposal.
(5) KMPCL has filed a writ appeal (W.A. 1088 of 2012) before the High Court of Chhattisgarh challenging the order of a single bench dated September 4, 2012 wherein the Court allowed the Writ Petition No. 888 of 2010 filed by Ms. Anjana Kedia quashing the acquisition of petitioner’s lands, aggregating 0.20 acres in Latia village, on an erroneous view along with other writs not related to the issue and related to different acquisitions. The writ petition was filed challenging the notifications issued under Sections 4 and 6 of the Land Acquisition Act on the grounds that the acquisition notification under Section 4 does not contain adequate details and the acquisition is not for public purpose. The writ petition was filed after passing of the award and possession had been taken by the land acquisition officer. Status quo order has been granted on February 2, 2011. The State of Chhattisgarh and CSIDC have also filed separate writ appeals. All the appeals are pending for disposal.
(6) KMPCL filed an appeal in 2012 before the Commissioner, Land Revenue, Bilaspur challenging the demand and collection of stamp duty and registration charges for the registration of change of name of KMPCL from SWPL, in the lease deed and despite the fact that the issue in relation to registration charges of the original lease deed was already pending before the High Court in W.P. No. 2205 of 2011. The lease deed had been executed in the name of SWPL for an extent of
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207.465 hectares of land by CSIDC. KMPCL requested the name change in the lease deed in view of the scheme of amalgamation. The registering authorities demanded stamp duty and registration charges amounting to `1,200,111.00. KMPCL has made the payment of the demand amount under protest, and subsequently filed the appeal for refund of amount so collected. The matter is pending for disposal.
(7) KMPCL filed separate appeals in 2012 before the Commissioner, Land Revenue, Bilaspur against the order of the District Registrar, Janjgir, directing KMPCL to pay the difference of stamp duty by taking into consideration rehabilitation and resettlement rates revised subsequent to the four sale deeds purchased from four scheduled caste persons of village Rogda by KMPCL. The District Registrar, Janjgir initiated proceedings under section 47A(3) of the Indian Stamp Act and passed the final order dated October 30, 2012, directing KMPCL to pay the differential amount taking into account the revised value of land per acre as per the Rehabilitation Policy, 2007 as amended on March 19, 2010. Aggrieved by the order of the district registrar, as the lands were privately purchased and not acquired under the Land Acquisition Act, KMPCL has filed separate appeals. The appeals are pending for disposal.
7. KSK WIND ENERGY PRIVATE LIMITED (“KSK WIND”)
A. Against KSK WIND
(1) Fiza Developers and others filed an application before the High Court of Karnataka for appointment of an arbitrator for resolution of disputes arising under the transfer of development right agreement dated October 10, 2010, as amended, and the agreement of services dated October 10, 2010, as amended, entered between KSK Wind and Fiza Developers and others. The Karnataka High Court pursuant to order dated February 20, 2013 in C.M.P No. 126 of 2012, has appointed a sole arbitrator for adjudication of the disputes. Fiza Developers and others and KSK Wind have filed the claim and the counter claim, claiming approximately `2120.6 million and approximately `220.4 million, respectively, each denying the claim of the other. The Arbitration proceedings are pending for disposal.
B. By KSK WIND
(1) KSK Wind filed a civil suit (Civil Suit No. 357 of 2012) before the Civil Courts, Hyderabad against New and Renewable Energy Development Corporation of Andhra Pradesh Limited (“NREDCAP”) for illegal termination of an agreement dated September 9, 2011 entered into between KSK Wind and NREDCAP. Prior to entering into the agreement, KSK Wind had furnished a bank guarantee for `10.00 million in favour of NREDCAP. In accordance with the agreement, NREDCAP allotted provisional sites in Ananthapur District for developing a 50MW wind project However, upon testing, it was found that the provisional sites were not feasible for generating wind energy and NREDCAP was called upon to allocate alternative sites. NREDCAP issued a show cause notice to KSK Wind pursuant to letter dated April 7, 2012 as to why the allotment should not be cancelled and a response dated April 19, 2012 was issued by KSK Wind showing cause as to the circumstances in which the agreement dated September 9, 2011 could not be terminated. A further notice dated May 5, 2012 was received from NREDCAP unilaterally terminating the agreement and seeking to invoke the bank guarantee. Pending disposal of the civil suit, an injunction order dated May 29, 2012, restraining the encashing of the bank guarantee has been granted by the civil courts, and the suit is currently pending for disposal.
8. JR POWER GEN PRIVATE LIMITED (“JRP”)
A. Against JRP
(1) Orissa Power Transmission Company Limited (“OPTCL”) filed an application before the Orissa Electricity Regulatory Commission (the “OERC”) pursuant to Petition No. 71 of 2011 seeking approval of its proposed evacuation plan and for a direction to the all IPPs in Odisha named as respondents, to have connectivity through the State Transmission Utility (“STU”) as envisaged in the evacuation plan annexed to the petition. JRP and other IPPs are opposed to the said connectivity since (i) they had approval for connectivity to Power Grid Corporation of India Limited (“PGCIL”) and 80% of the IPPs power is to be supplied interstate, (ii) the supply to the
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state of Orissa can be diverted from the nearest PGCIL interconnect substation, and (iii) the state grid and evacuation lines do not support the power capacity to evacuate power, as required by the respondent IPPs. The OERC has passed an order dated March 30, 2013, directing OPTCL to discuss with each IPP and to submit a consolidated report of the evacuation plan. The matter is pending for disposal.
B. By JRP
Nil
III Other Confirmations
There have been no inquiries, inspections or investigations initiated or conducted under the Companies Act or any previous company law in the last three years immediately preceding the year of circulation of this Placement Document with respect to the Company or the Subsidiaries or the Joint Venture.
There have not been any prosecutions filed (whether pending or not), fines imposed, compounding of offences in the last three years immediately preceding the year of circulation of this Placement Document with respect to the Company or the Subsidiaries or the Joint Venture.
There have been no material frauds committed against the Company in the last three years.
IV Litigations involving the Promoters
There is neither any litigation or legal action pending or taken by any ministry or department of the Government or statutory authority against any of our Promoters during the last three years immediately preceding the year of the circulation of this Placement Document nor any direction issued by any such ministry or department of the Government or statutory authority upon conclusion of any such litigation or legal action.
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INDEPENDENT STATUTORY AUDITORS
Our Company’s current statutory auditors, Umamaheswara Rao & Co., Chartered Accountants, Hyderabad, who audited the financial statements as of and for the Financial Years ended March 31, 2012, March 31, 2013 and March 31, 2014, included in this Placement Document, are independent statutory auditors with respect to our Company as required by the Companies Act, 2013 and in accordance with the guidelines issued by the ICAI.
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GENERAL INFORMATION
1. Our Company was incorporated under the laws of the Republic of India on February 14, 2001 as KSK Energy Ventures Private Limited. Our Company became a public company pursuant to a special resolution of the shareholders of our Company at an extraordinary general meeting held on February 9, 2002. Thereafter, our Company became a private limited company pursuant to a special resolution of the shareholders of our Company at an extraordinary general meeting held on July 3, 2006. Subsequently, pursuant to a special resolution of the shareholders of our Company at an extraordinary general meeting held on January 19, 2008, our Company became a public limited company.
2. The authorized capital of our Company is `50,315,000,000 divided into 4,000,000,000 Equity Shares of `10 each and 1,031,500,000 preference shares of `10 each.
3. Our Company’s Registered Office is located at 8-2-293/82/A/431/A, Road No.22, Jubilee Hills, Hyderabad – 500 033, Andhra Pradesh, India.
4. The Issue has been authorized and approved by the Board of Directors on May 1, 2014 and by the shareholders of our Company on May 24, 2014 for an aggregate amount not exceeding `10,000 million.
5. The Board and the shareholders of the Company, by their resolutions dated May 1, 2014 and May 24, 2014, respectively, have also approved issuance and allotment of 150,000,000 Warrants on a preferential allotment basis to KSK Energy Limited, a promoter company incorporated in Mauritius either directly or through any of its affiliates or subsidiaries in India or outside India, after the completion of the Issue, subject to receipt of applicable approvals.
6. Our Company has received in-principle approvals in terms of Clause 24(a) of the Equity Listing Agreements from each of the BSE and the NSE on June 2, 2014, to list the Equity Shares on the Stock Exchanges.
7. Copies of the Memorandum and Articles of Association will be available for inspection during usual business hours on any weekday between 10 a.m. to 6 p.m. (except public holidays), at the Registered Office during the Bid/Issue Period.
8. Except as disclosed in this Placement Document, our Company has obtained necessary consents, approvals and authorizations required in connection with the Issue.
9. Except as disclosed in this Placement Document, there has been no material adverse change in our Company’s financial condition since March 31, 2014, the date of the latest audited financial statements included herein.
10. Except as disclosed in this Placement Document, there are no legal or arbitration proceedings against or affecting our Company or its assets or revenues, nor is our Company aware of any pending or threatened legal or arbitration proceedings, which are, or might be, material in the context of the Issue.
11. Our Company’s statutory auditors, Umamaheswara Rao & Co., Chartered Accountants have audited the financial statements for the Financial Years 2012, 2013 and 2014, included in this Placement Document.
12. Our Company confirms that it is in compliance with the minimum public shareholding requirements as required under the terms of the Equity Listing Agreements with the Stock Exchanges.
13. The Floor Price for the Equity Shares under the Issue is `103.80 which has been calculated in accordance with Chapter VIII of the SEBI Regulations. The QIP Committee of the Board, on June 4, 2014, approved a discount of `4.80 to the Floor Price of `103.80 in accordance with the approval of the shareholders accorded on May 24, 2014 and Regulation 85(1) of the SEBI Regulations.
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
FINANCIAL INFORMATION
Financial Statements Page Nos.
Audited Financial Statements for the year ended March 31, 2014 F-4
Audited Financial Statements for the year ended March 31, 2013 F-37
Audited Financial Statements for the year ended March 31, 2012 F-72
F-1
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
FINANCIAL INFORMATION
Examination Report on Consolidated Financial Statements The Board of Directors KSK Energy Ventures Limited Hyderabad Dear Sirs,
Re: Qualified Institutional Placement of KSK Energy Ventures Limited We have examined the Consolidated Financial Information of KSK Energy Ventures Limited (‘the Company’), and its subsidiaries and joint venture (the Company and its subsidiaries and joint venture constitute ‘the Group’), annexed to this report for the purpose of inclusion in the Preliminary Placement Documents and Placement Documents (“Offering Documents”) and initialed by us for identification. The Consolidated Financial Information, prepared by the Company and approved by the Board of Directors, has been prepared in accordance with:
a) Section 211(3C) of the Companies Act, 1956 and the provisions of the Companies Act, 2013 (to the extent notified) (‘the Act’);
b) Securities and Exchange Board of India (‘SEBI’) – Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulation, 2009 (the ‘ICDR Regulations’) notified on August 26, 2009;
c) Guidance Note on Reports in Company Prospectuses (Revised) issued by the Institute of Chartered Accountants of India ( ‘ICAI’);
d) the terms of reference received from the Company requesting us to carry out work in connection with the offer document being issued by the Company in connection with its Qualified Institutions Placement (‘QIP’) of Equity Shares.
Financial Information as per the Audited Financial Statements
1. We have examined the attached ‘Consolidated Summary Statement of Assets and Liabilities’ of the Company as at March 31, 2014, (Annexure 1), the attached ‘Consolidated Summary Statement of Profits and Losses’ for the year ended March 31, 2014, (Annexure 2) and the attached ‘Consolidated Cash Flow Statement’ for the year ended March 31, 2014 (Annexure 3), together referred to as ‘Consolidated Summary Statements’.
2. These Consolidated Summary Statements have been extracted from the audited consolidated financial statements for the year ended March 31, 2014 audited by us and adopted by the Board of Directors on May 24, 2014 which is subject to the shareholders’ approval
Based on our examination of these Consolidated Summary Statements, we state that: a) Annexure 1 contains the Consolidated Summary Statement of Assets and Liabilities, of the Company as at March 31, 2014;
b) Annexure 2 contains the Consolidated Summary Statement of Profits and Losses, of the Company for the year ended March 31, 2014;
c) Annexure 3 contains the Consolidated Cash Flow Statement, for the year ended March 31, 2014;
d) The Consolidated Summary Statements have to be read in conjunction with the ‘Significant Accounting Policies and Notes to Consolidated Summary Statement given in Annexure 4 to this report;
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
e) There are no extraordinary items that need to be disclosed separately in the Consolidated Summary Statements and
f) There are no qualifications in the auditors’ report on the financial statements that require adjustments to the Consolidated Summary Statements.
Other Financial Information
3. We have examined the Capitalisation Statement as at March 31, 2014 included in Annexure 5.
4. The Company has not paid any dividend to its equity shareholders during the last year ended March 31, 2014, hence the information regarding the rates of dividend in respect of equity shares has not been disclosed.
5. In our opinion, the ‘Financial Information as per Audited Financial Statements’ and ‘Other Financial Information’ mentioned above as at March 31, 2014, have been prepared in accordance with the Act and Chapter VIII of the ICDR Regulations.
This report should neither in any way be construed as a reissuance or redating of any of the previous audit reports nor should this be construed as a new opinion on any of the Financial Statements referred to herein. We have no responsibility to update our report for events and circumstances occurring after the date of this report. This report is intended solely for your information and for inclusion in the Offering Documents in connection with the proposed QIP of the Company and is not to be used, referred to or distributed for any other purpose without our prior written consent. for Umamaheshwara Rao & Co Chartered Accountants
[S.Venugopal ] Place : Hyderabad Partner Date : May 31, 2014 M. No: 205565 Firm Regn. No.: 004453S
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
As at Note 31 March 2014 31 March 2013 I EQUITY AND LIABILITIES 1 Shareholders' funds (a) Share capital 4 4,396.30 4,726.30 (b) Reserves and surplus 5 25,511.59 27,290.86 29,907.89 32,017.16 2 Minority interest 6 6,810.13 6,735.18 3 Non-current liabilities (a) Long-term borrowings 7 1,17,080.40 1,12,689.28 (b) Deferred tax liabilities (net) 8 65.88 227.31 (c) Other long term liabilities 9 4,355.21 3,271.65 (d) Long-term provisions 11 23.61 51.14 1,21,525.10 1,16,239.38 4 Current liabilities (a) Short-term borrowings 7 18,531.98 15,674.88 (b) Trade payables 10 5,243.76 2,163.39 (c) Other current liabilities 12 36,057.81 28,808.79 (d) Short-term provisions 11 175.03 92.85 60,008.58 46,739.91 2,18,251.70 2,01,731.63 II. ASSETS 1 Non-current assets (a) Fixed assets 13 (i) Tangible assets 76,960.81 44,963.75 (ii) Intangible assets 2,060.57 2,041.22 (iii) Capital work in progress 92,619.45 1,05,871.75 (iv) Intangible assets under development 3.79 1.01 (b) Non-current investments 14 215.81 215.81 (c) Deferred tax assets (net) 8 3,320.73 1,910.89 (d) Long-term loans and advances 15 8,064.46 12,120.98 (e) Other non-current assets 16 3,149.77 2,552.81 1,86,395.39 1,69,678.22 2 Current assets (a) Current investments 14 - 172.06 (b) Inventories 17 1,493.52 1,510.71 (c) Trade receivables 18 9,201.52 5,597.08 (d) Cash and bank balances 19 8,693.22 14,656.47 (e) Short-term loans and advances 15 10,497.27 8,535.30 (f) Other current assets 16 1,970.78 1,581.79 31,856.31 32,053.41 2,18,251.70 2,01,731.63 See accompanying notes to Consolidated financial statements As per our report of even date For Umamaheswara Rao & Co., for and on behalf of the Board Chartered Accountants Firm Registration No: 004453S Sd/- Sd/- Sd/- S. Venugopal S. Kishore K. A. Sastry Partner Whole-time Director Whole-time Director Membership No: 205565 Sd/- Place: Hyderabad M S Phani Shekhar Date: 24 May 2014 Company Secretary
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
Year ended Note 31 March 2014 31 March 2013
I Revenue from operations 20 21,118.01 22,070.20 II Other income 21 1,365.52 1,006.96 III Total revenue (I+II) 22,483.53 23,077.16 IV Expenses Cost of fuel consumed 22 11,978.78 10,695.64 Manufacturing expenses 23 1,522.50 1,314.50 Employee benefits expenses 24 463.42 431.65 Other expenses 25 1,781.52 1,444.46 Finance costs 26 7,216.12 6,017.67 Depreciation and amortisation expenses 13 2,929.73 2,264.68 Total expenses 25,892.07 22,168.60 V Profit / (loss) before tax (III - IV) (3,408.54) 908.56 VI Tax expense / (income) . Current tax For the period 145.53 164.48 In respect of earlier periods (0.85) 0.38 Less : MAT credit entitlement (101.02) (140.46) Deferred tax (1,571.27) (789.36) Total tax expense / (income) (1,527.61) (764.96) VII Profit / (loss) for the period before minority interest (V - VI) (1,880.93) 1,673.52 Minority interest (252.04) 167.72 Profit / (loss) for the period after minority interest (1,628.89) 1,505.80 VIII Earnings / (loss) per share: Basic and diluted -face value of Rs 10 per share (Rs.) (4.62) 3.79
See accompanying notes to Consolidated financial statements As per our report of even date For Umamaheswara Rao & Co., for and on behalf of the Board Chartered Accountants Firm Registration No: 004453S
Sd/- Sd/- Sd/- S. Venugopal S. Kishore K. A. Sastry Partner Whole-time Director Whole-time Director Membership No: 205565 Sd/- Place: Hyderabad M S Phani Shekhar Date: 24 May 2014 Company Secretary
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
Particulars 31 March 2014 31 March 2013 CASH FLOW FROM OPERATING ACTIVITIES (Loss) / profit before tax (3,408.54) 908.56 Adjustments for Depreciation and amortisation expenses 2,929.73 2,264.68 Finance cost 7,216.12 6,017.67 Interest income (966.79) (980.73) Dividend income (0.90) (1.28) (Profit) / loss on sale of assets, net (26.14) 24.71 Profit on sale of investment (0.12) (3.41) Bad debts / advances written off / provision for doubtful debts 21.17 234.37 Unrealised foreign exchange differences 29.73 31.21 Liability no longer required written back (13.66) (18.76) Operating profit before working capital changes 5,780.60 8,477.02 Adjustments for working capital Inventories 17.19 (278.60) Trade receivables (3,604.44) (1,889.53) Loan and advances (2,558.69) (112.57) Other assets (356.57) (442.45) Trade payables 2,874.74 109.01 Other liabilities and provisions 111.42 37.66 Cash generated from operations 2,264.25 5,900.54 Income tax paid (335.36) (334.05) Net cash from / (used in) operating activities 1,928.89 5,566.49 CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets including capital work-in-progress and capital advances (12,028.96) (17,719.34) Sale of fixed assets 41.49 262.46 Cash flow on sale of wind mills undertaking 51.49 604.96 Advance received against sale of assets 708.00 - Acquisition of minority interest - (1.30) (Purchase) / sale of current investments, net 172.18 53.04 (Investment) / redemption of bank deposit (original maturity more than 3 months) 394.31 (346.05) (Investment) / redemption of bank deposit (held as margin money or security) 6,884.76 2,275.86 Advance for investment - given (611.60) (1,106.30) Inter corporate deposit - given (1,182.40) (980.10) Inter corporate deposit - refund 1,503.44 1,080.17 Interest received 2,014.07 2,386.51 Dividend received 97.75 22.15 Net cash used in investing activity (1,955.46) (13,467.94) CASH FLOW FROM FINANCING ACTIVITIES Proceeds from share issue and application money in subsidiary to minority interest 2,212.08 280.17 Redemption of preference share capital (387.86) - Repayment of share application money in subsidiary (30.00) (1,750.00) Payment of preference dividend including dividend tax (93.60) (93.24) Proceeds from long term borrowings 42,316.60 37,300.32 Repayment of long term borrowings (31,879.67) (17,350.64) Proceeds from short term borrowings, net 4,061.93 364.32 Payment of finance costs (15,884.90) (14,397.45) Net cash from financing activities 314.58 4,353.48 Net increase / (decrease) in cash and cash equivalents 288.01 (3,547.97) Effect of exchange rate changes 0.95 (1.54) Cash and cash equivalents at the beginning of the year 1,440.83 4,990.34 Cash and cash equivalents at the end of the year 1,729.79 1,440.83
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
Particulars 31 March 2014 31 March 2013 Notes 1 Cash and cash equivalents includes: Cash in hand 3.57 24.38 Balances with banks: On current account 1,719.02 1,200.22 On deposit account 7.20 216.23 1,729.79 1,440.83 2 Previous year figures have been regrouped / reclassified to conform to the classification of the current year.
As per our report of even date For Umamaheswara Rao & Co., for and on behalf of the Board Chartered Accountants Firm Registration No: 004453S
Sd/- Sd/- Sd/- S. Venugopal S. Kishore K. A. Sastry Partner Whole-time Director Whole-time Director Membership No: 205565 Sd/- Place: Hyderabad M S Phani Shekhar Date: 24 May 2014 Company Secretary
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
1 Description of business
KSK Energy Ventures Limited (“KSKEVL” or the “Company”), its subsidiaries and joint ventures (collectively referred to as ‘the Group’) are primarily engaged in the development, operation and maintenance of private sector power projects, currently predominantly through subsidiaries and jointly controlled entities with multiple industrial consumers in India with next level of growth coming through large base load power plant subsidiaries.
KSKEVL focused its strategy on the private sector power development market, undertaking entire gamut of development, investment, construction, operation and maintenance of power plant with supplies initially to heavy industrials operating in India and now branching out to cater to the needs of utilities and others in the wider Indian power sector.
2 Significant Accounting Policies
2.1 Accounting convention
The Consolidated Financial Statements of KSK Energy Ventures Limited and its Subsidiaries and Joint Ventures (“the Group” or “the Company”) have been prepared and presented under the historical cost convention on the accrual basis in accordance with Indian Generally Accepted Accounting Principles (GAAP). GAAP comprises Accounting Standards notified by the Central Government of India under Section 211 (3C) of the Companies Act, 1956, other pronouncements of Institute of Chartered Accountants of India, the provisions of the Companies Act 2013 (to the extent notified), the provisions of Companies Act, 1956 and guidelines issued by Securities and Exchange Board of India.
2.2 Use of estimates
The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure relating to contingent liabilities on the date of Consolidated Financial Statements and reported amounts of income and expenditure for the period. Actual results could differ from these estimates. Examples of such estimates include provision for doubtful debt, future obligation under employee retirement benefit plan, income taxes, useful life of fixed assets, etc. Any revision to accounting estimates is recognised prospectively in the current and future periods.
2.3 Inventories
Inventories are valued at the lower of cost and net realizable value. Cost of inventories comprises all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The method of determining the costs of various categories of inventories are as follows:
Fuel Weighted average Stores, spares and consumables First-in-first-out
2.4 Cash flow statement
Cash flow statement is reported using the indirect method, where by the net profit before tax is adjusted for the effects of transactions of a non cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated and presented separately.
2.5 Revenue recognition
Revenue in the form of project development fees for services rendered in relation to development work of potential power projects is recognized when such fees is assured and determinable under the terms of the respective contract. Corporate Support Service income is recognized when such income is assured and determinable under the terms of the
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
respective contract.
Consultancy income is recognized in proportion with the degree of completion of contract.
Dividend income is recognized when the unconditional right to receive the income is established.
Interest is recognized using the time proportionate method, based on the underlying interest rates.
Sale of energy is recognized on accrual basis in accordance with the relevant agreements.
Insurance claims are accounted based on certainty of realization.
Revenue from sale of scrap and fly ash is accounted for as and when sold.
2.6 Fixed assets and depreciation
Fixed assets are stated at cost of acquisition. Cost of acquisition is inclusive of freight, duties, levies and all incidentals directly or indirectly attributable to bringing the asset to its working condition for its intended use. Cost of fixed assets includes cost of initial warranty / insurance spares purchased along with the capital asset, which are grouped as single item under respective assets.
Machinery spares of the nature of capital spares are capitalized at the time of their purchase whether procured at the time of purchase of the fixed asset concerned or subsequently. Where such spares are replaced, the carrying cost of the worn out spares are written off. The total cost of such capital spares is allocated on a systematic basis over a period not exceeding the useful life of the principal item.
Depreciation has been provided on Straight Line Method at the rates and in the manner specified in Schedule XIV of the Companies Act, 1956 except for assets costing up to Rs. 5,000/- which are fully depreciated in the year of capitalization. Depreciation is calculated on a pro-rata basis from the date of installation / capitalization till the date the assets are sold or disposed.
Depreciation on initial / warranty spares are provided on the same rates applicable for that asset group, irrespective of its actual usage.
Intangible assets, viz., computer software is recognized as per the criteria specified in the Accounting Standard (AS) 26 “Intangible Assets” notified by the Central Government of India under section 211 (3C) of the Companies Act, 1956 and is amortized over a period of three years.
Leasehold improvements are amortized over the lease period.
2.7 Capital work in progress
The cost of fixed assets not ready for their intended use before such date is disclosed under capital work in progress.
Capital work in progress is carried at cost and incidental and attributable expenses including interest and depreciation on fixed assets in use during construction are carried as part of “expenditure during construction period, pending allocation” to be allocated on major assets on commissioning of the project.
In respect of supply-cum-erection contracts, the value of supplies received at site and accepted is treated as capital work in progress.
Claims for price variation / exchange variation in case of contracts are accounted for on acceptance.
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
2.8 Foreign currency transaction
Foreign currency transactions are initially recorded at the rates of exchange ruling at the date of transaction.
At the Balance Sheet date, foreign currency monetary items are reported using the closing / contracted rate. Non- monetary items denominated in foreign currency are reported at the exchange rate ruling at the date of transaction.
Exchange differences arising on account long-term foreign currency monetary items related to the acquisition/construction of fixed assets are capitalised and depreciated over the remaining useful life of the asset.
Exchange differences arising on other long-term foreign currency monetary items are accumulated in the “Foreign Currency Monetary Item Translation Difference Account” and amortised over the remaining life of the concerned monetary item.
The premium or discount on forward exchange contract and currency options are amortised and recognised as an expense / income over the life of the contract. Exchange differences on such contracts, except the contracts which are long-term foreign currency monetary items, are recognised in the statement of profit and loss in the period in which the exchange rates change. Any profit or loss arising on cancellation or renewal of such forward exchange contract is also recognised as income or as expense for the period. Any gain / loss arising on forward contracts which are long-term foreign currency monetary items is recognised in accordance with above paragraphs.
All other exchange differences are recognised as income or as expenses in the period in which they arise.
2.9 Derivative Contracts
The Company enters into derivative contracts in the nature of foreign currency options, interest rate swaps and forward contracts with an intention to hedge its existing assets and liabilities, firm commitments and highly probable transactions. Derivative contracts which are closely linked to the existing assets and liabilities are accounted as per the policy stated for foreign currency transactions. All other derivative contracts are marked-to market and losses are recognised in the Statement of Profit and Loss. Gains arising on the same are not recognised, until realised, on grounds of prudence.
2.10 Investments
Long-term investments, other than investments in associates, are stated at cost. A provision for diminution is made to recognize a decline, other than temporary, in the value of long-term investments. Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each category of investment.
2.11 Employee retirement benefits
Provident fund
Eligible employees receive benefits from a provident fund, which is a defined contribution scheme. Both the employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee salary. The contribution made by the Company is charged to the Statement of Profit and Loss.
Gratuity
In accordance to the Payment of Gratuity Act, 1972, the Group provides for the gratuity, a defined benefit retirement plan (“the gratuity plan”) covering the eligible employees. The gratuity plan provides for a lump sum payment to the vested employees at retirement, death, incapacitation or termination of the employment, of an amount based on the respective employee salary and the tenure of the employment within the Group.
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
Liabilities with regard to the gratuity plan are determined by independent actuary. The Group makes annual contribution to employee’s group gratuity scheme administered by trustees and managed by Life Insurance Corporation of India.
The Group recognizes the net obligation of the gratuity plan in the Balance Sheet as an asset or liability, respectively in accordance with Accounting Standard (AS) 15, “Employee Benefits”.
Actuarial gains or losses arising from experience adjustments and changes in actuarial assumptions are recognized in the Statement of Profit and Loss.
2.12 Borrowing cost
Borrowing costs include interest on borrowings and amortisation of ancillary cost incurred in connection with the arrangement of borrowings.
Borrowing costs directly attributable to the acquisition or construction of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalized.
All other borrowing costs are recognised as an expense in the year in which they are incurred.
2.13 Leases
Finance leases, which effectively transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the lower of the fair value and present value of the minimum lease payments at the inception of the lease term and disclosed as leased assets. Lease payments are apportioned between the finance charges and reduction of the lease liability based on the implicit rate of return. Finance charges are charged directly against income. Lease management fees, legal charges and other initial direct costs are capitalized. If there is no reasonable certainty that the Company will obtain the ownership by the end of the lease term, capitalized lease assets are depreciated over the shorter of the estimated useful life of the asset or the lease term.
Lease that do not transfer substantially all the risks and rewards of ownership are classified as operating leases and recorded as expense as and when the payments are made over the lease term.
2.14 Earnings per share
Basic earnings per share are computed by dividing the net profit or loss after tax attributable to equity shareholders for the period by the weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted earnings per share, net profit or loss after tax attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as at the beginning of the period, unless they have been issued at a later date. In computing the dilutive earnings per share, only potential equity shares that are dilutive and that either reduces the earnings per share or increases loss per share are included.
2.15 Taxes on income
Income tax expense/ (income) comprises of current tax, deferred tax and Minimum Alternative Tax (MAT) credit.
Current tax
The current charge for income taxes is calculated in accordance with the relevant tax regulations applicable to the Company.
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
Deferred tax
Deferred tax charge or credit reflects the tax effects of timing differences between accounting income and taxable income for the period. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates that have been enacted or substantially enacted by the Balance Sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future; however, where there is unabsorbed depreciation or carry forward of loss under taxation laws, deferred tax assets are recognized only if there is a virtual certainty of realization of such assets.
Deferred tax assets are reviewed at each Balance Sheet date and written down or written-up to reflect the amount that is reasonably/virtually certain (as the case may be) to be realized.
The break-up of the deferred tax assets and liabilities as at the Balance Sheet date has been arrived at after setting-off deferred tax assets and liabilities where the Company has legally enforceable right and an intention to set-off assets against liabilities and where such assets and liabilities relate to taxes on income levied by the same governing taxation laws.
MAT credit
MAT credit is recognized as an asset only when, and to the extent, there is convincing evidence that the Company will pay normal income tax during the specified period. In the year in which the MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in guidance note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the Statement of Profit and Loss and shown as MAT Credit entitlement. The Company reviews the same at each Balance Sheet date and writes down the carrying amount of MAT credit entitlement to the extent there is no longer convincing evidence to the effect that Company will pay normal income tax during the specified period.
2.16 Impairment of assets
The Company assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the Statement of Profit and Loss. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If at the Balance Sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost.
2.17 Provisions and contingencies
Provisions and contingencies
The Company recognizes a provision when there is a present obligation as a result of past obligating event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation that the likelihood of outflow of resources is remote, no provision or disclosure is made.
Onerous contract
Provisions for onerous contracts i.e. contracts where the expected unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it, are recognized when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation as a result of an obligating event, based on a reliable estimate of such obligation. 3 Basis of consolidation
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
The Consolidated Financial Statements relate to KSK Energy Ventures Limited, its Subsidiaries, Associates and interest in Joint Ventures.
3.1 Basis of accounting
The financial statements of the Subsidiary / Associates / Joint Venture Companies in the consolidation are drawn up to the same reporting date as that of the Company. The Consolidated Financial Statements have been prepared in accordance with Accounting Standards (AS) 21 “Consolidated Financial Statements”, (AS) 23 “Accounting for Investments in Associates” and (AS) 27 “Financial Reporting of Interest in Joint Ventures”, notified by the Central Government of India under Section 211 (3C) of the Companies Act, 1956.
3.2 Principles of consolidation
The Consolidated Financial Statements have been prepared as per the following principles:
The financial statements of the Company and its Subsidiaries are combined on a line by line basis by adding together the book value of like items of assets, liabilities, income and expenses after eliminating intra-group balances, intra- group transactions and unrealized profits or losses.
The Consolidated Financial Statements include the interest of the Company in Joint Ventures, which has been accounted for using the proportionate consolidation method of accounting whereby the Company’s share of each of assets, liabilities, income and expenses of a jointly controlled entity is considered as separate line item.
Preference share capital in Joint Venture entities and share application money in subsidiaries held by the outsiders, shown separately together with minority interest under note 6 to Balance Sheet.
The Group accounts for investments by the equity method of accounting where it is able to exercise significant influence over the operating and financial policies of the investee. Inter company profits and losses have been proportionately eliminated until realized by the investor or investee.
The Consolidated Financial Statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances and are presented to the extent possible, in the same manner as the Company’s separate financial statements except as otherwise stated in the notes to the accounts.
The difference between the cost of investment in the Subsidiary / Joint Venture and the share of net assets at the time of acquisition of shares is identified in the financial statements as goodwill or capital reserve as the case may be.
Minority interests share of profit of consolidated subsidiaries is identified and adjusted against income of the group in order to arrive at the surplus attributable to the shareholders of the Company.
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
3.3 Particulars of Subsidiaries and Joint Ventures: (% of Shareholding)
S. No. Name of the Company Country of 31 March 2014 31 March 2013 incorporation
Subsidiary Companies 1 KSK Narmada Power Company Private Limited India 100 100 2 KSK Wind Energy Private Limited India 100 100 3 KSK Vidarbha Power Company Private Limited India 100 100 4 KSK Wardha Infrastructure Private Limited India 100 100 5 Sai Maithili Power Company Private Limited India 52 52 6 KSK Dibbin Hydro Power Private Limited India 100 100 7 Kameng Dam Hydro Power Limited India 100 100 8 Arasmeta Captive Power Company Private Limited India 51 51 9 KSK Electricity Financing India Private Limited India 100 100 10 VS Lignite Power Private Limited India 74 74 11 Sai Regency Power Corporation Private Limited India 73.92 73.92 12 Sai Wardha Power Limited (formerly known as India 83.93 87 Wardha Power Company Limited)
13 KSK Mahanadi Power Company Limited India 84.67 85.23 14 J R Power Gen Private Limited India 51 51 15 KSK Upper Subansiri Hydro Energy Limited India 100 100 16 KSK Jameri Hydro Power Private Limited India 100 100 17 KSK Dinchang Power Company Private Limited India 100 100 18 Field Mining and Ispats Limited India 84.98 84.98 19 Tila Karnali Hydro Electric Company Private Nepal 80 80 Limited 20 Bheri Hydro Power Company Private Limited Nepal 90 90 21 Sai Power Pte LTD Singapore 100 100 Joint Venture Company 22 Sitapuram Power Limited India 49 49
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
4 Share capital As at 31 March 2014 31 March 2013 Authorised 4,000,000,000 (31 March 2013: 4,000,000,000) equity shares of Rs. 10/- each 40,000.00 40,000.00 1,031,500,000 (31 March 2013: 1,031,500,000) preference shares of Rs.10/- each 10,315.00 10,315.00 50,315.00 50,315.00 Issued, subscribed and paid up 372,630,454 (31 March 2013: 372,630,454) equity shares of Rs. 10/- each fully paid up 3,726.30 3,726.30 67,000,000 (31 March 2013: 100,000,000) 8% Compulsorily redeemable preference 670.00 1,000.00 shares of Rs. 10/- each fully paid up (refer note a) 4,396.30 4,726.30 a Above preference shares are redeemable at premium over the period of 5 years, starting from end of the 3rd year from the date of allotment. b The company has only one class of equity shares having a par value of Rs 10/- per share. The holders of equity shares are entitled to receive dividend as declared from time to time and are entitled to voting rights proportionate to their shareholding at the meeting of shareholders. c Equity Shares held by holding company and its subsidiaries As at Particulars 31 March 2014 31 March 2013 Holding company No of shares held 19,12,22,031 19,12,22,031 % of shares held 51.32% 51.32% Subsidiaries of holding company No of shares held 8,80,10,646 8,80,10,646 % of shares held 23.62% 23.62%
d Particulars of the shareholders holding more than 5% of the shares As at Name of the shareholder 31 March 2014 31 March 2013 Equity shares fully paid up KSK Energy Limited No of shares held 19,12,22,031 19,12,22,031 % of shares held 51.32% 51.32% KSK Energy Company Private Limited No of shares held 7,93,45,007 7,93,45,007 % of shares held 21.29% 21.29% LB Group No of shares held 1,85,00,000 2,08,28,534 % of shares held 4.96% 5.59% 8% Compulsorily redeemable preference shares fully paid up L & T Infrastructure Finance Company Limited No of shares held 6,70,00,000 10,00,00,000 % of shares held 100.00% 100.00% e Reconciliation of number of shares outstanding As at Particulars 31 March 2014 31 March 2013 8% Compulsorily redeemable preference shares Outstanding at the beginning of the year 100.00 100.00
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
Redeemed during the year 33.00 - Outstanding at the end of the year 67.00 100.00
5 Reserves and Surplus As at 31 March 2014 31 March 2013 Capital Redemption reserve Opening balance - - Add: Transferred from surplus 330.00 - 330.00 - Securities premium Opening balance 18,739.90 18,739.90 Less: Premium on redemption of preference shares 57.86 - 18,682.04 18,739.90 Foreign currency translation reserve Opening balance (1.61) (0.07) Add: Movement during the year 0.95 (1.54) (0.66) (1.61) Surplus Opening balance 8,552.57 7,139.75 Add: (Loss) / profit for the year (1,628.89) 1,505.80 Amount available for appropriations 6,923.68 8,645.55 Appropriations Transfer to capital redemption reserve 330.00 - Preference dividend 79.78 80.00 Dividend distribution tax 13.69 12.98 423.47 92.98 Balance 6,500.21 8,552.57 25,511.59 27,290.86
6 Minority Interest As at 31 March 2014 31 March 2013 Minority interest 6,774.80 6,587.19 Preference share capital in JV entities held by others 35.20 35.20 Share application money in subsidiaries held by others 0.13 112.79 6,810.13 6,735.18
7 Borrowings As at 31 March 2014 31 March 2013 Long-term borrowings Secured Debentures 850.00 - Term loans * Rupee loans from banks ** 64,837.29 52,697.91 Rupee loans from others 30,466.86 31,689.09 Foreign currency loans 20,696.25 28,070.92 Hire purchase loans - 1.36 Unsecured Deferred payment liabilities 230.00 230.00 1,17,080.40 1,12,689.28
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
As at 31 March 2014 31 March 2013 Short-term borrowings Secured Loans repayable on demand From banks 4,742.75 4,025.32 Foreign currency loans 2,405.31 1,497.77 Loans against letters of credit 4,748.00 2,145.92 Loan against deposit 4,383.55 7,586.20 Unsecured Loans repayable on demand From related parties 1,490.79 418.09 From others 761.58 1.58 18,531.98 15,674.88 1,35,612.38 1,28,364.16
* Term loans includes an amount of Rs 8,431.15 in KSK Mahanadi Power Company Limited which is schedule for repayment during financial year 2014-15.The Company has made an application for overrun and also for deferment of repayment schedule with the lenders and is pending. In the opinion of the Company, it will get a favourable response and hence, pending outcome of the same, the above referred amount is classified under long term borrowings. ** Out of the above Rupee term loans from banks, amount of Rs 1,400.43 is guaranteed by KSK Power Ventur plc., the step-up holding company.
a Details of security provided for various credit facilities
KSK Energy Ventures Limited Rupee term loans from banks are secured by first pari-passu charge on fixed assets, current assets and corporate guarantee of KSK Power Venture plc, and KSK Wind Energy Private Limited.
Sai Wardha Power Limited (formerly known as Wardha Power Company Limited) Rupee term loans from banks and others and long term foreign currency loans are secured by first charge pari- passu by way of mortgage on the Company's immovable properties and hypothecation of whole of the movable properties, both present and future. Pledge of certain equity shares of the Company held by KSK Electricity Financing India Private Limited.
Loan repayable on demand are secured by first pari-passu charge on all fixed and current assets of the Company (existing and future) along with the other member banks/ financial institutions.
Foreign currency loans and loans against letter of credit are secured by subservient charges on the entire movable fixed and current assets of the company and secured by letter of credit facility sanctioned to KSK Energy Ventures Limited.
Sitapuram Power Limited Rupee term loan from bank is secured by first charge on all immovable and movable assets including current assets, both present and future. Pledge of certain equity and preference shares of the company held by KSK Electricity Financing India Private Limited.
Loans repayable on demand are secured by first charge on entire block of assets.
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
VS Lignite Power Private Limited Rupee term loans from banks and others are secured by first charge pari-passu by way of mortgage on all the company's immovable properties and hypothecation of whole of the movable properties both present and future. Pledge of certain equity shares of the company held by KSK Electricity Financing India Private Limited. Corporate guarantee given KSK Energy Ventures Limited
Loans repayable on demand are secured by pari-passu first charge on fixed assets and current assets along with term lenders.
Debentures are secured by way of mortgage of company’s land and pledge of certain equity shares of VS Lignite Power Private Limited, KSK Mineral Resources Private Limited and Sai Wardha Power Limited (formerly known as Wardha Power Company Limited).
KSK Dibbin Hydro Power Private Limited Hire purchase loan is secured by pledge of equipment purchased
Arasmeta Captive Power Company Private Limited Rupee term loans from banks and others are secured by first charge pari-passu by way of mortgage on all the Company's immovable properties including leasehold land and freehold land and hypothecation of whole of the movable fixed assets and current assets both present and future. Pledge of certain fully paid up equity shares of the Company held by KSK Electricity Financing India Private Limited.
Loans repayable on demand are secured by pari-passu first charge on all the Company's immovable properties and hypothecation of all the Company's movables fixed assets and current assets both present and future.
KSK Mahanadi Power Company Limited Rupee term loans, foreign currency loans and loans against letter of credit and cash credit are secured by first charge over all movable properties, intangible assets and other assets (including assignment of rights, titles, interests, benefits, claims etc.) of the company both present and future. Further guaranteed by pledge of certain equity shares of the company held by KSK Energy Ventures Limited.
Rupee sub debt loans are secured by second charge over all movable properties, intangible assets and other assets (including assignment of rights, titles, interests, benefits, claims etc.) of the company both present and future. Further guaranteed by pledge of certain equity shares of the company held by KSK Energy Ventures Limited.
Sai Regency Power Corporation Private Limited Rupee term loans from banks are secured by first charge pari-passu by way of mortgage on all company's immovable properties and hypothecation of movable properties. First charge on the wind project assets of the company. Pledge of certain equity shares of the company held by KSK Electricity Financing India Private Limited.
Loans repayable on demand are secured by first pari-passu charge on the entire current assets of the company.
Sai Maithili Power Company Private Limited Rupee term loan from banks are secured by way of mortgage on all the Company's immovable properties including land and hypothecation of whole of the movable fixed assets and current assets both present and future. Pledge of shares of at least 30% of the total equity shareholding. Corporate guarantee of KSK Energy Ventures Limited and VS Lignite Power Private Limited
b Loan against deposits are secured by pledge of deposits.
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
c Repayment terms of long-term borrowings Amount outstanding included in
S No Long term Other current Repayment terms Name of the Company borrowings liability Debentures 1 VS Lignite Power Private Limited 640.00 - The debentures are repayable in structured annual repayments with the last instalment payable by Mar 2025. The debenture carries an internal rate of return of 15% p.a 2 KSK Wind Energy Private Limited 210.00 - The debentures are repayable by Feb 2024. The coupon rate of interest is 0.01% p.a Term loan 1 KSK Energy Ventures Limited - 1,400.43 The long term Rupee loans are repayable in half yearly instalments with the last instalment of respective loans are payable by Dec 2014 The long term borrowings carries an weighted average rate of interest of 14.42 % p.a 2 Sai Wardha Power Limited (formerly 3,255.00 617.50 The long term Rupee loans are known as Wardha Power Company repayable in quarterly instalments with Limited) the last instalment of respective loans are payable from Jun 2020 to Sep 2022. These loans carry a weighted average interest rate of 13.32% p.a. 3 Sitapuram Power Limited 431.20 53.90 The long term Rupee loan is repayable in quarterly instalments with the last instalment of the loan is payable by
Mar 2023. This loan carries a weighted average interest rate of 12.54% p.a 4 VS Lignite Power Private Limited 4,388.72 529.67 The long term Rupee loans are repayable in quarterly instalments with the last instalment of respective loans are payable from Nov 2020 to May 2024. These loans carry a weighted average interest rate of 13.05% p.a. 5 Arasmeta Captive Power Company 1,078.00 176.00 The long term Rupee loans are Private Limited repayable in quarterly instalments with the last instalment of respective loans are payable from Dec 2020 to Apr 2021. These loans carry a weighted average interest rate of 13.10% p.a 6 Sai Regency Power Corporation 1,815.22 563.66 The long term Rupee loans are Private Limited repayable in quarterly instalments with the last instalment of respective loans are payable from Sep 2020 to Jun 2023. These loans carry a weighted average interest rate of 12.66% p.a.
F-19
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
Amount outstanding included in S No Long term Other current Repayment terms Name of the Company borrowings liability 7 KSK Mahanadi Power Company 84,212.98 - The long term Rupee loans are Limited repayable in quarterly instalments with the last instalment of respective loans are payable from Sep 2024 to Apr 2026. These loans carry a weighted average interest rate of 14.48% p a. 8 Sai Maithili Power Company 123.03 50.40 The long term Rupee loan is repayable Private Limited by Nov 2025, in quarterly instalments. The long term borrowings carries an
weighted average rate of interest of 14.33 % p.a Foreign currency loans 1 Sai Wardha Power Limited 14,965.75 2,394.52 The long term foreign currency loans (formerly known as Wardha Power are repayable in half yearly Company Limited) instalments beginning from Jun 2014 with the last instalment payable by Aug 2021. The long term foreign currency loans carry a weighted average interest rate of 5.79% p.a. 2 KSK Mahanadi Power Company 5,730.50 9,945.26 The foreign currency loans are Limited repayable over the period of one year with an option to roll over up to three years from the initial date of availment and the weighted average interest rate is around 1.50%. p.a Hire purchase loans 1 KSK Dibbin Hydro Power Private - 0.92 The hire purchase loan is repayable by Limited Jun 2014 in monthly instalments. Deferred payment liabilities: 1 KSK Energy Ventures Limited 230.00 - Deferred payment liability is repayable in Mar 2018.
8 Deferred tax liability / (assets) As at 31 March 2014 31 March 2013 Deferred tax liability on account of depreciation 2,129.85 1,583.24 Deferred tax (asset) on account of carry forward of losses (5,497.82) (3,266.31) Deferred tax liabilities/(asset) on expenses allowed/disallowed 113.12 (0.51) Deferred tax (assets), net as at the end of the year (3,254.85) (1,683.58) Certain group companies are entitled to avail exemption under section 80IA of the Income Tax Act, 1961 from income tax on profits of business. Based on the assessment of the Company, deferred tax as on 31 March 2014 has been recognized only to the extent the timing differences arising in the current period which does not get reversed within the tax holiday period.
9 Other long term liabilities As at 31 March 2014 31 March 2013 Creditor for capital goods (including retention money) 2,938.77 3,109.83 Security deposit from customers 131.53 161.82 Other liabilities 1,284.91 - 4,355.21 3,271.65
F-20
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
10 Trade payable As at 31 March 2014 31 March 2013 Dues to other than micro and small enterprises 5,243.76 2,163.39 5,243.76 2,163.39 As at 31 March 2014 (31 March 2013: Nil) there are no amounts including interest payable to Micro and Small enterprises as defined under Micro, Small and Medium Enterprises Development Act, 2006, based on the information available with the Company.
11 Provisions As at 31 March 2014 31 March 2013 Long-term provisions For employee benefits (refer note a) 23.61 51.14 23.61 51.14 Short-term provisions For dividend and tax thereon 19.23 19.36 For taxation (net of advance tax) (refer note b) 93.24 73.49 For provision for mark to market loss on derivative instruments 62.56 - 175.03 92.85 198.64 143.99
a. Employee benefit plans : The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with an insurance company in the form of a qualifying insurance policy.
The following table sets out the status of the gratuity plan as required under AS 15 (Revised)
As at 31 March 2014 31 March 2013 Benefit obligation at the beginning of the year 92.16 83.20 Interest cost 7.26 6.63 Current Service cost 23.49 33.45 Benefits paid (4.18) (0.64) Actuarial (gain) / loss (49.08) (30.48) Benefit obligation at the end of the year 69.65 92.16
Change in the fair value of assets As at 31 March 2014 31 March 2013 Fair value of plan assets at the beginning of the year 44.15 33.66 Expected return on plan assets 3.92 3.36 Contributions 5.55 7.56 Benefits paid (4.18) (0.64) Actuarial gains/(loss) 0.07 0.21 Fair value of plan assets at the end of the year 49.51 44.15
F-21
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
Experience history As at
31 March 31 March 31 March 31 March
2014 2013 2012 2011
Actuarial (gain) / losses (49.15) (30.69) (18.48) (12.74) Experience adjustment On account of change in assumption (44.23) (0.92) 2.27 (1.36) On account of change in experience (4.85) (29.56) (20.57) (11.62) On plan assets (0.07) (0.21) (0.18) 0.24
Amount recognised in the statement of Profit and Loss Year ended 31 March 2014 31 March 2013 Current service cost 23.49 33.45 Interest cost 7.26 6.63 Past service cost- (non vested benefits) - 3.94 Expected return on plan assets (3.92) (3.36) Net actuarial (Gain) / loss recognised in the year (49.15) (30.69) Amount included in personnel expense / other income (22.32) 9.97
Amount recognized in the Balance Sheet As at 31 March 2014 31 March 2013 Present value of funded obligations at the end of the year 69.65 92.16 Fair value on plan assets at the end of the year 49.51 44.15 Funded status (20.14) (48.01) Net (liability) / asset recognised in the Balance Sheet (20.14) (48.01)
Asset information Category of Assets As at 31 March 2014 31 March 2013 Insurer managed funds 100% 100%
Summary of actuarial assumptions Year ended 31 March 2014 31 March 2013 Discount rate 8.75% 8.06% Salary escalation 10.00% 15.00% Attrition rate 15.00% 15.00% Expected return on plan assets 8.75% 9.00%
Discount rate: The discount rate is based on the prevailing market yields of Indian government securities as at the balance sheet date for the estimated term of the obligations Expected rate of return on plan assets: This is based on the expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations.
b Income taxes : Certain Group company’s income from sale of electrical energy is exempt from tax under section 80 IA of the Income Tax Act, 1961. Provision for current tax for the year in these companies represents tax payable on account of MAT under section 115JB of the Income Tax Act, 1961 on the book profit.
F-22
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
12 Other current liabilities As at 31 March 2014 31 March 2013 Current maturities of long-term debt 15,732.26 7,396.24 Interest accrued but not due on borrowings 719.64 503.69 Interest accrued and due on borrowings 2,748.55 444.77 Security deposit from customers 37.58 37.58 Salary and bonus payable 146.89 68.21 Share application money in subsidiary held by others 2,063.20 182.40 Creditor for capital goods (including retention money) 13,236.71 19,867.88 Forward cover payable 57.71 - Derivative liabilities 26.14 - Statutory liabilities 398.61 308.02 Advance received against sale of assets 708.00 - Other liabilities 182.52 - 36,057.81 28,808.79
14 Investments As at 31 March 2014 31 March 2013 Non-current investments Trade investment Investment in equity instruments (quoted, fully paid up) 364,418 (31 March 2013: 364,418) equity shares of Rs. 10/- each in Thiru 55.81 55.81 Arooran Sugars Limited (unquoted, fully paid up ) 3,636,363 (31 March 2013: 3,636,363) equity shares of Rs. 10/- each in Terra 160.00 160.00 Energy Limited 215.81 215.81 Current investments Other investment Investment in mutual fund (quoted, fully paid up) Nil (31 March 2013: 101,247.072 @ Rs.1,000.25/-) units each in IDFC Cash - 101.27 Fund - Daily Dividend -Direct plan Nil (31 March 2013: 6,024,979.585) units of Rs.10.0125/- each in IDFC Ultra - 60.33 Short Term Fund - Daily Dividend -(Direct Plan) Nil (31 March 2013: 28,701.728 @ Rs.16.1653/-) units each in IDFC Ultra Short - 0.46 Term Fund - Growth -(Direct Plan) Nil (31 March 2013: 4,989.846 ) units of Rs. 2,004.07/- each in SBI Magnum - 10.00 Insta Cash Fund Liquid Floater-Regular Plan-Growth - 172.06 215.81 387.87 Aggregate Market value of quoted investment as at 31 March 2014: Rs. 24.42 (31 March 2013: Rs. 193.98)
F-23
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
15 Loans and advances
As at 31 March 2014 31 March 2013 Long-term loans and advances Secured, considered good Capital advances 1,431.53 9,610.46 Unsecured, considered good Capital advances 4,008.67 1,470.05 Security deposits 1,143.89 380.93 Prepaid expenses 118.78 12.92 Advance for investment related parties 611.60 - Others 79.61 79.61 Advance tax and TDS receivable (net of provision for tax) 670.38 567.01 8,064.46 12,120.98 Short-term loans and advances Unsecured, considered good Inter corporate deposit related parties 866.71 922.75 Others 514.01 779.01 Advance for supplies / expenses 523.20 470.48 Prepaid expenses 384.56 493.30 Other receivables related parties 15.97 667.76 Others 2,443.18 1,674.90 Security deposit related parties 4,202.03 3,111.94 Others 1,547.61 415.16 Unsecured, Doubtful Other receivables 134.54 134.54 Less: Provision for doubtful advances (134.54) (134.54) 10,497.27 8,535.30 18,561.73 20,656.28
Other receivables includes an amount of Rs. 21.69 i.e. group share of 49% of Rs. 44.27 in Sitapuram Power Limited (“Joint venture entity”), which represents penal demand charges levied by Andhra Pradesh Southern Power Distribution Company Ltd (“SPDCL”) towards temporary outage of the generating plant on Zuari Cement Limited (ZCL), the captive consumer, which has been passed on to the Company. The Company has contended the basis for the charges levied by SPDCL and along with the captive consumer has filed a writ petition before high court of Andhra Pradesh dated 22 April 2013 to issue an order / direction to SPDCL to refund the amount along with interest, against which Honourable court has passed an interim directions to adjust the amounts from monthly electricity bills payable to SPDCL.
F-24
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
16 Other assets As at 31 March 2014 31 March 2013 Other non-current assets Unsecured, considered good Trade receivables 230.00 230.00 Mat credit entitlement 546.55 453.23 Balances with banks; Deposits held as margin money or security against guarantees or borrowings 657.58 1,684.44 Interest accrued on deposits and advances 34.75 185.14 Unamortised portion of ancillary cost of arranging the borrowings 505.22 - Derivative asset 1,175.67 - 3,149.77 2,552.81 Other current assets Unsecured, considered good Interest accrued on deposits and advances 675.17 775.86 Unbilled revenue 27.03 23.33 Balances with statutory authorities 1,135.47 782.60 Unamortised portion of ancillary cost of arranging the borrowings 78.64 - Forward cover receivable 53.77 - Deferred premium on forward contract 0.70 - 1,970.78 1,581.79 5,120.55 4,134.60
17 Inventories As at 31 March 2014 31 March 2013 (At lower of cost or net realisable value) Fuel Coal 188.68 350.99 Coal - in - transit 211.91 113.90 Lignite 12.46 14.29 Lime Stone 2.02 2.05 Stores and spares 1,072.67 1,016.75 Stores and spares-in-transit 5.78 12.73 1,493.52 1,510.71
18 Trade receivables As at 31 March 2014 31 March 2013 Secured, considered good Debts outstanding for a period exceeding six months 812.04 489.96 Other debts 3,925.56 1,114.95 Unsecured, considered good Debts outstanding for a period exceeding six months 2,689.61 1,281.08 Other debts 1,774.31 2,711.09 Unsecured, considered doubtful Debts outstanding for a period exceeding six months 88.80 88.80 Provision for doubtful debts (88.80) (88.80) 9,201.52 5,597.08
F-25
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
As per the terms of the Power Purchase Agreement (‘PPA’) entered in between by various subsidiaries (hereinafter referred to as ‘SPVs’) and captive consumers (hereinafter referred to as ‘Customers’), they are required to carry out an annual reconciliation of the energy supplied / taken against the minimum guaranteed units as per PPA, any excess or shortfall of the customer’s take or pay obligations or SPV’s supply or pay obligations and various debit and credit notes raised by either of the parties. The reconciliation is currently under progress and the management is confident that the entire amount outstanding is recoverable and also it will not result in any claims against the Group.
19 Cash and bank balances As at 31 March 2014 31 March 2013 Cash and cash equivalents Cash on hand 3.57 24.38 Balances with banks; On current account 1,719.02 1,200.22 On deposit account 7.20 216.23 1,729.79 1,440.83 Other bank balances Deposits with bank held as margin money or security against guarantees or 6,850.44 12,708.34 borrowings Deposit having maturity of more than three months 112.99 507.30 6,963.43 13,215.64 8,693.22 14,656.47
F-26
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amounts in Indian Rupees million, except share data and where otherwise stated)
13 Fixed Assets Gross Block Depreciation / Amortization Net Block As at As at As at Adjustme As at As at As at Particulars Adjust For the 1 April Additions Deletions 31 March 1 April nts / 31 March 31 March 31 March ments * year 2013 2014 2013 Deletions 2014 2014 2013 Tangible assets Land and site development Freehold 1,929.12 33.76 171.46 - 1,791.42 - - - - 1,791.42 1,929.12 Lease hold 2,513.73 5.42 403.68 - 2,115.47 76.73 29.10 - 105.83 2,009.64 2,437.00 Buildings Freehold 7,238.58 4,114.02 - (90.09) 11,262.51 581.37 258.87 4.06 836.18 10,426.33 6,657.21 Lease hold 69.94 - 0.07 - 69.87 43.03 10.46 0.04 53.45 16.42 26.91 Plant and equipment 38,331.39 31,714.12 - (352.82) 69,692.69 5,398.06 2,602.74 3.60 7,997.20 61,695.49 32,933.33 Railway siding 741.03 74.72 - 22.29 838.04 67.86 41.58 - 109.44 728.60 673.17 Furniture and fixtures 77.46 3.02 0.40 (0.03) 80.05 26.60 4.81 0.08 31.33 48.72 50.86 Vehicles 99.10 5.00 1.40 0.01 102.71 35.90 9.71 0.74 44.87 57.84 63.20 Office equipment 172.89 13.20 0.20 (0.03) 185.86 32.20 9.06 0.05 41.21 144.65 140.69 Computer 107.94 5.19 0.07 - 113.06 55.68 15.72 0.04 71.36 41.70 52.26 Total Tangible assets 51,281.18 35,968.45 577.28 (420.67) 86,251.68 6,317.43 2,982.05 8.61 9,290.87 76,960.81 44,963.75 Intangible assets Goodwill 2,017.82 25.71 - - 2,043.53 - -- - 2,043.53 2,017.82 Computer software 127.85 10.81 - - 138.66 104.45 17.17 - 121.62 17.04 23.40 Total Intangible assets 2,145.67 36.52 - - 2,182.19 104.45 17.17 - 121.62 2,060.57 2,041.22 Capital work in progress 92,619.45 105,871.75 Intangible assets under development 3.79 1.01 As at 31 Mar 2013 Tangible assets 50,114.49 1,352.44 297.61 111.86 51,281.18 4,006.36 2,321.51 10.44 6,317.43 44,963.75 Intangible assets 2,132.29 13.38 - - 2,145.67 87.99 16.46 - 104.45 2,041.22 Capital work in progress 105,871.75 Intangible assets under development 1.01 * Adjustments figures represent changes on account of exchange rate and price variation.
F-27
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
20 Revenue from operations Year ended 31 March 2014 31 March 2013 Sale of electricity 20,993.40 21,910.62 Project development fees 67.46 123.75 Corporate support service fees 46.69 2.19 Other operating income 10.46 33.64 21,118.01 22,070.20
21 Other Income Year ended 31 March 2014 31 March 2013 Interest income 966.79 980.73 Dividend income 0.90 1.28 Net gain on sale of current investments 0.12 3.41 Profit on sale of fixed assets, net 26.14 - Insurance claim received 353.49 - Miscellaneous income 18.08 21.54 1,365.52 1,006.96
22 Cost of fuel consumed Year ended 31 March 2014 31 March 2013 Coal 9,885.47 8,804.05 Lignite 802.14 738.73 Natural gas 1,098.97 953.29 Others 192.20 199.57 11,978.78 10,695.64
23 Manufacturing expenses Year ended 31 March 2014 31 March 2013 Consumption of stores and spares 292.22 305.47 Operation and maintenance expenses 827.52 645.78 Cost of import power 96.90 80.52 Raw water charges 280.48 239.66 Repairs and maintenance - plant and equipment 25.38 43.07 1,522.50 1,314.50
24 Employee benefit expenses Year ended 31 March 2014 31 March 2013 Salaries, wages and bonus 436.91 399.80 Contribution to provident and other funds 5.85 13.79 Staff welfare expenses 20.66 18.06 463.42 431.65
25 Other expenses Year ended F-28
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
31 March 2014 31 March 2013 Rent 32.81 26.39 Rates and taxes 21.97 23.76 Communication expenses 14.62 14.02 Travel and conveyance 42.77 37.35 Insurance charges 99.23 76.01 Legal and professional charges 164.64 137.81 Generation, transmission and selling expenses 895.42 528.32 Remuneration to auditors 6.78 5.34 Repairs and maintenance building 3.65 8.54 others 73.37 66.28 Bad debts / receivables written off 21.17 6.00 Provision for doubtful debts / receivables - 228.37 Donation 9.06 17.54 Freight outward 127.89 91.70 Foreign exchange loss, net 160.22 70.26 Loss on sale of fixed assets - 24.71 Miscellaneous expenses 107.92 82.06 1,781.52 1,444.46
26 Finance costs Year ended 31 March 2014 31 March 2013 Interest expense 6,107.77 5,693.10 Other borrowing cost 783.71 324.57 Derivative premium 262.08 - Loss on derivatives / swap contracts 62.56 - 7,216.12 6,017.67 The borrowing cost attributable to the acquisition or construction of fixed assets amounting to Rs.10, 970.01 (31 March 2013: Rs. 8,662.14) has been capitalised.
F-29
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
27 Contingent liabilities and Commitments a Contingent liabilities (Group's share) As at 31 March 2014 31 March 2013 (i) Bank guarantees outstanding 11.41 9.41 (ii) Corporate guarantees outstanding 9,195.51 8,278.25 (iii) Claims against the Group not acknowledged as debt Rs. 593.30 (31 March 2013: Rs.503.61). (iv) The Group has received claims for Rs. 652.87 (31 March 2013: Rs. 652.87) from Joint Director General of Foreign Trade (JDGFT) towards the recovery of the duty drawbacks, earlier refunded. The company had earlier made claims for the refund of the duties paid on the machinery and other items purchased for the construction of the power projects under the scheme of deemed export benefit, which were accepted and refunds were granted. The communication from the JDGFT regarding the recovery of the duties paid are based on the interpretations by the Policy Interpretation Committee held on 15 March 2011.The company contends that the above change in interpretation requires an amendment to the foreign trade policy to be legally enforceable in law. The relevant amendments has now been incorporated in the policy. Since the amendments made shall have prospective effect only, the company believes that outcome of the above dispute should be in favour of the company and there should be no material impact on the financial statements. (v) The Company has received a net demand of Rs. 280.30 (31 March 2013 :Rs 280.30) (including interest) from income tax department for Assessment Year 2010-11 pursuant to disallowance of certain claims / expenses. Challenging the order, Company preferred an appeal before CIT (appeals). Further, an amount of Rs. 114.85 has been paid against the demand under protest and the CIT granted stay of collection of tax till September 2014. The Company believes that all the claims / expenses claimed are allowable as per the provision of income tax act and the demand raised is not tenable and there should not be any material impact on the financial statements. (vi) Service tax department has issued demand order to the Company for payment of service tax amounting to Rs 505.64 (including penalty) relating to the disagreement on availment of Cenvat Credit for the period April 2008 to September 2010 and non -payment of service tax. Further, an amount of Rs. 25.88 has been paid against the demand under protest and the balance demand is stayed. However, the Company believes that the claims raised by the department are not tenable and the Company has filed an appeal against the said order before the CESTAT.
b Estimated amount of contracts remaining to be executed on capital account and not provided for in the Company, its Subsidiaries and Joint Ventures: (Group's share)
As at 31 March 2014 31 March 2013 (i) Estimated value of contracts remaining to be executed on 59,098.00 57,809.76 capital account not provided for
F-30
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
28 Jointly Controlled Entities Proportionate consolidation of interests The Company has a 49% interest in Sitapuram Power Limited, a Joint Venture (JV) in India. Sitapuram Power Limited (“the Company”) was incorporated on 18 July 2005 and is engaged in the business of generation of electricity. The Company was set up as a special purpose entity by Zuari Cement Limited and KSK Energy Ventures Limited to build and operate a 43 MW captive power plant in Sitapuram to cater to the power requirements of Zuari Cement Limited. The Group has, in accordance with AS 27 “Financial Reporting of Interest in Joint Ventures” issued by the ICAI, accounted for its 49% interest in the JV by the proportionate consolidation method. Thus the Group’s Income Statement, Balance Sheet and Cash Flow Statement incorporate the Group’s share of income, expenses, assets, liabilities and cash flows of the JV on a line-by-line basis. The aggregate amount of the assets, liabilities, income and expenses related to the Group’s share in the JV included in these financial statements, as at and for the period ended 31 March 2014 are given below As at 31 March 2014 31 March 2013 LIABILITIES Non-current liabilities Long-term borrowings 431.20 485.10 Deferred tax liabilities (net) 60.83 49.80 Long-term provisions 0.42 0.84 492.45 535.74 Current liabilities Short-term borrowings 67.01 75.28 Trade payables 81.45 39.53 Other current liabilities 58.36 167.49 Short-term provisions 11.35 12.14 218.17 294.44 710.62 830.18 ASSETS Non-current assets Fixed Assets Tangible assets 650.28 693.92 Intangible assets 0.66 1.26 Capital work in progress 0.84 - Intangible assets under development 1.20 - Long-term loans and advances 2.25 1.93 Other non-current assets 94.87 79.42 750.10 776.53 Current assets Inventories 45.65 49.53 Trade receivables 266.03 199.50 Cash and bank balances 12.34 145.62 Short-term loans and advances 149.01 121.00 Other current assets 17.75 16.99 490.78 532.64 1,240.88 1,309.17 As at 31 March 2014 31 March 2013 Claims against the Company not acknowledged as debt 4.45 4.45
F-31
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
Year ended 31 March 2014 31 March 2013 Income Revenue from operations 812.45 835.54 Other Income 4.27 0.23 Expenses Cost of fuel consumed 552.61 530.99 Manufacturing expenses 42.50 38.90 Employee benefits expenses 11.30 11.09 Other expenses 27.48 36.80 Finance costs 75.13 82.39 Depreciation and amortisation expenses 45.49 45.38 Profit / (loss) before tax 62.21 90.22 Provision for tax Current tax For the period 13.38 18.04 In respect of earlier periods (0.05) 0.30 Less : MAT credit entitlement (13.40) (18.27) Deferred tax 11.02 8.26 Profit / (loss) after tax 51.26 81.89
29 Operating Leases The Consolidated entities have entered in to certain operating lease agreements. An amount of Rs. 59.79 (31 March 2013: Rs. 72.04) paid under such agreements has been disclosed as “Rent” under other expenses in the Consolidated Profit and Loss statement and expenditure during construction period, pending allocation. The schedule of future minimum rental payments in respect of non-cancellable operating leases is set out below: As at 31 March 2014 31 March 2013 Lease Obligations Within one year of the Balance Sheet date 10.00 0.47 Due between one to five years 39.17 -
30 Earnings/(loss) per Share (EPS) The computation of EPS as per AS 20 is set out below Year ended 31 March 2014 31 March 2013 Net profit / (loss) after tax and minority interest (1,628.89) 1,505.80 Less: Preference dividend and tax thereon 93.47 92.98 Net profit attributable to shareholders - for basic / diluted EPS (1,722.36) 1,412.82 Weighted average number of shares outstanding for the purpose of 372.63 372.63 calculation of basic and diluted EPS (in million) Earnings /(loss) per share – basic / diluted (in Rs.) (4.62) 3.79
F-32
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
31 Derivative Instruments and Unhedged foreign currency exposure Derivative contracts entered and outstanding As at Particulars Purpose 31 March 2014 31 March 2013 Rs. 9,509.24 - Currency option Hedge of foreign currency loans US $ 158.85 -
Hedge against exposure to variable Rs. 9,757.67 - Interest rate swaps interest outflow on loans US $ 163.00 - Rs. 53.77 - Forward contract Hedge of foreign currency loans US $ 0.90 -
Particulars of Unhedged foreign Currency Exposure As at Particulars 31 March 2014 31 March 2013
Rs. 24,297.54 Rs. 30,089.14 Loans US $ 405.89 US $ 550.53 Rs. 90.45 Rs. 153.95 Loans Euro 1.10 Euro 2.20 Rs. 398.30 Rs. 224.29 Interest on loans US $ 6.65 US $ 4.10 Rs. 0.74 Rs. 2.14 Interest on loans Euro 0.01 Euro 0.03 Rs. 20,908.10 Rs. 19,713.57 Import creditors (including retention money) US $ 349.26 US $ 360.69 Rs. 677.47 Rs. 298.90 Receivable US $ 11.32 US $ 5.47 Rs. 26.14 - Premium payable US $ 0.44 - Rs. 1.32 Rs. 1.58 Cash with Bank CNY 0.14 CNY 0.18 Rs. 1.43 Rs. 0.39 Cash with Bank US $ 0.02 US $ 0.01
F-33
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
32 Segment Reporting The Segment report of the Group has been prepared in accordance with the Accounting Standard 17 “Segment Reporting”. There is only one reportable geographical segment as per Accounting Standard 17. For the purpose of reporting business segments, the Group is engaged in two segments, viz., Project development and power generation. Project Power Reconciling/ Year ended 31 March 2014 development generating Elimination Total
activities activities activities Revenue 479.76 21,003.86 (365.61) 21,118.01 Segment Result 325.39 2,116.67 - 2,442.06 Unallocated income (net) 1,365.52 Finance costs (7,216.12) Loss before tax (3,408.54) Tax income 1,527.61 Loss for the year (1,880.93) Segment assets 798.87 205,388.27 (171.49) 206,015.65 Unallocated assets 12,236.05 Total assets 218,251.70 Segment liabilities 46.92 26,979.00 (171.49) 26,854.43 Unallocated liabilities 152,616.05 Total liabilities 179,470.48 Other segment information Depreciation / amortization 14.43 2,915.30 - 2,929.73 Capital expenditure 2.82 16,665.94 - 16,668.76
Project Power Reconciling/ Year ended 31 March 2013 development generating Elimination Total
activities activities activities Revenue 491.55 21,944.26 (365.61) 22,070.20 Segment Result 319.70 5,624.28 - 5,943.98 Unallocated income (net) 982.25 Finance costs (6,017.67) Profit before tax 908.56 Tax income 764.96 Profit for the year 1,673.52 Segment assets 889.31 191,670.80 - 192,560.11 Unallocated assets 9,171.52 Total assets 201,731.63 Segment liabilities 23.21 29,770.72 - 29,793.93 Unallocated liabilities 133,002.96 Total liabilities 162,796.89 Other segment information Depreciation / amortization 20.20 2,244.48 - 2,264.68 Capital expenditure 25.39 35,862.19 - 35,887.58
F-34
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
33 Related party disclosure
a Parties where control exists S No. Name of the party Relationship 1 K&S Consulting Group Private Limited Ultimate holding company 2 KSK Power Ventur plc Step up holding company 3 KSK Energy Limited Holding company (For detail list of subsidiaries see note 3.3) b Parties where significant influence exists and where the transactions have taken place during the year S No. Name of the party Relationship 1 KSK Energy Company Private Limited Fellow subsidiary 2 Raigarh Champa Rail Infrastructure Private Limited Fellow subsidiary 3 KSK Mineral Resources Private Limited Fellow subsidiary 4 KSK Surya Photovoltaic Venture Limited Fellow subsidiary 5 KSK Water Infrastructures Private Limited. Fellow subsidiary 6 KSK Wind Energy Halagali Benchi Private Limited Fellow subsidiary 7 KSK Wind Energy Mothalli Haveri Private Limited Fellow subsidiary 8 KSK Wind Power Aminabhavi Chikodi Private Limited Fellow subsidiary 9 KSK Wind Power Sankonahatti Athni Private Limited Fellow subsidiary 10 KSK Wind Energy Nandgaon Athni Private Limited Fellow subsidiary 11 KSK Wind Energy Madurai Ms Puram Private Limited Fellow subsidiary 12 KSK Wind Energy Tirupur Elayamuthur Private Limited Fellow subsidiary 13 KSK Wind Energy Tuticorin Rajapudukudi Private Limited Fellow subsidiary 14 Marudhar Mining Private Limited Fellow subsidiary 15 SN Nirman Infra Projects Private Limited Fellow subsidiary 16 Sitapuram Power Limited Joint Venture
c Key Management Personnel and relatives
S No. Name of the party Relationship 1 S. Kishore Whole-time Director 2 K. A. Sastry Whole-time Director d Related party transactions 31 March 2014 Subsidiaries / Particulars Joint Holding fellow KMP venture company subsidiaries Transactions Project development and corporate support fees 2.19 67.46 - - Interest income - 736.81 - - Interest expense 0.59 119.23 - - Fuel and water charges - 1,142.03 - - Sale of assets - 137.52 - - Share application money / loans accepted 120.18 5,842.89 - - Share application money / loans repaid 29.13 2,408.98 - - Loans and advances given - 9,806.47 - - (including advance for investments) Refund of the loans and advances - 8,811.46 - - Managerial remuneration - - - 15.00 Balances at the year end Amount receivable 0.56 5,810.92 - - Amount payable 91.58 2,488.05 - - Share application money in subsidiary - 1,870.80 - - Managerial remuneration payable - - - 1.10 F-35
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
31 March 2013 Subsidiaries / Particulars Joint Holding fellow KMP venture company subsidiaries Transactions Project development and corporate support fees 2.19 123.75 - - Interest income 29.82 719.51 - - Interest expense - 14.95 - - Fuel and water charges -938.17- - Sale of assets - 1.17 - - Share application money / loans accepted - 1,813.82 - - Share application money / loans repaid - 2,001.31 1,750.00 - Loans and advances given 8.93 2,910.63 - - (including advance for investments) Refund of the loans and advances 230.22 2,960.25 - - Managerial remuneration - - - 18.00 Balances at the year end Amount receivable 5.04 4,707.03 - - Amount payable - 432.56 - - Share application money in subsidiary - 100.00 - - Managerial remuneration payable - - - 1.33 e The Group has given corporate guarantees of Rs.17,297.40 (31 March 2013: Rs.12,854.10) and bank guarantees of Rs.11.41 (31 March 2013: Rs. 9.41) on behalf of fellow subsidiaries. f The Group has obtained corporate guarantees of Rs.13,580.00 (31 March 2013: Rs. 12,305.00) from step-up holding company.
34 During the period, Sai Wardha Power Limited (formerly known as Wardha Power Company Limited) has refinanced its part of Rupee term loans with External commercial borrowing and incurred certain cost related to it. The Group has deferred the expenditure over the tenure of loan in accordance with AS 16 – Borrowing cost.
35 In the opinion of board, any of the assets other than fixed assets and non-current investment have a value on realization in the ordinary course of business at least equal to the amount at which they are stated on the Balance Sheet.
36 Previous year figures have been regrouped / reclassified to conform to the classification of the current year.
As per our report of even date For Umamaheswara Rao & Co., for and on behalf of the Board Chartered Accountants Firm Registration No: 004453S
Sd/- Sd/- Sd/- S. Venugopal S. Kishore K. A. Sastry Partner Whole-time Director Whole-time Director Membership No: 205565 Sd/- Place: Hyderabad M S Phani Shekhar Date: 24 May 2014 Company Secretary
F-36
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
Auditors’ Report on Consolidated Financial Statements
To,
The Board of Directors of KSK Energy Ventures Limited,
We have audited the attached consolidated balance sheet of KSK Energy Ventures Limited (‘the Company’) and its subsidiaries and Joint Venture (collectively referred as ‘the KSK group’) as at 31 March 2013 and the consolidated statement of profit and loss and the consolidated cash flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the company’s management and have been prepared by the management on the basis of separate financial statements and other financial information regarding components. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principals used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
We did not audit the financial statements of subsidiaries namely:
KSK Mahanadi Power Company Limited KSK Wind Energy Private Limited Kameng Dam Hydro Power Limited KSK Dibbin Hydro Power Private Limited KSK Narmada Power Company Private Limited KSK Wardha Infrastructure Private Limited (formerly KSK Technology Ventures Private Limited) KSK Vidarbha Power Company Private Limited JR Power Gen Private Limited KSK Upper Subansiri Hydro Energy Limited KSK Jameri Hydro Power Private Limited KSK Dinchang Power Company Private Limited Tila Karnali Hydro Electric Company Private Limited Arasmeta Captive Power Company Private Limited. Sai Regency Power Corporation Private Limited Wardha Power Company Limited Field Mining and Ispat Limited Sai Maithili Power Company Private Limited Sitapuram Power Limited (Joint venture) Sai Power Pte Limited Bheri Hydro Power Company Private Limited
Whose financial statements reflect total assets of Rs 196,867 million as at 31st March 2013, total revenue of Rs. 19,717 million and cash out flows amounting to Rs. 3,273 million . The financial statements and other information of the subsidiaries and joint Venture, except Sitapuram Power Limited and Arasmeta Captive Power Company Private Limited, have been audited by other auditors whose reports have been furnished to us and our opinion, in so far it relates to amounts included in respect of these subsidiaries, and joint venture, is based solely on the report of other auditors.
We report that the consolidated financial statements have been prepared by the company’s management in accordance with the requirements of the accounting standards (AS) 21, Consolidated financial statements and Accounting Standard(AS) 27, financial reporting of interest in joint ventures issued by the Institute of Chartered Accountants of India.
F-37
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
Based on our audit as aforesaid, and on consideration of reports of other auditors on financial statements and on other financial information of the components, and to the best of our information and according to the explanations given to us, we are of the opinion that the attached consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India:
i) in the case of consolidated Balance sheet, of the state of the KSK Group as at 31 March 2013 ii) in the case of consolidated Statement of Profit and Loss, of the profit for the year ended on that date; and iii) in the case of consolidated Cash Flow Statement, of the cash flows for the year ended on that date.
For Umamaheswara Rao & Co.,
Chartered Accountants
S Venugopal
Partner
Membership No. 205565
FRN 004453S
Place: Hyderabad
Date: 28 May 2013
F-38
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
As at Particulars Note 31 March 2013 31 March 2012 I EQUITY AND LIABILITIES 1 Shareholders' funds (a) Share capital 4 4,726.30 4,726.30 (b) Reserves and surplus 5 27,290.86 25,879.58 32,017.16 30,605.88 2 Minority interest 6 6,735.18 5,283.39 3 Non-current liabilities (a) Long-term borrowings 7 111,632.09 80,543.51 (b) Deferred tax liabilities (net) 8 227.31 175.47 (c) Other long term liabilities 9 3,271.65 2,616.47 (d) Long-term provisions 11 51.14 46.66 115,182.19 83,382.11 4 Current liabilities (a) Short-term borrowings 7 17,982.23 18,924.13 (b) Trade payables 10 2,163.39 2,073.57 (c) Other current liabilities 12 27,558.62 31,033.59 (d) Short-term provisions 11 92.85 138.74 47,797.09 52,170.03 201,731.62 171,441.41 II ASSETS 1 Non-current assets (a) Fixed assets 13 (i) Tangible assets 44,963.75 46,108.13 (ii) Intangible assets 2,041.22 2,044.30 (iii) Capital work in progress 105,871.75 66,601.69 (iv) Intangible assets under development 1.01 6.53 (b) Non-current investments 14 215.81 215.81 (c) Deferred tax assets (net) 8 1,910.89 1,069.69 (d) Long-term loans and advances 15 12,120.98 16,701.62 (e) Other non-current assets 16 2,552.81 2,095.04 169,678.22 134,842.81 2 Current assets (a) Current investments 14 172.06 221.69 (b) Inventories 17 1,510.71 1,232.11 (c) Trade receivables 18 5,597.08 3,802.36 (d) Cash and bank balances 19 14,656.47 20,323.07 (e) Short-term loans and advances 15 8,535.29 9,543.98 (f) Other current assets 16 1,581.79 1,475.39 32,053.40 36,598.60 201,731.62 171,441.41 See accompanying notes to Consolidated financial statements As per our report of even date For and on behalf of the Board for Umamaheswara Rao & Co., Chartered Accountants Firm Regn No: 004453S Sd/- Sd/- Sd/- Sd/- S.Kishore K. A. Sastry D.Suresh Babu S.Venugopal Whole-time Director Whole-time Director Company Secretary Partner Membership no: 205565 Place: Hyderabad Date:28 May 2013
F-39
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
Particulars Note Year ended 31 March 2013 31 March 2012
I Revenue from operations 20 22,070.20 19,475.90 II Other income 21 1,006.96 1,116.34 III Total revenue (I+II) 23,077.16 20,592.24 IV Expenses Cost of fuel consumed 22 10,695.64 9,992.29 Manufacturing expenses 23 1,314.50 1,082.38 Employee benefits expenses 24 431.65 432.63 Other expenses 25 1,444.46 1,313.34 Finance costs 26 6,017.67 5,388.72 Depreciation and amortisation expenses 13 2,264.68 2,163.30 Total expenses 22,168.60 20,372.66 V Profit / (loss) before exceptional items and tax (III - IV) 908.56 219.58
VI Exceptional items - 923.52 VII Profit / (loss) before tax (V-VI) 908.56 1,143.10 VIII Tax expense / (income) . Current tax For the year 164.48 374.28 In respect of earlier years 0.38 2.55 Less : MAT credit entitlement (140.46) (80.03) Deferred tax (789.36) (656.77) Total tax expense / (income) (764.96) (359.97) IX Profit / (loss) for the year before minority 1,673.52 1,503.07 interest (VII - VIII) Minority interest 167.72 189.50 Profit / (loss) for the year after minority interest 1,505.80 1,313.57 X Earnings per share: Basic and diluted -face value of Rs 10 per share (Rs.) 3.79 3.28
See accompanying notes to Consolidated financial statements As per our report of even date For and on behalf of Board For Umamaheswara Rao & Co., Chartered Accountants Sd/- Sd/- Sd/- Firm Registration Number : 004453S Sd/- S.Kishore K. A. Sastry D. Suresh Babu S.Venugopal Whole-time Director Whole-time Director Company Secretary Partner Membership no: 205565
Place: Hyderabad Date:28 May 2013
F-40
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
Year ended
31 March 2013 31 March 2012 CASH FLOW FROM OPERATING ACTIVITIES Profit before tax 908.56 1,143.10 Adjustments for Depreciation and amortisation expenses 2,264.68 2,163.30 Finance cost 6,017.67 5,388.72 Interest income (980.73) (888.24) Dividend income (1.28) (13.61) Loss / (profit) on sale of assets, net 24.71 (241.39) Profit on sale of investment (3.41) (3.98) Bad debts / advances written off / provision for doubtful debts 234.37 230.00 Liquidated damages - (679.61) Unrealised foreign exchange differences 31.21 26.57 Liability no longer required written back (18.76) (19.35) Others, net - (1.76) Operating profit before working capital changes 8,477.02 7,103.75 Adjustments for working capital Inventories (278.60) (468.83) Trade receivables (1,889.53) (1,740.33) Loan and advances (112.57) (2,779.08) Other assets (442.45) (291.70) Trade payables 109.01 506.57 Other liabilities and provisions 37.66 (23.29) Cash generated from operations 5,900.54 2,307.47 Income tax paid (334.05) (289.42) Net cash from operating activities 5,566.49 2,017.67 CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets including capital work-in-progress and capital (17,719.34) (31,506.96) advances Sale of fixed assets 262.46 0.33 Cash flow on sale of wind mills undertaking 604.96 1,566.33 Acquisition of minority interest (1.30) - Gain on dilution of interest in subsidiary to minority - 1.44 Purchase of non-current investments - (3.00) (Purchase) / sale of current investments, net 53.04 (22.36) (Investment) / redemption of bank deposit (having original maturity more (346.05) (35.61) than three months) (Investment) / redemption of bank deposit (held as margin money or 2,275.86 (5,734.08) security against guarantees or borrowings) Advance for investment (1,106.30) (325.19) Inter corporate deposit - given (980.10) (1,867.28) Inter corporate deposit - refund 1,080.17 1,581.84 Interest received 2,386.51 1,681.36 Dividend received 22.15 26.54 Net cash used in investing activity (13,467.94) (34,637.02)
Consolidated Cash Flow Continued… F-41
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
Year ended 31 March 2013 31 March 2012 CASH FLOW FROM FINANCING ACTIVITIES Proceeds from share issue and application money in subsidiary to 280.17 3,060.21 minority interest Repayment of share application money in subsidiary (1,750.00) - Payment of dividend and dividend tax (93.24) (92.98) Proceeds from long term borrowings 37,300.32 48,525.11 Repayment of long term borrowings (17,350.64) (10,067.98) Proceeds from / (repayment of) short term borrowings, net 364.32 4,014.46 Payment of finance costs (14,397.45) (10,363.23) Net cash from financing activities 4,353.48 35,075.59 Net (decrease) / increase in cash and cash equivalents (3,547.97) 2,456.62 Effect of exchange rate changes (1.54) 0.07 Cash and cash equivalents at the beginning of the year 4,990.34 2,533.65 Cash and cash equivalents at the end of the year 1,440.83 4,990.34 Notes 1 Cash and cash equivalents includes: Cash in hand 24.38 7.78 Balances with banks: On current account 1,200.22 4,956.77 On deposit account 216.23 25.79 1,440.83 4,990.34 2 Previous Year figures have been regrouped / reclassified to conform to the classification of the current year
As per our report of even date For and on behalf of Board For Umamaheswara Rao & Co., Chartered Accountants Firm Registration Number : 004453S
Sd/- Sd/- Sd/- Sd/- S.Kishore K. A. Sastry D.Suresh Babu S.Venugopal Whole-time Director Whole-time Director Company Secretary Partner Membership no: 205565
Place: Hyderabad Date: 28 May 2013
F-42
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
1. Nature of operation KSK Energy Ventures Limited (“KSKEVL” or the “Company”), its subsidiaries and joint ventures (collectively referred to as ‘the Group’) are primarily engaged in the development, operation and maintenance of private sector power projects, currently predominantly through subsidiaries and jointly controlled entities with multiple industrial consumers in India with next level of growth coming through large base load power plant subsidiaries. KSKEVL focused its strategy on the private sector power development market, undertaking entire gamut of development, investment, construction, operation and maintenance of power plant with supplies initially to heavy industrials operating in India and now branching out to cater to the needs of utilities and others in the wider Indian power sector. 2. Significant Accounting Policies 2.1 Accounting convention The Consolidated Financial Statements of KSK Energy Ventures Limited and its Subsidiaries and Joint Ventures (“the Group” or “the Company”) have been prepared and presented under the historical cost convention on the accrual basis in accordance with Generally Accepted Accounting Principles (GAAP) in India. GAAP comprises Accounting Standards notified by the Central Government of India under Section 211 (3C) of the Companies Act, 1956, other pronouncements of Institute of Chartered Accountants of India, the provisions of Companies Act, 1956 and guidelines issued by Securities and Exchange Board of India. 2.2 Use of estimates The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure relating to contingent liabilities on the date of Consolidated Financial Statements and reported amounts of income and expenditure for the period. Actual results could differ from these estimates. Examples of such estimates include provision for doubtful debt, future obligation under employee retirement benefit plan, income taxes, useful life of fixed assets, etc. Any revision to accounting estimates is recognised prospectively in the current and future periods. 2.3 Inventories Inventories are valued at the lower of cost and net realizable value. Cost of inventories comprises all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The method of determining the costs of various categories of inventories are as follows: Fuel Weighted average Stores, spares and consumables First-in-first-out 2.4 Cash flow statement Cash flow statement is reported using the indirect method, where by the net profit before tax is adjusted for the effects of transactions of a non cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated and presented separately. 2.5 Revenue recognition Revenue in the form of project development fees for services rendered in relation to development work of potential power projects is recognized when such fees is assured and determinable under the terms of the respective contract. Corporate Support Service income is recognized when such income is assured and determinable under the terms of the respective contract. Consultancy income is recognized in proportion with the degree of completion of contract. Dividend income is recognized when the unconditional right to receive the income is established. Interest is recognized using the time proportionate method, based on the underlying interest rates. Sale of energy is recognized on accrual basis in accordance with the relevant agreements. Insurance claims are accounted based on certainty of realization. Revenue from sale of scrap and fly ash is accounted for as and when sold.
F-43
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
2.6 Fixed assets and depreciation Fixed assets are stated at cost of acquisition. Cost of acquisition is inclusive of freight, duties, levies and all incidentals directly or indirectly attributable to bringing the asset to its working condition for its intended use. Cost of fixed assets includes cost of initial warranty / insurance spares purchased along with the capital asset, which are grouped as single item under respective assets. Machinery spares of the nature of capital spares are capitalized at the time of their purchase whether procured at the time of purchase of the fixed asset concerned or subsequently. Where such spares are replaced, the carrying cost of the worn out spares are written off. The total cost of such capital spares is allocated on a systematic basis over a period not exceeding the useful life of the principal item. Depreciation has been provided on Straight Line Method at the rates and in the manner specified in Schedule XIV of the Companies Act, 1956 except for assets costing up to Rs. 5,000/- which are fully depreciated in the year of capitalization. Depreciation is calculated on a pro-rata basis from the date of installation / capitalization till the date the assets are sold or disposed. Depreciation on initial / warranty spares are provided on the same rates applicable for that asset group, irrespective of its actual usage. Intangible assets, viz., computer software is recognized as per the criteria specified in the Accounting Standard (AS) 26 “Intangible Assets” notified by the Central Government of India under section 211 (3C) of the Companies Act, 1956 and is amortized over a period of three years. Leasehold improvements are amortized over the lease period. 2.7 Capital work in progress The cost of fixed assets not ready for their intended use before such date is disclosed under capital work in progress.
Capital work in progress is carried at cost and incidental and attributable expenses including interest and depreciation on fixed assets in use during construction are carried as part of “expenditure during construction period, pending allocation” to be allocated on major assets on commissioning of the project.
In respect of supply-cum-erection contracts, the value of supplies received at site and accepted is treated as capital work in progress. Claims for price variation / exchange variation in case of contracts are accounted for on acceptance. 2.8 Foreign currency transaction Foreign currency transactions are initially recorded at the rates of exchange ruling at the date of transaction. At the Balance Sheet date, foreign currency monetary items are reported using the closing rate. Non-monetary items denominated in foreign currency are reported at the exchange rate ruling at the date of transaction. The foreign exchange differences arising on account of the restatement of long-term foreign currency monetary items, related to acquisition of depreciable capital assets are being capitalized as per the amendment to Accounting Standard (AS) 11 “The Effect of Changes in Foreign Exchange Rates” made by the Central Government, vide notification dated 31 March 2009 as amended vide notification dated 29 December 2011. In relation to the forward contracts entered into to hedge the foreign currency risk of the underlying outstanding at the Balance Sheet date, the exchange difference is calculated and recorded in accordance with AS-11 (Revised). The exchange difference on such a forward exchange contract is calculated as the difference of the foreign currency amount of the contract translated at the exchange at the reporting date, or the settlement date where the transaction is settled during the reporting period and the corresponding foreign currency amount translated at the later of the date of inception of the forward exchange contract and the last reporting date. Such exchange differences are recognized in the Statement of Profit and Loss in the reporting period in which the exchange rates change. The premium or discount on all such contracts is amortized as income or expense over the life of the contract. Any profit or loss arising on the cancellation or renewal of forward contracts is recognized as income or expense for the period. In translating the financial statements of a non-integral foreign operation for incorporation in consolidated financial statements, the assets and liabilities, both monetary and non-monetary are translated at the closing rates and the F-44
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
income and expenses are translated at the dates of the transaction and all the resulting exchange differences are accumulated in foreign exchange fluctuation reserve until the disposal of the investment. On the disposal of a non- integral foreign operation, the cumulative amount of the exchange differences which have been deferred and which relate to that operation are recognised as income or as expenses in the same period in which the gain or loss on disposal is recognised. Other exchange differences are recognized as income or expense in the period in which they arise. 2.9 Investments Long-term investments, other than investments in associates, are stated at cost. A provision for diminution is made to recognize a decline, other than temporary, in the value of long-term investments. Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each category of investment. 2.10 Employee retirement benefits Provident fund Eligible employees receive benefits from a provident fund, which is a defined contribution scheme. Both the employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee salary. The contribution made by the Company is charged to the Statement of Profit and Loss. Gratuity In accordance to the Payment of Gratuity Act, 1972, the Group provides for the gratuity, a defined benefit retirement plan (“the gratuity plan”) covering the eligible employees. The gratuity plan provides for a lump sum payment to the vested employees at retirement, death, incapacitation or termination of the employment, of an amount based on the respective employee salary and the tenure of the employment within the Group. Liabilities with regard to the gratuity plan are determined by independent actuary. The Group makes annual contribution to employee’s group gratuity scheme administered by trustees and managed by Life Insurance Corporation of India. The Group recognizes the net obligation of the gratuity plan in the Balance Sheet as an asset or liability, respectively in accordance with Accounting Standard (AS) 15, “Employee Benefits”. Actuarial gains or losses arising from experience adjustments and changes in actuarial assumptions are recognized in the Statement of Profit and Loss. 2.11 Borrowing cost Borrowing costs directly attributable to the acquisition or construction of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalized. All other borrowing costs are recognised as an expense in the period/year in which they are incurred. 2.12 Leases Finance leases, which effectively transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the lower of the fair value and present value of the minimum lease payments at the inception of the lease term and disclosed as leased assets. Lease payments are apportioned between the finance charges and reduction of the lease liability based on the implicit rate of return. Finance charges are charged directly against income. Lease management fees, legal charges and other initial direct costs are capitalized. If there is no reasonable certainty that the Company will obtain the ownership by the end of the lease term, capitalized lease assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Lease that do not transfer substantially all the risks and rewards of ownership are classified as operating leases and recorded as expense as and when the payments are made over the lease term. 2.13 Earnings per share Basic earnings per share are computed by dividing the net profit or loss after tax attributable to equity shareholders for the period by the weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted earnings per share, net profit or loss after tax attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity
F-45
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
shares. Dilutive potential equity shares are deemed converted as at the beginning of the period, unless they have been issued at a later date. In computing the dilutive earnings per share, only potential equity shares that are dilutive and that either reduces the earnings per share or increases loss per share are included. 2.14 Taxes on income Income tax expense/ (income) comprises of current tax, deferred tax and Minimum Alternative Tax (MAT) credit. Current tax The current charge for income taxes is calculated in accordance with the relevant tax regulations applicable to the Company. Deferred tax Deferred tax charge or credit reflects the tax effects of timing differences between accounting income and taxable income for the period. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates that have been enacted or substantially enacted by the Balance Sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future; however, where there is unabsorbed depreciation or carry forward of loss under taxation laws, deferred tax assets are recognized only if there is a virtual certainty of realization of such assets. Deferred tax assets are reviewed at each Balance Sheet date and written down or written-up to reflect the amount that is reasonably/virtually certain (as the case may be) to be realized. The break-up of the deferred tax assets and liabilities as at the Balance Sheet date has been arrived at after setting-off deferred tax assets and liabilities where the Company has legally enforceable right and an intention to set-off assets against liabilities and where such assets and liabilities relate to taxes on income levied by the same governing taxation laws. MAT credit MAT credit is recognized as an asset only when, and to the extent, there is convincing evidence that the Company will pay normal income tax during the specified period. In the year in which the MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in guidance note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the Statement of Profit and Loss and shown as MAT Credit entitlement. The Company reviews the same at each Balance Sheet date and writes down the carrying amount of MAT credit entitlement to the extent there is no longer convincing evidence to the effect that Company will pay normal income tax during the specified period. 2.15 Impairment of assets The Company assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the Statement of Profit and Loss. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If at the Balance Sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost. 2.16 Provisions and contingencies The Company recognizes a provision when there is a present obligation as a result of past obligating event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation that the likelihood of outflow of resources is remote, no provision or disclosure is made. Provisions for onerous contracts i.e. contracts where the expected unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it, are recognized when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation as a result of an obligating event, based on a reliable estimate of such obligation
F-46
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
3. Basis of consolidation
The Consolidated Financial Statements relate to KSK Energy Ventures Limited, its Subsidiaries, Associates and interest in Joint Ventures.
a. Basis of accounting The financial statements of the Subsidiary / Associates / Joint Venture Companies in the consolidation are drawn up to the same reporting date as that of the Company. The Consolidated Financial Statements have been prepared in accordance with Accounting Standards (AS) 21 “Consolidated Financial Statements”, (AS) 23 “Accounting for Investments in Associates” and (AS) 27 “Financial Reporting of Interest in Joint Ventures”, notified by the Central Government of India under Section 211 (3C) of the Companies Act, 1956. b. Principles of consolidation The Consolidated Financial Statements have been prepared as per the following principles: The financial statements of the Company and its Subsidiaries are combined on a line by line basis by adding together the book value of like items of assets, liabilities, income and expenses after eliminating intra-group balances, intra-group transactions and unrealized profits or losses. The Consolidated Financial Statements include the interest of the Company in Joint Ventures, which has been accounted for using the proportionate consolidation method of accounting whereby the Company’s share of each of assets, liabilities, income and expenses of a jointly controlled entity is considered as separate line item. Preference share capital in Joint Venture entities and share application money in subsidiaries held by the outsiders, shown separately together with minority interest under note 6 to Balance Sheet. The Group accounts for investments by the equity method of accounting where it is able to exercise significant influence over the operating and financial policies of the investee. Inter company profits and losses have been proportionately eliminated until realized by the investor or investee. The Consolidated Financial Statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances and are presented to the extent possible, in the same manner as the Company’s separate financial statements except as otherwise stated in the notes to the accounts. The difference between the cost of investment in the Subsidiary / Joint Venture and the share of net assets at the time of acquisition of shares is identified in the financial statements as goodwill or capital reserve as the case may be. Minority interests share of profit of consolidated subsidiaries is identified and adjusted against income of the group in order to arrive at the surplus attributable to the shareholders of the Company.
c. Particulars of Subsidiaries and Joint Ventures: (% of Shareholding) S. Country of 31 March 31 March Name of the Company No. incorporation 2013 2012 Subsidiary Companies 1. KSK Narmada Power Company Private Limited India 100.00 100.00 2. KSK Wind Energy Private Limited * India 100.00 74.00 3. KSK Vidarbha Power Company Private Limited India 100.00 100.00 4. KSK Wardha Infrastructure Private Limited India 100.00 100.00 5. Sai Maithili Power Company Private Limited India 52.00 52.00
F-47
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
S. Country of 31 March 31 March Name of the Company No. incorporation 2013 2012 Subsidiary Companies 6. KSK Dibbin Hydro Power Private Limited India 100.00 100.00 7. Kameng Dam Hydro Power Limited (formerly Kameng India 100.00 100.00 Dam Hydro Power Private Limited) 8. Arasmeta Captive Power Company Private Limited India 51.00 51.00 9. KSK Electricity Financing India Private Limited India 100.00 100.00 10. VS Lignite Power Private Limited India 74.00 74.00 11. Sai Regency Power Corporation Private Limited India 73.92 73.92 12. Wardha Power Company Limited India 87.00 87.00 13. KSK Mahanadi Power Company Limited** India 85.23 89.19 14. J R Power Gen Private Limited India 51.00 51.00 15. KSK Upper Subansiri Hydro Energy Limited (formerly India 100.00 100.00 KSK Upper Subansiri Hydro Energy Private Limited) 16. KSK Jameri Hydro Power Private Limited India 100.00 100.00 17. KSK Dinchang Power Company Private Limited India 100.00 100.00 18. Field Mining and Ispats Limited India 84.98 84.98 19. Tila Karnali Hydro Electric Company Private Limited Nepal 80.00 80.00 20. Bheri Hydro Power Company Private Limited Nepal 90.00 - 21. Sai Power Pte LTD *** Singapore 100.00 - Joint Venture Company 22. Sitapuram Power Limited India 49.00 49.00 * Increased on account of acquisition of shares from minority shareholders
** Reduced on account of additional issue of shares to minority shareholders
*** Incorporated during the year
F-48
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
4 Share Capital As at 31 March 2013 31 March 2012 Authorised 4,000,000,000 (31 March 2012: 4,000,000,000)equity shares of 40,000.00 40,000.00 Rs. 10/- each 1,031,500,000 (31 March 2012: 1,031,500,000) preference 10,315.00 10,315.00 shares of Rs.10/- each 50,315.00 50,315.00 Issued, subscribed and paid up 372,630,454 (31 March 2012: 372,630,454) equity shares of Rs. 3,726.30 3,726.30 10/- each fully paid up 100,000,000 (31 March 2012: 100,000,000) 8% Compulsorily 1,000.00 1,000.00 redeemable preference shares of Rs. 10/- each fully paid up (refer note a) 4,726.30 4,726.30 a. Above preference shares are redeemable at premium over the period of 5 years, starting from end of the 3rd year from the date of allotment b. The company has only one class of equity shares having a par value of Rs 10/- per share. The holders of equity shares are entitled to receive dividend as declared from time to time and are entitled to voting rights proportionate to their shareholding at the meeting of shareholders. c. Equity Shares held by holding company and its subsidiaries As At Particulars 31 March 2013 31 March 2012 Holding Company No of shares held 191,222,031 191,222,031 % of shares held 51.32% 51.32% Subsidiaries of Holding Company No of shares held 88,010,646 88,010,646 % of shares held 23.62% 23.62%
d Particulars of the shareholders holding more than 5% of the shares Name of the shareholder As at 31 March 2013 31 March 2012 Equity shares fully paid up KSK Energy Limited No of shares held 191,222,031 191,222,031 % of shares held 51.32% 51.32% KSK Energy Company Private Limited No of shares held 79,345,007 79,345,007 % of shares held 21.29% 21.29% LB Group No of shares held 20,828,534 20,828,534 % of shares held 5.59% 5.59% 8% Compulsorily redeemable preference shares fully paid up L & T Infrastructure Finance Company Limited No of shares held 100,000,000 100,000,000 % of shares held 100.00% 100.00%
F-49
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
5 Reserves and Surplus As at 31 March 2013 31 March 2012 Securities premium Balance 18,739.90 18,739.90 18,739.90 18,739.90 Foreign currency translation reserve Opening balance (0.07) (0.14) Add: Movement during the year (1.54) 0.07 (1.61) (0.07) Surplus Opening balance 7,139.75 5,919.35 Add: Profit for the year from the statement of Profit and Loss 1,505.80 1,313.57 Amount available for appropriations 8,645.55 7,232.92 Appropriations Preference dividend 80.00 80.22 Dividend distribution tax 12.98 12.95 92.98 93.17 Balance 8,552.57 7,139.75 27,290.86 25,879.58
6 Minority Interest As at 31 March 2013 31 March 2012 Minority interest 6,587.19 5,135.93 Preference share capital in JV entities held by others 35.20 35.20 Share application money in subsidiaries held by others 112.79 112.26 6,735.18 5,283.39
7 Borrowings
F-50
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
As at 31 March 2013 31 March 2012 Long-term borrowings Secured Term loans Rupee loans from banks 51,640.72 31,696.73 Rupee loans from others 31,689.09 28,113.36 Foreign currency loans 28,070.92 20,226.99 Hire purchase loans 1.36 6.43
Unsecured Loans and advances from related parties - 270.00 Deferred payment liabilities 230.00 230.00 111,632.09 80,543.51 Short-term borrowings Secured Loans repayable on demand From banks * 6,332.51 7,074.27 Foreign currency loans 1,497.77 488.07 Loans against letters of credit 2,145.92 4,344.82 Loan against deposit 7,586.20 6,579.30 Unsecured Loans repayable on demand From related parties 418.09 411.09 From others 1.74 26.58 17,982.23 18,924.13 129,614.32 99,467.64 * Out of the above loans repayable on demand from banks, amount of Rs 2,307.19 is guaranteed by KSK Power Ventur plc., the stepup holding company. a Details of security provided for various credit facilities
KSK Energy Ventures Limited Rupee term loan from others is secured by way of hypothecation on movable properties of the Company and pledge of certain equity shares of the Company held by KSK Energy Limited.
Loans repayable on demand are secured by first pari-passu charge on fixed assets, current assets and corporate guarantee of KSK Power Venture plc.
Wardha Power Company Limited Rupee term loans from banks and others are secured by first charge pari-passu by way of mortgage on the Company's immovable properties and hypothecation of whole of the movable properties, both present and future. Pledge of certain equity shares of the Company held by KSK Electricity Financing India Private Limited.
Loan repayable on demand are secured by first pari-passu charge on all fixed and current assets of the Company (existing and future) along with the other member banks/ financial institutions.
Foreign currency loans and loans against letter of credit are secured by subservient charges on the entire movable fixed and current assets of the company and secured by letter of credit facility sanctioned to KSK Energy Ventures Limited. F-51
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
Sitapuram Power Limited Rupee term loans from banks and others are secured by first charge on all immovable and movable assets including current assets, both present and future, ranking pari-passu with each lender. Pledge of certain equity and preference shares of the company held by KSK Electricity Financing India Private Limited.
Loans repayable on demand are secured by first charge on entire block of assets on pari-passu basis with other lenders.
VS Lignite Power Private Limited Rupee term loans from banks and others are secured by first charge pari-passu by way of mortgage on all the company's immovable properties and hypothecation of whole of the movable properties both present and future. Pledge of certain equity shares of the company held by KSK Electricity Financing India Private Limited. Corporate guarantee given KSK Energy Ventures Limited
Loans repayable on demand are secured by pari-passu first charge on fixed assets and current assets along with term lenders.
KSK Dibbin Hydro Power Private Limited Hire purchase loan is secured by pledge of equipment purchased
Arasmeta Captive Power Company Private Limited Rupee term loans from banks and others are secured by first charge pari-passu by way of mortgage on all the Company's immovable properties including leasehold land and freehold land and hypothecation of whole of the movable fixed assets and current assets, both present and future. Pledge of certain fully paid up equity shares of the Company held by KSK Electricity Financing India Private Limited.
Loans repayable on demand are secured by pari-passu first charge on all the Company's immovable properties and hypothecation of all the Company's movables fixed assets and current assets both present and future.
KSK Mahanadi Power Company Limited Rupee term loans, foreign currency loans and loans against letter of credit are secured by first charge over all movable properties, intangible assets and other assets (including assignment of rights, titles, interests, benefits, claims etc.) of the company both present and future. Further guaranteed by pledge of certain equity shares of the company held by KSK Energy Ventures Limited.
Rupee sub debt loans are secured by second charge over all movable properties, immovable properties, intangible assets and other assets (including assignment of rights, titles, interests, benefits, claims etc.) of the company both present and future. Further guaranteed by pledge of certain equity shares of the company held by KSK Energy Ventures Limited.
Sai Regency Power Corporation Private Limited Rupee term loans from banks are secured by first charge pari-passu by way of mortgage on all company's immovable properties and hypothecation of movable properties. First charge on the wind project assets of the company. Pledge of certain equity shares of the company held by KSK Electricity Financing India Private Limited.
Loans repayable on demand are secured by first pari-passu charge on the entire current assets of the company. b Loan against deposits are secured by pledge of deposits.
F-52
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated) c Repayment terms of long-term borrowings
Amount outstanding S.no Name of the Company Repayment terms included in Long term Other borrowings current
liability Term loan 1 KSK Energy Ventures - 875.00 The long term Rupee loan is repayable by March Limited 2014, in quarterly instalments. The long term borrowing carries an weighted average rate of interest of 13.77% per annum. 2 Wardha Power Company 15,148.52 2,497.28 The long term Rupee loans are repayable in Limited quarterly instalments with the last instalment of respective loans are payable from June 2020 to September 2022. These loans carry a weighted average interest rate of 13.35% per annum. 3 Sitapuram Power Limited 485.10 158.71 The long term Rupee loans are repayable in quarterly instalments with the last instalment of respective loans are payable from September 2016 to March 2023. These loans carry a weighted average interest rate of 12.25% per annum. 4 VS Lignite Power Private The long term Rupee loans are repayable in Limited 4,892.49 490.61 quarterly instalments with the last instalment of respective loans are payable from November 2020 to May 2024. These loans carry a weighted average interest rate of 12.65%per annum. 5 Arasmeta Captive Power 1,254.00 342.50 The long term Rupee loans are repayable in Company Private Limited quarterly instalments with the last instalment of respective loans are payable from December 2013 to April 2021. These loans carry a weighted average interest rate of 12.67% per annum. 6 Sai Regency Power 1,638.27 1,102.68 The long term Rupee loans are repayable in Corporation Private Limited quarterly instalments with the last instalment of respective loans are payable from June 2013 to June 2023. These loans carry a weighted average interest rate of 12.86% per annum. 7 KSK Mahanadi Power 59,911.43 - The long term Rupee loans are repayable in Company Limited quarterly instalments with the last instalment of respective loans are payable from September 2024 to April 2026. These loans carry a weighted average interest rate of 14.21% per annum.
F-53
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
Amount outstanding included in S.no Name of the Company Long term Other Repayment terms borrowings current liability Foreign currency loans 1 Wardha Power Company 2,186.20 - The long term foreign currency loans are Limited repayable by June 2014. The long term foreign currency loans carry a weighted average interest rate of 4.18% per annum. 2 KSK Mahanadi Power 25,884.72 674.39 The foreign currency loans are repayable over the Company Limited period of one year with an option to roll over up to three years from the initial date of availment and the weighted average interest rate is around 2.43%. per annum.
Hire purchase loans 1 KSK Dibbin Hydro Power 1.36 5.07 The hire purchase loan is repayable by June 2014 Private Limited in monthly instalments. Deferred payment liabilities: 1 KSK Energy Ventures 230.00 Deferred payment liabilities are repayable in Limited - March 2018.
8 Deferred tax liability / (assets) As at 31 March 2013 31 March 2012 Deferred tax liability on account of depreciation 1,583.24 868.61 Deferred tax (asset) on account of carry forward of losses (3,266.31) (1,762.83) Deferred tax (asset) on gratuity (0.51) - Deferred tax (assets), net as at the end of the year (1,683.58) (894.22) Certain group companies are entitled to avail exemption under section 80IA of the Income Tax Act, 1961 from income tax on profits of business. Based on the assessment of the Company, deferred tax as on 31 March 2013 has been recognized only to the extent the timing differences arising in the current period does not get reversed within the tax holiday period.
9 Other long term liabilities As at 31 March 2013 31 March 2012 Creditor for capital goods (including retention money) 3,109.83 2,405.06 Security deposit from customers 161.82 211.41 3,271.65 2,616.47
10 Trade payable As at 31 March 2013 31 March 2012
Dues to other than micro and small enterprises 2,163.39 2,073.57 2,163.39 2,073.57 As at 31 March 2013 (31 March 2012: Nil) there are no amounts including interest payable to Micro and Small enterprises as defined under Micro, Small and Medium Enterprises Development Act, 2006, based on the information available with the Company. F-54
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
11 Provisions As at 31 March 2013 31 March 2012 Long-term provisions For employee benefits (refer note a) 51.14 46.66 51.14 46.66 Short-term provisions For dividend and tax thereon 19.36 19.61 For taxation (net of advance tax) (refer note b) 73.49 119.13 92.85 138.74 143.99 185.40 a. Employee benefit plans: The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with an insurance company in the form of a qualifying insurance policy. The following table sets out the status of the gratuity plan as required under AS 15 (Revised) Reconciliation of opening and closing balances of the present value of the defined benefit obligation As at 31 March 2013 31 March 2012 Benefit obligation at the beginning of the year 83.20 55.59 Interest cost 6.63 4.53 Current Service cost 33.45 41.56 Benefits paid (0.64) (0.18) Actuarial (gain) / loss (30.48) (18.30) Benefit obligation at the end of the year 92.16 83.20 Change in the fair value of assets As at 31 March 2013 31 March 2012 Fair value of plan assets at the beginning of the year 33.66 20.96 Expected return on plan assets 3.36 2.36 Contributions 7.56 10.34 Benefits paid (0.64) (0.18) Actuarial gains/(loss) 0.21 0.18 Fair value of plan assets at the end of the year 44.15 33.66
Amount recognized in the Balance Sheet As at 31 March 2013 31 March 2012 Present value of funded obligations at the end of the year 92.16 83.20 Fair value on plan assets at the end of the year 44.15 33.66 Funded status (48.01) (49.54) Unrecognized past service cost -non vested cost - 3.94 Net (liability) / asset recognised in the Balance Sheet (48.01) (45.60) Experience history As at 31 March 2013 31 March 2012 31 March 2011 Actuarial (gain) / losses (30.69) (18.48) (12.74) Experience adjustment On account of change in assumption (0.92) 2.27 (1.36) On account of change in experience (29.56) (20.57) (11.62) On plan assets (0.21) (0.18) 0.24 F-55
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
Amount recognised in the statement of Profit and Loss Year ended 31 March 2013 31 March 2012 Current service cost 33.45 41.56 Interest cost 6.63 4.53 Past service cost- (non vested benefits) 3.94 5.30 Expected return on plan assets (3.36) (2.36) Net actuarial (Gain) / loss recognised in the year (30.69) (18.48) Amount included in personnel expense / other income 9.97 30.55
Asset information As at Category of Assets 31 March 2013 31 March 2012 Insurer managed funds 100% 100%
Summary of actuarial assumptions Year ended 31 March 2013 31 March 2012 Discount rate 8.06% 8.00% Salary escalation 15.00% 15.00% Attrition rate 15.00% 15.00% Expected return on plan assets 9.00% 9.00%
Discount rate: The discount rate is based on the prevailing market yields of Indian government securities as at the balance sheet date for the estimated term of the obligations Expected rate of return on plan assets: This is based on the expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations.
b Income taxes : Certain Group company’s income from sale of electrical energy is exempt from tax under section 80 IA of the Income Tax Act, 1961. Provision for current tax for the year in these companies represents tax payable on account of MAT under section 115JB of the Income Tax Act, 1961 on the book profit.
12 Other current liabilities As at 31 March 2013 31 March 2012 Current maturities of long-term debt 6,146.24 16,150.01 Interest accrued but not due on borrowings 503.69 544.29 Interest accrued and due on borrowings 444.60 15.44 Security deposit from customers 37.58 39.92 Salaries and bonus payable 68.21 107.25 Share application money in subsidiary held by others 182.40 2,825.14 Creditor for capital goods (including retention money) 19,867.88 11,170.49 Statutory liabilities 308.02 181.05 27,558.62 31,033.59
F-56
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
14 Investments As at 31 March 2013 31 March 2012 Non-current investments Trade investment Investment in equity instruments (quoted, fully paid up) 364,418 (31 March 2012: 364,418) equity shares of Rs. 10/- each 55.81 55.81 in Thiru Arooran Sugars Limited (unquoted, fully paid up ) 3,636,363 (31 March 2012: 3,636,363) equity shares of Rs. 10/- 160.00 160.00 each in Terra Energy Limited 215.81 215.81 Current investments Other investment Investment in mutual fund (quoted, fully paid up) Nil (31 March 2012: 20,030,888) units of Rs 10.0015/- each in - 200.34 IDFC Cash Fund - Super Inst Plan C - Daily Dividend 101,247.072 (31 March 2012: Nil) units of Rs.1000.25/- each in 101.27 - IDFC Cash Fund - Daily Dividend -(Direct Plan) 6,024,979.585 (31 March 2012: Nil) units of Rs.10.0125/- each 60.33 - in IDFC Ultra Short Term Fund - Daily Dividend -(Direct Plan) 28,701.728 (31 March 2012: Nil) units of Rs.16.1653/- each in 0.46 - IDFC Ultra Short Term Fund - Growth -(Direct Plan) 4,989.846 (31 March 2012: Nil) units of Rs.2004.07/- each in 10.00 - SBI Magnum Insta Cash Fund Liquid Floater-Regular Plan- Growth
Nil (31 March 2012: 213,430) units of Rs. 100.03/- each in Birla - 21.35 Sun Life Cash Manager - Daily Dividend 172.06 221.69 387.87 437.50 Aggregated Market value of quoted investments as at 31st march 2013 : Rs 193.98 (31st march 2012 : Rs 249.75)
15 Loans and advances As at 31 March 2013 31 March 2012 Long-term loans and advances Secured, considered good Capital advances 9,610.46 14,628.86
Unsecured, considered good Capital advances 1,470.05 1,210.39 Security deposits 380.93 380.93 Prepaid expenses 12.92 19.00 Advance for investment 79.61 325.19 Advance tax and TDS receivable (net of provision for tax) 567.01 137.25
F-57
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
12,120.98 16,701.62 Loans and advances continued … As at 31 March 2013 31 March 2012 Short-term loans and advances Unsecured, considered good Inter corporate deposit related parties 922.75 719.29 others 779.01 954.46 Advance for supplies / expenses 470.47 1,023.21 Prepaid expenses 493.30 636.68 Other receivables related parties 667.76 949.07 others 1,671.64 1,595.43 Security deposit related parties 3,111.94 3,263.71 others 418.42 402.13 Unsecured, considered doubtful Other receivables 134.54 - Less: Provision for doubtful advances (134.54) - 8,535.29 9,543.98 20,656.27 26,245.60 * Other receivables includes an amount of Rs. 80.00 i.e group share of 49% of Rs. 163.25 in Sitapuram Power Limited (“Joint venture entity”), which represents penal demand charges levied by Andhra Pradesh Southern Power Distribution Company Ltd (“SPDCL”) towards temporary outage of the generating plant on Zuari Cement Limited (ZCL), the captive consumer, which has been passed on to the Company. The Company has contended the basis for the charges levied by SPDCL and along with the captive consumer has filed a petition with Andhra Pradesh Electricity Regulatory Commission (“APERC”) for revision of the charges claiming that the levy is unreasonable and APERC has dismissed the petition. The Company has filed an appeal before Appellate Tribunal for Electricity against the order of APERC. The Appellate Tribunal for Electricity has allowed the appeal in favour of the Company vide its judgment dated 19 November 2010. Aggrieved by this SPDCL has filed an appeal before Honourable Supreme Court and after hearing contention of the Company, Supreme court has passed an order vide dated 27 January 2012 to dispose of the application of SPDCL and enable the company to avail appropriate remedy for realization of the amount at appropriate forum and accordingly Company has approached before Appellate Tribunal for electricity at New Delhi for realisation of the amount. Appellate Tribunal for Electricity after hearing the petition advised the Company vide letter dated 27 August 2012 to approach the APERC to seek for consequential order in consonance with the finding in the judgment. The Company has filed a writ petition before high court of Andhra Pradesh dated 22 April 2013 to issue an order / direction to SPDCL to refund the amount along with interest. 16 Other assets
As at 31 March 2013 31 March 2012 Other non-current assets Unsecured, considered good Trade receivables 230.00 230.00 Mat credit entitlement 453.23 312.77 Balances with banks; Deposits held as margin money or security against guarantees or 1,684.44 1,481.26 borrowings Other deposits - 15.90 Interest accrued on deposits and advances 185.14 55.11 2,552.81 2,095.04 Other current assets Unsecured, considered good
F-58
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
Interest accrued on deposits and advances 775.86 1,111.91 Unbilled revenue 23.33 189.30 Balances with statutory authorities 782.60 174.18 1,581.79 1,475.39 4,134.60 3,570.43 17 Inventories
As at
31 March 2013 31 March 2012 (At lower of cost or net realisable value) Fuel Coal 350.99 448.22 Coal - in - transit 113.90 129.47 Lignite 14.29 23.04 Lime Stone 2.05 0.43 Stores and spares 1,016.75 611.26 Stores and spares-in-transit 12.73 19.69 1,510.71 1,232.11
18 Trade receivables As at 31 March 2013 31 March 2012 Secured, considered good Debts outstanding for a period exceeding six months 489.96 212.26 Other debts 1,114.95 325.49
Unsecured, considered good Debts outstanding for a period exceeding six months 1,281.08 1,155.07 Other debts 2,711.09 2,109.54
Unsecured, considered doubtful Debts outstanding for a period exceeding six months 88.80 - Provision for doubtful debts (88.80) - 5,597.08 3,802.36 As per the terms of the Power Purchase Agreement (‘PPA’) entered in between by various subsidiaries (hereinafter referred to as ‘SPVs’) and captive consumers (hereinafter referred to as ‘Customers’), they are required to carry out an annual reconciliation of the energy supplied / taken against the minimum guaranteed units as per PPA, any excess or shortfall of the customer’s take or pay obligations or SPV’s supply or pay obligations and various debit and credit notes raised by either of the parties. The reconciliation is currently under progress and the management is confident that the entire amount outstanding is recoverable and also it will not result in any claims against the Group. 19 Cash and bank balances As at 31 March 2013 31 March 2012 Cash and cash equivalents Cash on hand 24.38 7.78 Balances with banks; On current account 1,200.22 4,956.77 On deposit account 216.23 25.79 1,440.83 4,990.34 Other bank balances Deposits with bank held as margin money or security against 12,708.34 15,187.38 guarantees or borrowings F-59
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
Deposit having maturity of more than three months 507.30 145.35 13,215.64 15,332.73 14,656.47 20,323.07
F-60
KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
13 Fixed Assets Gross Block Depreciation / Amortisation Net Block As at As at As at As at As at As at Particulars Adjust For the Adjustments 1 April Additions Deletions 31 March 1 April 31 March 31 March 31 March ments* year / Deletions 2012 2013 2012 2013 2013 2012 Tangible assets Land and site development Freehold 2,174.17 31.12 276.17 - 1,929.12 - - - - 1,929.12 2,174.17 Lease hold 2,488.96 26.78 2.01 - 2,513.73 48.34 28.52 0.13 76.73 2,437.00 2,440.62 Buildings Freehold 7,144.63 79.25 0.77 15.47 7,238.58 362.16 219.26 0.05 581.37 6,657.21 6,782.47 Lease hold 64.55 15.24 9.74 - 70.05 33.76 16.46 7.19 43.03 27.02 30.79 Plant and equipment 37,068.09 1,167.79 0.93 96.44 38,331.39 3,420.18 1,979.03 1.14 5,398.07 32,933.32 33,647.91 Railway siding 740.80 0.23 - - 741.03 28.74 39.12 - 67.86 673.17 712.06 Furniture and 77.58 3.77 3.99 (0.01) 77.35 23.00 4.69 1.09 26.60 50.75 54.58 fixtures Vehicles 98.78 0.38 0.03 (0.03) 99.10 26.20 9.72 0.02 35.90 63.20 72.58 Office equipment 158.20 18.55 3.79 (0.01) 172.95 24.44 8.48 0.72 32.20 140.75 133.76 Computer 98.73 9.33 0.18 - 107.88 39.54 16.23 0.10 55.67 52.21 59.19 Total Tangible assets 50,114.49 1,352.44 297.61 111.86 51,281.18 4,006.36 2,321.51 10.44 6,317.43 44,963.75 46,108.13 Intangible assets Goodwill 2,017.82 - - - 2,017.82 - - - - 2,017.82 2,017.82 Computer software 114.47 13.38 - - 127.85 87.99 16.46 - 104.45 23.40 26.48 Total Intangible assets 2,132.29 13.38 - - 2,145.67 87.99 16.46 - 104.45 2,041.22 2,044.30 Capital work in progress 105,871.75 66,601.69 Intangible assets under 1.01 6.53 development
As at 31 March 2012 Tangible assets 33,681.67 18,262.66 2,159.26 329.42 50,114.49 2,009.43 2,218.17 221.24 4,006.36 46,108.13 Intangible assets 2,116.70 15.63 0.04 - 2,132.29 77.14 10.85 - 87.99 2,044.30 Capital work in progress 66,601.69 Intangible assets under 6.53 development
*Adjustments figures represents changes on account of exchange rate and price variation
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
20 Revenue from operations Year ended 31 March 2013 31 March 2012 Sale of electricity 21,910.62 19,065.90 Project development fees 123.75 393.09 Corporate support service fees 2.19 2.19 Other operating income 33.64 14.72 22,070.20 19,475.90
21 Other Income Year ended 31 March 2013 31 March 2012 Interest income 980.73 888.24 Dividend income 1.28 13.61 Net gain on sale of investments 3.41 3.98 Miscellaneous income 21.54 210.51 1,006.96 1,116.34 22 Cost of fuel consumed Year ended 31 March 2013 31 March 2012 Coal 8,804.05 8,299.68 Lignite 738.73 683.48 Natural gas 953.29 851.95 Others 199.57 157.18 10,695.64 9,992.29 23 Manufacturing expenses Year ended 31 March 2013 31 March 2012 Consumption of stores and spares 305.47 182.61 Operation and maintenance expenses 645.78 643.86 Cost of import power 80.52 72.88 Raw water charges 239.66 158.88 Repairs and maintenance - plant and equipment 43.07 24.15 1,314.50 1,082.38 24 Employee benefit expenses Year ended 31 March 2013 31 March 2012 Salaries, wages and bonus 399.80 399.32 Contribution to provident and other funds 13.79 13.20 Staff welfare expenses 18.06 20.11 431.65 432.63
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
25 Other expenses Year ended 31 March 2013 31 March 2012 Rent 26.39 30.87 Rates and taxes 23.76 114.03 Communication expenses 14.02 14.27 Travel and conveyance 37.35 39.69 Insurance charges 76.01 74.08 Legal and professional 137.81 116.59 charges Generation, transmission and selling expenses 528.32 296.96 Remuneration to auditors 5.34 5.47 Repairs and maintenance building 8.54 4.74 others 66.28 60.26 Bad debts / advances written off 6.00 230.00 Provision for doubtful debts / receivables 228.37 - Donation (refer note a) 17.54 59.30 Freight outward 91.70 103.96 Foreign exchange loss, net 70.26 75.43 Loss on sale of fixed assets 24.71 2.48 Miscellaneous expenses 82.06 85.21 1,444.46 1,313.34 a. The following are the political contributions made by the Group within the limits prescribed under section 293A of the Companies Act, 1956 Year ended
31 March 2013 31 March 2012 Bharatiya Janata Party - 39.50
26 Finance costs Year ended 31 March 2013 31 March 2012 Interest expense 5,693.10 5,253.48 Other borrowing cost 324.57 135.24 6,017.67 5,388.72
The borrowing cost attributable to the acquisition or construction of fixed assets amounting to Rs. 8,662.14 (31 March 2012: Rs.5,400.67) has been capitalised.
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
27 Contingent liabilities and Commitments a Contingent liabilities (Group's share) As at 31 March 2013 31 March 2012 (i) Letter of credit outstanding - 24.25 (ii) Bank guarantees outstanding 9.41 9.41 (iii) Corporate guarantees outstanding 8,278.25 4,606.43
(iv) Claims against the Group not acknowledged as debt Rs. 503.61 (31 March 2012: Rs.497.31). (v) The Group has received claims for Rs. 652.87 (31 March 2012: Rs. 652.87) from Joint Director General of Foreign Trade (JDGFT) towards the recovery of the duty drawbacks, earlier refunded. The company had earlier made claims for the refund of the duties paid on the machinery and other items purchased for the construction of the power projects under the scheme of deemed export benefit, which were accepted and refunds were granted. The communication from the JDGFT regarding the recovery of the duties paid are based on the interpretations by the Policy Interpretation Committee held on 15 March 2011.The company contends that the above change in interpretation requires an amendment to the foreign trade policy to be legally enforceable in law. The relevant amendments has now been incorporated in the policy. Since the amendments made shall have prospective effect only, the company believes that outcome of the above dispute should be in favour of the company and there should be no material impact on the financial statements. (vi) The Company has received a net demand of Rs. 280.30 (including interest) from income tax department for Assessment Year 2010-11 pursuant to disallowance of certain claims / expenses. Challenging the order, Company preferred an appeal before CIT (appeals). Further an amount of Rs. 30 has been paid against the demand and the balance demand is stayed and the stay is subject to review in September 2013.The Company believes that all the claims / expenses claimed are allowable as per the provision of income tax act and the demand raised is not tenable and there should not be any material impact on the financial statement (vii) Service tax department has issued demand order to the Company for payment of service tax amounting to Rs 505.64 (including penalty) relating to the disagreement on availment of Cenvat Credit for the period April 2008 to September 2010 and non -payment of service tax. However, the Company believes that the claims raised by the department are not tenable and the Company has filed an appeal against the said order before the CESTAT. b Estimated amount of contracts remaining to be executed on capital and other account and not provided for in the Company, its Subsidiaries and Joint Ventures: (Group's share) As at 31 March 2013 31 March 2012 (i) Estimated value of contracts remaining to be executed 57,809.76 76,989.74 on capital account not provided for (ii) The Company has entered into an arrangement for buying out an additional stake in KSK Mahanadi Power Company Limited. The commitment pending under the arrangement as at 31 March 2013 is Rs. Nil (31 March 2012: Rs 3,904.55) 28 Jointly Controlled Entities Proportionate consolidation of interests The Company has a 49% interest in Sitapuram Power Limited, a Joint Venture (JV) in India. Sitapuram Power Limited (“the Company”) was incorporated on 18 July 2005 and is engaged in the business of generation of electricity. The Company was set up as a special purpose entity by Zuari Cement Limited and KSK Energy Ventures Limited to build and operate a 43 MW captive power plant in Sitapuram to cater to the power requirements of Zuari Cement Limited. The Group has, in accordance with AS 27 “Financial Reporting of Interest in Joint Ventures” issued by the ICAI, accounted for its 49% interest in the JV by the proportionate consolidation method. Thus the Group’s Income Statement, Balance Sheet and Cash Flow Statement incorporate the Group’s share of income, expenses, assets, liabilities and cash flows of the JV on a line-by-line basis. The aggregate amount of the assets, liabilities, income and expenses related to the Group’s share in the JV included in these financial statements, as at and for the year ended 31 March 2013 are given below
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
As at 31 March 2013 31 March 2012 LIABILITIES Non-current liabilities Long-term borrowings 485.10 211.88 Deferred tax liabilities (net) 49.80 41.54 Long-term provisions 0.84 0.60 535.74 254.02 Current liabilities Short-term borrowings 75.28 330.88 Trade payables 39.53 99.19 Other current liabilities 167.49 72.42 Short-term provisions 12.14 - 294.44 502.49 830.18 756.51 ASSETS Non-current assets Fixed assets Tangible assets 693.92 738.28 Intangible assets 1.26 1.57 Long-term loans and advances 1.93 2.46 Other non-current assets 79.42 33.87 776.53 776.18
As at 31 March 2013 31 March 2012 Current assets Inventories 49.53 42.48 Trade receivables 199.50 118.45 Cash and bank balances 145.62 2.01 Short-term loans and advances 121.00 191.40 Other current assets 16.99 23.11 532.64 377.45 1,309.17 1,153.63
As at 31 March 2013 31 March 2012 Claims against the Company not acknowledged as debt 4.45 6.76
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
Year ended 31 March 2013 31 March 2012 Income Revenue from operations 835.54 577.38 Other Income 0.23 8.10 Expenses Cost of fuel consumed 530.99 381.28 Manufacturing expenses 38.90 38.56 Employee benefits expenses 11.09 8.77 Other expenses 36.80 35.80 Finance costs 82.39 86.79 Depreciation and amortisation expenses 45.38 44.64 Profit / (loss) before tax 90.22 (10.36) Provision for tax Current tax For the period 18.04 - In respect of earlier years 0.30 (0.46) Less : MAT credit entitlement (18.27) - Deferred tax 8.26 6.09 Profit / (loss) after tax 81.89 (15.99) 29 Operating Leases The Consolidated entities have entered in to certain operating lease agreements. An amount of Rs. 72.04 (31 March 2012: Rs. 83.97) paid under such agreements has been disclosed as “Rent” under other expenses in the Consolidated Profit and Loss statement and expenditure during construction period, pending allocation. The schedule of future minimum rental payments in respect of non-cancellable operating leases is set out below: As at 31 March 2013 31 March 2012 Lease Obligations Within one year of the Balance Sheet date 0.47 11.43 Due between one to five years - 0.47 Due after five years - -
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
30 Earnings per Share (EPS) The computation of EPS as per AS 20 is set out below Year ended 31 March 2013 31 March 2012
Net profit after tax and minority interest 1,505.80 1,313.57 Less: Preference dividend and tax thereon 92.98 93.17 Net profit attributable to shareholders - for basic / diluted EPS 1,412.82 1,220.40 Weighted average number of shares outstanding for the purpose of 372.63 372.63 calculation of basic and diluted EPS (in million) Earnings per share – basic / diluted (in Rs.) 3.79 3.28 1.49 0.82
31 Particulars of Unhedged foreign Currency Exposure As at Particulars 31 March 31 March 2013 2012
Rs. 30,089.14 Rs. 33,020.04 Loans US $ 550.53 US $ 634.02
Rs. 153.95 Rs. 76.32 Loans Euro 2.2 Euro 1.1
Rs. 224.29 Rs. 329.52 Interest on loans US $ 4.10 US $ 6.33
Rs. 2.14 Rs. 0.28 Interest on loans Euro 0.03 Euro 0.01 Rs. 19,713.57 Rs. 11,157.37 Import creditors (including retention money) US $ 360.69 US $ 214.23 Rs. 298.90 - Receivable US $ 5.47 - Rs. 1.58 Rs. 1.24 Cash with Bank CNY 0.18 CNY 0.15
Cash with Bank Rs. 0.39 Rs. 4.13 US $ 0.01 US $ 0.08
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
32 Segment Reporting The Segment report of the Group has been prepared in accordance with the Accounting Standard 17 “Segment Reporting”. There is only one reportable geographical segment as per Accounting Standard 17. For the purpose of reporting business segments, the Group is engaged in two segments, viz., Project development and power generation. Project Power Reconciling/ Year ended 31 March 2013 development generating Elimination Total
activities activities activities
Revenue 491.55 21,944.26 (365.61) 22,070.20 Segment Result 319.70 5,624.28 - 5,943.98 Unallocated income (net) 982.25 Finance costs (6,017.67) Profit before tax 908.56 Tax income 764.96 Profit for the period 1,673.52 Segment assets 889.31 191,670.79 - 192,560.10 Unallocated assets 9,171.52 Total assets 201,731.62 Segment liabilities 23.21 29,770.71 - 29,793.92 Unallocated liabilities 133,002.96 Total liabilities 162,796.88 Other segment information Depreciation / amortisation 20.20 2,244.48 - 2,264.68 Capital expenditure 25.39 35,862.19 - 35,887.58 Project Power Reconciling/ Year ended 31 March 2012 development generating Elimination Total activities activities activities
Revenue 620.09 19,080.62 (224.81) 19,475.90 Segment Result 393.71 4,098.25 - 4,491.96 Unallocated income (net) 2,039.86 Finance costs (5,388.72) Profit before tax 1,143.10 Tax income 359.97 Profit for the year 1,503.07 Segment assets 1,596.15 161,453.21 (207.32) 162,842.04 Unallocated assets 8,599.26 Total assets 171,441.41 Segment liabilities 36.47 19,616.87 (207.32) 19,446.02 Unallocated liabilities 113,280.86 Total liabilities 132,727.00 Other segment information Depreciation / amortisation 16.24 2,147.06 - 2,163.30 Capital expenditure 374.13 45,106.30 - 45,480.43
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
`33 Related party disclosure a Parties where control exists S.no Name of the party Relationship 1 K&S Consulting Group Private Limited Ultimate holding company 2 KSK Power Ventur plc Step up holding company 3 KSK Energy Limited Holding company (For detail list of subsidiaries see note 3.c) b Parties where significant influence exists and where the transactions have taken place during the Year
S.no Name of the party Relationship 1 KSK Energy Company Private Limited Fellow subsidiary 2 Raigarh Champa Rail Infrastructure Private Limited Fellow subsidiary (formerly KSK Cargo Mover Private Limited) 3 KSK Mineral Resources Private Limited Fellow subsidiary 4 KSK Surya Photovoltaic Venture Limited (formerly KSK Fellow subsidiary Surya Photovoltaic Venture Private Limited) 5 KSK Water Infrastructures Private Limited. Fellow subsidiary 6 KSK Wind Energy Halagali Benchi Private Limited Fellow subsidiary 7 KSK Wind Energy Mothalli Haveri Private Limited Fellow subsidiary 8 KSK Wind Power Aminabhavi Chikodi Private Limited Fellow subsidiary 9 KSK Wind Power Sankonahatti Athni Private Limited Fellow subsidiary 10 KSK Wind Energy Nandgaon Athni Private Limited Fellow subsidiary 11 KSK Wind Energy Madurai Ms Puram Private Limited Fellow subsidiary 12 KSK Wind Energy Tirupur Elayamuthur Private Limited Fellow subsidiary 13 KSK Wind Energy Tuticorin Rajapudukudi Private Limited Fellow subsidiary 14 Marudhar Mining Private Limited Fellow subsidiary 15 SN Nirman Infra Projects Private Limited Fellow subsidiary 16 Sitapuram Power Limited Joint Venture
C Key Management Personnel (KMP) and relatives S.no Name of the party Relationship 1 Mr. S. Kishore Whole-time Director 2 Mr. K. A. Sastry Whole-time Director 3 Mrs. Aditi Kishore Relatives of key management personnel 4 Mrs. K. Satyavathi Relatives of key management personnel
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated) d .Particulars of related party transactions
31 March 2013 Subsidiarie Holding KMP/ Particulars Joint s / fellow /Ultimate Relative venture subsidiaries holding of KMP Transactions 1 Project development and corporate support fees 2.19 123.75 - - 2 Interest income 29.82 719.51 - - 3 Interest expense - 14.95 - - 4 Fuel and water charges - 938.17 - - 5 Sale of assets - 1.17 - - 6 Share application money / loans accepted - 1,813.82 - - 7 Share application money / loans repaid - 2,001.31 1,750.00 - 8 Loans and advances given (including advance for 8.93 2,910.63 - - investments) 9 Refund of the loans and advances 230.22 2,960.25 - - 10 Managerial remuneration - - - 18.00 Balances 1 Amount receivable 5.04 4,707.03 - - 2 Amount payable - 432.56 - - 3 Share application money in subsidiary - 100.00 - - 4 Managerial remuneration payable - - - 1.33 31 March 2012 Subsidiaries Holding/ KMP/ Particulars Joint / fellow Ultimate Relative venture subsidiaries holding of KMP Transactions 1 Project development and corporate support fees 2.19 393.09 - - 2 Interest income 30.20 693.61 - - 3 Interest expense - 6.82 - - 4 Fuel and water charges - 761.10 - - 5 Sale of assets - 1.68 - - 6 Purchase of assets - - 134.86 141.30 7 Share application money / loans accepted - 618.64 2,825.14 - 8 Share application money / loans repaid - 343.76 - - 9 Loans and advances given (including advance for 92.77 5,497.95 - - investments) 10 Refund of the loans and advances 30.61 2,591.71 - - 11 Managerial remuneration - - - 18.00 Balances 1 Amount receivable 229.20 4,721.16 - - 2 Amount payable - 982.87 - - 3 Share application money in subsidiary - - 2,825.14 - 4 Managerial remuneration payable - - - 1.15 e The Group has given corporate guarantees of Rs.12, 854.10 (31 March 2012: Rs.5,834.10), bank guarantees of Rs. 9.41 (31 March 2012: Rs. 9.41) and letter of credit limits of Nil (31 March 2012: Rs.24.25) on behalf of fellow subsidiaries. f The Group has obtained corporate guarantees of Rs.12,305.00 (31 March 2012: Rs. 13,955.00) from step-up holding company. 34 In the opinion of board, any of the assets other than fixed assets and non-current investment have a value on realization in the ordinary course of business at least equal to the amount at which they are stated on the Balance Sheet.
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KSK Energy Ventures Limited Notes to Consolidated financial statements (All amount in Indian Rupees Million, except share data and where otherwise stated)
35 Previous period / year figures have been regrouped / reclassified to conform to the classification of the current period.
As per our report of even date For and on behalf of Board For Umamaheswara Rao & Co., Chartered Accountants Firm Registration Number : 004453S
Sd/- Sd/- Sd/- Sd/- S.Venugopal S.Kishore K. A. Sastry D.Suresh Babu Partner Whole-time Director Whole-time Director Company Secretary Membership no: 205565
Place: Hyderabad Date: 28 May 2013
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Auditors’ Report on Consolidated Financial Statements
To,
The Board of Directors of KSK Energy Ventures Limited,
We have audited the attached consolidated Balance Sheet of KSK Energy Ventures Limited (‘the Company’) and its subsidiaries and Joint Venture (collectively referred as ‘the KSK group’) as at 31 March 2012 and the consolidated profit and loss statement and the consolidated cash flow statement for the year ended on that date annexed thereto. These financial statements are the responsibility of the company’s management and have been prepared by the management on the basis of separate financial statements and other financial information regarding components. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the auditing standards generally accepted in India. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principals used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
We did not audit the financial statements of subsidiaries namely:
KSK Mahanadi Power Company Limited KSK Wind Energy Private Limited Kameng Dam Hydro Power Private Limited KSK Dibbin Hydro Power Private Limited KSK Narmada Power Company Private Limited KSK Wardha Infrastructure Private Limited (formerly KSK Technology Ventures Private Limited) KSK Vidarbha Power Company Private Limited JR Power Gen Private Limited KSK Upper Subansiri Hydro Energy Private Limited KSK Jameri Hydro Power Private Limited KSK Dinchang Power Company Private Limited Tila Karnali Hydro Electric Company Private Limited Arasmeta Captive Power Company Private Limited. Sai Regency Power Corporation Private Limited Wardha Power Company Limited Field Mining and Ispat Limited Sai Maithili Power Company Private Limited Sitapuram Power Limited (Joint venture)
Whose financial statements reflect total assets of Rs 158,398 million as at 31 March 2012, total revenue of Rs. 17,362 million and cash flows amounting to Rs. 2,530 million. The financial statements and other information of the subsidiaries and joint Venture have been audited by other auditors whose reports have been furnished to us and our opinion, in so far it relates to amounts included in respect of these subsidiaries and joint venture, is based solely on the report of other auditors.
We report that the consolidated financial statements have been prepared by the company’s management in accordance with the requirements of the accounting standards (AS) 21, Consolidated financial statements and Accounting Standard(AS) 27, financial reporting of interest in joint ventures issued by the Institute of Chartered Accountants of India.
Based on our audit as aforesaid, and on consideration of reports of other auditors on financial statements and on other financial information of the components, and to the best of our information and according to the explanations given to us, we are of the opinion that the attached consolidated financial statements give a true and fair view in conformity with the accounting principles generally accepted in India:
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i) in the case of consolidated Balance sheet, of the state of the KSK Group as at 31 March 2012 ii) in the case of consolidated Profit and Loss statement, of the profit for the year ended on that date; and iii) in the case of consolidated Cash Flow Statement, of the cash flows for the year ended on that date.
For Umamaheswara Rao & Co., Chartered Accountants FRN 004453S
Sd/- R.R. Dakshina Murthy Partner Membership No. 211639 Place: Hyderabad Date: 5 May 2012
F-73
KSK Energy Ventures Limited Consolidated Balance Sheet as at 31 March 2012 (All amounts in Indian Rupees million, except share data and where otherwise stated)
As at Particulars Note 31 March 2012 31 March 2011 I EQUITY AND LIABILITIES 1 Shareholders' funds (a) Share capital 4 4,726.30 4,726.30 (b) Reserves and surplus 5 25,879.58 24,659.11 30,605.88 29,385.41 2 Minority interest 6 5,283.39 4,858.82 3 Non-current liabilities (a) Long-term borrowings 7 80,543.51 51,148.06 (b) Deferred tax liabilities (net) 8 175.47 291.99 (c) Other long term liabilities 9 2,616.47 1,495.39 (d) Long-term provisions 11 46.66 25.39 83,382.11 52,960.83 4 Current liabilities (a) Short-term borrowings 7 18,924.14 14,559.05 (b) Trade payables 10 2,073.50 1,576.80 (c) Other current liabilities 12 30,926.40 11,083.45 (d) Short-term provisions 11 245.87 130.95 52,169.91 27,350.25 171,441.29 114,555.31 II. ASSETS 1 Non-current assets (a) Fixed assets 13 (i) Tangible assets 46,108.13 31,672.24 (ii) Intangible assets 2,044.30 2,039.56 (iii) Capital work in progress 66,601.69 35,142.79 (iv) Intangible assets under development 6.53 9.52 (b) Non-current investments 14 215.81 212.81 (c) Deferred tax assets (net) 8 1,069.69 529.44 (d) Long-term loans and advances 15 16,564.37 20,916.94 (e) Other non-current assets 16 2,095.04 906.56 134,705.56 91,429.86 2 Current assets (a) Current investments 14 221.69 196.79 (b) Inventories 17 1,232.11 763.28 (c) Trade receivables 18 3,802.36 2,151.61 (d) Cash and bank balances 19 20,323.08 13,277.78 (e) Short-term loans and advances 15 9,681.15 6,031.87 (f) Other current assets 16 1,475.34 704.12 36,735.73 23,125.45 171,441.29 114,555.31 See accompanying notes to Consolidated financial statements As per our report of even date For Umamaheswara Rao & Co., for and on behalf of the Board Chartered Accountants Firm Registration No: 004453S Sd/- Sd/- Sd/- R.R. Dakshina Murthy S. Kishore K. A. Sastry Partner Whole-time Director Whole-time Director Membership No: 211639 Sd/- Place: Hyderabad D. Suresh Babu Date: 5 May 2012 Company Secretary
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KSK Energy Ventures Limited Consolidated Profit and Loss Statement for the year ended 31 March 2012 (All amounts in Indian Rupees million, except share data and where otherwise stated)
Year ended Particulars Note 31 March 2012 31 March 2011 I Revenue from operations 20 19,476.41 10,967.36 II Other Income 21 1,116.38 625.28 III Total revenue (I+II) 20,592.79 11,592.64 IV Expenses Cost of materials consumed 9,988.60 4,335.50 Manufacturing expenses 22 1,096.97 697.41 Employee benefits expense 23 432.95 297.65 Other expenses 24 1,302.67 550.38 Finance costs 25 5,388.72 2,560.55 Depreciation and amortisation expense 13 2,163.30 1,223.81 Total expenses 20,373.21 9,665.30 V Profit before exceptional items and tax (III - IV) 219.58 1,927.34 VI Exceptional items 923.52 - VII Profit before tax (V-VI) 1,143.10 1,927.34 VIII Tax expense / (income) . Current tax For the period 374.23 204.03 In respect of earlier years 2.60 (3.57) Less: Mat credit entitlement (80.03) (192.81) Deferred tax (656.77) (359.97) Total tax expense / (income) (359.97) (352.32) IX Profit for the year before minority interest (VII - VIII) 1,503.07 2,279.66 Minority interest 189.50 462.14 Profit for the year after minority interest 1,313.57 1,817.52 X Earnings per share: Basic and diluted –face value of Rs10 per share (Rs.) 3.28 4.75
See accompanying notes to Consolidated financial statements
As per our report of even date
For Umamaheswara Rao & Co., for and on behalf of the Board Chartered Accountants Firm Registration No: 004453S
Sd/- Sd/- Sd/- R.R. Dakshina Murthy S. Kishore K. A. Sastry Partner Whole-time Director Whole-time Director Membership No: 211639
Sd/- Place: Hyderabad D. Suresh Babu Date: 5 May 2012 Company Secretary
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KSK Energy Ventures Limited Consolidated Cash Flow Statement for the year ended 31 March 2012 (All amounts in Indian Rupees million, except share data and where otherwise stated)
Year ended Particulars 31 March 2012 31 March 2011
CASH FLOW FROM OPERATING ACTIVITIES Profit before tax 1,143.10 1,927.34 Adjustments for Depreciation and amortisation expenses 2,163.30 1,223.81 Finance cost 5,388.72 2,560.55 Interest income (888.24) (554.24) Dividend income (13.23) (6.59) Profit on sale of assets, net (241.39) - Profit on sale of investment (3.98) (0.78) Bad debts written off / advances written off 230.00 24.60 Liquidated damages (679.61) - Unrealised foreign exchange differences 26.57 3.94 Liability no longer required written back (19.35) (19.29) Others, net (1.76) 0.06 Operating profit before working capital changes 7,104.13 5,159.40 Adjustments for working capital Inventories (468.83) (271.90) Trade receivables (1,740.33) (1,836.31) Loan and advances (2,779.08) (1,426.91) Other assets (291.70) 41.64 Trade payables 506.57 936.35 Other liabilities and provisions (23.29) (6.54) Cash generated from operations 2,307.47 2,595.73 Direct taxes paid (289.42) (353.76) Net cash from operating activities 2,018.05 2,241.97 CASH FLOW FROM INVESTING ACTIVITIES Purchase of fixed assets including capital work-in-progress and capital (31,506.96) (14,561.27) advances Sale of fixed assets 0.33 30.30 Cash flow on purchase of undertakings - (10.62) Cash flow on sale of wind mill undertakings 1,566.33 - Gain on dilution of interest in subsidiary to minority 1.44 - Purchase of non-current investments (3.00) (52.81) (Purchase) / sale of current investments, net (22.36) (163.55) (Investment) / redemption of bank deposit (having original maturity more than (35.61) 298.12 3 months) (Investment) / redemption of bank deposit (held as margin money or security (5,734.08) (403.38) against guarantees or borrowings) Advance for investment (325.19) (81.00) Advance for investment - refund - 7.00 Inter corporate deposit - given (1,867.28) (180.24) Inter corporate deposit - repaid 1,581.84 120.92 Interest income 1,681.36 1,106.50 Dividend income 26.16 13.09 Net cash used in investing activity (34,637.02) (13,876.94)
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KSK Energy Ventures Limited Consolidated Cash Flow Statement for the year ended 31 March 2012 (All amounts in Indian Rupees million, except share data and where otherwise stated)
Cash flow continued.. Year ended Particulars 31 March 2012 31 March 2011 CASH FLOW FROM FINANCING ACTIVITIES Proceeds from share issue , net of share issue expenses - 994.17 Proceeds from share issue and application money in subsidiary to minority 3,060.21 2,502.55 interest Payment of preference dividend including dividend tax (92.98) (27.09) Proceeds from long term borrowings 48,525.11 19,923.50 Repayment of long term borrowings (10,067.98) (11,413.53) Proceeds from short term borrowings, net 4,014.46 8,438.87 Payment of finance costs (10,363.23) (7,238.10) Net cash from financing activities 35,075.59 13,180.37 Net increase in cash and cash equivalents 2,456.62 1,545.40 Effect of exchange rate changes on cash 0.07 (0.14) Cash and cash equivalents at the beginning of the year 2,533.65 988.39 Cash and cash equivalents at the end of the year 4,990.34 2,533.65
Notes Year ended Particulars 31 March 2012 31 March 2011 1 Cash and cash equivalents includes: Cash in hand 7.78 3.15 Balances with banks; On current account 4,956.77 2,493.00 On deposit account 25.79 37.50 4,990.34 2,533.65 2. Previous year figures have been regrouped / reclassified to conform to the classification of the current year.
As per our report of even date For Umamaheswara Rao & Co., for and on behalf of the Board Chartered Accountants Firm Registration No: 004453S
Sd/- Sd/- Sd/- R.R. Dakshina Murthy S. Kishore K. A. Sastry Partner Whole-time Director Whole-time Director Membership No: 211639 Sd/- Place: Hyderabad D. Suresh Babu Date: 5 May 2012 Company Secretary
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KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
1. Description of business KSK Energy Ventures Limited (“KSKEVL” or the “Company”), its subsidiaries and joint ventures (collectively referred to as ‘the Group’) are primarily engaged in the development, operation and maintenance of private sector power projects, currently predominantly through subsidiaries and jointly controlled entities with multiple industrial consumers in India with next level of growth coming through large base load power plant subsidiaries. KSKEVL focused its strategy on the private sector power development market, undertaking entire gamut of development, investment, construction, operation and maintenance of power plant with supplies initially to heavy industrials operating in India and now branching out to cater to the needs of utilities and others in the wider Indian power sector. 2. Significant Accounting Policies 2.1 Accounting convention The Consolidated Financial Statements of KSK Energy Ventures Limited and its Subsidiaries and Joint Ventures (“the Group” or “the Company”) have been prepared and presented under the historical cost convention on the accrual basis in accordance with Indian Generally Accepted Accounting Principles (GAAP). GAAP comprises Accounting Standards notified by the Central Government of India under Section 211 (3C) of the Companies Act, 1956, other pronouncements of Institute of Chartered Accountants of India, the provisions of Companies Act, 1956 and guidelines issued by Securities and Exchange Board of India. The Consolidated Financial Statements are rounded off to the nearest thousands. 2.2 Use of estimates The preparation of the Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure relating to contingent liabilities on the date of Consolidated Financial Statements and reported amounts of income and expenditure for the period. Actual results could differ from these estimates. Examples of such estimates include provision for doubtful debt, future obligation under employee retirement benefit plan, income taxes, useful life of fixed assets, etc. Any revision to accounting estimates is recognised prospectively in the current and future periods. 2.3 Inventories Inventories are valued at the lower of cost and net realizable value. Cost of inventories comprises all costs of purchase, cost of conversion and other costs incurred in bringing the inventories to their present location and condition. The method of determining the costs of various categories of inventories are as follows:
Raw materials Weighted average
Stores, spares and consumables First-in-first-out
2.4 Cash flow statement Cash flows are reported using the indirect method, where by the net profit before tax is adjusted for the effects of transactions of a non cash nature, any deferrals or accruals of past or future operating cash receipts or payments and item of income or expenses associated with investing or financing cash flows. The cash flows from operating, investing and financing activities of the Company are segregated and presented separately. 2.5 Revenue recognition Revenue in the form of project development fees for services rendered in relation to development work of potential power projects is recognized when such fees is assured and determinable under the terms of the respective contract. Corporate Support Service income is recognized when such income is assured and determinable under the terms of the respective contract. Consultancy income is recognized in proportion with the degree of completion of contract. Dividend Income is recognized when the unconditional right to receive the income is established. Interest is recognized using the time proportionate method, based on the underlying interest rates.
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KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
Sale of energy is recognized on accrual basis in accordance with the relevant agreements. Claims for delayed payment charges, and any other claim which, the Group is entitled to under the power purchase agreements, on the grounds of prudence are accounted for in the year of acceptance. Warranty claims/ liquidated damages are not treated as accrued due to uncertainty of realization/ acceptance and are therefore accounted for on receipt / acceptances. Insurance Claims are accounted based on certainty of realization. Revenue from sale of scrap is accounted for as and when sold. 2.6 Fixed assets and depreciation Fixed assets are stated at cost of acquisition. Cost of acquisition is inclusive of freight, duties, levies and all incidentals directly or indirectly attributable to bringing the asset to its working condition for its intended use. Cost of fixed assets includes cost of initial warranty / insurance spares purchased along with the capital asset, which are grouped as single item under respective assets. Machinery spares of the nature of capital spares are capitalized at the time of their purchase whether procured at the time of purchase of the fixed asset concerned or subsequently. Where such spares are replaced, the carrying cost of the worn out spares are written off. The total cost of such capital spares is allocated on a systematic basis over a period not exceeding the useful life of the principal item. Depreciation has been provided on Straight Line Method at the rates and in the manner specified in Schedule XIV of the Companies Act, 1956 except for assets costing up to Rs. 5,000/- which are fully depreciated in the year of capitalization. Depreciation is calculated on a pro-rata basis from the date of installation / capitalization till the date the assets are sold or disposed. Depreciation on initial / warranty spares are provided on the same rates applicable for that asset group, irrespective of its actual usage. Intangible assets, viz., computer software is recognized as per the criteria specified in the Accounting Standard (AS) 26 “Intangible Assets” notified by the Central Government of India under section 211 (3C) of the Companies Act, 1956 and is amortized over a period of three years. Leasehold improvements are amortized over the lease period. 2.7 Capital work in progress The cost of fixed assets not ready for their intended use before such date is disclosed under capital work in
progress.
Capital work in progress is carried at cost and incidental and attributable expenses including interest and depreciation on fixed assets in use during construction are carried as part of “Expenditure During Construction Period, Pending Allocation” to be allocated on major assets on commissioning of the project. In respect of supply-cum-erection contracts, the value of supplies received at site and accepted is treated as capital work in progress. Claims for price variation / exchange variation in case of contracts are accounted for on acceptance. 2.8 Foreign currency transaction Foreign currency transactions are initially recorded at the rates of exchange ruling at the date of transaction. At the Balance Sheet date, foreign currency monetary items are reported using the closing / contracted rate. Non monetary items denominated in foreign currency are reported at the exchange rate ruling at the date of transaction. The foreign exchange differences arising on account of the restatement of long-term foreign currency monetary items, related to acquisition of depreciable capital assets are being capitalized as per the amendment to Accounting Standard (AS) 11 “The Effect of Changes in Foreign Exchange Rates” made by the Central Government, vide notification dated 31 March 2009 as amended vide notification dated 29 December 2011. In relation to the forward contracts entered into to hedge the foreign currency risk of the underlying outstanding at the Balance Sheet date, the exchange difference is calculated and recorded in accordance with AS-11 (Revised). The exchange difference on such a forward exchange contract is calculated as the difference of the foreign currency amount of the contract translated at the exchange at the reporting date, or the settlement date where the transaction is settled during the reporting period and the corresponding foreign currency amount
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KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
translated at the later of the date of inception of the forward exchange contract and the last reporting date. Such exchange differences are recognized in the Profit and Loss Account in the reporting period in which the exchange rates change. The premium or discount on all such contracts is amortized as income or expense over the life of the contract. Any profit or loss arising on the cancellation or renewal of forward contracts is recognized as income or expense for the period. In translating the financial statements of a non-integral foreign operation for incorporation in consolidated financial statements, the assets and liabilities, both monetary and non-monetary are translated at the closing rates and the income and expenses are translated at the dates of the transaction and all the resulting exchange differences are accumulated in foreign exchange fluctuation reserve until the disposal of the investment. On the disposal of a non-integral foreign operation, the cumulative amount of the exchange differences which have been deferred and which relate to that operation are recognised as income or as expenses in the same period in which the gain or loss on disposal is recognised. Other exchange differences are recognized as income or expense in the period in which they arise. 2.9 Investments Long-term investments, other than investments in associates, are stated at cost. A provision for diminution is made to recognize a decline, other than temporary, in the value of long-term investments. Current investments are carried at the lower of cost and fair value. The comparison of cost and fair value is done separately in respect of each category of investment. 2.10 Retirement benefits Provident fund Eligible employees receive benefits from a provident fund, which is a defined contribution scheme. Both the employee and the Company make monthly contributions to the provident fund plan equal to a specified percentage of the covered employee salary. The contribution made by the Company is charged to the Profit and Loss Account. Gratuity In accordance to the Payment of Gratuity Act, 1972, the Group provides for the gratuity, a defined benefit retirement plan (“the gratuity plan”) covering the eligible employees. The gratuity plan provides for a lump sum payment to the vested employees at retirement, death, incapacitation or termination of the employment, of an amount based on the respective employee salary and the tenure of the employment within the Group. Liabilities with regard to the gratuity plan are determined by independent actuary. The Group makes annual contribution to employee’s group gratuity scheme administered by trustees and managed by Life Insurance Corporation of India. The Group recognizes the net obligation of the gratuity plan in the Balance Sheet as an asset or liability, respectively in accordance with Accounting Standard (AS) 15, “Employee Benefits”. Actuarial gains or losses arising from experience adjustments and changes in actuarial assumptions are recognized in the Profit and Loss Account. 2.11 Borrowing Cost Borrowing costs directly attributable to the acquisition or construction of those fixed assets which necessarily take a substantial period of time to get ready for their intended use are capitalized. All other borrowing costs are recognised as an expense in the period/year in which they are incurred. 2.12 Leases Finance leases, which effectively transfer to the Company substantially all the risks and benefits incidental to ownership of the leased item, are capitalized at the lower of the fair value and present value of the minimum lease payments at the inception of the lease term and disclosed as leased assets. Lease payments are apportioned between the finance charges and reduction of the lease liability based on the implicit rate of return. Finance charges are charged directly against income. Lease management fees, legal charges and other initial direct costs are capitalized. If there is no reasonable certainty that the Company will obtain the ownership by the end of the lease term, capitalized lease assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Lease that do not transfer substantially all the risks and rewards of ownership are classified as operating leases
F-80
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
and recorded as expense as and when the payments are made over the lease term. 2.13 Earnings per share Basic earnings per share are computed by dividing the net profit or loss after tax attributable to equity shareholders for the period by the weighted average number of equity shares outstanding during the period. For the purpose of calculating diluted earnings per share, net profit or loss after tax attributable to equity shareholders and the weighted average number of shares outstanding during the period are adjusted for the effects of all dilutive potential equity shares. Dilutive potential equity shares are deemed converted as at the beginning of the period, unless they have been issued at a later date. In computing the dilutive earnings per share, only potential equity shares that are dilutive and that either reduces the earnings per share or increases loss per share are included. 2.14 Taxes on income Income tax expense/ (income) comprises of current tax, deferred tax and Minimum Alternative Tax credit. Current tax The current charge for income taxes is calculated in accordance with the relevant tax regulations applicable to the Company. Deferred tax Deferred tax charge or credit reflects the tax effects of timing differences between accounting income and taxable income for the period. The deferred tax charge or credit and the corresponding deferred tax liabilities or assets are recognized using the tax rates that have been enacted or substantially enacted by the Balance Sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future; however, where there is unabsorbed depreciation or carry forward of loss under taxation laws, deferred tax assets are recognized only if there is a virtual certainty of realization of such assets. Deferred tax assets are reviewed at each Balance Sheet date and written down or written-up to reflect the amount that is reasonably/virtually certain (as the case may be) to be realized. The break-up of the deferred tax assets and liabilities as at the Balance Sheet date has been arrived at after setting-off deferred tax assets and liabilities where the Company has legally enforceable right and an intention to set-off assets against liabilities and where such assets and liabilities relate to taxes on income levied by the same governing taxation laws. Minimum Alternative Tax credit Minimum Alternative Tax credit is recognized as an asset only when, and to the extent, there is convincing evidence that the Company will pay normal income tax during the specified period. In the year in which the Minimum Alternative Tax (MAT) credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in Guidance Note issued by the Institute of Chartered Accountants of India, the said asset is created by way of a credit to the Profit and Loss Account and shown as MAT Credit entitlement. The Company reviews the same at each Balance Sheet date and writes down the carrying amount of MAT credit entitlement to the extent there is no longer convincing evidence to the effect that Company will pay normal Income Tax during the specified period. 2.15 Impairment of assets The Company assesses at each Balance Sheet date whether there is any indication that an asset may be impaired. If any such indication exists, the Company estimates the recoverable amount of the asset. If such recoverable amount of the asset or the recoverable amount of the cash generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognized in the Profit and Loss Account. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. If at the Balance Sheet date there is an indication that a previously assessed impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at the recoverable amount subject to a maximum of depreciated historical cost. 2.16 Provisions and contingencies Provisions and contingencies The Company recognizes a provision when there is a present obligation as a result of past obligating event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. A disclosure for a contingent liability is made when there is a possible obligation or a present
F-81
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
obligation that may, but probably will not, require an outflow of resources. Where there is a possible obligation or a present obligation that the likelihood of outflow of resources is remote, no provision or disclosure is made. Onerous contract Provisions for onerous contracts i.e. contracts where the expected unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it, are recognized when it is probable that an outflow of resources embodying economic benefits will be required to settle a present obligation as a result of an obligating event, based on a reliable estimate of such obligation 3. Basis of consolidation
The Consolidated Financial Statements relate to KSK Energy Ventures Limited, its Subsidiaries, Associates and interest in Joint Ventures.
3.1 Basis of accounting
The financial statements of the Subsidiary / Associates / Joint Venture Companies in the consolidation are drawn up to the same reporting date as that of the Company. The Consolidated Financial Statements have been prepared in accordance with Accounting Standards (AS) 21 “Consolidated Financial Statements”, (AS) 23 “Accounting for Investments in Associates” and (AS) 27 “Financial Reporting of Interest in Joint Ventures”, notified by the Central Government of India under Section 211 (3C) of the Companies Act, 1956 and GAAP. 3.2 Principles of consolidation The Consolidated Financial Statements have been prepared as per the following principles: The financial statements of the Company and its Subsidiaries are combined on a line by line basis by adding together the book value of like items of assets, liabilities, income and expenses after eliminating intra-group balances, intra-group transactions and unrealized profits or losses. The Consolidated Financial Statements include the interest of the Company in Joint Ventures, which has been accounted for using the proportionate consolidation method of accounting whereby the Company’s share of each of assets, liabilities, income and expenses of a jointly controlled entity is considered as separate line item. Preference share capital in Joint Venture entities and share application money in subsidiaries held by the outsiders, shown separately together with minority interest under note 6 to Balance Sheet. The Group accounts for investments by the equity method of accounting where it is able to exercise significant influence over the operating and financial policies of the investee. Inter company profits and losses have been proportionately eliminated until realized by the investor or investee. The Consolidated Financial Statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances and are presented to the extent possible, in the same manner as the Company’s separate financial statements except as otherwise stated in the notes to the accounts. The difference between the cost of investment in the Subsidiary / Joint Venture and the share of net assets at the time of acquisition of shares is identified in the Financial Statements as goodwill or capital reserve as the case may be. Minority interests share of profit of consolidated subsidiaries is identified and adjusted against income of the group in order to arrive at the surplus attributable to the shareholders of the Company.
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KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
3.3 Particulars of Subsidiaries and Joint Ventures: (% of Shareholding) Country of 31 Mar 2012 31 Mar 2011 S. No. Name of the Company incorporation
Subsidiary Companies 1. KSK Narmada Power Company Private Limited India 100.00 100.00 2. KSK Wind Energy Private Limited (formerly Bahur India 74.00 74.00 Power Company Private Limited) 3. KSK Vidarbha Power Company Private Limited India 100.00 100.00 4. KSK Wardha Infrastructure Private Limited (formerly India 100.00 100.00 KSK Technology Ventures Private Limited) 5. Sai Maithili Power Company Private Limited India 52.00* 100.00 6. KSK Dibbin Hydro Power Private Limited India 100.00 100.00 7. Kameng Dam Hydro Power Private Limited India 100.00 100.00 8. Arasmeta Captive Power Company Private Limited India 51.00 51.00 9. KSK Electricity Financing India Private Limited India 100.00 100.00 10. VS Lignite Power Private Limited India 74.00 74.00 11. Sai Regency Power Corporation Private Limited India 73.92 73.92 12. Wardha Power Company Limited India 87.00 87.00 13. KSK Mahanadi Power Company Limited India 89.19 89.19 14. J R Power Gen Private Limited India 51.00 51.00 15. KSK Upper Subansiri Hydro Energy Private Limited India 100.00 100.00 16. KSK Jameri Hydro Power Private Limited India 100.00 100.00 17. KSK Dinchang Power Company Private Limited India 100.00 100.00 18. Tila Karnali Hydro Electric Company Private Limited Nepal 80.00 80.00
19. Field Mining and Ispats Limited India 84.98 85.00 Joint Venture Company 20. Sitapuram Power Limited India 49.00 49.00
* Refer Note 35
4 Share Capital As at 31 March 2012 31 March 2011 Authorized 4,000,000,000 (31 March 2011: 4,000,000,000) equity shares of Rs. 10/- 40,000.00 40,000.00 each 1,031,500,000 (31 March 2011: 1,031,500,000) preference shares of 10,315.00 10,315.00 Rs.10/- each 50,315.00 50,315.00 Issued, subscribed and paid up 372,630,454 (31 March 2011: 372,630,454) equity shares of Rs. 10/- 3,726.30 3,726.30 each fully paid up 100,000,000 (31 March 2011: 100,000,000) 8% Compulsorily 1,000.00 1,000.00 redeemable preference shares of Rs. 10/- each fully paid up (Refer note
F-83
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
a) 4,726.30 4,726.30
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KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
a Above preference shares are redeemable at premium over the period of 5 years, starting from end of the 3rd year from the date of allotment b Reconciliation of number of shares outstanding As at 8% Compulsorily redeemable preference shares 31 March 2012 31 March 2011 Outstanding at the beginning of the year 100,000,000 - Issued during the year - 100,000,000 Outstanding at the end of the year 100,000,000 100,000,000
c Equity Shares held by holding company and its subsidiaries As at Name of the shareholder 31 March 2012 31 March 2011 KSK Energy Limited No of shares held 191,222,031 191,222,031 % of shares held 51.32% 51.32% KSK Energy Company Private Limited No of shares held 79,345,007 13,484,555 % of shares held 21.29% 3.62% KSK Power Holdings Limited No of shares held 8,665,639 - % of shares held 2.33% -
d Particulars of the shareholders holding more than 5% of the shares As at Name of the shareholder 31 March 2012 31 March 2011 Equity shares fully paid up KSK Energy Limited No of shares held 191,222,031 191,222,031 % of shares held 51.32% 51.32% KSK Energy Company Private Limited No of shares held 79,345,007 13,484,555 % of shares held 21.29% 3.62% LB Group No of shares held 20,828,534 69,807,867 % of shares held 5.59% 18.73% 8% Compulsorily redeemable preference shares fully paid up L & T Infrastructure Finance Company Limited No of shares held 100,000,000 100,000,000 % of shares held 100.00% 100.00%
5 Reserves and Surplus As at 31 March 2012 31 March 2011 Securities premium Opening balance 18,739.90 18,745.73 Less: Share issue expenses - 5.83 18,739.90 18,739.90 Foreign currency translation reserve Opening balance (0.14) - Add: Movement during the year 0.07 (0.14) (0.07) (0.14) Surplus Opening balance 5,919.35 4,148.35 Add: Net Profit after taxes for the year from profit and loss statement 1,313.57 1,817.52 Amount available for appropriations 7,232.92 5,965.87 Appropriations
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KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
- Preference dividend 80.22 39.89 - Dividend distribution tax 12.95 6.63 93.17 46.52 Balance 7,139.75 5,919.35
25,879.58 24,659.11
6 Minority Interest As at 31 March 2012 31 March 2011 Minority interest 5,135.93 4,787.10 Preference share capital in JV entities held by others 35.20 35.20 Share application money in subsidiaries held by others 112.26 36.52 5,283.39 4,858.82
7 Borrowings As at 31 March 2012 31 March 2011 Long-term borrowings Secured Term loans Rupee loans from banks 31,696.73 17,153.67 Rupee loans from others 28,113.36 19,284.66 Foreign currency loans 20,226.99 14,209.73 Hire purchase loans 6.43 - Unsecured Loans and advances from related parties 270.00 270.00 Deferred payment liabilities 230.00 230.00 80,543.51 51,148.06 Short-term borrowings Secured Loans repayable on demand From banks * 6,197.35 5,410.60 Foreign currency loans 488.07 267.88 Loans against letters of credit 4,344.82 6,762.99 Loan against deposit 6,579.30 1,979.80 Bill discounting facility 876.93 -
Unsecured Loans repayable on demand From others 26.58 137.78 From related parties 411.09 - 18,924.14 14,559.05
99,467.65 65,707.11 * Out of the above loans repayable on demand from banks, amount of Rs 2,990.33 is guaranteed by KSK Power Ventur plc. , the step-up holding company.
1. Details of security provided for various credit facilities KSK Energy Ventures Limited Rupee term loans from banks and others are secured by way of hypothecation on movable properties of the Company and pledge of certain equity shares of the Company held by KSK Energy Limited holding Company. Loans repayable on demand are secured by first pari-passu charge on fixed assets, current assets and corporate guarantee of KSK Power Venture plc. Loan against deposits are secured by pledge of deposits. KSK Wind Energy Private Limited Loan against deposits are secured by pledge of deposits.
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KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
Wardha Power Company Limited Rupee term loans from banks and others are secured by first charge pari-passu by way of mortgage on all the Company's immovable properties and hypothecation of whole of the movable properties both present and future. Pledge of certain equity shares of the Company held by KSK Electricity Financing India Private Limited, Foreign currency loans are secured by way of corporate guarantee given by KSK Energy Ventures Limited. Loans repayable on demand are secured by first pari-passu charge on all fixed and current assets of the Company (existing and future) along with the other member banks/ financial institutions. Loan against deposits are secured by pledge of deposits. Bill discounting facilities are secured by creating subservient charges on the entire movable fixed and current assets of the company and corporate guarantee given by KSK Energy Ventures Limited. Loans against letter of credit are secured by letter of credit facility sanctioned to KSK Energy Ventures Limited Sitapuram Power Limited Rupee term loans from banks and others are secured by first charge on all immovable and movable assets including current assets, both present and future, ranking pari-passu with each lender, pledge of certain equity and preference shares of the company held by KSK Electricity Financing India Private Limited Loans repayable on demand are secured by first charge on entire block of assets on pari-passu basis with other lenders. Loan against deposit is secured by pledge of deposits. VS Lignite Power Private Limited Rupee term loans from banks and others are secured by first charge pari-passu by way of mortgage on all the company's immovable properties and hypothecation of whole of the movable properties both present and future, pledge of certain equity shares of the company held by KSK Electricity Financing India Private Limited. Loans repayable on demand are secured by pari-passu first charge on fixed assets and current assets along with term lenders. Kameng Dam Hydro Power Private Limited Loan against deposits are secured by pledge of deposits. KSK Upper Subansiri Hydro Energy Private Limited Loan against deposits are secured by pledge of deposits. KSK Dibbin Hydro Power Private Limited Loan against deposits are secured by pledge of deposits. Hire purchase loan is secured by pledge of equipment purchased Arasmeta Captive Power Company Private Limited Rupee term loans from banks and others are secured by first charge pari-passu by way of mortgage on all the Company's immovable properties including leasehold land and freehold land and hypothecation of whole of the movable fixed assets and current assets both present and future. Pledge of fully paid up equity shares of the Company held by KSK Electricity Financing India Private Limited. Loans repayable on demand are secured by pari-passu first charge on all the Company's immovable properties and hypothecation of all the Company's movables fixed assets and current assets both present and future. Loan against deposits are secured by pledge of deposits.
KSK Mahanadi Power Company Limited Rupee term loans from banks and others are secured by first pari-passu charge over all movable properties, intangible assets and other assets (including assignment of rights, titles, interests, benefits, claims etc.) of the company both present and future. Further guaranteed by pledge of certain equity shares of the company held by KSK Energy Ventures Limited Foreign currency loans are secured by first pari-passu charge over all movable properties, intangible assets and other assets (including assignment of rights, titles, interests, benefits, claims etc.) of the company both present and future. Further guaranteed by pledge of certain equity shares of the company held by KSK Energy Ventures Limited and pledge of certain fixed deposits. Loan against letters of credit are secured by first pari-passu charge over all movable properties, intangible assets and other assets (including assignment of rights, titles, interests, benefits, claims etc.) of the company both present and future.
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KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
Further guaranteed by pledge of certain equity shares of the company held by KSK Energy Ventures Limited, and pledge of certain fixed deposits. Sai Regency Power Corporation Private Limited Rupee term loans from banks are secured by first charge pari-passu by way of mortgage on all company's immovable properties and hypothecation of movable properties. Pledge of certain equity shares of the company held by KSK Electricity Financing India Private Limited. Loans repayable on demand are secured by first pari-passu charge on the entire current assets of the company. Loan against deposits are secured by pledge of deposits. 2. Repayment terms of long-term borrowings Installment Rate of Name of the lender Installment Periodicity amont Interest KSK Energy Ventures Limited Life insurance corporation of India 8 21.88 Quarterly 13.75% Wardha Power Company Limited Indian Overseas Bank - I 34 25.00 Quarterly 13.25% Indian Overseas Bank - II 36 25.00 Quarterly 13.25% Housing and Urban Development Corporation Ltd - I 35 58.13 Quarterly 14.00% Housing and Urban Development Corporation Ltd - II 37 24.10 Quarterly 14.00% Rural Electrification Corporation Limited - I 35 138.75 Quarterly 12.87% Rural Electrification Corporation Limited - II 38 112.00 Quarterly 12.53% Bank of India 33 37.50 Quarterly 14.75% Oriental Bank of Commerce 35 25.00 Quarterly 14.75% UCO Bank 39 37.50 Quarterly 13.25% Standard Chartered Bank 1 2,083.21 30-Jun-14 3.21% Sitapuram Power Limited State Bank of India - I 18 7.22 Quarterly 14.50% State Bank of India - II 18 8.30 Quarterly 13.40% Industrial Development Finance Corporation 18 15.28 Quarterly 12.25% VS Lignite Power Private Limited Bank of Baroda 35 6.25 Quarterly 13.25% Housing and Urban Development Corporation Limited 35 37.50 Quarterly 13.50% Rural Electrification Corporation Limited 35 25.00 Quarterly 12.86% State Bank of India 48 Structured Quarterly 13.25% repayment Infrastructure Development Finance Company Limited 44 Structured Quarterly 11.85% repayment Arasmeta Captive Power Company Private Limited Infrastructure Development Finance Company Limited- I 7 32.14 Quarterly 10.50% Infrastructure Development Finance Company Limited- II 37 24.75 Quarterly 10.93% L & T Infrastructure Finance Company Ltd., 35 2.75 Quarterly 14.00% State Bank of India - I 36 16.50 Quarterly 13.75% State Bank of India - II 7 5.36 Quarterly 14.00% Sai Regency Power Corporation Private Limited State Bank of India - I 8 13.70 Quarterly 13.40% State Bank of India - II 18 20.83 Quarterly 13.45% State Bank of Mysore 8 6.55 Quarterly 13.70% Bank of Baroda 45 17.08 Quarterly 13.25% KSK Dibbin Hydro Power Private Limited SREI Equipment Finance Private Limited 27 Structured Monthly 12.40% repayment
F-88
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
Repayment Installment Rate of Name of the lender Installment Periodicity starts from amount Interest KSK Mahanadi Power Company Limited Power Finance Corporation Limited 15-Jul-14 48 394.58 Quarterly 13.50% Rural Electrification Corporation Limited 15-Jul-14 48 322.29 Quarterly 13.47% HUDCO Limited 15-Jul-14 48 20.83 Quarterly 14.50% Life Insurance Corporation Of India 15-Jul-14 48 52.08 Quarterly 14.38% Andhra Bank 01-Jul-14 48 104.17 Quarterly 15.00% Axis Bank Limited 01-Jul-14 48 187.71 Quarterly 14.75% Bank Of Baroda 01-Jul-14 48 41.67 Quarterly 14.75% Canara Bank 01-Jul-14 48 52.08 Quarterly 14.75% I D B I Bank 01-Jul-14 48 104.17 Quarterly 15.00% Indian Bank 01-Jul-14 48 62.50 Quarterly 15.00% Indian Overseas Bank 01-Jul-14 48 52.08 Quarterly 12.00% J & K Bank 01-Jul-14 48 41.67 Quarterly 13.50% L & T Infrastructure Finance Company 01-Jul-14 48 41.67 Quarterly 15.25% Limited Oriental Bank of Commerce 01-Jul-14 48 52.08 Quarterly 14.75% Punjab and Sind Bank 01-Jul-14 48 20.83 Quarterly 15.05% Punjab National Bank 01-Jul-14 48 104.17 Quarterly 15.00% The Federal Bank Limited 01-Jul-14 48 41.67 Quarterly 14.95% UCO Bank 01-Jul-14 48 104.17 Quarterly 15.00% Union Bank of India 01-Jul-14 48 104.17 Quarterly 12.00% United Bank of India 01-Jul-14 48 83.33 Quarterly 14.35% State Bank of India 30-Jun-14 42 336.31 Quarterly 14.90% State Bank of Bikaner & Jaipur 30-Jun-14 42 11.99 Quarterly 14.50% State Bank of Hyderabad 30-Jun-14 42 23.81 Quarterly 15.00% State Bank of Patiala 30-Jun-14 42 23.81 Quarterly 14.75% State Bank of Travancore 30-Jun-14 42 47.62 Quarterly 15.90%
Secured by Non Installment Rate of Name of the lender Installment Periodicity fund based limits of amount Interest KSK Mahanadi Power Company Limited Foreign Currency Loans Bank of India - Jersy Andhra Bank 1 1,145.77 05-Sep-12 2.09% Bank of India - Hongkong Andhra Bank 1 1,041.61 03-Apr-12 2.33% Bank of India - London Andhra Bank 1 1,562.41 05-Sep-12 2.09% Allahabad Bank - Hongkong Axis Bank 1 124.55 02-Jan-13 3.34% Barclays Bank - London Axis Bank 1 1,015.60 31-May-12 2.64% Bank of India - Singapore Axis Bank 1 474.59 03-Jul-12 3.56% Bank of Tokyo - Singapore Axis Bank 1 455.43 10-Dec-12 2.25% Axis Bank - Hongkong Axis Bank 1 76.32 10-Aug-12 2.74% Bank of Baroda - Hongkong Bank of Baroda 1 518.07 20-Apr-12 2.61% Bank of Baroda - Hongkong Bank of India 1 1,024.60 04-Apr-12 2.58% Bank of Baroda - Hongkong Bank of India 1 785.64 06-Apr-12 2.58% Bank of Baroda - Newyork Bank of India 1 850.08 06-Jul-12 3.41% Bank of India - Jersy Bank of India 1 338.94 17-Aug-12 2.79% Bank of India - New York Bank of India 1 2,083.21 03-Apr-12 2.34% Bank of India - New York Bank of India 1 865.79 04-Jan-13 3.53% Bank of India - New York Bank of India 1 962.53 08-Mar-13 2.11% Bank of India - New York Bank of India 1 72.85 10-Mar-13 2.11% Bank of India - London Bank of India 1 2,165.58 03-Apr-12 2.33% Bank of India - London Bank of India 1 666.43 15-Aug-12 2.30% State Bank of India - Hongkong Bank of India 1 1,020.66 17-Dec-12 2.64%
F-89
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
Secured by Non Installment Rate of Name of the lender Installment Periodicity fund based limits of amount Interest UCO Bank Hong Kong Bank of India 1 247.94 05-Jun-12 3.66% Bank of India – London Bank of India 1 260.40 25-May-12 3.89% Canara Bank – Hongkong IDBI Bank 1 480.85 22-Mar-13 2.05% UCO Bank – Singapore IDBI Bank 1 892.43 26-Jun-12 3.61% Bank of India - London Indian Bank 1 710.22 08-Mar-13 2.03% Bank of India - London Indian Bank 1 941.99 08-Mar-13 2.03% Bank of India - Jersy Oriental Bank of 1 937.45 11-Sep-12 1.93% Commerce Bank of India - London Oriental Bank of 1 201.33 07-Sep-12 2.09% Commerce Bank of India - London Oriental Bank of 1 363.02 07-Sep-12 2.09% Commerce Bank of India - London Oriental Bank of 1 231.78 19-Sep-12 2.09% Commerce Bank of Baroda - Hongkong Punjab and Sind 1 93.82 21-Mar-13 2.05% Bank Bank of India - New York State Bank of 1 136.45 14-Nov-12 3.46% Hyderabad Bank of Baroda - New York State Bank of India 1 609.71 23-Apr-12 2.16% Bank of Baroda - New York State Bank of India 1 1,000.73 05-Apr-12 2.17% Bank of Baroda - New York State Bank of India 1 223.20 04-Jun-12 2.02% Bank of India - New York State Bank of India 1 165.48 03-Aug-12 2.17% Bank of India - London State Bank of India 1 639.53 13-Apr-12 2.31% Bank of India - London State Bank of India 1 743.49 27-Apr-12 2.26% State Bank of India - Hongkong State Bank of India 1 1,012.80 10-Sep-12 3.77% State Bank of India - Hongkong State Bank of India 1 46.78 13-Apr-12 2.59% Canara Bank - Hongkong State Bank of 1 190.56 22-Mar-13 2.05% Travancore Bank of India - London UCO Bank 1 996.94 19-Sep-12 2.09% Bank of India - London UCO Bank 1 65.19 18-Apr-12 2.61% Bank of India - London UCO Bank 1 242.02 13-Apr-12 2.31% Bank of India - Singapore Union Bank of India 1 849.18 14-Mar-13 2.05% Bank of India - Jersy Union Bank of India 1 466.13 12-Dec-12 3.59% The Bank of New York Mellon - Union Bank of India 1 525.03 27-Jun-12 3.71% Newyork
Foreign currency loans are repayable over the period of one year with an option to roll over up to three years from the initial date of availment.
Long term loans from related party are repayable in March 2032.
Deferred payment liability is repayable in March 2018.
F-90
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
8 Deferred tax liability / (assets) As at 31 March 2012 31 March 2011 Deferred tax liability on account of depreciation 868.61 608.46 Deferred tax (asset) on account of carry forward of losses (1,762.83) (844.17) Deferred tax (asset) on gratuity - (1.74) Deferred tax (assets), net (894.22) (237.45)
Certain group companies are entitled to avail exemption under section 80IA of the Income Tax Act, 1961 from income tax on profits of business. Based on the assessment of the Company, deferred tax as on 31 March 2012 has been recognized only to the extent the timing differences arising in the current year does not get reversed within the tax holiday period.
9 Other long term liabilities As at 31 March 2012 31 March 2011 Creditor for capital goods (including retention money) 2,405.06 1,241.38 Security deposit from customers 211.41 254.01 2,616.47 1,495.39
10 Trade payable As at 31 March 2012 31 March 2011
Dues to other than micro, small and medium enterprises 2,073.50 1,576.80 2,073.50 1,576.80
As at 31 March 2012 (31 March 2011: Nil) there are no amounts including interest payable to Micro, Small and Medium enterprises as defined under Micro, Small and Medium Enterprises Development Act, 2006, based on the information available with the Company. 11 Provisions As at 31 March 2012 31 March 2011 Long-term provisions For employee benefits (Refer note a) 46.66 25.39 46.66 25.39 Short-term provisions For employee benefits (Refer note a) 107.25 75.50 For dividend and tax thereon 19.61 19.42 For taxation (net of advance tax) (refer note b) 119.01 36.03 245.87 130.95
292.53 156.34 a Employee benefit plans :The Company has a defined benefit gratuity plan. Every employee who has completed five years or more of service gets a gratuity on departure at 15 days salary (last drawn salary) for each completed year of service. The scheme is funded with an insurance company in the form of a qualifying insurance policy.
F-91
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
The following table sets out the status of the gratuity plan as required under AS 15 (Revised) Reconciliation of opening and closing balances of the present value of the defined benefit obligation As at 31 March 2012 31 March 2011 Present value obligation at the beginning of the year 55.59 19.58 Interest cost 4.53 1.56 Current Service cost 41.56 27.5 Past Service Cost- (non vested benefits) - 14.54 Past Service Cost -(vested benefits) - 5.39 Benefits paid (0.18) - Actuarial (gain) / loss (18.30) (12.98) Present value obligation at the end of the year 83.20 55.59
Change in the fair value of assets As at 31 March 2012 31 March 2011 Fair value of plan assets at the beginning of the year 20.96 9.78 Expected return on plan assets 2.36 1.34 Contributions 10.34 10.08 Benefits paid (0.18) - Actuarial gains/(loss) 0.18 (0.24) Fair value of plan assets at the end of the year 33.66 20.96
Amount recognized in the Balance Sheet As at 31 March 2012 31 March 2011 Present value of obligations at the end of the year 83.20 55.59 Fair value on plan assets at the end of the year 33.66 20.96 Funded status (49.54) (34.63) Unrecognized actuarial gain/(loss) - - Unrecognized past service cost -non vested cost 3.94 9.24 Net (liability) / asset (45.60) (25.39) Amount recognized in the Profit and Loss Statement Year ended 31 March 2012 31 March 2011 Current service cost 41.56 27.50 Interest cost 4.53 1.56 Past Service Cost- (non vested benefits) 5.30 5.30 Past Service Cost -(vested benefits) - 5.39 Expected return on plan assets (2.36) (1.34) Net actuarial (Gain) / loss recognized in the year (18.48) (12.74) Amount included in "personnel expense"/ other income 30.55 25.67
Asset information Category of Assets As at
31 March 2012 31 March 2011 Insurer managed funds 100% 100%
Summary of actuarial assumptions Year ended 31 March 2012 31 March 2011 Discount rate 8.17% 8.00% Salary escalation 15.00% 15.00% Attrition rate 15.00% 15.00% Expected return on plan assets 9.15% 9.00%
F-92
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
Discount rate: The discount rate is based on the prevailing market yields of Indian government securities as at the balance sheet date for the estimated term of the obligations
Expected rate of return on plan assets: This is based on the expectation of the average long term rate of return expected on investments of the fund during the estimated term of the obligations.
b . Income taxes : Certain Group company’s income from sale of electrical energy is exempt from tax under section 80 IA of the Income Tax Act, 1961. Provision for current tax for the year in these companies represents tax payable on account of MAT under section 115JB of the Income Tax Act, 1961 on the book profit.
12 Other current liabilities As at 31 March 2012 31 March 2011 Current maturities of long-term debt 16,150.01 4,277.82 Interest accrued but not due on borrowings 544.29 270.97 Interest accrued and due on borrowings 15.44 196.14 Security deposit from customers 39.92 49.92 Share application money in subsidiary held by others 2,825.14 - Creditor for capital goods (including retention money) 11,170.55 6,081.07 Forward cover payable, net - 85.94 Statutory liabilities 181.05 121.59 30,926.40 11,083.45
F-93
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
13 Fixed Assets As at 31 March 2012 Gross Block Depreciation / Amortisation Net Block As at As at As at As at As at Particulars Adjustments For the Adjustments 1 April Additions 31 March 1 April 31 March 31 March / Deletions year / Deletions 2011 2012 2011 2012 2012 Tangible assets Land and site development - Freehold 1,738.99 471.71 36.53 2,174.17 - - - - 2,174.17 - Lease hold 1,269.05 1,219.91 - 2,488.96 25.29 23.05 - 48.34 2,440.62 Buildings - Freehold 4,427.53 2,723.96 6.86 7,144.63 158.66 203.56 0.06 362.16 6,782.47 - Lease hold improvements 56.67 7.89 0.01 64.55 13.13 20.64 0.01 33.76 30.79 Plant and equipment 25,851.91 14,126.36 2,169.38 37,808.89 1,737.69 1,931.41 220.18 3,448.92 34,359.97 Furniture and fixtures 60.44 18.39 1.25 77.58 16.28 7.05 0.33 23.00 54.58 Vehicles 81.05 18.57 0.84 98.78 17.81 8.89 0.50 26.20 72.58 Office equipment 113.99 45.44 1.23 158.20 15.80 8.75 0.11 24.44 133.76 Computer 82.04 17.20 0.51 98.73 24.77 14.82 0.05 39.54 59.19 Total Tangible assets 33,681.67 18,649.43 2,216.61 50,114.49 2,009.43 2,218.17 221.24 4,006.36 46,108.13 Intangible assets Goodwill 2,017.86 - 0.04 2,017.82 - - - - 2,017.82 Computer software 98.84 15.63 - 114.47 77.14 10.85 - 87.99 26.48 Total Intangible assets 2,116.70 15.63 0.04 2,132.29 77.14 10.85 - 87.99 2,044.30 Capital work in progress 66,601.69 Intangible assets under development 6.53
As at 31 March 2011
F-94
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
Gross Block Depreciation / Amortisation Net Block As at As at As at As at As at Particulars Adjustments / For the Adjustments 1 April Additions 31 March 1 April 31 March 31 March Deletions year / Deletions 2010 2011 2010 2011 2011 Tangible assets Land and site development - Freehold 1,383.02 390.05 34.08 1,738.99 - - - - 1,738.99 - Lease hold 1,001.00 268.05 - 1,269.05 12.79 12.50 - 25.29 1,243.76 Buildings - Freehold 1,154.61 3,274.62 1.70 4,427.53 49.19 109.51 0.04 158.66 4,268.87 - Lease hold improvements 9.09 47.58 - 56.67 1.18 11.99 0.04 13.13 43.54 Plant and machinery 12,752.35 13,691.03 591.47 25,851.91 653.00 1,097.83 13.14 1,737.69 24,114.22 Furniture and fixtures 41.87 18.57 - 60.44 9.27 7.01 - 16.28 44.16 Vehicles 61.15 20.38 0.48 81.05 10.82 6.86 (0.13) 17.81 63.24 Office equipment 70.72 43.37 0.10 113.99 9.13 6.67 - 15.80 98.19 Computers 54.64 27.40 - 82.04 14.43 10.34 - 24.77 57.27 Total Tangible assets 16,528.45 17,781.05 627.83 33,681.67 759.81 1,262.71 13.09 2,009.43 31,672.24 Intangible assets Goodwill 1,980.29 127.30 89.73 2,017.86 - - - - 2,017.86 Computer software 76.52 22.32 - 98.84 56.39 20.75 - 77.14 21.70 Total Intangible assets 2,056.81 149.62 89.73 2,116.70 56.39 20.75 - 77.14 2,039.56 Capital work in progress 35,142.79 Intangible assets under development 9.52
F-95
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
14 Investments As at 31 March 2012 31 March 2011 Non-current investments Trade investment Investment in equity instruments (quoted, fully paid up) 364,418 (31 March 2011: 330,818) equity shares of Rs. 10/- each 55.81 52.81 in Thiru Arooran Sugars Limited (unquoted, fully paid up ) 3,636,363 (31 March 2011: 3,636,363) equity shares of Rs. 10/- 160.00 160.00 each in Terra Energy Limited 215.81 212.81 Current investments Other investment Investment in mutual fund (quoted, fully paid up) 20,030,888 (31 March 2011: 14,996,251) units of Rs 10.0015/- 200.34 150.00 each in IDFC Cash Fund - Super Inst Plan C - Daily Dividend Nil (31 March 2011: 507,584) units of Rs.10.0015/- each in - 5.79 IDFC Money Manager Fund -Treasury plan - Super Inst Plan C Growth Nil (31 March 2011: 1,497,040) units of Rs.13.3597/- each in - 20.00 IDFC Ultra Short Term Fund - Growth Nil (31 March 2011: 1,993,924) units of Rs.10.0325/- each in - 20.00 SBI Premier Liquid fund 213,430 (31 March 2011: Nil) units of Rs. 100.0300/- each in 21.35 - Birla Sun Life Cash Manager - Daily Dividend Nil (31 March 2011: 84,837) units of Rs.11.7873/- each in SBI- - 1.00 SHF-Ultra Short Term fund 221.69 196.79 437.50 409.60 Aggregate market value of quoted investment as at 31 March 2012 : Rs. 249.75
15 Loans and advances As at 31 March 2012 31 March 2011 Long-term loans and advances Secured, considered good Capital advances 14,628.86 18,053.78
Unsecured, considered good Capital advances 1,210.39 2,426.01 Security deposits 380.93 326.41 Prepaid expenses 19.00 4.24 Advance for investment 325.19 81.00 Inter corporate deposit to related parties - 25.50 16,564.37 20,916.94
F-96
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
Loans and advances continued… As at 31 March 2012 31 March 2011 Short-term loans and advances Unsecured, considered good Inter corporate deposit to related parties 719.29 154.72 to others 1,104.46 1,358.09 Advance for supplies / expenses 1,373.19 1,488.56 Prepaid expenses 636.68 268.17 Other receivables related parties 949.07 - others 1,095.43 415.55 Advance tax and TDS receivable (net of provision for tax) 137.19 204.63 Security deposit related parties 3,263.71 1,806.45 others 402.13 335.70 9,681.15 6,031.87
26,245.52 26,948.81
1 Other assets 6 As at 31 March 2012 31 March 2011 Other non-current assets Unsecured, considered good Trade receivables 230.00 230.00 Mat credit entitlement 312.77 343.26 Balances with banks; Deposits held as margin money or security against guarantees or 1,481.26 310.05 borrowings Other deposits 15.90 6.03 Interest accrued on deposits 55.11 17.22 2,095.04 906.56 Other current assets Unsecured, considered good Interest accrued on deposits 1,111.91 632.39 Unbilled revenue 189.30 47.66 Balances with statutory authorities 174.13 21.20 Deferred premium on forward contract - 2.87 1,475.34 704.12 3,570.38 1,610.68 1 Inventories 7 As at 31 March 2012 31 March 2011 (At lower of cost or net realisable value) Raw materials 471.69 165.38 Raw materials-in-transit 129.47 131.05 Stores and spares 611.26 412.37
F-97
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
Stores and spares-in-transit 19.69 54.48 1,232.11 763.28
1 Trade receivables 8 As at 31 March 2012 31 March 2011 Secured, considered good Debts outstanding for a period exceeding six months 212.26 25.45 Other debts 325.49 249.52 Unsecured, considered good Debts outstanding for a period exceeding six months 1,155.07 696.71 Other debts 2,109.54 1,179.93 3,802.36 2,151.61
19 Cash and bank balances As at 31 March 2012 31 March 2011
Cash and Cash Equivalents Cash on hand 7.78 3.15 Balances with banks; On current account 4,956.77 2,493.00 On deposit account 25.79 37.50 4,990.34 2,533.65 Other bank balances Deposits with bank held as margin money or security against 15,187.38 10,624.51 guarantees or borrowings Deposit having maturity more than three months 145.36 119.62 15,332.74 10,744.13 20,323.08 13,277.78
20 Revenue from operations Year ended 31 March 2012 31 March 2011 Sale of electricity 19,066.41 10,163.63 Project development fees 393.09 795.48 Corporate support service fees 2.19 2.19 Other operating income 14.72 6.06 19,476.41 10,967.36
F-98
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
21 Other Income Year ended 31 March 2012 31 March 2011 Interest income 888.24 554.24 Dividend income 13.23 6.59 Net gain on sale of investments 3.98 0.78 Foreign exchange gain, net - 20.02 Miscellaneous income 210.93 43.65 1,116.38 625.28
22 Manufacturing expenses Year ended 31 March 2012 31 March 2011 Consumption of stores and spares 182.61 100.49 Operation and maintenance expenses 643.86 294.47 Cost of import power 72.88 103.74 Raw water charges 158.88 128.39 Load management charges 13.86 43.66 Repairs and maintenance - plant and machinery 24.88 26.66 1,096.97 697.41 23 Employee benefit expenses Year ended 31 March 2012 31 March 2011 Salaries, wages and bonus 399.32 264.48 Contribution to provident and other funds 13.20 15.17 Staff welfare expenses 20.43 18.00 432.95 297.65
24 Other expenses Year ended 31 March 2012 31 March 2011 Rents 30.29 20.33 Rates and taxes 114.03 9.12 Printing and stationery 5.00 5.09 Communication expenses 14.26 11.93 Electricity expenses 7.87 5.68 Travel and conveyance 39.69 29.24 Insurance charges 74.08 45.02 Legal and professional charges 120.28 59.12 Generation and transmission charges 104.36 62.99 Selling and advertisement expenses 185.18 163.21 Remuneration to auditors for audit 4.93 4.30
F-99
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
for taxation matters 0.17 0.07 for other services 0.31 0.16 for out of pocket expenses 0.06 0.04 Repairs and maintenance building 4.74 1.93 others 50.10 17.42 Bad debts / advances written off 230.00 24.60 Donation / gifts (Refer note 1) 60.74 17.81 Freight outward 103.96 24.23 Miscellaneous expenses 77.19 48.09 Foreign exchange loss, net 75.43 - 1,302.67 550.38
1. The following are the political contributions made by the Group within the limits prescribed under section 293A of the Companies Act, 1956 Year ended Name of party 31 March 2012 31 March 2011 Bharatiya Janata Party 39.50 12.00 39.50 12.00 25 Finance costs Year ended 31 March 2012 31 March 2011 Interest expense on fixed period loans 3,827.06 2,026.96 on others 1,426.42 420.72 Other borrowing cost 135.24 112.87 5,388.72 2,560.55 The borrowing cost attributable to the acquisition or construction of fixed assets amounting to Rs. 5,400.67 (31 March 2011: Rs.4,716.90) has been capitalised during the year.
26 Contingent liabilities and Commitments a Contingent liabilities (Group's share)
As at Particulars 31 March 2012 31 March 2011 (i) Letter of credit outstanding 24.25 275.38 (ii) Bank guarantees outstanding 9.41 - (iii) Corporate guarantees outstanding 4,606.43 904.66
(iv) Claims against the Group not acknowledged as debt Rs 497.31 (31 Mar 2011: Rs.116.02).
F-100
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
(v) The Group has received claims for Rs.652.87 (31 Mar 2011: Nil) from Joint Director General of Foreign Trade (DGFT) towards the recovery of the duty drawbacks, earlier refunded. The company had earlier made claims for the refund of the duties paid on the machinery and other items purchased for the construction of the power projects under the scheme of deemed export benefit, which were accepted and refunds were granted. The communication from the DGFT regarding the recovery of the duties paid are based on the interpretations by the Policy Interpretation Committee held on 15 March 2011.The company contends that the above change in interpretation requires an amendment to the foreign trade policy to be legally enforceable in law. Since, no such amendment has been done yet, the company believes that outcome of the above dispute should be in favour of the company and there should be no material impact on the financial statements. (vi) Service tax department has issued demand order to the Company for payment of service tax amounting to Rs 505.64 (including penalty) relating to the disagreement on availment of Cenvat Credit for the period April 2008 to September 2010 and non -payment of service tax. However, the Company believes that the claims raised by the department are not tenable and the Company has filed an appeal against the said order before the CESTAT. b Estimated value of contracts remaining to be executed on capital and other account and not provided for in the Company, its Subsidiaries and Joint Ventures: As at 31 March 2012 31 March 2011 (i) Estimated value of contracts remaining to be executed on capital 77,259.13 109,515.79 account not provided for
(ii) The Company has entered into an arrangement for buying out an additional stake in KSK Mahanadi Power Company Limited. The commitment pending under the arrangement as at 31 March 2012 is Rs. 3,904.55 (31 March 2011: Rs 4,150.13) 27 Jointly Controlled Entities Proportionate consolidation of interests The Company has a 49% interest in Sitapuram Power Limited, a Joint Venture (JV) in India. Sitapuram Power Limited (“the Company”) was incorporated on 18 July 2005 and is engaged in the business of generation of electricity. The Company was set up as a special purpose entity by Zuari Cements Limited and KSK Energy Ventures Limited to build and operate a 43 MW captive power plant in Sitapuram to cater to the power requirements of Zuari Cements Limited. The Group has, in accordance with AS 27 “Financial Reporting of Interest in Joint Ventures” issued by the ICAI, accounted for its 49% interest in the JV by the proportionate consolidation method. Thus the Group’s Income Statement, Balance Sheet and Cash Flow Statement incorporate the Group’s share of income, expenses, assets, liabilities and cash flows of the JV on a line-by-line basis. The aggregate amount of the assets, liabilities, income and expenses related to the Group’s share in the JV included in these financial statements, as at and for the year ended 31 March 2012 are given below
As at 31 March 2012 31 March 2011 LIABILITIES Non-current liabilities Long-term borrowings 211.88 296.75 Deferred tax liabilities (net) 41.54 35.45 Long-term provisions 0.60 0.57 254.02 332.77 Current liabilities Short-term borrowings 330.88 248.64 Trade payables 99.19 8.95 Other current liabilities 71.42 189.23 Short-term provisions 1.00 1.87 502.49 448.69 756.51 781.46
F-101
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
ASSETS Non-current assets Fixed assets Tangible assets 738.28 776.70 Intangible assets 1.57 - Intangible assets under development - 0.75 Long-term loans and advances 0.14 0.43 Other non-current assets 33.87 34.31 773.86 812.19 Current assets Inventories 42.48 28.06 Trade receivables 118.45 83.64 Cash and bank balances 2.01 107.21 Short-term loans and advances 193.72 146.48 Other current assets 23.11 16.98 379.77 382.37 1,153.63 1,194.56 As at 31 March 2012 31 March 2011 Claims against the Company not acknowledged as debt 4.45 4.45 Estimated value of contracts remaining to be executed on capital - 2.51 account and not provided for
Year ended 31 March 2012 31 March 2011 Income Revenue from operations 577.89 528.89 Other Income 8.10 22.97 Expenses Cost of materials consumed 381.28 270.41 Manufacturing expenses 52.42 84.10 Employee benefits expense 8.74 9.23 Other expenses 22.48 30.38 Finance costs 86.79 70.81 Depreciation and amortization expense 44.64 43.41 Profit / (loss) before tax (10.36) 43.52 Provision for tax Current tax For the period - 8.70 In respect of earlier years (0.46) - Less : MAT credit entitlement - (8.70) Deferred tax 6.09 9.26 Profit / (loss) after tax (15.99) 34.26 28 Operating Leases The Consolidated entities have entered in to certain operating lease agreements. An amount of Rs. 83.97 (31 March 2011: Rs. 43.22) paid under such agreements has been disclosed as “Rent” under other expenses in the Consolidated Profit and Loss statement and expenditure during construction period, pending allocation. The schedule of future minimum rental payments in respect of non-cancellable operating leases is set out below: As at 31 March 2012 31 March 2011 Lease Obligations Within one year of the balance sheet date 12.88 15.76 Due between one to five years 4.45 13.63 Due after five years - -
F-102
KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
29 Earnings per Share (EPS) The computation of EPS as per AS 20 is set out below Year ended 31 March 2012 31 March 2011
Net profit after tax and minority interest 1,313.57 1,817.52 Less: Preference dividend and tax thereon 93.17 46.52 Net profit attributable to shareholders - for Basic /Diluted EPS 1,220.40 1,771.00 Weighted average number of shares outstanding for the purpose of 372.63 372.63 calculation of Basic and Diluted EPS (in million) Earnings per share – Basic / Diluted (in Rs.) 3.28 4.75
30 Derivative Instruments and Unhedged foreign currency exposure
The following are outstanding foreign exchange forward contracts
Particulars Purpose As at 31 March 2012 31 March 2011 Forward contract Hedge of expected future US $ 96.00 payable - Particulars of Unhedged foreign Currency Exposure
Particulars As at 31 March 2012 31 March 2011 Rs. 33,020.04 Rs 10,119.42 Loans US $ 634.02 US $ 222.91
Rs. 76.32 - Loans Euro 1.1 -
Rs. 329.52 Rs. 186.83 Interest on loans US $ 6.33 US $ 4.12 Rs. 11,157.37 Rs. 5,649.65 Import creditors (including retention money) US $ 214.23 US $ 124.45 - Rs. 3.43 Import creditors (including retention money) - Euro 0.05 Rs. 1.24 Rs. 2.99 Cash with Bank CNY 0.15 CNY 0.43 Rs. 4.13 - Cash with Bank US $ 0.08 -
F-103
31 Segment Reporting The Segment report of the Group has been prepared in accordance with the Accounting Standard 17 “Segment Reporting”. There is only one reportable geographical segment as per Accounting Standard 17. For the purpose of reporting business segments, the Group is engaged in two segments, viz., Project development and power generation. Project Power Reconciling/ Year ended 31 March 2012 development generating Elimination Total
activities activities activities Revenue 620.09 19,081.13 (224.81) 19,476.41 Segment Result 389.18 4,102.74 - 4,491.92 Unallocated income (net) 2,039.90 Finance costs (5,388.72) Profit before tax 1,143.10 Tax income 359.97 Profit after tax 1,503.07 Segment assets 1,596.15 161,453.21 (207.32) 162,842.04 Unallocated assets 8,599.26 Total assets 171,441.30 Segment liabilities 36.47 19,616.87 (207.32) 19,446.02 Unallocated liabilities 113,280.86 Total liabilities 132,726.88 Other segment information Depreciation / amortisation 16.24 2,147.06 - 2,163.30 Capital expenditure 374.13 45,106.30 - 45,480.43
Reconciling Project Power / Year ended 31 Mar 2011 development generating Total Elimination activities activities activities Revenue 850.38 10,169.69 (52.71) 10,967.36
Segment Result 632.36 3,230.25 - 3,862.61 Unallocated income (net) 625.28 Finance costs (2,560.55) Profit before tax 1,927.34 Tax income 352.32 Profit after tax 2,279.66
Segment assets 1,149.43 107,315.01 (161.93) 108,302.51 Unallocated assets 6,252.80 Total assets 114,555.31
Segment liabilities 51.87 11,993.00 (161.93) 11,882.94 Unallocated liabilities 68,428.14 Total liabilities 80,311.08
Other segment information Depreciation / amortisation 15.77 1,208.04 - 1,223.81 Capital expenditure 89.88 23,594.95 - 23,684.83
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KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
32 Related party disclosure
a Parties where control exists
S No. Name of the party Relationship 1 K&S Consulting Group Private Limited Ultimate holding company 2 KSK Power Ventur plc Step up holding Company 3 KSK Energy Limited, Mauritius Holding Company (For detail list of subsidiaries see note 3.3)
b Parties where significant influence exists and where the transactions have taken place during the year:
S No. Name of the party Relationship 1 KSK Cargo Mover Private Limited Fellow subsidiary 2 KSK Energy Company Private Limited Fellow subsidiary 3 KSK Mineral Resources Private Limited Fellow subsidiary 4 KSK Surya Photovoltaic Venture Private Limited Fellow subsidiary 5 KSK Water Infrastructures Private Limited. Fellow subsidiary 6 KSK Wind Energy Halagali Benchi Private Limited Fellow subsidiary 7 KSK Wind Energy Mothalli Haveri Private Limited Fellow subsidiary 8 KSK Wind Power Aminabhavi Chikodi Private Limited Fellow subsidiary 9 KSK Wind Power Sankonahatti Athni Private Limited Fellow subsidiary 10 SN Nirman Infra Projects Private Limited Fellow subsidiary 11 Sitapuram Power Limited Joint Venture
c Key Management Personnel and relatives
S No. Name of the party Relationship 1 S. Kishore Whole-time Director 2 K. A. Sastry Whole-time Director Mrs. Aditi Kishore Relatives of key management 3 personnel Mrs. K. Satyavathi Relatives of key management 4 personnel
d Related party transactions : Year ended 31 March 2012 31 March 2011
Project development fee Arasmeta Captive Power Company Private Limited 5.52 - J R Power Gen Private Limited 371.25 247.50 KSK Mahanadi Power Company Limited - 404.75 KSK Wind Energy Private Limited - 61.35 Sai Regency Power Corporation Private Limited - 37.80 Wardha Power Company Limited 16.32 44.08 393.09 795.48 Corporate support services fee
F-105 KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
d Related party transactions : Year ended 31 March 2012 31 March 2011 Sitapuram Power Limited 2.19 2.19 2.19 2.19
Interest income Arasmeta Captive Power Company Private Limited 37.38 31.88 J R Power Gen Private Limited 74.65 3.78 Kameng Dam Hydro Power Private Limited 105.84 68.46 KSK Dibbin Hydro Power Private Limited 113.70 59.62 KSK Energy Company Private Limited 5.51 - KSK Mahanadi Power Company Limited 64.63 95.92 KSK Upper Subansiri Hydro Energy Private Limited 221.02 134.34 KSK Water Infrastructures Private Limited 32.92 - Sai Regency Power Corporation Private Limited - 11.79 Sitapuram Power Limited 30.20 19.56 SN Nirman Infra Projects Private Limited 5.78 - Wardha Power Company Limited 32.18 39.86 723.81 465.21 Interest charges KSK Mahanadi Power Company Limited - 4.65 KSK Mineral Resources Private Limited - 3.25 KSK Water Infrastructures Private Limited 6.82 - Wardha Power Company Limited - 3.10 6.82 11.00 Lignite excavation charges KSK Mineral Resources Private Limited 382.86 283.39 382.86 283.39 Water supply charges SN Nirman Infra Projects Private Limited 90.00 91.15 90.00 91.15 Fuel arrangement charges KSK Energy Company Private Limited 288.24 - 288.24 - Sale of investments KSK Surya Photovoltaic Venture Private Limited 0.84 - KSK Mineral Resources Private Limited 0.84 - 1.68 - Loans/deposits taken from KSK Energy Company Private Limited 17.00 - KSK Water Infrastructures Private Limited 456.64 - KSK Wind Energy Halagali Benchi Private Limited 61.50 - KSK Wind Power Aminabhavi Chikodi Private Limited 4.00 - KSK Wind Power Sankonahatti Athni Private Limited 79.50 - 618.64 - Repayment of loan taken KSK Water Infrastructures Private Limited 343.76 - 343.76 - Purchase of fixed assets K & S Consulting Group Private Limited 134.86 - K. Satyavathi 70.65 - Aditi Kishore 70.65 - 276.16 - Receipt of share application money in subsidiary KSK Energy Limited 2,825.14 - 2,825.14 -
F-106 KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
d Related party transactions Year ended 31 March 2012 31 March 2011
Loans / deposits given to KSK Cargo Mover Private Limited 1,469.07 - KSK Energy Company Private Limited 1,427.10 - KSK Mineral Resources Private Limited 1,095.88 - KSK Water Infrastructures Private Limited 1,205.80 771.94 Sitapuram Power Limited 92.77 82.37 SN Nirman Infra Projects Private Limited 299.90 40.10 5,590.52 894.41
Refund of the loans / deposits advanced from KSK Energy Company Private Limited 14.30 - KSK Mineral Resources Private Limited 198.52 96.70 KSK Water Infrastructures Private Limited 2,197.79 - Sitapuram Power Limited 30.61 71.40 SN Nirman Infra Projects Private Limited 181.10 - 2,622.32 168.10 Managerial Remuneration S. Kishore 9.00 9.00 K.A. Sastry 9.00 9.00 18.00 18.00
e The Group has the following amount dues from/to related parties As at 31 March 2012 31 March 2011 Advances / deposit receivable KSK Cargo Mover Private Limited 520.53 - KSK Energy Company Private Limited 1,862.90 450.00 KSK Mineral Resources Private Limited 1,097.36 200.00 KSK Water Infrastructures Private Limited 145.46 1,137.45 Sitapuram Power Limited 221.29 159.12 SN Nirman Infra Projects Private Limited 135.25 40.10 3,982.79 1,986.67 Loans / deposit payable KSK Energy Company Private Limited 17.00 - KSK Mineral Resources Private Limited 270.00 270.00 KSK Water Infrastructures Private Limited 112.89 - KSK Wind Energy Halagali Benchi Private Limited 192.20 - KSK Wind Energy Mothalli Haveri Private Limited 3.50 - KSK Wind Power Aminabhavi Chikodi Private Limited 6.00 - KSK Wind Power Sankonahatti Athni Private Limited 79.50 - 681.09 270.00 Interest receivable KSK Water Infrastructures Private Limited 3.95 - KSK Energy Company Private Limited 4.96 Sitapuram Power Limited 7.37 4.52 SN Nirman Infra Projects Private Limited 1.48 - 17.76 4.52 Interest payable KSK Water Infrastructures Private Limited 3.03 - 3.03 -
e The Group has the following amount dues from/to related parties
F-107 KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
As at 31 March 2012 31 March 2011 Receivables KSK Cargo Mover Private Limited 949.07 - Sitapuram Power Limited 0.54 - 949.61 - Payable KSK Mineral Resources Private Limited 31.98 28.29 KSK Energy Company Private Limited 259.42 - SN Nirman Infra Projects Private Limited 7.35 29.23 298.75 57.52 Share application money in subsidiary
KSK Energy Limited 2,825.14 - 2,825.14 - Managerial Remuneration Payable S. Kishore 0.57 0.57 K. A. Sastry 0.58 0.57 1.15 1.14
f The Group has given corporate guarantees of Rs.5,834.10 (31 March 2011 Rs.971.23), bank guarantees of Rs.9.41 (31 March 2011 Rs. Nil) and letter of credit limits of Rs.24.25 (31 March 2011 Rs.275.38) on behalf of fellow subsidiaries. g The Group has obtained corporate guarantees of Rs.14,455.00 (31 March 2011 Rs.19,255.00) from step-up holding company.
33. During the year ended 31 March 2012, Group has disposed certain wind mill assets with aggregate capacity of 52.25 MW under slump sale for a total consideration of Rs. 2,288.20 million and made a gain amounting to Rs 243.90 million and the same is disclosed as exceptional item in accordance with AS-5 "Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.
34. During the year ended 31 March 2012, one of the underlying subsidiaries has received an amount of Rs. 679.62 million towards liquidated damages and the same is disclosed as exceptional item in accordance with AS-5 "Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies.
35. During the year ended 31 March 2012, Group has sold 48 % stake in Sai Maithili Power Company Private Limited for a total consideration of Rs 1.68 million and made a gain amounting to Rs 1.44 million.
36. Pursuant to completion of open offer during the year, shareholdings of the promoters and promoter group have gone up from 54.94% to 74.94%.
37. Short term loans and advances includes an amount of Rs.165.70 in Sitapuram Power Limited (“Joint venture entity”), which represents penal demand charges levied by Andhra Pradesh Southern Power Distribution Company Ltd (“SPDCL”) towards temporary outage of the generating plant on Zuari Cements Limited (ZCL), the captive consumer, which has been passed on to the Company. The Company has contended the basis for the charges levied by SPDCL and along with the captive consumer has filed a petition with Andhra Pradesh Electricity Regulatory Commission (“APERC”) for revision of the charges claiming that the levy is unreasonable and APERC has dismissed the petition. The Company has filed an appeal before Appellate Tribunal for Electricity against the order of APERC. The Appellate Tribunal for Electricity has allowed the appeal in favor of the Company vide its judgment dated 19 Nov 2010. Aggrieved by this SPDCL has filed an appeal before Honorable Supreme Court and after hearing contention of the Company, Supreme court has passed an order vide dated 27 Jan 2012 to dispose of the application of SPDCL and enable the company to avail appropriate remedy for realization of the amount at appropriate forum and accordingly Company has approached before Appellate Tribunal for electricity at New Delhi for realisation of the amount.
F-108 KSK Energy Ventures Limited Notes to Consolidated financial statement (All amounts in Indian Rupees million, except share data and where otherwise stated)
38. Amounts receivable in Sitapuram Power Limited from Zuari Cements Limited “(ZCL)” of Rs. 196.71 includes certain amounts claimed / deductions made by ZCL aggregating to Rs. 70.12 which has not been accepted by the Company. The Company is in the process of carrying out a reconciliation of the balances. The Company based on its evaluation of claims believes that these are tenable and hence all outstanding amounts are recoverable. Pending completion of the reconciliation process, no adjustments have been recorded in the underlying financial statements.”
39. Trade receivable in Sitapuram Power Limited includes an amount of Rs 43.71 Million receivable from Andhra Pradesh Power Co-ordination Committee (APPCC) towards bills for the power supplies made for which payments are withheld by APPCC. The Company has filed a writ petition before Honorable High Court of Andhra Pradesh for recovery of the amount due. The management, based on the evaluation of the underlying documents/agreements and on the basis of legal advice, is of the view that the claims/deductions made by APPCC are not tenable and hence all outstanding amounts are recoverable.
40. In the opinion of board, any of the assets other than fixed assets and non-current investment have a value on realization in the ordinary course of business at least equal to the amount at which they are stated on the Balance Sheet.
41. Previous year figures have been regrouped / reclassified to conform to the classification of the current year.
As per our report of even date For Umamaheswara Rao & Co., for and on behalf of the Board Chartered Accountant Firm Registration No. 004453S
Sd/- Sd/- Sd/- R. R. Dakshina Murthy S. Kishore K. A. Sastry Partner Whole-time Director Whole-time Director Membership No. 211639 Sd/- Place: Hyderabad D. Suresh Babu Date: 5 May 2012 Company Secretary
F-109
DECLARATION
Our Company certifies that all relevant provisions of the Companies Act, 2013, including the Private Placement Regulations, and Chapter VIII read with Schedule XVIII of the SEBI Regulations have been complied with and no statement made in the Preliminary Placement Document dated June 2, 2014 and in this Placement Document is contrary to the Companies Act, 2013, including the Private Placement Regulations, and Chapter VIII read with Schedule XVIII of the SEBI Regulations. Our Company further certifies that all the statements in the Preliminary Placement Document dated June 2, 2014 and in this Placement Document are true and correct.
Signed by:
Mr. S. Kishore Whole-time Director
Date: June 4, 2014 Place: Hyderabad
206
DECLARATION
We, the Directors of the Company certify that:
(i) the Company has complied with the provisions of the Companies Act, 2013 and the rules made thereunder;
(ii) the compliance with the Companies Act, 2013 and the rules does not imply that payment of dividend or interest or repayment of debentures, if applicable, is guaranteed by the Central Government; and
(iii) the monies received under the offer shall be used only for the purposes and objects indicated in the Placement Document (which includes disclosures prescribed under Form PAS-4).
Signed by:
______
Director
I am authorized by the QIP Committee, a committee of the Board of Directors of the Company, pursuant to resolution number 3 dated June 4, 2014 to sign this form and declare that all the requirements of Companies Act, 2013 and the rules made thereunder in respect of the subject matter of this form and matters incidental thereto have been complied with. Whatever is stated in this form and in the attachments thereto is true, correct and complete and no information material to the subject matter of this form has been suppressed or concealed and is as per the original records maintained by the promoters subscribing to the Memorandum of Association and the Articles of Association.
It is further declared and verified that all the required attachments have been completely, correctly and legibly attached to this form.
Signed:
Date: June 4, 2014 Place: Hyderabad
207
KSK ENERGY VENTURES LIMITED
REGISTERED AND CORPORATE OFFICE OF THE ISSUER
8-2-293/82/A/431/A Road No. 22 Jubilee Hills Hyderabad 500 033, India Website: www.ksk.co.in; CIN: L45204AP2001PLC057199 Contact Person: Mr. M.S. Phani Sekhar, Company Secretary and Compliance Officer
Address of Compliance Officer: 8-2-293/82/A/431/A Road No. 22 Jubilee Hills Hyderabad 500 033, India Tel: (91 40) 2355 9922; Fax: (91 40) 4452 6001; Email: [email protected];
GLOBAL COORDINATOR AND BOOK RUNNING LEAD MANAGER:
Axis Capital Limited 1st Floor, Axis House C-2 Wadia International Centre P.B. Marg, Worli Mumbai 400 025 Maharashtra
BOOK RUNNING LEAD MANAGER:
SBI Capital Markets Limited 202, Maker Tower 'E' Cuffe Parade Mumbai 400 005 Maharashtra
AUDITORS TO OUR COMPANY
Umamaheswara Rao & Co. Flat No. 5-H, D Block 8-3-324, Krishna Apartments Yellareddyguda Lane Ameerpet “X” Roads Hyderabad 500 073, India
INDIAN LEGAL ADVISOR TO THE LEAD MANAGERS
S&R Associates 64 Okhla Industrial Estate Phase III New Delhi 110 020
INTERNATIONAL LEGAL ADVISOR TO THE LEAD MANAGERS
Jones Day 3 Church Street #14 Samsung Hub Singapore 049483
208