Preliminary Placement Document
Subject to Completion any
Not for Circulation
any
in
to Serial Number:_____
or Strictly Confidential
Shares
public
Equity
the
IRB INFRASTRUCTURE DEVELOPERS LIMITED
to
the (Incorporated on July 27, 1998 in the Republic of India with limited liability having corporate identity number L65910MH1998PLC115967 under the Companies Act, 1956)
buy
offer
Our Company is issuing up to [●] equity shares of face value of ₹ 10 each (the “Equity Shares”) at a price of ₹ [●] per Equity Share (the “Issue Price”), including a premium of ₹
or an
[●] per Equity Share, aggregating up to ₹ [●] million (the “Issue”).
to
not
ISSUE IN RELIANCE UPON CHAPTER VIII OF THE is
SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009, AS AMENDED (THE
“SEBI REGULATIONS”) AND SECTION 42 OF THE COMPANIES ACT, 2013, READ WITH RULE 14 OF THE COMPANIES (PROSPECTUS AND and
ALLOTMENT OF SECURITIES) RULES, 2014, EACH AS AMENDED subscribe
to
le purpose of inviting Bids for the Equity Shares Shares Equity the for Bids inviting of purpose le basis
The Equity Shares are listed on BSE Limited (the “BSE”) and National Stock Exchange of India Limited (the “NSE”, and together with the BSE, the “Stock Exchanges”). The
closing prices of the Equity Shares on the BSE and the NSE as at March 19, 2015 was ₹ 233.60 and ₹ 234.35 per Equity Share, respectively. In-principle approvals under Clause 24(a) offer
of the Listing Agreement (as defined hereinafter) for listing of the Equity Shares have been received from both the BSE and the NSE on March 19, 2015. Applications are expected to an be made for obtaining the listing and trading approvals in relation to the Equity Shares to be expected to be issued in connection with the Issue 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 be issued pursuant placement
to the Issue for trading on the Stock Exchanges should not be taken as an indication of the merits of our Company, its business or the Equity Shares.
soliciting
private OUR COMPANY HAS PREPARED THIS PRELIMINARY PLACEMENT DOCUMENT SOLELY FOR PROVIDING INFORMATION IN CONNECTION WITH
not
a
THE PROPOSED ISSUE.
is on
A copy of this Preliminary Placement Document (which includes disclosures prescribed under Form PAS-4 (as hereinafter defined)) has been delivered to the Stock Exchanges, and a and
copy of the Placement Document (which shall include disclosures prescribed under Form PAS-4) is expected to be delivered to the Stock Exchanges. Our Company shall also make QIBs
the requisite filings with the Registrar of Companies, Maharashtra, at Mumbai (the “RoC”), and the Securities and Exchange Board of India (“SEBI”), each within the stipulated
period as required under the Companies Act, 2013 and the Companies (Prospectus and Allotment of Securities) Rules, 2014. This Preliminary Placement Document has not been
Shares
ed. pany and is being issued for the so the for issued being is and pany reviewed by 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 eligible
Eligible qualified institutional buyers (“Eligible QIBs”, as defined hereinafter). This Preliminary 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.
Equity
for
THE DISTRIBUTION OF THIS PRELIMINARY PLACEMENT DOCUMENT IS BEING MADE TO ELIGIBLE QIBs IN RELIANCE UPON SECTION 42 OF THE
any
only COMPANIES ACT, 2013, READ WITH RULE 14 OF THE COMPANIES (PROSPECTUS AND ALLOTMENT OF SECURITIES) RULES, 2014, AND CHAPTER VIII
sell OF THE SEBI REGULATIONS. THIS PRELIMINARY PLACEMENT DOCUMENT IS PERSONAL TO EACH PROSPECTIVE INVESTOR AND DOES NOT
to CONSTITUTE AN OFFER OR INVITATION OR SOLICITATION OF AN OFFER TO THE PUBLIC OR TO ANY OTHER PERSON OR CLASS OF INVESTORS
meant
WITHIN OR OUTSIDE INDIA OTHER THAN TO ELIGIBLE QIBs.
is
offer
This Preliminary Placement Document (which includes disclosures prescribed under Form PAS-4) will be circulated only to such Eligible QIBs whose names are recorded by the an
Company prior to making an invitation to subscribe to the Equity Shares. Issue
not
YOU MAY NOT AND ARE NOT AUTHORISED TO (1) DELIVER THIS PRELIMINARY PLACEMENT DOCUMENT TO ANY OTHER PERSON; OR (2)
The
is
REPRODUCE THIS PRELIMINARY PLACEMENT DOCUMENT IN ANY MANNER WHATSOEVER; OR (3) RELEASE ANY PUBLIC ADVERTISEMENT OR UTILISE ANY MEDIA, MARKETING OR DISTRIBUTION CHANNELS OR AGENTS TO INFORM THE PUBLIC AT LARGE ABOUT THE ISSUE. ANY DISTRIBUTION OR REPRODUCTION OF THIS PRELIMINARY PLACEMENT DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO
COMPLY WITH THIS INSTRUCTION MAY RESULT IN A VIOLATION OF THE SEBI REGULATIONS OR OTHER APPLICABLE LAWS OF INDIA AND/OR
changed.
Document OTHER JURISDICTIONS.
be
INVESTMENTS IN EQUITY SHARES INVOLVE A HIGH DEGREE OF RISK AND PROSPECTIVE INVESTORS SHOULD NOT INVEST IN THE ISSUE UNLESS may
THEY ARE PREPARED TO TAKE THE RISK OF LOSING ALL OR PART OF THEIR INVESTMENT. PROSPECTIVE INVESTORS ARE ADVISED TO
CAREFULLY READ THE SECTION “RISK FACTORS” INCLUDED IN THIS PRELIMINARY PLACMENT DOCUMENT AND EXPECTED TO BE INCLUDED IN
Placement
and
THE PLACEMENT DOCUMENT BEFORE MAKING AN INVESTMENT DECISION RELATING TO THE EQUITY SHARES IN ISSUE. EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS OWN ADVISORS ABOUT THE PARTICULAR CONSEQUENCES OF AN INVESTMENT IN THE EQUITY SHARES BEING ISSUED PURSUANT TO THE PLACEMENT DOCUMENT.
complete
Invitations for subscription of the Equity Shares to be issued pursuant to the Issue shall only be made pursuant to the Placement Document together with the Application Form (as Preliminary
hereinafter defined) and the Confirmation of Allocation Note (as hereinafter defined). For further details, see the section “Issue Procedure”. The distribution of this Preliminary not
Placement Document or the disclosure of its contents without our Company’s prior consent to any person, other than Eligible QIBs and persons retained by Eligible QIBs to advise
is
This them with respect to their purchase of Equity Shares, is unauthorised and prohibited. Each prospective investor, by accepting delivery of this Preliminary Placement Document,
permitted.
agrees to observe the foregoing restrictions and make no copies of this Preliminary Placement Document and/or any of the documents referred to in this Preliminary Placement
Document. not
is
Shares.
The Equity Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the “Securities Act”) and may not be offered or sold within Document the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S (“Regulation S”) under the Securities Act) 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. Accordingly, the Equity Shares are being offered and sold (a) in Equity the United States only to persons who are qualified institutional buyers (as defined in Rule 144A under the Securities Act (“Rule 144A”) and referred to in this Preliminary
Placement Document as “U.S. QIBs”; for the avoidance of doubt, the term U.S. QIBs does not refer to a category of institutional investors defined under applicable Indian regulations
subscription
Placement
the and referred to in this Preliminary Placement Document as “Eligible QIBs”), and (b) outside the United States in offshore transactions as defined in and in reliance on Regulation S.
or
Prospective purchasers in the United States are hereby notified that we are relying on the exemption under Section 4(a)(2) of the Securities Act. The Equity Shares are transferable
only in accordance with the restrictions described under “Transfer Restrictions”. For further details, see sections “Selling Restrictions” and “Transfer Restrictions”. sale
purchase The information on our Company’s website, any website directly or indirectly linked to our Company’s website, or the website of the Book Running Lead Managers or their
to
Preliminary respective affiliates does not form part of this Preliminary Placement Document and prospective investors should not rely on such information contained in, or available through, any
offer,
such websites.
this This Preliminary Placement Document is dated March 19, 2015
such
in
BOOK RUNNING LEAD MANAGERS investors
where
of
class information EMKAY GLOBAL FINANCIAL SERVICES LIMITED
ICICI SECURITIES LIMITED
other jurisdiction
The IDFC SECURITIES LIMITED
Com the of Shares Equity the purchase to person any to offer public a not constitute does Document Placement Preliminary This chang be and may complete not is Document Placement thisPreliminary in information The thisIssue. to pursuant offered being
TABLE OF CONTENTS
NOTICE TO INVESTORS ...... 1 REPRESENTATIONS BY INVESTORS ...... 3 OFFSHORE DERIVATIVE INSTRUMENTS ...... 8 DISCLAIMER CLAUSE OF THE STOCK EXCHANGES ...... 9 PRESENTATION OF FINANCIAL AND OTHER INFORMATION ...... 10 INDUSTRY AND MARKET DATA ...... 11 AVAILABLE INFORMATION ...... 12 FORWARD-LOOKING STATEMENTS ...... 13 ENFORCEMENT OF CIVIL LIABILITIES ...... 14 EXCHANGE RATE INFORMATION ...... 15 DEFINITIONS AND ABBREVIATIONS...... 16 DISCLOSURE REQUIREMENTS UNDER FORM PAS-4 PRESCRIBED UNDER THE COMPANIES ACT, 2013 ...... 21 SUMMARY OF BUSINESS ...... 24 SUMMARY OF THE ISSUE...... 28 SUMMARY FINANCIAL INFORMATION ...... 30 RISK FACTORS ...... 38 MARKET PRICE INFORMATION ...... 64 USE OF PROCEEDS ...... 66 CAPITALISATION STATEMENT ...... 67 CAPITAL STRUCTURE ...... 68 DIVIDEND POLICY ...... 70 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ...... 71 INDUSTRY ...... 94 OUR BUSINESS ...... 100 REGULATIONS AND POLICIES ...... 124 BOARD OF DIRECTORS AND KEY MANAGERIAL PERSONNEL ...... 128 PRINCIPAL SHAREHOLDERS ...... 136 ISSUE PROCEDURE ...... 139 PLACEMENT ...... 150 SELLING RESTRICTIONS ...... 152 TRANSFER RESTRICTIONS...... 157 THE SECURITIES MARKET OF INDIA ...... 159 DESCRIPTION OF THE EQUITY SHARES ...... 162 TAXATION ...... 165 LEGAL PROCEEDINGS ...... 186 STATUTORY AUDITORS ...... 196 GENERAL INFORMATION...... 197 FINANCIAL STATEMENTS ...... 199 DECLARATION ...... 200
NOTICE TO INVESTORS
Our Company has furnished and accepts full responsibility for all of the information contained in this Preliminary Placement Document and confirms that to its best knowledge and belief, having made all reasonable enquiries, this Preliminary Placement Document contains all information with respect to our Company, its Subsidiaries and the Equity Shares that is material in the context of the Issue. The statements contained in this Preliminary Placement Document relating to our Company, its Subsidiaries and the Equity Shares are, in all material respects, true and accurate, and not misleading. The opinions and intentions expressed in this Preliminary Placement Document with regard to our Company, its Subsidiaries and the Equity Shares are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions and information presently available to our Company. There are no other facts in relation to our Company, its Subsidiaries and the Equity Shares, the omission of which would, in the context of the Issue, make any statement in this Preliminary Placement Document misleading in any material respect. Further, our Company has made all reasonable enquiries to ascertain such facts and to verify the accuracy of all such information and statements.
IDFC Securities Limited, ICICI Securities Limited and Emkay Global Financial Services Limited (collectively, the “Book Running Lead Managers”) have not separately verified all of the information contained in this Preliminary Placement Document (financial, legal or otherwise). Accordingly, neither the Book Running Lead Managers nor any of their respective shareholders, employees, counsel, officers, directors, representatives, agents or affiliates makes any express or implied representation, warranty or undertaking; and no responsibility or liability is accepted by any of the Book Running Lead Managers or any of their respective shareholders, employees, counsel, officers, directors, representatives, agents or affiliates as to the accuracy or completeness of the information contained in this Preliminary Placement Document or any other information supplied in connection with our Company, its Subsidiaries and the Equity Shares. Each person receiving this Preliminary Placement Document acknowledges that such person has not relied on either the Book Running 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, its Subsidiaries and the merits and risks involved in investing in the Equity Shares.
No person is authorised to give any information or to make any representation not contained in this Preliminary Placement Document and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of our Company or by or on behalf of the Book Running Lead Managers. The delivery of this Preliminary 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 to be issued pursuant to the Issue have not been approved, disapproved or recommended by the U.S. Securities and Exchange Commission, any other federal or state authorities in the United States or the securities authorities of any non-United States jurisdiction or any other United States or non-United States regulatory authority. No authority has passed on or endorsed the merits of the Issue or the accuracy or adequacy of this Preliminary Placement Document. Any representation to the contrary is a criminal offense in the United States and may be a criminal offense in other jurisdictions.
The Equity Shares have not been and will not be registered under the Securities Act, and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.
Within the United States, this Preliminary Placement Document is being provided only to “qualified institutional buyers” as defined in Rule 144A, who are also Eligible QIBs. Distribution of this Preliminary Placement Document to any person other than the Eligible QIBs specified by the Book Running Lead Managers or their representatives, and those persons, if any, retained to advise such Eligible QIBs with respect thereto, is unauthorised and any disclosure of its contents, without the prior written consent of our Company, is prohibited. Any reproduction or distribution of this Preliminary Placement Document in the United States, in whole or in part, and any disclosure of its contents to any other person is prohibited. The distribution of this Preliminary Placement Document or the disclosure of its contents without the prior consent of our Company to any person, other than Eligible QIBs whose names are recorded by our Company prior to the invitation to subscribe to the Issue (in consultation with the Book Running Lead Managers or their representatives) and those retained by Eligible 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 Preliminary Placement Document, agrees to observe the foregoing restrictions and to make no copies of this Preliminary Placement Document 1
or any documents referred to in this Preliminary Placement Document.
The distribution of this Preliminary Placement Document and the issue of the Equity Shares may be restricted in certain jurisdictions by law. As such, this Preliminary 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 authorised 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 Book Running Lead Managers which would permit an offering of the Equity Shares or distribution of this Preliminary Placement Document in any 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 Preliminary Placement Document nor any offering material 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. For further information, see the section “Selling Restrictions”.
In making an investment decision, prospective investors must rely on their own examination of our Company, its Subsidiaries and the terms of the Issue, including the merits and risks involved. Investors should not construe the contents of this Preliminary Placement Document as legal, business, 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 Book Running Lead Managers is 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. 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 law including Chapter VIII of the SEBI Regulations and Section 42 of the Companies Act, 2013, and that it is not prohibited by SEBI or any other statutory authority from buying, selling or dealing in the securities including the Equity Shares. Each Eligible QIB subscribing to 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 Preliminary Placement Document contains summaries of certain terms of certain documents, which summaries are qualified in their entirety by the terms and conditions of such document.
The information on our Company’s website, www.irb.co.in, any website directly and indirectly linked to the website of our Company or on the website of the Book Running Lead Managers or their affiliates, does not constitute nor form part of this Preliminary Placement Document. The prospective investors should not rely on such information contained in, or available through, any such websites.
2
REPRESENTATIONS BY INVESTORS
References herein to “you” or “your” are to the propective investors in the Issue.
By bidding for and subscribing to any Equity Shares in the Issue, you are deemed to have represented, warranted, acknowledged and agreed to our Company and the Book Running Lead Managers as follows:
You are an Eligible QIB 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 an Eligible 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) having a valid and existing certificate of registration with or on behalf of SEBI under the applicable laws in India and are eligible to invest in India under applicable law, including the FEMA 20 (as defined hereinafter), and any notifications, circulars or clarifications issued thereunder; and have not been prohibited by SEBI or any other regulatory authority, from buying, selling or dealing in securities;
You are investing in the Issue under the Foreign Portfolio Investment Scheme or the Portfolio Investment Scheme (each as defined hereinafter), as the case may be;
You will make all necessary filings with appropriate regulatory authorities, including the RBI, as required pursuant to applicable laws;
If you are Allotted Equity Shares in the Issue, you shall not, for a period of one year from the date of Allotment, sell the Equity Shares so acquired except on the floor of the Stock Exchanges. Additional restrictions apply if you are within the United States. See the section “Transfer Restrictions”;
You have made, or are deemed to have made, as applicable, the representations set forth under the sections “Selling Restrictions” and “Transfer Restrictions”;
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 Preliminary Placement Document (which includes disclosures prescribed under Form PAS-4) has not been reviewed or affirmed by the RBI, SEBI, the Stock Exchanges, the RoC or any other regulatory or listing authority and is intended only for use by Eligible QIBs;
You are entitled to subscribe for and acquire the Equity Shares under the laws of all relevant jurisdictions that apply to you and that you have: (i) fully observed such laws; (ii) the necessary capacity and (iii) obtained all necessary consents, governmental or otherwise, and authorisations 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 authorisations to agree to the terms set out or referred to in this Preliminary Placement Document), and will honour such obligations;
Neither our Company nor any of the Book Running Lead Managers or any of their shareholders, directors, officers, employees, counsel, representatives, agents or affiliates is making any recommendations to you or advising you regarding the suitability of any transactions it 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, be a client of any of the Book Running Lead Managers. Neither the Book Running 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 3
you have participated in or attended any Company Presentations: (a) you understand and acknowledge that the Book Running 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 Book Running 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 you have not been provided any material information relating to our Company and the Issue that was not publicly available;
Your decision to subscribe to the Equity Shares to be issued pursuant to the Issue has not been made on the basis of any information relating to the Company which is not set forth in the Preliminary Placement Document;
You are subscribing to the Equity Shares to be issued pursuant to the Issue in accordance with applicable laws and by participating in this Issue, you are not in violation of any applicable law including but not limited to SEBI Prohibition of Insider Trading Regulations (as defined hereinafter), the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to the Securities Market) Regulations, 2003 and the Companies Act, and the rules made thereunder;
All statements other than statements of historical fact included in this Preliminary 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 the environment in which our Company shall operate in the future. You should not place undue reliance on forward-looking statements, which speak only as at the date of this Preliminary Placement Document. Our Company assumes no responsibility to update any of the forward- looking statements contained in this Preliminary Placement Document;
You are aware and understand that the Equity Shares are being offered only to Eligible QIBs and are not being offered to the general public, and the Allotment shall be made at the discretion of our Company and the Book Running Lead Managers;
You are aware that if you are Allotted more than 5% 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. Further, if you are one of the top 10 shareholders in the Company, the Company will be required to make a filing with the RoC within 15 days of the change, under Section 93 of the Companies Act, 2013;
You have been provided a serially numbered copy of this Preliminary Placement Document and have read it in its entirety, including in particular, the section “Risk Factors”;
In making your investment decision, you have (i) relied on your own examination of our Company, its Subsidiaries and the terms of the Issue, including the merits and risks involved, (ii) made your own assessment of our Company, the Equity Shares and the terms of the Issue based solely on the information contained in this Preliminary Placement Document and no 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) relied solely on the information contained in this Preliminary Placement Document and no other disclosure or representation by our Company or any other party, (v) 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 (vi) relied upon your own investigation and resources in deciding to invest in the Issue;
Neither the Book Running 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 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 the proceeds from the Equity Shares). You will 4
obtain your own independent tax advice from a reputable service provider and will not rely on the Book Running 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 the proceeds from the Equity Shares). You waive, and agree not to assert any claim, against our Company or the Book Running Lead Managers or any of their respective 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 and similar stage of development, and in similar jurisdictions. You and any accounts for which you are subscribing for 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 Book Running 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 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 resell 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 authorised 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 related to the Promoters;
You agree and acknowledge that in terms of Section 42(7) of the Companies Act, 2013 and Rule 14(3) of the Companies (Prospectus and Allotment of Securities) Rules, 2014, our Company shall file the list of Eligible QIBs to whom the Placement Documents are circuated) along with other particulars with the RoC and SEBI within 30 days of circulation of the Preliminary Placement Document and other filings required under the Companies Act, 2013 in connection with the Issue;
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 of our Company 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 Promoters;
You will have no right to withdraw your Bid after the Bid/Issue Closing Date (as defined hereinafter);
You are eligible 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 Code”);
To the best of your knowledge and belief, the number of Equity Shares Allotted to you pursuant to the Issue, 5
together with other Allottees that belong to the same group or are under common control, shall not exceed 50% of the Issue. For the purposes of this representation:
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; and b. ‘Control’ shall have the same meaning ascribed to it by Regulation 2(1)(e) of the Takeover Code;
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;
You are aware that (i) applications for in-principle approval, in terms of Clause 24(a) of the Listing Agreements, for listing and admission of the Equity Shares and for trading on the Stock Exchanges, were made and an approval has been received from each of the Stock Exchanges, and (ii) the application for the final listing and trading approvals will be made only after Allotment. There can be no assurance that the 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 Book Running Lead Managers have entered into a placement agreement with our Company whereby the Book Running Lead Managers have severally (and not jointly or jointly and severally), subject to the satisfaction of certain conditions set out therein, undertaken to use their reasonable efforts as placement agents to procure subscriptions for the Equity Shares on the term and conditions set forth therein;
The contents of this Preliminary Placement Document are exclusively the responsibility of our Company, and neither the Book Running Lead Managers nor any person acting on their behalf has or shall have any liability for any information, representation or statement contained in this Preliminary 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 Preliminary 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 Preliminary 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 Book Running Lead Managers or our Company or any of their respective affiliates or any other person, and neither the Book Running Lead Managers nor our Company nor 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 Book Running 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 the non- performance by us or any of our respective obligations or any breach of any representations or warranties by us, whether to you or otherwise;
You understand that the Equity Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state of the United States and accordingly, may not be offered or sold within the United States, except in reliance on an exemption from the registration requirements of the Securities Act;
If you are within the United States, you are a “qualified institutional buyer” as defined in Rule 144A under the Securities Act, are acquiring the Equity Shares for your own account or for the account of an institutional investor who also meets the requirements of a “qualified institutional buyer”, for investment purposes only, and not with a view to, or for resale in connection with, the distribution (within the meaning of any United States securities laws) thereof, in whole or in part;
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 Mumbai, India shall have exclusive jurisdiction to settle 6
any disputes which may arise out of or in connection with this Preliminary Placement Document and the 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 issued pursuant to the Issue;
You agree to indemnify and hold our Company and the Book Running Lead Managers and their respective directors, officers, affiliates and 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 theforegoing representations, warranties, acknowledgements and undertakings made by you in thisPreliminary 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 Book Running Lead Managers, their respective affiliates and others will rely on the truth and accuracy of the foregoing representations, warranties, acknowledgements and undertakings, which are given to the Book Running Lead Managers on their own behalf and on behalf of our Company, and are irrevocable and it is agreed that if any of such representations, warranties, acknowledgements and undertakings are no longer accurate, you will prompty notify our Company and the Book Running Lead Managers.
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OFFSHORE DERIVATIVE INSTRUMENTS
Subject to compliance with all applicable Indian laws, rules, regulations, guidelines and approvals in terms of Regulation 22 of the Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 (“SEBI FPI Regulations”), Foreign Portfolio Investors (which include FIIs) other than Category III Foreign Portfolio Investors (as defined hereinafter) and unregulated broad based funds, which are classified as Category II Foreign Portfolio Investors (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, for which they may receive compensation from the purchasers of such instruments. P-Notes may be issued only in favour of those entities which are regulated by any appropriate foreign regulatory authorities in the countries of their incorporation, and are issued in compliance with ‘know your client’ requirements. An FPI shall also ensure that no further issue or transfer of any instrument referred to above is made to any person other than such entities regulated by appropriate foreign regulatory authorities. Further, pursuant to the SEBI Circular (CIR/IMD/FIIC/20/2014) dated November 24, 2014, an FPI shall issue P-Notes only to those subscribers which do not have opaque structures (as defined under the SEBI FPI Regulations) and that meet the eligibility criteria under Regulation 4 of the SEBI FPI Regulations. P-Notes have not been, and are not being offered, or sold pursuant to this Preliminary Placement Document. This Preliminary Placement Document does not contain any information concerning P-Notes or the issuer(s) of any P-notes, including 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 any 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 Book Running 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 Book Running Lead Managers and do not constitute any obligations of or claims on the Book Running Lead Managers. Affiliates of the Book Running 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 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.
8
DISCLAIMER CLAUSE OF THE STOCK EXCHANGES
As required, a copy of this Preliminary Placement Document has been submitted to the Stock Exchanges. The Stock Exchanges do not in any manner:
(1) warrant, certify or endorse the correctness or completeness of any of the contents of this Preliminary Placement Document;
(2) warrant that the Equity Shares will be listed or will continue to be listed on the Stock Exchanges; or
(3) 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 Preliminary 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 any of 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.
9
PRESENTATION OF FINANCIAL AND OTHER INFORMATION In this Preliminary 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; and references to the ‘Company’, ‘Issuer’ are to IRB Infrastructure Developers Limited and references to ‘we’, ‘us’ or ‘our’ are to our Company and our Subsidiaries on a consolidated basis.
In this Preliminary Placement Document, references to ‘₹’, ‘INR’, ‘Rs.’, ‘Indian Rupees’ and ‘Rupees’ are to the legal currency of India, and references to ‘US$’, ‘USD’ and ‘U.S. dollars’ are to the legal currency of the United States of America. All references herein to “India” are to the Republic of India and its territories and possessions and the ‘Government’ or ‘GoI’or the ‘Central Government’ or the ‘State Government’ are to the Government of India, central or state, as the case may be. All references herein to the ‘US’ or ‘U.S.’ or the ‘United States’ are to the United States of America and its territories and possessions.
References to the singular also refer to the plural and one gender also refers to any other gender, wherever applicable. Our Company has presented certain numerical information in this Preliminary Placement Document in “million” units. One million represents 1,000,000 and one billion represents 1,000,000,000.
Our financial and fiscal year 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 ‘fiscal’ or ‘FY’ are to the year ended on March 31st of that year. Our consolidated audited financial statements as of and for the years ended March 31, 2014, 2013 and 2012 prepared in accordance with Indian GAAP, the Companies Act, 1956 and the Companies Act, 2013, to the extent applicable (“Consolidated Financial Statements”) and our unaudited condensed interim consolidated financial statements as of and for the nine months ended December 31, 2014 prepared in accordance with principles laid down in Accounting Standards 25 'Interim Financial Reporting', notified under the Companies Act, 1956 (which is deemed to be applicable as per section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014) (“Unaudited Condensed Interim Consolidated Financial Statements”), are included in this Preliminary Placement Document and are collectively referred to herein as the “Financial Statements”.
Our Company publishes its Financial Statements in Indian Rupees. Unless context otherwise required, all financial data in this Preliminary Placement Document is derived from our Consolidated Financial Statements and Unaudited Condensed Interim Consolidated Financial Statements prepared in accordance with Indian GAAP. Indian GAAP differs in certain respects significantly from International Financial Reporting Standards (“IFRS”) and U.S. GAAP. We have not attempted to quantify the impact of U.S. GAAP or IFRS on the financial data included in this Preliminary Placement Document, nor have we provided a reconciliation of our Consolidated Financial Statements to those of U.S. GAAP or IFRS. Accordingly, the degree to which the Consolidated Financial Statements prepared in accordance with Indian GAAP included in this Preliminary Placement Document will provide meaningful information is entirely dependent on the reader’s level of familiarity with the respective accounting practices. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures presented in this Preliminary Placement Document should accordingly be limited.
In this Preliminary 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.
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INDUSTRY AND MARKET DATA
Information included in this Preliminary Placement Document regarding market position, growth rates and other industry data pertaining to our businesses consists of estimates based on data reports compiled by government bodies, professional organisations and analysts, data from other external sources and knowledge of the markets in which we operate. Unless stated otherwise, statistical information included in this Preliminary Placement Document pertaining to the industry in which our Company operates has been reproduced from trade, industry and government publications and websites. Our Company confirms that such information and data has been accurately reproduced, and that as far as it is aware and is able to ascertain from information published by third parties, no material facts have been omitted that would render the reproduced information inaccurate or misleading.
This information is subject to change and cannot be verified with complete certainty due to limits on the availability and reliability of the raw data and other limitations and uncertainties inherent in any statistical survey. In many cases, there is no readily available external information (whether from trade or industry associations, government bodies or other organisations) to validate market-related analysis and estimates, and so we have relied on internally developed estimates.
Neither we nor the Book Running Lead Managers have independently verified this data, nor do we or the Book Running Lead Managers make any representation regarding the accuracy of such data. Similarly, while our Company believes its internal estimates to be reasonable, such estimates have not been verified by any independent sources and neither we nor the Book Running Lead Managers can assure potential investors as to their accuracy and completeness.
The extent to which the market and industry data used in this Preliminary 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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AVAILABLE INFORMATION
Our Company has agreed that, for so long as any Equity Shares are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act, our Company will, during any period in which it is neither subject to Section 13 or 15(d) of the U.S. Securities Exchange Act of 1934 nor exempt from reporting pursuant to Rule 12g3-2(b) thereunder, provide to any holder or beneficial owner of such restricted securities or to any prospective purchaser of such restricted securities designated by such holder or beneficial owner, upon the request of such holder, beneficial owner or prospective purchaser, the information required to be provided by Rule 144A(d)(4) under the Securities Act.
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FORWARD-LOOKING STATEMENTS
Certain statements contained in this Preliminary 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’, or other words or phrases of similar import. Similarly, statements that describe the strategies, objectives, plans or goals 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 Preliminary Placement Document that are not historical facts. These forward-looking statements contained in this Preliminary 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:
general, political, social and economic conditions in India and elsewhere; accidents, natural disasters or outbreaks of diseases; delays in the completion of construction of our current and future projects; timely supply of construction materials and equipment; delays in the acquisition of private land by the Government or eviction of encroachments from Government owned land; financial performance of our Project SPVs and other Subsidiaries; our ability to raise required funds in future in a timely manner; infrastructure development and construction projects undertaken by a limited number of Government or state government entities; Leakage of the tolls collected on our BOT toll roads; increase in operation and maintenance costs to comply with industry and regulatory specifications and standards.
Additional factors that could cause actual results, performance or achievements of our Comapany to differ materially include, but are not limited to, those discussed under the sections “Risk Factors”, “Industry”, “Our Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”.
By their nature, market risk disclosures are only estimates and could be materially different from what actually occurs in the future. As a result, actual future gains, losses or impact on net interest income and net income could materially differ from those that have been estimated, expressed or implied by such forward looking statements or other projections. The forward-looking statements contained in this Preliminary 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 Preliminary Placement Document or the respective dates indicated in this Preliminary Placement Document and neither our Company nor the Book Running Lead Managers undertake any 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 limited liability company incorporated under the laws of India. Our Directors and the key managerial 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 by the same parties or between parties under whom they or any of them claim to be 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 district 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, Republic of Singapore and Hong Kong (among others) are some of the countries that have 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. Additionally, any judgment or award in a foreign currency would be converted into Rupees at the applicable foreign exchange rate on the date such judgment or award becomes enforceable 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 pursuant to such award, and any such amount may be subject to income tax in accordance with applicable laws. Further, any judgment or award in foreign currency would be converted with Rupees on the date of such judgement or award and not on the date of payment. Our Company cannot predict whether a suit brought in an Indian court will be disposed off in a timely manner or be subject to considerable delays.
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EXCHANGE RATE INFORMATION Fluctuations in the exchange rate between the Rupee and the foreign currencies will affect the foreign currency equivalent of the Rupee price of the Equity Shares traded on the Stock Exchanges. These fluctuations will also affect the conversion into foreign currencies of any cash dividends paid in Rupees on Equity Shares.
The following table sets forth, for the periods indicated, information with respect to the exchange rate between the Rupee and the U.S. dollar (in ₹ per US$). 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 March 18, 2015, the exchange rate (RBI reference rate) was ₹ 62.67 to US$ 1.00. (Source: www.rbi.org.in)
Period End Average(1) High Low Financial Year: (₹ per US$) 2014 60.10 60.50 68.36 53.74 2013 54.39 54.45 57.22 50.56 2012 51.16 47.95 54.24 43.95
Quarter ended: December 31, 2014 63.33 62.00 63.75 61.04 September 30, 2014 61.61 60.59 61.61 59.72 June 30, 2014 60.09 59.77 61.12 58.43 March 31, 2014 60.10 61.79 62.99 60.10 December 31, 2013 61.90 62.03 63.65 61.16 September 30, 2013 62.78 62.13 68.36 58.91
Month ended: February 28, 2015 61.79 62.04 62.43 61.68 January 31, 2015 61.76 62.23 63.45 61.41 December 31, 2014 63.33 62.75 63.75 61.85 November 30, 2014 61.97 61.70 62.10 61.39 October 31, 2014 61.40 61.34 61.75 61.04 September 30, 2014 61.61 60.86 61.61 60.26 (1) Average of the official rate for each working day of the relevant period.
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DEFINITIONS AND ABBREVIATIONS The Company has prepared this Preliminary Placement Document using certain definitions and abbreviations which you should consider when reading the information contained herein.
The following list is intended for the convenience of the reader/prospective investor only and is not exhaustive. The terms defined in this Preliminary Placement Document shall have the meaning set forth in this chapter unless the context specifies otherwise and reference to any statute or regulations or policies shall include amendments thereto from time to time.
Company and Industry Related Terms
Term Description The Company or our Company IRB Infrastructure Developers Limited, a public limited company incorporated under the Companies Act, 1956 and having its registered office at 3rd floor, IRB Complex, Chandivali Farm, Chandivali Village, Andheri (East), Mumbai – 400 072, Maharashtra, India Articles/Articles of Association Articles of Association of the Company, as amended Auditors The current statutory auditors of the Company, M/s. S. R. Batliboi & Co. LLP, Chartered Accountants. Firm registration no.301003E Board / Board of Directors The board of directors of the Company or a duly constituted committee thereof Directors The directors of the Company Equity Shares The equity shares of the Company having face value of ₹ 10 each HUF Hindu Undivided Family Memorandum/Memorandum Memorandum of Association of the Company, as amended of Association Project SPV Special Purpose Vehicle Promoter Group Promoter group of the Company as defined in Regulation 2(1)(zb) of the SEBI Regulations. While Mr. Jayant D. Mhaiskar (the brother of our Promoter, Mr. Virendra D. Mhaiskar), or an entity in which Mr. Jayant D. Mhaiskar may have an interest, is a member of our Promoter Group (as defined under Regulation 2(1)(zb) of the SEBI Regulations) due to Mr. Jayant D. Mhaiskar’s relation with our individual Promoter, we have not been able to obtain any information or undertakings from such person or entity, as the case may be, as is customarily obtained in offerings in the nature of the Issue. As such, this Preliminary Placement Document does not contain any information or undertakings in relation to Mr. Jayant D. Mhaiskar. Promoters Mr. Virendra D. Mhaiskar, Mrs. Deepali V. Mhaiskar and Virendra D. Mhaiskar HUF. Registered Office 3rd Floor, IRB Complex, Chandivali Farm, Chandivali Village, Andheri (East), Mumbai – 400 072, Maharashtra, India Subsidiaries 1. Ideal Road Builders Private Limited (“IRBPL”) 2. Mhaiskar Infrastructure Private Limited (“MIPL”) 3. Modern Road Makers Private Limited (“MRMPL”) 4. Aryan Toll Road Private Limited (“ATRPL”) 5. ATR Infrastructure Private Limited(“ATRFL”) 6. IRB Infrastructure Private Limited (“IRBFL”) 7. Thane Ghodbunder Toll Road Private Limited (“TGTRPL”) 8. IDAA Infrastructure Private Limited (“IDAA”) 9. Aryan Infrastructure Investments Private Limited (“AIIPL”) 10. NKT Road & Toll Private Limited (“NKT”) 11. MMK Toll Road Private Limited (“MMK”) 12. IRB Surat Dahisar Tollway Private Limited (“IRBSD”) 13. IRB Kolhapur Integrated Road Development Company Private Limited (“IRBK”) 14. Aryan Hospitality Private Limited (“AHPL”) 15. IRB Sindhudurg Airport Private Limited (“IRBSA”) 16. IRB Pathankot Amritsar Toll Road Private Limited (“IRBPA”) 17. IRB Talegaon Amravati Tollway Private Limited (“IRBTA”) 18. IRB Jaipur Deoli Tollway Private Limited (“IRBJD”) 19. IRB Goa Tollway Private Limited (“IRB Goa”) 20. IRB Tumkur Chitradurga Tollway Private Limited (“IRBTC”) 21. MRM Highways Private Limited (“MRM Highways”) 22. IRB Ahmedabad Vadodara Super Express Tollway Private Limited (“IRBAV”) 23. J J Patel Infrastructural and Engineering Private Limited (“JJP”) 24. IRB Westcoast Tollway Private Limited (“IRB Westcoast”) 25. M.V.R Infrastructure and Tollways Private Limited (“MVR”) 26. Solapur Yedeshi Tollway Private Limited (“SYTPL”) 16
Term Description 27. Yedeshi Aurangabad Tollway Private Limited (“YATPL”) 28. Kaithal Tollway Private Limited (“KTPL”)
Issue Related Terms
Term Description Allocated/ Allocation The allocation of Equity Shares by our Company (in consultation with the Book Running Lead Managers) following the determination of the Issue Price to QIBs, to successful Bidders on the basis of the Application Form submitted by such successful Bidders, and in compliance with Chapter VIII of the SEBI Regulations Allot/ Allotment/ Allotted The issue and allotment of Equity Shares to Eligible QIBs pursuant to the Issue Allottees Successful Bidders to whom Equity Shares are Allotted pursuant to the Issue Application Form The form (including any revisions thereof) pursuant to which an Eligible QIB shall submit a Bid for the Equity Shares in the Issue Bid(s) Indication of an interest in subscribing to the Equity Shares offered in the Issue as set out in the Application Form of bidders (and includes all revisions and/or modifications thereof) Bid/Issue Closing Date [●], 2015, which is the last date up to which Application Forms shall be accepted Bid/Issue Opening Date March 19, 2015 Bidder Any prospective investor, being an Eligible QIB, who makes a Bid pursuant to the terms of this Preliminary Placement Document and the Application Form Bidding Period The period between the Bid/Issue Opening Date and Bid/Issue Closing Date, inclusive of both dates, during which prospective Bidders can submit Bids, including any revision and/or modifications thereof Book Running Lead IDFC Securities Limited, ICICI Securities Limited and Emkay Global Financial Services Managers/Lead Managers Limited CAN or Confirmation of Note or advice or intimation sent only to successful Bidders confirming Allocation of Equity Allocation Note Shares to such successful Bidders after determination of the Issue Price and requesting payment for the entire applicable Issue Price for all Equity Shares Allocated to such successful Bidders Closing Date The date on which Allotment of Equity Shares pursuant to the Issue shall be made, i.e., on or about [●] Consolidated Financial The audited consolidated financial statements as of and for the years ended March 31, 2014, Statements 2013 and 2012 Cut-off Price The Issue Price of the Equity Shares to be issued pursuant to the Issue which shall be finalized by our Company in consultation with the Book Running Lead Managers Designated Date The date of credit of Equity Shares to the successful Bidders demat accounts, as applicable to the respective successful Bidders Eligible QIBs A qualified institutional buyer as defined under Regulation 2(1)(zd) of the SEBI Regulations other than foreign venture capital investors and international multilateral and bilateral development financial institutions and not excluded pursuant to Regulation 86 of the SEBI Regulations. Escrow Agreement Agreement dated March 19, 2015, entered into amongst our Company, the Escrow Bank and the Book Running Lead Managers for collection of the money received towards the subscription of the Equity Shares and for remitting refunds, if any, of the amounts collected, to the Bidders Escrow Bank HDFC Bank Limited Escrow Bank Account The account entitled “IRB Infrastructure Developers Limited-QIP Escrow Account” opened with the Escrow Bank for collection of the money received towards the subscription of the Equity Shares and remitting refunds, if any, of the amounts received to the Bidders, subject to the terms of the Escrow Agreement Floor Price The floor price of ₹ 242.67, which has been calculated in accordance with Chapter VIII of the SEBI Regulations Financial Statements The Consolidated Financial Statements and the Unaudited Condensed Interim Consolidated Financial Statements Issue The issue and Allotment of up to [●] Equity Shares to Eligible QIBs pursuant to Chapter VIII of the SEBI Regulations and the provisions of the Companies Act, 2013 Issue Price ₹ [●] per Equity Share Issue Size The aggregate size of the Issue, which is up to ₹ [●] million Listing Agreement The agreement entered into between our Company and each of the Stock Exchanges in relation to listing of the Equity Shares on each of the Stock Exchanges Mutual Fund A mutual fund registered with SEBI under the Securities and Exchange Board of India (Mutual Funds) Regulations, 1996, as amended Mutual Fund Portion 10% 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 17
Term Description Placement Agreement Placement agreement dated March 19, 2015 entered into between our Company and the Book Running Lead Managers Placement Document The placement document to be issued by our Company in accordance with Chapter VIII of the SEBI Regulations and Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, and any addendum or corrigendum thereto Preliminary Placement This preliminary placement document dated March 19, 2015 issued in accordance with Chapter Document VIII of the SEBI Regulations and Section 42 of the Companies Act, 2013 Pricing Date The date of determination of the number of Equity Shares to be placed through the Issue and the Issue Price for the same QIBs or Qualified Qualified institutional buyers as defined under Regulation 2(1)(zd) of the SEBI Regulations Institutional Buyers QIP Private placement to Eligible QIBs under Chapter VIII of the SEBI Regulations and Section 42 of the Companies Act, 2013, read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014 Unaudited Condensed Interim The statement of unaudited condensed interim consolidated financial statements as of and for the Consolidated Financial nine months ended December 31, 2014 prepared in accordance with principles laid down in Statements Accounting Standards 25 ‘Interim Financial Reporting’, notified under the Companies Act, 1956 (which is deemed to be applicable as per section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014) Relevant Date March 19, which is the date of the meeting in which the Board of Directors or QIP Committee decided to open the Issue
Conventional and General Terms/ Abbreviations
Term/Abbreviation Full Form
₹ / Rupees / Rs. / INR Indian Rupees AGM Annual general meeting AIF(s) Alternative investment funds, as defined and registered with SEBI under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012 AS Accounting Standards issued by the Institute of Chartered Accountants of India AY Assessment year BOT Build-operate-transfer BSE BSE Limited Calendar Year Year ending on December 31 Category III Foreign Portfolio An FPI registered as a category III foreign portfolio investor under the SEBI FPI Regulations Investors CCI Competition Commission of India CDSL Central Depository Services (India) Limited CEO Chief executive officer CII Confederation of Indian Industry CIN Corporate identity number Civil Procedure Code The Code of Civil Procedure, 1908, as amended Companies Act The Companies Act, 1956 and/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 the notification of the Notified Sections) Companies Act, 2013 The Companies Act, 2013 and the rules made thereunder to the extent in force pursuant to the notification of the Notified Sections Competition Act The Competition Act, 2002, as amended DBFOT Design, build, finance, operate and transfer Depositories Act The Depositories Act, 1996, as amended Depository A depository registered with SEBI under the Securities and Exchange Board of India (Depositories and Participants) Regulations, 1996, as amended Depository Participant A depository participant as defined under the Depositories Act DTC Direct Taxes Code, 2013, proposed by the Ministry of Finance, Government of India EBITDA Earnings Before Interest Tax Depreciation and Amortisation EGM Extraordinary general meeting Eligible FPIs FPIs that are eligible to participate in the Issue and does not include Category III Foreign Portfolio Investors (who are not eligible to participate in the Issue) Emkay Emkay Global Financial Services Limited EPS Earnings per share, i.e., profit after tax for a financial year divided by the weighted average number of equity shares during the financial year 18
Term/Abbreviation Full Form
FDI Foreign Direct Investment FDI Policy Consolidated Foreign Direct Investment Policy notified under Circular No. 1 of 2014, effective from April 17, 2014, as amended from time to time FEMA 20 The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended FIIs Foreign institutional investors as defined under Regulation 2(g) of the SEBI FPI Regulations and registered as such with the SEBI FII Regulations The Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995, as amended Financial Year / Fiscal Year / Period of 12 months ended March 31 of that particular year, unless otherwise stated Fiscal FIPB Foreign Investment Promotion Board Foreign Portfolio Investment The foreign portfolio investment scheme of the RBI specified in Schedule 2A of FEMA 20 Scheme FPI 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 FII Regulations FVCI Foreign venture capital investors as defined under and registered with SEBI pursuant to the Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000, as amended GAAP Generally accepted accounting principles GDP Gross domestic product GoI / Government Government of India ICAI The Institute of Chartered Accountants of India ICICI ICICI Securities Limited IDFC IDFC Securities Limited IFRS International Financial Reporting Standards issued by the International Accounting Standards Board IND-AS Indian accounting standards as notified by the MCA vide Companies (Indian Accounting Standards) Rule 2015 in its G.S.R dated February 16, 2015 Indian GAAP Generally accepted accounting principles in India IT Act The Income Tax Act, 1961, as amended ITAT Income Tax Appellate Tribunal Land Acquisition Act Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013, as amended Lane Kilometers The total number of kilometers in any roads and highways infrastructure project, as specified in the relevant project documents, multiplied by the number of lanes in such project infrastructure, including existing lanes Mn / million Million MCA Ministry of Corporate Affairs MoU Memorandum of Understanding NHAI National Highways Authority of India NHDP National Highway Development Program Notified Sections Sections of Companies Act, 2013 that have been notified by the Government of India NSDL National Securities Depository Limited NSE National Stock Exchange of India Limited PAN Permanent account number Portfolio Investment Scheme The portfolio investment scheme of RBI specified in Schedule 2 of FEMA 20 RBI Reserve Bank of India RBI Act The Reserve Bank of India Act, 1934, as amended Regulation S Regulation S under the Securities Act RoC Registrar of Companies, Maharashtra at Mumbai Rule 144A Rule 144 A under the Securities Act SCR (SECC) Rules Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012, notified by the SEBI SCRA Securities Contracts (Regulation) Act, 1956, as amended SCRR Securities Contracts (Regulation) Rules, 1957, as amended SEBI Securities and Exchange Board of India SEBI Act The Securities and Exchange Board of India Act, 1992, as amended SEBI AIF Regulations The Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, 19
Term/Abbreviation Full Form
as amended SEBI FPI Regulations The Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014 SEBI Prohibition of Insider The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, Trading Regulations as amended SEBI Regulations The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended Securities Act The U.S. Securities Act of 1933, as amended SEZ Special Economic Zone Stock Exchanges The BSE and the NSE STT Securities transaction tax Supreme Court Supreme Court of India Takeover Code The Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 U.S. GAAP Generally accepted accounting principles in the United States of America U.S.$ / USD / U.S. dollar United States Dollar, the legal currency of the United States of America USA / U.S. / United States The United States of America VCF Venture capital fund as defined and registered with SEBI under the Securities and Exchange Board of India (Venture Capital Fund) Regulations, 1996 or the SEBI AIF Regulations, 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 under the Companies (Prospectus and Allotment of Securities) Rules, 2014 and the relevant pages in this Preliminary Placement Document where these disclosures, to the extent applicable, have been provided:
Sr. Disclosure Requirements Relevant page of this No. Preliminary Placement Document 1. GENERAL INFORMATION a. Name, address, website and other contact details of the company indicating both 197 and 202 registered office and corporate office. b. Date of incorporation of the company. 197 and cover page c. Business carried on by the company and its subsidiaries with the details of 100 – 123 branches or units, if any. d. Brief particulars of the management of the company. 128 – 135 e. Names, addresses, DIN and occupations of the directors. 128 and 129 f. Management’s perception of risk factors. 38 – 63 g. Details of default, if any, including therein the amount involved, duration of default and present status, in repayment of: (i) Statutory dues; Not Applicable (ii) Debentures and interest thereon; Not Applicable (iii) Deposits and interest thereon; and Not Applicable (iv) Loan from any bank or financial institution and interest thereon. Not Applicable h. Names, designation, address and phone number, email ID of the nodal/ 202 compliance officer of the company, if any, for the private placement offer process. 2. PARTICULARS OF THE OFFER a. Date of passing of board resolution. 197 b. Date of passing of resolution in the general meeting, authorising the offer of 197 securities. c. Kinds of securities offered (i.e. whether share or debenture) and class of Cover Page and 28 security. d. Price at which the security is being offered including the premium, if any, along Cover Page and 28 with justification of the price. e. Name and address of the valuer who performed valuation of the security Not Applicable offered. f. Amount which the company intends to raise by way of securities. 28 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; and Not Applicable (v) Repayment. Not Applicable h. Proposed time schedule for which the offer letter is valid. 28 i. Purposes and objects of the offer. 66 j. Contribution being made by the promoters or directors either as part of the offer 66 or 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 130 managerial personnel in the offer 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 186 – 195 Department of the Government or a statutory authority against any promoter of the offeree 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 shall be disclosed. c. Remuneration of directors (during the current year and last three financial 131 and 132 years).
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Sr. Disclosure Requirements Relevant page of this No. Preliminary Placement Document d. Related party transactions entered during the last three financial years 135 immediately 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 36 last 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 186 – 195 the 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 its 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 its subsidiaries. g. Details of acts of material frauds committed against the company in the last three Not Applicable 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: 68 (i)(a) The authorised, issued, subscribed and paid up capital (number of securities, 68 description and aggregate nominal value); (b) Size of the present offer; and 68 (c) Paid up capital: 68 (A) After the offer; and 68 (B) After conversion of convertible instruments (if applicable) ; Not Applicable (d) Share premium account (before and after the offer). 68 (ii) The details of the existing share capital of the issuer company in a tabular form, 68 and 69 indicating 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 issuer company shall also disclose the number and price at 68 and 69 which each of 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 F1 – F99 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; 70 and 92 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 30- 35 balance sheets immediately preceding the date of circulation of offer letter. e. Audited Cash Flow Statement for the three years immediately preceding the 33 – 35 date of circulation of offer letter. f. Any change in accounting policies during the last three years and their effect 36 and 37 on the profits and the reserves of the company. 5. A DECLARATION BY THE DIRECTORS THAT a. The company has complied with the provisions of the Act and the rules made 200 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. I am authorised by the Board of Directors of the company vide resolution dated [●], 2015 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 Articles of Association
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Sr. Disclosure Requirements Relevant page of this No. Preliminary Placement Document
It is further declared and verified that all the required attachments have been completely, correctly and legibly attached to this form.
Signed: Date: Place:
Attachments:- Copy of board resolution Copy of shareholders resolution Copy of _____ Optional attachments, if any
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SUMMARY OF BUSINESS Overview
We are one of the largest infrastructure development and construction companies in India in the roads and highways sector. Our Build, Operate and Transfer (“BOT”) infrastructure development business involves the construction, development, operation and maintenance of road projects. We currently have 22 road BOT projects, of which 16 are “operational”, three are “under construction” and three are “under development”. We believe that we have one of the largest road BOT project portfolios in India, with 9,289 Lane Kilometers of roads and highways currently under operation, construction or development.
All of our road BOT projects are implemented and held through special purpose vehicles (“Project SPVs”). We are involved in the design, development, construction, operation and maintenance of national and state highways and roads in the states of Maharashtra, Gujarat, Rajasthan, Punjab, Haryana, Karnataka and Tamil Nadu.
Our construction business complements our BOT infrastructure development business and involves engineering, procurement and construction (“EPC”) work for construction projects on a contract basis, including in the roads and highways sector. In addition, we are currently developing a greenfield airport project in Sindhudurg, Maharashtra and a hotel in Kolhapur, Maharashtra. We also have a presence in the wind power business, through our Subsidiary, MRMPL.
We believe that our large fleet of sophisticated construction equipment and our employee resources, along with our engineering skills and capabilities, enable us to implement modern infrastructure and construction methodologies effectively and efficiently.
We generate revenues primarily from toll collection from our road BOT projects and our EPC activities. Our total revenue was ₹ 29,417.01 million and ₹ 38,533.13 million for the nine months ended December 31, 2014 and the financial year 2014 respectively. Profit after tax and after minority interest was ₹ 4,046.89 million for the nine months ended December 31, 2014 and our profit after minority interest was ₹ 4,591.29 million for the financial year 2014.
Our key projects include the Yashwantrao Chavan Mumbai–Pune Expressway and the NH 4 project operated by MIPL, the Bharuch-Surat NH 8 project operated by IDAA, the Surat-Dahisar NH 8 project operated by IRBSD and the Ahmedabad Vadodara NH 8 and NE-1 project being constructed by IRBAV. Substantially all the construction work undertaken by us on BOT projects in the roads and highways sector is currently executed by our Subsidiary, MRMPL. MRMPL, MIPL, IDAA, IRBPL and IRBSD are our key Subsidiaries based on revenue generated in the financial year 2014.
Our Strengths
Our principal competitive strengths are set out below:
Extensive Experience and Strong Track Record in Infrastructure Development and Construction Projects in the Roads and Highways Sector in India.
We are one of the largest road BOT companies in India. We believe that we have one of the largest project portfolios, with 9,289 Lane Kilometers of roads and highways currently in operation, under construction or under development. Our BOT project portfolio includes large road and highway BOT projects, including the Yashwantrao Chavan Mumbai– Pune Expressway and NH 4 project, the Bharuch Surat NH 8 project, the Surat Dahisar NH 8 project and the Ahmedabad Vadodara NH 8 and NE-1 project. We believe that our experience of over 30 years in roads and highways infrastructure development projects and our established reputation in the industry provide us with competitive advantages when bidding for large road BOT projects, including for National Highway Development Program (“NHDP”) Phase V projects. We also believe that our experience and focus on roads and highways infrastructure development projects enables us to effectively evaluate and execute new projects. We have received several industry awards and recognitions, including the CNBC-TV18 Essar Steel Infrastructure Excellence Award in the Highways and Flyovers category in March 2009 and the CNBC-TV18 Essar Steel Infrastructure Excellence Award in the Highways and Flyovers category in March 2010. In addition, Mr. Virendra Mhaiskar, our Chairman and Managing Director was chosen as the ‘Young Turk of the Year’ at the CNBC-TV18 India Business Leader Awards in December 2010. 24
Strong Order Book and Ability to Meet Pre-Qualification Credentials
Our order book (“Order Book”) as of December 31, 2014, was ₹ 91,193.00 million. This comprised ₹ 37,168.00 million of construction under progress and ₹ 54,025.00 million of construction orders to be executed. Our Order Book as of a particular date consists of estimated revenue from unexecuted or uncompleted portions of our “existing contracts”, i.e., the total contract value of such “existing contracts” as reduced by the value of construction work executed until such date. In our Order Book, “existing contracts” include only construction of a BOT project, for which we have received a letter of award, irrespective of whether or not definitive contracts have been executed for such project as of such date. For further details, see “―Order Book” below.
We believe our track record of completed projects, our existing portfolio and our financial performance allows us to meet the qualification requirements for a large number of new road BOT projects. For example, we are currently pre- qualified to bid for an individual project with a total project development cost of up to ₹ 53,191.70 million awarded by the National Highway Authority of India (“NHAI”). We believe that we have the requisite experience, technical know- how and financial resources to explore a large number of new bidding opportunities in the roads and highways BOT sector.
Integrated Execution and Efficient Project Management Capabilities
We are an integrated infrastructure development company. The EPC activities for all our road BOT projects are undertaken in-house through our Subsidiary, MRMPL. Similarly, operation and maintenance activities related to our road BOT projects, including toll collection, are also carried out in-house. We believe this enables us to reduce our dependence on third party sub-contractors, exercise greater control over the quality and cost of construction, achieve timely execution of our projects and capture the entire economic value chain in our projects.
Equipment asset management is a critical element of timely delivery of quality infrastructure development and construction projects. We own a large fleet of sophisticated construction equipment which enables us to be less dependent on third party equipment providers and to efficiently manage our project execution schedules. We believe that this also provides us with a competitive advantage over other infrastructure development and construction companies that outsource their construction activities to external contractors.
We believe that our integrated execution capabilities enable us to better evaluate business opportunities and establish a reputation for efficient project management and execution, with on-site decision making capabilities, efficient deployment of equipment and other resources, as well as strategic purchasing capabilities.
Strong Financial Performance and Credit Profile
We have demonstrated strong financial performance in recent years. Our total revenue was ₹ 32,582.40 million, ₹ 38,173.67 million and ₹ 38,533.13 million for the financial years 2012, 2013 and 2014, respectively and ₹ 29,352.70 million and ₹ 29,417.01 million for the nine months ended December 31, 2013 and 2014, respectively. Our profit after tax and after minority interest was ₹ 4,959.96 million, ₹ 5,566.66 million, ₹ 4,591.29 million and ₹ 3,498.97 million for the financial years 2012, 2013, 2014 and for the nine months ended December 31, 2013 respectively. Profit after tax and after minority interest of ₹ 3,498.97 million and ₹ 4,046.89 million for the nine months ended December 31, 2013 and 2014, respectively. For the nine months ended December 31, 2014, we recorded an average per day toll income from road BOT projects of ₹ 57.5 million.
The infrastructure sector is capital intensive with our projects requiring significant funding. We have successfully arranged financing for all of our operational and under construction projects, including our recently won Solapur to Yedeshi NH 211 project for which we have obtained term loan facilities for, in aggregate, ₹ 9,100.00 million and the Yedeshi to Aurangabad NH 211 project for which we have obtained term loan facilities for, in aggregate, ₹ 17,560.00 million, and believe that we enjoy significant goodwill with various leading banks and financial institutions in India. We believe that our ability to raise significant project finance has enabled us to fund our various projects at competitive rates.
Professionally Managed Company with a Qualified and Skilled Employee Base
We are a professionally managed company with a qualified, skilled and trained workforce. As of December 31, 2014,
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we had approximately 5,829 permanent employees, of which 3,212 employees were engaged in construction activities and 2,617 employees were engaged in toll collection activities. Of our total workforce, 479 employees were engineers and technical personnel as of December 31, 2014. Our management team has contributed significantly to our growth in recent years. We believe that having a motivated and empowered employee base is essential for maintaining our competitive advantage and hence we remain committed to the professional development of our employees.
Our Strategy
Our principal business strategies are set out below:
Continue to Focus on BOT Projects in the Roads and Highways Sector and Leverage India’s Demand for such Projects
We intend to consolidate our position as one of the largest infrastructure development companies in the roads and highways sector in India. We believe that Government spending on the road infrastructure sector will be a key component of India’s goal of sustained annual GDP growth. We also believe that the road infrastructure sector will continue to require further investment given the Government’s focus on improving infrastructure in the country. During the financial year 2015, the NHAI’s aim was to award 5,000 kilometers of road projects with a further 400 kilometers of projects expected to be awarded by the Ministry of Road Transport and Highways (“MoRTH”) directly. The Government intends to develop a total of 64,340 kilometers of national highways under a variety of programmes, such as the NHDP, the Special Accelerated Road Development Programme in North-East region and the National Highways’ Interconnectivity Improvement Project. (Source: www.makeinindia.com/sector/roads-highways/) We believe that our expertise and experience in the development, operation and management of road infrastructure projects, as well as our established reputation, provides us with a competitive advantage in pursuing opportunities in this rapidly growing sector.
Selectively Expand the Geographical Distribution of our Infrastructure Projects
Our road BOT projects have historically been concentrated in Maharashtra and we intend to continue to be active in the western Indian states, such as Maharashtra and Gujarat. However, we intend to consolidate our position in the roads and highways infrastructure development sector by selectively pursuing suitable opportunities in other parts of India to expand our current portfolio and gradually reduce our dependence on any particular area of the country. We now have a presence in northern India in the states of Punjab, Haryana and Rajasthan and in southern India in the states of Karnataka and Tamil Nadu. We intend to build on our experience on projects in these states to further expand our road infrastructure portfolio across India.
Further Enhance our Project Execution Capabilities
One of the primary focus areas of our project execution strategy is the completion of our projects on or ahead of schedule. We also intend to continue to focus on performance and project execution in order to maximize client satisfaction and margins. We leverage technologies, designs and project management tools to increase productivity and maximize asset utilization in capital intensive activities. We seek to optimize operating and overhead costs to maximize our operating margins. Our ability to effectively manage our projects will be crucial to our continued success as a reputed infrastructure company. We believe that we are able to distinguish ourselves from our competitors because of our management strength and in-house development, construction, operation and maintenance capabilities. We intend to continuously strengthen our execution capabilities by adding to our existing pool of managers, attracting new graduates from engineering colleges in India, and facilitating continuous learning with in-house and external training opportunities. We will also continue to focus on our health, safety and environmental management and quality management standards as we believe these elements of performance measurement have become important competition differentiators and key criteria for prequalification of contractors by potential clients.
Focus on Financial Management and Strengthen Internal Processes and Systems
The road infrastructure sector is a highly competitive sector which is capital intensive and requires significant expenditure. Our ability to efficiently manage the costs associated with our projects and secure timely funding at favorable rates is imperative for us to maintain healthy margins. We intend to continue to focus on increasing our margins by strengthening our internal processes and systems to achieve optimal utilization of our resources. By focusing on our internal systems we aim to manage our equipment and our human resources in as an efficient manner as possible so as to achieve cost efficiencies in the execution of our projects. We maintain a centralized procurement 26
department for major raw materials to achieve economies of scale and have a dedicated project execution team which monitors the development process of projects to implement best practices across our projects. In addition, we have also implemented a company-wide information management system which allows us to respond to exigencies in a quick and efficient manner.
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SUMMARY OF THE ISSUE The following is a general summary of the Issue. This summary should be read in conjunction with, and is qualified in its entirety by, more detailed information appearing elsewhere in this Preliminary Placement Document, including the sections “Risk Factors”, “Use of Proceeds”, “Placement”, “Issue Procedure” and “Description of the Equity Shares”.
Issuer IRB Infrastructure Developers Limited Issue Size [●] Equity Shares aggregating up to ₹ [●] million Issue Price ₹ [●] per Equity Share Floor Price The floor price of ₹ 242.67, which has been calculated in accordance with Chapter VIII of the SEBI Regulations. In terms of the SEBI Regulations, the Issue Price cannot be lower than the Floor Price. Our Company may offer a discount of not more than 5% on the Floor Price in terms of Regulation 85 of the SEBI Regulations Date of Board Resolution November 5, 2014 Date of Shareholders’ December 8, 2014 Resolution (through postal ballot) Eligible Investors Eligible QIBs, that are QIBs as defined in regulation 2(1)(zd) of the SEBI Regulations other than foreign venture capital investors and international multilateral and bilateral development financial institutions and not excluded pursuant to Regulation 86 of the SEBI Regulations. See the section “Issue Procedure – Eligible Qualified Institutional Buyers”. Equity Shares issued and 332,364,110 Equity Shares. outstanding immediately prior to the Issue Equity Shares issued and [●] Equity Shares. outstanding immediately after the Issue Listing Our Company has obtained in-principle approvals in terms of Clause 24(a) of the 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 after Allotment to obtain final listing and trading approvals for the Equity Shares. Lock-up Our Company has agreed that it will not, without the prior written consent of the Book Running Lead Managers, from the date of the placement agreement and for a period of up to 90 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; (c) deposit Equity Shares or any securities convertible into or exercisable or exchangeable for Equity Shares or which carry the right to subscribe for or purchase Equity Shares in depository receipt facilities or enter into any such transaction (including a transaction involving derivatives) having an economic effect similar to that of a sale or deposit of Equity Shares in any depository receipt facility; or (d) announce any intention to enter into any transaction whether any such transaction described in (a) or (b) or (c) above is to be settled by delivery of the Equity Shares, or such other securities, in cash or otherwise.
Each of the Promoters have agreed that, without the prior written consent of the Book Running Lead Managers, they will not, during the period commencing on the date of the Placement Agreement and ending 90 days after the date of Allotment of the Equity Shares pursuant to the Issue (the “Lock-up Period”), 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 28
ownership of the Equity Shares or any securities convertible into or exercisable or exchangeable for the Equity Shares; (c) deposit Equity Shares or any securities convertible into or exercisable or exchangeable for Equity Shares or which carry the right to subscribe for or purchase Equity Shares in depository receipt facilities or enter into any such transaction (including a transaction involving derivatives) having an economic effect similar to that of a sale or deposit of Equity Shares in any depository receipt facility; or (d) announce any intention to enter into any transaction whether any such transaction described in (a) or (b) or (c) above is to be settled by delivery of the Equity Shares, or such other securities, in cash or otherwise.
The restrictions in the foregoing paragraph shall not apply to (a) any inter-se transfer of Equity Shares between the Promoters and the Promoter Group, provided that the restrictions set forth in the previous paragraph shall continue to apply for the remaining period to the transferee and that such transferee shall be bound by the restrictions in the preceding paragraph until the Lock-up Period set forth herein has expired; and (b) any sale, transfer or disposal of such Equity Shares to the extent such sale, transfer or disposal is mandatorily required for compliance with applicable Indian law. See the section “Placement” for additional information. Minimum Offer Size The minimum value of offer or invitation to subscribe to each Eligible QIB is ₹ 20,000 of the face value of the Equity Shares. Transferability The Equity Shares to be issued pursuant to the Issue shall not be sold for a period of one Restrictions year from the date of Allotment, except on the floor of the Stock Exchanges. See the section “Transfer Restrictions”. Use of Proceeds The gross proceeds from the Issue will be approximately ₹ [●] million. The net proceeds from the Issue, after deducting fees, commissions and expenses of the Issue, will be approximately ₹ [●] million.
See the section “Use of Proceeds” for information regarding the use of net proceeds from the Issue. Risk Factors See the section “Risk Factors” for a discussion of risks you should consider before investing in the Equity Shares. Pay-In Date Last date specified in the CAN sent to the Eligible QIBs for payment of application money. Closing The Allotment of the Equity Shares is expected to be made on or about [●]. Ranking The Equity Shares to be issued pursuant to the Issue shall be subject to the provisions of the Memorandum of Association and Articles of Association and shall rank equally in all respects with the existing Equity Shares of the Company, including rights in respect of dividends.
The shareholders of the Company (who hold Equity Shares as on the record date) will be entitled to participate in dividends and other corporate benefits, if any, declared by the Company after the Closing Date in compliance with the Companies Act, the Listing Agreements and other applicable laws and regulations. Shareholders may attend and vote in shareholders’ meetings in accordance with the provisions of the Companies Act. See the sections “Dividend Policy” and “Description of the Equity Shares”. Security Codes for the ISIN INE821I01014 Equity Shares NSE Code IRB BSE Code 532947
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SUMMARY FINANCIAL INFORMATION
The following selected information is extracted from and should be read in conjunction with our Unaudited Condensed Interim Consolidated Financial Statements and our Consolidated Financial Statements prepared in accordance with Indian GAAP, each included elsewhere in this Preliminary Placement Document. You should refer to “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” for further discussion and analysis of the Financial Statements of our Company. The financial information included in this Preliminary Placement Document does not reflect our result of operations, financial position and cash flows for the future and its past operating results are no guarantee of its future operating performance.
SUMMARY DATA OF CONSOLIDATED BALANCE SHEET AS AT DECEMBER 31, 2014, MARCH 31, 2014, MARCH 31, 2013 and MARCH 31, 2012 (₹ in millions) As at Particulars December 31, 2014 March 31, 2014 March 31, 2013 March 31, 2012 Equity and liabilities Shareholders’ funds
Share capital 3,323.64 3,323.64 3,323.64 3,323.64
Reserves and surplus 35,530.44 32,283.35 29,232.50 25,242.67 Sub-total 38,854.08 35,606.99 32,556.14 28,566.31
Minority interest 368.48 356.06 1,091.88 1,122.71 Non-current liabilities
Long-term borrowings 104,909.55 93,979.52 66,348.61 50,454.69
Deferred tax liabilities (net) 182.97 224.46 328.30 258.95
Other long-term liabilities 215,961.91 657.41 2,010.32 4,126.59
Long-term provisions 1,021.90 2,510.09 2,510.70 67.42 Sub-total 322,076.33 97,371.48 71,197.93 54,970.65 Current liabilities
Short-term borrowings 9,924.21 8,965.14 12,711.55 17,912.50
Trade payables 2,572.72 4,078.16 3,411.75 1,698.88
Other current liabilities 13,675.84 10,363.35 10,574.32 4,191.11
Short-term provisions 501.55 377.59 599.41 181.01 Sub-total 26,674.32 23,784.24 27,297.03 23,983.50 TOTAL 387,973.21 157,118.77 132,142.98 108,580.17
Assets Non-current assets Fixed assets
Tangible assets 2,672.40 3,008.98 3,257.08 3,344.34
Intangible assets 316,530.08 82,535.06 51,831.17 52,198.14
Capital work-in-progress 878.71 482.88 346.36 342.36 Intangible assets under development – Toll collection rights 41,266.27 44,384.41 48,813.21 24,109.71
Deferred tax assets (net) 48.16 81.13 69.72 -
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Non-current investments 7.77 13.56 13.56 13.47
Long-term loans and advances 3,793.48 3,003.32 4,444.61 3,552.18
Other non-current assets - - 8.96 46.83 Sub-total 365,196.87 133,509.34 108,784.67 83,607.03 Current assets
Current investments 858.20 131.65 606.71 126.03
Inventories 2,568.23 2,683.40 2,488.46 1,624.17
Trade receivable 91.68 55.20 80.04 140.67
Cash and bank balances 13,558.50 15,011.65 14,710.00 18,207.58
Short-term loans and advances 5,460.83 5,515.81 5,251.60 4,228.16
Other current assets 238.90 211.72 221.50 646.53 Sub-total 22,776.34 23,609.43 23,358.31 24,973.14 TOTAL 387,973.21 157,118.77 132,142.98 108,580.17
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SUMMARY DATA OF CONSOLIDATED STATEMENT OF PROFIT AND LOSS FOR THE PERIOD ENDED DECEMBER 31, 2014, MARCH 31, 2014, MARCH 31, 2013 and MARCH 31, 2012
(₹ in millions except share data) For the nine For the year For the year ended For the year ended Particulars months ended ended March 31, March 31, 2014 March 31, 2012 December 31, 2014 2013
Income
Revenue from operations 28,570.31 37,318.87 36,872.45 31,330.19
Other income 846.70 1,214.26 1,301.22 1,252.21
Total revenue 29,417.01 38,533.13 38,173.67 32,582.40
Expenses
Cost of materials consumed 3,318.09 5,026.53 4,697.19 6,391.40
Contract and site expenses 6,199.90 11,474.33 13,062.88 8,858.22
Employee benefits expense 1,366.15 1,798.83 1,556.88 1,375.89
Other expenses 1,275.32 1,482.45 1,222.70 1,011.13
Total expenses 12,159.46 19,782.14 20,539.65 17,636.64 Earnings before interest, tax, depreciation and 17,257.55 18,750.99 17,634.02 14,945.76 amortisation
(EBITDA)
Depreciation and amortization 5,350.90 4,770.55 4,415.16 2,970.09
Finance costs 6,804.72 7,561.66 6,152.96 5,463.72
Profit before tax 5,101.93 6,418.78 7,065.90 6,511.95
Tax expenses:
Current tax 1,600.45 2,371.03 2,263.51 1,647.85
MAT credit entitlement (549.32) (433.28) (395.92) (121.43)
Deferred tax (8.52) (115.24) (337.52) 25.48
Total tax expenses 1,042.61 1,822.51 1,530.07 1,551.90
Profit after tax 4,059.32 4,596.27 5,535.83 4,960.05 Less : Share of minority interest 12.43 4.98 (30.83) 0.09
Profit after minority interest 4,046.89 4,591.29 5,566.66 4,959.96
Earnings per equity share:
Basic 12.18 13.81 16.75 14.92
Diluted 12.18 13.81 16.75 14.92
Nominal value of share 10.00 10.00 10.00 10.00
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SUMMARY DATA OF CONSOLIDATED CASH FLOW STATEMENT FOR THE PERIOD ENDED MARCH 31, 2014, MARCH 31, 2013 and MARCH 31, 2012
(₹ in millions)
For the year ended For the year ended For the year ended Particulars March 31, 2014 March 31, 2013 March 31, 2012
CASH FLOW FROM OPERATNG ACTIVITIES: Net profit before tax 6,418.78 7,065.90 6,511.95 Adjustment to reconcile net profit before tax to net cash flows: Depreciation and amortization 4,770.55 4,415.17 2,970.10 Preliminary expenses and share issue expenses 20.52 1.05 7.06 written off Net loss on sale of fixed assets 8.33 21.49 27.89 Loss on sale of investments (short term) - - 1.37 Diminution in value of investments - 1.43 0.81 (Profit)/ Loss on sale of Investment – net (3.39) 0.22 - Interest expense 7,466.96 6,109.32 5,144.29 Interest income on fixed deposits (1,034.47) (1,226.98) (1,142.60) Interest income on loans given (70.40) (8.17) (20.32) Dividend income on other investments (86.42) (21.97) (31.44) Operating profit/(loss) before working capital 17,490.46 16,357.46 13,469.11 changes Movement in working capital: Increase/(decrease) in trade payables 942.88 1,464.76 304.48 Increase/(decrease) in long-term provisions (0.61) 10.54 16.32 Increase/(decrease) in short-term provisions (9.50) 19.20 6.98 Increase/(decrease) in other long-term liabilities 58.86 192.95 1,478.28 Increase/(decrease) in other current liabilities 240.88 220.68 (1,001.52) Decrease/(increase) in trade receivables 24.84 60.63 255.88 Decrease/(increase) in inventory (194.93) (864.29) 14.23 Decrease/(increase) in long-term loans and advances 461.79 (199.52) (1,263.39) Decrease/(increase) in short-term loans and advances (134.32) (483.15) (441.93) Decrease/(increase) in other non-current assets - 31.16 (12.89) Decrease/(increase) in other current assets - 23.44 (135.53) Cash generated from/(used in) operations 18,880.35 16,833.86 12,690.02 Direct taxes paid (net of refunds) (2,324.51) (2,422.27) (1,587.12) Net cash flow from/(used in) operating activities 16,555.84 14,411.59 11,102.90 (A) CASH FLOW FROM INVESTING ACTIVITIES: Purchase of fixed assets (30,024.89) (25,175.27) (24,200.63) Proceeds from sale of fixed assets 19.79 8.32 14.15 Purchase of non-current investments - (0.09) - Advances consideration for acquisition of shares in a - (288.60) - subsidiary company Purchase of current investments (47.81) (508.80) (44.23) Proceeds from sale/maturity of current investments 526.26 26.47 453.09 Proceeds from sale/maturity of non-current - - - investments Investment in fixed deposits (having original - - (4,255.20) maturity of more than three months) Redemption/maturity of fixed deposits (having 1,562.65 2,963.09 -
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(₹ in millions)
For the year ended For the year ended For the year ended Particulars March 31, 2014 March 31, 2013 March 31, 2012 original maturity of more than three months) Interest received on fixed deposit 1,044.25 1,277.61 1,115.27 Interest received on loans given 70.40 8.17 20.33 Dividend received on current investment 86.42 21.97 31.44 Purchase consideration paid on acquisition of (670.51) (801.60) (90.00) subsidiary Proceeds from minority shareholders - - 226.84 Net cash used in investing activities (27,433.44) (22,468.73) (26,728.94) (B) CASH FLOW FROM FINANCING ACTIVITIES: Proceeds from long-term borrowings 34,722.16 23,638.17 28,748.47 Repayment of long-term borrowings (8,882.68) (3,628.54) (8,503.78) Proceeds from short-term borrowings - 5,973.92 13,862.71 Repayment of short-term borrowings (3,746.42) (11,174.86) (9,650.00) Share issue expenses (11.55) (1.06) (6.90) Interest paid (7,397.91) (6,133.79) (5,552.82) Dividend paid on equity shares (1,661.82) (997.10) (1,318.90) Tax on equity dividend paid (279.88) (193.44) - Net cash from financing activities 12,741.90 7,483.30 17,578.78 (C)
Net increase/(decrease) in cash and cash equivalents 1,864.30 (573.84) 1,952.74 (A+B+C) Cash and cash equivalents at the beginning of the 2,566.90 3,553.24 1,600.50 year Add: Cash and cash equivalents taken over on - 39.36 - acquisition of subsidiary Cash and cash equivalents at the end of the year 4,431.20 3,018.76 3,553.24
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IRB Infrastructure Developers Limited Unaudited Condensed Interim Consolidated Cash flow statement for the period ended December 31, 2014 (₹ in millions) Nine months Nine months period period Particulars ended ended Dec. 31, 2014 Dec. 31, 2013
Net cash flow from/(used in) operating activities (A) 11,338.40 12,791.78 Net cash used in investing activities (B) (19,528.45) (22,384.84) Net cash from financing activities (C) 5,833.45 8,551.20
Net increase/(decrease) in cash and cash equivalents (A+B+C) (2,356.60) (1,041.86) Cash and cash equivalents at the beginning of the period 4,431.20 2,566.90 Cash and cash equivalents at the end of the period 2,074.60 1,525.04
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Summary of reservations or qualifications or adverse remarks of auditors in the last five financial years immediately preceding the year of circulation of this Preliminary Placement Document 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:
The table below sets out the remarks of the auditors as reported by the auditor under the Companies (Auditor’s Report) Order, 2003 on the standalone financial statements of our Company in last five financial years:
Fiscal Reproduction of auditors remark from the audit report Management’s response 2013 The Company is regular in depositing with appropriate The Company is regular in authorities undisputed statutory dues including provident payment of undisputed fund, employees’ state insurance, income-tax, wealth-tax, statutory dues. There was service tax, cess and other material statutory dues applicable slight delay in payment of to it, though there has been a slight delay in one case of service tax and tax deducted service tax and tax deducted at source each. As informed to at source. The said payment auditor, the Company has applied for VAT Registration in was made along with the the State of Gujarat and pending such registration it has been interest for delay. There is no unable to deposit such dues. There are no dues payable to the further financial implication investor education and protection fund. for aforesaid delay. The Company has subsequently obtained VAT registration in the state of Gujarat and paid all the pending dues along with the relevant interest. 2014 The Company is regular in depositing with appropriate The Company is regular in authorities undisputed statutory dues including provident payment of undisputed fund, employees’ state insurance, income-tax, wealth-tax, statutory dues. There was service tax, cess and other material statutory dues applicable slight delay in payment of to it, though there has been a slight delay in one case of service tax. The said payment service tax. The provisions of Excise duty and Customs Duty was made along with the are not applicable to the Company. There are no dues interest for delay. There is no payable to Investor Education Protection Fund. further financial implication for aforesaid delay.
Changes in accounting policies during last three years and their effect on the profits and reserves of the Company
Sr. Fiscal Change in accounting policy Impact No. 1 2012 Presentation and Disclosure of Financial Statements No impact on recognition and pursuant to notification of Revised Schedule VI measurement principles; notified under the Companies Act, 1956 But impacts presentation and disclosures. Previous year figures are also reclassified in accordance with the requirements. Also, refer to note 2.02 of the Consolidated Financial Statements for the year ended March 31, 2012. 2 2015 (Nine Pursuant to the Companies Act, 2013, the This change in accounting months ended management, based on technical evaluation has policy did not have any December 31, reassessed the useful life of fixed assets. In material impact on Financial 2014) accordance with the Act, the carrying value of the Statements of the Company as fixed assets as at April 2014 is depreciated over the mentioned in note 2.01(b) of revised residual life of the fixed assets and where the the Unaudited Condensed residual life of the fixed assets is nil as at that date, Interim Consolidated Financial the carrying value of the fixed assets, after retaining Statements for the nine months the residual value, has been adjusted to the retained period ended December 31, 36
earnings. 2014. 3 2015 (Nine In certain BOT/DBFOT contracts where monthly Had the Company continued months ended fixed premium is paid in line of toll collection rights, with the earlier policy, the December 31, the undiscounted premium obligation over the profit before tax would have 2014) concession period is capitalised to toll collection been lower by ` 1,292.13 rights on prospective basis with a corresponding million. Also, refer note impact to premium obligation as per principles 2.01(a) of the Unaudited enunciated in Draft Guidance Note on Accounting Condensed Interim by service concessionaire agreement. Consolidated Financial Statements for the nine months period ended December 31, 2014.
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RISK FACTORS
An investment in our Equity Shares involves a high degree of risk. You should carefully consider all the information in this Preliminary Placement Document, including the risks and uncertainties described below, before making an investment in our Equity Shares. To obtain a complete understanding, you should read this section in conjunction with the sections “Our Business” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, as well as the other financial and statistical information contained in this Preliminary Placement Document. The risks and uncertainties described in this section are not the only risks and uncertainties we currently face. Additional risks and uncertainties not known to us or that we currently deem immaterial may adversely affect our business, financial condition, cash flows and results of operations. If any of the following risks, or other risks that are not currently known or are now deemed immaterial, actually occur, our business, results of operations, cash flows and financial condition could suffer, the price of our Equity Shares could decline, and you may lose all or part of your investment. Prospective investors should pay particular attention to the fact that our Company is incorporated under the laws of India and that our Company is subject to a legal and regulatory environment which may differ in certain respects from other countries. Unless otherwise stated in the relevant risk factors set forth below, we are not in a position to specify or quantify the financial or other risks mentioned herein.
Unless the context otherwise requires, the financial information used in this section is derived from our Consolidated Financial Statements and Unaudited Condensed Interim Consolidated Financial Statements prepared under Indian GAAP.
Risks related to Our Business
Certain investigations are pending against our Promoter, who is also the chairman and managing director of our Company, and certain others, the outcome of which may adversely affect the reputation of our Promoter and chairman and managing director and our Company, our business, results of operations, prospects and financial condition.
In 2009, pursuant to a complaint filed by a social worker and right to information activist (the “RTI Activist”), a case was registered at Lonavala City police station against Mr. Deepak D. Gadgil, Head Realty, Airport and Hospitality of our Company and certain others, including Mr. Virendra D. Mhaiskar (our Promoter and chairman and managing director), alleging illegal purchase of governmental land in village Pimpaloli and village Ozarde, Taluke Maval, District Pune on the basis of fake and forged documents. We further understand that on January 13, 2010, the RTI Activist was murdered by unknown persons. We understand that the investigation of the murder case of the RTI Activist was subsequently transferred from local police to the Central Bureau of Investigation (the “CBI”). We further understand that while the murder investigation was ongoing, a closure report was filed by the police in relation to the illegal land purchase case which was accepted by the Judicial Magistrate, First Class Vadgaon Maval, District Pune in December 2011.
The CBI issued multiple notices to our Promoter and chairman and managing director, along with Mr. Deepak D. Gadgil and Mr. Jayant D. Dangre, Chief Liasoning Manager of Modern Road Makers Private Limited, our Subsidiary, asking for documents and information and personal appearance for questioning in connection with the murder investigation of the RTI Activist.
We also understand from the publicly available sources that, pursuant to a criminal writ petition filed before the Bombay High Court, it was ordered on August 8, 2014 that the matter relating to land acquisition be reinvestigated by the CBI in light of the murder investigation.
In the investigation of the murder case, we understand from publicly available sources (Business Standard dated August 12, 2014) that the CBI had filed a closure report dated August 11, 2014 (the “Closure Report”) before the Judicial Magistrate, First Class Vadgaon Maval, District Pune after conducting its investigation against Mr. Deepak D. Gadgil and Mr. Virendra D. Mhaiskar and certain others. We further understand from publicly available sources that the CBI had stated in the Closure Report that there was no prosecutable definite evidence against any of the accused and there was no direct evidence against our Promoter in connection with the murder, and had recommended that the investigation be closed due to insufficient evidence. We further understand that the Closure Report is pending acceptance or rejection, as the case may be, before the Judicial Magistrate, First Class Vadgaon Maval, District Pune. As per publicly available sources, it is understood that the matter has been transferred from the Judicial Magistrate, First 38
Class Vadgaon Maval, District Pune to the Sessions Court, Pune. We also understand from the publicly available sources that a relative of the deceased has challenged the Closure Report in the Bombay High Court and this matter is currently pending.
Officers from the CBI visited our offices and certain other locations on January 5, 2015 in connection with the illegal land purchase reinvestigation ordered by the Bombay High Court (as specified above). We have also submitted certain documents and certain other items, including personal documents of our Promoter, that the CBI officers had required during their visit to our offices.
We understand from recent media reports that the CBI would also reinvestigate the murder case, for which the Closure Report is currently pending for acceptance (as mentioned above).
In the event that there is any adverse finding in the land acquisition matter or in the murder case, the reputation of our Promoter and our Company, our business, results of operations, cash flows, prospects and financial condition may be adversely affected.
Delays in the completion of construction of our current and future projects could lead to cost overruns or lead to termination of the concession agreements entered into in relation to such projects, which could have an adverse effect on our business, results of operations, financial condition and cash flows.
Our projects are subject to specific completion schedules and we provide the relevant concessioning authorities with performance securities or bank guarantees which are valid for varied periods as stipulated in the concession agreements relating to such projects. Our BOT projects are required to achieve commercial operation not later than the scheduled commercial operation dates specified under the relevant concession agreements, or by the end of the applicable extension period, if any is granted by the concessioning authority. Subject to certain customary exceptions such as (i) occurrence and continuance of force majeure events that are not within the control of our Project SPVs, or (ii) delays that are caused due to reasons solely attributable to the concessioning authority, failure to adhere to contractually agreed timelines or extended timelines could require us to pay liquidated damages as stipulated in the concession agreement or lead to encashment and/or appropriation by the relevant concessioning authority of bank guarantees or performance securities provided by us in connection with the relevant project. The concessioning authority may also be entitled to terminate the concession agreement in the event of delay in completion of the work if the delay is not on account of any agreed exceptions. With respect to some of our projects, in the event of termination for any of the aforesaid reasons, we may only receive partial payments under the applicable concession agreements and such payments may be less than our estimated revenues from such projects. Further, we may not be able to obtain extensions for projects on which we face delays or time overruns.
In addition to the risk of termination by the concessioning authority, delays in completion of our projects may result in cost overruns, lower or no return on capital and reduced revenue for the Project SPVs thus affecting the project’s performance, as well as failure to meet scheduled debt service payment dates and increased interest costs from our financing agreements for the projects. Such delays could have adverse effects on our business, cash flows, results of operations and financial condition. For example, construction works at our Amritsar to Pathankot NH 15 project witnessed a delay in completion of over 16 months on account of a delay in land acquisition and in obtaining requisite approvals from the railway authorities, which were required to be obtained by NHAI. As a result, we had a cost overrun for this project which was entirely borne by us.
Further, for our projects in the “under development” stage, the concession agreements require us to complete the financing for the project within a specified period relating to such projects. In the event of delay in completing the financing for the project, the concessionaire is typically entitled to a limited extension, subject to payment of damages to the concessioning authority calculated at a specified rate of the performance security for each day of delay.
Timely completion of construction of our projects is subject to various execution risks as well as other matters, including receipt of relevant approvals for such projects. We cannot assure you that we will be able to complete the financing for our projects to the satisfaction of the concessioning authority as provided in the relevant concession agreements, or complete our current and future projects within specified schedules or at all, which may have an adverse effect on our business, results of operations, financial condition and cash flows.
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Our construction work and operations are dependent on the timely supply of construction materials and equipment on commercially acceptable terms.
Our construction operations require supplies of various bulk construction materials including steel, cement, bitumen, stone and stone aggregates. For the financial year 2014 and the nine months ended December 31, 2014 our cost of material consumed was ₹ 5,026.53 million and ₹ 3,318.09 million respectively, or 25.4% and 27.3% of our total expenses for the periods indicated. For our EPC contracts, we may also be required to procure various equipment relating to such projects. Our ability to pass on increases in equipment and construction materials costs may be limited under fixed-price contracts with limited price variation provisions. Fuel costs for operating our construction and other equipment also constitute a part of our operating expenses. The prices and supply of construction materials and equipment depend on factors beyond our control, including general economic conditions, competition, production levels, transportation costs and import duties. Unanticipated increases in equipment, construction materials or fuel costs not taken into account in the bids we submit for projects may adversely affect our results of operations.
We have not entered into any long-term supply contracts with suppliers of our construction materials. We typically use third-party transportation providers for the supply of most construction materials. Transportation strikes by, for example, members of various Indian truckers’ unions and various legal or regulatory restrictions placed on transportation providers have had in the past, and could have in the future, an adverse effect on delivery of construction materials. Transportation costs have also been steadily increasing, and the price of construction materials could also fluctuate. If we are unable to procure the requisite quantities of construction materials for our projects in time and on commercially acceptable terms, our results of operations and financial condition could be adversely affected.
We are also dependent on the availability of stone used in our construction work, some of which is sourced from the stone quarries leased to us. Stone quarrying and related 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 environmental consequences, could adversely affect our operations by disrupting our ability to extract stone chips from the mines we operate or exposing us to significant liability.
Delays in the acquisition of private land by the Government or eviction of encroachments from Government owned land or other failures or delays by the Government in completing their obligations may adversely affect the timely performance of our contracts leading to disputes with the Government.
Road projects undertaken as part of our construction and development business are dependent on procurement of unencumbered contiguous land. Failure to acquire unencumbered contiguous land by the Government or state governments or other concerned agencies under the concession agreements could result in changes, delays or abandoning of the projects, which in turn could adversely affect our business and financial condition.
Pursuant to the terms of our concession agreements, government entities are required to acquire or license or secure rights of way over, tracts of land, or to hand over unencumbered land, free of encroachments to us. Delays in any of the foregoing may result in delays in project implementation prescribed by the relevant concession agreement and cause consequent delays in commencement of construction or termination of the concession agreement on account of a material default by the concessioning authority. For example, in June 2009, we were awarded a project which included the four-laning of the Panaji to Goa-Karnataka border. This project was subsequently terminated in November 2011 due to the inability of the concessioning authority to acquire the necessary land for the project. Such events may also lead to disputes and cross-claims for liquidated damages between us and the relevant government entity with whom we have contracted. Additionally, a failure to acquire land may lead to a change of scope of the project or payment delays or disputes with the relevant government entity. We will also continue to face risks associated with project implementation, which could be due to reasons including those beyond our control, including, among others, non- availability of environmental clearances, delay in acquisition of land by the relevant government authority, or other delays caused by the relevant concessioning authority.
Any delays or inability to complete land acquisitions or other obligations by relevant government entities may also result in increases in the price of construction materials from our original estimates, which we may not be able to pass on to users of toll roads. Further, we may be exposed to legal proceedings or claims by landowners objecting to the acquisition of their land for our projects. Such factors could have an adverse effect on our business, results of operations and financial condition.
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Our financial results depend on the financial performance of our Project SPVs and other Subsidiaries and their ability to declare and pay dividends. If any of our operations are disrupted, or we are unable to collect toll, it could have an adverse effect on our business, results of operations, financial condition and cash flows.
Our BOT infrastructure development projects are operated through our Project SPVs, while our operation and maintenance and construction activities and wind power business are operated through our Subsidiary, MRMPL. In the financial year 2014, our Company received ₹ 1,661.92 million in dividend income from its investment in its Subsidiaries. The ability of our Project SPVs and other Subsidiaries to make dividend payments is subject to applicable laws and regulations in India relating to payment of dividends. Financing arrangements entered into by these Project SPVs and other Subsidiaries stipulate various conditions relating to the payment of dividends, including, among others, obtaining the consent of the lenders, financial covenants being met and certain debt service accounts being adequately funded prior to the declaration and/or payment of dividends by these Project SPVs and other Subsidiaries. Further, in the event of disruption in receipt of toll by Project SPVs and/or other Subsidiaries, our business, results of operations and financial condition may be adversely affected.
Lenders to our Project SPVs also typically have a charge over all assets of the Project SPVs, including dividend payments by, and all cash of, these Project SPVs, effectively providing the lenders to the Project SPVs a first priority lien over any distribution upon the occurrence of an event of default under the financing arrangements. The charge of the lenders does not, however, extend to the project assets mentioned in the respective concession agreements. In the event of bankruptcy, liquidation or reorganization of a Project SPV, the Company’s claim to the assets of such Project SPV as a shareholder in the Project SPV remains subordinated to the claims of lenders and other creditors. Should any such event occur, our business, results of operations, financial condition or cash flows could be adversely affected.
We have incurred significant indebtedness which may restrict our ability to raise required funds in future in a timely manner, on favourable terms or at all.
The road infrastructure sector is capital intensive and requires significant expenditure. We have incurred significant indebtedness to finance our projects. Our ability to incur further indebtedness and the terms of our borrowings will depend on our financial condition, the stability of our cash flows, general market conditions for infrastructure companies, economic and political conditions in the markets where we operate and our capacity to service debt. As of December 31, 2014, our total secured and unsecured borrowings on a consolidated basis were ₹ 124,599.36 million in principal amount. Our significant indebtedness results in substantial debt service obligations which could lead to reduced availability of cash flows to pursue growth plans, increased vulnerability to any economic downturn and limited flexibility in our operations. Given the nature of our business, we will continue to incur substantial indebtedness even after the Issue, and we cannot assure you that these risks will not have an adverse effect on our results of operations and financial condition.
We may also need to refinance all or a portion of our debt on or before maturity. We cannot assure you that we will be able to refinance any of our debt on commercially reasonable terms or at all. Our Company and our Promoters have provided guarantees as collateral security for amounts borrowed under certain of the financing agreements for funding our Project SPVs. We cannot assure you that our Company or the Promoters will pay or be able to pay the entire amount called under such collateral security in the event that the Company and/or such Promoters are required to do so.
Shares of certain Project SPVs are pledged in favour of lenders, who may exercise their rights under the respective share pledge agreements in the event of default under relevant financing agreements.
Shares of certain Project SPVs held by the Company are pledged in favour of the lenders to such Project SPVs to secure loan facilities obtained by the Project SPVs. For example, 90% of the equity share capital of IRBSD, 100% of the equity share capital of IDAA and 51% of the equity share capital of IRBJD have been pledged in favour of the lenders.
If there are any defaults in payment or any breach under the relevant financing agreements, the lenders may exercise their right to enforce the security interest under the financing agreements, including by taking ownership of the pledged shares, selling the pledged shares to any third party purchaser, and exercising voting rights in respect of the pledged shares on any matter at any meeting of the members of the relevant Project SPVs. If any such event occurs, we may not be able to fully recognize revenue attributable to these Project SPVs, if at all. In addition, if we lose ownership or control of any of our Project SPVs, our business, results of operations and financial condition would be adversely affected.
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Our business is significantly dependent on infrastructure development and construction projects undertaken by a limited number of Government or state government entities and we derive a significant proportion of our revenues from our contracts with such Government or state government entities.
Our business is substantially dependent on infrastructure development and construction projects undertaken by government entities and funded by governments or international and multi-lateral development finance institutions. Contracts awarded by the Government and various state government entities, particularly the National Highways Authority of India (the “NHAI”) have historically accounted, and we expect will continue to account, for a substantial part of our revenues. Our business is also significantly dependent on our maintaining relationships and strategic alliances with these clients. The loss of any significant client could have an adverse effect on our business and results of operations.
Further, we have derived, and will continue to derive, a significant proportion of our revenue from the roads development sector. Any adverse change in the policies adopted by the Government or state governments regarding award of projects, eligibility for bidding or our existing relationship with the Central and state governments could adversely affect our ability to win such projects. In addition, we benefit from policies adopted by the Central and state governments in respect of infrastructure developments, including among other things, incentives granted, resource and budgetary allocation and concessions. Any changes in these existing policies pertaining to incentives granted, could adversely affect our existing projects and opportunities to secure new projects. For details of these policies and incentives, see “Regulations and Policies” and “Taxation”.
Moreover, any adverse changes in Central or state government policies may lead to our agreements being restructured or renegotiated or a decrease in the concession period, which could adversely affect our financing, capital expenditure plans, asset utilization, revenues, cash flows or operations relating to our existing projects as well as our ability to participate in competitive bidding or bilateral negotiations for our future projects.
We follow certain accounting policies for our BOT and construction operations. In the event of any change in law or Indian GAAP which requires a change in such accounting policies, our financial results may be adversely affected.
We recognize revenue generated from our construction operations in accordance with Accounting Standard 7 issued by the ICAI. Under the method, contract revenue and contract cost associated with the construction of roads is recognized as revenue and expenses, respectively, by reference to the stage of completion of the projects as of the balance sheet date. The stage of completion of the project is determined by the proportion that percentage of work performed up to the balance sheet date bears to the total contract work to be completed. Where the outcome of the construction cannot be estimated reliably, revenue is recognized to the extent of the construction costs incurred if it is probable that they will be recoverable. If the total contract cost is estimated to exceed total contract revenue, we provide for forseeable loss.
Our BOT contracts are governed by concession agreements with government authorities (grantor). Under these agreements, the operator gets “toll collection rights” against the construction services incurred. Since the construction revenue earned by the operator is considered as exchanged with the grantor against toll collection rights, profit from such contracts is considered as realized. Accordingly, in case of BOT contracts, where work is subcontracted to fellow subsidiaries of our Company, the intra group transactions on BOT contracts and the profits arising thereon are taken as realized and not eliminated for consolidation under Accounting Standards 21.
Revenue and profit in respect of such transactions during the financial year 2014 that have not been eliminated on consolidation was ₹ 25,557.85 million and ₹ 9,396.04 million, respectively. Revenue and profit in respect of such transactions during the nine months ended December 31, 2014 that have not been eliminated on consolidation was ₹ 15,038.33 million and ₹ 4,800.98 million, respectively.
For further information, see “Management’s Discussion and Analysis on Financial Condition and Results of Operations – Critical Accounting Policies – Principles of Consolidation” and our Consolidated Financial Statements and our Unaudited Condensed Interim Consolidated Financial Statements included elsewhere in this Preliminary Placement Document. Consequently, any change in law or Indian GAAP which requires a change in our accounting policies, could have an adverse effect on our financial results.
Any material decrease between the actual traffic volume and our forecasted traffic volume for a toll based project could have an adverse effect on our business, results of operations, financial condition and cash flows.
Our road BOT portfolio consists of 22 toll based road concessions in India. For toll based projects, our revenue is 42
derived from toll receipts, which are dependent on traffic volumes and traffic mix on the toll roads. Traffic volumes are directly or indirectly affected by a number of factors, many of which are outside our control, including toll fee levels, volume or population of automobiles, affordability of automobiles, convenience and extent of a toll road’s connections with other parts of the local and national highway networks, availability and cost of alternative means of transportation, including rail networks and air transport, level of commercial, industrial and residential development in areas served by our projects, adverse weather conditions and seasonal holidays.
When preparing the tender for a toll based project, particularly to determine the bid undertaking for such project, we forecast the traffic volume for the road in order to calculate our expected revenue over the concession period. If the actual traffic volume is significantly less than our forecast traffic volume, the revenue generated from the toll based project may be lower than anticipated. We forecast the traffic volume for toll based projects based on the data provided by external agencies engaged by our Company, such as traffic consultants, and an in-house team of professionals. The forecasting of traffic volumes is based on various assumptions, and we cannot assure you that such forecasts will be accurate. While most of our toll-based concession agreements provide for an extension in concession period if the actual traffic volumes are significantly lower than the target traffic projected for the project, we cannot assure you that the concession period will be actually extended.
Two of our projects, the Tumkur-Chitradurga NH 4 project and the Ahmedabad to Vadodara NH 8 and NE 1 project awarded by the NHAI required us to make a premium payment to the NHAI for securing the right to build and operate the project. These premium payments are of a fixed amount for the first year of the concession period and have subsequent increments of 5% for each year of the concession period. The premium amount for first year is typically calculated on the basis of projected traffic for the project. Due to the slow economic growth in India in recent years, the NHAI adopted a scheme of premium restructuring whereby the premium payable to the NHAI could be deferred over a few years and would be payable along with interest. The deferment was limited and fixed by the NHAI based on estimated shortfall after meeting debt obligations and operational expenses. In the interim, the relevant concessionaire was not permitted to make dividend payments and would have to share their toll collection data with the NHAI on a real time basis.
Generally, the concessioning authority that has granted the relevant BOT concession to us unilaterally determines the terms on which we may collect toll revenues (subject to annual adjustments to account for inflation as specified in the concession agreements), and we are not permitted to increase such toll rates. As a result, if our operation and maintenance expenses increase, we may not be in a position to increase our revenues in the same proportion, which may have an adverse effect on our business, results of operations, financial condition and cash flows.
Leakage of the tolls collected on our BOT toll roads may adversely affect our revenues.
Our toll receipts are primarily dependent on the integrity of toll collection systems and willingness of road users to pay toll fees. While we have an integrated toll collection system in place, the level of revenues derived from collection of tolls may be reduced by leakage through toll evasion, theft, fraud or technical defaults in our toll systems or forced violations by users of our toll roads. We may also, at times, need to allow users of our toll roads to pass through without paying applicable tolls due to heavy traffic build up, or may be unable to collect tolls due to political protests or agitations relating to tolling. In addition, in certain circumstances, the governmental authorities or Indian courts could seek to suspend toll collection for or during certain periods, in full or in part, on our toll roads, which suspension would result in a reduction in our revenues. If toll collection is not properly monitored, leakage may reduce our toll revenue. Further, toll collection errors may amount to a loss of revenue as there is an inherent risk of under-collection of toll fees given that most users of toll roads pay in cash. Any significant failure by us to control leakage in toll collection systems could have an adverse effect on our business, results of operations and financial condition.
A majority of our income arising out of toll collection is dependent on two of our projects and any disruption in the collection of toll from these projects may have an adverse effect on our business, results of operations, financial condition and cash flows.
We presently derive income arising out of toll collection from 17 of our road BOT projects including the NE 1 section of the Ahmedabad to Vadodara NH 8 and NE 1 project (operated under IRBAV). Of these projects, the Yashwantrao Chavan Mumbai–Pune Expressway project (operated under MIPL) and the Surat-Dahisar NH 8 project (operated under IRBSD) contribute towards a majority of our toll collection revenue. For each of the financial year 2014 and the nine months ended December 31, 2014, our toll collections from MIPL and IRBSD contributed more than half of our gross income arising out of toll collection, and we anticipate that our toll revenues shall continue to be dependent on these projects in the near future. Consequently, any disruption in the collection of toll from these projects including as a result 43
of any adverse development with respect to our rights under the relevant concession agreements may have an adverse effect on our business, results of operations, financial condition and cash flows.
Information relating to our Order Book may not be representative of our future results.
As of December 31, 2014, our Order Book was ₹ 91,193.00 million. This comprised ₹ 37,168.00 million of construction under progress and ₹ 54,025.00 million of construction orders to be executed. Our Order Book as of a particular date consists of estimated revenue from unexecuted or uncompleted portions of our “existing contracts”, i.e., the total contract value of such “existing contracts” as reduced by the value of construction work executed until such date. In our Order Book, “existing contracts” include only construction of a BOT project, for which we have received a letter of award, irrespective of whether or not definitive contracts have been executed for such projects as of such date. Order Book information provided by us is neither audited nor reviewed by our auditors and does not necessarily indicate future earnings related to the performance of such contracts. If we do not achieve our expected margins or suffered losses on one or more of these contracts, this could reduce our income or cause us to incur a loss.
Although projects in our Order Book represent business that we consider firm, cancellations or scope adjustments may occur. Due to changes in project scope and schedule, we cannot predict with any certainty when or if the projects in our Order Book will be performed and will generate revenue. In addition, even where a project proceeds as scheduled, it is possible that contracting parties may default and fail to pay amounts owed or dispute the amounts owed to us. There may also be delays associated with collection of receivables from clients. Any delay, cancellation or payment default could adversely affect our cash flow position, revenues or profits, and adversely affect the trading price of our Equity Shares. If we do not achieve expected turnover, margins or suffer losses or termination or cancellation of one or more of these contracts, we may incur losses or our total income could be adversely affected. Investors are cautioned against placing undue reliance on the information relating to our Order Book included in this Preliminary Placement Document.
We may be subject to increase in operation and maintenance costs to comply with industry and regulatory specifications and standards, which may adversely affect our business, cash flows and results of operations.
Our concession agreements typically specify certain operation and maintenance standards and specifications to be met by us while undertaking our operation and maintenance activities. These specifications and standards require us to incur operation and maintenance costs on a regular and periodic basis. Our operation and maintenance costs for the financial year 2014 and nine months ended December 31, 2014 were ₹ 1,585.75 million and ₹ 1,665.47 million respectively, representing 8.0% and 13.7% of our total expenses for the periods indicated. The operation and maintenance costs of our projects may increase due to factors beyond our control, including, among others:
changes in the required standards of maintenance or road safety applicable to our projects prescribed by the relevant regulatory authorities; requirements to restore our projects in the event of any landslides, floods, road subsidence, other natural disasters accidents or other events causing structural damage or compromising safety; unanticipated increases in construction material costs or unavailability of specific construction materials; requirements to adopt new and expensive construction methodologies; higher axle loading, traffic volume or environmental stress leading to more extensive or more frequent heavy repairs or maintenance costs; increases in electricity tariff rates or other fuel costs resulting in an increase in the cost of energy; increases in the cost of labour; and adverse weather conditions.
In the event that our costs increase, we may be unable to offset such increases with higher revenues by increasing toll fees. As such, an inability to change the terms and conditions, including the toll fees during the concession period may adversely affect our operational and financial flexibility. Any significant increase in operation and maintenance costs beyond the amounts budgeted for by us, or any failure to meet quality standards, may reduce our profits, could expose us to penalties imposed by the concessioning authorities and could have an adverse effect on our business, results of operations and financial condition.
We have not yet secured financing for certain infrastructure development projects awarded to us.
We are in the process of arranging for financing for our projects “under development” including the Kaithal to Rajasthan Border NH 152/65 project and the Mumbai Pune Phase II project. We cannot assure you that we will be able 44
to secure adequate financing for all such projects on terms favorable to us or at all, or that we will be able to obtain relevant permits, licenses or approvals for such projects within a reasonable time frame or at all.
The development of new BOT projects involves various risks including regulatory risk, construction risk, financing risk and the risk that such projects may ultimately prove to be unprofitable. We cannot provide any assurance that we will succeed in any of these new projects or that we will recover our investments. Any delay or failure in the development, financing or operation of any of our new projects may adversely affect our business, results of operation and financial condition.
Our ability to negotiate the standard form of contracts for BOT projects may be limited and certain unusual or onerous provisions may be imposed on us.
Our BOT project agreements are typically with Central or state government entities and we have limited ability to negotiate the terms of these contracts. The concession agreements that we have entered into with the NHAI are based on a model concession agreement prescribed by the NHAI, which provides for a fixed term concession with no provisions for renewal of the concession agreement after the expiry of the term. Further, the model concession agreement imposes certain onerous provisions on the concessionaire in relation to minimum shareholding requirement, construction of competing roads by the Government and/or the concessioning authority, compliance with operation and maintenance requirements and substitution of the concessionaire by the NHAI and the senior lenders in the event of any default under the project documents and financing documents, which may limit our flexibility in carrying out our business.
The form of the concession agreement has only evolved in the last decade and there is limited guidance available on the interpretation of a number of the terms and conditions of such concession agreements. In addition, certain terms of the concession agreements are untested and accordingly, their interpretation by the NHAI or the relevant concessioning authority may be different from ours. In the event that the interpretation of such concession agreements is unfavourable to us, our business and results of operations may be adversely affected. For details of certain terms and conditions of concession agreements, see “Our Business”. If we are unable to comply with the unusual or onerous provisions which we have agreed to, our business, results of operations and financial condition may be adversely affected.
Our Company, certain of our Promoters and Directors, and our Subsidiaries are involved in legal proceedings, which if determined against such parties may have an adverse effect on our reputation, business and results of operations.
We are involved in several legal proceedings and claims in India. These legal proceedings are pending at different levels of adjudication before various courts and tribunals. Such legal proceedings against the Company amongst others include disputes relating to non-payment of contractual dues, arbitral proceedings relating to the concession agreements, tax proceedings, writ petitions and cases related to land acquisition for our projects. There are criminal and civil litigation pending against certain of our Promoters and directors before various courts.
Our Subsidiaries are also involved in legal proceedings, including civil and tax proceedings, which are pending at different levels of adjudication before various courts and tribunals. We cannot assure you that these legal proceedings will be decided in favor of us, our Promoters or Directors or our Subsidiaries. In addition, should any new developments arise, such as a change in Indian law or rulings against us by appellate courts or tribunals, we may need to make provisions in our financial statements, which could increase our expenses and our liabilities. Any adverse decision may have an adverse effect on our reputation, business and results of operations.
We may be subject to various warranty and indemnity claims and remedial and other costs relating to our projects.
With respect to our road BOT projects, we may be subject to claims resulting from defects arising from workmanship, procurement and/or construction services provided by us within the applicable defect liability periods under the various project documents. Actual or claimed defects in equipment procured and/or construction quality could give rise to claims, liabilities, costs and expenses relating to loss of life, personal injury, damage to property, equipment and facilities or suspension of operations. Our policy of covering these risks through contractual limitations of liability, indemnities and insurance may not always be effective. A failure to meet quality standards could expose us to the risk of liability claims during the project execution period when our obligations are typically secured by performance guarantees, and during the defects liability period, which typically range from 12 months to 60 months from the completion of work under EPC contracts. Certain of our concession agreements also include a defects liability period that lasts for 120 days from the termination of the respective concession agreement. Any defects in our work could also result in customer claims for damages. In defending such claims, we could incur substantial costs and be subject to 45
adverse publicity. Management resources could be diverted away from the day to day running of our business towards defending such claims. In the event that any defects are not rectified to the satisfaction of our clients, the clients may decide not to return part or all of the retention monies under the project documents. Additionally, project documents may stipulate unlimited liability arising out of work defects.
Our road BOT agreements provide that, following the concession period, fee booths and offices are required to be handed over to the relevant government entity in an acceptable condition, and there can be no assurance that we will not incur additional costs in ensuring that such fee booths and offices are handed over in an acceptable condition.
The operation and maintenance of road projects under concession agreements involves many operational risks, including labor disputes, as well as the breakdown or failure of equipment and processes. Our concession agreements require us to provide a performance bond, usually in the form of a bank guarantee, in connection with the completion of our projects within the scheduled time period. In the event the work is not completed within the scheduled time period, we are liable for liquidated damages in accordance with the terms of the concession agreement. Further, such liquidated damages payable by us may be adjusted against the relevant performance bond that we have provided. Similarly, if the Project SPVs do not maintain road projects in accordance with standards as agreed between the parties, the Government, the NHAI or the relevant state government may, at its own cost, remedy any defects, with the Project SPV being required to reimburse the Government, the NHAI or the state government for such costs.
Further, the indemnification provisions in our project agreements are very broad. We may be required to indemnify certain government entities from the commencement of work on a project to the handing over of the project facility against all claims by any parties resulting from damages, accident or any other reason whatsoever to persons or vehicles using the relevant project roads.
If we incur any of the aforementioned liabilities or costs or are required to pay damages or reimburse governmental or other entities, our business, results of operations and financial condition may be adversely affected.
Our road BOT projects may be terminated prematurely under certain circumstances.
A concession may be revoked by the concessioning authority for a variety of reasons, including but not limited to, one or more of the following:
failure to comply with prescribed minimum shareholding requirements; failure to complete pending items listed in the provisional completion certificate within the prescribed time; failure to participate in or match the bid of the successful bidder in the event of any proposed augmentation of capacity of the existing toll road; failure to augment the capacity of the project if the average daily traffic exceeds the traffic capacity for which the project was designed for in an accounting year and continues to exceed such capacity for the next three accounting years; failure to make any payments, including negative grants, to the concessioning authority in a timely manner; failure to comply with operational or maintenance standards; temporary or permanent halt of operations at the relevant project; occurrence of an event of default under financing documents where the lenders have recalled all or a portion of the loan; continuation of a force majeure event, act of war, expropriation or compulsory acquisition of any project assets by the Central or state government, industrial strikes and public agitation, beyond a specified time; and failure by the relevant Project SPV to comply with any other material term of the relevant concession agreement.
If our concession agreements are terminated by the concessioning authority due to a default by the Project SPV, we may be exposed to additional liability. Further, if the concession agreement is terminated by the Project SPV due to a default by the concessioning authority, the Project SPV is entitled to receive termination payments from the concessioning authority in accordance with the terms of the relevant concession agreement. We cannot assure you that the concessioning authority will make such termination payments in time, or at all. Further, we cannot assure you that the termination payments from the concessioning authority, if any, will be adequate to enable our Company to recover its investments in the Project SPVs. If the concession agreements are terminated prematurely, our business, results of operations and financial condition could be adversely affected.
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We are subject to restrictive covenants under our concession agreements that could limit our flexibility in managing our business or projects.
The concession agreements that we have entered into with the concessioning authorities for our projects contain one or more restrictive covenants and obligations, such as:
requirement for the consent of the concessioning authority to undertake certain actions including amendment, modification or replacement of project agreements, creation of encumbrance or security interest, selection or replacement of contractors; payment of liquidated damages to the concessioning authority in certain cases; minimum shareholding requirements, including transfer restrictions on the equity shares of the Project SPV holding and operating the project; setting up of escrow arrangements for toll proceeds; construction of additional and competing toll roads by the concessioning authorities or the Government or state governments without our consent; ability of the concessioning authority to change the scope of the project; periodic operations and maintenance obligations; indemnity to the concessioning authority for certain actions; termination of our concession agreement by the lenders and the concessioning authority in the event of default; and the step in rights of lenders and the relevant concessioning authority.
The concession agreements also contain provisions that mandate substitution clauses in the project agreements. Such substitution clauses allow the concessioning authority to step in to project agreements in place of the Project SPV in the event of suspension or termination of the concession agreements due to a breach or default by such Project SPV. The concession agreements also provide that the lenders to Project SPV may substitute the Project SPV with new concessionaires approved by the concessioning authority in the event of a default by the Project SPV under the relevant concession agreements, financing agreements or other project agreements. Additionally, pursuant to a circular dated January 29, 2014 issued by the NHAI, the NHAI or lenders may substitute the Project SPV as well as the selected bidder or the consortium members of the relevant toll road project in the event of a “financial default” by such Project SPV, which includes situations in which the NHAI or lenders have reasons to believe that the Project SPV is likely to face financial distress and is likely to default in the compliance of the terms of the relevant concession agreement. While approving such substitutions, the NHAI may also impose a penalty on the defaulting Project SPV, subject to a cap of 1.0% of the total project cost.
Further, the NHAI has the authority to terminate the concession at any point if in its sole opinion, the deferred premium along with debt due is more than potential fee flows available from the project for the balance period of the concession. The concessionaire is also required to install interoperable electronic toll collection systems at its own costs, and integrate its collection or traffic administration systems with that of the NHAI. Additionally, we may be restricted, in our ability to, among other things, increase toll rates, sell our interests to third parties, undertake expansions and contract with certain third parties. These restrictions may restrict our flexibility in managing our business or projects and could in turn adversely affect our business and prospects.
Our inability to collect receivables from concessioning authorities on time or at all may adversely affect our business, results of operations, financial condition and cash flows.
There may be delays associated with the collection of receivables from concessioning authorities and other third parties, including Central or state government owned, controlled or funded entities and related parties. As of December 31, 2014, on a consolidated basis, ₹ 59.06 million of our trade receivables were outstanding for a period exceeding three months from the date of due payment. We cannot assure you that we will be able to collect our receivables in time or at all which may have an adverse effect on our business, results of operations, financial condition and cash flows.
We are subject to restrictive covenants under our financing agreements that could limit our flexibility in managing our business or to use cash or other assets.
Various of the financing agreements that we have entered into with certain banks and financial institutions for our borrowings contain certain restrictive covenants, including, but not limited to, requirements that we obtain consent from 47
the lenders prior to:
Effecting any change in the nature or scope of the project or any change in the financing plan; Effecting any change in capital structure (including shareholding pattern); Raising any equity or preference share capital; Acquiring all or part of the assets of any other person or any class of shares or debentures or partnership interest or similar interest; Making any capital expenditure other than permitted investments; Making any restricted payments (including payment of dividend, redemption of any shares of any class, prepayment in relation to any indebtedness, payment of interest on unsecured loans, investment in any entity) except as permitted under the financing agreements; Creation of any security interest in any of the secured property; Incurrence of any other indebtedness other than permitted indebtedness; Entering into any partnership, profit-sharing or loyalty agreement; Removal of any person exercising substantial powers of management over the affairs of our Company or our Subsidiaries; Amending the constitutional documents of our Company or our Subsidiaries; Undertaking of any new project or making of any investment or taking any assets on lease; Providing guarantees, indemnities or similar assurances in respect of indebtedness of any other person, (other than in the ordinary course of business).
In addition, these restrictive covenants may also affect some of the rights of our shareholders and our ability to pay dividends if we are in breach of our obligations under the applicable financing agreement. Further, in case of any shortfall in project receivables, the relevant Project SPV may need to make good the shortfall from its own sources and/or arrange for the loan to be repaid through revenue shortfall loans from the relevant concession authority. Such financing agreements also require us to maintain certain financial ratios. In the event of any breach of any covenant contained in these financing agreements, we may be required to immediately repay our borrowings either in whole or in part, together with any related costs.
Furthermore, financing agreements also contain cross default provisions which could automatically trigger defaults under other financing agreements. Certain lenders are also entitled to accelerate the repayment of the loans at any time based on the lenders’ assessment of the cash flows, subject to any approval required from the concessioning authority. Further, any downgrading of the credit rating of our Project SPVs by a credit rating agency or any adverse comment from the statutory auditors of such Project SPV may qualify as an event of default under the relevant financing agreements of our Project SPV. Certain financing agreements also provide the banks and financial institutions with the right to convert amounts due into equity in the event of default, with the approval of the relevant concessioning authority. Certain of these banks and financial institutions also have a right to appoint nominee directors under these financing agreements in the event of default. Pursuant to the provisions of certain loan facilities availed of by us, the lenders are entitled to recall the loan at any time on demand or call notice, requiring the borrower to repay (either in full or in part) the amount outstanding on any particular day. Any or all of the above restrictive covenants may restrict our ability to conduct business and any breach thereof may adversely affect our results of operations and financial condition.
Our financing agreements entail interest at variable rates and any increases in interest rates may adversely affect our results of operations, financial condition and cash flows.
We are susceptible to changes in interest rates and the risks arising therefrom. Our financing agreements entail interest at variable rates with a provision for the periodic reset of interest rates. Currently, a majority of our borrowings are at floating rates of interest. Further, under our financing agreements, the lenders are entitled to change the applicable rate of interest depending upon the policies of the Reserve Bank of India and in the event of an adverse change in our Company’s credit risk rating. Further, in recent years, the Government has taken measures to control inflation, which have included tightening monetary policy by raising interest rates. While we have entered into certain interest rate hedging transactions to limit our exposure to interest rate increases in the past, any increase in interest rates may have an adverse effect on our results of operations, financial condition and cash flows.
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Infrastructure development projects have substantial capital requirements and we may not be able to raise the required capital for such projects.
Infrastructure projects are typically capital intensive and require high levels of debt financing. We intend to pursue a strategy of continued investment in infrastructure development projects. Our available financial resources for implementing these projects, based on our internal studies and estimates, may be inadequate and in implementing these project we may face cost overruns due to circumstances beyond our control. The actual amount and timing of future capital requirements may differ from our estimates. If we decide to meet these capital requirements through debt financing, our interest obligations will increase and we may be subject to additional restrictive covenants that may affect our ability to undertake future infrastructure projects.
Although we believe that in the past we have been able to arrange for debt financing for our infrastructure development projects on acceptable terms at the relevant Project SPV level, our ability to continue to arrange for financing on commercially acceptable terms is dependent on numerous factors, including general economic and capital market conditions, availability of credit from banks and financial institutions, investor confidence, the success of our current infrastructure development projects and other factors outside our control. If prevailing conditions in the global and Indian credit and financial markets adversely affect availability of credit leading to an increase in the cost of financing, we may have difficulty accessing the financial markets, which could make it more difficult or expensive to obtain funding. In addition, lenders may require us to invest increased amounts of equity in a project in connection with both additional financing arrangements and the extension of existing financing arrangements.
If we decide to raise additional funds through the issuance of equity or equity-linked instruments, the equity interests of our existing shareholders will be diluted, and may also adversely affect the market price of our Equity Shares. Our ability to raise funds, either through equity or debt, is limited by certain restrictions imposed under Indian law. We cannot assure you that we will be able to raise adequate capital in a timely manner and on acceptable terms or at all. Our failure to obtain adequate financing may result in a delay, scaling back, or abandonment of existing or future projects which in turn may adversely affect our business, results of operations, financial condition and cash flows.
We have high working capital requirements. If we experience insufficient cash flows to meet required payments on our debt and working capital requirements, our business and results of operations could be adversely affected.
Our business requires a significant amount of working capital for activities including the performance of engineering, construction and other works on projects before we receive payment from our clients. We may need to incur additional indebtedness in the future to satisfy our working capital needs.
Our working capital requirements may increase if, under certain contracts, payment terms include reduced advance payments or payment schedules that specify payment towards the end of a project or that are less favorable to us. In addition, our working capital requirements may increase if we are required to advance funds to develop projects under fixed price contracts or become involved in lengthy recovery proceedings to recover these amounts from our clients. All of these factors may result in increases in the amount of our receivables and short-term borrowings. Continued increases in working capital requirements may have an adverse effect on our financial condition and results of operations.
It is customary in our business to provide letters of credit, bank guarantees or performance bonds in favor of clients to secure obligations under contracts. If we are unable to provide sufficient collateral to secure the letters of credit, bank guarantees or performance bonds, our ability to enter into new contracts could be limited. Providing security to obtain letters of credit, bank guarantees and performance bonds increases our working capital needs and limits our ability to provide new performance bonds, guarantees, and letters of credit, and to repatriate funds or pay dividends. We may not be able to continue obtaining new letters of credit, bank guarantees, and performance bonds in sufficient amounts to match our business requirements.
Our revenue from our construction and infrastructure development businesses depends upon the award of new contracts and payment terms under such contracts.
We derive revenue from contracts awarded to us on a project-by-project basis. Generally, it is difficult to determine whether or when we will be awarded a new contract since several potential contracts involve a lengthy and complex bidding and selection process that may be affected by a number of factors, including changes in existing or assumed market conditions, financing arrangements, governmental approvals and environmental matters. Since our revenues are derived primarily from these contracts, our results of operations and cash flows can fluctuate materially from period to period depending on the timing of contract awards. 49
The uncertainty associated with the timing of contract awards may increase our cost of doing business over a short period or a longer term. For instance, we may decide to maintain and bear the cost of a workforce in excess of our current contract needs in anticipation of future contract awards. If an expected contract award is delayed or not received, we could incur costs in maintaining an idle workforce that may have a material adverse effect on our results of operations. Conversely, reducing our workforce could also impact our results of operations if we are unable to adequately staff projects that are awarded subsequent to a workforce reduction.
Due to the nature of our contracts, we sometimes commit resources to projects prior to receiving advances or other payments from the client in amounts sufficient to cover expenditures on projects as they are incurred by us. Delays in client payments may require us to make a working capital investment. If a client defaults in making its payments on a project on which we have devoted significant resources, or if a project in which we have invested significant resources is delayed, cancelled or does not proceed to completion, it could have a material adverse effect on our results of operations and financial condition.
We account for the expenditure incurred in respect of any additional costs, deviations and delays with respect to a project in the fiscal year in which they are incurred. Further, claims by us in relation to such additional costs, deviations or delays are only accounted for as income in the fiscal year in which we receive an acceptance or evidence of acceptance from the client or an arbitration award in our favor. Often these awards or acceptances are subsequently challenged in court or disputed. While we have in the past been successful in defending any challenges or disputes, we cannot assure you that we will be successful in the future or that any adverse judicial decisions will not have a material and adverse effect on our business, results of operations, financial condition or cash flows.
The road infrastructure sector is intensely competitive and our inability to compete effectively may adversely affect our business, results of operations, financial condition and cash flows.
We face significant competition for acquisition of projects from a large number of infrastructure and road development companies who also operate in the same regional markets as us. While technical capacity and performance and personnel, as well as reputation and experience, are important considerations in the concessioning authority’s decision, price is a major factor in most tender awards. Once prospective bidders clear the technical requirements of the tender, the contract is usually awarded to the most competitive financial bidder.
Some of our competitors may be larger than us, may have more financial resources or a more experienced management team, or may have more engineering experience in executing certain types of technically complex projects. Further, the premium placed on having experience may cause some of the new entrants to accept lower margins in order to be awarded a contract. As a result, the nature of the bidding process may cause us and our competitors to accept lower margins in order to be awarded the contract. We may also decide not to participate in some projects as accepting such lower margins may not be financially viable and this may adversely affect our competitiveness to bid for and win future contracts. We cannot assure you that we can continue to compete effectively with our competitors in the future, and failure to compete effectively may have an adverse effect on our business, results of operations, financial condition and cash flows.
Our operations and revenue are, currently, primarily concentrated in Maharashtra and other western Indian states and consequently we are exposed to certain risks emanating therefrom. We may not be able to successfully manage some or all of such risks, which may have a material adverse effect on our revenues, profits and financial condition.
Our operations and revenues are geographically concentrated in Maharashtra, with projects also in other northern, western and southern states including Gujarat, Punjab, Haryana, Rajasthan, Karnataka and Tamil Nadu. Our business is therefore significantly dependent on the general economic condition and activity in the states in which we operate, in particular Maharashtra, and Central, State and local government policies relating to real estate and infrastructure development projects. Although investment in the infrastructure sector in the geographic areas in which we operate has been encouraged, there can be no assurance that this will continue. Should there be a regional slowdown in construction activity or economic activity in these areas or any developments that make construction and infrastructure projects economically less beneficial, the growth of our business, our financial condition and results of operations in the future could suffer. In addition, our business is dependent on construction projects in these states being undertaken or awarded by governmental authorities. If there is a slowdown in the development of construction and infrastructure projects or a decrease in the participation of the private sector in such projects, the growth of our business and results of operations in the future could be materially and adversely affected.
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Our ability to complete our projects in a timely manner and operate, maintain and expand our toll roads is subject to performance of our contractors.
We engage third-party contractors and sub-contractors to perform parts of our contract or provide services or manpower. We do not have control over our contractors day to day performance. We cannot ensure that there will be no delay in performance of duties by our contractors, which may in turn cause a delay in completion of our projects. We may also be exposed to risks relating to the ability of the contractors to obtain requisite approvals for operation and maintenance activities, as well as risks relating to the quality of their services, equipment and supplies. In particular, failure to ensure the reliability and sustainability of toll collectors who are required to man the toll booths continuously may adversely affect the overall level of our net revenue. In addition, under certain of the concession agreements, the consent of the concessioning authority is required for any selection or replacement of an operation and maintenance contractor. Further, under certain of our financing agreements, consent of the lenders is required for replacement of the engineering, procurement and maintenance contractor and operation and maintenance contractor for the project.
Further, while we may sub-contract our construction work and may be indemnified by the sub-contractor for any loss or damage due to their default, we may still be liable for accidents on the projects due to defects in design and quality of construction of our projects during their construction and operation. In addition, we can make no assurance that our contractors or their sub-contractors will continue to hold or renew valid registrations under the relevant labour laws in India or be able to obtain the requisite approvals for undertaking such construction and operation. If our contractors are unable to perform as per their commitments on time or meet the quality standards required, our ability to complete projects could be impaired. Further, if a sub-contractor becomes insolvent, we may be unable to recover damages or compensation for defective work and we may incur additional expenditure as a result of correcting any defective work. Also, we may be required to renegotiate the terms of our agreements with such sub-contractors to ensure that the project is completed in a timely manner. This may have an adverse effect on our reputation, business, results of operations, financial condition and cash flows.
Political and other agitations against the collection of toll at road infrastructure projects may affect our ability to collect toll over prolonged periods, which could have an adverse effect on our business, results of operation and financial condition.
Over the past few years, there have been agitations by political parties and local community members against the collection of toll at road infrastructure projects across Maharashtra. These agitations have often turned violent and resulted in the destruction of toll collection booths and other related property. For example, our Integrated Road Development project at Kolhapur witnessed a temporary toll disruption due to agitations by the local community. For further details, please see the section titled “Legal Proceedings”. Such events may limit our ability to collect toll over a prolonged period and may have an adverse effect on our business, financial condition and results of operation. Further, our concession agreements provide that in the event that our ability to collect toll is disrupted over a specified period, either party to the concession agreement could terminate the agreement. While the concession agreements do provide for a specified payment mechanism in the case of such termination, we cannot assure you that we will receive these payments from the concessioning authority on time or at all, which may adversely affect our results of operation and financial condition.
Our strategy to selectively expand into new geographic areas poses risks. We may not be able to successfully manage some or all of the risks of such an expansion, which may have an adverse effect on our business, results of operations and financial condition. We intend to consolidate our position in the roads and highways infrastructure development sector by selectively pursuing suitable opportunities in parts of India in which we currently have no or only limited operations, in order to expand our current portfolio and gradually reduce our dependence on any particular zone in the country. However, we may not gain acceptance or be able to take advantage of any expansion opportunities outside our current markets. This may place us at a competitive disadvantage and limit our growth opportunities. We face additional risks if we undertake projects in other geographic areas in which we do not possess the same level of familiarity as competitors. If we undertake projects of different size or style than those currently being developed, we may be affected by various factors, including but not limited to: Adjusting our construction methods to different geographic areas; Obtaining the necessary construction materials and labor in sufficient amounts and on acceptable terms; Obtaining necessary governmental and other approvals in time or at all; Failure to realize expected synergies and cost savings; Attracting potential clients in a market in which we do not have significant experience; and 51
Cost of hiring new employees and absorbing increased infrastructure costs.
We may not be able to successfully manage some or all of the risks of such an expansion, which may have a material adverse effect on our business, results of operations and financial condition.
We are dependent on a number of key personnel, including our senior management, and the loss of or our inability to attract or retain such persons could adversely affect our business, results of operations and financial condition.
Our performance depends largely on the efforts and abilities of our senior management and other key personnel. We cannot assure you that we will be able to retain these employees or find adequate replacements in a timely manner, or at all. In terms of our concession agreements, we are required to employ qualified and trained employees for operating each project. We may take a long period of time to hire and train replacement personnel when skilled personnel terminate their employment. We may also be required to increase our levels of employee compensation more rapidly than in the past to remain competitive in attracting the skilled employees that our business requires. The loss of the services of such persons could have an adverse effect on our business, results of operations and financial condition. The continued operations and growth of our business is dependent upon our ability to attract and retain personnel who have the necessary and required experience and expertise. Competition for qualified personnel with relevant industry expertise in India is intense due to the scarcity of qualified individuals in the toll road business. A loss of the services of our key personnel could adversely affect our business, results of operations and financial condition.
Our results of operations could be adversely affected by strikes, work stoppages or increased wage demands by employees as well as due to unavailability of a sufficient pool of contract labor.
As of December 31, 2014, we had approximately 5,829 permanent employees. Our employees are currently not represented by any labor union. While we consider our current labor relations to be good, there can be no assurance that future disruptions will not be experienced due to disputes or other problems with our work force, which may adversely affect our business and results of operations.
We are also dependent on the availability of a sufficient pool of contract labor to execute our infrastructure development and construction projects. Some of our contracts provide that a significant percentage of the aggregate number of unskilled laborers employed for the relevant project must be sourced from within the district in which the work site is located. If the requisite number of contract labor is not available within such district, we may employ the rest from outside the district, with the permission of the relevant government entity. The number of contract laborers employed by us varies from time to time based on the nature and extent of work contracted to independent contractors. We enter into contracts with independent contractors to complete specified assignments. All contract laborers engaged at our projects are assured minimum wages that are fixed by the relevant state governments. Any upward revision of wages required by such state governments to be paid to such contract laborers may adversely affect our business and results of our operations.
We are exposed to significant construction risks with respect to our fixed-price EPC contracts.
Substantially all the construction work undertaken by us in the roads and highways sector for BOT projects is currently executed by our Subsidiary MRMPL, typically on a fixed-price basis. Under the terms and conditions of such fixed- price contracts, we generally agree a fixed price for providing EPC services for the part of the project contracted to us, subject, however, to contract variations pursuant to changes in the client’s project requirements and escalation clauses relating to increases in the prices of raw materials. The actual costs incurred by us in connection with the execution of a fixed-price contract may, however, vary from the assumptions underlying our bid for several reasons, including:
unanticipated changes in engineering design of the project; inaccurate drawings and technical information provided by clients on which bids were based; unforeseen design and engineering construction conditions, site and geological conditions, resulting in delays and increased costs; inability by the client to obtain requisite environmental, railway and other approvals; delays in handing over the required right of way over the project site by the concessioning authority; delays associated with the delivery of equipment and materials to the project site; unanticipated increases in equipment costs; delays caused by local and seasonal weather conditions; and suppliers’ or sub-contractors’ failure to perform their obligations in a timely manner. 52
Under all contracts, we agree to provide certain construction activities at a rate specified in the relevant bill of quantity. The bill of quantity is an estimate of the quantity of activities involved and these quantities may be varied by the parties during the course of the project. Although the additional costs associated with actual quantities exceeding estimated quantities may not pass to us entirely, we however bear the risk associated with actual costs for construction activities exceeding the agreed upon rate, unless these contracts contain price escalation clauses. Our contracts specifically provide that no price variation is permitted in the construction cost beyond price escalation clauses.
Unanticipated costs or delays in performing part of the contract can have compounding effects by increasing costs of performing other parts of the contract. These variations and the risks generally inherent to the construction industry may result in our profits being different from those originally estimated and may result in us experiencing reduced profitability or losses on projects. Depending on the size of a project, these variations from estimated contract performance could have a significant effect on our results of operations.
Our insurance coverage may not adequately protect us against all material hazards.
Our insurance coverage primarily includes all risk insurance policies, fire insurance, personal accident coverage insurance, money insurance, workmen’s compensation policies, plant and machinery insurance as well as transit insurance. Under most of our concession agreements, we are required to obtain insurance for the project undertaken by us. While we believe that the insurance coverage which we maintain would be reasonably adequate to cover the normal risks associated with the operation of our business and that we are in compliance with the requirements of the concession agreements, we cannot assure you that any claim under the insurance policies maintained by us will be honoured fully, in part or on time, or that we have taken out sufficient insurance to cover all material losses. Further, we may not have obtained insurance cover for some of our projects that do not require us to maintain insurance.
To the extent that we suffer loss or damage for which we did not obtain or maintain insurance, and which is not covered by insurance or exceeds our insurance coverage, the loss would have to be borne by us and our results of operations, cash flows and financial performance could be adversely affected. For further details on insurance arrangements, see section titled “Our Business–Insurance”.
An inability to obtain or maintain approvals or licenses required for our operations may adversely affect our operations.
We require certain statutory and regulatory approvals, licenses, registrations and permissions, and relevant applications need to be made at the appropriate stages to various government authorities. There can be no assurance that the relevant authorities will issue these approvals or licenses, or renewals thereof in a timely manner, or at all. On our projects, government delays may delay financial closure within the prescribed time limits, delay locking in an interest rate under loan agreements, or compliance with prescribed time limits for achieving the scheduled completion date specified in project documents. As a result, we may not be able to execute our business plan as planned. An inability to obtain or maintain approvals or licenses required for our operations may adversely affect our operations.
Further, government approvals, licenses, clearances and consents are often also subject to numerous conditions, some of which are onerous and may require significant expenditure. If we fail to comply, or a regulator claims that we have not complied with these conditions, we may not be able to commence or continue work or operate these projects.
Compliance with, and changes in, safety, health and environmental laws and regulations may adversely affect our business, results of operations, financial condition and cash flows.
As an infrastructure and development company, we are required to comply with various laws and regulations relating to the environment, health and safety. Our project operations are subject to local environmental laws and regulations including the Environment (Protection) Act, 1986, Air (Prevention and Control of Pollution) Act, 1981 and Water (Prevention and Control of Pollution) Act, 1974. We may incur substantial costs in complying with environmental laws and regulations. We cannot assure you that compliance with such laws and regulations will not result in delays in completion of construction work or a material increase in our costs, or otherwise have an adverse effect on our business, results of operations, financial condition and cash flows.
The scope and extent of any new environmental, health and safety regulations, including their effect on our operations and cash flows, cannot be predicted with certainty. The costs and management time required to comply with these requirements could be significant. The measures we implement in order to comply with these new laws and regulations 53
may not be deemed sufficient by government authorities and our compliance costs may significantly exceed our estimates. If we fail to meet environmental, health and safety requirements, we may also be subject to administrative, civil and criminal proceedings by government authorities, as well as civil proceedings by environmental groups and other individuals, which could result in substantial fines and penalties against us as well as orders that could limit or halt our operations. We cannot assure you that we will not become involved in future litigation or other proceedings or be held responsible in any such future litigation or proceedings relating to safety, health and environmental matters in the future. Clean-up and remediation costs, as well as damages, payment of fines or other penalties, other liabilities and related litigation, could adversely affect our business, prospects, financial condition and results of operations. For further details on environmental, health and safety regulations applicable to us, see section titled “Regulations and Policies”.
Any withdrawal, or termination of, or unavailability of benefits and exemptions under the Income Tax Act, 1961 being currently availed by us may have an adverse effect on our business, results of operations, financial condition and cash flows.
Section 80-IA (4)(i) of the Income tax Act, 1961 allows us to claim a ten-year tax exemption in respect of infrastructure operations. These tax benefits can be claimed for any ten consecutive assessment years during a twenty year period beginning from the date of commencement of operations of an infrastructure project. Such benefits have resulted in significantly lower tax liabilities for our operations. However, we may be unable to avail these tax benefits under Section 80-IA (4)(i) of the Income tax Act, 1961 in the future, which could result in increased tax liabilities and reduced liquidity and have an adverse effect on our business, results of operations, financial condition and cash flows.
We will continue to be controlled by our Promoters and there may be potential conflicts of interest between our Company and our Promoters.
As on December 31, 2014, our Promoter and Promoter Group hold 203,117,805 equity shares in aggregate, representing 61.11% of the Company’s pre-Issue equity share capital and will continue to exercise significant control over us. Further, our Promoters are required to hold at least 51% of the equity share capital of our Company during the term of certain loan facilities availed by our Company. Our Promoters may take or block actions with respect to our business, which may conflict with our interests or the interests of our minority shareholders, such as actions which delay, defer or cause a change of our control or a change in our capital structure, merger, consolidation, takeover or other business combination involving us, or which discourage or encourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us. We cannot assure you that our Promoters will act in our interest while exercising their rights in such entities. Further, we cannot assure you that there will not be a conflict in interest between our Company and our Subsidiaries on the one hand and our Promoters on the other, or any other companies in which our Promoters invest in the future.
We have filed claims before the NHAI, other concessioning authorities and government entities in relation to certain disputes arising out of our projects, which are still pending.
We have filed claims before the NHAI, other concessioning authorities and government entities in relation to certain of our projects, which are currently pending and we cannot assure you that the outcome of the proceedings will be in our favour and will not have an adverse affect on our business, results of operations and financial condition. For further details of these claims, see section titled “Legal Proceedings”.
Our business is subject to seasonal and other fluctuations that may affect our cash flows and business operations.
Our business and operations are affected by seasonal factors, which may require the evacuation of personnel, suspension or curtailment of operations, resulting in damage to construction sites or delays in the delivery of materials. In particular, the monsoon season in the second quarter of each financial year may restrict our ability to carry on activities related to our “under construction” projects and fully utilize our resources. This may result in delays to our contract schedules and reduce our productivity. During periods of curtailed activity due to adverse weather conditions, we may continue to incur operating expenses but our project related activities may be delayed or reduced. Such delays or reductions in activities may have an adverse affect on our business, results of operations and financial condition.
We have entered into and may in the future enter into related party transactions. There can be no assurance that we could not have achieved more favourable terms if such transactions had been entered into with third parties.
We have in the course of our business entered into, and will continue to enter into, transactions with related parties. 54
While we believe that all of our related party transactions are on arm’s length terms and in compliance with applicable law, we cannot assure you that we could not have achieved more favorable terms had such transactions been entered into with unrelated parties. Further, the transactions we have entered into, such as the transaction with M/s Aryan Constructions, and any future transactions with our related parties have involved or could potentially involve conflicts of interest which may be detrimental to the Company. Also see “Board of Directors and Key Managerial Personnel- Interest of Directors”. We cannot assure you that such transactions, individually or in the aggregate, will not have an adverse effect on our business, results of operations and financial condition, including because of potential conflicts of interest or otherwise.
The cost of implementing new technologies for collection of tolls and monitoring our projects could be significant and could adversely affect our results of operations, cash flows and financial condition.
Our future success will depend in part on our ability to respond to technological advances and emerging standards and practices on a cost effective and timely basis. In addition, rapid and frequent technology and market demand changes can often render existing technologies and equipment obsolete, requiring substantial new capital expenditures or write- down of assets. Our failure to successfully adopt such technologies in a cost effective and a timely manner could increase our costs. Additionally, government authorities may require adherence with certain technologies in the execution of projects and we cannot assure that we would be able to implement the same in a timely manner, or at all.
We have a limited operating history in the real estate, hotel and airport development business, which may make it difficult for you to assess our past performance and future prospects.
We are presently developing a hotel on 30,000 sq.mts. of land leased to us at Kolhapur, Maharashtra, own certain parcels of land situated in Mouje Taje and Mouje Pimpoli in Pune and are also developing a greenfield airport project at Sindhudurg, Maharashtra. Our business has historically been concentrated in the roads and highways infrastructure development sectors and we cannot assure you that we will be able to execute or operate these projects in a timely or cost effective manner, or at all. Our limited operating history may adversely affect our ability to implement our growth strategies, and may make it difficult for you to evaluate our past performance and future prospects. Prospective investors should accordingly consider our future prospects in these businesses in light of the risks and the challenges encountered by a company with a limited operating history. We cannot assure you that we will be able to successfully meet the challenges, uncertainties, costs and difficulties encountered by us or that we will attain our objectives successfully. Our limited operating history in the real estate and airport development business makes it difficult to predict our future prospects and financial performance.
Risks relating to our Wind Energy Business
We are relatively new to the wind power business and are entirely dependent on one customer. If our wind turbine generators do not operate as planned, we may incur increased costs and our revenues may be adversely affected.
We have limited experience in the wind power industry and cannot assure you that we will be successful in our wind power business. We could encounter risks in our wind power business because of our lack of knowledge regarding the operation of the wind turbine generators and cannot assure you that we will adequately be able to foresee the risks that relate to our wind power business.
Currently our wind energy business is entirely dependent on one sole customer, Jodhpur Vidyut Vitran Nigam Limited (“JVNL”), which is a state government owned and controlled entity. We entered into a power purchase agreement on September 15, 2008 with JVNL and Suzlon Energy Limited for the sale of electricity for a period of 20 years to JVNL. Pursuant to the terms of the power purchase agreement, the power tariffs are set by the Rajasthan Electricity Regulatory Commission, and as such the rates may not be reflective of the efficiencies of our business. Any failure on the part of JVNL to fulfill its obligations under the power purchase agreement with us or any inability to enforce the terms of such power purchase agreement against JVNL, or any adverse changes to tariff regulations, would have an adverse effect on our income, business prospects and results of operations. Although the power purchase agreement may be extended by mutual consent, there can be no assurance that such extension will take place. We cannot assure you that once the existing power purchase agreement expires, or is terminated for whatsoever reason, we will be able to establish new off- take arrangements for our wind power generation facilities on terms acceptable to us, or at all, which could adversely affect our business and results of operations.
Further, we are required under the power purchase agreement to guarantee certain minimum performance standards. The operation of power plants involves many operational risks, including the breakdown or failure of generation 55
equipment or other equipment or processes, labor disputes, and operating performance below expected levels. The viability of wind power projects is primarily dependent on the wind patterns at project sites conforming to the patterns that had previously been used to determine the suitability of these sites for wind power projects. Any changes in wind patterns at the site of our wind power project could adversely affect electricity generation and our wind power business.
The decrease in or elimination of Government initiatives and incentives relating to renewable energy sources and in particular to wind energy, may have a material adverse effect on the demand for wind power.
In recent years, the Government has enacted regulations and has established policies that support the expansion of renewable energy sources, such as wind power. Such support has been a significant contributing factor in the growth of the wind power industry. Support for investments in wind power is provided through fiscal incentive schemes or public grants to the owners of wind power systems, for example through preferential tariffs on power generated by wind turbine generators or tax incentives promoting investments in wind power. There can be no assurance that any such government support will continue at the same level or at all. If direct and indirect government support for wind power is terminated or reduced, this would make producing electricity from wind power less competitive, and demand for our wind power could decrease.
External Risks
Risks related to India
Changing laws, rules and regulations and legal uncertainties may adversely affect our business and financial performance.
Our business and financial performance could be adversely affected by any change in laws or interpretations of existing, or the promulgation of new laws, rules and regulations applicable to us and our business. We cannot assure you that the Government or state governments will not implement new regulations and policies which will require us to obtain additional approvals and licenses from government and other regulatory bodies or impose onerous requirements and conditions on our operations. We cannot predict the terms of any new policy, and we cannot assure you that such policy will not be onerous. For example, the Ministry of Road Transport and Highways has prepared a draft legislation to establish an industry regulator with both enforcement and advisory functions. The Government is seeking the views of the concerned ministries on the draft Regulatory Authority for Highways in India Bill, 2013. The draft Bill proposes to, inter-alia, give adjudicatory powers to a proposed regulator (independent of the NHAI) in areas such as contract dispute resolution, enforcement of contractual provisions and renegotiation of future contracts.
Further, the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (the “Land Acquisition Act, 2013”) came into force with effect from January 1, 2014. However, the rules related to its implementation are yet to be notified. The provisions of the Land Acquisition Act, 2013 cover various aspects related to the acquisition of land which may affect us, including provisions stipulating (i) restrictions on land acquisition (e.g. certain types of agricultural land) and (ii) compensation, rehabilitation and resettlement of affected people residing on such acquired land. Even though the National Highways Act, 1956, as amended, has been exempt from the applicability of the Land Acquisition Act, 2013, a bill has been approved in the lower house of the Indian parliament on March 10, 2015 which seeks to amend the Land Acquisition Act, 2013 to, among other things make applicable the provisions of the Land Acquisition Act, 2013 in relation to determination of compensation, rehabilitation and resettlement to cases of land acquisition under the National Highways Act, 1956 and also exempt certain categories of land use, including infrastructure projects under public-private ownership where ownership of land continues to rest in the Government, from requirements to obtain consents from affected families whose land is being acquired. The bill seeks to replace the land acquisition ordinance that was promulgated in December 2014. The bill is yet to be approved by the upper house of the Indian parliament. Any changes and related uncertainties with respect to the implementation of new regulations may have an adverse effect on our business, financial condition and results of operations, including delays in commissioning schedule of our projects.
Public companies in India, including our Company, are required to prepare financial statements under Ind AS. The transition to IndAS in India is very recent and still unclear and our Company may be negatively affected by such transition.
Our Company currently prepares its annual and interim financial statements under Indian GAAP. Public companies in India, including our Company, are required to prepare annual and interim financial statements under Indian Accounting Standard 101 “First-time Adoption of Indian Accounting Standards (“Ind AS”). On January 2, 2015, the Ministry of 56
Corporate Affairs, Government of India (the “MCA”) announced the revised roadmap for the implementation of Ind AS for companies other than banking companies, insurance companies and non-banking finance companies through a press release. On Febuary 16, 2015, the MCA issued the Companies (Indian Accounting Standards) Rules, 2015 (the “Indian Accounting Standard Rules”). Under the revised roadmap, implementation of Ind AS will be applicable from April 1, 2016 to companies with a net worth of ₹ 5,000 million or more. The Company will have to comply with Ind AS for accounting periods beginning April 1, 2016 and its opening Balance Sheet as at April 1, 2015 in accordance with Ind AS. In addition, any holding, subsidiary, joint venture or associate companies of the companies specified above shall also comply with such requirements from the respective periods specified above.
Additionally, Ind AS differs in certain respects from IFRS and therefore financial statements prepared under Ind AS may be substantially different from financial statements prepared under IFRS. There can be no assurance that the Company’s financial condition, results of operation, cash flow or changes in shareholders’ equity will not be presented differently under Ind AS than under Indian GAAP or IFRS. When our Company adopts Ind AS reporting, it may encounter difficulties in the ongoing process of implementing and enhancing its management information systems. There can be no assurance that the adoption of Ind AS by our Company will not adversely affect its results of operation or financial condition. Any failure to successfully adopt Ind AS in accordance with the prescribed timelines may have an adverse effect on the financial position and results of operation of our Company.
Significant increases in the price or shortages in supply of crude oil and products derived thereform, including petrol and diesel fuel, could adversely affect the volume of traffic at the projects operated by us and the Indian economy in general, including the infrastructure sector, which could have an adverse effect on our business and results of operations.
India imports a significant majority of its requirements of crude oil. Crude oil prices are volatile and are subject to a number of factors, including the level of global production and political factors, such as war and other conflicts, particularly in the Middle East, where a substantial proportion of the world’s oil reserves are located. Any significant increase in the price of or shortages in the supply of crude oil could adversely affect the volume of traffic at the projects operated by us and adversely affect the Indian economy in general, including the infrastructure sector, which could have an adverse effect on our business and results of operations.
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 become 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 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 an offer document, corporate governance norms, accounting policies and audit matters, specific compliance requirements such as obtaining prior approval from audit committee, board of directors and shareholders for certain 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. Pursuant to the Companies Act, 2013, we are required to spend, in each financial year, at least 2% of our average net profits during the three immediately preceding financial years towards corporate social responsibility activities. 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 including the requirement to maintain internal financial control, we may allocate additional resources, which will 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 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 became effective from October 1, 2014, except the requirement to 57
appoint at least one woman director to the board of directors, which will become effective from April 1, 2015. Pursuant to the revised guidelines, we are required to appoint independent directors subject to terms and conditions as prescribed, establish a vigilance mechanism for directors and employees and constitute or 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, 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.
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 the 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. 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.
The applicability or interpretation of the Competition Act to any merger, amalgamation or acquisition proposed or undertaken by us, or any enforcement proceedings initiated by CCI for alleged violation of provisions of the Competition Act may adversely affect our business, financial condition or results of operation.
Changes in legislation or the rules relating to tax regimes could an adversely affect our business, prospects and results of operations.
The Government has proposed to alter the implementation of direct taxes by way of introduction of the Direct Taxes Code, 2013. The Direct Taxes Code, 2013 proposes to consolidate and amend laws relating to income tax and wealth tax and has, among others, specified the manner of aggregation and computation of income, minimum alternate tax, wealth tax, dividend distribution tax, provided for certain tax incentives and has imposed penalties in the event of contravention of the provisions of such Code. Further, the Direct Taxes Code, 2013 has specific rates for taxation, including for non-residents. While in the recent budget, it was mentioned that the Government is reviewing the Direct Taxes Code in its present form, if the Direct Taxes Code is passed in its present form by both houses of the Indian Parliament and approved by the President of India and then notified in the Gazette of India, it may have significant consequences for us.
Additionally, the Government has proposed a comprehensive national goods and services tax (“GST”) regime that will combine taxes and levies by the central and state governments into a unified rate structure. Given the limited availability of information in the public domain concerning the GST, we are unable to provide any assurance as to the tax regime following implementation of the GST. The implementation of this new structure may be affected by any disagreement between certain state governments, which could create uncertainty. Any such future amendments may affect our overall tax efficiency, and may result in significant additional taxes becoming payable.
Further, the General Anti Avoidance Rules (GAAR) are proposed to be effective from April 1, 2017. The tax consequences of the GAAR provisions being applied to an arrangement could result in denial of tax benefit amongst 58
other consequences. In the absence of any precedents on the subject, the application of these provisions is uncertain. If the GAAR provisions are made applicable to our Company, it may have an adverse tax impact on us.
We have not determined the impact of such proposed legislations on our business. Uncertainty in the applicability, interpretation or implementation of any amendment to, or change in, governing law, regulation or policy, including by reason of an absence, or a limited body, of administrative or judicial precedent may be time consuming as well as costly for us to resolve and may impact the viability of our current business or restrict our ability to grow our business in the future.
Our business is dependent on economic growth in India.
Our performance is dependent on the health of the overall Indian economy. There have been periods of slowdown in the economic growth of India. India’s economic growth is affected by various factors including domestic consumption and savings, balance of trade movements, namely export demand and movements in key imports (oil and oil products), global economic uncertainty and liquidity crisis, volatility in exchange currency rates, and annual rainfall which affects agricultural production. The GDP growth rate of India has declined to 4.5% in financial year 2013 and 4.7% in financial year 2014 (Source: Indian Economic Survey 2013-14, Ministry of Finance, Government of India). In the past, economic slowdowns have harmed industries including the road infrastructure sector. Any future slowdown in the Indian economy could harm our business, results of operations and financial condition.
Fluctuation in the value of the Rupee against foreign currencies may have an adverse effect on our results of operations and financial condition.
Some of our Project SPVs have entered into financing agreements which are denominated in foreign currencies and require us to bear the cost of adverse exchange rate movements. Such Project SPVs include IRBAV, IRBPA, IRBJD, IRBTC and MRMPL. Depreciation of the Indian Rupee and foreign currency fluctuations have had an adverse impact on foreign currency loans availed by us in the past. Accordingly, any fluctuation in the value of the Rupee against these currencies has and will affect the Rupee cost to us of servicing and repaying any obligations we may incur that expose us to exchange rate risk which may have an adverse effect on our results of operations and financial condition.
If the rate of Indian price inflation increases, our results of operations and financial condition may be adversely affected.
In recent years, India’s wholesale price inflation index has indicated an increasing inflation trend compared to prior periods. An increase in inflation in India could cause a rise in the cost of transportation, wages, raw materials or any other expenses. If this trend continues, we may be unable to reduce our costs or pass our increased costs on to our customers and our results of operations and financial condition may be adversely affected.
Our performance is linked to the stability of policies and the political situation in India.
The Government and state governments have traditionally exercised, and continue to exercise, a significant influence over many aspects of the economy. Our business, and the market price and liquidity of the Equity Shares, may be affected by interest rates, changes in government policy, taxation, social and civil unrest and other political, economic or other developments in or affecting India.
Since 1991, successive Governments have pursued policies of economic liberalisation and financial sector reforms. The current Government has announced its general intention to continue India’s current economic and financial sector liberalisation and deregulation policies. However, we cannot assure you that such policies will be continued and a significant change in the Government’s policies in the future could affect business and economic conditions in India and could also adversely affect our business, financial condition and results of operations.
Any political instability in India may adversely affect the Indian securities markets in general, which could also adversely affect the trading price of the Equity Shares. Any political instability could delay the reform of the Indian economy and could have an adverse effect on the market for the Equity Shares. Protests against privatization could slow down the pace of liberalisation and deregulation. The rate of economic liberalisation could change, and specific laws and policies affecting companies in the road infrastructure sector, foreign investment, currency exchange rates and other matters affecting investment in our securities could change as well. A significant change in India’s economic liberalisation and deregulation policies could disrupt business and economic conditions in India and thereby affect our business. 59
Financial instability in Indian financial markets could adversely affect our results of operations and financial condition.
The Indian financial market and the Indian economy are influenced by economic and market conditions in other countries, particularly in emerging market in Asian countries. Financial turmoil in Asia, Europe, the United States and elsewhere in the world in recent years has affected the Indian economy. Although economic conditions are different in each country, investors’ reactions to developments in one country can have an adverse effect on the securities of companies in other countries, including India. A loss in investor confidence in the financial systems of other emerging markets may cause increased volatility in Indian financial markets and, indirectly, in the Indian economy in general. Any global financial instability, including further deterioration of credit conditions in the U.S. market, could also have a negative impact on the Indian economy. Financial disruptions may occur again and could harm our results of operations and financial condition.
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 projects under development and hence could constrain our ability to obtain financings on competitive terms and refinance existing indebtedness. In addition, we cannot assure you that any required regulatory approvals for borrowing in foreign currencies will be granted to us without onerous conditions, or at all. Limitations on foreign debt may have an adverse effect on our business growth, financial condition and results of operations.
Under Indian law, foreign investors are subject to investment restrictions that limit our ability to attract foreign investors, which may adversely impact the trading price of the Equity Shares.
Under foreign exchange regulations currently in force in India, transfer of shares between non-residents and residents are freely permitted (subject to certain exceptions), if they comply with the valuation and reporting requirements specified by the RBI. If a transfer of shares is not in compliance with such requirements and does not fall under any of the exceptions specified by the RBI, then the RBI’s prior approval is 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 require a no-objection or a tax clearance certificate from the Indian income tax authorities. 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.
Any downgrading of India’s debt rating by a domestic or international rating agency could adversely affect our ability to obtain financing and, in turn, our business and financial performance.
India’s sovereign debt rating could be downgraded due to various factors, including changes in tax or fiscal policy or a decline in India’s foreign exchange reserves, which are outside our control. Any adverse revisions to India’s credit ratings for domestic and international debt by domestic or international rating agencies may adversely impact 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 business and financial performance, ability to obtain financing for capital expenditures and the price of the Equity Shares.
The occurrence of natural or man-made disasters could adversely affect our results of operations and financial condition.
The occurrence of natural disasters, including cyclones, storms, floods, earthquakes, tornadoes, fires, explosions, pandemic disease and man-made disasters, including acts of terrorism and military actions, could adversely affect our results of operations or financial condition, including in the following respects:
A natural or man-made disaster, could result in damage to our assets or losses in our projects, or the failure of our counterparties to perform, or cause significant volatility in global financial markets. Pandemic disease, caused by a virus such as H5N1, the “avian flu” virus, the Ebola virus, or H1N1, the “swine flu” virus, could have a severe adverse effect on our business. Political tension, civil unrest, riots, acts of violence, situations of war or terrorist activities may result in disruption of services and may potentially lead to an economic recession and/or impact investor confidence.
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Risks relating to the Issue
We cannot guarantee that our Equity Shares issued pursuant to the Issue will be listed on the Stock Exchanges in a timely manner, or at all.
In accordance with Indian law and practice, after our Board, or the authorised committee thereof, passes the resolution to allot the Equity Shares but prior to crediting such Equity Shares into the Depository Participant accounts of the Eligible QIBs, we are required to apply to the Stock Exchanges for final listing and trading approvals. After receiving the final listing approvals from the Stock Exchanges, we will credit the Equity Shares into the Depository Participant accounts of the respective Eligible QIBs and apply for the final trading approvals from the Stock Exchanges. There could be a failure or delay in obtaining these approvals from the Stock Exchanges, which in turn could delay the listing of our Equity Shares on the Stock Exchanges. Any failure or delay in obtaining these approvals would restrict your ability to dispose of your Equity Shares.
An investor will not be able to sell any of our Equity Shares subscribed in this Issue other than on a recognized Indian stock exchange for a period of 12 months from the date of this Issue.
The Equity Shares in this Issue are subject to restrictions on transfers. Pursuant to the SEBI Regulations, for a period of 12 months from the date of the issue of Equity Shares in the Issue, Eligible QIBs subscribing to the Equity Shares in the Issue may only sell their Equity Shares on the Stock Exchanges and may not enter into any off market trading in respect of these Equity Shares. We cannot be certain that these restrictions will not have an impact on the price and liquidity of the Equity Shares.
The price of our Equity Shares may be volatile.
The trading price of our Equity Shares may fluctuate after this Issue due to a variety of factors, including our results of operations and the performance of our business, competitive conditions, general economic, political and social factors, the performance of the Indian and global economy and significant developments in India’s fiscal regime, volatility in the Indian and global securities market, performance of our competitors, the Indian infrastructure industry and the perception in the market about investments in the infrastructure industry, changes in the estimates of our performance or recommendations by financial analysts and announcements by us or others regarding contracts, acquisitions, strategic partnerships, joint ventures, or capital commitments. In addition, if the stock markets in general experience a loss of investor confidence, the trading price of our Equity Shares could decline for reasons unrelated to our business, financial condition or operating results. The trading price of our Equity Shares might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. Each of these factors, among others, could adversely affect the price of our Equity Shares.
Information and rights of shareholders under Indian law may be more limited than under the laws of other jurisdictions.
Our constitutional documents and various provisions of Indian law govern our corporate affairs. Legal principles relating to these matters and the validity of corporate procedures, directors’ fiduciary duties and liabilities, and shareholders’ rights may differ from those that would apply to a company in another jurisdiction. Shareholders’ rights and disclosure standards under Indian law may not be as extensive as under the laws of other countries or jurisdictions. Investors may have more difficulty in asserting their rights as our shareholder than as a shareholder of a corporation in another jurisdiction. See “Description of the Equity Shares”.
There may be less information available about companies listed on the Indian securities markets compared to information that would be available if we were listed on securities markets in certain other countries.
There may be differences between the level of regulation and monitoring of the Indian securities markets and the activities of investors, brokers and other participants and that of the markets in the U.S. and certain other countries. SEBI governs the Indian capital market (along with the Indian stock exchanges, which also govern the companies whose securities are listed with them) and has issued regulations and guidelines on disclosure requirements, insider trading, substantial acquisitions and takeovers of listed companies and other matters. There may, however, be less publicly available information about companies listed on an Indian stock exchange compared to information that would be available if that company was listed on a securities market in certain other jurisdictions.
Fluctuations in the exchange rate between the Rupee and the U.S. dollar could have an adverse effect on the value 61
of our Equity Shares, independent of our operating results.
Our Equity Shares are quoted in Rupees on the Stock Exchanges. Any dividends in respect of our Equity Shares will be paid in Rupees and subsequently converted into U.S. dollars for repatriation. Any adverse movement in exchange rates during the time it takes to undertake such conversion may reduce the net dividend to investors. In addition, any adverse movement in exchange rates during a delay in repatriating the proceeds from a sale of Equity Shares outside India, for example, because of a delay in regulatory approvals that may be required for the sale of Equity Shares, may reduce the net proceeds received by shareholders. The exchange rate between the Rupee and the U.S. dollar has changed substantially in the last two decades and could fluctuate substantially in the future, which may have an adverse effect on the value of our Equity Shares and returns from our Equity Shares, independent of our operating results.
Any future issuance of Equity Shares by us or sales of our Equity Shares by any of our significant shareholders may adversely affect the trading price of our Equity Shares.
Any future issuance of our Equity Shares by us could dilute your shareholding. Any such future issuance of our Equity Shares or sales of our Equity Shares by any of our significant shareholders may also adversely affect the trading price of our Equity Shares, and could impact our ability to raise capital through an offering of our securities. We cannot assure you that we will not issue further Equity Shares or that the shareholders will not dispose of, pledge or otherwise encumber their Equity Shares. In addition, any perception by investors that such issuances or sales might occur could also affect the trading price of our Equity Shares.
Investors may be subject to Indian taxes arising out of capital gains on the sale of our Equity Shares.
Under current Indian tax laws, capital gains arising from the sale of the Equity Shares within 12 months in an Indian company are generally taxable in India. Any gain realized on the sale of listed 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 (“STT”) has been paid on the transaction. STT will be levied on and collected by a domestic stock exchange on which the Equity Shares are sold. Any gain realized on the sale of the Equity Shares held for more than 12 months to an Indian resident, which are sold other than on a recognized stock exchange and on which no STT has been paid, will be subject to long term capital gains tax in India. Further, any gain realized on the sale of listed Equity Shares held for a period of 12 months or less will be subject to short-term capital gains tax in India. Capital gains arising from the sale of our Equity Shares will be exempt from taxation in India in cases where the exemption from taxation in India is provided under a treaty between India and the country of which the seller is 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 jurisdiction on a gain upon the sale of the Equity Shares. The above statements are based on the current tax laws.
Our ability to raise capital outside India may be constrained by Indian law, which may adversely affect our financial condition, results of operations and prospects.
Under India’s policy on external commercial borrowing (“ECB”), as notified by the RBI and currently in force (“ECB Policy”), ECB by an eligible borrower is permitted under the automatic route up to US$ 750 million in a financial year, with a minimum average maturity of three years for ECB up to US$ 20 million and five years for ECB of US$ 20 million to US$ 750 million, for permissible end-uses. Permissible end uses for ECB include import of capital goods, new projects, modernization or expansion of existing production units in the industrial and certain other specified sectors, as well as import of services and technical know-how and payment of license fees by manufacturing companies. End uses not permitted include working capital, general corporate purposes, repayment of existing Rupee denominated borrowings, investment in real estate and on-lending or investment for acquisition of a company or part thereof (other than an overseas subsidiary or joint venture, subject to existing laws and regulations governing overseas direct investment by Indian companies). Further, the ECB Policy limits the all-in-cost to 500 basis points above the London Interbank Offered Rate or applicable benchmark for ECB with minimum average maturity of over five years. ECB not complying with these requirements is permitted with prior approval of the RBI, in accordance with the ECB Policy. In addition, there are certain routine procedural and disclosure requirements in relation to any such ECB.
Further, by raising funding in the international capital markets, our Company will be required to comply with the unfamiliar capital markets laws of such countries.
These limitations on ECB may constrain our ability to raise cost effective funding for implementing asset purchases, refinancing existing indebtedness, or financing acquisitions and other strategic transactions in the future, which may adversely affect our business, financial condition, results of operations and prospects. 62
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.
The Equity Shares will be subject to a daily circuit breaker imposed on listed companies by all stock exchanges in India, which does not allow transactions beyond a certain volatility in the price of the Equity Shares. This circuit breaker operates independently of the index-based market-wide circuit breakers generally imposed by SEBI on Indian stock exchanges. The percentage limit on the Equity Shares’ circuit breaker will be set by the stock exchanges based on historical volatility in the price and trading volume of the Equity Shares. The stock exchanges are not required to inform us of the percentage limit of the circuit breaker and they may change the limit without our knowledge. This circuit breaker would effectively limit the upward and downward movements in the price of the Equity Shares. As a result of this circuit breaker, there can be no assurance regarding the ability of shareholders to sell Equity Shares or the price at which shareholders may be able to sell their Equity Shares.
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MARKET PRICE INFORMATION
The Equity Shares have been listed and traded on the BSE and the NSE since February 25, 2008. As on the date of this Preliminary Placement Document, 332,364,110 Equity Shares have been issued and are fully paid up.
On March 18, 2015, the closing price of the Equity Shares on the BSE and the NSE was ₹ 233.00 and ₹ 233.00 per Equity Share, respectively. The market price and other information for each of the BSE and the NSE has been given separately.
i) The following tables set forth the reported high, low, 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 and the total trading volumes for Financial Years ended March 31, 2012, March 31, 2013 and March 31, 2014:
NSE Financial High Date Number Total Low Date Number Total Average Total volume of Equity Year ( ₹ ) of of volume ( ₹) of of volume price Shares traded in the High Equity of low Equity of for the Financial Year Shares Equity Shares Equity year In (In traded Shares traded Shares (In ₹) number ₹million) on the traded on the traded date of on the date of on the high date of low date of high(In low ₹ (In million) ₹million 2014 133.00 May 20, 20,56,193 274.15 54.35 August 100,02,675 583.75 91.99 60,47,36,789 54,119.53 2013 01, 2013 2013 199.40 April 18, 16,67,491 336.86 105.25 May 11, 186,46,242 2,033.40 131.26 86,48,82,137 110,211.94 2012 2012 2012 228.20 April 07, 836,103 188.98 124.50 January 15,06,314 187.49 166.99 40,44,22,843 69,160.42 2011 06, 2012 Source: www.nseindia.com
BSE Financial High Date Number Total Low Date Number Total Average Total volume of Equity Year ( ₹ ) of of volume ( ₹) of of volume price Shares traded in the High Equity of low Equity of for the Financial Year Shares Equity Shares Equity year In (In traded Shares traded Shares (In ₹) number ₹million) on the traded on the traded date of on the date of on the high date of low date of high(In low ₹ (In million) ₹million 2014 132.85 May 20, 466,732 62.11 54.15 August 64,00,979 358.46 91.99 12,64,05,259 11,010.75 2013 01, 2013 2013 199.30 April 18, 3,01,250 60.89 105.20 May 11, 44,37,215 483.87 131.24 18,82,63,540 23,847.05 2012 2012 2012 228.40 April 07, 2,93,412 66.34 124.95 January 216,580 27.03 166.93 8,97,02,255 15,261.08 2011 06, 2012 Source: www.bseindia.com
Notes: 1. High, low and average prices are based on the daily closing prices. 2. In case of two days with the same closing price, the date with the higher volume has been chosen. 3. In the case of a year, represents the average of the closing prices on the last day of each month of each year presented. ii) The following tables set forth the reported high, low, 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 and the total volume of Equity Shares traded during each of the last six months:
NSE Month, Hig Date of Numbe Total Lo Date of Numbe Total Avera Total volume of Equity Year h High r of volume w low r of volum ge Shares traded in the (In₹ Equity of (₹) Equity e of price month ) Shares Equity Shares Equity for the
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traded Shares traded Shares month In number (In on the traded on the traded (In ₹) ₹milli date of on the date of on the on) high date of low date of high(In low ₹ (In ₹ million million ) February 269.75 February 21,75,905 589.68 244.35 February 53,72,754 1,314.73 255.16 4,88,74,644 12,494.83 2015 3, 2015 18, 2015 January 270.30 January 51,38,111 227.35 January 60,42,363 1384.42 249.34 6,03,85,935 14,998.61 2015 29, 2015 1,376.15 07, 2015 December 270.70 December 23,60,575 643.33 240.30 December 17,05,587 414.45 254.64 3,53,66,921 9,038.82 2014 02, 2014 16, 2014 November 283.05 November 44,84,704 1,271.96 255.55 November 38,05,622 984.90 268.34 551,79,780 14,861.26 2014 18, 2014 05, 2014 October 254.5 October 30,73,737 778.57 220.65 October 25,62,595 578.07 237.58 4,87,99,420 11,561.65 2014 30, 2014 07, 2014 September 267.55 Septembe 36,67,353 974.50 231.10 Septembe 31,73,753 738.37 250.42 8,91,48,114 22,345.78 2014 r 09 , r 30, 2014 2014 Source: www.nseindia.com
BSE Month, Hig Date of Numbe Total Lo Date of Numbe Total Averag Total volume of Equity Year h High r of volume w low r of volume e price Shares traded in the (In₹ Equity of (₹) Equity of for the month ) Shares Equity Shares Equity month traded Shares traded Shares (In ₹) on the traded on the traded (In (In date of on the date of on the number ₹million high date of low date of ) ) high(In low ₹ (In ₹ million million ) ) February 269.7 February 3,34,351 90.60 244.40 February 9,48,118 232.18 255.05 79,53,812 2,029.82 2015 3, 2015 18, 2015 January 269.85 January 3,51,788 94.42 227.80 January 9,10,855 208.77 249.35 85,84,736 2,126.00 2015 29, 2015 07, 2015 December 270.45 December 3,68,447 100.36 240.30 December 3,57,655 86.77 254.43 61,13,313 1,560.70 2014 02, 2014 16, 2014 November 282.50 Novembe 5,15,800 146.20 254.70 Novembe 5,55,427 143.56 268.16 83,15,694 2,230.01 , 2014 r 18, 2014 r 05,2014 October, 253.70 October 2,55,837 64.62 220.45 October 3,72,488 83.93 237.46 63,15,679 1,493.60 2014 30, 2014 07, 2014 September 267.45 Septembe 4,95,972 131.75 230.85 Septembe 4,24,350 98.57 250.27 1,24,52,16 3,108.99 , 2014 r 09, 2014 r 30, 2014 9 Source: www.bseindia.com
Notes: 1. High, low and average prices are based on the daily closing prices. 2. In case of two days with the same closing price, the date with the higher volume has been chosen. 3. In case of a month, represents the average of the closing prices of each day of each month presented. iii) The following table sets forth the market price on the Stock Exchanges on November 7, 2014, the first working day following the approval of the Board of Directors for the Issue:
BSE NSE Open High Low Close Total Total Open High(In Low Close Total Total (In ₹) (In ₹) (In ₹) (In ₹) number volume (In ₹) (In (In Number volume of of ₹) ₹) ₹) of of Equity Equity Equity Equity Shares Shares Shares Shares traded traded traded traded on the on the date of date of low low (In (In ₹million) ₹million) 253.80 264.10 252.25 260.75 4,92,829 128.09 252.00 264.30 251.95 261.30 31,06,651 807.71 Source: www.bseindia.com and www.nseindia.com
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USE OF PROCEEDS The gross proceeds from the Issue will be approximately ₹ [●] million.
The net proceeds from the Issue, after deducting fees, commissions and expenses of the Issue, will be approximately ₹ [●] million (the “Net Proceeds”).
Subject to compliance with applicable laws and regulations, we intend to use the Net Proceeds of the Issue towards (i) investments by way of equity and/or loan in the Company’s existing and new subsidiaries, (ii) development and other project costs of unidentified existing and new projects (either directly or through the Subsidiaries, joint ventures or affiliates currently incorporated or to be incorporated), (iii) repayment or prepayment of debt, (iv) normal capital expenditure, (v) new business initiatives, (vi) general corporate purposes, including working capital and (vii) any other uses as may be permissible under applicable law.
Subject to review of the Audit Committee and the Board as required under the provisions of the Listing Agreement, the management of the Company will have flexibility in deploying the proceeds received by the Company from the Issue. Pending utilisation of the net proceeds of the Issue as described above, the Company intends to temporarily invest the funds in interest bearing instruments including deposits with banks and investments in mutual funds in compliance with applicable laws. Our Promoters or Directors are not making any contribution either as part of the Issue or separately in furtherance of the object of the Issue.
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CAPITALISATION STATEMENT The Board of Directors has, pursuant to a resolution passed on November 5, 2014 and the Company’s shareholders, pursuant to a resolution passed by way of postal ballot on December 8, 2014 approved the Issue.
The following table sets forth our capitalisation as of March 31, 2014 based on our Consolidated Financial Statements, our capitalisation as of December 31, 2014 based on our Unaudited Condensed Interim Consolidated Financial Statements and our capitalisation as adjusted to reflect the Issue.
This capitalisation table should be read together with the sections “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Financial Statements” and related notes of this Preliminary Placement Document. (₹ in million) As of As of March December 31, Post- Particulars 31, 2014 Pre- 2014 Pre- Issue(2) Issue Issue Short Term Borrowings (A):
Secured Borrowings 8,951.47 9.910.54 9.910.54
Unsecured Borrowings 13.67 13.67 13.67 Long Term Borrowings (B):
Secured Borrowings 93,979.52 104,909.55 104,909.55
Unsecured Borrowings - - - Current Maturities of Long Term Borrowings (C):
Secured Borrowings 7,896.19 9,765.60 9,765.60
Unsecured Borrowings - - -
Total Long Term Debt (D=B+C) 101,875.71 114,675.15 114,675.15
Total Debt (E = A+B+C) 110,840.85 124,599.36 124,599.36 Shareholders’ Funds:
Share Capital 3,323.64 3,323.64 [●]
Reserves and Surplus(1) 32,283.35 35,530.44 [●]
Money received against issue of warrant - - -
Total Shareholders’ Funds (F) 35,606.99 38,854.08 [●]
Total Capitalisation (G= E+F) 146,447.84 163,453.44 [●] Debt / Equity Ratio: (Total Long Term Debt/Total 2.86 2.95 Shareholders Fund (D/F)) Debt / Equity Ratio: (Total Debt/Total Shareholders’ Fund 3.11 3.21 (E/F))
(1) Reserves and Surplus including securities premium and excluding revaluation reserve. (2) Considering the issue of up to [●] Equity Shares at ₹ [●] per Equity Share pursuant to the Issue.
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CAPITAL STRUCTURE
The Equity Share capital of the Company as at the date of this Preliminary Placement Document is set forth below:
(In ₹ millions, except share data) Aggregate value at face value AUTHORISED SHARE CAPITAL 615,000,000 Equity Shares 6,150
ISSUED, SUBSCRIBED AND PAID-UP CAPITAL BEFORE THE ISSSUE Issued share capital: 332,364,110 Equity Shares 3,323.64 Subscribed and paid up share capital: 332,364,110 Equity Shares 3,323.64
PRESENT ISSUE IN TERMS OF THIS PRELIMINARY PLACEMENT DOCUMENT [●] Equity Shares aggregating up to [●] [●]
PAID-UP CAPITAL AFTER THE ISSUE [●] Equity Shares [●]
SECURITIES PREMIUM ACCOUNT Before the Issue 10,035.16 After the Issue [●]
The Issue has been authorised by the Board of Directors pursuant to resolution dated November 5, 2014 and the shareholders (by postal ballot) pursuant to their resolution dated December 8, 2014.
Equity Share Capital History of the Company
The history of the Equity Share capital of the Company is provided in the following table:
Date of allotment Number of Equity Face Value per Equity Issue Price per Equity Nature of Shares Share Share consideration (cash, (₹) (₹) bonus, other than cash) August 24, 1998 10 100 100 Cash August 24, 1998 10 100 100 Cash August 23, 2000 10,000 100 100 Cash August 23, 2000 10,000 100 100 Cash August 23, 2000 4,980 100 100 Cash July 17, 2004 3,001,270 100 100 Cash July 17, 2004 3,968,750 100 100 Cash July 17, 2004 130,000 100 100 Cash July 17, 2004 75,000 100 100 Cash December 16, 2004 793,730 100 100 Cash December 16, 2004 41,250 100 100 Cash March 24, 2005 1,795,000 100 100 Cash March 24, 2005 1,600,000 100 100 Cash November 30, 2005 875,000 100 100 Cash November 30, 2005 245,000 100 100 Cash January 10, 2006 500,000 100 100 Cash January 18, 2006 40,000 100 100 Cash February 23, 2006 240,000 100 100 Cash
June 22, 2006 710,000 100 100 Cash August 31, 2006 500,000 100 100 Cash
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Date of allotment Number of Equity Face Value per Equity Issue Price per Equity Nature of Shares Share Share consideration (cash, (₹) (₹) bonus, other than cash) August 31, 2006 20,000 100 100 Cash
August 31, 2006 10,166,500 100 100 Cash November 17, 2006 100 100 100 Cash November 17, 2006 100* 100 100 Cash November 17, 2006 100* 100 100 Cash November 17, 2006 100* 100 100 Cash November 17, 2006 100 100 100 Cash November 17, 2006 100 100 100 Cash August 9, 2007 247,268,000 10 ** September 10, 2007 11,346,148 10 77.55 Cash September 10, 2007 11,346,148 10 77.55 Cash September 10, 2007 11,346,148 10 77.55 Cash February 15, 2008 50,906,076 10 185.00 Cash February 18, 2008 151,590 10 185.00 Cash Total 332,364,110 *The Board has by its resolution dated September 7, 2007 recorded that the allotments to ATR Infrastructure Private Limited, Aryan Toll Road Private Limited and Modern Road Makers Private Limited are void under Section 42 of the Companies Act. The Company has informed the RoC of the cancellation of the equity shares pursuant to a letter dated September 25, 2007 and filed a revised return of allotment in Form 2 on September 27, 2007. ** Pursuant to a resolution of the Shareholders of the Company at an EGM held on August 9, 2007, each equity share of face value ` 100 was sub-divided into 10 equity shares of `10 each.
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DIVIDEND POLICY
The declaration and payment of dividend will be recommended by the Board of Directors and approved by the shareholders, at their discretion, and will depend on the Company’s revenues, cash flows, financial condition (including capital position) and other factors. The declaration and payment of equity dividend would be governed by the applicable provisions of the Companies Act and Articles of Association of the Company.
The following table details the dividend declared by the Company on the Equity Shares for the Financial Years 2012, 2013 and 2014.
Financial Year Dividend per Equity Share Total Amount of Dividend(1) (In ₹) (In ₹ million) 2012 1.80 598.27 2013 4.00 1,329.46 2014 4.00 1,329.46
Notes:
(1) Dividend amount excluding corporate dividend tax.
For a summary of certain Indian tax consequences of dividend distributions to shareholders, see the section “Taxation”.
For a description of regulation of dividends, see the section “Description of Equity Shares”. Further, the amounts paid as dividends in the past are not necessarily indicative of our dividend policy or dividend amounts, if any, in the future. There is no guarantee that any dividends will be declared or paid or that amount thereof will not be decreased in the future.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations together with our Consolidated Financial Statements as of and for the financial years 2014, 2013 and 2012 including the schedules and notes thereto and report thereon and our Unaudited Condensed Interim Consolidated Financial Statements as of and for the nine months ended December 31, 2014 including the schedules and notes thereto and report thereon, included elsewhere in this Preliminary Placement Document. Our Financial Statements are prepared in accordance with Indian GAAP, which differs in certain material respects with U.S. GAAP and International Financial Reporting Standards.
This discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors such as those set forth in the section “Risk Factors” included elsewhere in this Preliminary Placement Document.
Our financial year ends on March 31 of each year. Accordingly, all references to a particular financial year are to the 12 month period ended March 31 of that year.
Overview
We are one of the largest infrastructure development and construction companies in India in the roads and highways sector. Our Build, Operate and Transfer (“BOT”) infrastructure development business involves the construction, development, operation and maintenance of road projects. We currently have 22 road BOT projects, of which 16 are “operational”, three are “under construction” and three are “under development”. We believe that we have one of the largest road BOT project portfolios in India, with 9,289 Lane Kilometers of roads and highways currently under operation, construction or development.
All of our road BOT projects are implemented and held through special purpose vehicles (“Project SPVs”). We are involved in the design, development, construction, operation and maintenance of national and state highways and roads in the states of Maharashtra, Gujarat, Rajasthan, Punjab, Haryana, Karnataka and Tamil Nadu.
Our construction business complements our BOT infrastructure development business and involves engineering, procurement and construction (“EPC”) work for construction projects on a contract basis, including in the roads and highways sector. In addition, we are currently developing a greenfield airport project in Sindhudurg, Maharashtra and a hotel in Kolhapur, Maharashtra. We also have a presence in the wind power business, through our Subsidiary, MRMPL.
We believe that our large fleet of sophisticated construction equipment and our employee resources, along with our engineering skills and capabilities, enable us to implement modern infrastructure and construction methodologies effectively and efficiently.
We generate revenues primarily from toll collection from our road BOT projects and our EPC activities. Our total revenue was ₹ 29,417.01 million and ₹ 38,533.13 million for the nine months ended December 31, 2014 and the financial year 2014 respectively. Profit after tax and minority interest was ₹ 4,046.89 million for the nine months ended December 31, 2014 and our profit after minority interest was ₹ 4,591.29 million for the financial year 2014.
Our key projects include the Yashwantrao Chavan Mumbai–Pune Expressway and the NH 4 project operated by MIPL, the Bharuch-Surat NH 8 project operated by IDAA, the Surat-Dahisar NH 8 project operated by IRBSD and the Ahmedabad Vadodara NH 8 and NE-1 project being constructed by IRBAV. Substantially all the construction work undertaken by us on BOT projects in the roads and highways sector is currently executed by our Subsidiary, MRMPL. MRMPL, MIPL, IDAA, IRBPL and IRBSD are our key Subsidiaries based on revenue generated in the financial year 2014.
Factors affecting our Results of Operations
Our business, prospects, results of operations and financial condition are affected by a number of factors, including the following key factors:
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Terms and Timing of Contracts Awarded and the Stage of Completion of Our Contracts
Our revenues are derived primarily from contracts awarded to us on a project-by-project basis, and our results of operations and cash flows can fluctuate from period to period depending on the timing of contract awards and the stage of completion of such contracts.
Generally, it is difficult to predict whether or when we will be awarded a new contract since most potential contracts involve a lengthy and complex bidding and selection process that may be affected by a number of factors, including changes in existing or assumed market conditions, financing arrangements, governmental approvals and environmental matters. While service quality, technological capacity and performance, financial strength, health and safety records as well as reputation and experience are important considerations in client decisions, price is a major factor in most tender awards. The ability to win contracts may also be dependent, in case of some large size contracts, on our ability to partner and collaborate with other joint venture partners or co-sponsors and maintain a continuing relationship with our significant clients, including governmental entities such as the NHAI and the MSRDC. The uncertainty associated with the timing of contract awards may increase our cost of doing business over a short period or a comparatively longer term. Because of the nature of our contracts, we sometimes commit resources to projects prior to receiving advances or other payments from the client in amounts sufficient to cover expenditures on projects as they are incurred by us. We account for the expenditure incurred in respect of any additional costs, deviations and delays with respect to a project in the financial year in which they are incurred. Thus, client default or project delays or cancellation have an effect on our results of operations and financial condition.
Contract revenue and contract cost associated with the construction of roads is recognized as revenue and expenses, respectively, by reference to the stage of completion of the projects as of the balance sheet date. The stage of completion of the project is determined by the proportion that percentage of work performed up to the balance sheet date bears to the total contract work to be completed. The net income from toll contracts on a BOT basis is recognized on actual collection of toll revenue, while revenue from maintenance contracts is recognized pro-rata over the period of the contract as and when services are rendered. Accordingly, our results of operations and cash flows fluctuate from period to period depending on the stage of completion of our construction contracts and other factors.
Our Order Book, as of December 31, 2014, was ₹ 91,193.00 million. Such Order Book information provided by us is not audited or reviewed by our auditors and does not necessarily indicate future earnings related to the performance of such contracts. Future earnings related to the performance of the work in the Order Book may not necessarily be realized. Due to changes in project scope and schedule, we cannot predict with any certainty when or if the projects in our Order Book will be performed and will generate revenue.
Project Estimates, Project Financing and Operational Factors
All of our construction projects are performed on a fixed-price basis. Actual expenses for such contracts are, however, dependent on factors such as the assumptions underlying our bid for various project uncertainties, changes in engineering design of the project and drawings and technical information provided by clients on which bids were based; design and engineering construction conditions, site and geological conditions; ability to obtain requisite environmental and other approvals; schedule of delivery of equipment and materials to the project site; equipment costs; delays local and seasonal weather conditions; and suppliers’ or sub-contractors’ ability to perform their obligations in a timely manner.
The availability of credit and cost of financing in India is also a significant factor and if there is any adverse development leading to an increase in the cost of financing or decrease in availability of funds from lenders, we may have difficulty accessing the financial markets, which could make it more difficult or expensive to obtain funding. The financial performance of our infrastructure development and construction projects are subject to various factors such as ability to complete the project construction on time, within budget or to the standards specified; meeting project milestones or achieving commercial operation by the scheduled completion date, timely payments from the client, ability to recover the targeted return on investment if the assumptions contained in the feasibility studies for these projects do not materialize; geological conditions; and ability of the clients to complete acquisition of private land or securing rights of way over private land for such projects as well as securing necessary approvals from specified authorities.
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Fluctuating Revenues from Toll Road Projects
Our long-term infrastructure development projects restrict our and the relevant Project SPV’s operational and financial flexibility. Toll collection terms for our BOT infrastructure development projects are typically pre-determined with the relevant government entity and we cannot modify such toll rates to reflect prevailing circumstances, except as provided under the relevant concession agreement. As the revenue structure for the Project SPVs under each project is generally predetermined for the life of the project (and fluctuates subject to the built-in adjustment mechanisms contained in the relevant concession agreements), a Project SPV’s profitability is largely a function of how effectively the Project SPV manages costs during the term of those agreements. In the case of the tollway road projects whose revenues are not fixed, the relevant Project SPVs’ profitability and its ability to meet debt service payments is also a function of traffic volumes and the toll that can be levied on users of the road. There may be alternate routes available to these toll roads and new roads may be developed in these stretches and toll may or may not be charged on such roads, which could potentially result in a diversion of vehicular traffic to such new roads.
Level of Investment and Activity in the Infrastructure Development and Construction sectors
Demand for our infrastructure development and construction services is primarily dependent on sustained economic development in the regions that we operate in and government policies relating to infrastructure development. It is also significantly dependent on budgetary allocations made by governments for this sector as well as funding provided by international and multilateral development finance institutions for infrastructure projects. Investment by the private sector in infrastructure projects is dependent on the potential returns from such projects and is therefore linked to government policies relating to private sector participation and sharing of risks and returns from such projects. We believe that the Government’s and state governments’ focus on, and sustained increases in budgetary allocation for, infrastructure, and the development of comprehensive infrastructure policies that encourage greater private sector participation and funding for infrastructure projects from international and multilateral development financial institutions, should further result in large infrastructure projects in India. We believe our infrastructure development and construction businesses are likely to benefit from the Government making infrastructure development the top policy priority which may lead to corresponding significant investment in the road sector. Since we intend to continue to focus on the roads and highway sector, macroeconomic factors in India relating to this sector will have a significant impact on our prospects and results of operations.
Interest Rate and Exchange Rate Fluctuations
As our infrastructure development and construction business is capital intensive, we are exposed to interest rate risks. Our infrastructure development and construction projects are funded to a large extent by debt and any increase in interest expense may have an adverse effect on our results of operations and financial condition. Our current debt facilities carry interest at variable rates as well as fixed rates with the provision for periodic reset of interest rates. As of December 31, 2014, the majority of our indebtedness was subject to variable interest rates. In view of the high debt to equity ratios for our infrastructure development projects, an increase in interest expense at the Project SPV level is likely to have a significant adverse effect on our financial results. We selectively engage in interest rate hedging transactions from time to time to protect us against interest rate risks.
Availability of Tax Benefits
The Indian Income Tax Act provides certain tax benefits to companies engaged in infrastructure development and construction, including (i) a deduction of 100.0% of the profits (for a period of 10 consecutive assessment years) derived from the business of developing an infrastructure facility; and (ii) tax-free status on certain income by way of dividends and long-term capital gains from investments/long-term loans, subject to specified conditions. Some of these benefits are available only for a specified period of time and others are available only in respect of specific projects. As and when the specified period of time expires or specified projects are completed, our tax liabilities may increase, reducing our profitability.
Critical Accounting Policies
The preparation of financial statements in conformity with Indian GAAP, applicable accounting standards and the Companies Act requires our management to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the results of operations during the reporting period end. By their nature, these judgments are subject to a degree of 73
uncertainty. Although these estimates are based upon management’s best knowledge of current events and actions, actual results could differ from these estimates.
While all aspects of our financial statements should be read and understood in assessing our current and expected financial condition and results, we believe that the following critical accounting policies warrant particular attention:
Principles of consolidation
Our consolidated financial statements have been prepared in accordance with the Accounting Standard 21 “Consolidated Financial Statements” notified under the Companies Act, 1956 (which is deemed to be applicable as per section 133 of the Companies Act, 2013, read with Rule 7 of the Companies (Accounts) Rules, 2014) in the manner set out below.
Our Consolidated Financial Statements have been 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 our Company’s unconsolidated financial statements.
The financial statements of our Company and its subsidiaries have been combined on a line-by-line basis by adding together the book values of like items of assets, liabilities, income and expenses after eliminating all intra group transactions, balances and unrealised surpluses and deficits on transactions except as stated below.
The build, operate and transfer contracts and the design, build, finance, operate and transfer contracts are governed by service concession agreements with government authorities, i.e., the grantor. Under these agreements, the operator does not own the road, but gets “toll collection rights” against the construction services rendered. Since the construction revenue earned by the operator is considered as exchanged with the grantor against toll collection rights, profit from such contracts is considered as realised.
Accordingly, the BOT and DBFOT contracts awarded to group companies, i.e., the operator, where work is subcontracted to fellow subsidiaries, the intra group transactions on BOT and DBFOT contracts and the profits arising thereon are taken as realised and not eliminated.
The excess of cost to our Company of its investments in subsidiary companies over its share of the equity of the subsidiary companies at the dates on which the investments in the subsidiary companies are made, is recognised as ‘Goodwill’ being an asset in our Consolidated Financial Statements. This Goodwill is tested for impairment at the close of the each financial year. Alternatively, where the share of equity in the subsidiary companies as on the date of investment is in excess of cost of investment of our Company, it is recognised as ‘Capital Reserve’ and shown under the head ‘Reserves and Surplus’, in our Consolidated Financial Statements.
Goodwill arising out of acquisition of subsidiary companies is amortised over a period of ten years from the date of acquisition or investment.
Minority interest in the net assets of consolidated subsidiaries is identified and presented in our consolidated balance sheet separately from liabilities and equity of our Company’s shareholders. Minority interest in the net assets of consolidated subsidiaries consists of :
o The amount of equity attributed to minority at the date on which investment in a subsidiary relationship came into existence; o The minority share of movement in equity since the date parent subsidiary relationship came into existence; o Minority interest share of net profit/(loss) of consolidated subsidiaries for the period is identified and adjusted against the profit after tax of the group.
Revenue Recognition 74
Revenue is recognised to the extent that it is probable that the economic benefits will flow to us and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised:
Construction contracts. Contract revenue and contract cost associated with the construction of road are recognised as revenue and expenses respectively by reference to the stage of completion of the projects at the balance sheet date. The stage of completion of project is determined by the proportion that contract cost incurred for work performed upto the balance sheet date bear to the estimated total contract costs. Where the outcome of the construction cannot be estimated reliably, revenue is recognised to the extent of the construction costs incurred if it is probable that they will be recoverable. If total cost is estimated to exceed total contract revenue, we provide for foreseeable loss. Contract revenue earned in excess of billing has been reflected as unbilled revenue and billing in excess of contract revenue has been reflected as unearned revenue.
Operation and maintenance contracts. Revenue from maintenance contracts are recognised pro-rata over the period of the contract as and when services are rendered.
Income from toll contracts. The net income from toll contracts on a BOT basis is recognized on actual collection of toll revenue, net of revenue share payable to the NHAI as per the applicable concession agreement.
Revenue from trading sales. Revenue from sale of goods is recognised in our statement of profit and loss when the significant risks and rewards in respect of ownership of goods has been transferred to the buyer as per the terms of the respective sales order, and the income can be measured reliably and is expected to be received.
Interest. Revenue is recognised on a time proportion basis taking into account the amount outstanding and the rate applicable.
Dividends. Revenue is recognized when our Company’s right to receive dividend is established by the reporting date.
Fixed Assets and Intangibles
Tangible fixed assets
Tangible fixed assets are stated at cost, less accumulated depreciation and impairment losses if any. Cost comprises the purchase price and any attributable cost of bringing the asset to its working condition for its intended use.
Intangible assets
Toll collection rights are stated at cost, less accumulated amoritisation and impairment losses. Cost includes:
For acquired toll collection rights – Upfront payments towards acquisition and incidental expenses related thereto. Toll collection rights awarded by the grantor against construction service rendered by our Company on BOT or DBFOT basis – Direct and indirect expenses on construction of roads, bridges, culverts etc. and infrastructure at the toll plazas. Cost of premium in lieu of toll collection rights – Undiscounted premium obligation over the concession period.
Depreciation
Till the year ended March 31, 2014, Schedule XIV to the Companies Act, 1956, prescribed requirements concerning depreciation of fixed assets. From the current year, Schedule XIV has been replaced by Schedule II to the Companies Act, 2013. The applicability of Schedule II has resulted in the following changes related to depreciation of fixed assets. 75
Unless stated otherwise, the impact mentioned for the current year is likely to hold good for future years also.
Till the year ended March 31, 2014, depreciation rates prescribed under Schedule XIV were treated as minimum rates and our Company was not allowed to charge depreciation at lower rates even if such lower rates were justified by the estimated useful life of the asset. Schedule II to the Companies Act 2013 prescribes useful lives for fixed assets which, in many cases, are different from lives prescribed under the erstwhile Schedule XIV. In accordance with the Schedule II to the Companies Act 2013, the carrying value of the fixed assets as at April 1, 2014 is depreciated over the revised residual life of the fixed assets and where the residual life of the fixed assets is nil as at that date, the carrying value of the fixed assets, after retaining the residual value, if any, has been adjusted to the retained earnings (net of tax expenses). Hence, this change in accounting policy did not have any material impact on Financial Statements of our Company.
Depreciation is calculated on written down value method using the rate arrived as prescribed under the Schedule II to the Companies Act 2013 or re-assessed by our Company. The rates of depreciation for our major assets are as follows:
Asset class Useful life Building 30 years Plant & Machinery 15 years Office equipment 5 years Computers 3 years Servers 6 years Vehicles 8 years Furniture & fixtures 10 years
Amortization
Toll collection rights are amortised over the period of concession, using revenue based amortization as prescribed in the Schedule II to the Companies Act, 2013. Under this methodology, the carrying value of the rights is amortised in the proportion of actual toll revenue for the year to projected revenue for the balance toll period, to reflect the pattern in which the assets economic benefits will be consumed. At each balance sheet date, the projected revenue for the balance toll period is reviewed by the management. If there is any change in the projected revenue from previous estimates, the amortization of toll collection rights is changed prospectively to reflect any changes in the estimates.
Impairment
The carrying amounts of assets are reviewed at each balance sheet date if there is any indication of impairment based on internal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset’s net selling price and value in use. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.
After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life. Previously recognised impairment loss is increased or reversed depending on changes in circumstances.
Provisions
A provision is recognised when an enterprise has a present obligation as a result of past event; it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the balance sheet date. These are reviewed at each balance sheet date and adjusted to reflect the current best estimates.
Contingent liabilities
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A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond our control or a present obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. We do not recognize a contingent liability but discloses its existence in our Financial Statements.
Foreign currency transactions
Initial recognition. Foreign currency transactions are recorded in the reporting currency, by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency at the date of the transaction.
Conversion. Foreign currency monetary items are reported using the closing rate. Non-monetary items which are carried in terms of historical cost denominated in a foreign currency are reported using the exchange rate at the date of the transaction; and non-monetary items which are carried at fair value or other similar valuation denominated in a foreign currency are reported using the exchange rates that existed when the values were determined.
Exchange differences. Exchange differences arising on the settlement of monetary items or on reporting company’s monetary items at rates different from those at which they were initially recorded during the year, or reported in previous Financial Statements, are recognized as income or as expenses in the year in which they arise.
Exchange difference arising on long term foreign currency monetary items related to acquisition of fixed assets are added/deducted from the cost of asset and amortized along with the construction cost.
We adjust exchange differences arising on translation/ settlement of long-term foreign currency monetary items pertaining to the acquisition of a depreciable asset to the cost of the asset and depreciate the same over the remaining life of the asset. In accordance with MCA circular dated August 9, 2012, exchange differences adjusted to the cost of fixed assets are total differences, arising on long-term foreign currency monetary items pertaining to the acquisition of a depreciable asset, for the period. In other words, we do not differentiate between exchange differences arising from foreign currency borrowings to the extent they are regarded as an adjustment to the interest cost and other exchange differences.
Derivative instruments
We use derivative financial instruments such as interest rate swaps to hedge our risks associated with interest rate. As per the ICAI Announcement, accounting for derivative contracts, other than those covered under AS – 11, are marked to market on a portfolio basis, and the net loss after considering the offsetting effect on the underlying hedge item is charged to the statement of profit and loss. Charges for interest rate swap for converting floating rate loans to fixed are charged to intangible assets under development and after the intangible assets have been capitalised then charged to our statement of profit and loss.
Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective asset. All other borrowing costs are expensed in the period they occur. Borrowing costs consists of interest and other cost that an entity incurs in connection with the borrowing of funds.
Investments
Investments, which are readily realizable and intended to be held for not more than one year from the date on which such investments are made, are classified as current investments. All other investments are classified as long-term investments. 77
On initial recognition, all investments are measured at cost. The cost comprises purchase price and directly attributable acquisition charges such as brokerage, fees and duties. If an investment is acquired, or partly acquired, by the issue of shares or other securities, the acquisition cost is the fair value of the securities issued.
Current investments are carried in the Financial Statements at lower of cost and fair value determined on an individual investment basis. Long-term investments are carried at cost. However, provision for diminution in value is made to recognize a decline other than temporary in the value of the investments.
On disposal of an investment, the difference between its carrying amount and net disposal proceeds is charged or credited to our statement of profit and loss.
Inventories
Inventories are valued as follows:
Construction materials, components, stores, spares and tools. Lower of cost and net realizable value. Cost is determined on first in first out basis and includes all applicable costs in bringing goods to their present location and condition.
Land and plots. Land and plots are valued at lower of cost and net realizable value. Cost includes land, cost of acquisition, legal cost and all other cost to transfer the legal and beneficial ownership of land in the name of the Company.
Net realizable value is the estimated contract price in the ordinary course of business, less estimated costs of selling and estimated costs necessary to complete the contract.
Income taxes
Tax expense comprises of current and deferred tax. Current income tax is measured at the amount expected to be paid to the tax authorities in accordance with the Indian Income Tax Act. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the balance sheet date. Deferred tax assets and deferred tax liabilities are offset, if legally enforceable right exists to set-off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities related to the taxes on income levied by same governing taxation laws. Deferred tax assets are recognized only to the extent that there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In situations where we have unabsorbed depreciation or carry forward tax losses, all deferred tax assets are recognized only if there is virtual certainty supported by convincing evidence that they can be realized against future taxable profits. At each balance sheet date the IRB Group re-assesses unrecognized deferred tax assets. We recognize unrecognized deferred tax assets to the extent that it has become reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which such deferred tax assets can be realized.
The carrying amount of deferred tax assets are reviewed at each balance sheet date. We write-down the carrying amount of a deferred tax asset to the extent that it is no longer reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available against which deferred tax asset can be realised. Any such write-down is reversed to the extent that it becomes reasonably certain or virtually certain, as the case may be, that sufficient future taxable income will be available.
Minimum alternative tax (“MAT”) credit is recognized as an asset only when and to the extent there is convincing evidence that the Company will pay income tax higher than that computed under MAT, during the period that MAT is permitted to be set off under the Indian Income Tax Act. In the year, in which the MAT credit becomes eligible to be recognized as an asset in accordance with the recommendations contained in the guidance note issued by the ICAI, the said asset is created by way of a credit to the statement of profit and loss and shown as MAT credit entitlement. We review 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 we will pay income tax higher than MAT during the specified period.
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Income and Expenditure
Income
Our income consists of revenue from operations and other income.
Revenue from operations includes:
contract revenue from construction work on BOT projects undertaken by the IRB Group, net of any value added tax;
income arising out of toll collection, i.e. toll revenue from various infrastructure development BOT projects undertaken through the Project SPVs;
sale of electricity generated from windmills acquired in Rajasthan pursuant to the power purchase agreements entered into with the JVNL and Suzlon Energy Limited; and
trading sales relating to sale of imported construction materials such as bitumen that are in excess of our own construction work requirements.
Other income includes interest income from fixed deposits, interest on loans, dividend income and certain miscellaneous income. Other income also includes any gain on sale of investments, primarily mutual funds, and gains on foreign exchange (net).
Expenses
Our expenses consist of (i) cost of materials consumed, (ii) contract and site expenses, (iii) employee benefits expense and (iv) other expenses.
Cost of materials consumed
Cost of materials consumed includes expenses relating to raw materials and other consumables used in construction and maintenance work.
Contract and site expenses
Contract and site expenses include:
contract expenses relating to payments to sub-contractors for construction works sub-contracted; operation and maintenance expenses i.e. expenses incurred in connection with maintenance work;
stores, spares and tools consumed;
site and other contract and site expenses including temporary contract labor engaged for various projects and sundry expenses on sites;
technical consultancy supervision charges paid to third party consultants;
royalty charges paid to government entities for stone quarrying in connection with raw materials for our construction work; and
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hire charges paid for machinery, equipment and/or construction vehicles hired from external sources used in our construction activities.
Employee benefits expenses
Employee benefits expenses include salaries, wages and bonus paid to employees, contribution towards gratuity and provident fund as well as other staff welfare expenses.
Other expenses
Other expenses include various administration costs such as power and fuel costs, water charges, sub-contracting expenses, rates and taxes, vehicle expenses, bank charges, insurance costs, advertisement expenses, traveling and conveyance expenses, communications cost, printing and stationery, legal and auditor expenses as well as loss on sale of fixed assets and investments, donations and other miscellaneous expenses including repairs and maintenance.
Segment Information
Our operations are broadly divided into the road infrastructure segment; the real estate segment; and others segment, which include our wind energy business activities and our hospitality and airport infrastructure projects.
Segment revenue, segment results, segment assets and segment liabilities include the respective amounts identifiable to each of the segments and amounts allocated on a reasonable basis. Net expenses that are not directly attributable to any business segment are shown as unallocated corporate expenses. Assets and liabilities that cannot be allocated between the two segments are shown as a part of unallocated corporate assets and liabilities, respectively. The following table sets out our segment-wise revenue and results for the periods indicated: (Rupees in millions) Financial Year Nine months ended December 31, 2012 2013 2014 2013 2014
Total Revenue (net) 31,330.19 36,771.60 37,237.51 28,419.95 28,493.43 Road Infrastructure Projects Segment Results 10,775.26 11,944.24 12,803.91 9,556.52 11,053.24
Total Revenue (net) - - - - - Real Estate Development Segment Results (2.46) (2.24) (7.95) (5.72) (0.74)
Total Revenue (net) - 100.84 81.36 70.21 76.88 Others
Segment Results - (18.93) (24.35) (7.66) 11.53
Total Revenue (net) 31,330.19 36,872.44 37,318.87 28,490.16 28,570.31 Total
Segment Results 10,772.80 11,923.07 12,771.61 9,543.14 11,064.03
For further information on our segment information, see “Financial Statements”.
Results of Operations
The following table sets forth certain information with respect to our results of operations for the periods indicated:
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Nine months ended Financial Year December 31, 2012 2013 2014 2013 2014 (Rupees in millions) Income Revenue from operations 31,330.18 36,872.45 37,318.87 28,490.17 28,570.31 Other income 1,252.22 1,301.23 1,214.26 862.54 846.70 Total revenue 32,582.40 38,173.67 38,533.13 29,352.70 29,417.01
Expenses Cost of materials consumed 6,391.40 4,697.19 5,026.53 3,464.59 3,318.09 Contract and site expenses 8,858.22 13,062.88 11,474.33 9,665.12 6,199.90 Employee benefits expenses 1,375.89 1,556.88 1,798.83 1,247.68 1,366.15 Other expenses 1,011.13 1,222.70 1,482.45 995.96 1,275.32 Total expenses 17,636.64 20,539.65 19,782.14 15,373.35 12,159.46
Depreciation and amortization 2,970.09 4,415.17 4,770.55 3,577.75 5,350.90 Finance costs 5,463.72 6,152.96 7,561.66 5,463.11 6,804.72
Profit before tax 6,511.95 7,065.89 6,418.78 4,938.49 5,101.93 Tax expenses: Current tax 1,647.85 2,263.51 2,371.03 1,805.78 1,600.45 MAT credit entitlement (121.43) (395.92) (433.28) (327.58) (549.33) Deferred tax 25.47 (337.52) (115.24) (34.55) (8.52)
Profit after tax 4,960.06 5,535.82 4,596.27 3,494.85 4,059.32 Share of minority interest 0.09 (30.83) 4.98 (4.12) 12.43 Profit after minority interest 4,959.97 5,566.65 4,591.29 3, 498.97 4,046.89
Nine months ended December 31, 2014 compared to Nine months ended December 31, 2013
Income
Revenue from operations
Our revenue from operations increased by ₹ 80.14 million, or 0.3%, from ₹ 28,490.17 million for the nine months ended December 31, 2013 to ₹ 28,570.31 million for the nine months ended December 31, 2014, primarily due to an increase in our construction revenue.
For the nine months ended December 31, 2014, we recognized contract revenue from the Ahmedabad Vadodara project (operated under IRBAV), the Goa Karnataka border to NH 17 Kundapur project (operated under IRB Westcoast), the Solapur – Yedeshi project (operated under SYTPL), Tumkur – Chitradurga project (operated under IRBTC) and the Amritsar – Pathankot NH 15 project (operated under IRBPA). Contract revenue (road construction) decreased by ₹ 4,687.10 million, or 23.7%, from ₹ 19,807.67 million for the nine months ended December 31, 2013 to ₹ 15,120.57 million for the nine months ended December 31, 2014. Contract revenue represented 67.5% and 51.4% of our total revenue for the nine months ended December 31, 2013 and 2014, respectively.
For the nine months ended December 31, 2013, we recognized income arising out of toll collection (net) from 16 BOT projects, including the NE-1 Section of the Ahmedabad to Vadodara NH8 and NE-1 project (operated under IRBAV). For the nine months ended December 31, 2014, in addition to these 16 BOT projects, we also recognized income arising out of toll collection (net) from our Amritsar-Pathankot NH 15 project (operated under IRBPA).
Income arising out of toll collection (net) increased by ₹ 4,760.83 million, or 55.3%, from ₹ 8,612.03 million for the nine months ended December 31, 2013 to ₹ 13,372.86 million for the nine months ended December 31, 2014 primarily due to (i) revision of toll rates on some of our projects, (ii) capitalisation of premium payments in two BOT projects, which were previously deducted from toll income and (iii) commencement of operations on toll collection from the Amritsar – Pathankot NH15 project. Income arising out of toll collection represented 29.3% and 45.5% of our total revenue for the nine months ended December 31, 2013 and 2014, respectively. 81
For the nine months ended December 31, 2014, we also recorded revenue of ₹ 76.88 million from the sale of electricity, compared to revenue of ₹ 70.21 million from sale of electricity for the nine months ended December 31, 2013.
Other income
Other income decreased by ₹ 15.84 million, or 1.8%, from ₹ 862.54 million for the nine months ended December 31, 2013 to ₹ 846.70 million for the nine months ended December 31, 2014 primarily due to a decrease in the amount of fixed deposits. Other income represented 2.9% and 2.9% of our total revenue for the nine months ended December 31, 2013 and 2014, respectively.
Interest income on bank deposits decreased by ₹ 31.27 million, or 4.0%, from ₹ 779.12 million for the nine months ended December 31, 2013 to ₹ 747.85 million for the nine months ended December 31, 2014 while interest income on others increased from ₹ 5.87 million for the nine months ended December 31, 2013 to ₹10.60 million for the nine months ended December 31, 2014. Dividend income decreased by ₹ 39.62 million, or 63.9%, from ₹ 62 million for the nine months ended December 31, 2013 to ₹ 22.38 million for the nine months ended December 31, 2014. These decreases were offset by (i) a net gain on sale of investments of ₹ 16.76 millions for the nine months ended December 31, 2014 as compared to a net gain of ₹ 0.32 million for the nine months ended December 31, 2013, and (ii) an increase of ₹ 32.55 million in other non-operating income from ₹ 14.53 million for the nine months ended December 31, 2013 to ₹ 47.08 million for the nine months ended December 31, 2014.
Expenses
Our total expenses decreased by ₹ 3,213.89 million, or 20.9%, from ₹ 15,373.35 million for the nine months ended December 31, 2013 to ₹ 12,159.46 million for the nine months ended December 31, 2014 primarily due to lesser execution of construction work. Our total expenses, expressed as a percentage of our total revenue, decreased from 52.4% for the nine months ended December 31, 2013 to 41.3% for the nine months ended December 31, 2014.
Cost of materials consumed
Cost of materials consumed decreased by ₹ 146.50 million, or 4.2%, from ₹ 3,464.59 million for the nine months ended December 31, 2013 to ₹ 3,318.09 million for the nine months ended December 31, 2014 on account of the nature of construction activity carried out during the period. Cost of materials consumed, expressed as a percentage of our total revenue was 11.8% and 11.3% for the nine months ended December 31, 2013 and 2014, respectively.
Contract and site expenses
Contract and site expenses decreased by ₹ 3,465.22 million, or 35.9%, from ₹ 9,665.12 million for the nine months ended December 31, 2013 to ₹ 6,199.90 million for the nine months ended December 31, 2014 due to a decrease in the level of construction activity at our projects.
Contract expenses (road construction) decreased by ₹ 3,395.50 million, or 43.2%, from ₹ 7,855.26 million for the nine months ended December 31, 2013 to ₹ 4,459.76 million for the nine months ended December 31, 2014.
Road maintenance expenses increased by ₹ 89.10 million, or 87.4%, from ₹ 102.01 million for the nine months ended December 31, 2013 to ₹ 191.11 million for the nine months ended December 31, 2014 due to an increase in maintenance work of our operational projects.
Stores, spares and tools consumed decreased by ₹ 44.13 million, or 21.8%, from ₹ 202.48 million for the nine months ended December 31, 2013 to ₹ 158.35 million for the nine months ended December 31, 2014 due to a decrease in the level of construction activity at our projects.
Site and other direct expenses, relating primarily to temporary contract labour and miscellaneous site expenses, decreased by ₹ 72.26 million, or 5.6% from ₹ 1,288.78 million for the nine months ended December 31, 2013 to ₹ 1,216.52 million for the nine months ended December 31, 2014 due to a decrease in the level of construction activity at our projects.
Technical consultancy and supervision charges decreased by ₹ 22.51 million, or 22.9%, from ₹ 98.27 million for the 82
nine months ended December 31, 2013 to ₹ 75.76 million for the nine months ended December 31, 2014. Hire charges paid increased by ₹ 11.88 million, or 20.4%, from ₹ 58.22 million for the nine months ended December 31, 2013 to ₹ 70.10 million for the nine months ended December 31, 2014. Royalty charges paid also decreased by ₹ 31.81 million, or 52.9%, from ₹ 60.11 million for the nine months ended December 31, 2013 to ₹ 28.30 million for the nine months ended December 31, 2014 due to a decrease in the level of construction activity at our projects.
Employee benefits expenses
Employee benefits expenses increased by ₹ 118.47 million, or 9.5%, from ₹ 1,247.68 million for the nine months ended December 31, 2013 to ₹ 1,366.15 million for the nine months ended December 31, 2014 due to increases in the number of employees, performance based incentives paid and annual increments in salaries. Employee benefits expenses, as a percentage of our total revenue, increased from 4.3% for the nine months ended December 31, 2013 to 4.6% for the nine months ended December 31, 2014.
Other expenses
Other expenses increased by ₹ 279.36 million, or 28.0%, from ₹ 995.96 million for the nine months ended December 31, 2013 to ₹ 1,275.32 million for the nine months ended December 31, 2014. Other expenses, as a percentage of our total revenue, increased from 3.4% for the nine months ended December 31, 2013 to 4.3% for the nine months ended December 31, 2014.
We incurred higher power and fuel costs, insurance costs, advertisement expenses, sub-contracting expenses, communications costs, and auditor expenses as well as other miscellaneous expenses in respect of the nine months ended December 31, 2014 compared to the nine months ended December 31, 2013, in line with our operations.
For the nine months ended December 31, 2014, we also incurred certain loss on sale of fixed assets of ₹ 1.42 million and also preliminary expenses written off of ₹ 7.08 million relating to company formation expenses in respect of one of our Project SPVs.
Finance costs
Finance costs increased by ₹ 1,341.61 million, or 24.6%, from ₹ 5,463.11 million for the nine months ended December 31, 2013 to ₹ 6,804.72 million for the nine months ended December 31, 2014, primarily due to an increase in interest charged to the profit and loss account on commencement of operations of certain of our BOT projects. For the nine months ended December 31, 2014, borrowings from banks increased due to higher working capital borrowings as well as term loans to fund the cost of construction equipment. Our total indebtedness increased from ₹ 104,008.38 million as of December 31, 2013 to ₹ 124,599.36 million as of December 31, 2014.
Finance costs, expressed as a percentage of our total revenue, increased from 18.6% for the nine months ended December 31, 2013 to 23.1% for the nine months ended December 31, 2014.
Depreciation and amortization
Depreciation and amortization increased by ₹ 1,773.15 million, or 49.6%, from ₹ 3,577.75 million for the nine months ended December 31, 2013 to ₹ 5,350.90 million for the nine months ended December 31, 2014 due to amortization in respect of operational BOT projects as well as amortization of deferment of premium payable to the NHAI.
Profit before tax
Profit before tax increased by ₹ 163.44 million, or 3.3%, from ₹ 4,938.49 million for the nine months ended December 31, 2013 to ₹ 5,101.93 million for the nine months ended December 31, 2014.
Tax expenses
Total tax expenses decreased by ₹ 401.04 million, or 27.8%, from ₹ 1,443.65 million for the nine months ended December 31, 2013 to ₹ 1,042.61 million for the nine months ended December 31, 2014. This was primarily on account of a decrease in current tax by ₹ 205.33 million, or 11.4%, from ₹ 1,805.78 million for the nine months ended December 31, 2013 to ₹ 1,600.45 million for the nine months ended December 31, 2014, and an increase in MAT credit 83
entitlement by ₹ 221.75 million, or 67.7%, from ₹ 327.58 million for the nine months ended December 31, 2013 to ₹ 549.33 million for the nine months ended December 31, 2014.
Profit after minority interest
Profit after minority interest increased by ₹ 547.92 million, or 15.7%, from ₹ 3,498.97 million for the nine months ended December 31, 2013 to ₹ 4,046.89 million for the nine months ended December 31, 2014.
Financial Year 2014 compared to Financial Year 2013
Income
Revenue from operations
Revenue from operations increased marginally by ₹ 446.42 million, or 1.2%, from ₹ 36,872.45 million for the financial year 2013 to ₹ 37,318.87 million for the financial year 2014.
For the financial year 2013, our contract revenue was primarily derived from our Talegaon – Amravati NH 6 project (operated under IRBTA), Jaipur – Deoli NH 12 project (operated under IRBJD), Amritsar – Pathankot NH 15 project (operated under IRBPA) and Tumkur – Chitradurga NH 4 project (operated under IRBTC), while for the financial year 2014, in addition to these projects, the Ahmedabad – Vadodara project (operated under IRBAV) was the major contributor to our contract revenue. Contract revenue (road construction) decreased marginally by ₹ 845.44 million, or 3.2%, from ₹ 26,311.95 million for the financial year 2013 to ₹ 25,466.51 million for the financial year 2014 due to reduction in construction turnover. Contract revenue represented 68.9% and 66.1% of our total revenue for the financial years 2013 and 2014, respectively.
For the financial year 2013, we recognized income arising out of toll collection (net) from 13 BOT projects. For the financial year 2014, in addition to these projects, we recognized income arising out of toll collection (net) from the Integrated Road Development Program project, Kolhapur (operated under IRBK), Jaipur – Deoli NH 12 project (operated under IRBJD) and Talegaon – Amravati NH 6 project (operated under IRBTA), which commenced tolling operations from October, 2013, September, 2013 and April, 2013 respectively. Income arising out of toll collection (net) increased by ₹ 1,310.83 million, or 12.5%, from ₹ 10,459.66 million for the financial year 2013 to ₹ 11,770.49 million for the financial year 2014 primarily due to (i) revision in toll rates for some of our projects, and (ii) commencement of tolling operations of three of our BOT projects set out above. Income arising out of toll collection represented 27.4% and 30.5% of our total revenue for the financial years 2013 and 2014, respectively.
For the financial year 2014, we recorded trading sales of ₹ 0.51 million. We did not make any such sales or record any such income from trading sales for the financial year 2013. For the financial year 2014, we also recorded ₹ 81.36 million for sale of electricity from our wind energy business, whereas we recorded ₹ 100.84 million for sale of electricity for the financial year 2013. The decrease was due to lower generation of electricity.
Other income
Other income decreased by ₹ 86.97 million, or 6.7%, from ₹ 1,301.23 million for the financial year 2013 to ₹ 1,214.26 million for the financial year 2014 primarily due to a decrease in interest income from bank deposits due to withdrawal of certain of our fixed deposit. Other income represented 3.4% and 3.2% of our total revenue for the financial years 2013 and 2014, respectively.
Interest income on bank deposits decreased by ₹ 192.51 million, or 15.7%, from ₹ 1,226.98 million for the financial year 2013 to ₹ 1,034.47 million for the financial year 2014 due to conversion of certain of our fixed deposits into bank guarantee. This decrease was partially offset by increase in dividend income on other investments (non-trade, current) of ₹ 64.40 million, increase in interest income on others of ₹ 62.22 million, and net gain on sale of current investments of ₹ 3.39 million for the financial year 2014.
Expenses
Our total expenses decreased marginally by ₹ 757.51 million, or 3.7%, from ₹ 20,539.65 million for the financial year 2013 to ₹ 19,782.14 million for the financial year 2014 primarily due to a decrease in contract and site expenses. Our 84
total expenses, expressed as a percentage of our total revenue, were 53.8% and 51.3% for the financial years 2013 and 2014, respectively.
Cost of materials consumed
Cost of materials consumed increased slightly by ₹ 329.34 million, or 7.0%, from ₹ 4,697.19 million for the financial year 2013 to ₹ 5,026.53 million for the financial year 2014 primarily due to the nature of construction activity at our Goa/Karnataka border – Kundapur NH 17 project carried out during the period, which involved higher material consumption. Cost of material consumed, expressed as percentage of our total revenue, increased marginally from 12.3% for the financial year 2013 to 13.0% for the financial year 2014.
Contract and site expenses
Contract and site expenses decreased by ₹ 1,588.55 million, or 12.2%, from ₹ 13,062.88 million for the financial year 2013 to ₹ 11,474.33 million for the financial year 2014 due to a decrease in the level of construction activity.
Contract expenses (road construction) decreased by ₹ 1,666.63 million, or 15.5%, from ₹ 10,753.36 million for the financial year 2013 to ₹ 9,086.73 million for the financial year 2014 due to a decrease in the level of construction activity.
Road maintenance expenses decreased by ₹ 44.11 million, or 23.2%, from ₹ 189.82 million for the financial year 2013 to ₹ 145.71 million for the financial year 2014 due to a commensurate rise in maintenance activity on our projects.
Stores, spares and tools consumed decreased by ₹ 80.35 million, or 22.4%, from ₹ 359.26 million for the financial year 2013 to ₹ 278.91 million for the financial year 2014 due to a decrease in the level of construction activity.
Site and other direct expenses, relating primarily to temporary contract labor and miscellaneous site expenses, increased by ₹ 173.77 million, or 11.8%, from ₹ 1,476.61 million for the financial year 2013 to ₹ 1,650.38 million for the financial year 2014 due to an increase in construction activity at our Ahmedabad-Vadodara project (operated under IRBAV). Technical consultancy supervision charges increased by ₹ 41.03 million, or 39.7%, from ₹ 103.31 million for the financial year 2013 to ₹ 144.34 million for the financial year 2014 due to increased construction activity at our Ahmedabad – Vadodara project (operated under IRBAV). Hire charges increased by ₹ 17.35 million, or 27.7%, from ₹ 62.70 million for the financial year 2013 to ₹ 80.05 million for the financial year 2014 due to increase in hiring charges for machineries for our BOT projects. However, royalty charges decreased by ₹ 77.17 million, or 46.7%, from ₹ 165.39 million for the financial year 2013 to ₹ 88.22 million for the financial year 2014 due to a decrease in the amount of extraction activity with respect to stones used in the construction of our projects.
Employee benefits expenses
Employee benefits expenses increased by ₹ 241.95 million, or 15.5%, from ₹ 1,556.88 million for the financial year 2013 to ₹ 1,798.83 million for the financial year 2014 due to recruitment of additional personnel for our projects as well as regular salary increments. Employee benefits expenses, as a percentage of our total revenue, remained relatively steady at 4.1% and 4.7% for the financial years 2013 and 2014, respectively.
Other expenses
Other expenses increased by ₹ 259.75 million, or 21.2%, from ₹ 1,222.70 million for the financial year 2013 to ₹ 1,482.45 million for the financial year 2014. Other expenses, as a percentage of total revenue, increased from 3.2% for the financial year 2013 to 3.8% for the financial year 2014.
We incurred higher power and fuel costs, water charges, sub-contracting expenses, insurance costs, traveling and conveyance expenses, printing and stationery, repairs and maintenance, legal as well as auditor expenses for the financial year 2014 compared to that for the financial year 2013, in line with the growth in our operations for the financial year 2014. Rates and taxes, communications cost, other miscellaneous expenses and advertising expenses, however, decreased for the financial year 2014 compared to that for the financial year 2013.
For the financial year 2014, we also incurred certain loss on sale of fixed assets of ₹ 9.77 million as compared to ₹ 22.41 million for the financial year 2013, wrote off preliminary and share issue expenses of ₹ 20.52 million as 85
compared to ₹ 1.06 million for the financial year 2013, as well as made donations of ₹ 105.53 million as compared to ₹ 15.80 million for the financial year 2013.
Finance costs
Finance costs increased by ₹ 1,408.7 million, or 22.9%, from ₹ 6,152.96 million for the financial year 2013 to ₹ 7,561.66 million for the financial year 2014. Interest expense from banks and financial institutions increased from ₹ 6,109.32 million for the financial year 2013 to ₹ 6,528.93 million for the financial year 2014 due to an increase in interest charged to the profit and loss account on commencement of operations of certain of our BOT projects. Our total indebtedness increased from ₹ 87,760.50 million as of March 31, 2013 to ₹ 110,840.85 million as of March 31, 2014. Financial costs, expressed as a percentage of our total revenue, increased from 16.1% for the financial year 2013 to 19.6% for the financial year 2014.
Depreciation and amortization
Depreciation and amortization costs increased by ₹ 355.38 million, or 8.0%, from ₹ 4,415.17 million for the financial year 2013 to ₹ 4,770.55 million for the financial year 2014 due to increased capital expenditure for construction equipment. Depreciation and amortization costs, expressed as a percentage of our total revenue for the financial years 2013 and 2014, increased from 11.6% for the financial year 2013 to 12.4% for the financial year 2014.
Profit before tax
Profit before tax decreased by ₹ 647.12 million, or 9.2%, from ₹ 7,065.90 million for the financial year 2013 to ₹ 6,418.78 million for the financial year 2014.
Tax expenses
Total tax expenses increased by ₹ 292.44 million, or 19.1%, from ₹ 1,530.07 million for the financial year 2013 to ₹ 1,822.51 million for the financial year 2014. Current tax increased by ₹ 107.52 million, or 4.8%, from ₹ 2,263.51 million for the financial year 2013 to ₹ 2,371.03 million for the financial year 2014, although deferred tax decreased by ₹ 222.28 million, or 65.9%, from ₹ 337.52 million for the financial year 2013 to ₹ 115.24 million for the financial year 2014.
Profit after minority interest
Profit after minority interest decreased by ₹ 975.37 million, or 17.5%, from ₹ 5,566.66 million for the financial year 2013 to ₹ 4,591.29 million for the financial year 2014.
Financial Year 2013 compared to Financial Year 2012
Income
Revenue from operations
Revenue from operations increased by ₹ 5,542.26 million, or 17.7%, from ₹ 31,330.19 million for the financial year 2012 to ₹ 36,872.45 million for the financial year 2013.
For the financial year 2012, we recognized contract revenue from our six major operational projects, while during the financial year 2013, Integrated Road Development Project, Kolhapur (operated under IRBK) and Surat – Dahisar project (operated under IRBSD) were substantially completed and additionally, we recognized contract revenue from our Ahmedabad – Vadodara project (operated under IRBAV). Contract revenue (road construction) increased by ₹ 4,619.42 million, or 21.3%, from ₹ 21,692.53 million for the financial year 2012 to ₹ 26,311.95 million for the financial year 2013 due to revenue from the Ahmedabad – Vadodara project (operated under IRBAV). Contract revenue represented 66.6% and 68.9% of our total revenue for the financial years 2012 and 2013, respectively.
For the financial year 2012, we recognized income arising out of toll collection (net) from 11 BOT projects. For the financial year 2013, in addition to these projects, we recognized income arising out of toll collection (net) from the Ahmedabad – Vadodara (operated under IRBAV) and Omallur – Salem – Namakkal NH 7 projects (operated under 86
MVR), which commenced tolling operations or was acquired in January, 2013 and October, 2013 respectively. Income arising out of toll collection increased by ₹ 946.53 million, or 9.9%, from ₹ 9,513.13 million for the financial year 2012 to ₹ 10,459.66 million for the financial year 2013 primarily due to an increase in toll income from the Mumbai – Pune and Surat – Dahisar project. Income arising out of toll collection represented 29.2% and 27.4% of our total revenue for the financial years 2012 and 2013, respectively.
For the financial year 2013, we also recorded ₹ 100.84 million for sale of electricity from our wind energy business, whereas we recorded ₹ 110.39 million for sale of electricity for the financial year 2012. The decrease was due to lower generation of electricity.
Other income
Other income increased by ₹ 49.01 million, or 3.9%, from ₹ 1,252.22 million for the financial year 2012 to ₹ 1,301.23 million for the financial year 2013 primarily due to increase in income from fixed deposits. Other income represented 3.8% and 3.4% of our total revenue for the financial years 2012 and 2013, respectively.
Interest income on bank deposits increased by ₹ 84.38 million, or 7.4%, from ₹ 1,142.60 million for the financial year 2012 to ₹ 1,226.98 million for the financial year 2013 due to an increase from bank deposits for DSRA purpose. This increase was partially offset by the ₹ 9.47 million decrease in dividend income on other investments (non-trade, current), and the ₹ 6.17 million decrease in net gain on sale of fixed assets for the financial year 2013.
Expenses
Our total expenses increased by ₹ 2,903.01 million, or 16.5%, from ₹ 17,636.64 million for the financial year 2012 to ₹ 20,539.65 million for the financial year 2013 primarily due to increases in contract and site expenses and other expenses, which were offset by a decrease in cost of materials consumed. Our total expenses, expressed as a percentage of our total revenue, were 54.1% and 53.8% for the financial year 2012 and 2013, respectively.
Cost of materials consumed
Cost of materials consumed decreased by ₹ 1,694.21 million, or 26.5%, from ₹ 6,391.40 million for the financial year 2012 to ₹ 4,697.19 million for the financial year 2013 primarily due to the nature of the construction activity carried out during the period. Cost of materials consumed, expressed as a percentage of our total revenue, decreased from 19.6% for the financial year 2012 to 12.3% for the financial year 2013.
Contract and site expenses
Contract and site expenses increased by ₹ 4,204.66 million, or 47.5%, from ₹ 8,858.22 million for the financial year 2012 to ₹ 13,062.88 million for the financial year 2013 due to increases in contract expenses (road construction), road maintenance expenses and stores, spares and tools consumed and site and other direct expenses. Contract and site expenses, expressed as a percentage of our total revenue, increased from 27.2% for the financial year 2012 to 34.2% for the financial year 2013.
Contract expenses (road construction and site expenses) are ₹ 12,182.40 million in financial year 2013. In financial year 2012, the company has presented contract expenses (construction) and other direct expenses of ₹ 7,213.62 million and ₹ 841.83 million, respectively, separately under operating expenses. These expenses have been aggregated and regrouped as contract expenses (road construction and site expenses) with effect from financial year 2013. Accordingly, contract expenses (road construction and site expenses) have increased by ₹ 4,126.95 million, or 51.2%, in financial year 2013 as compared to financial year 2012.
Road maintenance expenses increased by ₹ 68.00 million, or 55.8%, from ₹ 121.82 million for the financial year 2012 to ₹ 189.82 million for the financial year 2013 due to a commensurate rise in maintenance activity on our projects. Road maintenance expenses, expressed as a percentage of our total revenue, were 0.4% and 0.5% for the financial years 2012 and 2013, respectively.
Stores, spares and tools consumed increased by ₹ 94.90 million, or 35.9%, from ₹ 264.36 million for the financial year 2012 to ₹ 359.26 million for the financial year 2013 due to an increase in the level of construction activity. Other direct expenses, relating primarily to temporary contract labor and miscellaneous site expenses, increased by ₹ 634.78 million, 87
or 75.4%, from ₹ 841.83 million for the financial year 2012 to ₹ 1,476.61 million for the financial year 2013 due to an increase in the level of construction activity. Technical consultancy and supervision charges decreased by ₹ 23.80 million, or 18.7%, from ₹ 127.11 million for the financial year 2012 to ₹ 103.31 million for the financial year 2013 since such expenses are primarily incurred at the initial stages of project. Royalty charges paid decreased by ₹ 47.78 million, or 22.4%, from ₹ 213.17 million for the financial year 2012 to ₹ 165.39 million for the financial year 2013 due to a decrease in the amount of extraction activity with respect to stones used in the construction of our projects. Hire charges decreased by ₹ 13.61 million, or 17.8%, from ₹ 76.31 million for the financial year 2012 to ₹ 62.70 million for the financial year 2013 due to an increase in contract expenses.
Employee benefits expenses
Employee benefits expenses increased by ₹ 180.99 million, or 13.2%, from ₹ 1,375.89 million for the financial year 2012 to ₹ 1,556.88 million for the financial year 2013 due to recruitment of additional personnel for our projects as well as regular salary increments. Employee benefits expenses, as a percentage of our total revenue, remained relatively steady at 4.2% and 4.1% for the financial year 2012 and 2013, respectively.
Other expenses
Other expenses increased by ₹ 211.56 million, or 20.9%, from ₹ 1,011.14 million for the financial year 2012 to ₹ 1,222.70 million for the financial year 2013. Other expenses, as a percentage of our total revenue, increased from 3.1% for the financial year 2012 to 3.2% for the financial year 2013.
We incurred higher power and fuel costs, water charges, sub-contracting expenses, insurance costs, communications cost, printing and stationery, rates and taxes, auditor expenses as well as other miscellaneous expenses including repairs and maintenance for the financial year 2013 compared to that for the financial year 2012, in line with the growth in our operations for the financial year 2013. Traveling and conveyance expenses, legal and professional expenses, tender fees and bank charges, however, decreased for the financial year 2013 compared to that for the financial year 2012.
For the financial year 2013, we also incurred certain loss on sale of investments of ₹ 0.22 million as compared to ₹ 1.37 million for the financial year 2012, and preliminary and share issue expenses written off of ₹ 1.06 million as compared to ₹ 7.06 million for the financial year 2012.
Finance costs
Finance costs increased by ₹ 689.24 million, or 12.6%, from ₹ 5,463.72 million for the financial year 2012 to ₹ 6,152.96 million for the financial year 2013, due to an increase in interest expense from banks and financial institutions from ₹ 4,742.92 million for the financial year 2012 to ₹ 6,109.32 million for the financial year 2013 resulting from increase in our total borrowings. Our total indebtedness increased from ₹ 70,721.84 million as of March 31, 2012 to ₹ 87,760.50 million as of March 31, 2013. Finance costs, expressed as a percentage of our total revenue, decreased from 16.8% for the financial year 2012 to 16.0% for the financial year 2013.
Depreciation and amortization
Depreciation and amortization costs increased by ₹ 1,445.07 million, or 48.7%, from ₹ 2,970.10 million for the financial year 2012 to ₹ 4,415.17 million for the financial year 2013 due to increased capital expenditure for construction equipment. Depreciation and amortization costs, expressed as a percentage of our total revenue for the financial years 2012 and 2013, increased from 9.1% for the financial year 2012 to 11.6% for the financial year 2013.
Profit before tax
Profit before tax increased by ₹ 553.95 million, or 8.5%, from ₹ 6,511.95 million for the financial year 2012 to ₹ 7,065.90 million for the financial year 2013.
Tax expenses
Total tax expenses decreased slightly by ₹ 21.83 million, or 1.4%, from ₹ 1,551.90 million for the financial year 2012 to ₹ 1,530.07 million for the financial year 2013. Current tax increased by ₹ 615.66 million, or 37.4%, from ₹ 1,647.85 million for the financial year 2012 to ₹ 2,263.51 million for the financial year 2013, although MAT credit entitlement 88
decreased significantly by ₹ 274.48 million from ₹ 121.43 million for the financial year 2012 to ₹ 395.91 million for the financial year 2013 and deferred tax decreased even more significantly by ₹ 363.00 million from ₹ 25.48 million for the financial year 2012 to ₹ 337.52 million for the financial year 2013.
Profit after minority interest
Profit after minority interest increased by ₹ 606.70 million, or 12.2%, from ₹ 4,959.96 million for the financial year 2012 to ₹ 5,566.66 million for the financial year 2013.
Liquidity and Capital Resources
We operate in a capital intensive industry and our principal liquidity requirements have been to finance our working capital needs and our capital expenditures. Our construction operations require a significant amount of working capital to finance the purchase of materials and the performance of construction and other work on projects before payment is received from clients. Our BOT infrastructure business also requires high levels of financing to fund such projects. To fund these costs, we have relied on equity contributions, short term and long term borrowings, including working capital financing, advances and grants from clients and cash from operating activities.
Our funding and treasury activities are conducted consistent with corporate policies designed to enhance investment returns while maintaining appropriate liquidity for our requirements. Our short-term liquidity requirements relate to servicing our debt and funding working capital requirements. Sources of short-term liquidity include cash balances, receipts from our operations and working capital loans. Our long-term liquidity requirements include partial funding of investments in new projects, funding equity contributions in Project SPVs, investments in our wind energy business and repayment of long-term debt under our credit facilities. Sources of funding for our long-term liquidity requirements include new loans, equity or debt issues. Our principal uses of cash have been, and are expected to continue to be, construction and development and implementation costs of our BOT and DBFOT projects and the development and construction of our hotel and airport development projects.
Cash Flows
The following table sets forth certain information relating to our cash flows on a consolidated basis for the periods indicated:
Financial Year ended March 31, 2012 2013 2014 (Rupees in millions) Net cash flow from/(used in) operating activities...... 11,102.90...... 14,411.59 16,555.84 Net cash (used in) investing activities ...... (26,728.94) (22,468.73) (27,433.44) Net cash from financing activities ...... 17,578.78..... 7,483.30 12,741.90 Cash and cash equivalents at the end of the year...... 3,553.24...... 3,018.75 4,431.20
Operating Activities
Net cash flow from/(used in) operating activities for the financial year 2014 was ₹ 16,555.84 million, while net profit before tax was ₹ 6,418.78 million. The adjustments were primarily attributable to depreciation and amortization of ₹ 4,770.55 million, interest expenses of ₹ 7,466.96 million, an increase in trade payables of ₹ 942.88 million and a decrease in long-term loans and advances of ₹ 461.79 million, offset in part by interest income on fixed deposits of ₹ 1,034.47 million, an increase in inventory of ₹ 194.94 million, an increase in short-term loans and advances of ₹ 134.32 million, and direct taxes paid (net of refunds) of ₹ 2,324.51 million.
Net cash flow from/(used in) operating activities for the financial year 2013 was ₹ 14,411.59 million, while net profit before tax was ₹ 7,065.90 million. The adjustments were primarily attributable to depreciation and amortization of ₹ 4,415.17 million, interest expenses of ₹ 6,109.31 million, decrease in trade receivables of ₹ 60.63 million, and an increase in other current liabilities of ₹ 220.68 million, offset in part by an increase in short term loans and advances of ₹ 483.15 million, direct taxes paid (net of refund) of ₹ 2,422.27 million, interest income on fixed deposits of ₹ 1,226.98 89
million, increase in inventory of ₹ 864.29 million and interest income on loans given of ₹ 8.17 million.
Net cash flow from operating activities for the financial year 2012 was ₹ 11,102.90 million, while net profit before tax was ₹ 6,511.95 million. The adjustments were primarily attributable to interest paid of ₹ 5,144.29 million, depreciation and amortization of ₹ 2,970.10 million, an increase in other long-term liabilities of ₹ 1,478.28 million and an increase in trade payables of ₹ 304.49 million, offset in part by a decrease in interest received on fixed deposits of ₹ 1,142.60 million, a decrease in other current liabilities of ₹ 1,001.52 million, an increase in long-term loans and advances of ₹ 1,263.39 million and direct taxes paid (net of refunds) of ₹ 1,587.12 million.
Investing Activities
Net cash used in investing activities for the financial year 2014 was ₹ 27,433.44 million, primarily relating to purchase of fixed assets of ₹ 30,024.89 million relating to construction equipment as well as the cost of toll collection rights in BOT projects under construction, offset in part by redemption/maturity of fixed deposits (having original maturity of more than three months) of ₹ 1,562.65 million, interest income on fixed deposits of ₹ 1,044.25 million and proceeds from sale/maturity of current investments of ₹ 526.26 million.
Net cash from/(used in) investing activities for the financial year 2013 was ₹ 22,468.73 million, primarily relating to purchase of fixed assets of ₹ 25,175.27 million relating to construction equipment and cost of toll collection rights in BOT projects under construction, purchase consideration paid on acquisition of a subsidiary of ₹ 801.60 million and purchase of current investments of ₹ 508.81 million, offset in part by redemption/maturity of fixed deposits (having original maturity of more than three months) of ₹ 2,963.09 million and interest received on fixed deposits of ₹ 1,277.61 million.
Net cash used in investing activities for the financial year 2012 was ₹ 26,728.94 million, primarily relating to purchase of fixed assets of ₹ 24,200.63 million primarily relating to construction equipment and cost of toll collection rights in BOT projects under construction and investments in fixed deposits (having original maturity of more than three months) of ₹ 4,255.20 million, offset in part by proceeds from sale/maturity of current investments of ₹ 453.09 million and proceeds from minority shareholders of ₹ 226.84 million.
Financing Activities
Net cash from financing activities for the financial year 2014 was ₹ 12,741.90 million, primarily resulting from proceeds from long-term borrowings of ₹ 34,722.16 million relating to ongoing construction cost of BOT projects and funding of construction equipment, offset in part by repayment of long-term borrowings of ₹ 8,882.68 million, interest paid of ₹ 7,397.91 million, repayment of short-term borrowings of ₹ 3,746.42 million and dividends paid on equity shares of ₹ 1,661.82 million.
Net cash from/(used in) financing activities for the financial year 2013 was ₹ 7,483.30 million, primarily resulting from proceeds from long-term borrowings of ₹ 23,638.17 million and proceeds from short-term borrowings of ₹ 5,973.92 million, offset in part by repayment of short-term borrowings of ₹ 11,174.86 million, interest paid of ₹ 6,133.79 million, repayment of long-term borrowings of ₹ 3,628.54 million and dividends paid on equity shares of ₹ 997.10 million.
Net cash from financing activities for the financial year 2012 was ₹ 17,578.78 million, primarily resulting from proceeds from long-term borrowings of ₹ 28,748.47 million and proceeds from short-term borrowings of ₹ 13,862.71 million, offset in part by repayment of short-term borrowings of ₹ 9,650.00 million, repayment of long-term borrowings of ₹ 8,503.78 million and interest paid of ₹ 5,552.82 million.
Capital Expenses
In accordance with consolidated cash flow statement for the financial year 2014, our purchase of fixed assets was ₹ 30,024.89 million, and consisted primarily of addition to intangible assets by way of toll concession rights in BOT projects and purchase of construction equipment. Our purchase of fixed assets for the nine months ended December 31, 2014 of ₹ 18,749.85 million included the cost of acquisition of intangible assets by way of toll collection rights in our BOT projects and purchase of construction equipment used in our construction operations.
We intend to pursue a strategy of continued investment in infrastructure development projects. We anticipate that our 90
capital expenditures in the next 12 months will increase significantly due to our commitment to develop and fund new BOT infrastructure development projects including the 3 BOT projects which are under development, as well as in connection with existing projects under construction.
We have in the past relied principally on internal cash flow and other funds, affiliate loans, bank borrowings and equity contributions. Infrastructure projects are typically capital intensive and require high levels of debt financing. Our available financial resources for implementing these projects, based on our internal studies and estimates, may be inadequate and the project development may face cost overruns. We have in the past been able to arrange for debt financing for our infrastructure development projects on acceptable terms at the Project SPV level. Our ability to continue to arrange for financing on a substantially non-recourse basis for our infrastructure development projects and the costs of such capital is dependent on numerous factors, including general economic and capital market conditions, availability of credit from banks and financial institutions, investor confidence, the success of our current infrastructure development projects and other factors outside our control. We propose to finance these expenditures through debt, the net proceeds of the Issue and internal accruals or any combination thereof.
Our Indebtedness
As of March 31, 2014 and December 31, 2014, we had long term borrowings, short term borrowings and current maturity of long term borrowings aggregating to ₹ 110,840.85 million (which includes unsecured loan of ₹ 13.67 million and secured loan of ₹ 110,827.18 million) and ₹ 124,599.35 million (which includes unsecured loan of ₹ 13.67 million and secured loan of ₹ 124,585.68 million), respectively. Most of our financing arrangements are secured by our movable and immovable assets, including a charge on our equipment as well as on our intangible assets relating to toll collection rights under the various BOT projects undertaken by us. In addition, our Company and the IRB Group entities have given guarantees as collateral security for amounts borrowed under many of the financing agreements for funding our Project SPVs.
Many of our financing agreements also include various conditions and covenants that require either our Company or the borrower Project SPVs, or both, to obtain consents from our lenders prior to carrying out certain activities and entering into certain transactions, including consents to incur additional debt, issue equity, change their respective capital structure, increase or modify their respective capital expenditure plans, undertake any expansion, provide additional guarantees, change their respective management structure, or merge with or acquire other companies, whether or not there is any failure by such entities to comply with the other terms of such agreements. Failure to meet these conditions or obtain these consents could have significant consequences on our business and operations. Under certain of these financing agreements, our Company and/or the relevant Project SPV, are also required to obtain the consent of the relevant lender to pay dividends. Further, under our financing arrangements relating to Project SPVs, the relevant project lenders have the right to nominate directors to the board of directors of these entities upon the occurrence of an event of default. Any failure to comply with the requirement to obtain a consent, or other condition or covenant under our financing agreements that is not waived by our lenders or is not otherwise cured by us, may lead to a termination of our credit facilities, acceleration of all amounts due under such facilities and trigger cross default provisions under certain of our other financing agreements, and may adversely affect our ability to conduct our business and operations or implement our business plans. If the obligations under any of our financing documents are accelerated, we may have to dedicate a substantial portion of our cash flow from operations to make payments under the financing documents, thereby reducing the availability of our cash flow to meet working capital requirements and use for other general corporate purposes. Further, during any period in which we are in default, we may be unable to raise, or face difficulties raising, further financing. If the obligations under any of our financing agreements are accelerated or if the lenders of a material amount of the outstanding loans declare an event of default simultaneously, we may be unable to pay our debts as they fall due.
In addition, under certain financing arrangements entered into in connection with our infrastructure development projects, we have pledged the Company’s equity shares in the relevant Project SPV with the lenders under such financing arrangements. Furthermore, in case of a default in the repayment of principal or interest amounts to certain lenders to Project SPVs, such lenders have the right to convert the outstanding defaulted amounts into fully-paid equity shares of the relevant Project SPV, subject to the approval of the relevant concessioning authority. Such conversions may be exercised on more than one occasion, whenever there is any payment default under such financing arrangements. Any enforcement of such pledge or any such conversion will result in a reduction of the Company’s effective shareholding in the relevant Project SPV, thereby reducing the value of its investment in the relevant Project SPV.
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In addition, financing arrangements entered into by our Project SPVs contain conditions to the payment of dividends, including, among others, financial covenants being met and certain debt service accounts being adequately funded prior to the declaration and/or payment of dividends by these Project SPVs. In the event of a bankruptcy, liquidation or reorganization of a Project SPV, the Company’s claim in the assets of such Project SPV as a shareholder in the Project SPV remains subordinated to the claims of lenders and other creditors. Lenders to the Project SPVs also typically have a floating charge over all assets of the Project SPVs, including dividend payments by, and all cash of, these Project SPVs, effectively providing the lenders to the Project SPV a first priority lien over any distribution upon the occurrence of an event of default under the financing arrangements.
Interest Coverage Ratio
Our interest coverage ratio (equal to the total of cash profit after tax* and finance costs divided by finance costs) as of March 31, 2012, 2013 and 2014 and December 31, 2014, is set forth in the table below:
March 31, December 31, 2012 2013 2014 2014 Interest coverage ratio 2.43 2.50 2.17 2.30 *Cash profit after tax= Profit after tax +/- (MAT credit entitlement+deferred tax + depreciation /amortization)
Contractual Obligations and Commitments
The following table sets forth certain information relating to future payments due under contractual commitments as of December 31, 2014, aggregated by type of contractual obligation:
As of December 31, 2014
More than 5 Total Less than 1 year 1-3 years 3 -5 years years (₹ in millions) Long term debt 114,675.15 9,765.60 27,759.81 20,214.32 56,935.41 Working capital loan 9,910.54 9,910.54 - - - Capital commitments 8.48 8.48 - - - Total Contractual Obligations 124,594.17 19,684.62 27,759.81 20,214.32 56,935.41
Contingent Liabilities and other Off-Balance Sheet Arrangements
The following table sets forth certain information relating to our contingent liabilities as of December 31, 2014:
Particulars As of December 31, 2014
(₹ in millions) Claims against the company not acknowledged as debts: For service tax, ESIC, Custom Duty and Stamp Duty matters ...... 109.87 Guarantees and counter guarantees given by the Company to suppliers, government bodies and performance 5,239.47 guarantees ...... Total ...... 5,349.34
We have significant long-term indebtedness and have entered into certain derivative contracts of interest rate swaps to reduce the risk of interest rate fluctuations. As of December 31, 2014, the aggregate nominal amount of such interest rate swaps were U.S.$ 130.35 million (₹ 8,255.76 million). For further information, see our Unaudited Condensed Consolidated Interim Financial Statements included elsewhere in this Preliminary Placement Document.
In addition, as of December 31, 2014, our unhedged foreign currency exposure was U.S.$ 178.92 million (₹ 11,331.53 million).
There are no other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that we believe are material to investors. 92
Transactions with Related Party
We have in the course of our business entered into various transactions with related parties. These transactions include operation and maintenance charges paid for operation and maintenance activities sub-contracted, loans and advances, certain road work expenses for work road work contracted to various Promoter Group entities in similar businesses.
For further information on our related party transactions under Accounting Standard 18, please refer to “Related Party Transactions” on Page 134.
Quantitative and Qualitative Disclosure about Market Risk
Credit Risk
In our infrastructure development and construction business, we currently derive most of our turnover from BOT contracts with government entities as the counter-party. Payments by such entities are typically not secured by any form of credit support such as letters of credit, performance guarantees or escrow arrangements.
Interest Rate Risk
As our infrastructure development and construction businesses are capital intensive, we are exposed to interest rate risk. Interest rates for borrowings have been volatile in India in recent periods. Our infrastructure development and construction projects are funded to a large extent by debt and increases in interest expense may have an adverse effect on our results of operations and financial condition. Our current debt facilities carry interest at variable rates as well as fixed rates with the provision for periodic reset of interest rates. As of December 31, 2014, the majority of our total indebtedness was subject to variable rates. Although we engage in interest rate hedging transactions or exercise any right available to us under our financing arrangements to terminate the existing debt financing arrangement on the respective reset dates and enter into new financing arrangements, there can be no assurance that we will be able to do so on commercially reasonable terms, that our counterparties will perform their obligations, or that these agreements, if entered into, will protect us adequately against interest rate risks.
Foreign Currency Exchange Rate Risk
We have entered into certain interest and principal swap transactions with respect to our external commercial borrowings whereby adverse movements in international interest rates in the U.S. dollar may adversely impact our results of operations. Similarly in respect of the principal swaps any depreciation of the Rupee against the U.S. dollar may impact us adversely. From time to time we may purchase certain construction materials such as bitumen, payment for which is required to be made primarily in U.S. dollars. Accordingly, our operating and financial results would be negatively affected when the Rupee depreciates against the U.S. dollar and interest rates in U.S. dollar increase. In addition, we may in the future enter into financing arrangements for foreign currency borrowings. We cannot assure you that we will be able to effectively mitigate the adverse impact of currency fluctuations and increases in international interest rates on our results of operation.
Commodity Price Risk
We are exposed to upward fluctuations in the price and availability of the raw materials and fuel we require for implementation of our projects, such as cement, bitumen, steel and other construction materials. While some of the contracts we enter into contain price escalation provisions, allowing for an adjustment to the contract value in the event of any increase in the prices of raw materials, adjustments to the contract price may not adequately cover the entire increase in raw material prices. We do not currently use any derivative instruments, or enter into any other hedging arrangements so as to manage our exposure to price increases in raw materials.
Seasonality of Business
Our operations may be adversely affected by difficult working conditions during the summer months and during monsoon season that restrict our ability to carry on construction activities and fully utilize our resources. During periods of curtailed activity due to adverse weather conditions, we may continue to incur operating expenses but our revenue from construction activities may be delayed or reduced.
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INDUSTRY
The information contained in this section is derived from various government and other industry sources. Neither we nor any other person connected with the Issue has independently verified this information. Industry sources and publications generally state that the information contained therein has been obtained from sources generally believed to be reliable, but that their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured. Industry publications are also prepared on information as of specific dates and may no longer be current or reflect current trends. Accordingly, investment decisions should not be based on such information.
Overview of the Indian Economy
The Indian economy is the fourth largest economy in the world by purchasing power parity. (Source: https://www.cia.gov/library/publications/the-world-factbook/geos/in.html as at June 22, 2014) For 2013, India’s gross domestic product (“GDP”) based on purchasing power parity per capita was approximately US$ 5,449.82. (Source: International Monetary Fund, World Economic Outlook Database, October 2014) World output rates, in percentage terms, for certain developed and developing economies for each of the calendar years 2013 and 2014 and projections for 2015 are set out below: Countries 2013 2014 2015 (projected) (in percentage) China ...... 7.8 7.4 6.8 India ...... 5.0 5.8 6.3 Russia ...... 1.3 0.6 -3.0 Brazil...... 2.5 0.1 0.3 South Africa ...... 2.2 1.4 2.1 United States ...... 2.2 2.4 3.6 Japan ...... 1.6 0.1 0.6 United Kingdom ...... 1.7 2.6 2.7
(Source: International Monetary Fund, World Economic Outlook Updated, January 2015)
In the calendar year 2014, Indian GDP grew at rate of 5.8%. (Source: International Monetary Fund, World Economic Outlook Updated, January 2015) India’s services sector remains the major driver of economic growth contributing 72.4% of GDP growth in the financial year 2015. Services sector growth has increased from 8.0% in the financial year 2013 to 9.1% in the financial year 2014 and further to 10.6% in the financial year 2015. Growth in infrastructure, based on an index of eight core industries, has improved marginally to 4.4% in the nine months ended December 31, 2014 as compared to 4.1% in the same period in 2013. (Source: Economic Survey 2014-15 Volume II, available at: http://indiabudget.nic.in/index.asp)
Overview of the Road Sector in India
India has the second largest road network in the world, with approximately 3.3 million kilometers of roads made up of expressways, national highways, state highways, major district roads and rural roads (which include other district roads and village roads). India’s national highways carry a significant proportion of total road-based traffic despite constituting a small percentage of the road network. State highways and the major district roads together constitute a secondary system of road transportation and contribute significantly to the development of India’s rural economy and industrial growth. (Sources: Twelfth Five Year Plan (2012-2017), Economic Sectors, Volume II, Ministry of Road Transport and Highways, Government of India, Outcome Budget 2014-15 and National Highways Authority of India, available at: http://www.nhai.org/roadnetwork.htm)
Road transport has emerged as the dominant segment in India’s transportation sector with a 4.8% share of India’s GDP for the financial year 2012. Road transport has gained importance over the years despite significant barriers to inter- state freight and passenger movement compared to inland waterways, railways and air which do not face rigorous en route checks and barriers. (Source: Twelfth Five Year Plan (2012-2017), Economic Sectors, Volume II and Ministry of Road Transport and Highways, Government of India, Outcome Budget 2014-15 available at finmin.nic.in/reports/outcomebudget.asp as at March 4, 2015) Against an outlay of ₹ 1,924.28 billion in the Eleventh
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Five Year Plan (2007-2012) for the road sector (the “Eleventh Plan”), the anticipated expenditure was ₹ 1,580.77 billion (at current prices). (Source: Twelfth Five Year Plan (2012-2017), Economic Sectors, Volume II)
The Indian road network consists of the following: Type of Road Length (in kilometers)
Expressways ...... 200 National Highways ...... 92,851 State Highways ...... 131,899 Major District Roads ...... 467,763 Rural and Other Roads ...... 2,650,000 Total Length ...... 3,342,713
(Source: National Highways Authority of India, available at: http://www.nhai.org/roadnetwork.htm, as at March 1, 2015)
With regard to the road sector, the main targets of the Twelfth Five Year Plan (2012-2017) (the “Twelfth Plan”) of the Government include:
Completion of (i) Phase III of the National Highway Development Programme (“NHDP”) for inter-district roads and other roads under the programme and (ii) Phase IV of the NHDP that aims to convert single-lane roads to double lane roads;
Setting of specific targets throughout the Twelfth Plan period for Phase V of the NHDP, which involves the conversion of the golden quadrilateral to six-lane roads;
National and state highways to be upgraded to a minimum two lane standard by the end of the Twelfth Plan period; and
All villages to be connected by all-weather roads by the end of the Twelfth Plan period.
In addition to targeted works, the Twelfth Plan also envisages a comprehensive master plan for the phased development of 15,600 kilometers of expressways. It is hoped that 1,000 kilometers of expressways will be completed during the Twelfth Plan period, while land for another 6,000 kilometers will be acquired to initiate work. (Source: Twelfth Five Year Plan (2012-2017), Economic Sectors, Volume II)
Vehicle Traffic in India
Over the last five years, the number of vehicles on Indian roads has grown at an average rate of approximately 10% per annum (Source: National Highways Authority of India, available at: http://www.nhai.org/roadnetwork.htm as at March 1, 2015). The share of road traffic in total traffic movement by roads and railways has grown from 13.8% of freight traffic and 15.4% of passenger traffic in financial year 1951 to an estimated 65% of freight and 90% of passenger traffic as per National Transport Development Policy Committee (Source: Ministry of Road transport and Highways, Government of India, Outcome Budget 2014-15). In the financial year 2014, India transported approximately 57% of total goods by road, as compared to 22% in China and 37% in the United States of America. The share of rail traffic in India is 36%, as compared to 48% in the United States of America and 47% in China. (Source: Twelfth Five Year Plan (2012-2017), Economic Sectors, Volume II)
National Highways
Overview
There are currently approximately 92,851 kilometers of national highways in India, constituting less than 3% of India’s entire road network but carrying approximately 40% of total road traffic. (Source: National Highways Authority of India, available at: http://www.nhai.org/roadnetwork.htm as at March 1, 2015)
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As at the date of publication of the Twelfth Plan in 2013, approximately 23% of national highway length was 4-lane (and above standard), approximately 54% was 2-lane (standard) and approximately 23% was single lane (intermediate standard). As of March 2012, 30,537 kilometers of national highways were entrusted to the NHAI, 42,483 kilometers were entrusted to state public works departments and 3,798 kilometers to the border roads organization. (Source: Twelfth Five Year Plan (2012-2017), Economic Sectors, Volume II)
The Ministry of Road Transport and Highways
The Ministry of Road Transport and Highways (the “MoRTH”) is a Government organization responsible for the formulation and administration of policies for road transport, national highways and transport research. The MoRTH consults with other central ministries, departments, state governments, organizations and individuals. The aim of the MoRTH is to increase mobility and the efficiency of the road transport system in India. (Source: Ministry of Road Transport and Highways, available at: http://morth.nic.in/index1.asp?lang=1&linkid= 10&lid=144)
The National Highways Authority of India
The National Highways Authority of India (“NHAI”) was constituted by through the National Highways Authority of India Act, 1988. The NHAI is responsible for the development, maintenance and management of national highways entrusted to it and for matters connected or incidental thereto. The NHAI became operational in February 1995 with the appointment of a full time chairman and other members. (Source: National Highways Authority of India available at http://www.nhai.org/estd.htm)
National Highway Development Programme
The NHDP is India’s largest ever highways project and is being undertaken in phases. The rapid expansion of passenger and freight traffic makes it imperative to improve the road network in India. Accordingly, the Government has launched major initiatives to upgrade and strengthen national highways through various phases of the NHDP. (Source: Citizen Charter of NHAI (April 2012))
India’s road network has benefited from the NHDP which, when conceived, envisaged an investment of approximately ₹ 2,362.47 billion between 2005 and 2012. (Source: Twelfth Five Year Plan (2012-2017), Economic Sectors, Volume II)
All phases (except Phase VI) of the NHDP are being implemented. The present phases are improving more than 49,260 kilometers of arterial routes of the national highway network to international standards. The table below illustrates the details and the latest status updates of the NHDP and other NHAI projects as of January 31, 2015:
Under Contracts Under NHDP Total Length Already 4 or 6 Laned Implementation Implementation Balance length for award (kilometers) (kilometers) (kilometers) (No.) (kilometers) Golden 5,846 5,846 0 0 - Quadrilateral (GQ)1 NS-EW Ph. I & 7,142 6,360 365 42 417 II2 Port Connectivity 380 379 1 1 - NHDP Phase III 12,109 6,393 4,373 89 1,343 NHDP Phase IV3 14,799 942 5,904 55 7,953 NHDP Phase V 6,500 2,001 2,080 27 2,419 NHDP Phase VI 1,000 - - - 1,000 NHDP Phase VII 700 22 19 1 659 NHDP Total 48,476 21,943 12,742 215 13,791
Others (Phase I, 1,754 1,428 326 10 - Phase II and Miscellaneous) SARDP – NE4 388 99 12 1 277 Total by NHAI 50,618 23,470 13,080 226 14,068
1GQ connects four metropolitan cities (Delhi-Mumbai-Chennai-Kolkata-Delhi).
2North South (NS) Corridor connects Srinagar to Kanniakumari and East West (EW) Corridor connects Porbandar to Silchar.
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3Total 20,000 kilometers was approved under NHDP Phase IV. Out of which 14,799 kilometers are assigned to NHAI with remaining length with MoRTH.
4 Special Accelerated Road Development Programme for the North-East Region (SARDP-NE).
(Source: National Highways Authority of India, available at: www.nhai.org/WHATITIS.asp)
The growth and certain details of various phases of the NHDP are outlined below:
NHDP Phase I: NHDP Phase I was approved by the Government in December 2000 at an estimated cost of ₹ 303 billion and comprises GQ (5,846 kilometers) and NS-EW Corridor (981 kilometers), Port Connectivity (356 kilometers) and others (315 kilometers).
NHDP Phase II: NHDP Phase II was approved in December 2003 at an estimated cost of ₹ 343.39 billion (2002 prices) and comprises NS-EW Corridor (6,161 kilometers) and other national highways of 486 kilometers length with a total length of 6,647 kilometers.
NHDP Phase III: The Government approved the upgrading and four laning of 4,815 kilometers of national highways on a BOT basis at an estimated cost of ₹ 330.69 billion under NHDP Phase IIIA. In April 2007, the Government approved the upgrading and four laning of 7,294 kilometers at an estimated cost of ₹ 475.57 billion under NHDP Phase IIIB. Total approved length of NHDP Phase III is 12,109 kilometers at an approved cost of ₹ 806.26 billion.
NHDP Phase IV: In February 2012, the Government approved the upgrading and strengthening of 20,000 kilometers of single, intermediate and two lane national highways to two lanes with paved shoulder and four lanes under NHDP Phase IV on a BOT (Toll) and BOT (Annuity) basis.
NHDP Phase V: In October 2006, the Government approved the six laning of 6,500 kilometers of existing four lane highways under NHDP Phase V (on a DBFOT basis) at an estimated cost of ₹ 412.10 billion. Six laning of 6,500 kilometers includes 5,700 kilometers of GQ and approximately 800 kilometers of other stretches of road.
NHDP Phase VI: In November 2006, the Government approved 1,000 kilometers of expressways at an estimated cost of ₹ 166.80 billion.
NHDP Phase VII: In December 2007, the Government approved the implementation of NHDP Phase VII which envisages the construction of approximately 700 kilometers of stand-alone bypasses, grade separators and flyovers at an estimated cost of ₹ 166.80 billion.
(Source: National Highways Authority of India, Annual Report 2012-2013)
State Roads
Overview
Investment, including through public private partnerships (“PPP”), through the viability gap funding (“VGF”) programme of the Government has been made by state governments in order to expand the network of roads in India, including in particular state highways, which are part of the secondary road transportation network. (Source: Twelfth Five Year Plan (2012-2017), Economic Sectors, Volume II)
State roads tend to suffer from low investment, inadequate carriageway width to meet traffic demand, weak pavement and bridges, congested stretches passing through cities and towns, poor safety features and road geometrics and inadequate formation width in hilly and mountainous regions, among others. (Source: Twelfth Five Year Plan (2012- 2017), Economic Sectors, Volume II)
The Twelfth Five Year Plan aims to encourage states to develop a core road network. The development of both the four lane and two lane roads will be taken up as part of this Plan. Targets for the Twelfth Five Year Plan are outlined in the table below:
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State Highways Major District Roads
Kilometers % of Existing / Total Length Kilometers % of Existing / Total Length
Two laning 30,000 30 20,000 8.5
Four laning 5,000 8 1,000 4
Strengthening 41,500 25 66,500 25
Improvement in Riding 50,000 30 80,000 30 Quality Programme (“IRQP”)
(Source: Twelfth Five Year Plan (2012-2017), Economic Sectors, Volume II)
Central Road Fund
The Central Road Fund (“CRF”) was given statutory status by the Central Road Fund Act, 2000 enacted in December 2000. The CRF consists of the cess collected on the sale of diesel petrol. The MoRTH provides funds for the development of state roads from the amounts collected by the CRF and also provides funds for the development of roads under the Inter-State Connectivity Scheme and the Economic Importance Scheme. The allocation and expenditure of funds are illustrated in the table below:
Item 2012-13 2013-14 2014-15 (₹ in million) (₹ in million) (₹ in million) Expenditure as of Budget Revised Budget Revised Budget Expenditure December 31, estimates estimates estimates estimates estimates 2013* Grants to states and UTs for 23,599.10 23,599.10 23,503.70 23,599.10 29,714.10** 29,237.20 26,426.30 State Roads (CRF)
Grants to States and UTs for Roads of Inter-State 2,622.2 2,622.20 2,422.60 2,622.2 2,622.20 2,366.80 2,936.30 Connectivity and Economic Importance * Provisional for 2013-2014 **₹ 6115.0 million additionally allocated out of the unspent balance of previous years
(Source: Ministry of Road Transport and Highways, Government of India, Outcome Budget 2014-15)
Financing of Road Projects in India
The modes of procurement adopted for the implementation of highway projects can be classified into PPP and public funded projects. The details of such modes are provided below:
Public Private Partnership
PPP projects are generally categorised into two types, namely BOT (Toll) and BOT (Annuity). On BOT (Toll) projects, construction, operation, maintenance and tolling responsibility rests with the concessionaire during entire concession period, which is typically, between 20 to 30 years. On BOT (Annuity) projects, while construction, operation and maintenance also rests with the concessionaire during the concession period, toll is collected by the Authority through a bidding process with the concessionaire receiving annuity payments through the concession period. (Source: National Highways Authority of India, Annual Report 2012-13)
The NHDP is now primarily funded through PPP, a policy which was initiated in the Eleventh Plan. For this purpose, VGF of 40% was provided in the road sector, including 20% from the cess on petrol and diesel, which is available with the NHAI. During the Eleventh Plan, total private sector investment on the NHDP was ₹ 626.29 billion against a target
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of ₹ 867.92 billion. This is an increase from the Tenth Five Year Plan (2002-2007) achievement of ₹ 110.32 billion (at 2011-12 prices). (Source: Twelfth Five Year Plan (2012-2017), Economic Sectors, Volume II)
Public Funded Projects
The traditional method of executing public funded projects was by item rate contract. This was, however, prone to time and cost overruns. This method has since been replaced by new engineering procurement and construction contracts (“EPC”). The projects which are not viable under BOT (Toll) mode, such as those in remote areas, are now carried out under the EPC method. The model EPC contract agreement relies on assigning the responsibility for investigations, design and construction to a contractor for a lump sum price determined through competitive bidding. The model EPC agreement incorporates international best practices and provides a contractual framework that specifies the allocation of risks and rewards, equity of obligations between the Government and the contractor, precision and predictability of costs, force majeure, termination and dispute resolution, apart from transparent and fair procedures. (Source: National Highways Authority of India, Annual Report 2012-13)
Key Drivers of Road Sector Investment
Government Initiatives: During the financial year 2015, approximately 8,470 kilometers of national highways were to be improved along with ten bypasses, with the NHAI aiming to award 5,000 kilometers of projects and MoRTH aiming to award a further 400 kilometers of projects. The Government’s aim is to develop a total of 64,340 kilometers of national highway under certain programs, such as the NHDP, the Special Accelerated Road Development Program for the North-East region and the National Highways Interconnectivity Improvement Project.
Funding: An increase in funding for road projects is expected to drive growth within the road sector. For the financial year 2014, an outlay of US$ 3.8 billion was provided for the highway sector.
Intensity and Composition of Traffic: The economic down turn seen in the last few years, has caused a reduction in the rate of growth of traffic and consequently lower revenue realization for road BOT projects. The reduced revenue realization adversely affected concessionaires ability to service their project debt leading to defaults and restructurings. Consequently, the appetite of developers to take on road BOT PPP projects fell with developers having little or no equity to contribute and lenders being unwilling to provide debt funds. (Source: Economic Survey 2014-15 Volume II, available at: http://indiabudget.nic.in/index.asp). However, in the future an increase in traffic is expected to drive investment in the road sector. The rise in two wheeler and four wheeler vehicles, increasing freight traffic, strong trade and tourist flows between states are all expected to drive growth. (Source: Make In India, available at: http://www.makeinindia.com/sector/roads-highways/)
India’s National Transport Development Policy Committee estimates that road freight traffic will grow at about 9% per annum and road passenger traffic will grow at about 17% over the next 20 years. (Source: National Transport Development Policy Committee, India Transport Report: Moving India to 2032 available at http://planningcommission.nic.in/sectors/NTDPC/volume3_p1/roads_v3_p1.pdf) The rapid expansion and strengthening of the road network, therefore, is imperative, to provide for both present and future traffic. (Source: Ministry of Road Transport and Highways, Government of India, Outcome Budget 2014-15)
Policy Framework for the Infrastructure Sector
The NHAI is the agency responsible for the development, maintenance and management of national highways.
At the state level, the overall policy, development programme and resource planning for the road sector is carried out by the state’s planning body in consultation with the central level planning commission and the state ministry of roads. The State Public Works Department (“PWD”) and road development corporations are the implementing agencies at state level and are responsible for the implementation, operation and maintenance of state highways, major district roads and rural roads in certain states.
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OUR BUSINESS Overview
We are one of the largest infrastructure development and construction companies in India in the roads and highways sector. Our Build, Operate and Transfer (“BOT”) infrastructure development business involves the construction, development, operation and maintenance of road projects. We currently have 22 road BOT projects, of which 16 are “operational”, three are “under construction” and three are “under development”. We believe that we have one of the largest road BOT project portfolios in India, with 9,289 Lane Kilometers of roads and highways currently under operation, construction or development.
All of our road BOT projects are implemented and held through special purpose vehicles (“Project SPVs”). We are involved in the design, development, construction, operation and maintenance of national and state highways and roads in the states of Maharashtra, Gujarat, Rajasthan, Punjab, Haryana, Karnataka and Tamil Nadu.
Our construction business complements our BOT infrastructure development business and involves engineering, procurement and construction (“EPC”) work for construction projects on a contract basis, including in the roads and highways sector. In addition, we are currently developing a greenfield airport project in Sindhudurg, Maharashtra and a hotel in Kolhapur, Maharashtra. We also have a presence in the wind power business, through our Subsidiary, MRMPL.
We believe that our large fleet of sophisticated construction equipment and our employee resources, along with our engineering skills and capabilities, enable us to implement modern infrastructure and construction methodologies effectively and efficiently.
We generate revenues primarily from toll collection from our road BOT projects and our EPC activities. Our total revenue was ₹ 29,417.01 million and ₹ 38,533.13 million for the nine months ended December 31, 2014 and the financial year 2014 respectively. Profit after tax and after minority interest was ₹ 4,046.89 million for the nine months ended December 31, 2014 and our profit after minority interest was ₹ 4,591.29 million for the financial year 2014.
Our key projects include the Yashwantrao Chavan Mumbai–Pune Expressway and the NH 4 project operated by MIPL, the Bharuch-Surat NH 8 project operated by IDAA, the Surat-Dahisar NH 8 project operated by IRBSD and the Ahmedabad Vadodara NH 8 and NE-1 project being constructed by IRBAV. Substantially all the construction work undertaken by us on BOT projects in the roads and highways sector is currently executed by our Subsidiary, MRMPL. MRMPL, MIPL, IDAA, IRBPL and IRBSD are our key Subsidiaries based on revenue generated in the financial year 2014.
Our Strengths
Our principal competitive strengths are set out below:
Extensive Experience and Strong Track Record in Infrastructure Development and Construction Projects in the Roads and Highways Sector in India.
We are one of the largest road BOT companies in India. We believe that we have one of the largest project portfolios, with 9,289 Lane Kilometers of roads and highways currently in operation, under construction or under development. Our BOT project portfolio includes large road and highway BOT projects, including the Yashwantrao Chavan Mumbai– Pune Expressway and NH 4 project, the Bharuch Surat NH 8 project, the Surat Dahisar NH 8 project and the Ahmedabad Vadodara NH 8 and NE-1 project. We believe that our experience of over 30 years in roads and highways infrastructure development projects and our established reputation in the industry provide us with competitive advantages when bidding for large road BOT projects, including for National Highway Development Program (“NHDP”) Phase V projects. We also believe that our experience and focus on roads and highways infrastructure development projects enables us to effectively evaluate and execute new projects. We have received several industry awards and recognitions, including the CNBC-TV18 Essar Steel Infrastructure Excellence Award in the Highways and Flyovers category in March 2009 and the CNBC-TV18 Essar Steel Infrastructure Excellence Award in the Highways and Flyovers category in March 2010. In addition, Mr. Virendra Mhaiskar, our Chairman and Managing Director was chosen as the ‘Young Turk of the Year’ at the CNBC-TV18 India Business Leader Awards in December 2010.
Strong Order Book and Ability to Meet Pre-Qualification Credentials 100
Our order book (“Order Book”) as of December 31, 2014, was ₹ 91,193.00 million. This comprised ₹ 37,168.00 million of construction under progress and ₹ 54,025.00 million of construction orders to be executed. Our Order Book as of a particular date consists of estimated revenue from unexecuted or uncompleted portions of our “existing contracts”, i.e., the total contract value of such “existing contracts” as reduced by the value of construction work executed until such date. In our Order Book, “existing contracts” include only construction of a BOT project, for which we have received a letter of award, irrespective of whether or not definitive contracts have been executed for such project as of such date. For further details, see “―Order Book” below.
We believe our track record of completed projects, our existing portfolio and our financial performance allows us to meet the qualification requirements for a large number of new road BOT projects. For example, we are currently pre- qualified to bid for an individual project with a total project development cost of up to ₹ 53,191.70 million awarded by the National Highway Authority of India (“NHAI”). We believe that we have the requisite experience, technical know- how and financial resources to explore a large number of new bidding opportunities in the roads and highways BOT sector.
Integrated Execution and Efficient Project Management Capabilities
We are an integrated infrastructure development company. The EPC activities for all our road BOT projects are undertaken in-house through our Subsidiary, MRMPL. Similarly, operation and maintenance activities related to our road BOT projects, including toll collection, are also carried out in-house. We believe this enables us to reduce our dependence on third party sub-contractors, exercise greater control over the quality and cost of construction, achieve timely execution of our projects and capture the entire economic value chain in our projects.
Equipment asset management is a critical element of timely delivery of quality infrastructure development and construction projects. We own a large fleet of sophisticated construction equipment which enables us to be less dependent on third party equipment providers and to efficiently manage our project execution schedules. We believe that this also provides us with a competitive advantage over other infrastructure development and construction companies that outsource their construction activities to external contractors.
We believe that our integrated execution capabilities enable us to better evaluate business opportunities and establish a reputation for efficient project management and execution, with on-site decision making capabilities, efficient deployment of equipment and other resources, as well as strategic purchasing capabilities.
Strong Financial Performance and Credit Profile
We have demonstrated strong financial performance in recent years. Our total revenue was ₹ 32,582.40 million, ₹ 38,173.67 million and ₹ 38,533.13 million for the financial years 2012, 2013 and 2014, respectively and ₹ 29,352.70 million and ₹ 29,417.01 million for the nine months ended December 31, 2013 and 2014, respectively. Our profit after minority interest was ₹ 4,959.96 million, ₹ 5,566.66 million, ₹ 4,591.29 million and ₹ 3,498.97 million for the financial years 2012, 2013, 2014 and for the nine months ended December 31, 2013 respectively. Profit after tax and after minority interest of ₹ 3,498.97 million and ₹ 4,046.89 million for the nine months ended December 31, 2013 and 2014, respectively. For the nine months ended December 31, 2014, we recorded an average per day toll income from road BOT projects of ₹ 57.5 million.
The infrastructure sector is capital intensive with our projects requiring significant funding. We have successfully arranged financing for all of our operational and under construction projects, including our recently won Solapur to Yedeshi NH 211 project for which we have obtained term loan facilities for, in aggregate, ₹ 9,100.00 million and the Yedeshi to Aurangabad NH 211 project for which we have obtained term loan facilities for, in aggregate, ₹ 17,560.00 million, and believe that we enjoy significant goodwill with various leading banks and financial institutions in India. We believe that our ability to raise significant project finance has enabled us to fund our various projects at competitive rates.
Professionally Managed Company with a Qualified and Skilled Employee Base
We are a professionally managed company with a qualified, skilled and trained workforce. As of December 31, 2014, we had approximately 5,829 permanent employees, of which 3,212 employees were engaged in construction activities and 2,617 employees were engaged in toll collection activities. Of our total workforce, 479 employees were engineers
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and technical personnel as of December 31, 2014. Our management team has contributed significantly to our growth in recent years. We believe that having a motivated and empowered employee base is essential for maintaining our competitive advantage and hence we remain committed to the professional development of our employees.
Our Strategy
Our principal business strategies are set out below:
Continue to Focus on BOT Projects in the Roads and Highways Sector and Leverage India’s Demand for such Projects
We intend to consolidate our position as one of the largest infrastructure development companies in the roads and highways sector in India. We believe that Government spending on the road infrastructure sector will be a key component of India’s goal of sustained annual GDP growth. We also believe that the road infrastructure sector will continue to require further investment given the Government’s focus on improving infrastructure in the country. During the financial year 2015, the NHAI’s aim was to award 5,000 kilometers of road projects with a further 400 kilometers of projects expected to be awarded by the Ministry of Road Transport and Highways (“MoRTH”) directly. The Government intends to develop a total of 64,340 kilometers of national highways under a variety of programmes, such as the NHDP, the Special Accelerated Road Development Programme in North-East region and the National Highways’ Interconnectivity Improvement Project. (Source: www.makeinindia.com/sector/roads-highways/) We believe that our expertise and experience in the development, operation and management of road infrastructure projects, as well as our established reputation, provides us with a competitive advantage in pursuing opportunities in this rapidly growing sector.
Selectively Expand the Geographical Distribution of our Infrastructure Projects
Our road BOT projects have historically been concentrated in Maharashtra and we intend to continue to be active in the western Indian states, such as Maharashtra and Gujarat. However, we intend to consolidate our position in the roads and highways infrastructure development sector by selectively pursuing suitable opportunities in other parts of India to expand our current portfolio and gradually reduce our dependence on any particular area of the country. We now have a presence in northern India in the states of Punjab, Haryana and Rajasthan and in southern India in the states of Karnataka and Tamil Nadu. We intend to build on our experience on projects in these states to further expand our road infrastructure portfolio across India.
Further Enhance our Project Execution Capabilities
One of the primary focus areas of our project execution strategy is the completion of our projects on or ahead of schedule. We also intend to continue to focus on performance and project execution in order to maximize client satisfaction and margins. We leverage technologies, designs and project management tools to increase productivity and maximize asset utilization in capital intensive activities. We seek to optimize operating and overhead costs to maximize our operating margins. Our ability to effectively manage our projects will be crucial to our continued success as a reputed infrastructure company. We believe that we are able to distinguish ourselves from our competitors because of our management strength and in-house development, construction, operation and maintenance capabilities. We intend to continuously strengthen our execution capabilities by adding to our existing pool of managers, attracting new graduates from engineering colleges in India, and facilitating continuous learning with in-house and external training opportunities. We will also continue to focus on our health, safety and environmental management and quality management standards as we believe these elements of performance measurement have become important competition differentiators and key criteria for prequalification of contractors by potential clients.
Focus on Financial Management and Strengthen Internal Processes and Systems
The road infrastructure sector is a highly competitive sector which is capital intensive and requires significant expenditure. Our ability to efficiently manage the costs associated with our projects and secure timely funding at favorable rates is imperative for us to maintain healthy margins. We intend to continue to focus on increasing our margins by strengthening our internal processes and systems to achieve optimal utilization of our resources. By focusing on our internal systems we aim to manage our equipment and our human resources in as an efficient manner as possible so as to achieve cost efficiencies in the execution of our projects. We maintain a centralized procurement department for major raw materials to achieve economies of scale and have a dedicated project execution team which monitors the development process of projects to implement best practices across our projects. In addition, we have also 102
implemented a company-wide information management system which allows us to respond to exigencies in a quick and efficient manner.
Our BOT Infrastructure Development Business
Overview of BOT Infrastructure Development Projects
Infrastructure development projects in India are typically awarded under Public-Private-Partnership model, as BOT projects.
Our BOT infrastructure development projects principally focused on the roads and highways sector are typically characterized by three distinct phases:
Build – upon successfully securing a project by competitive bidding, we contract with a government entity for the construction of an infrastructure project and secure financing to construct the project;
Operate – we are the operators of the infrastructure asset during an agreed concession period and we maintain and manage the asset for the agreed concession period and earn revenues through tolls generated from the asset; and
Transfer – after the expiration of the agreed concession period, we transfer ownership of the infrastructure asset back to the government entity.
The design, build, finance, operate and transfer (“DBFOT”) model of infrastructure development projects, a category of BOT projects, has become increasingly prevalent in India and several of our recent projects are in this category. A DBFOT project involves, in addition to the activities specified above, provision of engineering design for such projects.
Phases of Development in our BOT Infrastructure Development Projects
Our BOT infrastructure development projects may be broadly classified under the following four development phases: (i) “operational”, (ii) “under construction”, (iii) “under development” and (iv) “under award”.
Operational
Our projects are classified as “operational” when the engineering, procurement and construction phases have been completed or substantially completed, a completion certificate (or provisional completion certificate, as the case may be) has been issued by the concessioning authority and the relevant Project SPV is recognizing revenues from tolls generated from the project. In certain projects which involve the expansion of existing road infrastructure to six lanes, we may commence recognizing revenues from tolls generated from the existing road infrastructure that we are expanding during construction of the project. We have classified such projects under the “construction” phase, and not under the “operational” phase. We currently have 16 projects in the “operational” phase.
Under Construction
Our projects are classified as being “under construction” when financial closure has been achieved and when services in connection with engineering and construction, commissioning, and operation and maintenance of the infrastructure projects are in progress. Projects are considered to have achieved financial closure when definitive financing documents relating to the funding of the project by banks and financial institutions have become effective, all conditions precedent to the initial availability of funds under the financing documents have been satisfied or waived, and funds may be drawn down under such financing documents. We currently have three projects in the “under construction” phase.
Under Development
Our projects “under development” include the projects where the principal project agreements (such as a concession agreement) have been entered into but where both, the financial closure has not been achieved but is expected to be achieved in the near future and the construction has not yet commenced. We currently have three projects in the “under development” stage.
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Under Award
We classify our projects as being “under award” where we have received letters of award from government entities awarding the projects to us. Our projects “under award” are in the preliminary stage and are classified as such prior to execution of concession agreements or receiving permits, licenses, clearances or approvals from the relevant government authorities. We currently do not have any projects in the “under award” stage.
Our Road BOT Projects
The following map sets out the location of our BOT projects across India:
We are currently engaged in 22 road BOT projects. Three of our road BOT projects, the Ahmedabad to Vadodara NH 8 and NE 1 project, the Goa/Karnataka Border to Kundapur NH 17 project, and the Solapur to Yedeshi NH 211 project, are currently in the “under construction” phase. Three of our road BOT projects, the Yedeshi to Aurangabad NH 211 project, the Kaithal to Rajasthan Border NH 152/65 project, and the Mumbai Pune NH 4 and Yashwantrao Chavan Mumbai–Pune Expressway Phase II project, are in the “under development” phase and while we recently achieved financial closure for the Yedeshi to Aurangabad NH 211 project, we are in the process of achieving financial closure for the other two projects “under development”. The remainder of our projects are in the “operational” phase.
Operational Projects
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The following table sets out certain key details of our “operational” road BOT projects:
Project Client State Length of the Approximate Start of Concession project (in project cost concession period1 kilometers) appraised by the period lenders (₹ in Millions) Yashwantrao MSRDC Maharashtra 206.00 13,016.40 August 10, 2004 15 years Chavan Mumbai– Pune Expressway and NH 4 project
Surat – Dahisar NHAI Maharashtra / 239.00 28,350.00 February 20, 12 years NH 8 project Gujarat 2009
Tumkur to NHAI Karnataka 114.00 11,420.00 June 4, 2011 26 years Chitradurga NH 4 project
Bharuch – Surat NHAI Gujarat 65.00 14,090.70 January 2, 2007 15 years NH 8 project
Jaipur to Deoli NHAI Rajasthan 146.30 17,330.00 June 14, 2010 25 years NH 12 project
Thane Bhiwandi MoRTH and Maharashtra 24.00 1,040.00 January 1, 1999 18 years and 6 Bypass project PWD months
Omallur-Salem- NHAI Tamil Nadu 68.63 3,075.99 August 15, 2006 20 years Namakkal NH 7 project2
Talegaon to NHAI Maharashtra 66.73 8,880.00 September 3, 22 years Amravati NH 6 2010 project
Thane MSRDC Maharashtra 14.90 2,462.80 December 24, 15 years Ghodbunder Road 2005 project
Pune – Nashik NH MoRTH Maharashtra 29.81 737.00 September 25, 18 years 50 project 2003
Pune – Solapur MoRTH Maharashtra 26.00 630.00 March 20, 2003 16 years Road NH 9 project
Ahmednagar- PWD Maharashtra 60.00 368.00 December 12, 15 years Karmala- 2001 Temburni SH 141 project
Bridge across MoRTH and Maharashtra 1.40 320.00 November 29, 17 years and 9 River Patalganga PWD 1997 months project
Mohol-Kurul- PWD Maharashtra 33.40 180.00 May 29, 2002 16 years Kamti-Mandrup SH 149 project
Integrated Road MSRDC Maharashtra 49.99 4,300.50 January 9, 2009 30 years Development Project, Kolhapur
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Project Client State Length of the Approximate Start of Concession project (in project cost concession period1 kilometers) appraised by the period lenders (₹ in Millions) Amritsar – NHAI Punjab 102.42 14,453.10 December 31, 20 years Pathankot NH 15 2010 project
Note: 1 Where provided for under the terms of the relevant project agreements entered into in connection with the projects, our concession period may be extended in certain defined circumstances. 2 This project is being undertaken by MVR Infrastructure and Tollways Private Limited, in which we hold a 74% equity interest. The remaining 26% is pledged in our favour and will be acquired on receipt of approval for such acquisition from the NHAI.
Our current “operational” road BOT projects are briefly discussed below:
1. Yashwantrao Chavan Mumbai–Pune Expressway and NH 4 project
For this project, we were engaged to expand a stretch of the existing NH 4 into four lanes and to make value additions to the Yashwantrao Chavan Mumbai–Pune Expressway. The project covers a cumulative 206 kilometers of road with 111 kilometers on NH 4 and 95 kilometers on the Yashwantrao Chavan Mumbai–Pune Expressway. The project agreements relating to this project were entered into among our subsidiaries, MIPL and IRBPL, and the Mahrashta State Road Development Corporation (“MSRDC”).
With respect to the Yashwantrao Chavan Mumbai–Pune Expressway, we primarily undertook value additions, such as providing cattle traps, constructing crash barriers, providing landscaping and beautification services, and redoing paved shoulders. With respect to the existing NH 4, the scope of work involved expanding the existing NH 4 into a four-lane highway, widening major and minor bridges relating to the project, constructing bus and truck bays, constructing foot- paths, implementing lane markings, constructing toll plazas and providing road furniture items.
The construction completion time for this project stipulated under the relevant project agreements was 24 months and we completed construction of this project on time. We received a completion certificate relating to our work for this project in September 2006.
Concession Period: Under the terms of the project agreements we have been granted a concession period of 15 years for each of the Yashwantrao Chavan Mumbai–Pune Expressway and the NH 4. Tolling with respect to the Yashwantrao Chavan Mumbai–Pune Expressway commenced on August 10, 2004. Pursuant to the terms of the project agreements and certain notifications received by us from the Government and the government of Maharashtra, we are entitled to collect and retain the notified toll rates from the users of the project facilities until August 10, 2019. The toll rates and policies for the Yashwantrao Chavan Mumbai–Pune Expressway are notified by the Public Works Department (“PWD”) and the toll rates and policies for NH 4 are notified by the MoRTH.
Operation and Maintenance: We also carry out operations and maintenance for this project. With respect to the Yashwantrao Chavan Mumbai–Pune Expressway, the scope of our operations and maintenance obligations include road maintenance, performing safety and security functions, asset management and road property management. With respect to NH 4, we are primarily responsible for ensuring smooth and uninterrupted flow of traffic, charging, collecting and appropriating tolls in accordance with the project agreements, repairing potholes, cracks, joints, drains, lane marking, lighting, maintenance of illuminations and signage, safety maintenance, operations and traffic management.
Project Cost: The appraised cost of this project was approximately ₹ 13,016.40 million. As of December 31, 2014, the outstanding debt with respect to this project was ₹ 6,364.36 million.
2. Surat – Dahisar NH 8 project
For this project, we were engaged to expand a 239 kilometer stretch of NH 8 between Surat in Gujarat and Dahisar in Maharashtra from four lanes to six lanes under NHDP Phase V on a BOT basis. Construction on the project commenced on February 20, 2009. The commercial operation date for the project was April 6, 2013.
The Surat-Dahisar project was awarded to a consortium of Deutsche Bank AG, Mumbai branch and us, pursuant to a 106
letter of award from the NHAI dated February 21, 2008. On May 16, 2013 we acquired Deutsche Bank AG, Mumbai branch’s 10% equity holding in the Project SPV set up for the project, IRBSD and, as such, now wholly own IRBSD, the operator of the project. A concession agreement dated April 30, 2008 was entered into between the NHAI and IRBSD. Under this project, we were engaged to expand the existing four-lane highway to six lanes and construct related entry and exit ramps, service roads, vehicular and pedestrian underpasses, culverts, bridges, junctions, drains, protection works, overpasses, as well as 25 flyovers over various junctions.
Concession Period: We were granted a concession period of 12 years for the project, including the construction period of 912 days. Under this project, we are entitled to collect toll on the existing highway from the appointed date. Toll collection on the existing highway commenced on February 20, 2009.
Pursuant to the concession agreement and notifications issued to us by relevant regulatory authorities, during the specified concession period, we are entitled to collect fees from vehicles and persons liable for payment of such fees using the project highway. Under the concession agreement and subject to levels of toll rates published in the relevant notification by the Government, we are also permitted to formulate, publish and implement certain lower toll collection schemes for any category of users on the Surat-Dahisar road. We are not permitted to collect any toll from certain exempted vehicles and are required to issue discounted fee passes for certain frequent users.
We are eligible for an extension in the concession period if the actual traffic on the highway is less than the estimated traffic. Should average daily traffic exceed a certain traffic limit, any fees collected from the excess traffic are payable to the NHAI. We are not permitted to amend tolls upward of relevant fee notifications. Pursuant to the project documents, in the first year of toll collection we were required to pay the NHAI 38% of the total realizable fees, i.e. all charges levied and payable for a vehicle using the project highway or a part thereof as due and realizable under the concession agreement, but excluding fees that we were unable to realize despite due diligence and best efforts. In each subsequent year of the concession period, such revenue share increases by an additional 1%.
Operation and Maintenance: During the concession period, we have also agreed to operate and maintain the facilities relating to this project, and if required, modify, repair or otherwise make improvements to the project highway. Within the scope of our operation and maintenance obligations, we are required to maintain standards of operation and maintenance that comply with a repair and maintenance manual.
Project Cost: The appraised cost of this project was ₹ 28,350.00 million. As of December 31, 2014, the outstanding debt with respect to this project was ₹ 10,852.71 million.
3. Tumkur to Chitradurga NH 4 project
For this project, we were engaged to expand the Tumkur to Chitradurga section of NH 4 in Karnataka (from kilometer 75.00 to kilometer 189.00) from four to six lanes under NHDP Phase V on a DBFOT basis. A concession agreement dated August 16, 2010 was entered into between the NHAI and our Subsidiary, IRBTC. The project was bid on a premium payable to the NHAI of ₹ 1,404.00 million in the first year of operation with a subsequent increment of 5% each year. We received the provisional certificate of completion on July 4, 2014.
In June 2014, pursuant to scheme of premium restructuring approved by the Government, the NHAI approved the rescheduling of the premium payable to the NHAI for this project. Pursuant to the scheme, developers are required to pay the NHAI a premium in a particular year by reference to the extent of revenues left after meeting routine and periodic maintenance costs and debt servicing costs to the lenders. The balance premium payable is to be paid to NHAI as and when surplus cash flows are available after meeting operation and maintenance and debt servicing to lenders during the tenure of the concession with a tail period of one year.
Concession Period: The concession period for this project is 26 years from June 4, 2011, including a construction period of 910 days. Pursuant to the concession agreement and notifications issued to us by relevant regulatory authorities during the specified concession period, we are entitled to collect fees from project highway users, subject to the National Highways Fee Rules. In the event that the actual average road traffic falls short of predetermined target traffic, the concession period may be extended, subject to the payment of a concession fee and a maximum cap on such extension. However, if the actual average road traffic exceeds the target traffic volume, the concession period may be reduced, subject to a floor.
Operation and Maintenance: During the concession period, we are to operate and maintain the facilities relating to this project, and if required, modify, repair or otherwise make improvements to the project highway in accordance with the 107
agreed standards.
Project Cost: The appraised cost of this project was approximately ₹ 11,420.00 million. As of December 31, 2014, the outstanding debt with respect to this project was ₹ 9,276.76 million.
4. Bharuch – Surat NH 8 project
For this project, we were engaged to expand and improve kilometers 198/000 to 263/00 of the Bharuch to Surat section of NH 8 in Gujarat on a BOT basis. We were involved in the expansion of specific sections of the NH 8 into a six-lane highway, improvement of the existing four-lane highway, improvement and widening of both major and minor bridges, construction of cattle crossings, providing junction improvement services, constructing bus bays and bus shelters, providing a rest area and base camp, providing highway lighting, constructing toll plazas and providing road furniture items. We commenced toll collection on this project with effect from September 25, 2009. The project was developed by our Company and our Subsidiaries, IRBPL, ATRPL and ATRFL. The concession agreement dated July 7, 2006, relating to this project was entered into between our Subsidiary, IDAA and the NHAI.
Concession Period: Pursuant to the terms of the concession agreement, we have been granted a concession period of 15 years for this project which is scheduled to expire on January 1, 2022. Pursuant to the concession agreement and certain notifications issued to us by the relevant state authorities, we are entitled to collect toll from the users of the project highway for the duration of the concession period. We are not entitled to collect any toll fees from local personal traffic and local commercial traffic in excess of certain prescribed rates. We are also not permitted to collect any toll fees from certain exempted vehicles. If realizable toll fees in any accounting year fall below a predefined contracted amount as a result of certain political events defined in the concession agreement, the NHAI is required to provide us with shortfall assistance by way of a loan with interest.
Operation and Maintenance: We carry out operation and maintenance of the project to ensure the safe, smooth and uninterrupted flow of traffic during normal operating conditions, minimize disruption to traffic in the event of accidents affecting the safety and use of the project highway, repairing of potholes, cracks, concrete joints, drains, line marking, lighting and signage, and to refurbish tolling systems, hardware and other equipment.
Project Cost: The appraised cost of this project was ₹ 14,090.70 million. As of December 31, 2014, outstanding debt with respect to this project was ₹ 4,418.24 million.
5. Jaipur to Deoli NH 12 project
For this project, we were engaged to expand the existing two-lane road to a four-lane road in the Jaipur to Deoli section of NH 12 (from kilometer 18.70 to kilometer165.00) in Rajasthan under NHDP Phase III on a DBFOT basis with a project grant of ₹ 3,060.00 million. A concession agreement dated December 16, 2009 was entered into between the NHAI and our Subsidiary, IRBJD. The project achieved partial completion on September 27, 2013 and we commenced partial tolling for a project length of 119.75 kilometers on this date. Subsequently, on May 20, 2014, we received the second provisional completion certificate and started collecting toll for a project length of 144.96 kilometers.
Concession Period: The concession period for this project is 25 years commencing from June 14, 2010. Pursuant to the concession agreement and notifications issued to us by relevant regulatory authorities during the specified concession period, we are entitled to collect fees from project highway users, subject to the National Highways Fee Rules. In the event that the actual average road traffic falls short of predetermined target traffic, the concession period may be extended, subject to the payment of a concession fee and a maximum cap on such extension. However, if the actual average road traffic exceeds the target traffic volume, the concession period may be reduced, subject to a floor.
Operation and Maintenance: We carry out the operation and maintenance of this project, and if required, modify, repair or otherwise make improvements to the project highway in accordance with the terms of such agreement with the NHAI.
Project Cost: The appraised cost of this project was approximately ₹ 17,330.00 million. As of December 31, 2014, the outstanding debt with respect to this project was ₹ 9,489.37 million.
6. Thane Bhiwandi Bypass project
For this project, we were engaged to expand the existing two-lane carriageway from Thane to Bhiwindi (from kilometre 108
0/115 to kilometer 23/509) in Maharashtra and to carry out certain other construction activities. A tripartite agreement dated September 21, 1998 was entered into among our Subsidiary, IRBPL, the Government through the Ministry of Surface Transport, and the government of Maharashtra through the PWD. For this project, we paved various lengths of road, paved side shoulders, constructed additional road lanes, widened three minor bridges, constructed a new two lane major bridge, widened an existing bridge on a railway line, constructed a toll plaza and provided road furniture items. Construction work on this project was carried out in two phases with the second phase being completed in December 2003.
Concession Period: We have been granted a concession period of 18 years and six months for this project, which includes a construction period of three years. Our concession period with respect to this project is scheduled to expire on May 13, 2017. Pursuant to the tripartite agreement and certain notifications granted to us by state authorities, during the specified concession period, and since construction was completed with respect to this project, we have been entitled to collect and retain any toll amounts relating to this project. Subject to the toll rates published in the relevant notification by the government of Maharashtra, we are also required to provide toll discounts to certain users and to implement certain toll collection schemes for frequent users, as may reasonably be required from time to time. We are not permitted to amend toll levels upward without the prior written consent of the government of Maharashtra.
Operation and Maintenance: We carry out operation and maintenance of the project to ensure the safe, smooth and uninterrupted flow of traffic during normal operating conditions, minimize disruption to traffic in the event of accidents affecting the safety and use of the project highway, repairing of potholes, cracks, concrete joints, drains, line marking, lighting and signage, and to refurbish tolling systems, hardware and other equipment.
Project Cost: The appraised cost of this project was ₹ 1,040.00 million. As of December 31, 2014, the outstanding debt with respect to this project was ₹ 1,044.17 million on account of securitization of toll revenues.
7. Omallur-Salem-Namakkal NH 7 project
In October 2012, we acquired a 74% equity interest in MVR Infrastructure and Tollways Private Limited, a Project SPV incorporated to expand the existing two-lane road portion of NH 7 from kilometer 207.05 (Salem) to kilometer 248.625 (Namakkal) to four lanes and to improve, operate and maintain the kilometer 199.20 (Omallur) to kilometer 207.05 (Salem) section of NH 7 in Tamil Nadu. The remaining 26% equity interest in MVR Infrastructure and Tollways Private Limited is pledged in our favour and will be acquired on receipt of approval for such acquisition from the NHAI. A concession agreement dated February 16, 2006 was entered into between MVR Infrastructure and Tollways Private Limited and the NHAI.
Concession Period: The concession period for this project is 20 years commencing from August 15, 2006. The Government has issued a notification specifying the toll fee payable by vehicles using the highway. This notification states that the toll fee shall be revised once every year and sets out a formula to calculate toll fees, including certain exemptions for certain categories of vehicles.
Operation and Maintenance: The operations and maintenance activities for this project have been awarded to our wholly owned Subsidiary, MRMPL, for a period of 13 years and four months commencing from April 1, 2013. The concession agreement contemplates that the NHAI could hand over additional highway to MVR Infrastructure and Tollways Private Limited for operation and maintenance. The toll fee for this additional highway would be added to the toll for such existing project highway and MVR Infrastructure and Tollways Private Limited would have to share 80.43% of the fee collected for the additional highway with the NHAI. On May 7, 2010, the NHAI handed over an additional 19.20 kilometer stretch of highway to MVR Infrastructure and Tollways Private Limited, in respect of which MRMPL is carrying out operations and maintenance services.
Project Cost: The appraised cost of this project was ₹ 3,075.99 million. As of December 31, 2014, the outstanding debt with respect to this project was ₹ 2,175.48 million.
8. Talegaon to Amravati NH 6 project
For this project, we were engaged to construct a four-lane road on the Talegaon to Amravati section of NH 6 (from kilometer 100.00 to kilometer 166.725) in Maharashtra under the NHDP Phase III on a DBFOT basis with a project grant of ₹ 2,160.00 million. A concession agreement dated November 18, 2009 was entered into between the NHAI and our Subsidiary, IRBTA. Substantial completion of the project was achieved on April 24, 2013, and we commenced partial tolling on a project length of 53.67 kilometers on this date. We achieved the second provisional completion on 109
March 31, 2014, and commenced tolling on the total project length of 63.695 kilometers on this date.
Concession Period: The concession period for this project is 22 years commencing from September 3, 2010, including a construction period of 910 days. Pursuant to the concession agreement and notifications issued to us by relevant regulatory authorities during the specified concession period, we are entitled to collect fees from project highway users, subject to the National Highways Fee Rules. In the event that the actual average road traffic falls short of predetermined target traffic, the concession period may be extended, subject to the payment of a concession fee and a maximum cap on such extension. However, if the actual average road traffic exceeds the target traffic volume, the concession period may be reduced, subject to a floor.
Operation and Maintenance: During the concession period, we are to operate and maintain the facilities relating to this project, and if required, modify, repair or otherwise make improvements to the project highway in accordance with the terms of such agreement with the NHAI.
Project Cost: The appraised cost of this project was approximately ₹ 8,880.00 million. As of December 31, 2014, the outstanding debt with respect to this project was ₹ 3,970.91 million.
9. Thane Ghodbunder Road project
For this project, we were engaged to improve 14.90 kilometers of the Thane Ghodbunder Road (from Ch. 00/000 to Ch. 14/900) in Maharashtra. The Thane Ghodbunder Road is a major link road connecting Mumbai-Ahmedabad NH 8 to Mumbai-Agra NH 3.
The project agreements relating to this project were entered into between our Subsidiaries, TGTRPL and IRBPL, and the MSRDC. In this project we were required to improve the existing four-lane Thane Ghodbunder Road, provide concrete pavement for four lanes out of the existing six-lane road for a length of 7.10 kilometers, and for six out of the existing ten-lane road for a length of 7.10 kilometers, provide four junction improvement services, construct 31 bus bays and 80 utility ducts, engage in landscaping activities, construct toll plazas and provide road furniture items. Construction work on this project was completed on June 23, 2007.
Concession Period: We have been granted a concession period of 15 years for this project which period is scheduled to expire on December 23, 2020. We commenced toll collection with respect to this project on December 24, 2005. Pursuant to the project agreements and certain notifications issued to us by state authorities, we are entitled to collect tolls from the users of the project facility during the concession period. Under certain circumstances, the toll notifications provide for the revision of the toll amounts that we are permitted to collect. However, in some instances, we are required to pass on to the MSRDC any increase in the income that we may derive from an increase in toll rates over and above the stipulated toll rates. We are not permitted to collect any tolls in relation to certain exempt vehicles.
Operation and Maintenance: We are also responsible for the operation and maintenance of the project facility for the duration of the concession period. The scope of our operation and maintenance obligations for this project include carrying out all command and control functions, monitoring road inspection programs, making payment of all electricity, water and other charges, maintaining the safety of moving traffic, maintaining cleanliness and security on the project facility.
Project Cost: The appraised cost of this project was ₹ 2,462.80 million. As of December 31, 2014, the outstanding debt with respect to this project was ₹ 1,309.79 million.
10. Pune – Nashik NH 50 project
For this project, we were engaged to expand an existing stretch of the Pune-Nashik road (NH 50) in Maharashtra into four lanes and strengthen a further 29.81 kilometer stretch (from kilometer 12/190 to kilometer 42/000) of the road on a BOT basis. The Pune-Nashik project was awarded to a consortium comprising our Subsidiary, IRBPL and Mudajaya Corporation Berhad.
The concession agreement dated August 25, 2003 was entered into between our Subsidiary, ATRFL and the Government through the MoRTH. For this project, we extended the existing highway into a four lane highway, have constructed major bridges, widened minor bridges relating to the project, built-up gutters, and constructed foot-paths, implemented lane markings, constructed toll plazas, and provided road furniture items. Construction work on this project was completed in December 2005. 110
Concession Period: We have been granted a concession period of 18 years for this project which period is scheduled to expire on September 24, 2021. Pursuant to the concession agreement and certain notifications issued to us by state authorities, during the specified concession period, and since construction was completed with respect to this project, we have been entitled to collect and retain any toll amounts relating to this project. Subject to the toll rates published in the relevant notification by the Government, under the concession agreement, we are also permitted to formulate, publish and implement certain toll collection schemes for frequent users of the Pune-Nashik road, as may reasonably be required from time to time. We are not permitted to collect any tolls from certain exempt vehicles.
Operation and Maintenance: During the concession period, we are to operate and maintain the facilities relating to this project. Within the scope of our operation and maintenance obligations, we are required to maintain standards of operation and maintenance that generally conform to the latest version of the manual of maintenance of roads published by the Indian Roads Congress.
Project Cost: The appraised cost of this project was ₹ 737.00 million. As of December 31, 2014, the outstanding debt with respect to this project was nil.
11. Pune – Solapur Road NH 9 project
For this project, we were engaged to expand an existing road into four lanes and develop a cumulative 26 kilometer stretch (from kilometer 14/000 to kilometer 40/000) of the Pune-Solapur road (NH 9) in Maharashtra on a BOT basis. The Pune-Solapur project was awarded to a consortium comprising our Subsidiary, IRBPL and Mudajaya Corporation Berhad.
The concession agreement dated February 20, 2003, relating to this project was entered into between our Subsidiary, ATRPL and the Government through the MoRTH. For this project, we expanded the existing highway into four lanes, widened certain bridges, constructed foot paths, built-up gutters, implemented lane markings, constructed toll plazas, and provided adequate road furniture. Construction work on this project was completed in December 2004.
Concession Period: We have been granted a concession period of 16 years for this project, which includes a construction period of two years. Our concession period with respect to this project is scheduled to expire on March 19, 2019. Pursuant to the concession agreement and certain notifications issued to us by state authorities, during the specified concession period, and since construction was completed with respect to this project, we have been entitled to collect and retain any toll amounts relating to this project. Subject to the toll rates published in the relevant notification by the Government, under the concession agreement, we are also permitted to formulate, publish and implement certain toll collection schemes for frequent users, as may reasonably be required from time to time. We are not permitted to collect any tolls from certain exempt vehicles.
Operation and Maintenance: We also carry out operations and maintenance in relation to this project. We are required to undertake routine maintenance of the project road, maintain and comply with safety standards to ensure smooth and safe traffic movement, deploy adequate human resources for toll collection activity and incident management, maintain proper medical and sanitary arrangements for personnel deployed at the site, prevent any unauthorized entry to and exit from the project.
Project Cost: The appraised cost of this project was ₹ 630.00 million. As of December 31, 2014, the outstanding debt with respect to this project was nil.
12. Ahmednagar-Karmala-Temburni SH 141 project
For this project, we were engaged to improve a 60 kilometer stretch of the Ahmednagar-Karmala Temburni Road on State Highway No. 141 (from kilometer 80/600 to kilometer 140/080) in Maharashtra. A tripartite agreement dated November 28, 2001 relating to this project has been entered into between our Subsidiaries, NKT and IRBPL, and the government of Maharashtra through the PWD. Within the scope of this project, we were responsible for widening the subject highway, widening and reconstructing minor bridges, providing junction improvement services, constructing bus bays, constructing toll plazas, and providing road furniture items. The stipulated construction completion time of this project was 30 months. We completed construction of this project nine months ahead of schedule in August 2003.
Concession Period: We have been granted a concession period of 15 years for this project which period is scheduled to expire on December 11, 2016. Pursuant to the tripartite agreement, we are entitled to collect and retain the toll amount 111
specified in the Bombay Motor Vehicles Tax Act, 1958. We are required to submit monthly statements of daily toll collection and are not permitted to raise tolling levels without the prior approval of the PWD. The government of Maharashtra has reserved the right to reduce the toll rates up to 10% of the prevailing toll rates in consultation with us at any time once during the concession period. If we are not able to collect any toll or if the toll collection is drastically reduced below 20% of normal toll collections due to any reason beyond our control, such as transporters’ strike, riots, civil commotion, closure of bridges, for more than 24 hours, the government of Maharashtra has agreed to compensate us for such deficit in toll collection, with interest at a rate equivalent to the prime lending rate of the State Bank of India. In the event that the government of Maharashtra takes over the project facility at any time during the concession period, we are entitled to compensation for the unrecovered amount calculated on the basis of the project cashflow assumptions submitted by us at the time of the bid. This payment is to be made in installments to be determined by the relevant authority appointed by the Government.
Operation and Maintenance: We are also responsible for the operation and maintenance of this project. The scope of our operation and maintenance duties include the obligation to take suitable corrective measures for the rectification of any defects in the road surface and for the carrying out of pothole filling, patchwork repairs and other protective works promptly.
Project Cost: The appraised cost of this project was ₹ 368.00 million. As of December 31, 2014, the outstanding debt with respect to this project was nil.
13. Bridge across River Patalganga project
For this project, we were engaged to construct a bridge over the Patalganga river and a rail bridge near Village Kharpada on NH 17 (the Mumbai-Goa route) in Maharashtra. An agreement dated November 29, 1997 relating to this project was entered into between our Subsidiary, IRBFL, the Government through the MoRTH and the government of Maharashtra through the PWD. We constructed a 1,400 meter high-level bridge across the river Patalganga, constructed approach roads to the bridge, widened the footpath relating to the bridge, and constructed a six lane toll plaza for the project. The stipulated construction completion time of the project was 24 months. We completed construction of this project in 18 months in July 1999.
Concession Period: We have been granted a concession period of 17 years and 9 months for this project which is scheduled to expire on August 28, 2015. Further, pursuant to the agreement and certain notifications issued to us by state authorities, during the concession period, we are entitled to collect and retain tolls relating to the project. Since April 1, 2001, the toll amounts that we have been permitted to collect have been calculated on the basis of a base toll rate, as adjusted annually for an increase or decrease in the all India wholesale price index specified by the Reserve Bank of India for the previous year.
Operation and Maintenance: During the concession period, we are also responsible for maintenance work for the project. The specifications for repair and maintenance items are similar to the work specifications for construction that are provided in the project agreements.
Project Cost: The appraised cost of this project was ₹ 320.00 million. As of December 31, 2014, the outstanding debt with respect to this project was nil.
14. Mohol-Kurul-Kamti-Mandrup SH 149 project
For this project, we were engaged for the purposes of implementing improvements and strengthening the Mohol-Kurul- Kamti-Mandrup road (from kilometer 66/000 to kilometer 99/000) in the Solapur District of Maharashtra. A tripartite agreement dated May 29, 2002 relating to this project was entered into among our Subsidiaries, MMK and IRBPL, and the government of Maharashtra through the PWD. Under this agreement, we were required to widen the existing highway, provide black-top treatment, construct new structures (drains and minor bridges), develop junctions, construct bus bays, and provide toll plazas. We completed construction of this project in September 2003, approximately six months ahead of its scheduled completion date.
Concession Period: We have been granted a concession period of 16 years for this project which period is scheduled to expire on May 28, 2018. Pursuant to the tripartite agreement, during the specified concession period and since construction was completed with respect to this project, we have been entitled to collect and retain any toll amounts relating to this project as per the Bombay Motor Vehicles Tax Act, 1958. We are required to submit monthly statements of daily toll collection and we are not entitled to increase the toll rates without the permission of the PWD. 112
The government of Maharashtra may reduce the toll rates in consultation with us at any time once during the concession period up to 10% of the prevailing toll rates. In such event, the remaining concession period may be adjusted based on the vehicle flow assumptions submitted by us at the time of our bid.
Operation and Maintenance: During the concession period, we are required to operate and maintain the facility until it is handed over to the government of Maharashtra. The scope of our maintenance and operation obligations includes the maintenance and repairs of electrical and other installations and payment of energy bills, corrective measures for rectification of road surface, camber and super elevation, filling in potholes, maintaining the embankment, shoulders and road side drains.
Project Cost: The appraised cost of this project was ₹ 180.00 million. As of December 31, 2014, the outstanding debt with respect to this project was nil.
15. Integrated Road Development Project, Kolhapur
For this project, we were engaged to implement an integrated road development program in Kolhapur in Maharashtra on a BOT basis. Construction activity on this project commenced on January 9, 2009. We have undertaken all design, engineering, financing, procurement, construction, completion, operation and maintenance of the project roads, including improvement, operation and maintenance, and toll collection related to the road development program. A concession agreement dated July 10, 2008 was entered into among the MSRDC, Kolhapur Municipal Corporation (“KMC”) and our Subsidiary, IRBK.
We received the provisional completion certificate for this project on October 10, 2011 and subsequently a toll fee notification was issued on December 17, 2011. However, the locals of Kolhapur city protested against the commencement of toll collection. Pursuant to an order of the Supreme Court of India, we resumed toll collection in May 2014. For further details, please see the section titled “Legal Proceedings”.
Concession Period: The concession period for the project is 30 years and is scheduled to expire on January 8, 2039. Pursuant to the concession agreement and certain notifications issued to us by state authorities, during the specified concession period, we will be entitled to collect and retain any toll amounts relating to this project. We were entitled to collect toll on all nine entry points of the road infrastructure under this project following completion of construction of specified project milestones. Residents of the city of Kolhapur travelling within the city limits are not required to pay toll, only vehicles entering or leaving the city limits are required to do so.
Operation and Maintenance: Pursuant to the concession agreement, we are to operate and maintain the facilities relating to this project, and if required, modify, repair or otherwise make improvements to the project highway. Within the scope of our operation and maintenance obligations, we are required to maintain standards of operation and maintenance that comply with an inspection, maintenance and repair manual.
Project Cost: The appraised cost of this project was ₹ 4,300.50 million. As of December 31, 2014, the outstanding debt with respect to this project was ₹ 2,455.74 million.
16. Amritsar to Pathankot NH 15 project
For this project, we were engaged to expand the existing two-lane road into a four-lane road from kilometer 6.08 to kilometer 108.50 (approximately 102.42 kilometers) on the Amritsar to Pathankot section of NH 15 in Punjab on a BOT basis with a project grant of ₹ 1,269.00 million. A concession agreement dated November 16, 2009 was entered into between the NHAI and our Subsidiary, IRBPA. We received a provisional certificate and started toll collection on this project with effect from November 28, 2014.
Concession Period: The concession period for this project is 20 years commencing from December 31, 2010, including a construction period of 910 days. Pursuant to the concession agreement and notifications issued to us by relevant regulatory authorities during the specified concession period, we are entitled to collect fees from project highway users, subject to the National Highways Fee Rules. In the event that the actual average road traffic falls short of predetermined target traffic, the concession period may be extended, subject to the payment of a concession fee and a maximum cap on such extension. However, if the actual average road traffic exceeds the target traffic volume, the concession period may be reduced, subject to a floor.
Operation and Maintenance: During the concession period, we are to operate and maintain the facilities relating to this 113
project, and if required, modify, repair or otherwise make improvements to the project highway in accordance with the terms of such agreement with the NHAI.
Project Cost: The appraised cost of this project was ₹ 14,453.10 million. As of December 31, 2014, the outstanding debt with respect to this project was ₹ 9,723.49 million.
Projects under Construction
The following table sets out certain key details of our road BOT projects “under construction”:
Project Client State Length of the Approximate Concession project (in project cost as period1 kilometers) appraised by the Lenders (₹ in Millions) Ahmedabad to Vadodara NH NHAI Gujarat 195.60 48,800.00 25 years 8 and NE-1 project
Goa/Karnataka Border to NHAI Karnataka 189.60 26,390.00 28 years Kundapur NH 17 project
Solapur to Yedeshi NH 211 NHAI Maharashtra 98.72 14,920.00 29 years project
Note: 1. Where provided for under the terms of the relevant project agreements entered into in connection with the projects, our concession period may be extended in certain defined circumstances.
Our current road BOT infrastructure projects “under construction” are briefly discussed below:
1. Ahmedabad to Vadodara NH 8 and NE-1 project
For this project, we have been engaged to expand the Ahmedabad to Vadodara section of NH 8 kilometer 6.40 to kilometer 108.70) in Gujarat from two to six lanes and to undertake improvements of an existing section of NE-1 kilometer 0.00 to kilometer 93.30) in Gujarat under NHDP Phase V on a DBFOT basis. A concession agreement dated July 25, 2011 was entered into between the NHAI and our Subsidiary, IRBAV. This project was bid on a premium of ₹ 3,096.00 million payable to the NHAI in the first year from appointed date with an increment of 5% every year. The project achieved financial closure in February 2012. We have been collecting toll on the NE-1 section of project since January 1, 2013 and will be entitled to collect toll on NH 8 on completion of the expansion of the Ahmedabad to Vadodara section of NH 8 (kilometer 6.40 to kilometer 108.70) to six lanes.
Concession Period: The concession period for this project is 25 years commencing from January 1, 2013 including a construction period of 1,095 days. Pursuant to the concession agreement and notifications issued to us by relevant regulatory authorities during the specified concession period, we are entitled to collect fees from project highway users, subject to the National Highways Fee Rules. In the event that the actual average road traffic falls short of predetermined target traffic, the concession period may be extended, subject to the payment of a concession fee and a maximum cap on such extension. However, if the actual average road traffic exceeds the target traffic volume, the concession period may be reduced, subject to a floor.
Operation and Maintenance: During the concession period, we are to operate and maintain the facilities relating to this project, and if required, modify, repair or otherwise make improvements to the project highway in accordance with the terms of such agreement with the NHAI.
Pursuant to a scheme of premium restructuring approved by the Government, the NHAI has approved the rescheduling of the premium payable to the NHAI for this project in June 2014. Pursuant to the scheme, developers are to pay the NHAI a premium in a particular year by reference to the extent of revenues left after meeting routine and periodic maintenance costs and debt servicing costs to the lenders. The balance premium payable is payable to the NHAI as and when surplus cash flows are available after meeting operation and maintenance costs and debt servicing costs to lenders during the tenure of the concession with a tail period of one year. 114
Project Cost: The appraised project cost is estimated to be ₹ 48,800.00 million. As of December 31, 2014, we have incurred a project cost of ₹ 37,695.25 million.
2. Goa/Karnataka Border to Kundapur NH 17 project
For this project, we have been engaged to expand a stretch of the Goa/Karnataka Border to Kundapur section of NH 17 (kilometer 93.70 to kilometer 283.30) in Karnataka from two to four lanes under NHDP Phase IV on a DBFOT basis. A concession agreement dated March 25, 2013 was entered into between the NHAI and our Subsidiary, IRB Westcoast. The NHAI is required to give us a grant of ₹ 5,362.20 million for this project during the construction period.
Concession Period: The concession period for this project is 28 years commencing from March 3, 2014, including a construction period of 910 days. Pursuant to the concession agreement and notifications issued to us by relevant regulatory authorities during the specified concession period, we are entitled to collect fees from project highway users, subject to the National Highways Fee Rules and certain government notifications. In the event that the actual average road traffic falls short of predetermined target traffic, the concession period may be extended, subject to the payment of a concession fee and a maximum cap on such extension. However, if the actual average road traffic exceeds the target traffic volume, the concession period may be reduced, subject to a floor.
Operation and Maintenance: During the concession period, we are to operate and maintain the facilities relating to this project, and if required, modify, repair or otherwise make improvements to the project highway in accordance with the terms of such agreement with the NHAI.
Project Cost: The appraised project cost is estimated to be ₹ 26,390.00 million. As of December 31, 2014, we have incurred a project cost of ₹ 7,597.63 million.
3. Solapur to Yedeshi NH 211 project
For this project, we have been engaged to expand the Solapur to Yedeshi section of NH 211 (kilometer 0.00 to kilometer 100.00) in Maharashtra from two to four lanes under NHDP Phase IV on a DBFOT basis. A concession agreement dated March 3, 2014 was entered into between the NHAI and our Subsidiary, SYTPL. We are to receive a project grant of ₹ 1,890.00 million for this project during the construction period.
Concession Period: The concession period for this project is 29 years commencing from August 28, 2014, including a construction period of 910 days. Pursuant to the concession agreement and notifications issued to us by relevant regulatory authorities during the specified concession period, we are entitled to collect fees from project highway users, subject to the National Highways Fee Rules. In the event that the actual average road traffic falls short of predetermined target traffic, the concession period may be extended, subject to the payment of a concession fee and a maximum cap on such extension. However, if the actual average road traffic exceeds the target traffic volume, the concession period may be reduced, subject to a floor.
Operation and Maintenance: During the concession period, we have agreed to operate and maintain the facilities relating to this project, and if required, modify, repair or otherwise make improvements to the project highway in accordance with the terms of such agreement with the NHAI.
Project Cost: The appraised project cost is estimated to be ₹ 14,920.00 million. As of December 31, 2014, we have incurred a project cost of ₹ 3,058.37 million.
Projects under Development
The following table sets out certain key details of our road BOT projects “under development”:
Project Client State Length of the Approximate Concession project (in project cost as period1 kilometers) appraised by Lenders (₹ in Millions) Yedeshi to Aurangabad NHAI Maharashtra 189.09 31,770.00 26 years NH 211 project 115
Kaithal to Rajasthan NHAI Haryana 166.26 22,900.00 27 years Border NH 152/65 project
Mumbai Pune Phase II MSRDC Maharashtra 206.00 Under appraisal 8 years 8 months 2 days
Note: 1. Where provided for under the terms of the relevant project agreements entered into in connection with the projects, our concession period may be extended in certain defined circumstances.
Our current road BOT infrastructure projects “under development” are briefly discussed below:
1. Yedeshi to Aurangabad NH 211 project
For this project, we have been engaged to expand the Yedeshi to Aurangabad section of NH 211 (kilometer 100.00 to kilometer 290.20) in Maharashtra from two to four lanes under NHDP Phase IV-B on a DBFOT basis. A concession agreement dated May 30, 2014 was entered into between the NHAI and our Subsidiary, YATPL. The NHAI is required to give us a project grant of ₹ 5,580.00 million for this project.
Concession Period: The concession period for this project is 26 years, including a construction period of 910 days. Pursuant to the concession agreement and notifications issued to us by relevant regulatory authorities during the specified concession period, we are entitled to collect fees from project highway users, subject to the National Highways Fee Rules. In the event that the actual average road traffic falls short of predetermined target traffic, the concession period may be extended, subject to the payment of a concession fee and a maximum cap on such extension. However, if the actual average road traffic exceeds the target traffic volume, the concession period may be reduced, subject to a floor.
Operation and Maintenance: During the concession period, we are to operate and maintain the facilities relating to this project, and if required, modify, repair or otherwise make improvements to the project highway in accordance with the terms of our agreement with the NHAI.
Project Cost: The appraised project cost is estimated to be ₹ 31,770.00 million. We recently achieved the financial closure of this project and entered into financing agreements with a consortium of lenders for an aggregate amount of ₹ 17,560.00 million.
2. Kaithal to Rajasthan Border NH 152/65 project
For this project, we have been engaged to expand the Kaithal to Rajasthan/Haryana Border section of NH 152/65 (kilometer 33.25 to kilometer 241.58) in Haryana from two to four lanes under NHDP Phase IV on a DBFOT basis. A concession agreement dated June 23, 2014 was entered into between the NHAI and our Subsidiary, KTPL. The NHAI is required to give us a project grant of ₹ 2,340.00 million for this project.
Concession Period: The concession period for this project is 27 years, including a construction period of 910 days. Pursuant to the concession agreement and notifications issued to us by relevant regulatory authorities during the specified concession period, we are entitled to collect fees from project highway users, subject to the National Highways Fee Rules. In the event that the actual average road traffic falls short of predetermined target traffic, the concession period may be extended, subject to the payment of a concession fee and a maximum cap on such extension. However, if the actual average road traffic exceeds the target traffic volume, the concession period may be reduced, subject to a floor.
Operation and Maintenance: During the concession period, we have undertaken to operate and maintain the facilities relating to this project, and if required, modify, repair or otherwise make improvements to the project highway in accordance with the terms of our agreement with the NHAI.
Project Cost: The appraised project cost is estimated to be ₹ 22,900.00 million. We are in the process of achieving financial closure for this project.
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We have been awarded a project to operate and maintain the Yashwantrao Chavan Mumbai-Pune Expressway and the Mumbai-Pune section of NH 4 in Maharashtra, on a DBFOT basis with toll rights after August 10, 2019. Our offer of a concession period of 8 years, 8 months and 2 days was accepted by the MSRDC and a letter of award was issued to us on September 5, 2014. This project will be implemented by our Subsidiary, MIPL, which is currently operating and maintaining the Yashwantrao Chavan Mumbai-Pune Expressway and the Mumbai-Pune section of NH 4 as part of an earlier concession. A concession agreement dated October 10, 2014 was entered into between us, the MSRDC and our Subsidiary, MIPL.
We are required to make an upfront payment to the MSRDC of ₹ 10,000.00 million in four installments beginning on March 31, 2015 up to August 10, 2019, and must carry out additional works on NH 4 in accordance with the provisions of the concession agreement. Toll collection for the project will commence from August 10, 2019, resulting into an effective tolling period of 4 years, 3 months and 22 days.
General provisions of our road BOT project agreements
The summaries of our road BOT project agreements provided above are not meant to be exhaustive. Certain of our project agreements include provisions that could provide third parties with rights that, if exercised, would adversely affect our business operations and financial conditions. Such rights include:
the right of government entities to take over our road BOT project facilities after providing us with the appropriate compensation; the right of government entities to control the levels of tolls that we are authorized to charge at our projects; the rights of third parties to be indemnified by us under certain circumstances; and “step-in” and substitution rights possessed by certain lenders with respect to our project assets.
Counterparties to the majority of our infrastructure development are government entities, and we have only a limited ability to negotiate the standard terms of government contracts which means that many terms in the agreement tend to favor the client. For example, it is not always clear whether design review and approval by a client releases us from design and engineering liability, in particular latent defects. There are generally no caps on our liability as a contractor, and it is not always clear whether we can be liable for consequential and/or economic loss to a client. Performance guarantees are also common features of our contracts and are typically unconditional and payable on demand, and can be invoked by the client in accordance with the terms of such contracts.
Our Greenfield Airport Development project in Sindhudurg, Maharashtra
For this project, we have been engaged to develop a greenfield airport in the Sindhudurg district in Maharashtra on a DBFOT basis. We are required to design, finance, construct and operate the greenfield airport, including all its buildings, equipment, facilities and systems, and perform certain related airport and non-airport related activities, including provision of services, facilities and equipment in relation to aerodrome control services, airfield lighting and air navigation services, as well as non-airport related services, such as business parks and hotels.
Pursuant to a project development agreement dated September 25, 2009, entered into between the Maharashtra Industrial Development Corporation (“MIDC”) and our Subsidiary, IRBSA, we have been granted a 95-year leasehold interest over an approximate 260-hectare project site on which the greenfield airport is proposed to be constructed. The scheduled completion time for the project is 18 months from the effective date, February 19, 2013, subject to certain adjustments. The project development agreement is valid for a period of 95 years from date of execution of the relevant lease agreement for the project site. Upon the expiry of the term of the agreement, we are required to transfer the site and all assets related to the airport and non-airport activities to the MIDC.
Project Lifecycle of BOT Infrastructure Development Projects
The project life cycle for our BOT infrastructure development projects is discussed below.
We bid for infrastructure projects primarily through a competitive bidding process. Governments and other clients typically advertise proposed projects in leading national newspapers or on their websites. We evaluate available bid opportunities and decide whether we should pursue a particular project based on various factors, including the client’s reputation, the geographic location of the project and the degree of difficulty in executing the project in such location, our current and projected workload, current traffic on the project road and scope for future growth, the likelihood of 117
additional work, the project’s cost and profitability estimates and our competitive advantage relative to other likely bidders. Once we have identified projects that meet our criteria, we submit an application to the client according to the procedures set forth in the relevant advertisement.
We have a centralized tender department that is responsible for applying for all pre-qualifications and tenders. The tender department evaluates our credentials based on the stipulated eligibility criteria. We endeavor to qualify on our own for projects for which we propose to bid. In the event that we do not qualify for a project in which we are interested due to eligibility requirements relating to the size of the project, technical know-how, financial resources or other reasons, we may seek to form strategic alliances or project-specific joint ventures with other experienced and qualified contractors. By using the combined credentials of the cooperating companies our chances of pre-qualifying and winning the bid for the project are enhanced. We believe that by centralizing our tender monitoring and preparation functions, we are able to streamline our bidding processes while effectively managing our current and future resource allocations.
Prequalification
In selecting contractors for major projects, clients generally limit the tender to contractors they have pre-qualified based on several criteria including experience, technological capacity and performance, reputation for quality, safety record, financial strength and bonding capacity and size of previous contracts in similar projects, although price competitiveness of the contractor’s bid is generally the most important selection criterion. Pre-qualification is key to us winning major projects and we continue to develop our pre-qualification status through concentrated marketing efforts aimed at infrastructure development agencies and entities. Our marketing and contracts teams are responsible for our marketing activities. Until the final selection, negotiations continue with the client on matters such as specific engineering and performance parameters, the construction schedule and financial and other contractual terms and conditions. Currently, all major clients circulate annual prequalification tenders to select prospective bidders and allocate the maximum values of single projects which they would be eligible to bid in that year. We have been accordingly prequalified by the NHAI to bid for an individual BOT project with a total project development cost of up to ₹ 53,191.70 million and by Rajasthan State Highways for ₹ 214,035.20 million.
Submitting a Bid
If we pre-qualify for a project, the next step is to submit a financial bid, currently by way of online filing. Prior to submitting a financial bid, we carry out a detailed study of the proposed project, including the technical and commercial conditions and requirements of the tender followed by a site visit. A site visit enables us to determine the site conditions by studying the terrain and access to the site. Thereafter, a local market survey is conducted to assess the availability, rates and prices of key construction materials and the availability of labor and specialist sub-contractors in that particular region. Suppliers and sources of key materials are also visited to assess the availability and quality of such material. Traffic surveys are also conducted to assess the traffic density that exists at the project site in order to assess potential revenues from the project.
We attend pre-bid meetings convened by the clients, during which any ambiguities or inconsistencies in the document issued by the client are highlighted to the client for further clarification. We seek quotations from suppliers and other sub-contractors for various items or activities in respect of the tender. This data supplements the data gathered by the market survey. The information gathered is then analyzed to estimate likely project costs. We then estimate the revenues from the project over the concession period from the traffic survey reports. We use sophisticated estimation systems and financial models to evaluate the costs and benefits of being involved in any specific project. If benefits outweigh costs, we submit a formal financial bid estimate to the client. The bid estimate forms the basis of a project budget against which performance is tracked through a project cost system, enabling management to monitor projects continuously.
Engineering, Procurement and Construction
Typically, subsequent to a successful bid made in accordance with the process described above, our construction division is required to prepare project specific architectural and/or structural designs that adhere to regulatory requirements, procure materials for the relevant project, and effect the actual construction of the project. Our EPC capabilities are integral to the success of our infrastructure development business.
In the construction of any road, detailed engineering is necessary before any actual physical work can be started. Engineering work normally includes work related to project layout, process, control systems and instrumentation, equipment needs planning, and civil works. Designing cost control measures and scheduling are some of our most important pre-construction engineering activities. Through our experience in the roads and highways sector, we believe 118
we have developed expertise in addressing the unique engineering issues that can arise in the roads and highways sector as a result of difficult terrain, extreme climatic conditions and where areas of environmental sensitivity are encountered.
Because material procurement plays such a critical part in the success of any project, we employ experienced personnel to carry out material procurement activities. Our material procurement, tracking and control systems enable effective monitoring for our purchasers. Immediately following engineering design work, the materials required for the particular project are ordered. We typically enter into pre-bid arrangements with suppliers of construction materials required for a project. We source bitumen from third party owned refineries under short term sales agreements. We also use stone aggregate chips quarried from mines licensed to us.
Unlike many of our competitors, we maintain a significant inventory of construction equipment that is owned by our Subsidiary, MRMPL. Owning the equipment that we use in our construction operations enables us to avoid costs involved in hiring significant amounts of construction equipment and, as we are not subject to equipment related construction delays that may be caused by third parties, to complete our projects in a timely manner.
In an EPC contract, our field construction typically commences once the basic engineering and design aspects are finalized and/or other equipment and materials have been ordered. This begins with the mobilization of our key work force and construction machinery to the work site. In construction contracts, the client typically specifies the date by which we are expected to mobilize our work force and machinery to the site.
Construction of roads generally tends to be carried out in remote rural areas as well as through urban areas and can involve difficult terrain such as mountainous areas, forested areas or marshy terrain. Bridges across waterways and similar terrain may also need to be constructed. This makes road construction work extremely challenging and requires the implementation of modern project management techniques and construction methods in order to complete projects in accordance with time schedules and quality specifications. The construction of embankments is one of the most crucial phases in road construction and requires mobilization of various construction equipment such as excavators, dozers and dumpers for earthworks, motor graders for grading and leveling, compacting rollers for compaction of various road layers and pavers for laying crust layers. Emphasis is given to compaction of all structural layers to avoid uneven settlement. The drainage layer over the embankment and both sub-base and base layers of the road requires high volumes of sand and stone aggregate. The logistics of arranging material for these activities are vital to the construction process. The economy of construction of these layers depends largely on availability of material in nearby areas to avoid transportation costs. The top layer of roads is made either of concrete or bitumen mixed with sand and aggregate. The use of sophisticated paving equipment such as sensor pavers and compaction rollers enables preparation of structurally sound top layers of roads and improves ride quality. The construction of cross drainage, bridge works over rivers and canals also forms part of the road construction process. A systemic framework is developed to construct these bridges over pile/open/well foundations and cranes are used to launch bridging slabs. Generally, the specific methodology of construction depends upon the nature of the project.
Equipment
We own a large fleet of construction equipment including crushers, graders, batching plants, and sensor pavers. The main equipment and machinery used in roads and highways projects are stone crushers, granular sub-base screening plant, hot mix plant (batch type and drum type), wet mix plant, electronic sensor paver, mechanical paver, kerb laying machine, concrete batching and mixing plant, weigh batchers, vibro compactor, tandem vibratory roller, front-end wheel loader, bitumen spreaders, rock breakers, sand piling machinery, dozers, automatic road marking machines and tunneling boomers. Most of the equipment relating to road works that we use on our projects is owned by us. In addition, we may be required to mobilize and procure various other equipment from time to time. Equipment asset management is a critical element of timely delivery and quality. Owning a large fleet of equipment enables us to be less dependent on third parties when implementing our various projects. Our large equipment fleet is managed, maintained and operated by our Subsidiary, MRMPL. We believe that our strategic investment in equipment assets is an advantage as it enables rapid mobilization of required equipment on our projects.
Key Processes and Technology
Our clients typically specify the technology and processes for the implementation of the project in the relevant tender documents. These technologies and processes generally include conventional technologies and methods. However, as new technologies and processes come to market, our clients may require us to utilize such new technologies and processes in the construction of our projects. We continue to upgrade the technologies and processes that we utilize to comply with client specifications. 119
Toll Collection Arrangements
Following a successful project bid and the completion of the construction phase of our road BOT projects, we assume the role of the operator of the relevant project during a predetermined concession period. In certain projects, such as in the Surat Dahisar NH 8 project, the Tumkur Chitradurga NH 4 project, and the Ahmedabad Vadodara NE-1 project, on which we were engaged to expand and strengthen the existing highway from four lanes to six lanes, we are entitled to commence toll collection on the existing road infrastructure on commencement of the contract, even though we may not have completed the construction of the expanded road infrastructure. During the concession period, we maintain and manage the road infrastructure and earn revenues through tolls generated from the road infrastructure. The levels of tolls that may be generated from any particular project are usually enumerated in the relevant project agreements that we enter into with government entities or in certain notifications provided to us by government entities. Generally, the government entity that has granted the relevant BOT concession to us unilaterally determines the terms on which we may collect tolling revenues, and in certain cases such terms may be amended by the government entity during the concession period. The terms of tolling are generally specified before calling for the request for proposal and are normally not altered. The tolling rates set by government entities depend on the nature of vehicles that use the roads on our BOT projects as well as various socio-economic goals of the government, and on the perceived benefit derived by the users of the highway as a result of the improvement of the facility. Although business circumstances may materially change over the life of one or more of our infrastructure projects, we may not have the ability to modify our agreements with government entities to reflect these changes or negotiate satisfactory alternate arrangements, except to the extent provided for in the agreements.
Operation and Maintenance Agreements
After construction has been completed on our road BOT infrastructure development projects, and during the concession period that has been granted to us, we are generally responsible for carrying out operation and maintenance activities at our road BOT project sites. The scope of our operation and maintenance activities is usually defined in the relevant road BOT project agreements. Within the scope of our operation and maintenance obligations, we may be required to undertake routine and periodic maintenance of project roads, maintain and comply with safety standards to ensure smooth and safe traffic movement, deploy adequate human resources for incident management, maintain proper medical and sanitary arrangements for personnel deployed at the site, prevent any unauthorized entry to and exit from the project as may be required.
Order Book
As of December 31, 2014, our Order Book was ₹ 91,193.00 million. This comprised ₹ 37,168.00 million of construction under progress and ₹ 54,025.00 million of construction orders to be executed. Our Order Book as of a particular date consists of estimated revenue from unexecuted or uncompleted portions of our “existing contracts”, i.e., the total contract value of such “existing contracts” as reduced by the value of construction work executed until such date. In our Order Book, “existing contracts” include only construction of a BOT project, for which we have received a letter of award, irrespective of whether or not definitive contracts have been executed for such projects as of such date. Order Book information provided by us is not audited or reviewed by our auditors and does not necessarily indicate future earnings related to the performance of such contracts. If we do not achieve our expected margins or suffered losses on one or more of these contracts, this could reduce our income or cause us to incur a loss.
Although projects in our Order Book represent business that we consider firm, cancellations or scope adjustments may occur. Due to changes in project scope and schedule, we cannot predict with any certainty when or if the projects in our Order Book will be performed and will generate revenue. In addition, even where a project proceeds as scheduled, it is possible that contracting parties may default and fail to pay amounts owed or dispute the amounts owed to us. There may also be delays associated with collection of receivables from clients. Any delay, cancellation or payment default could adversely affect our cash flow position, revenues or profits, and adversely affect the trading price of our Equity Shares. Investors are cautioned against placing undue reliance on the information relating to our Order Book included in this Preliminary Placement Document. See “Risk Factors – Information relating to our Order Book may not be representative of our future results. If we do not achieve expected turnover or margins, or suffer losses or termination or cancellation of one or more of the contracts in our Order Book, we may incur losses or our total revenue could be adversely affected.”
The following table summarizes our Order Book as at December 31, 2014:
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Project Total Contract Value of Balance Value construction amount as of work executed as December 31, (₹ in millions) of December 31, 2014 2014 (₹ in millions) (₹ in millions)
BOT projects under operation/construction
3,500.00 335.00 3,165.00 Sindhudurg Airport 35,280.00 31,358.00 3,922.00 Ahmedabad Vadodara NH8 and NE-1 project 23,010.60 4,493.00 18,517.60 Goa Kundapur NH 17 project 12,780.00 1,216.60 11,563.40 Solapur Yedeshi NH 211 project
BOT projects yet to commence construction
27,540.00 - 27,540.00 Yedeshi Aurangabad NH 211 project 19,620.00 - 19,620.00 Kaithal to Rajasthan Border NH 152/65 project 6,865.00 - 6,865.00 Mumbai Pune Phase II
Total 128,595.60 37,402.60 91,193.00
Our Wind Energy Business
Our wind energy business is operated through our Subsidiary, MRMPL. We currently own and operate 16 wind turbine generators with an aggregate installed capacity of 20 MW in Jaisalmer, Rajasthan. Pursuant to a sublease deed dated August 10, 2009 between MRMPL and Suzlon Gujarat Wind Park Limited, MRMPL has sub-leased government land measuring 12.96 hectares for a period of 19 years for our wind farm.
We have entered into a power purchase agreement on September 15, 2008 with Jodhpur Vidyut Vitran Nigam Limited (“JVNL”) and Suzlon Energy Limited, which provides for the sale of electricity produced at our wind farm to JVNL for a period of 20 years from the commercial operation date, at tariffs specified by the Rajasthan Electricity Regulatory Commission. The agreement may be terminated by us in the event of default by JVNL by reason of non-payment of electricity charges for a consecutive three month period and JVNL is entitled to terminate the agreement in the event of non-supply and delivery by us of total net electricity generated for a period of three months for reasons exclusively attributable to us.
Real Estate
We are developing a hotel on 30,000 sq.m of land leased to us at Kolhapur, Maharashtra in connection with our Kolhapur Integrated Road Development project. We also currently own certain parcels of land situated in Mouje Taje and Mouje Pimploli in District Pune. See also “Legal Proceedings” and “Risk Factors―We have a limited operating history in the real estate, hotel and airport development business, which may make it difficult for you to assess our past performance and future prospects.”
Competition
We face competition from both domestic and international entities in the roads and highways infrastructure sector, as
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most of the contracts awarded by the Government and state governments are awarded on a competitive bidding basis and satisfaction of other prescribed pre-qualification criteria. While service quality, technological capacity and performance, health and safety records and personnel, as well as reputation and experience, are important considerations in client decisions, price is a major factor in most tender awards. Our ability to bid for and win major infrastructure development projects is also dependent on our ability to show experience in executing large projects, demonstrate that we have strong engineering capabilities in executing technically complex projects, and that we have sufficient financial resources and/or ability to access funds.
Our competitors include other construction and infrastructure development companies such as Larsen & Toubro Limited, Reliance Infrastructure Limited, Gammon India Limited, GMR Infrastructure Limited, Punj Lloyd Limited, IL&FS Transportation Networks Limited, Nagarjuna Construction Company Limited, Sadbhav Engineering Limited and Ashoka Buildcon Limited. We also face competition from smaller, regional contractors in our construction business.
Health, Safety and Environment
We believe that we are in compliance, in all material respects, with applicable health, safety and environmental regulations and other requirements in our operations and also maintain adequate workmen’s compensation, group medical insurance and personal accident insurance policies. We believe that accidents and occupational health hazards can be significantly reduced through a systematic analysis and control of risks and by providing appropriate training to management, employees and sub-contractors. Project managers appointed by us for a project are principally responsible for ensuring that safety standards are met at the relevant project sites.
Intellectual Property
We use the “IRB” trademark in our business which has been registered in our Company’s name in Class 37 under the Trademarks Act of 1999, as amended.
Property
Our corporate office is located in Mumbai from which we conduct all our administrative and reporting activities. We either own or lease various commercial premises in connection with our corporate, administrative or project-related functions. We typically lease various premises across India to facilitate our work at various project sites. These leases usually expire upon completion of the relevant project. Most of our owned properties are mortgaged and security (in the form of charges) is usually created in favor of our lenders.
Insurance
Our operations are subject to hazards inherent in providing engineering and construction services, such as risk of equipment failure, work accidents, fire, earthquake, flood and other force majeure events. This includes hazards that may cause injury and loss of life, damage and destruction of property, equipment and environmental damage. Our principal types of insurance coverage include all risk insurance policies, fire insurance, personal accident coverage insurance, money insurance, plant and machinery insurance as well as transit insurance. We also maintain workmen’s compensation policies. Insurance during the construction phase typically includes the following:
Comprehensive all risk policy for construction activities during the construction period covering all risks associated with construction;
Third party liability insurance;
Workmen’s compensation Plant and equipment insurance including transit insurance;
Motor own damage and liability / Contractor’s plant and machinery and third party liability insurance.
Human Resources
As of December 31, 2014, we had approximately 5,829 permanent employees of which 479 employees were engineers. 122
We also use contract labor and are therefore also partially dependent on the availability of a sufficient pool of such labor to execute our infrastructure development and construction projects. The number of contract laborers employed by us varies from time to time based on the nature and extent of work being undertaken. We enter into contracts with independent contractors to complete specified assignments on our projects.
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REGULATIONS AND POLICIES The following description is a summary of certain sector specific laws and regulations as prescribed by the Government of India (“GoI”) or state Governments which are applicable for our Company and its subsidiaries. The information detailed in this chapter has been obtained from publications available in the public domain. The regulations set out below are not exhaustive, and are only intended to provide general information to the investors and is neither designed nor intended to be a substitute for professional legal advice.
Regulation of the Road Sector
The primary central legislations governing the roads sector are the National Highways Act, 1956 (“NH Act”) and the National Highways Authority of India Act, 1988 (“NHAI Act”).
NHAI Act
National Highways Authority of India (NHAI) was constituted by the NHAI Act, to develop, maintain and manage the National Highways, vested or entrusted to it by the Central Government. It became operational in February, 1995. The Central Government provides the capital to the Authority required for discharging its functions. It provides for the constitution of a fund called as the National Highways Authority of India Fund. The Central Government, in public interest, may entrust the development, maintenance or management of any national highway or a part thereof to any Authority who shall be bound to comply with such direction for such period. However, the Central Government would supersede the Authority, in case of its inability to discharge the functions, default in compliance with any direction or if it is necessary in public interest.
NH Act
Under the NH Act, the GoI is vested with the power to declare a highway as a national highway and also to acquire land for this purpose. The GoI may, by notification, declare its intention to acquire any land when it is satisfied that for a public purpose such land is required to be acquired for the building, maintenance, management or operation of a national highway or part thereof. The NH Act prescribes the procedure for such land acquisition which inter alia includes entering and inspecting such land, hearing of objections and declaration of such acquisition and the mode of taking possession. The NH Act also provides for payment of compensation to owners and any other person whose right of enjoyment in that land has been affected.
The GoI is responsible for the development and maintenance of national highways. However, it may, by notification in the official gazette, direct that such functions may also be exercised by governments of the states in which the highway is located, or by any officer or authority sub-ordinate to the GoI or to the state government. Notwithstanding the aforesaid provision, the GoI has the power to enter into an agreement with any person for the development and maintenance of a part or whole of a national highway. Such person would have the right to collect and retain fees at such rates as may be notified by the GoI having regard to the expenditure involved in building, maintenance, management and operation of the whole or part of such national highway, interest on the capital invested, reasonable return, the volume of traffic and the period of the agreement. The National Highways Fee (Determination of Rates and Collection) Rules, 2008 (“NH Fee Rules”) further provide procedure for technical approval and financial sanction by the GoI or executive agency and related reporting for execution of works in relation to the operation and maintenance of national highways.
NH Fee Rules
The NH Fee Rules regulates the collection of fee for the use of national highway. The NH Fee Rules supersede the National Highways (Temporary Bridges) Rules, 1964, the National Highways (Collection of Fees by any Person for the Use of Section of National Highways/ Permanent Bridge/ Temporary Bridge on National Highways) Rules, 1997 (the “1997 Fee Rules”), the National Highways (Fees for the use of National Highways Section and Permanent Bridges – Public Funded Project) Rules, 1997 and the National Highways (Rate of Fees) Rules, 1997 other than in respect of things done or omitted to be done under such rules prior to supersession. The NH Fee Rules do not apply to the concession agreements executed or bids invited prior to the publication of such rules i.e. prior to December 5, 2008.
Pursuant to the NH Fee Rules, GoI may, by a notification, levy fee for use of any section of a national highway, ‘permanent bridge’, bypass or tunnel forming part of a national highway, as the case may be. However, GoI may, by notification, exempt any section of a national highway, ‘permanent bridge’, bypass or tunnel constructed through a public funded project from levy of fees.
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The collection of fee shall commence within 45 days from the date of completion of the section of a national highway, ‘permanent bridge’, bypass or tunnel constructed through a public funded project. The NH Fee Rules further provides for the base rate of fees applicable for the use of a section of the national highway and applicable to different categories of vehicles. The base rate shall be increased, without compounding, by 3% each year with effect from April 1, 2008 and such increased rate will be deemed to be the base rate for the extension of fees in the subsequent years. The NH Fee Rules also provide for, inter alia, an annual revision of the base rate of fees with effect from April 1st each year to reflect the increase in the WPI between the week ending on January 6, 2007 and WPI for the month of December of the year in which such revision is undertaken but such revision shall be restricted to a 40% of the increase in WPI. The various modalities for collection of fee are also outlined in the NH Fee Rules. Under the 1997 Fee Rules (which are applicable to concession agreements executed prior to December 5, 2008), the GoI may enter into an agreement with any person for the development and maintenance of the whole or any part of a national highway, ‘permanent bridge’ or temporary bridge on a national highway and such person is entitled to collect at such rate and for such period as may be notified by GoI.
Indian Tolls Act, 1851
Pursuant to the Indian Tolls Act, 1851, the state governments have been vested with the power to levy tolls at such rates as they deem fit, to be levied upon any road or bridge, made or repaired at the expense of the Central or any state government. The tolls levied under the Indian Tolls Act, 1851, are deemed to be ‘public revenue’. The collection of tolls can be placed under any person as the state governments deem fit under the said act and they are enjoined with the same responsibilities as if they were employed in the collection of land revenue. Further, all police officers are bound to assist the toll collectors in the implementation of the Indian Tolls Act, 1851. The Indian Tolls Act, 1851 further gives power for recovery of toll and exempts certain category of people from payment of toll.
Provisions under the Constitution of India and other legislations in relation to collection of toll
Entry 59, List II of Schedule VII read with Article 246 of the Constitution of India vests the states with the power to levy tolls. Pursuant to the Indian Tolls Act, 1851, the State Governments have been vested with the power to levy tolls at such rates as they deem fit.
Financing of the National Highways Development Project (“NHDP”)
The Government of India, under the Central Road Fund Act, 2000 (“Fund”) created a dedicated fund for NHDP. Certain sources for financing of NHDP are through securitization of cess as well as involving the private sector and encouraging Public Private Partnership (“PPP”). The NHDP is also being financed through long-term external loans from the World Bank, the Asian Development Bank and the Japan Bank for International Cooperation as well as through tolling of roads.
Private Participation in NHDP
In an effort to attract private sector participation in the NHDP, the NHAI has formulated model concession agreements where a private entity (the “Concessionaire”) is awarded a concession to build, operate and collect toll on a road for a specified period of time, which is usually up to 30 years.
The bidding for the projects takes place in two stages as per the process provided below:
in the pre-qualification stage, NHAI selects certain bidders on the basis of technical and financial expertise, prior experience in implementing similar projects and previous track record; and
in the second stage, NHAI invites commercial bids from the pre-qualified bidders on the basis of which the right to develop the project is awarded.
In a BOT project, the private entity meets the up front cost and expenditure on annual maintenance and recovers the entire cost along with the interest from toll collections during the concession period. To increase the viability of the projects, a capital grant is provided by the NHAI/GoI on a case to case basis. The concessionaire at the end of the concession period transfers the road back to the Government. The concessionaire’s investment in the road is recovered directly through user fees by way of tolls.
In annuity projects, the private entity is required to meet the entire upfront cost (no grant is paid by NHAI/GoI) and the expenditure on annual maintenance. The concessionaire recovers the entire investment and predetermined return on
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investments through annuity payments by NHAI/GoI.
Tax incentives which are being provided to the private entity are 100% tax exemption for any consecutive ten years out of the first 20 years after completion of a project. The Government has also allowed duty free import of specified modern high capacity equipment for highway construction.
Other Laws
The laws above are specific to the regulations specifically applicable to an operating business. The generic regulations that are applicable to our Company include environmental laws, labour laws and other applicable laws.
Environment Regulation
Infrastructure projects must also ensure compliance with environmental legislation such as the Water (Prevention and Control of Pollution) Act 1974 (“Water Pollution Act”), the Air (Prevention and Control of Pollution) Act, 1981 (“Air Pollution Act”) and the Environment Protection Act, 1986 (“Environment Act”).
The Water Pollution Act aims to prevent and control water pollution. This legislation provides for the constitution of a Central Pollution Control Board and State Pollution Control Boards. The functions of the Central Pollution Control Board include, inter alia, coordination of activities of the State Pollution Control Boards, collecting data relating to water pollution and the measures for the prevention and control of water pollution and prescription of standards for streams or wells. The State Pollution Control Boards are responsible for, inter alia, the planning for programmes for 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, laying down or annulling the effluent standards for trade effluents and for the quality of the receiving waters, 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 effluent into a stream, well or sewer, or bring into use any new or altered outlet for discharge of sewage, or being to make any new discharge of sewage without taking prior consent of the State Pollution Control Board.
The Central and State Pollution Control Boards constituted under the Water Pollution Act are also to perform functions as per the Air Pollution Act for the prevention and control of air pollution. The Air Pollution Act aims for the prevention, control and abatement of air pollution. It is mandated under this Act that no person can, without the previous consent of the State Pollution Control Board, establish or operate any industrial plant in an air pollution control area as notified by the State Government.
The Environment Act has been enacted for the protection and improvement of the environment. The Act empowers the GoI to take measures to protect and improve the environment such as by laying down standards for emission or discharge of pollutants, providing for restrictions regarding areas where industries may operate and so on. The GoI may make rules for regulating environmental pollution.
With respect to forest conservation, the Forest (Conservation) Act, 1980 prevents state governments from making any order directing that any forest land be used for a non-forest purpose or that any forest land is assigned through lease or otherwise to any private person or corporation not owned or controlled by the Government without the approval of the GoI. The Ministry of Environment and Forests mandates that Environment Impact Assessment (“EIA”) must be conducted for projects. In the process, the Ministry receives proposals for the setting up of projects and assesses their impact on the environment before granting clearances to the projects.
The EIA Notification S.O. 1533, issued on September 14, 2006 (the “EIA Notification”) under the provisions of the Environment Act, prescribes that new construction projects require prior environmental clearance from the MoEF. The environmental clearance must be obtained from the MoEF according to the procedure specified in the EIA Notification. No construction work, preliminary or other, relating to the setting up of a project can be undertaken until such clearance is obtained. Under the EIA Notification, the environmental clearance process for new projects consists of four stages – screening, scoping, public consultation and appraisal. After completion of public consultation, the applicant is required to make appropriate changes in the draft ‘EIA Report’ and the ‘Environment Management Plan.’ The final EIA Report has to be submitted to the concerned regulatory authority for appraisal. The regulatory authority is required to given its decision within 105 days of the receipt of the final EIA Report.
Laws relating to Employment
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Certain other laws and regulations that may be applicable to our Company include the following:
Contract Labour (Regulation & Abolition)Act, 1970;
The Inter-State Migrant Workmen (Regulation of Employment and Conditions of Service) Act, 1979;
Factories Act, 1948;
Payment of Wages Act, 1936;
Payment of Bonus Act, 1965;
Employees’ State Insurance Act, 1948;
Employees’ Provident Funds and Miscellaneous Provisions Act, 1952;
Equal Remuneration Act, 1976;
Payment of Gratuity Act, 1972;
Shops and Commercial Establishments Acts, where applicable;
Minimum Wages Act 1948;
Industrial Disputes Act, 1947; and
Employees Compensation Act, 1923.
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BOARD OF DIRECTORS AND KEY MANAGERIAL PERSONNEL Board of Directors
The Board of Directors presently consists of 10 Directors, and in accordance with the Articles of Association, our Company shall not have less than three Directors and not more than 15 Directors.
Clause 49 of the Listing Agreement requires that at least half of the Board of Directors should comprise of non- executive directors. In addition, it also requires that if our chairman is a non-executive director, at least one-third of the Board of Directors should comprise independent directors and in case he is an executive director, at least half of the Board of Directors should be comprised of independent directors. The Board of Directors currently consists of five independent directors, two non-independent executive directors and three non-independent non-executive 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. Out of which, one-third of directors shall automatically retire every year at an AGM and shall be eligible for re-appointment. The independent directors may be appointed for a maximum of two terms upto 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.
The following table sets forth details regarding the Board of Directors as of the date of this Preliminary Placement Document: S. Name, Designation, Term, DIN, Nationality and Occupation Age Address No. (years) 1. Mr. Virendra D. Mhaiskar 43 IRB Complex, Chandivali Farm, Saki Chairman and Managing Director Vihar Road, Andheri (East), Mumbai – Term: Up to September 6, 2017 400 072, Maharashtra, India DIN: 00183554 Nationality: Indian Occupation: Business 2. Mrs. Deepali V. Mhaiskar 41 IRB Complex, Chandivali Farm, Saki Non-independent and non- executive Director Vihar Road, Andheri (East), Mumbai – Term: Liable to retire by rotation 400 072, Maharashtra, India DIN: 00309884 Nationality: Indian Occupation: Business 3. Mr. Dattatraya P. Mhaiskar 76 Manisha Safalya, M. G. Road, Non-independent and non-executive Director Dombivali (West), Dombivali – 421 Term: Liable to retire by rotation. 202, Maharashtra, India DIN: 00309942 Nationality: Indian Occupation: Business 4. Mr. Suresh G. Kelkar 75 1-B/305, Raheja Nest CHS, Non-independent and non-executive Director Chandivali Farm Road, Chandivali, Term: Liable to retire by rotation. Andheri (East), Mumbai- 400 072, DIN: 01784048 Maharashtra, India Nationality: Indian Occupation: Business 5. Mr. Govind G. Desai 81 Kedar Apartments, Bhandar Lane, L.J. Independent and non-executive Director Road, Mahim, Mumbai – 400 015, Term: Up to March 31, 2019 Maharashtra, India DIN: 00140853 Nationality: Indian Occupation: Lawyer 6. Mr. Chandrashekhar S. Kaptan 62 Kaptan Wada, Zenda Chowk, Mahal, Independent and non-executive Director Nagpur – 440 002, Maharashtra, India Term: Up to March 31, 2019 DIN: 01643564 Nationality: Indian Occupation: Lawyer 7. Mr. Bhalchandra K. Khare 87 Flat No. 17/18 Shiv Sagar 19, Worli Sea Independent and non-executive Director Face, Mumbai – 400 025, Maharashtra, 128
S. Name, Designation, Term, DIN, Nationality and Occupation Age Address No. (years) Term: Up to March 31, 2019 India DIN: 00049778 Nationality: Indian Occupation: Chartered Accountant 8. Mr . Mukeshlal Gupta 58 Flat No 3-F/93, 9th Floor, Kalpataru Non-independent and executive Director Aura, Opp R-City Mall, LBS Marg, Term: Up to January 31, 2018 Ghatkopar (West), Mumbai- 400 086, DIN: 02121698 Maharashtra, India Nationality: Indian Occupation: Service 9. Mr . Sunil H. Talati 63 4, Rushil Bunglows, Judges Bunglow Independent and non-executive Director Road, Bodakdev, Ahmedabad- 380 054, Term: Up to March 31, 2019 Gujarat, India DIN: 00621947 Nationality: Indian Occupation: Chartered Accountant 10. Mr . Sandeep J Shah 55 E/12, Dinathwadi, Opp City Light Independent and non-executive Director Cinema, L. J. Road, Mahim, Mumbai – Term: Up to February 4, 2020 400 016, Maharashtra, India DIN: 00917728 Nationality: Indian Occupation: Chartered Accountant
Biographies of the Directors
Mr. Virendra D. Mhaiskar, aged 43 years, is the Chairman and Managing Director of the Company. He holds a Diploma in Civil Engineering from Shriram Polytechnic, Navi Mumbai. Mr. Mhaiskar has over 24 years of experience in the construction and infrastructure industry. He joined the IRB Group in June 1990 and is responsible for leading and directing the IRB group’s strategy in BOT and funded projects.
Mrs. Deepali V. Mhaiskar, aged 41 years, is a non-executive Director of the Company. She joined the Company in July 1998. She has a Bachelor’s degree in Arts (Special) from Gujarat University and has approximately 16 years of experience in administration and management.
Mr. Mukeshlal Gupta, aged 58 years, is an executive Director of the Company. In 2008, he joined Modern Road Makers Private Limited (EPC Arm) as Director – Technical. He holds a Bachelor’s degree in Civil Engineering from Mumbai University. He has approximately 36 years of experience in managing infrastructure projects.
Mr. Dattatraya P. Mhaiskar, aged 76 years, is a non- executive and non-independent Director of the Company. He joined the Company in December 2006. He holds a Diploma in Civil Engineering from Sir Cusrow Wadia Institute of Electrical Technology, Pune. Mr. Mhaiskar has approximately 49 years of experience in the construction and infrastructure industry. In the year 1977, Mr. Mhaiskar promoted IRBPL, our Subsidiary.
Mr. Suresh G. Kelkar, aged 75 years, is a non-executive and non-independent Director of the Company. He joined the Company in November 2006. He is a Member of the Institute of Chartered Accountants of India. Mr. Kelkar has several years of experience in the areas of accounts, finance and management functions.
Mr. Bhalchandra K. Khare, aged 87 years, is an independent Director of the Company. He is a qualified chartered accountant and is a member of the Institute of Chartered Accountants of India and the Institute of Company Secretaries of India. He is the founder partner of B.K. Khare & Co., Chartered Accountants. He has several years of experience in areas of audit, taxation and corporate restructuring.
Mr. Govind G. Desai, aged 81 years, is an independent Director of the Company. He holds a Bachelor’s degree in Arts (Special) and a Master’s degree in law. Mr. Desai is a qualified solicitor. Mr. Desai has several years of experience in corporate and commercial law.
Mr. Chandrasekhar S. Kaptan, aged 62 years, is an independent Director of the Company and of certain other Subsidiaries. He holds a Bachelor’s degree in law from Nagpur University. Mr. Kaptan practices before the Nagpur Bench of the Bombay High Court. Mr. Kaptan has several years of experience in constitutional and excise matters. 129
Mr. Sunil H. Talati, aged 63 years, is an independent Director of the Company. He holds a Bachelor’s degree in law from Gujarat University and a Master’s degree in commerce from H.L Commerce College, Ahmedabad. He is also a fellow member of the Institute of Chartered Accountants of India. He was the Vice President and President of the Institute of Chartered Accountants of India for the year 2006-07 and 2007-08 respectively. He has several years of experience in the field of Accounts, Audit and Tax Laws.
Mr. Sandeep J Shah, aged 55 years, is a member of Institute of Chartered Accountants of India since August, 1983. He joined M/s. J. M. Shah & Co. as a Partner in 1984. He was a proprietor of M/s. J. M. Shah & Co. from 1985. From 2011, he is a Partner in Shah Baxi & Associates. He is practicing chartered accountant since last 31 years. He is specialized in the field of Company audit and Direct Tax.
Relationship with other Directors
Four of our directors are related to each other. Mr. Virendra D. Mhaiskar is the son of Mr. Dattatraya P. Mhaiskar and the husband of Mrs. Deepali V. Mhaiskar. Mr. Suresh G. Kelkar is the father of Mrs. Deepali V. Mhaiskar.
Borrowing Powers of the Board of Directors
Pursuant to a resolution dated December 8, 2014 passed by the shareholders of the Company through postal ballot in accordance with the provisions of the Companies Act, the Board is authorised to borrow sums of money upto a maximum of ` 48,000 million for the purposes of the Company upon such terms and conditions and with or without security as the Board of Directors may think fit. Pursuant to the shareholder’s resolution dated July 23, 2014 passed by way of postal ballot, the Board is authorised to dispose of, create any mortgage, charge or security over its undertakings or present and future properties, whether immovable or movable up to a value not exceeding ` 200,000 million.
Interest of Directors
Except as stated in “Related Party Transactions” on Page 134 for the last three Financial Years, all of the Directors may be deemed to be interested to the extent of fees payable to them for attending Board or Committee meetings and to the extent of any reimbursement of expenses payable under the Articles. All of the Directors may also be regarded as interested in any Equity Shares held by them and also to the extent of any dividend payable to them and/or other distributions made to them in respect of such Equity Shares held by them. All Directors may also be regarded as interested in the Equity Shares held by, or subscribed by and allotted to, the companies, firms and trust, in which they are interested as directors, members, partners or trustees.
Further, Mr. Virendra D. Mhaiskar as a karta of Virendra D. Mhaiskar HUF is interested in the following contract entered in to after March 31, 2014:
AIIPL had awarded to M/s Aryan Construction, proprietorship of Virendra D. Mhaiskar HUF, infrastructure development work by an agreement dated March 9, 2007 (“Aryan Contract”). Virendra D. Mhaiskar HUF, proprietor of M/s Aryan Construction (“Pledgor”) had entered into a share pledge agreement with MRMPL (“Pledgee”) and AIIPL dated November 15, 2014 pursuant to which the shares held by the Pledgor in AIIPL have been pledged in favour of the Pledgee as security for the amounts due under the Aryan Contract.
Other than as disclosed in this Preliminary 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 Directors were interested parties.
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 and executive officers 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.
Our Promoters are further interested in the operations of our Company to the extent of the personal guarantees issued by them as security for certain of our borrowings. Our Promoters may also be deemed to be interested in the Company to 130
the extent that they or any entities promoted by them hold an interest in any of our existing, ongoing or upcoming projects or the lands on which they are being developed. Further, our Promoters received ` 2.1 million each as rental income for the Financial Year 2014. For further details, please refer to “Related Party Transactions” on Page 134.
Except as stated in “Related Party Transactions” on Page 134, our Company has not entered into any contract, agreement or arrangement during the preceding two years from the date of this Preliminary Placement Document 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 which are proposed to be made with them. The Directors or their relatives and any entity in which the Directors are interested have not taken any loans from our Company.
Shareholding of the Directors
The following table sets forth the number of Equity Shares held by the Directors as of December 31, 2014:
Name of the shareholder Number of Equity shares Percentage (%) Mr. Virendra D. Mhaiskar (HUF) (Mr. Virendra D. Mhaiskar is the 83,738,795 25.19 Karta of this HUF) Mr. Dattatraya P. Mhaiskar 1,295,908 0.39 Mr. Virendra D. Mhaiskar jointly with Mrs. Deepali V. Mhaiskar 111,968,220 33.69 Mrs. Deepali V. Mhaiskar jointly with Mr. Virendra D. Mhaiskar 1,614,400 0.49 Mr. Virendra D. Mhaiskar 1,000 less than 0.01 Mr. Mukeshlal Gupta 450 less than 0.01 Mr. Sandeep J. Shah 202 less than 0.01 Total 198,618,975 59.76
Compensation of the Directors
Executive Directors
Set forth below are details of the compensation (and other terms and benefits) paid by our Company and Subsidiaries to the Executive Directors of our Company during the current Financial Year 2015 (to the extent applicable) and the Financial Years 2014, 2013 and 2012:
Mr. Virendra D. Mhaiskar (in ₹ million) Financial Year Remuneration Perquisites and Commission Total allowances 2015 (To the extent 29.37 - - 29.37** applicable)* 2014 36.36 - 35 71.36** 2013 35.22 - 40 75.22** 2012 30.70# - 28 58.70# * From April 01, 2014 until December 31, 2014 ** The remuneration and commission was received from MRMPL # The remuneration was received from MRMPL and IRBPL
Mr. Virendra D. Mhaiskar is the managing director of the Company and was re-appointed for a period of five years with effect from September 7, 2012. He does not receive any remuneration from the Company. However, he is entitled to the remuneration of upto `1.92 million per month with an annual increment, not exceeding 20% of the monthly salary from MRMPL, wherein he has been re-appointed as the managing director for a period of five years with effect from April 1, 2011.
As managing director of MRMPL, Mr. Mhaiskar is entitled to commission, as approved by the Board on yearly basis, subject to a maximum of 1% of the net profits of MRMPL, a furnished accommodation/ house rent allowance not exceeding 25% of his salary, leave travel benefit, gratuity and leave encashment, car with driver, telephone at residence, provident fund and superannuation fund. In the event of inadequacy of profits in any financial year, Mr. Mhaiskar shall be paid remuneration by way of salary or perquisites shall not exceed the limits specified in section XIII of the Companies Act, 1956.
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As managing director of the Company, Mr. Mhaiskar is entitled to 1% commission and certain other perquisites as per the Company policy.
Mr. Mukeshlal Gupta (in ₹ million) Financial Year Remuneration Perquisites and Commission Total allowances 2015 (To the extent 7.30 - - 7.30 applicable)* 2014 23.92 - - 23.92 2013 13.96 - - 13.96 2012 21.59** - - 21.59** *From April 01, 2014 until December 31, 2014 ** `1.16 million was paid as remuneration by the Company and ` 20.43 million was paid by MRMPL
Mr. Mukeshlal Gupta is the whole-time Director of the Company and was re-appointed for a period of three years with effect from February 1, 2015. Mr. Gupta is entitled to a remuneration of `0.75 million per month with an annual increment, not exceeding 20% of the monthly salary.
Mr. Gupta is entitled to performance linked incentive, as approved by the Board on yearly basis, subject to a maximum of `30 million, a furnished accommodation/ house rent allowance not exceeding 25% of his salary, leave travel benefit, gratuity and leave encashment, car with driver, telephone at residence, provident fund and superannuation fund. In the event of inadequacy of profits in any financial year, Mr. Gupta shall be paid remuneration by way of salary or perquisites shall not exceed the limits specified in section XIII of the Companies Act, 1956.
Non-Executive Directors
The Company pays sitting fees to the non-executive Directors for attending the meetings of the Board or any of the Committees. The following table sets forth sitting fees paid for the Financial Year 2015 (until December 31, 2014) and Financial Years 2014, 2013 and 2012: (in ₹ million) Serial Name of the Director Sitting Fees for Sitting Fees for Sitting Fees for Sitting Fees for FY 2012 No FY 2015 FY 2014 FY 2013 (to the extent applicable)* 1 Mr. Govind G. Desai 0.24 0.3 0.22 0.26 2 Mr. Chandrashekhar S. Kaptan 0.2 0.56 0.44 0.36 3 Mr. Bhalchandra K. Khare 0.12 0.18 0.18 0.18 4 Mrs. Deepali V. Mhaiskar 0.1 0.1 0.12 0.1 5 Mr. Dattatraya P. Mhaiskar 0.08 0.06 0.1 0.08 6 Mr. Suresh G. Kelkar 0.08 0.1 0.06 0.1 7 Mr. Sunil H. Talati 0.16 0.22 0.2 0.14 8 Mr. Sandeep J. Shah N.A N.A N.A N.A. *From April 01, 2014 until December 31, 2014
Organizational Structure of the Company
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Corporate governance
Our Company has been complying with the requirements of the applicable regulations, including the Listing Agreement with the Stock Exchanges and the Companies Act, in respect of corporate governance including constitution of the Board of Directors and committees thereof.
The Board of Directors presently consists of 10 Directors. In compliance with the requirements of the Listing Agreement and the Companies Act 2013, the Board of Directors consists of five Independent Directors.
The corporate governance framework is based on an effective independent Board of Directors, separation of the supervisory role of the Board of Directors from the executive management team and the proper the constitution of committees of the Board of Directors. The Board of Directors functions either as a full Board or through various committees constituted to oversee specific operational areas.
Key Managerial Personnel of our Company
In addition to Mr. Virendra D. Mhaiskar and Mr. Mukeshlal Gupta, the following are the Key Managerial Personnel of our Company as of the date of this Preliminary Placement Document:
Mr. D. K. Joshi, aged 41 years, joined the IRB Group in November 1998 and was transferred to the Company on June 1, 2007. He holds a Bachelor’s degree in commerce from K.V.Pendharkar College of Arts, Science and Commerce, University of Bombay and a Bachelor’s degree in law from Thane Municipal Council Law College, University of Bombay . He has completed diploma in Business Management and Master of Business Administration from Shivaji University, Kolhapur. He has total work experience of more than 16 years in operations management and finance. Mr. Joshi has worked in various capacities with our group companies.
Mr. A. P. Deshmukh, aged 46 years, joined the IRB Group in May 1992 and is responsible for overall supervision of the execution of the projects in capacity as Chief Executive Officer for infrastructure. He holds a Bachelor’s degree in Civil Engineering from Amravati University, Amravati. Mr. Deshmukh has approximately 22 years of experience in managing road projects.
Mr. A. D. Yadav, aged 33 years, joined our Company in January 2008 as the Manager Accounts and Audit and is now the Chief Financial Officer of the Company. He is a member of the Institute of Chartered Accountants of India. He also holds a Master’s degree in commerce and Bachelor of Laws from University of Mumbai. He has approximately six years of experience in the fields of audit, taxation and consultancy.
Mr. M. N. Patel, aged 40 years, is the company secretary of the Company since May 2007. He is a graduate in science from Maharaja Sayajirao University of Baroda and holds a Bachelor’s degree in law from Sardar Patel University, Vallabh Vidyanagar. He is also a qualified company secretary registered with the Institute of Company Secretaries of India. He has an aggregate work experience of 14 years. Prior to joining the IRB Group, Mr. Patel was the company secretary of Hiranandani Developers Private Limited and Trade-Wings Limited.
Mr. V. K. Menon, aged 49 years, joined IRB Group in June 2008. He holds Bachelor of Technology in Civil Engineering from Banaras Hindu University. Mr. Menon is presently President – Business Development and has responsibility for the business advancement of the Group. Mr. Menon is a permanent employee and on the rolls of MRMPL.
Shareholding of Key Managerial Personnel
Other than in respect of Mr. Virendra D. Mhaiskar and Mr. M. L. Gupta, the following table sets forth the number of Equity Shares held by the key managerial personnel of the Company as of December 31, 2014:
Name of Shareholder Number of Equity Shares Percentage (%) Mr. D. K. Joshi 22,040 0.007% Mr. A. D. Yadav 10 less than 0.001% Mr. M. N. Patel Nil Nil Mr. V.K. Menon Nil Nil Mr. A. P. Deshmukh 12,239 0.004%
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Interest of Key Managerial Personnel
The Key Managerial Personnel of the Company do not have any other interest in the Company other than to the extent of the remuneration or benefits to which they are entitled to as per their terms of appointment, reimbursement of expenses incurred by them during the ordinary course of business and to the extent of the Equity Shares held by them and/or their dependants in the Company, if any.
None of our Key Managerial Personnel have availed of any loans from our Company except as disclosed in this Preliminary Placement Document. For further details, please refer to “Related Party Transactions” on Page 134.
Committees of the Board of Directors
As of the date of this Preliminary Placement Document, there are six Board level committees in the Company, which have been constituted and which function in accordance with the relevant provisions of the Companies Act and the Listing Agreements: the (i) Audit Committee; (ii) Stakeholders Relationship Committee; (iii) Nomination and Remuneration Committee; (iv) Corporate Social Responsibility Committee; (v) Management Administration and Share Transfer Committee; (vi) Offering Committee for QIP and (vii) IPO Committee.
The members of the committees mentioned above as of the date of this Preliminary Placement Document are as follows:
Committee Members Audit Committee Mr. Sunil H. Talati (Chairman) Mr. Bhalchandra K. Khare Mr. Govind G. Desai Mr. Virendra D. Mhaiskar Stakeholders Relationship Committee Mr. Govind G. Desai (Chairman) Mr. Chandrashekhar S. Kaptan Mr. Virendra D. Mhaiskar Nomination and Remuneration Committee Mr. Govind G. Desai (Chairman) Mrs. Deepali Mhaiskar Mr. Chandrashekhar S. Kaptan Mr. Virendra D. Mhaiskar Corporate Social Responsibility Committee Mr. Govind G. Desai (Chairman) Mrs. Deepali Mhaiskar Mr. Virendra D. Mhaiskar Management Administration and Share Transfer Committee Mr. Virendra D. Mhaiskar (Chairman) Mrs. Deepali Mhaiskar Mr. Chandrashekhar S. Kaptan Offering Committee for QIP Mr. Virendra D. Mhaiskar (Chairman) Mrs. Deepali Mhaiskar IPO Committee Mr. Virendra D. Mhaiskar (Chairman) Mrs. Deepali Mhaiskar
Policy on disclosures and internal procedure for prevention of insider trading
Regulation 12(1) of the SEBI Prohibition of Insider Trading Regulations applies to our Company and its employees and requires our Company to implement a code of internal procedures and conduct for the prevention of insider trading. Our Company has implemented a code of conduct for prevention of insider trading in accordance with the SEBI Prohibition of Insider Trading Regulations.
Under the Companies Act, 2013, directors and key managerial personnel are prohibited from (a) acquiring an option over, or entering into forward dealings in, securities of our Company, its Subsidiaries or associated companies; and (b) engaging in insider trading.
Other Confirmations
None of the Directors, Promoters or key managerial personnel of our Company has any financial or other material interest in the Issue and there is no effect of such interest in so far as it is different from the interests of other persons.
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Related Party Transactions
For details in relation to the related party transactions entered by our Company during the last three Financial Years, as per the requirements under AS 18 issued by the Institute of Chartered Accountants in India, see section “Financial Statements” on pages F-1 to F-99.
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PRINCIPAL SHAREHOLDERS
The following table sets forth the shareholding pattern of the Company as on December 31, 2014:
Catego Category of Shareholder Total Number Number of Total shareholding Shares pledged or ry number of shares held as a percentage of otherwise encumbered Code of shares in total number of sharehold demateriali shares ers zed form As a As a Numb As a percentage percent percent er of of total number age of age of shares of shares (A+B) (A+B+C ) (I) (II) (III) (IV) (V) (VI) (VII) (VIII) (IX)=(VIII)/(IV) *100
(A) Shareholding of Promoter and Promoter Group
(1) Indian Individuals/ Hindu 6 1986183 198618323 59.76 59.76 71280 0.36 Undivided Family 23 8 Bodies Corporate 3 4499482 4499482 1.35 1.35 78719 17.50 2 Sub-Total 9 2031178 203117805 61.11 61.11 15000 0.74 05 00
(2) Foreign Total Shareholding of 9 2031178 203117805 61.11 61.11 15000 0.74 Promoter and Promoter 05 00 Group (A)
(B) Public shareholding N.A. N.A.
(1) Institutions N.A. N.A. Mutual Funds/ UTI 46 1948156 19481563 5.86 5.86 3 - - Financial Institutions/ 4 2110735 2110735 0.64 0.64 Banks - - Foreign Institutional 153 8188819 81888190 24.64 24.64 Investors 0 - - Sub-Total 203 1034804 103480488 31.13 31.13 88 - -
(2) Non-institutions 1129 9120443 9120443 2.74 2.74 0 0.00 Bodies Corporate
Individuals 77798 1313847 13138374 3.95 3.95 (i) Individuals holding 2 0 0.00 nominal share capital upto ₹1 lakh 78 2336216 2336216 0.70 0.70
(ii) Individuals holding nominal share capital in excess of ₹1 lakh 0 0.00 Any Other (specify) 1383 1170686 1170686 0.35 0.35 0 0.00 136
Catego Category of Shareholder Total Number Number of Total shareholding Shares pledged or ry number of shares held as a percentage of otherwise encumbered Code of shares in total number of sharehold demateriali shares ers zed form As a As a Numb As a percentage percent percent er of of total number age of age of shares of shares (A+B) (A+B+C )
Non Resident Indians 1051 692699 692699 0.21 0.21 0 0.00
Trusts 4 2472 2472 0.00 0.00 0 0.00 Directors & their 2 2413 2413 0.00 0.00 Relatives & Friends 0 0.00 Clearing Members 326 473102 473102 0.14 0.14 0 0.00
Sub-Total 80388 2576581 25765719 7.75 7.75 7 0 0.00 Total Public 80591 1292463 129246207 38.89 38.89 0 0.00. Shareholding (B) 05
TOTAL (A)+(B) 80600 3323641 332364012 100.00 100.00 15000 10 00 0.45
(C) Shares held by 0 0 0 0.00 0.00 0 0.00 Custodians and against which Depository Receipts have been issued 1) Promoter and Promoter 0 0 0 0.00 0.00 group 0 0.00 2) 0 0 0 0.00 0.00 Public 0 0.00 0 0 0 0.00 0.00 Sub total 0 0.00 TOTAL (A)+(B)+(C) 80600 3323641 332364012 100.00 100.00 15000 10 00 0.45
The following table sets forth the shareholding of the promoter and promoter group as on December 31, 2014:
Sr. Name of Shareholder Total Equity Shares held Encumbered Shares No. No of Equity Total No of Equity As a % of Total Shares held Shareholding as Shares No. of Equity a % of Total No. Shares of Equity Shares 1. Virendra Dattatraya Mhaiskar jointly with 111,968,220 33.69 0 0.00 Deepali Virendra Mhaiskar 2. Virendra Dattatraya Mhaiskar HUF 83,738,795 25.19 0 0.00 3. Ideal Soft Tech Park Private Limited 3,710,000 1.12 0 0.00 4. Deepali Virendra Mhaiskar jointly with 1,614,400 0.49 0 0.00 Virendra Dattatraya Mhaiskar 5. Dattatraya Pandurang Mhaiskar 1,295,908 0.39 712,808 0.21 6. Ideal Toll and Infrastructure Private 789,482 0.24 787,192 0.24 Limited 7. Virendra Dattatraya Mhaiskar 1,000 0.00 0 0.00 Total 203,117,805 61.11 1,500,000 0.45
The following table sets forth the shareholding of persons belonging to the category “Public” and holding more than 1% of the total number of Equity Shares as at December 31, 2014:
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Sr. Name of Shareholders No. of Equity Shares Total Shareholding as a % No. of total No. of Equity Shares 1. HSBC Global Investment Funds A/C HSBC GIF Mauritius 10,061,062 3.03 Limited 2. Platinum Asia Fund 7,723,717 2.32 3. Government of Singapore 4,938,988 1.49 Total 2,27,23,767 6.84
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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 any such changes from our Company or the Book Running Lead Managers. Investors are advised to inform themselves of any restrictions or limitations that may be applicable to them. . Investors that apply in the Issue will be required to confirm and will be deemed to have represented to our Company, the Book Running Lead Managers and their respective directors, officers, agents, affiliates and representatives that they are eligible under all applicable laws, rules, regulations, guidelines and approvals to acquire the Equity Shares. Our Company and the BRLMs and their respective directors, officers, agents, affiliates and representatives accept no responsibility or liability for advising any investor on whether such investor is eligible to acquire the Equity Shares. See the sections “Selling Restrictions” and “Transfer Restrictions”.
Qualified Institutions Placement
The Issue is being made to Eligible QIBs in reliance upon Chapter VIII of the SEBI Regulations and Section 42 of the Companies Act, 2013, through the mechanism of a QIP. Under Chapter VIII of the SEBI Regulations and Section 42 of the Companies Act, 2013 read with Rule 14 of the Companies (Prospectus and Allotment of Securities) Rules, 2014, a company may issue equity shares to Eligible QIBs 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 recognised 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 issue and all previous QIPs 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 offer or invitation made by the issuer and has not withdrawn or abandoned any invitation or offer previously made by the issuer;
the issuer shall offer to each Allottee such number of the securities in the issue which would aggregate to at least ₹ 20,000 calculated at the face value of the securities;
the explanatory statement to the postal ballot notice to the shareholders for convening the general meeting must disclose the basis or justification for the price (including premium, if any) at which the offer or invitation is being made;
the offer must be made through a private placement offer letter and an application form serially numbered and addressed specifically to the Eligible QIB to whom the offer is made and is sent within 30 days of recording the names of such Eligible QIBs;
Prior to circulating the private placement offer letter, the issuer must prepare and record a list of Eligible QIBs to whom the offer will be made. The offer must be made only to such persons whose names are recorded by the 139
issuer prior to the invitation to subscribe;
the offering of securities by issue of public advertisements or utilization of any media, marketing or distribution channels or agents to inform the public about the issue is prohibited.
At least 10% of the Equity Shares issued to Eligible 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 Eligible QIBs.
Bidders 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 Equity Shares quoted on the stock exchange during the two weeks preceding the Relevant Date. However, a discount of up to 5% of the Floor Price is permitted in accordance with the provisions of the SEBI Regulations.
The “Relevant Date” referred to above, for Allotment, will be the date of the meeting in which the Board or committee of Directors duly authorised by the Board decides to open the Issue and “stock exchange” means any of the recognised 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 shares has been recorded during the two weeks immediately preceding the Relevant Date.
Our Company has applied for and received the in-principle approval of the Stock Exchanges under Clause 24 (a) of its Listing Agreements for the listing of the Equity Shares on the Stock Exchanges. Our Company has also delivered a copy of this Preliminary Placement Document to the Stock Exchanges.
Our Company shall also make the requisite filings with the RoC and 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 a resolution passed on November 5, 2014 and (ii) the shareholders resolution through a postal ballot passed on December 8, 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 successful Bidders. For details of refund of application money, see the section “Issue Procedure – Pricing and Allocation – Designated Date and Allotment of Equity Shares”.
The Equity Shares issued pursuant to the QIP must be issued on the basis of this Preliminary Placement Document and the Placement Document that shall contain 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 the Placement Document are private documents provided to only select investors through serially numbered copies 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 Eligible 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% of the issue size.
Eligible 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”.
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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.
Securities allotted to Eligible QIBs pursuant to the Issue shall not be sold for a period of one year from the date of Allotment except on the floor of a recognised stock exchange in India.
Issue Procedure
1. Our Company and the Book Running Lead Managers shall circulate serially numbered copies of this Preliminary Placement Document and the serially numbered Application Form, either in electronic or physical form, to the Eligible QIBs and the Application Form will be specifically addressed to such Eligible QIBs. In terms of Section 42(7) of the Companies Act, 2013, our Company shall maintain complete records of the Eligible QIBs to whom the Preliminary Placement Document and the serially numbered Application Form have been dispatched. Our Company will make the requisite filings with the RoC and SEBI within the time period as stipulated under the Companies Act, 2013 and the Companies (Prospectus and Allotment of Securities) Rules, 2014.
2. Unless a serially numbered Preliminary Placement Document along with the serially numbered Application Form is addressed to a particular Eligible QIB, no invitation to subscribe shall be deemed to have been made to such Eligible 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. Eligible QIBs may submit an Application Form, including any revisions thereof, during the Bidding Period to the Book Running Lead Managers.
4. Bidders will be required to indicate the following in the Application Form:
full official name of the Eligible 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 Eligible 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 Book Running Lead Managers at a price not more than 5% discount on the floor price in terms of Regulation 85 of the SEBI Regulations, such price assuming a maximum 5% discount is ₹ 230.54 per Equity Share;
details of the depository participant account to which the Equity Shares should be credited; and
a representation that it is either (i) outside the United States, or (ii) an institutional investor meeting the requirements of a “qualified institutional buyer” as defined in Rule 144A, and (iii) it has agreed to certain other representations set forth in the Application Form.
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 Eligible QIB and separate Application Forms would be required from each such sub-account for submitting Bids. FIIs or sub-accounts of FIIs are required to indicate SEBI FII/ sub- account registration number in the Application Form.
5. Once a duly completed Application Form is submitted by an Eligible QIB, such Application Form constitutes an irrevocable offer and cannot be withdrawn after the Bid/Issue Closing Date. The Bid/Issue Closing Date 141
shall be notified to the Stock Exchanges and the Eligible QIBs shall be deemed to have been given notice of such date after receipt of the Application Form.
6. 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 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 Book Running Lead Managers. Upon determination of the final terms of the Equity Shares, the Book Running Lead Managers will send the serially numbered CAN along with the Placement Document to the Eligible QIBs who have been Allocated the Equity Shares. The dispatch of a CAN shall be deemed a valid, binding and irrevocable contract for the Eligible QIB to pay the entire Issue Price for all the Equity Shares Allocated to such Eligible QIB. The CAN shall contain details such as the number of Equity Shares Allocated to the Eligible QIB and payment instructions including the details of the amounts payable by the Eligible QIB for Allotment of the Equity Shares in its name and the Pay-In Date as applicable to the respective Eligible QIB. Please note that the Allocation will be at the absolute discretion of our Company and will be based on the recommendation of the Book Running Lead Managers.
8. Pursuant to receiving a CAN, each Eligible 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 Eligible QIBs. No payment shall be made by Eligible 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 Eligible 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 i.e. the Escrow Account. See the section “Issue Procedure-Bank Account for Payment of Application Money”.
9. Upon receipt of the application monies from the Eligible QIBs, our Company shall Allot Equity Shares as per the details in the CANs sent to the Eligible QIBs.
10. After passing the Board or committee (as the case maybe) 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 Eligible QIBs.
11. After receipt of the listing approvals of the Stock Exchanges, our Company shall credit the Equity Shares Allotted pursuant to this 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 Eligible 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 Book Running Lead Managers shall 142
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. Eligible QIBs are advised to apprise themselves of the status of the receipt of the permissions from the Stock Exchanges or our Company.
Eligible Qualified Institutional Buyers
The Issue is being made only to Eligible QIBs. Only the following categories of QIBs are eligible to invest in the Issue:
alternate investment funds registered with SEBI;
Eligible FPIs;
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;
insurance funds set up and managed by the Department of Posts, India;
Mutual Funds registered with SEBI;
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
venture capital funds registered with SEBI;
Note: FVCIs and multilateral and bilateral development financial institutions are not permitted to participate in the Issue.
FIIs (other than a sub-account which is a foreign corporate or a foreign individual) and Eligible FPIs are permitted to participate through the foreign 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 143
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) must be below 10% of our post-Issue Equity Share capital. Further, in terms of the FEMA 20, the total holding by each FPI shall be below 10% of the total paid-up Equity Share capital of our Company and the total holdings of all FPIs put together shall not exceed 24% of the paid-up Equity Share capital of our Company. The aggregate limit of 24% 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. The existing investment limit for FPIs (including FIIs) in our Company is 49% of the paid up capital 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.
An FII who holds a valid certificate of registration from 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 SEBI FII Regulations. An FII or sub-account (other than a sub- account which is a foreign corporate or a foreign individual) may participate in the Issue, until the expiry of its registration as a FII or sub-account, or until it obtains a certificate of registration as 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 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.
Under Regulation 86(1)(b) of the SEBI Regulations, no Allotment shall be made pursuant to the Issue, either directly or indirectly, to any Eligible QIB being, or any person related to, the Promoters. Eligible 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 an Eligible 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 Book Running Lead Managers and any of their respective shareholders directors, officers, counsel, advisors, representatives, agents or affiliates are not liable for any amendment or modification or change to applicable laws or regulations, which may occur after the date of this Preliminary Placement Document. Eligible QIBs are advised to make their independent investigations and satisfy themselves that they are eligible to apply. Eligible 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 Preliminary Placement Document. Further, Eligible QIBs are required to satisfy themselves that their Bids would not eventually result in triggering a tender offer under the Takeover Code.
Note: Affiliates or associates of the Book Running Lead Managers who are Eligible QIBs may participate in the Issue in compliance with applicable laws.
Application Process
Application Form
Eligible QIBs shall only use the serially numbered Application Forms (which are addressed to them) supplied by our Company and the Book Running Lead Managers in either electronic form or by physical delivery for the purpose of 144
making a Bid (including revision of a Bid) in terms of this Preliminary Placement Document.
By making a Bid (including the revision thereof) for Equity Shares through Application Forms and pursuant to the terms of this Preliminary Placement Document, the Eligible 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”:
1. The Bidder confirms that it is an Eligible QIB;
2. The Eligible 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 Eligible 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 Eligible QIB acknowledges that it has no right to withdraw its Bid after the Bid/Issue Closing Date;
5. The Eligible 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 Eligible QIB confirms that the Eligible QIB is eligible to Bid and hold Equity Shares so Allotted. The Eligible QIB further confirms that the holding of the Eligible QIB, does not and shall not, exceed the level permissible as per any applicable regulations applicable to the Eligible QIB;
7. The Eligible QIB confirms that its Bids would not eventually result in triggering a tender offer under the Takeover Code;
8. The Eligible QIB confirms that to the best of its knowledge and belief, the number of Equity Shares Allotted to it pursuant to the Issue, together with other Allottees that belong to the same group or are under common control, shall not exceed 50% of the Issue. For the purposes of this representation:
(i) 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; and
(ii) ‘Control’ shall have the same meaning as is assigned to it by Regulation 2(1)(e) of the Takeover Code;
9. The Eligible 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.
ELIGIBLE QIBS MUST PROVIDE THEIR DEPOSITORY ACCOUNT DETAILS, PAN, THEIR DEPOSITORY PARTICIPANT’S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER, EMAIL ID AND BENEFICIARY ACCOUNT NUMBER IN THE APPLICATION FORM. ELIGIBLE QIBS MUST ENSURE THAT THE NAME GIVEN IN THE APPLICATION FORM IS EXACTLY THE SAME AS THE NAME IN WHICH THE DEPOSITORY ACCOUNT IS HELD. FOR THIS PURPOSE, ELIGIBLE SUB ACCOUNTS OF AN FII WOULD BE CONSIDERED AS AN INDEPENDENT ELIGIBLE QIB.
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IF SO REQUIRED BY THE BRLMs, THE ELIGIBLE QIB SUBMITTING A BID, ALONG WITH THE BID CUM APPLICATION FORM, WILL ALSO HAVE TO SUBMIT REQUISITE DOCUMENT(S) TO THE BRLMs TO EVIDENCE THEIR STATUS AS AN “ELIGIBLE QIB” AS DEFINED HEREINABOVE.
IF SO REQUIRED BY THE BRLMs, ESCROW BANK(S) OR ANY STATUTORY OR REGULATORY AUTHORITY IN THIS REGARD, INCLUDING AFTER PLACEMENT CLOSURE, THE ELIGIBLE QIB SUBMITTING A BID AND/OR BEING ALLOTTED EQUITY SHARES IN THE PLACEMENT, WILL ALSO HAVE TO SUBMIT REQUISITE DOCUMENT(S) TO FULFILL THE KNOW YOUR CUSTOMER (KYC) NORMS.
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 an Eligible QIB shall be deemed a valid, binding and irrevocable offer for the Eligible QIB to pay the entire Issue Price for the Equity Shares (as indicated by the CAN) and becomes a binding contract on the Eligible QIB upon issuance of the CAN by our Company in favour of the Eligible 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 Book Running Lead Managers as per the details provided in the respective CAN. The Application Forms may also be submitted to the Book Running Lead Managers either through electronic form or through physical delivery at the following address:
Name of Book Running Address Contact person Email Phone (telephone and Lead Manager fax) IDFC Securities Limited Naman Chambers Mr. Venkatraghavan [email protected] Tel: +91 22 6622 26 C – 32, G Block S / Mr. Akshay 00 Bandra Kurla Complex, Bhandari Fax: +91 22 6622 25 Bandra (E) 01 Mumbai 400 051 Maharashtra, India ICICI Securities Limited ICICI Centre, H. T. Mr. Sumit Agarwal [email protected] Tel: +91 22 2288 24 Parekh Marg, 60 Churchgate, Fax: +91 22 2282 65 Mumbai- 400 020, 80 Maharashtra, India Emkay Global Financial 7th Floor, The Ruby, Mr. Rajesh Ranjan/ [email protected] Tel : +91 22 6612 12 Services Limited Senapati Bapat Marg, Mr. Deepak Yadav 12 Dadar – West, Fax: +91 22 6612 12 Mumbai – 400028 99 Maharashtra, India
The Book Running Lead Managers shall not be required to provide any written acknowledgement of the receipt of the Application Form.
Permanent Account Number or PAN
Each Eligible 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. Eligible 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 Book Running Lead Managers. Such Bids cannot be withdrawn after the Bid/Issue Closing Date. The book shall be maintained by the Book
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Running Lead Managers.
Price Discovery and Allocation
Our Company, in consultation with the Book Running 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 5% on the Floor Price in terms of Regulation 85 of the SEBI Regulations.
After finalisation of the Issue Price, our Company shall update this 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 Book Running Lead Managers, on a discretionary basis and in compliance with Chapter VIII of the SEBI Regulations.
Bids received from the Eligible QIBs at or above the Issue Price shall be grouped together to determine the total demand. The Allocation to all such Eligible QIBs will be made at the Issue Price. Allocation to Mutual Funds for up to a minimum of 10% 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 BOOK RUNNING LEAD MANAGERS IN RESPECT OF ALLOCATION SHALL BE FINAL AND BINDING ON ALL ELIGIBLE QIBS. ELIGIBLE QIBS MAY NOTE THAT ALLOCATION OF EQUITY SHARES IS AT THE SOLE AND ABSOLUTE DISCRETION OF OUR COMPANY IN CONSULTATION WITH THE BOOK RUNNING LEAD MANAGERS AND ELIGIBLE 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 BOOK RUNNING 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 Book Running Lead Managers, in their sole and absolute discretion, shall decide the Eligible 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 Eligible 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 Eligible QIB’s account.
The Eligible QIBs would also be sent a serially numbered Placement Document either in electronic form or by physical delivery along with the serially numbered CAN.
The dispatch of the serially numbered Placement Document and the serially numbered CAN to the Eligible QIBs shall be deemed a valid, binding and irrevocable contract for the Eligible QIB to furnish all details that may be required by the Book Running Lead Managers and to pay the entire Issue Price for all the Equity Shares Allocated to such Eligible QIB.
Eligible 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 “IRB Infrastructure Developers Limited– QIP Escrow Account” with the Escrow Bank in terms of the arrangement among our Company, the Book Running Lead Managers and HDFC Bank Limited as escrow bank. The Eligible 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.
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Note: Payments through cheques are liable to be rejected.
If the payment is not made favouring the “IRB Infrastructure Developers Limited – QIP Escrow Account” within the time stipulated in the CAN, the Application Form and the CAN of the Eligible QIB are liable to be cancelled.
Our Company undertakes to utilise the amount deposited in IRB Infrastructure Developers Limited – 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.
In case of cancellations or default by the Eligible QIBs, our Company and the Book Running Lead Managers have the right to reallocate the Equity Shares at the Issue Price among existing or new Eligible QIBs at their sole and absolute discretion subject to the compliance with the requirements of the Companies Act and the SEBI ICDR Regulations.
Designated Date and Allotment of Equity Shares
The Equity Shares will not be Allotted unless the Eligible QIBs pay the Issue Price to the “IRB Infrastructure Developers Limited – QIP Escrow Account” as stated above.
The Equity Shares in the Issue will be issued and Allotment shall be made only in dematerialised 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, reserve 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 Eligible QIBs’ Depository Participant accounts, our Company will apply for final trading and listing approvals from the Stock Exchanges.
In the case of Eligible QIBs who have been Allotted more than 5% of the Equity Shares in the Issue, our Company shall disclose the name and the number of the Equity Shares Allotted to such Eligible 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 Eligible QIBs and receipt of necessary trading and listing approvals from the Stock Exchanges.
In the event that our Company is unable to issue and Allot the Equity Shares offered in the Issue or on cancellation of the Issue, within 60 days from the date of receipt of application money, our Company shall repay the application money within 15 days from expiry of 60 days, failing which our Company shall repay that money with interest at the rate of 12% per annum from expiry of the sixtieth day. The application money to be refunded by our Company shall be refunded to the same bank account from which application money was remitted by the Eligible QIBs.
Other Instructions
Right to Reject Applications
Our Company, in consultation with the Book Running Lead Managers, may reject Bids, in part or in full, without assigning any reason whatsoever. The decision of our Company and the Book Running Lead Managers in relation to the rejection of Bids shall be final and binding.
Equity Shares in Dematerialised form with NSDL or CDSL
The Allotment of the Equity Shares in the Issue shall be only in dematerialised form (i.e., not in physical certificates but be fungible and be represented by the statement issued through the electronic mode).
An Eligible 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 Eligible QIB will be credited in electronic form directly to the beneficiary account (with the Depository Participant) of the Eligible QIB. 148
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 Eligible QIBs in the demat segment of the respective Stock Exchanges.
Our Company and the Book Running 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 Eligible QIBs.
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PLACEMENT
Placement Agreement
The Book Running Lead Managers have entered into a placement agreement with our Company (the “Placement Agreement”), pursuant to which the Book Running Lead Managers have severally and not jointly or jointly and severally agreed to manage the Issue and act as placement agents in connection with the proposed Issue and procure subscriptions for the Equity Shares on a reasonable efforts basis pursuant to Chapter VIII of SEBI Regulations and the Companies Act, 2013 read with rules thereunder.
The Placement Agreement contains customary representations, warranties and indemnities from our Company and the Book Running Lead Managers, and it 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 Preliminary 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 Eligible QIBs.
From time to time, the Book Running Lead Managers and their affiliates may engage in transactions with and perform services for our Company, group companies or affiliates 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 and its group companies or affiliates, for which they have received compensation and may in the future receive compensation.
Lock-up
The Promoters jointly and severally, agrees that, without the prior written consent of the Book Running Lead Managers, he/she will not, during the period commencing on the date hereof and ending 90 days after the date of Allotment of the Equity Shares pursuant to the Issue (the “Lock-up Period”), directly or indirectly: (a) offer, sell, lend, pledge, contract to sell, contract to purchase, purchase any option or contract to sell, 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; (c) deposit Equity Shares or any securities convertible into or exercisable or exchangeable for Equity Shares or which carry the right to subscribe for or purchase Equity Shares in depository receipt facilities or enter into any such transaction (including a transaction involving derivatives) having an economic effect similar to that of a sale or deposit of Equity Shares in any depository receipt facility; or (d) announce any intention to enter into any transaction whether any such transaction described in (a) or (b) or (c) above is to be settled by delivery of the Equity Shares, or such other securities, in cash or otherwise.
In addition, the Promoters, jointly and severally, agrees that, without the prior written consent of the Book Running Lead Managers, he/she will not, during the Lock-up Period, make any demand for or exercise any right with respect to, the registration or sale or deposition of any Equity Shares or any other securities of the Company substantially similar to the Equity Shares, including, but not limited to options, warrants or other securities that are convertible into, exercisable or exchangeable for, or that represent the right to receive Equity Shares or any such substantially similar securities, whether now owned or hereinafter acquired.
The Company undertakes that it will not for a period commencing the date hereof and ending 90 days from the date of Allotment, without the prior written consent of the BRLMs, 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,
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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; c. deposit Equity Shares or any securities convertible into or exercisable or exchangeable for Equity Shares or which carry the right to subscribe for or purchase Equity Shares in depository receipt facilities or enter into any such transaction (including a transaction involving derivatives) having an economic effect similar to that of a sale or deposit of Equity Shares in any depository receipt facility; or d. announce any intention to enter into any transaction whether any such transaction described in (a) or (b) or (c) above is to be settled by delivery of the Equity Shares, or such other securities, in cash or otherwise.
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SELLING RESTRICTIONS The distribution of this Preliminary Placement Document or any offering material and the offering, sale or delivery of the Equity Shares is restricted by law in certain jurisdictions. Therefore, persons who may come into possession of this Preliminary Placement Document or any offering material are advised to consult with their own legal advisors as to what restrictions may be applicable to them and to observe such restrictions. This Preliminary Placement Document may not be used for the purpose of an offer or invitation in any circumstances in which such offer or invitation is not authorized.
General
No action has been taken or will be taken by the Company or the Book Running Lead Managers that would permit a public offering of the Equity Shares to occur in any jurisdiction, or the possession, circulation or distribution of this Preliminary Placement Document or any other material relating to the Company or the Equity Shares in any jurisdiction where action for such purpose is required. Accordingly, the Equity Shares may not be offered or sold, directly or indirectly, and none of this Preliminary Placement Document, any offering materials and any advertisements in connection with the offering of 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. The Issue will be made in compliance with the applicable SEBI Regulations. Each purchaser of the Equity Shares in this Issue will be deemed to have made acknowledgments and agreements as described under “Notice to Investors”, “Representations by Investors” and “Transfer Restrictions”.
Australia
This Preliminary Placement Document is not a disclosure document under Chapter 6D of the Corporations Act 2001 (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 Preliminary 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 Preliminary 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 Equity Share sold to the offeree within 12 months after their transfer to the offeree under this Preliminary Placement Document.
Bahrain
Each Book Running Lead Manager has represented and agreed that it has not offered or sold, and will not offer or sell, any Equity Shares except on a private placement basis to persons in the Kingdom of Bahrain who are “accredited investors.” For this purpose, an ‘‘accredited investor’’ means: (a) an individual holding financial assets (either singly or jointly with a spouse) of US$1,000,000 or more; (b) a company, partnership, trust or other commercial undertaking which has financial assets available for investment of not less than US$1,000,000; or (c) a government, supranational organization, central bank or other national monetary authority or a state organization whose main activity is to invest in financial instruments (such as a state pension fund).
Cayman Islands
No offer or invitation to purchase Equity Shares may be made to the public in the Cayman Islands.
Dubai
This Preliminary Placement Document relates to an Exempt Offer in accordance with the Markets Rules of the Dubai Financial Services Authority (“DFSA”). This Preliminary Placement Document is intended for distribution only to persons of a type specified in the Markets Rules of the DFSA. It must not be delivered to, or relied on by, any other person. The DFSA has no responsibility for reviewing or verifying any documents in connection with Exempt Offers. The DFSA has not approved this Preliminary Placement Document nor taken steps to verify the information set forth herein and has no responsibility for this Preliminary Placement Document. The securities to which this Preliminary Placement Document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the securities offered should conduct their own due diligence on the securities. If you do not understand the contents of this Preliminary Placement Document you should consult an authorised financial advisor. 152
European Economic Area (including Liechtenstein, Iceland and Norway)
In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each a “Relevant Member State”), an offer may not be made to the public in that Relevant Member State prior to the publication of a prospectus in relation to the Equity Shares which has been 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 it may, with effect from and including the date on which the Prospectus Directive is implemented in that Relevant Member State (the “Relevant Implementation Date”), make an offer of Equity Shares to the public in that Relevant Member State at any time:
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 €50,000,000, as show in its last annual consolidated accounts; to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior consent of the Book Running Lead Managers for any such offer; or in any other circumstances which do not require the publication of a prospectus pursuant to Article 3(2) of the Prospectus Directive. provided that no such offer of the Equity Shares shall result in a requirement for the publication by our Company or the Book Running 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.
Hong Kong
No Equity Shares have been offered or sold, and no Equity Shares may be offered or sold, in Hong Kong by means of any document, other than to persons whose ordinary business is to buy or sell shares or debentures, whether as principal agent; or to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of the Companies Ordinance (Cap.32) of Hong Kong. No document, invitation or advertisement relating to the Equity Shares has been issued or may be issued, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted under the securities laws of Hong Kong) other than with respect to the Equity Shares which are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance.
Japan
The offering of the Equity Shares has not been and will not be registered under the Financial Instruments and Exchange Law of Japan, as amended (the “Financial Instruments and Exchange Law”). No Equity Shares have been offered or sold, and will not be offered or sold, directly or indirectly, 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 reoffering or re-sale, directly or indirectly in Japan or to, or for the benefit of, any resident of Japan except pursuant to an exemption from the registration requirements of the Financial Instruments and Exchange Law and otherwise in compliance with the Financial Instruments and Exchange Law and any other applicable laws, regulations and ministerial ordinances of Japan.
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. 153
Kuwait
The Equity Shares have not been authorized or licensed for offering, marketing or sale in the State of Kuwait. The distribution of the Preliminary Placement Document and the offering and sale of the Equity Shares in the State of Kuwait is restricted by law unless a license is obtained from the Kuwaiti Ministry of Commerce and Industry in accordance with Law 31 of 1990.
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 Preliminary 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 Preliminary 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 Preliminary Placement Document, each investor represents and warrants that if they receive this Preliminary Placement Document in New Zealand they are a Habitual Investor and they will not disclose this Preliminary 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 Preliminary 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 Preliminary 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.
Singapore
Each of the Book Running Lead Managers has acknowledged that this Preliminary Placement Document has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each of the Book Running Lead Managers has represented and agreed that it has not offered or sold any Equity Shares issued pursuant to the Issue or caused such Equity Shares to be made the subject of an invitation for subscription or purchase and will not offer or sell such Equity Shares issued pursuant to the Issue or cause such Equity Shares to be made the subject of an invitation for subscription or purchase, and have not circulated or distributed, nor will they circulate or distribute, this Preliminary Placement Document or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of such Equity Shares issued pursuant to the Issue, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the Equity Shares are subscribed or purchased under Section 275 by a relevant person which is: 154
a corporation (which is not an accredited investor) (as defined in Section 4A of the SFA) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation to the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within 6 months after that corporation or that trust has acquired the Equity Shares pursuant to an offer made under Section 275 except:
to an institutional investor under Section 274 of the SFA or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
where no consideration is or will be given for the transfer;
where the transfer is by operation of law; or
as specified in Section 276(7) of the SFA.
Switzerland
This Preliminary 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 Preliminary 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 one of the Book Running Lead Managers. This Preliminary Placement Document is personal to each offeree and does not constitute an offer to any other person. This Preliminary 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 our Company. 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.
United Arab Emirates
This Preliminary Placement Document is not intended to constitute an offer, sale or delivery of shares or other securities under the laws of the United Arab Emirates (the “UAE”). The Equity Shares have not been and will not be registered under Federal Law No. 4 of 2000 Concerning the Emirates Securities and Commodities Authority and the Emirates Security and Commodity Exchange, or with the UAE Central Bank, the Dubai Financial Market, the Abu Dhabi Securities market or with any other UAE exchange. The Issue, the Equity Shares and interests therein do 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. This Preliminary 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. The interests in the Equity Shares may not be offered or sold directly or indirectly to the public in the UAE.
United Kingdom
Each of the Book Running Lead Managers has represented and agreed that it:
is a person who is a qualified investor within the meaning of Section 86(7) of the Financial Services and Markets Act 2000 (the “FSMA”), being an investor whose ordinary activities involve it in acquiring, holding, managing or disposing of investments (as principal or agent) for the purposes of its business;
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has not offered or sold and will not offer or sell the Equity Shares other than to persons who are qualified investors within the meaning of Section 86(7) of the FSMA or who it reasonably expects will acquire, hold, manage or dispose of investments (as principal or agent) for the purposes of their businesses where the issue of the Equity Shares would otherwise constitute a contravention of Section 19 of the FSMA by us.
United States of America
The Equity Shares have not been and will not be registered under the U.S. 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 U.S. Securities Act. Accordingly, the Equity Shares are being offered and sold (a) in the United States only to persons who are qualified institutional buyers (as defined in Rule 144A and referred to in this Preliminary Placement Document as “U.S. QIBs”), and (b) outside the United States in offshore transactions as defined in and in reliance on Regulation S. Prospective purchasers in the United States are hereby notified that we are relying on the exemption under Section 4(a)(2) of the Securities Act. The Equity Shares are transferable only in accordance with the restrictions described under “Transfer Restrictions”.
Until 40 days after the commencement of the Issue, an offer or sale of the Equity Shares within the United States by a dealer (whether or not participating in the Issue) may violate the registration requirements of the U.S. Securities Act if such offer or sale is made otherwise than in accordance with an exemption from registration under the U.S. Securities Act.
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TRANSFER RESTRICTIONS Allottees are not permitted to sell the Equity Shares for a period of one year from the date of Allotment except through the Stock Exchanges. In addition to the above, allotments made to Eligible QIBs, including VCFs and AIFs in the Issue, may be subject to lock-in requirements, if any, under the rules and regulations that are applicable to them. Accordingly, purchasers are advised to consult their own legal counsel prior to making any offer, re-sale, pledge or transfer of the Equity Shares.
Subscribers are not permitted to sell the Equity Shares Allotted pursuant to the Issue, for a period of one year from the date of Allotment, except on the BSE or the NSE. Additional transfer restrictions applicable to the Equity Shares are listed below.
United States Transfer Restrictions
The Equity Shares have not been and will not be registered under the Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.
Each purchaser of the Equity Shares outside the United States pursuant to Regulation S will be deemed to have represented and agreed that it has received a copy of this Preliminary Placement Document and such other information as it deems necessary to make an informed investment decision and that:
1. the purchaser acknowledges that the Equity Shares have not been and will not be registered under the Securities Act, or with any securities regulatory authority of any state of the United States, and are subject to restrictions on transfer;
2. the purchaser and the person, if any, for whose account or benefit the purchaser is acquiring the Equity Shares, was located outside the United States at the time the buy order for the Equity Shares was originated and continues to be located outside the United States and has not purchased the Equity Shares for the account or benefit of any person in the United States or entered into any arrangement for the transfer of the Equity Shares or any economic interest therein to any person in the United States;
3. the purchaser is not an affiliate (as defined in Rule 405 of the Securities Act) of our Company or a person acting on behalf of such affiliate; and it is not in the business of buying and selling securities or, if it is in such business, it did not acquire the Equity Shares from our Company or an affiliate (as defined in Rule 405 of the Securities Act) thereof in the initial distribution of the Equity Shares;
4. the purchaser is aware of the restrictions on the offer and sale of the Equity Shares pursuant to Regulation S described in this Preliminary Placement Document;
5. the Equity Shares have not been offered to it by means of any “directed selling efforts” as defined in Regulation S under the Securities Act; and
6. the purchaser acknowledges that our Company, the Book Running Lead Managers and their respective affiliates (as defined in Rule 405 of the Securities Act), and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agrees that, if any of such acknowledgements, representations and agreements deemed to have been made by virtue of its purchase of the Equity Shares are no longer accurate, it will promptly notify our Company, and if it is acquiring any of the Equity Shares as a fiduciary or agent for one or more accounts, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of such account.
Each purchaser of the Equity Shares within the United States purchasing pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act will be deemed to have represented and agreed that it has received a copy of this Preliminary Placement Document and such other information as it deems necessary to make an informed investment decision and that:
1. the purchaser is authorized to consummate the purchase of the Equity Shares in compliance with all applicable laws and regulations;
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2. the purchaser acknowledges that the Equity Shares have not been and will not be registered under the Securities Act or with any securities regulatory authority of any state of the United States and are subject to significant restrictions on transfer;
3. the purchaser is a qualified institutional buyer (as defined in Rule 144A under the Securities Act), is aware that the sale to it is being made in a transaction not subject to the registration requirements of the Securities Act and is acquiring such Equity Shares for its own account or for the account of a qualified institutional buyer;
4. the purchaser is aware that the Equity Shares are being offered in the United States in a transaction not involving any public offering in the United States within the meaning of the Securities Act;
5. if in the future, the purchaser decides to offer, resell, pledge or otherwise transfer such Equity Shares, or any economic interest therein, such Equity Shares or any economic interest therein may be offered, sold, pledged or otherwise transferred only to a qualified institutional buyer in a transaction meeting the requirements of Rule 144A, in accordance with Regulation S under the Securities Act or in accordance with Rule 144 under the Securities Act (if available), in each case in accordance with any applicable securities laws of any state of the United States or any other jurisdiction;
6. the Equity Shares are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act and no representation is made as to the availability of the exemption provided by Rule 144 for re-sales of any Equity Shares;
7. the purchaser will not deposit or cause to be deposited such Equity Shares into any depositary receipt facility established or maintained by a depositary bank other than a Rule 144A restricted depositary receipt facility, so long as such Equity Shares are “restricted securities” within the meaning of Rule 144(a)(3) under the Securities Act;
8. our Company shall not recognize any offer, sale, pledge or other transfer of the Equity Shares made other than in compliance with the above-stated restrictions; and
9. the purchaser acknowledges that our Company, the Book Running Lead Managers and their respective affiliates (as defined in Rule 405 of the Securities Act), and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agrees that, if any of such acknowledgements, representations and agreements deemed to have been made by virtue of its purchase of the Equity Shares are no longer accurate, it will promptly notify our Company, and if it is acquiring any of the Equity Shares as a fiduciary or agent for one or more accounts, it represents that it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgements, representations and agreements on behalf of such account.
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THE SECURITIES MARKET OF INDIA The information in this section has been extracted from documents available on the website of SEBI and the Stock Exchanges and has not been prepared or independently verified by the Company or the Book Running Lead Managers or any of their respective affiliates or advisors.
The Indian Securities Market
India has a long history of organised securities trading. In 1875, the first stock exchange was established in Mumbai. The BSE and the NSE, together hold a dominant position among the stock exchanges in terms of the number of listed companies, market capitalisation and trading activity.
Stock Exchange Regulation
Indian stock exchanges are regulated primarily by SEBI, as well as by the Government acting through the Ministry of Finance, Capital Markets Division, under the SCRA and the SCRR. On June 20, 2012, SEBI, in exercise of its powers under the SCRA and the SEBI Act, notified the SCR (SECC) Rules, which regulate inter alia the recognition, ownership and internal governance of stock exchanges and clearing corporations in India together with providing for minimum capitalisation 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 SEBI to regulate the Indian securities markets, including stock exchanges and intermediaries in the capital markets, promote and monitor self-regulatory organisations and prohibit fraudulent and unfair trade practices. Regulations concerning minimum disclosure requirements by public companies, rules and regulations concerning 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 capital market participants have been notified by the relevant regulatory authority.
Listing and Delisting of Securities
The listing of securities on a recognised Indian stock exchange is regulated by the applicable Indian laws including the Companies Act, the SCRA, the SCRR, the SEBI Act and 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 recognised stock exchange to suspend trading of or withdraw admission to dealings in a listed security for breach of or non- compliance with any conditions or breach of company’s obligations under such listing agreement or for any reason, subject to the issuer receiving prior written notice of the intent of the exchange and upon granting of a hearing in the matter. SEBI also has the power to make or amend such listing agreements and bye-laws of the stock exchanges in India, to overrule a stock exchange’s governing body and withdraw recognition of a recognised stock exchange.
SEBI has notified the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 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. SEBI at its board meeting dated November 19, 2014, approved certain changes to the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009, which will come into effect once notified.
Minimum Level of Public Shareholding
All listed companies are required to maintain a minimum public shareholding of 25% and were given a period of three years to comply with such requirement. In this regard, SEBI has amended the listing agreement and has provided several mechanisms to comply with this requirement. Further, where the public shareholding in a listed company falls below 25% at any time, such company is required to bring the public shareholding to 25% within a maximum period of 12 months from the date of such fall in the manner specified by SEBI. Consequently, a listed company may be delisted from the stock exchanges for not complying with the above-mentioned requirement. Our Company is in compliance with this minimum public shareholding requirement.
Index-Based Market-Wide Circuit Breaker System 159
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%, 15% and 20%. These circuit breakers, when triggered, bring about a co-ordinated 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.
In addition to the market-wide index-based circuit breakers, there are currently in place individual scrip-wise price bands of 20% 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 paid by the stockbrokers.
BSE
Established in 1875, the BSE is the oldest stock exchange in India. In 1956, it became 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. The NSE was recognised 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 segment commenced in June 2000. The NSE launched the NSE 50 Index, now known as S&P CNX NIFTY, on April 22, 1996 and the Mid-cap Index on January 1, 1996. The securities in the NSE 50 Index are highly liquid.
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 by SEBI. 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 NSE.
Trading Hours
Trading on both the NSE and the BSE occurs from Monday to Friday, between 9:15 a.m. and 3:30 p.m. IST (excluding the 15 minutes pre-open session from 9:00 a.m. to 9:15 a.m. that has been introduced recently). The NSE and the BSE are closed on public holidays. The recognised stock exchanges have been permitted by the SEBI to set their own trading hours (in the cash and derivatives segments) subject to the condition that (i) the trading hours are between 9.00 a.m. and 5.00 p.m.; and (ii) the stock exchange has in place a 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 totally 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 trading system called National Exchange for Automated Trading (“NEAT”), which operates on strict time/price priority besides enabling efficient trade. NEAT has provided depth in the market by enabling large number of members all over India to trade simultaneously, narrowing the spreads. 160
Takeover Code
Disclosure and mandatory bid obligations for listed Indian companies are governed by the Takeover Code which provide 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 Code will apply to any acquisition of the company’s shares/voting rights/control. The Takeover Code prescribe 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 Code 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 Code also provide for the possibility of indirect acquisitions, imposing specific obligations on the acquirer in case of such indirect acquisition.
Insider Trading Regulations
The SEBI Prohibition of Insider Trading Regulations have been notified to prohibit and penalise insider trading in India. An insider is, among other things, 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 SEBI Prohibition of Insider Trading Regulations also provide disclosure obligations for shareholders holding more than a pre-defined percentage, 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. The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 has been notified on January 15, 2015 and will be effective from 120th day from the date of its publication in the official gazette. It will replace the SEBI Prohibition of Insider Trading Regulations.
Depositories
The Depositories Act provides a legal framework for the establishment of depositories to record ownership details and effect transfer in book-entry form. Further, 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 in February 2000 and derivatives contracts were included within the term “securities”, as defined by 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.
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DESCRIPTION OF THE EQUITY SHARES
The following is information relating to the Equity Shares including a brief summary of the Memorandum and Articles of Association and the Companies Act. 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
Our authorised share capital is ₹ 6,150 million consisting of 615,000,000 Equity Shares of ₹ 10 each.
Dividends
Under Indian law, a company pays dividends upon a recommendation by its board of directors and approval by a majority of the shareholders at the AGM held each fiscal year. Under the Companies Act, unless the board of directors of a company recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. Subject to certain conditions laid down by Section 123 of the Companies Act, 2013 no dividend can be declared or paid by a company for any fiscal year except out of the profits of the company for that year, calculated in accordance with the provisions of the Companies Act or out of the profits of the company for any previous fiscal year(s) arrived at as laid down by the Companies Act. According to the Articles of Association, the amount of dividends shall not exceed the amount recommended by the Board of Directors. However, our Company may declare a smaller dividend in the general meeting. In addition, as is permitted by the Articles of Association, the Board of Directors may pay interim dividend as may appear justified by the position of our Company, subject to the requirements of the Companies Act.
The Equity Shares issued pursuant to the Preliminary Placement Document and this Placement Document shall rank pari passu with the existing Equity Shares in all respects including entitlements to any dividends that may be declared by our Company.
Subject to the provisions of the Act, no Shareholder shall be entitled to receive payment of any interest or dividends in respect of his share(s), whilst any money may be due or owing from him to our Company in respect of such share(s) either above or jointly with any other person and the Board may deduct from the interest or dividend payable to any such Shareholder all sums of money so due from him to our Company. Unless otherwise directed, dividend may be paid by cash (including by cheque or warrant) or in electronic mode to the Shareholder or person entitled or in case of joint- holders to the joint-holder first named in the register of members. Our Company is not liable for any cheque or warrant lost in transmission, or for any dividend lost due to a forged endorsement of any cheque or warrant.
Subject to applicable provisions of the FEMA, all dividends and other distributions declared and payable on the Equity Shares may be paid by our Company to the Shareholder in Rupees and may be converted into foreign currency and freely transferred out of the Republic of India without the necessity of obtaining any governmental or regulatory authorisation or approval in the Republic of India or any political subdivision or taxing authority thereof.
Capitalisation of Reserves and Issue of Bonus Shares
In addition to permitting dividends to be paid out of current or retained earnings as described above, the Companies Act permits the board of directors, if so approved by the shareholders in a general meeting, to distribute an amount transferred in the free reserves, the securities premium account or the capital redemption reserve account to its shareholders, in the form of fully paid up bonus shares. However, bonus shares shall not be issued in lieu of dividends. These bonus ordinary shares must be distributed to shareholders in proportion to the number of ordinary shares owned by them as recommended by the board of directors. No issue of bonus shares may be made by capitalizing reserves created by revaluation of assets. Further, any issue of bonus shares would be subject to SEBI Regulations.
As per the Articles of Association, upon resolution in the general meeting, on recommendation of the Board of Directors, our Company may capitalise and distribute amongst the shareholders any amount standing to the credit of Company’s reserve accounts and to the credit of the profit and loss account or otherwise, available for distribution. However, aforesaid distribution shall not be made in cash.
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Pre-emptive Rights and Alteration of Share Capital
Subject to the provisions of the Companies Act, our Company may increase its share capital by issuing new shares on such terms and with such rights as it, by action of its shareholders in a general meeting may determine. According to Section 62 of the Companies Act, 2013 such new shares shall be offered to existing shareholders in proportion to the amount paid up on those shares as on the date of the offer. The offer shall be made by notice specifying the number of shares offered and the date (being not less than 15 days and not exceeding 30 days from the date of the offer) within which the offer, if not accepted, will be deemed to have been declined. After such date, as on receipt of earlier intimation from persons to whom such notice is given that they decline to accept the shares offered, the Board may dispose of the shares offered in respect of which no acceptance has been received which shall not be disadvantageous to the shareholders of our Company and our Company. The offer is deemed to include a right exercisable by the person concerned to renounce the shares offered to him in favour of any other person.
Under the provisions of Section 62(1)(c) of the Companies Act, 2013 and the Companies (Share Capital and Debenture) Rules 2014, new shares may be offered to any persons whether or not those persons include existing shareholders or employees to whom shares have bee allotted under a scheme of employee stock option, either for cash or for a consideration other than cash, if the price of such shares is determined by the valuation report of a registered valuer subject to such conditions as may be prescribed, if a special resolution to that effect is passed by our Company’s shareholders in a general meeting.
The Articles of Association authorise it to increase its authorised capital by issuing new shares consisting of equity and/or preference shares, as our Company may determine in a general meeting.
The Articles of Association provide that our Company, subject to the compliance with requirements under the Companies Act and the rules thereto, or any other applicable law in force in the general meeting, from time to time, may reclassify, consolidate or sub-divide its share capital. The Articles of Association also provide that our Company may issue shares with differential rights as to dividend, the distribution of assets of the Company, winding up and voting or otherwise, subject to the compliance with requirements under the Companies Act and the rules thereto, or any other applicable law in force.
General meetings of shareholders
There are two types of general meetings of the shareholders:
(i) AGM; and
(ii) EGM.
Our Company must hold its AGM within six months after the expiry of each fiscal year provided that not more than 15 months shall elapse between the AGM and next one, unless extended by the RoC at its request for any special reason for a period not exceeding three months. The Board of Directors may convene an EGM when necessary or at the request of a shareholder or shareholders holding in the aggregate not less than one tenth of our Company’s issued paid up share capital (carrying a right to vote in respect of the relevant matter on the date of receipt of the requisition).
Notices, either in writing or through electronic mode, convening a meeting setting out the date, day, hour, place and agenda of the meeting must be given to members at least 21 clear days prior to the date of the proposed meeting. A general meeting may be called after giving shorter notice if consent is received, in writing or electronic mode, from not less than 95% of the shareholders entitled to vote. 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 out Company, whether AGM or EGM. The quorum requirements applicable to shareholder meetings under the Companies Act have to be physically complied with.
A company intending to pass a resolution relating to matters such as, but not limited to, amendment in the objects clause of the Memorandum, the issuing of shares with different voting or dividend rights, a variation of the rights attached to a class of shares or debentures or other securities, buy-back of shares, giving loans or extending guarantees in excess of limits prescribed in Section 186 (3) of the Companies Act, is required to obtain the resolution passed by means of a postal ballot instead of transacting the business in our Company’s general meeting. A notice to all the shareholders shall 163
be sent along with a draft resolution explaining the reasons therefore and requesting them to send their assent or dissent in writing on a postal ballot within a period of 30 days from the date of dispatch of the notice. The 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.
Voting rights
At a general meeting upon a show of hands, every member holding shares, 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 are in the same proportion as to such shareholder’s share of our paid up equity capital. Subject to the procedure laid down under the Companies Act, 2013 and the rules thereunder, a company may provide the facility to vote through electronic voting systems, to its members in accordance with the circular dated April 17, 2014 issued by SEBI.
Ordinary resolutions may be passed by simple majority of those present and voting. Special resolutions require that the votes cast in favour of the resolution must be at least three times the votes cast against the resolution. 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. A proxy may not vote except on a poll and does not have the right to speak at meetings.
Convertible securities/warrants
Our Company may issue debt instruments from time to time that are partly or fully convertible into Equity Shares and/or warrants to purchase Equity Shares.
Transfer of shares
Shares held through depositories are transferred in the form of book entries or in electronic form in accordance with the regulations laid down by SEBI. These regulations provide the regime for the functioning of the depositories and the 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 ownership of shares held through a depository are subject to STT (levied on and collected by the stock exchanges on which such equity shares are sold), however are exempt from stamp duty. Our Company has entered into an agreement for such depository services with the NSDL and the CDSL. SEBI requires that our Company’s shares for trading and settlement purposes 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. Our Company shall keep a book in which every transfer or transmission of shares will be entered.
Pursuant to the Listing Agreements, in the event our Company has not effected the transfer of shares within 15 days or where our Company has failed to communicate to the transferee any valid objection to the transfer within the stipulated time period of 15 days, it is required to compensate the aggrieved party for the opportunity loss caused during the period of the delay. The shares of our Company shall be freely transferable.
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 a winding-up of our 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 or in case of a shortfall, proportionately. All surplus assets after payments due to employees, the holders of any preference shares and other creditors belong to the holders of the ordinary 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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TAXATION
STATEMENT OF POSSIBLE TAX BENEFITS WHICH MAY BE APPICABLE TO THE COMPANY AND ITS SHAREHOLDERS
The Board of Directors IRB Infrastructure Developers Limited 3rd Floor, IRB Complex Chandivli Farm, Chandivli Village Andheri (East) Mumbai 400 072
Dear Sirs,
Sub: Statement of possible tax benefits available to IRB Infrastructure Developers Limited and its shareholders
We hereby confirm that the enclosed annexure, prepared by IRB Infrastructure Developers Limited (the “Company”), states the possible tax benefits which may be applicable to the Company and the shareholders of the Company under the Income-tax Act, 1961 (‘Act’), the Wealth Tax Act, 1957, (as amended by Finance (No. 2) Act, 2014) presently in force in India. Several of these benefits are dependent on the Company or its shareholders fulfilling the conditions prescribed under the relevant provisions of the Act. Hence, the ability of the Company or its shareholders to avail the tax benefits is dependent upon fulfilling such conditions, which is based on the business imperatives, the Company or its shareholders may or may not choose to fulfill.
The benefits discussed in the enclosed statement are not exhaustive and the preparation of the contents stated is the responsibility of the Company’s management. This statement is only intended to provide general information to the investors and is neither designed nor intended to be a substitute for professional tax advice. The availing of tax benefits is dependent upon specific facts in each individual case. This statement of tax benefits is not meant to provide any opinion on the tax or any other consequences resulting from participation in the issue In view of the individual nature of the tax consequences, the changing tax laws, each investor is strictly advised to consult his or her own tax consultant with respect to the tax implications arising out of their participation in the proposed Qualified Institutions Placement of Equity Shares of the Company.
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 and our interpretation of the prevailing income tax law in force in India.
We do not express any opinion or provide any assurance as to whether:
a) The Company or its shareholders will continue to obtain these benefits in future; or
b) The conditions prescribed for availing the benefits, where applicable have been / would be met by the Company/ Shareholders ; or
c) The revenue authorities / courts will concur with the views expressed herein.
This certificate and the enclosed statement is intended solely for your information and for inclusion in the Preliminary Placement Document (the “PPD”) and Placement Document (the “PD”) in connection with the proposed Qualified Institutions Placement of the Company and is not to be used, referred to or distributed for any other purpose without our prior written consent.
For S.R. Batliboi & Co. LLP Chartered Accountants Firm Registration No.: 301003E
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Per Ravi Bansal Partner Membership No.: 49365
Place: Mumbai Date: March 19, 2015
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STATEMENT OF TAX BENEFITS
The information provided below sets out the possible tax benefits available to the Company, its subsidiaries and shareholders of a company in India in a summary manner only and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of equity shares, under the current tax laws presently in force in India. It is not exhaustive or comprehensive and is not intended to be a substitute for professional advice. Investors are advised to consult their own tax consultant with respect to the tax implications of an investment in the Equity Shares particularly in view of the fact that certain recently enacted legislation may not have a direct legal precedent or may have a different interpretation on the benefits, which an investor can avail.
This summary is based on the provisions as of the date of issue of this certificate and may change after the date hereof.
Levy of Income Tax
In India, The Income Tax Act, 1961 (‘IT Act’) governs the levy of income tax and is levied on the basis of residential status of a person on such persons total income in the previous year, at the rates specified in the Finance Act that is applicable to the relevant assessment year. An assessment year is a period of 12 months commencing on the first day of April every year (“Assessment Year”). The previous year means the fiscal year immediately preceding the Assessment Year.
In general, in the case of a person who is resident in India in the previous year, his/her global income for the Assessment Year is subject to tax in India. In case of a person who is not resident in India (i.e., a “Non-Resident”), only the income that is received or deemed to be received, or the income that accrues or is deemed to accrue, to such person in, or otherwise arises in, or is deemed to arise in, India is subject to tax in India. In the case of a person who is “not ordinarily resident” in India, the income chargeable to tax is the same as for persons who are resident and ordinarily resident except that the income that accrues or arises outside India is not included in his total income unless it is derived from a business controlled, or a profession organized, in India.
The following is based on the provisions of IT Act as of date, which are subject to change. This summary is not intended to constitute a complete analysis of the Indian tax consequences to any particular shareholders. Individual tax consequences of an investment in Equity Shares may vary for Non-Residents in various circumstances, and potential investors should therefore consult their own tax advisers as to the tax consequences of such purchase, ownership and disposition under the tax laws of India, the jurisdiction of their residence and any tax treaty between India and their country of residence.
Residential Status
For purposes of the IT Act an individual is considered to be a resident of India during any previous year if he or she is in India in that year for:
a period or periods amounting to 182 days or more; or
60 days or more if within the four preceding years he/she has been in India for a period or periods amounting to 365 days or more; or
182 days or more, in the case of a citizen of India or a person of Indian origin living abroad who visits India and within the four preceding years has been in India for a period or periods amounting to 365 days or more; or
182 days or more, in the case of a citizen of India who leaves India for the purposes of employment outside India in any previous year and has within the four preceding years been in India for a period or periods amounting to 365 days or more.
A company is resident in India, in any previous year, if it is an Indian company and has its registered office in India or the control and management of its affairs is situated wholly in India during that year.
A firm or other association of persons or every other person is resident in India in every case except where the control and management of its affairs is situated wholly outside India.
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For purposes of the IT Act, “non-resident” means a person who is not a resident in India.
In terms of taxation laws in force, tax benefits/ consequences as applicable, to the QIBs (not being individuals or HUFs) investing in the Equity Shares of the Company (on the assumption that the shares are not held as stock-in-trade) is described below.
I. Benefits to the Company under the IT Act
1. Special Tax Benefits under Section 80IA
The following specific tax benefits are available to the Company (including its relevant subsidiaries) after fulfilling conditions as per the respective provisions of the relevant tax laws:
In accordance with and subject to the conditions specified in Section 80-IA of the IT Act, certain subsidiaries of the Company may be entitled for a deduction of an amount equal to hundred percent of profits or gains derived from any enterprise carrying on business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility (iv)generating or (v) generating or distributing of power for any ten consecutive assessment years out of fifteen years beginning from the year in which the enterprise has started its operation.
The benefit is available subject to fulfillment of prescribed conditions. For the words “fifteen years”, the words “twenty years” has been substituted for the following infrastructure facility-
a. A road including toll road, a bridge or a rail system.
b. A highway project including housing or other activities being an integral part of the highway project:
c. A water supply project, water treatment system, irrigation project, sanitation and sewerage system or solid waste management system.
However, the aforesaid deduction is not available while computing Minimum Alternative Tax (‘MAT’) liability of the relevant subsidiaries of the Company under Section 115JB of the IT Act. Nonetheless, such MAT paid/ payable on the adjusted book profits of the relevant subsidiaries of the Company computed in terms of the provisions of IT Act, read with the Companies Act, 2013 would be eligible for credit against tax liability arising in succeeding years under normal provisions of IT Act as per Section 115JAA of the IT Act to the extent of the difference between the tax as per normal provisions of the IT Act and MAT in the year of set-off. Further, such credit would not be allowed to be carried forward and set off beyond 10 assessment years immediately succeeding the assessment year in which such credit becomes allowable.
2. Special Tax Benefits under Section 35AD
Subject to the fulfilment of conditions, the company engaged in business in the nature of building and operating a new hotel of two-star or above category as classified by Central Government is entitled to claim deduction under Sec 35AD. The amount of deduction is deduction is 150% of capital expenditure other than investment in land incurred wholly and exclusively for the purpose of such specified business carried on by a Company in the year in which the expenditure is incurred.
3. Depreciation
Subject to compliance with certain conditions laid down in Section 32 of the IT Act, the Company will be entitled to deduction for depreciation:
a. In respect of tangible assets (being buildings, machinery, plant or furniture) and intangible assets (being know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature acquired on or after 1st day of April, 1998) at the rates prescribed under the Income-tax Rules, 1962 (‘IT Rules’);
b. The IT Act read with Rule 5(1) of IT Rules mandates claiming the depreciation on written down value of block of assets as per the rates specified in Appendix I of IT Rules. 168
c. The IT Act read with Rule 5(1A) provides an option to companies engaged in generation or generation and distribution of power to claim depreciation on actual cost of assets as per the rates specified in Appendix IA of IT Rules.
d. As per section 32(1)(iia) of the IT Act, additional depreciation of 20% of actual cost of specified plant and machinery is allowed if the Company is engaged in the business of generation or generation and distribution of power.
e. As per section 32(2) of the IT Act, unabsorbed depreciation if any, for an assessment year can be carried forward and set off against business income in subsequent AYs, subject to the provisions of sub-section (2) of section 72 and sub-section (3) of section 73 of the IT Act.
f. In respect of development of roads/ highways on Build-Operate-Transfer (‘BOT’) basis where the ownership is not vested with developer but where the developer gets a right to collect toll, the Central Board of Direct Taxes (CBDT), under powers conferred to it under section 119 of the Act, vide circular no. 09/2014 dated April 23, 2014, has clarified that the cost of construction on development of infrastructure facility of roads/ highways under BOT projects is allowable as a deduction by amortizing and claiming the same as allowable business expenditure under the Act. The Amortization allowable may be computed at the rate, which ensures that the whole of the cost incurred in creation of infrastructural facility of Roads/ Highway is amortized evenly over the period of concessionaire agreement after excluding the time taken for creation of such facility.
4. Business Losses:
Business losses (not being losses sustained in speculation business), if any, for an assessment year can be carried forward and set off against Business Profits for eight subsequent years in terms of the provisions of Section 72 of the IT Act.
5. Dividends exempt under sections 10(34) and 10(35) of the IT Act:
a. Dividends (whether interim or final) received by the Company from its investment in shares of another domestic company would be exempted in the hands of the Company as per the provisions of section 10(34) read with section 115-O of the IT Act. The domestic company distributing dividends will be liable to pay Dividend Distribution Tax (‘DDT’) at the rate of 15% on the amount of dividend payable as reduced by amount of dividend received from subsidiary till September 30, 2014 (plus a surcharge of 10% on the DDT and education cess and secondary and higher education cess of 2% and 1% respectively on the amount of DDT and surcharge thereon).
b. Further w.e.f October 1, 2014, Finance Act 2014, has amended section 115-O in order to provide that for the purpose of determining the tax on distributed profits payable in accordance with the section 115-O, any amount by way of dividends referred to in sub-section (1) of the said section, as reduced by the amount referred to in sub-section (1A) [referred to as net distributed profits], shall be increased to such amount as would, after reduction of the tax on such increased amount at the rate specified in subsection (1), be equal to the net distributed profits.
Thus, where the amount of dividend paid or distributed by a company is INR 85, then DDT under the amended provision would be calculated as follows:
Dividend amount distributed = INR 85 Increase by INR 15 [i.e. (85*0.15)/(1-0.15)] Increased amount = INR 100 DDT @ 15% of INR 100 = INR 15 Tax payable under section 115-O is INR 15 Dividend distributed to shareholders = INR 85
So DDT payable will be INR 15 before surcharge and education cess and higher education cess. Further, it may be noted that the surcharge and education cess and secondary and higher education cess applicable remains unchanged. 169
c. In terms of section 10(35) of the IT Act, any income received from units of a Mutual Fund specified under section 10(23D) of the IT Act is exempt from tax, subject to such income not arising from the transfer of units in such Mutual Fund.
d. Section 14A of the IT Act read with Rule 8D restricts claim for deduction of expenses incurred in relation to income which does not form part of the total income under the IT Act. Thus, any expenditure incurred to earn the said tax free income will not be tax deductible expenditure. Further, the Central Board of Direct Taxes has prescribed methodology for disallowance under Rule 8D of the IT Rules. The prescribed methodology becomes applicable where the Indian Revenue authorities are not satisfied with the correctness of the taxpayer`s claim having regard to its accounts.
e. Further, if the company being a holding company, has received any dividend from its subsidiary, being a domestic company, on which DDT has been paid by such subsidiary or has received any dividend from its subsidiary, being a foreign company, on which income-tax is payable by such holding company, then for the same year, the company will not be required to pay DDT to the extent for such dividend been paid by such subsidiary company.
f. As per section 94(7) of the Act, losses arising from sale/ transfer of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed exempt.
6. Computation of capital gains:
a. Capital assets are to be categorized into short-term capital assets and long-term capital assets based on the period of holding. All capital assets [except a security (other than a unit) listed in a recognized stock exchange of India or a unit of UTI established under the UTI Act, 1963 or a unit of an equity oriented fund and zero coupon bonds] are considered to be long-term capital assets, if they are held for a period exceeding thirty-six months. Security (other than a unit) listed in a recognized stock exchange of India or a unit of UTI established under UTI Act, 1963 or a unit of an equity oriented fund and zero coupon bonds are considered as long-term capital assets, if these are held for a period exceeding twelve months.
b. As per the provisions of section 10(38) of the IT Act, Long Term Capital Gains (‘LTCG’) arising to the Company from transfer of a long term capital asset being an equity share in a company listed on a recognized stock exchange in India or unit of equity oriented fund or unit of a business trust shall be exempt from tax, if the transaction is chargeable to Securities Transaction Tax (‘STT’).
c. However, such LTCG will be included while computing book profits for the purpose of payment of Minimum Alternate Tax (‘MAT’) under the provisions of section 115JB of the IT Act.
d. Section 48 of the IT Act, which prescribes the mode of computation of capital gains, provides for deduction of cost of acquisition/ improvement and expenses incurred in connection with the transfer of a capital asset, from the sale consideration to arrive at the amount of capital gains. However, in respect of LTCG, it offers a benefit by permitting substitution of cost of acquisition/ improvement with the indexed cost of acquisition/ improvement, which adjusts the cost of acquisition/ improvement by a cost inflation index as prescribed from time to time.
e. As per the provisions of section 112 of the IT Act, LTCG (other than those covered under section 10(38) of the IT Act) are subject to tax at a rate of 20% (plus applicable surcharge and education cess). However, proviso to section 112(1) specifies that if the LTCG (other than those covered under section 10(38) of the IT Act) arising on transfer of listed securities or unit) or zero coupon bond, calculated at the rate of 20% (plus applicable surcharge and education cess) with indexation benefit exceeds the capital gains computed at the rate of 10% without indexation benefit, then such capital gains are chargeable to tax at the rate of 10% (plus applicable surcharge and education cess) without indexation benefit.
f. STT shall not be allowed as deduction in computing the income chargeable under the head ‘Capital gains’.
g. As per provisions of section 111A of the IT Act, Short Term Capital Gains (‘STCG’) arising from transfer of 170
short term capital asset, being an equity share in a company or a unit or a unit of a business trust shall be taxable at the rate of 15% (plus applicable surcharge and education cess), if the transaction is chargeable to STT.
h. The tax rates mentioned above stands increased by surcharge, payable at the rate of 5% where the taxable income of a domestic company exceeds ₹10,000,000. Such surcharge rate would stand increased to 10% where the taxable income of the domestic company exceeds ₹ 100,000,000. Further, education cess and secondary and higher education cess on the tax on total income and surcharge at the rate of 2% and 1% respectively is payable by all categories of taxpayers.
i. As per provisions of Section 70 read with Section 74 of the Act, short term capital loss arising during a year is allowed to be set-off against short term as well as LTCG. Balance loss, if any, shall be carried forward and set-off against any capital gains arising during subsequent 8 assessment years in terms of the provisions of section 74 of the IT Act.
j. As per provisions of Section 70 read with Section 74 of the Act, long term capital loss arising during a year is allowed to be set-off only against LTCG. Balance loss, if any, shall be carried forward and set off against LTCG arising during subsequent 8 assessment years in terms of the provisions of section 74 of the IT Act. Long term capital loss arising on sale of shares or units of equity oriented fund or units of business trust subject to STT may not be carried forward for set off.
7. Capital Gains in case of depreciable assets
As per section 50 of the IT Act, where a capital asset is forming part of block of assets in respect of which depreciation has been allowed under the Act, capital gains shall be computed in the following manner:
a. where full value of consideration on account of transfer of any asset forming part of block of asset, as reduced by expenditure incurred wholly or exclusively in connection with transfer, exceeds the written down value of block of assets and actual cost of assets acquired during the year, such excess shall be deemed to be short-term capital gains and taxed accordingly.
b. where any block of assets ceases to exist, for the reason that all the assets in that block are transferred, the difference between the consideration arising on result of transfer and the written down value of block of assets and the actual cost of assets acquired during the year, shall be deemed to be short-term capital gains/ (losses) and taxed accordingly
8. Exemption of capital gains from income tax
a. As per the provisions of section 54EC of the IT Act and subject to the conditions specified therein capital gains arising to the Company on transfer of a long-term capital asset (other than those covered under section 10(38) of the IT Act) shall not be chargeable to tax to the extent such capital gains are invested in certain notified bonds within six months from the date of transfer subject to maximum of ₹ 5,000,000. If only part of such capital gain is invested, the exemption shall be proportionately reduced.
b. However, if the Company transfers or converts the notified bonds into money (as stipulated therein) within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax in such year. The bonds specified for this section are bonds issued on or after April 1, 2007 by National Highways Authority of India (the “NHAI”) or the Rural Electrification Corporation Limited (the “REC”). The IT Act has restricted the maximum investment in such bonds upto ₹ 5,000,000 per assessee during any financial year and the subsequent financial year.
c. The characterization of the gain/ losses, arising from sale/ transfer of shares/ units as business income or capital gains would depend on the nature of holding and various other factors.
9. Deduction of STT paid
STT paid will be allowed as a deduction in the computation of business income. It is laid down that the STT paid during the year shall be allowed as a deduction under Section 36(1)(xv) on the condition that the income from taxable securities transaction is included under the head, “profits and gains of business or profession”. 171
10. Other Provisions
a. As per the provisions of Section 35D of the Act, any specified preliminary expenditure incurred by an Indian company before commencement of business or after commencement of business in connection with extension of an undertaking or setting up a new unit shall be allowed a deduction equivalent to one-fifth of such expenditure for each of the five successive previous years beginning with the previous year in which the business is commenced/ extended. However, any deduction in excess of 5% of cost of project/ capital employed would not be allowed.
b. As per the provisions of Section 35DD of the Act, any expenditure incurred by an Indian Company, wholly and exclusively for the purpose of amalgamation/ demerger of an undertaking shall be allowed as deduction to the extent of one-fifth of such expenditure for each of five successive previous years beginning with the previous year in which the amalgamation/ demerger takes place.
c. As per the provisions of Section 72A of the Act, pursuant to business re-organizations (such as amalgamation, demerger, etc), the successor company shall be allowed to carry forward any accumulated tax losses/ unabsorbed depreciation of the predecessor company subject to fulfillment of prescribed conditions.
d. As per section 10(34A) of the IT Act, any income arising to a shareholder, on account of buy back of shares (not being listed on a recognized stock exchange) by a company, will be exempt from tax. This exemption is available to shareholders only in case where the Company pays buy back tax under the provisions of section 115QA of the IT Act @ 20% (plus surcharge and education cess). Such income is also exempt from tax while computing book profit for the purpose of determination of MAT liability. However, in case of buy back of listed securities, it will be liable to capital gains tax.
e. As per provisions of Section 80G of the IT Act, the assessee is entitled to claim deduction of a specified amount in respect of eligible donations, subject to the fulfillment of the conditions specified in that section.
f. As per provisions of Section 80GGB of the IT Act, the assesse is entitled to claim deduction amounting to 100% of any sum contributed to any political party or an electoral trust. However, no deduction shall be allowed under this section in respect of any sum contributed by way of cash.
11. MAT credit
a. In terms of section 115JAA(1A) of the IT Act, the Company is eligible to claim credit for any tax paid as MAT under section 115JB of the IT Act for any AY commencing on or after April 1, 2006 against income tax liabilities incurred in subsequent years as prescribed.
b. MAT credit eligible is the difference between MAT paid and the tax computed as per the normal provisions of the IT Act. Such MAT credit will be available for set-off up to ten years succeeding the year in which the MAT credit initially arose under section 115JAA(IA).
c. MAT credit can be set off in a year when tax is payable under the normal provisions of the IT Act.
II. Benefits available to resident shareholders
1. Dividends exempt under Section 10(34) of the IT Act
a Dividend (whether interim or final) received by a resident shareholder from its investment in shares of a domestic company would be exempt in the hands of the resident shareholder as per the provisions of section 10(34) read with section 115-O of the IT Act.
b Section 14A read with Rule 8D of the IT Act restricts claim for deduction of expenses incurred in relation to income which does not form part of the total income under the IT Act. Thus, any expenditure incurred to earn the said tax free income will not be a tax deductible expenditure.
2. Taxability of capital gains
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a. Capital assets may be categorized into short term capital assets and long term capital assets based on the period of holding shares in a Company. All capital assets [except a security (other than a unit) listed in a recognized stock exchange of India or a unit of Unit Trust of India (‘UTI’) established under the UTI Act, 1963 or a unit of an equity oriented fund and zero coupon bonds] are considered to be long-term capital assets, if they are held for a period exceeding thirty-six months. Security (other than a unit) listed in a recognized stock exchange of India or a unit of UTI established under the UTI Act, 1963 or a unit of an equity oriented fund and zero coupon bonds are considered as long-term capital assets, if these are held for a period exceeding twelve months. b. Section 48 of the IT Act, which prescribes the mode of computation of capital gains, provides for deduction of cost of acquisition/improvement and expenses incurred in connection with the transfer of a capital asset, from the sale consideration to arrive at the amount of capital gains. However, in respect of LTCG, it offers a benefit by permitting substitution of cost of acquisition/improvement with the indexed cost of acquisition/improvement, which adjusts the cost of acquisition/improvement by a cost inflation index as prescribed from time to time. c. As per the provisions of section 10(38) of the IT Act, LTCG arising to the Company from transfer of a long term capital asset being an equity share in a company listed on a recognized stock exchange in India or unit of equity oriented fund or unit of a business trust shall be exempt from tax, if the transaction is chargeable to Securities Transaction Tax (‘STT’). d. Further, as per provisions of Section 112 of the IT Act, long term gains as computed above that are not exempt under Section 10(38) of the IT Act, would be subject to tax at a rate of 20% (plus applicable surcharge and education cess). However, as per proviso to Section 112(1), if tax on LTCG resulting on transfer of listed securities or units, or zero coupon bonds, calculated at the rate of 20% (plus applicable surcharge and education cess) with indexation benefit exceeds 10% of the amount of capital gain before indexation, then excess shall be ignored for the purpose of computing the tax payable by the assessee and therefore, would be chargeable to tax at a concessional rate of 10% (plus applicable surcharge and education cess) without indexation benefits. e. As per provisions of section 111A of the IT Act, STCG arising from transfer of short term capital asset, being an equity share in a company or a unit or a unit of a business trust shall be taxable at the rate of 15% (plus applicable surcharge and education cess), if the transaction is chargeable to STT. . f. STT shall not be allowed as deduction in computing the income chargeable under the head ‘Capital gains’. g. The tax rates mentioned above stands increased by surcharge, payable at the rate of 5% where the taxable income of a domestic company exceeds ₹ 10,000,000. Such surcharge rate would stand increased to 10% where the taxable income of the domestic company exceeds ₹ 100,000,000. In the case of a person other than company, the above mentioned tax rates stands increased by surcharge, payable at 10% where the taxable income of such person exceeds ₹ 10,000,000. Further, education cess and secondary and higher education cess on the tax on total income and surcharge at the rate of 2% and 1% respectively is payable by all categories of taxpayers. h. As per provisions of Section 70 read with Section 74 of the Act, short term capital loss arising during a year is allowed to be set-off against short term as well as LTCG. Balance loss, if any, shall be carried forward and set-off against any capital gains arising during subsequent 8 assessment years in terms of the provisions of section 74 of the IT Act i. As per provisions of Section 70 read with Section 74 of the Act, long term capital loss arising during a year is allowed to be set-off only against LTCG. Balance loss, if any, shall be carried forward and set-off against LTCG arising during subsequent 8 assessment years in terms of the provisions of section 74 of the IT Act. j. As per the provisions of Section 10(34A) of the Act, any income arising to shareholders on account of buy- back of unlisted shares shall be exempt in the hands of the shareholders. This exemption is available to shareholders only in case where the company does a buyback in accordance with section 68 of the Companies Act, 2013 and the company pays buy back tax under the provisions of section 115QA of the Act @ 20% (plus surcharge and education cess).
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3. Exemption of capital gain from income tax
a. According to Section 10(38) of the IT. Act, long-term capital gains on sale of equity shares listed on a recognized stock exchange or unit of equity oriented fund or unit of business trust, where the transaction of sale is chargeable to STT shall be exempt from tax. However, in the case of a company, profits on transfer of above referred long term capital asset shall not be reduced in computing the book profits for the purposes of computation of MAT under Section 115JB of the IT Act.
b. According to the provisions of Section 54EC of the IT Act and subject to the conditions and investment limits specified therein, LTCG not exempt under Section 10(38) and arising on transfer of a long term capital asset shall not be chargeable to tax to the extent such capital gains are invested in certain notified bonds within six months from the date of transfer. The bonds specified for this section are bonds issued on or after April 1, 2007 by National Highways Authority of India (the “NHAI”) or the Rural Electrification Corporation Limited (the “REC”).However, if the said bonds are transferred or converted into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as LTCG in the year in which the bonds are transferred or converted into money. The maximum investment permissible for the purpose of claiming in the above bonds by any person in a financial year and subsequent financial year is ₹5,000,000.
c. Further, as per the provisions of section 54F of the IT Act and subject to conditions specified therein, long- term capital gains (other than capital gains arising on sale of resident house and those covered under section 10(38) of the IT Act) arising to an individual or Hindu Undivided Family (‘HUF’) on transfer of shares of the Company will be exempted from capital gains tax, if the net consideration from such shares are used for either purchase of one residential house property in India within a period of one year before or two years after the date on which the transfer took place, or for construction of one residential house property in India within a period of three years after the date of transfer.
4. Deduction of STT paid
STT paid will be allowed as a deduction in the computation of business income. It is laid down that the STT paid during the year shall be allowed as a deduction under Section 36(1)(xv) on the condition that the income from taxable securities transaction is included under the head, “profits and gains of business or profession”. When such deduction is claimed, no further deduction in respect of the said amount is allowed while determining the income chargeable to tax as capital gains.
5. Income below exemption limit
In case of an individual or HUF, where the total taxable income as reduced by capital gains is below the basic exemption limit, the capital gains will be reduced to the extent of the shortfall and only the balance long-term capital gains or STCG will be subjected to such tax in accordance with the proviso to sub-section (1) of Sections 111A and 112 of the IT Act.
6. Inadequate Consideration
As per provisions of Section 56(2)(vii) of the Act and subject to exception provided in second proviso therein, where an individual or HUF receives shares and securities without consideration or for a consideration which is less than the aggregate fair market value of the shares and securities by an amount exceeding fifty thousand rupees, the excess of fair market value of such shares and securities over the said consideration is chargeable to tax under the head 'income from other sources'.
III. Benefits available to Non-residents (other than FIIs)
1. Dividends exempt under Section 10(34) of the IT Act
For details see the section “Taxation- benefits available to resident shareholders- dividends exempt under Section 10(34) of the IT Act” in this Preliminary Placement Document.
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2. Taxability of capital gains
a. Capital assets may be categorized into short term capital assets and long term capital assets based on the period of holding shares in a company. All capital assets [except a security (other than a unit) listed in a recognized stock exchange of India or a unit of UTI established under the UTI Act, 1963 or a unit of an equity oriented fund and zero coupon bonds] are considered to be long-term capital assets, if they are held for a period exceeding thirty-six months. Security (other than a unit) listed in a recognized stock exchange of India or a unit of UTI established under UTI Act, 1963 or a unit of an equity oriented fund and zero coupon bonds are considered as long-term capital assets, if these are held for a period exceeding twelve months.
b. Section 48 of the IT Act contains special provisions in relation to computation of capital gains on transfer of an Indian company’s shares by non-residents. Computation of capital gains arising on transfer of shares in case of non-residents has to be done in the original foreign currency, which was used to acquire the shares. The capital gain (i.e., sale proceeds less cost of acquisition/improvement) computed in the original foreign currency is then converted into Indian Rupees at the prevailing rate of exchange. The shareholders are not entitled to indexation benefit.
c. As per the provisions of section 10(38) of the IT Act, LTCG arising to the Company from transfer of a long term capital asset being an equity share in a company listed on a recognized stock exchange in India or unit of equity oriented fund or unit of a business trust shall be exempt from tax, if the transaction is chargeable to Securities Transaction Tax (‘STT’).
d. As per provisions of section 111A of the IT Act, STCG arising from transfer of short term capital asset, being an equity share in a company or a unit of an equity oriented mutual fund shall be taxable @ 15% (plus applicable surcharge and education cess), if the transaction is chargeable to STT.
e. STT shall not be allowed as deduction in computing the income chargeable under the head ‘Capital gains’
f. The tax rates mentioned above stands increased by surcharge, payable at the rate of 2% where the taxable income of a non-resident exceeds ₹ 10,000,000. Such surcharge rate would stand increased to 10% where the taxable income of the domestic company exceeds ₹ 100,000,000. In the case of a person other than company, the above mentioned tax rates stands increased by surcharge, payable at 10% where the taxable income of such person exceeds ₹ 10,000,000. Further, education cess and secondary and higher education cess on the tax on total income and surcharge at the rate of 2% and 1% respectively is payable by all categories of taxpayers.
g. As per provisions of Section 70 read with Section 74 of the Act, short term capital loss arising during a year is allowed to be set-off against short term as well as LTCG. Balance loss, if any, shall be carried forward and set-off against any capital gains arising during subsequent 8 assessment years in terms of the provisions of section 74 of the IT Act
h. As per provisions of Section 70 read with Section 74 of the Act, long term capital loss arising during a year is allowed to be set-off only against LTCG. Balance loss, if any, shall be carried forward and set-off against LTCG arising during subsequent 8 assessment years in terms of the provisions of section 74 of the IT Act.
i. As per the provisions of Section 10(34A) of the Act, any income arising to shareholders on account of buy- back of unlisted shares shall be exempt in the hands of the shareholders. This exemption is available to shareholders only in case where the company does a buyback in accordance with section 68 of the Companies Act, 2013 and the company pays buy back tax under the provisions of section 115QA of the Act @ 20% (plus surcharge and education cess).
3. Exemption of capital gain from income tax
a. According to the provisions of Section 54EC of the IT Act and subject to the conditions and investment limits specified therein, LTCG not exempt under Section 10(38) and arising on transfer of a long term capital asset shall not be chargeable to tax to the extent such capital gains are invested in certain notified bonds within six months from the date of transfer. The bonds specified for this section are bonds issued on or after April 1, 2007 by National Highways Authority of India (the “NHAI”) or the Rural Electrification 175
Corporation Limited (the “REC”). However, if the said bonds are transferred or converted into money within a period of three years from the date of their acquisition, the amount of capital gains exempted earlier would become chargeable to tax as LTCG in the year in which the bonds are transferred or converted into money. The maximum investment permissible for the purpose of claiming in the above bonds by any person in a financial year and subsequent financial year is ₹5,000,000.
b. As per provisions of Section 56(2)(vii) of the Act and subject to exception provided in second proviso therein, where an individual or HUF receives shares and securities without consideration or for a consideration which is less than the aggregate fair market value of the shares and securities by an amount exceeding fifty thousand rupees, the excess of fair market value of such shares and securities over the said consideration is chargeable to tax under the head 'income from other sources'.
4. Tax Treaty Benefits
a. Under the provisions of section 90(2) of the IT Act, a non-resident will be governed by the provisions for the Double Taxation Avoidance Agreement (DTAA) between India and the country of residence of the non- resident and the provisions of IT Act apply only to the extent they are more beneficial to the assesse. It needs to be noted that a non-resident is required to hold a valid tax residency certificate containing the particulars prescribed under Form 10F in order to claim benefits under the applicable tax treaty. However, it may be noted that Tax Authorities may ask for other information and supporting documents if required.
b. Further, CBDT vide notification no. 86/2013 has specified ‘Cyprus’ as notified jurisdictional area. The implications of such a Notification are summarized as under:
If an assessee enters into a transaction with a person in Cyprus, then all the parties to the transaction shall be treated as associated enterprises and the transaction shall be treated as an international transaction resulting in application of transfer-pricing regulations including maintenance of documentations [section 94A(2)].
No deduction in respect of any payment made to any financial institution in Cyrus shall be allowed unless the assessee furnishes an authorization allowing for seeking relevant information from the said financial institution [section 94A(3)(a) read with Rule 21AC of the Rules and Form 10FC].
No deduction in respect of any other expenditure or allowance arising from the transaction with a person located in Cyprus shall be allowed unless the assessee maintains and furnishes the prescribed information [section 94A (3)(b) read with Rule 21AC of the Rules].
If any sum is received from a person located in Cyprus, then the onus is on the assessee to satisfactorily explain the source of such money in the hands of such person or in the hands of the beneficial owner, and in case of his failure to do so, the amount shall be deemed to be the income of the assessee [section 94A (4)].
Any payment made to a person located in Cyprus shall be liable for withholding tax at 30 per cent or at rates in force or rates prescribed in Act, whichever is higher [section 94A(5)].
5. Non-Resident Indian taxation
Special provisions in case of NRI in respect of income/ long-term capital gains from specified foreign exchange assets under Chapter XII-A of the Act is as follows:
a. NRI means a citizen of India or a person of Indian origin who is not a resident. A person is deemed to be of Indian origin if he, or either of his parents or any of his grandparents, were born in undivided India.
b. Specified foreign exchange assets include shares of an Indian company which are acquired/ purchased/ subscribed by NRI in convertible foreign exchange.
c. As per provisions of section 115E of the Act, LTCG arising to a NRI from transfer of specified foreign exchange assets as duly mentioned in section 115C(f) of the Act is taxable at the rate of 10%. A surcharge of 10% is applicable in case income of the NRI exceeds INR 10,000,000. Further, education cess and secondary 176
& higher education cess of 2% and 1% respectively will be applicable on taxable payable including surcharge applicable, if any.
d. As per provisions of section 115E of the Act, income [other than dividend which is exempt under section 10(34)] from investments and long-term capital gains [other than gain exempt under section 10(38)] from assets [other than specified foreign exchange assets under section 115C(f)] arising to a NRI is taxable at the rate of 20%. A surcharge of 10% is applicable in case income of the NRI exceeds INR 10,000,000. Further, education cess and secondary & higher education cess of 2% and 1% respectively will be applicable on taxable payable including surcharge applicable, if any. No deduction is allowed from such income in respect of any expenditure or allowance or deductions under Chapter VI-A of the Act.
e. As per provisions of section 115F of the Act, LTCG arising to a NRI on transfer of a foreign exchange asset is exempt from tax if the net consideration from such transfer is invested in the specified assets or savings certificates referred to in section 10(4B) within six months from the date of such transfer, subject to the extent and conditions specified in that section. If such new asset is transferred or converted into money within a period of 3 years from the date of acquisition, the amount of capital gains exempted earlier would become chargeable to tax in such year.
IV. Benefits available to Foreign Institutional Investors registered with SEBI (‘FIIs’)
1. Dividends exempt under Section 10(34) of the IT Act
For details see the section “Taxation- benefits available to resident shareholders- dividends exempt under Section 10(34)” in this Preliminary Placement Document. .
2. Taxability of capital gains
a. As per the provisions of Section 115AD of the IT Act, FIIs will be taxed on the capital gains that are not exempt under Section 10(38) of the IT Act at the following rates:
Nature of income Rate of tax (%) If STT paid If STT Not Paid LTCG NIL 10 STCG 15% 30
b. For corporate FIIs, the tax rates mentioned above stands increased by a surcharge, payable at the rate of 2% where the taxable income exceeds ₹ 10,000,000. Such surcharge would stand increased to 5% where the taxable income exceeds ₹ 100,000,000. Further, education cess and secondary and higher education cess on the tax on total income and surcharge at the rate of 2% and 1% respectively is payable. The above tax rates would be increased by the applicable surcharge and education cess.
c. The benefits of foreign currency fluctuation protection and indexation as provided by Section 48 of the IT Act are not available to a FII.. As per Section 195 of the IT Act, any income payable to non- resident, may fall within the ambit of with-holding provisions, subject to the provisions of the relevant tax treaty. Accordingly, income tax may have to be deducted at source in the case of a non-resident at the rate prescribed under the domestic tax laws or under the tax treaty, whichever is beneficial to the assessee unless a lower withholding certificate is obtained from the tax authorities.
d. As per provisions of 196D of the Act, taxes shall not be withheld from any income in the nature of capital gains arising to FIIs from transfer of securities specified in Section 115AD of the Act. Further, capital gains arising on transfer of other securities would be subject to withholding tax at the applicable rate. Any interest income arising to FIIs in respect of investment in rupee denominated bonds of an Indian company or a Government security between 1 June 2013 and 1 June 2015 would be subject to tax deduction at source at 5% u/s 194LD.
e. As per the provisions of section 10(38) of the IT Act, LTCG arising to FII from transfer of a long term capital asset being an equity share in a company listed on a recognized stock exchange in India or units of equity oriented mutual fund, shall be exempt from tax, if the transaction is chargeable to STT.
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f. As per provisions of section 111A of the IT Act, STCG arising from transfer of short term capital asset, being an equity share in a company or a unit of an equity oriented mutual fund shall be taxable at the rate of 15% (plus applicable surcharge and education cess, if the transaction is chargeable to STT.
g. The benefit of exemption under Section 54EC of the Act mentioned above in case of the Company is also available to FIIs.
h. As per the provisions of Section 10(34A) of the Act, any income arising to shareholders on account of buy- back of unlisted shares shall be exempt in the hands of the shareholders. This exemption is available to shareholders only in case where the company pays buy back tax under the provisions of section 115QA of the Act @ 20% (plus applicable surcharge and education cess).
3. Tax Treaty Benefits
a. Under the provisions of section 90(2) of the Act, a non-resident will be governed by the provisions for the Agreement for Avoidance of Double Taxation (DTAA) between India and the country of residence of the non-residence and the provisions of Act apply only to the extent they are more beneficial to the assesse. It needs to be noted that a non-resident is required to hold a valid tax residency certificate containing the particulars prescribed under Notification No. 57 of 2013 dated 1 August 2013 issued by the CBDT in order to claim benefits under the applicable tax treaty. However, it may be noted that Tax Authorities may ask for other information and supporting documents if required.
b. Further, CBDT vide notification no. 86/2013 has specified ‘Cyprus’ as notified jurisdictional area. The implications of such a Notification are summarized as under:
If an assessee enters into a transaction with a person in Cyprus, then all the parties to the transaction shall be treated as associated enterprises and the transaction shall be treated as an international transaction resulting in application of transfer-pricing regulations including maintenance of documentations [section 94A(2)].
No deduction in respect of any payment made to any financial institution in Cyrus shall be allowed unless the assessee furnishes an authorization allowing for seeking relevant information from the said financial institution [section 94A(3)(a) read with Rule 21AC of the Rules and Form 10FC].
No deduction in respect of any other expenditure or allowance arising from the transaction with a person located in Cyprus shall be allowed unless the assessee maintains and furnishes the prescribed information [section 94A (3)(b) read with Rule 21AC of the Rules].
If any sum is received from a person located in Cyprus, then the onus is on the assessee to satisfactorily explain the source of such money in the hands of such person or in the hands of the beneficial owner, and in case of his failure to do so, the amount shall be deemed to be the income of the assessee [section 94A (4)].
Any payment made to a person located in Cyprus shall be liable for withholding tax at 30 per cent or a rate prescribed in Act, whichever is higher [section 94A(5)].
V. Benefits available to Mutual Funds
As per the provisions of Section 10(23D) of the IT Act, any income of Mutual Funds registered under the SEBI Act or Regulations made there under, Mutual Funds set up by public sector banks or public financial institutions and Mutual Funds authorized by the Reserve Bank of India would be exempt from income tax, subject to the conditions as the Central Government may by notification in the Official Gazette specify in this behalf. However, the Mutual Funds shall be liable to pay tax on distributed income to unit holders under Section 115R of the IT Act.
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VI. Tax Deduction at Source
No income-tax is deductible at source from income by way of capital gains under the present provisions of the IT Act in case of residents. However, as per the provisions of Section 195 of the IT Act, any income by way of capital gains, payable to non-residents (other than long-term capital gains exempt under Section 10(38) of the IT Act), may be subjected to the provisions of with-holding tax, subject to the benefits, if any, of tax treaty. Accordingly income tax may have to be deducted at source in the case of a non-resident at the rate under the domestic tax laws or under the tax treaty, whichever is beneficial to the assessee unless a lower withholding tax certificate is obtained from the tax authorities.
VII. Benefits available under the Wealth Tax Act, 1957
Asset as defined under Section 2(ea) of the Wealth Tax Act, 1957 does not include shares in companies and hence, shares are not liable to wealth tax.
VIII. Benefits available under the Gift Tax Act, 1958
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. However any transfer of shares made on or after 1, October 2009 without consideration or for inadequate consideration to an Individual or HUF will be taxable in the hands of receiver under clause (vii) of Section 56(2) of the Income Tax Act, 1961 subject to the prescribed condition and valuation rules.
We have not commented on the taxation aspect under any law for the time being in force, as applicable, of any country other than India. Each investor is advised to consult its own tax consultant for taxation in any country other than India.
Notes:
1. All the above benefits are as per the current tax law and does not take into account the amendments proposed in Finance Bill, 2015.
2. The stated benefits will be available only to the sole/ first named holder in case the equity shares are held by joint holders.
3. In view of the individual nature of tax consequences, each investor is advised to consult his/her own tax advisor with respect to specific tax consequences of his/ her participation in the Issue.
The above statement of possible direct tax benefits sets out the provisions of law in a summary manner only and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of Equity Shares held as investment (and not as stock in trade). The statements made above are based on the tax laws in force and as interpreted by the relevant taxation authorities as of date. Investors are advised to consult their tax advisors with respect to the tax consequences of the purchase, ownership and disposal of the Equity Shares.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material U.S. federal income tax consequences of purchasing, owning and disposing of Equity Shares acquired pursuant to this Issue. This summary does not address any aspect of U.S. federal non-income tax laws, such as U.S. federal estate and gift tax laws, or state, local or non-U.S. tax laws, and does not purport to be a comprehensive description of all of the U.S. tax considerations that may be relevant to a particular person’s decision to acquire Equity Shares.
YOU SHOULD CONSULT YOUR OWN TAX ADVISORS CONCERNING THE U.S. FEDERAL, STATE, LOCAL AND NON-U.S. TAX CONSEQUENCES OF PURCHASING, OWNING AND DISPOSING OF EQUITY SHARES IN YOUR PARTICULAR SITUATION.
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The discussion applies to you only if you acquire the Equity Shares in this Issue and you hold the Equity Shares as capital assets for U.S. federal income tax purposes (generally, for investment). This section does not apply to you if you are a member of a special class of holders subject to special tax rules, including: a broker; a dealer in securities, commodities or foreign currencies; a trader in securities that elects to use a mark-to-market method of accounting for your securities holdings; a bank or other financial institution; a tax-exempt organization; an insurance company; a regulated investment company; an investor who is a U.S. expatriate, former U.S. citizen or former long term resident of the United States; a mutual fund; an individual retirement or other tax-deferred account; a holder liable for alternative minimum tax; a holder that actually or constructively owns 10% or more, by voting power, of the Company’s voting stock; a partnership or other pass-through entity for U.S. federal income tax purposes; a holder that holds Equity Shares as part of a straddle, hedging, constructive sale, conversion or other integrated transaction for U.S. federal income tax purposes; or a U.S. holder (as defined below) whose functional currency is not the U.S. Dollar.
This section is based on the Code, existing and proposed income tax regulations issued under the Code, legislative history, and judicial and administrative interpretations thereof, all as of the date hereof. All of the foregoing are subject to change at any time, and any change could be retroactive and could affect the accuracy of this discussion. In addition, the application and interpretation of certain aspects of the passive foreign investment company (“PFIC”) rules, referred to below, require the issuance of regulations which in many instances have not been promulgated and which may have retroactive effect. There can be no assurance that any of these regulations will be enacted or promulgated, and if so, the form they will take or the effect that they may have on this discussion. This discussion is not binding on the U.S. Internal Revenue Service (“IRS”) or the courts. No ruling has been or will be sought from the IRS with respect to the positions and issues discussed herein, and there can be no assurance that the IRS or a court will not take a different position concerning the U.S. federal income tax consequences of an investment in the Equity Shares or that any such position would not be sustained.
You are a “U.S. holder” if you are a beneficial owner of Equity Shares that acquired the shares pursuant to this Issue and you are: a citizen or resident of the United States; a U.S. domestic corporation, or other entity treated as a domestic corporation for U.S. federal income tax purposes; an estate whose income is subject to U.S. federal income tax regardless of its source; or a trust if (1) a U.S. court can exercise primary supervision over the trust’s administration and one or more U.S. persons are authorised to control all substantial decisions of the trust or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
In addition, this discussion is limited to U.S. holders who are not resident in India for purposes of the Income Tax Treaty between the United States and India.
If a partnership (including for this purpose any entity treated as a partnership for U.S. federal income tax purposes) is a beneficial owner of the Equity Shares, the U.S. tax treatment of a partner in the partnership generally will depend on the status of the partner and the activities of the partnership. A holder of the Equity Shares that is a partnership and partners in such a partnership should consult their own tax advisors concerning the U.S. federal income tax consequences of purchasing, owning and disposing of Equity Shares.
A “non-U.S. holder” is a beneficial owner of Equity Shares that acquired the shares pursuant to this Issue and that is neither a U.S. holder nor a partnership for U.S. federal income tax purposes.
Although not free from doubt, the Company does not believe that it should be treated as, and does not expect to become, a PFIC for U.S. federal income tax purposes. However, no assurance can be given that the Company will not be considered a PFIC in the current or future years. The determination whether or not the Company is a PFIC is a factual determination that is made annually based on the types of income it earns and the value of its assets. If the Company 180
was currently or were to become a PFIC, U.S. holders of Equity Shares would be subject to special rules and a variety of potentially adverse tax consequences under the Code.
Taxation of Dividends
U.S. Holders. Subject to the PFIC rules below, if you are a U.S. holder you must include in your gross income the gross amount of any distributions of cash or property (other than certain pro rata distributions of Equity Shares) with respect to Equity Shares, to the extent the distribution is paid by the Company out of its current or accumulated earnings and profits, as determined for U.S. federal income tax purposes. A U.S. holder will include the dividend income at the time of actual or constructive receipt. Distributions in excess of current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, will be treated as a non-taxable return of capital to the extent of your basis in the Equity Shares and thereafter as capital gain from the sale or exchange of such Equity Shares. Notwithstanding the foregoing, the Company does not intend to maintain calculations of its earnings and profits as determined for U.S. federal income tax purposes. Consequently, distributions generally will be reported as dividend income for U.S. information reporting purposes.
You should not include the amount of any Indian tax paid by the Company with respect to the dividend payment, as that tax is, under Indian law, a liability of the Company and not the shareholders, unless you are a U.S. corporation that owns 10% or more of the voting stock of the Company and also claims a foreign tax credit against your U.S. tax liability for your share of income taxes paid by the Company. The dividend is ordinary income that you must include in income when you receive the dividend, actually or constructively. The dividend will not be eligible for the dividends- received deduction generally allowed to U.S. corporations in respect of dividends received from other U.S. corporations.
Subject to the PFIC rules described below, dividends paid by a non-U.S. corporation generally will be taxed at the preferential tax rates applicable to long-term capital gain of non-corporate taxpayers if (a) such non-U.S. corporation is eligible for the benefits of certain U.S. treaties or the dividend is paid by such non-U.S. corporation with respect to stock that is readily tradable on an established securities market in the United States, (b) the U.S. holder receiving such dividend is an individual, estate, or trust, and (c) such dividend is paid on shares that have been held by such U.S. holder for at least 61 days during the 121-day period beginning 60 days before the “ex-dividend date.” If the requirements of the immediately preceding paragraph are not satisfied, a dividend paid by a non-U.S. corporation to a U.S. holder, including a U.S. holder that is an individual, estate, or trust, generally will be taxed at ordinary income tax rates (and not at the preferential tax rates applicable to long-term capital gains). The dividend rules are complex, and each U.S. holder should consult its own tax advisor regarding the dividend rules.
Dividends received generally will be income from non-U.S. sources, which may be relevant in calculating your U.S. foreign tax credit limitation. Such non-U.S. source income generally will be “passive category income”, or in certain cases “general category income”, which is treated separately from other types of income for purposes of computing the foreign tax credit allowable to you. You should consult your own tax advisor to determine the foreign tax credit implications of owning the Equity Shares.
The amount of the dividend distribution that you must include in your income as a U.S. holder will be the U.S. Dollar value of the Indian Rupee payments made, determined at the spot Indian Rupee/U.S. Dollar exchange rate on the date the dividend distribution is includible in your income, regardless of whether the payment is in fact converted into U.S. Dollars. Generally, any gain or loss resulting from currency exchange fluctuations during the period from the date you include the dividend payment in income to the date you convert the payment into U.S. Dollars will be treated as ordinary income or loss. The gain or loss generally will be income or loss from sources within the United States for foreign tax credit limitation purposes.
Non-U.S. Holders. Dividends paid to non-U.S. holders generally will not be subject to U.S. income tax unless the dividends are “effectively connected” with your conduct of a trade or business within the United States, and the dividends are attributable to a permanent establishment (or in the case of an individual, a fixed place of business) that you maintain in the United States if that is required by an applicable income tax treaty as a condition for subjecting you to U.S. taxation on a net income basis. In such cases you generally will be taxed in the same manner as a U.S. holder (other than with respect to the Medicare Tax described below). If you are a corporate non-U.S. holder, “effectively connected” dividends may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.
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Taxation of Capital Gains
U.S. Holders. Subject to the PFIC rules discussed below, if you are a U.S. holder and you sell, exchange or otherwise dispose of your Equity Shares, you will generally recognize capital gain or loss for U.S. federal income tax purposes equal to the difference between the U.S. Dollar value of the amount realized and your tax basis, determined in U.S. Dollars, in your Equity Shares. Gain or loss recognized on such a sale, exchange or other disposition of Equity Shares generally will be long-term capital gain if the U.S. holder has held the Equity Shares for more than one year. Long-term capital gains of U.S. holders who are individuals (as well as certain trusts and estates) are generally taxed at a maximum rate of 20%. The gain or loss will generally be income or loss from sources within the United States for foreign tax credit limitation purposes, unless it is attributable to an office or other fixed place of business outside the United States and certain other conditions are met. Your ability to deduct capital losses is subject to limitations.
Non-U.S. Holders. If you are a non-U.S. holder, you will not be subject to U.S. federal income tax on gain recognized on the sale, exchange or other disposition of your Equity Shares unless: the gain is “effectively connected” with your conduct of a trade or business in the United States, and the gain is attributable to a permanent establishment (or in the case of an individual, a fixed place of business) that you maintain in the United States if that is required by an applicable income tax treaty as a condition for subjecting you to U.S. taxation on a net income basis; or you are an individual, you are present in the United States for 183 or more days in the taxable year of such sale, exchange or other disposition and certain other conditions are met. In the first case, the non-U.S. holder will be taxed in the same manner as a U.S. holder (other than with respect to the Medicare Tax described below). In the second case, the non-U.S. holder will be subject to U.S. federal income tax at a rate of 30% on the amount by which such non-U.S. holder’s U.S.-source capital gains exceed such non-U.S.-source capital losses.
If you are a corporate non-U.S. holder, “effectively connected” gains that you recognize may also, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.
Medicare Tax
Certain U.S. holders who are individuals, estates or trusts are required to pay a 3.8% Medicare surtax on all or part of that holder’s “net investment income”, which includes, among other items, dividends on, and capital gains from the sale or other taxable disposition of, the Equity Shares, subject to certain limitations and exceptions. Prospective investors should consult their own tax advisors regarding the effect, if any, of this surtax on their ownership and disposition of the Equity Shares.
PFIC Considerations
The Code provides special rules regarding certain distributions received by U.S. persons with respect to, and sales, exchanges and other dispositions, including pledges, of, shares of stock in a PFIC. A foreign corporation will be treated as a PFIC for any taxable year in which either: (i) at least 75 percent of its gross income is “passive income” or (ii) at least 50 percent of its gross assets during the taxable year (based on the average of the fair market values of the assets determined at the end of each quarterly period) are “passive assets,” which generally means that they produce passive income or are held for the production of passive income. Passive income for this purpose generally includes, among other things, dividends, interest, rents, royalties, gains from commodities and securities transactions, and gains from assets that produce passive income. In determining whether a foreign corporation is a PFIC, a pro rata portion of the income and assets of each corporation in which it owns, directly or indirectly, at least a 25% interest (by value) is taken into account.
Although not free from doubt, the Company does not believe that it should be treated as, and does not expect to become, a PFIC for U.S. federal income tax purposes, but the Company’s possible status as a PFIC must be determined for each year and cannot be determined until the end of each taxable year. Because this determination is made annually at the end of each taxable year and is dependent upon a number of factors, some of which are beyond the Company’s control, including the amount and nature of the Company’s income, as well as on the market valuation of the Company’s assets and the Company’s spending schedule for its cash balances and the proceeds of the Issue, and because certain aspects of the PFIC rules are not entirely certain, there can be no assurance that the Company is not a PFIC and will not become a PFIC or that the IRS will agree with our conclusion regarding our PFIC status. 182
A U.S. holder that holds stock in a foreign corporation during any taxable year in which the corporation qualifies as a PFIC is subject to special tax rules with respect to (a) any gain realized on the sale, exchange or other disposition of the stock and (b) any “excess distribution” by the corporation to the holder, unless the holder elects to treat the PFIC as a “qualified electing fund” (“QEF”) or makes a “mark-to-market” election, each as discussed below. An “excess distribution” is that portion of a distribution with respect to PFIC stock that exceeds 125% of the average of such distributions over the preceding three-year period or, if shorter, the U.S. holder’s holding period for its shares. Excess distributions and gains on the sale, exchange or other disposition of stock of a corporation which was a PFIC at any time during the U.S. holder’s holding period are allocated ratably to each day of the U.S. holder’s holding period. Amounts allocated to the taxable year in which the disposition occurs and amounts allocated to any period in the shareholder’s holding period before the first day of the first taxable year that the corporation was a PFIC will be taxed as ordinary income (rather than capital gain) earned in the taxable year of the disposition. Amounts allocated to each of the other taxable years in the U.S. holder’s holding period are not included in gross income for the year of the disposition, but are subject to a special tax (equal to the highest ordinary income tax rates in effect for those years, and increased by an interest charge at the rate applicable to income tax deficiencies) that is added to the regular tax for the taxable year in which the disposition occurs. The preferential U.S. federal income tax rates for dividends and long-term capital gain of individual U.S. holders (as well as certain trusts and estates) would not apply, and special rates would apply for calculating the amount of the foreign tax credit with respect to excess distributions. In addition, a U.S. holder who acquires shares in a PFIC from a decedent generally will not receive a “stepped-up” fair market value tax basis in such shares but, instead, will receive a tax basis equal to the decedent’s basis, if lower.
If a corporation is a PFIC for any taxable year during which a U.S. holder holds shares in the corporation, then the corporation generally will continue to be treated as a PFIC with respect to the holder’s shares, even if the corporation no longer satisfies either the passive income or passive asset tests described above, unless the U.S. holder terminates this deemed PFIC status by electing to recognize gain, which will be taxed under the excess distribution rules as if such shares had been sold on the last day of the last taxable year for which the corporation was a PFIC. The excess distribution rules may be avoided if a U.S. holder makes a QEF election effective beginning with the first taxable year in the holder’s holding period in which the corporation is a PFIC. A U.S. holder that makes a QEF election is required to include in income its pro rata share of the PFIC’s ordinary earnings and net capital gain as ordinary income and long-term capital gain, respectively, subject to a separate election to defer payment of taxes, which deferral is subject to an interest charge. A U.S. holder whose QEF election is effective after the first taxable year during the holder’s holding period in which the corporation is a PFIC will continue to be subject to the excess distribution rules for years beginning with such first taxable year for which the QEF election is effective.
In general, a U.S. holder makes a QEF election by attaching a completed IRS Form 8621 to a timely filed (taking into account any extensions) U.S. federal income tax return for the year beginning with which the QEF election is to be effective. In certain circumstances, a U.S. holder may be able to make a retroactive QEF election. A QEF election can be revoked only with the consent of the IRS. In order for a U.S. holder to make a valid QEF election, the corporation must annually provide or make available to the holder certain information. The Company does not intend to provide to U.S. holders the information required to make a valid QEF election and the Company currently makes no undertaking to provide such information.
As an alternative to making a QEF election, a U.S. holder may make a “mark-to-market” election with respect to its PFIC shares if the shares meet certain minimum trading requirements. If a U.S. holder makes a valid mark-to-market election for the first tax year in which such holder holds (or is deemed to hold) stock in a corporation and for which such corporation is determined to be a PFIC, such holder generally will not be subject to the PFIC rules described above in respect of its stock. Instead, a U.S. holder that makes a mark-to-market election will be required to include in income each year an amount equal to the excess of the fair market value of the shares that the holder owns as of the close of the taxable year over the holder’s adjusted tax basis in the shares. The U.S. holder will be entitled to a deduction for the excess, if any, of the holder’s adjusted tax basis in the shares over the fair market value of the shares as of the close of the taxable year; provided, however, that the deduction will be limited to the extent of any net mark-to-market gains with respect to the shares included by the U.S. holder under the election for prior taxable years. The U.S. holder’s basis in the shares will be adjusted to reflect the amounts included or deducted pursuant to the election. Amounts included in income pursuant to a mark-to-market election, as well as gain on the sale, exchange or other disposition of the shares, will be treated as ordinary income. The deductible portion of any mark-to-market loss, as well as loss on a sale, exchange or other disposition of shares to the extent that the amount of such loss does not exceed net mark-to-market gains previously included in income, will be treated as ordinary loss.
The mark-to-market election applies to the taxable year for which the election is made and all subsequent taxable years, 183
unless the shares cease to meet applicable trading requirements (described below) or the IRS consents to its revocation. The excess distribution rules generally do not apply to a U.S. holder for tax years for which a mark-to-market election is in effect. However, if a U.S. holder makes a mark-to-market election for PFIC stock after the beginning of the holder’s holding period for the stock, a coordination rule applies to ensure that the holder does not avoid the tax and interest charge with respect to amounts attributable to periods before the election.
A mark-to-mark election is available only if the shares are considered “marketable” for these purposes. Shares will be marketable if they are regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission or on a non-U.S. exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. For these purposes, shares will be considered regularly traded during any calendar year during which they are traded, other than in negligible quantities, on at least 15 days during each calendar quarter. Any trades that have as their principal purpose meeting this requirement will be disregarded. Each U.S. holder should ask its own tax advisor whether a mark-to-market election is available or desirable.
If the Company were to be treated as a PFIC in a taxable year and owned shares in another PFIC (a “lower–tier PFIC”), a U.S. holder would also be subject to the PFIC rules with respect to its indirect ownership of the lower-tier PFIC.
A U.S. holder of PFIC stock must generally file an IRS Form 8621 annually. A U.S. holder must also provide such other information as may be required by the U.S. Treasury Department if the U.S. holder (i) receives certain direct or indirect distributions from a PFIC, (ii) recognizes gain on a direct or indirect disposition of PFIC stock, or (iii) makes certain elections (including a QEF election or a mark-to-market election) reportable on IRS Form 8621.
U.S. holders are urged to consult their tax advisors as to the Company’s status as a PFIC, and, if the Company is treated as a PFIC, as to the effect on them of, and the reporting requirements with respect to, the PFIC rules and the desirability of making, and the availability of, either a QEF election or a mark-to-market election with respect to our ordinary shares. The Company provides no advice on taxation matters.
Information with Respect to Foreign Financial Assets
In addition, a U.S. holder that is an individual (and, to the extent provided in future regulations, an entity), may be subject to certain reporting obligations with respect to Equity Shares if the aggregate value of these and certain other “specified foreign financial assets” exceeds $50,000. If required, this disclosure is made by filing Form 8938 with the U.S. Internal Revenue Service. Significant penalties can apply if U.S. holders are required to make this disclosure and fail to do so. In addition, a U.S. holder should consider the possible obligation to file a Form TD F 90-22.1—Foreign Bank and Financial Accounts Report as a result of holding Equity Shares. U.S. holders are thus encouraged to consult their U.S. tax advisors with respect to these and other reporting requirements that may apply to their acquisition of Equity Shares.
Backup Withholding and Information Reporting
In general, information reporting requirements will apply to distributions made on our Equity Shares within the U.S. to a non-corporate U.S. holder and to the proceeds from the sale, exchange, redemption or other disposition of Equity Shares by a non-corporate U.S. holder to or through a U.S. office of a broker. Payments made (and sales or other dispositions effected at an office) outside the U.S. will be subject to information reporting in limited circumstances.
In addition, backup withholding of U.S. federal income tax may apply to such amounts if the U.S. holder fails to provide an accurate taxpayer identification number (or otherwise establishes, in the manner provided by law, an exemption from backup withholding) or to report dividends required to be shown on the U.S. holder’s U.S. federal income tax returns.
Backup withholding is not an additional income tax, and the amount of any backup withholding from a payment to a U.S. holder will be allowed as credit against the U.S. holder’s U.S. federal income tax liability provided that the appropriate returns are filed.
A non-U.S. holder generally may eliminate the requirement for information reporting and backup withholding by providing certification of its foreign status to the payor, under penalties of perjury, on IRS Form W-8BEN or W-8BEN- E, as applicable. You should consult your own tax advisor as to the qualifications for exemption from backup withholding and the procedures for obtaining the exemption. 184
The foregoing does not purport to be a complete analysis of the potential tax considerations relating to the Placement, and is not tax advice. Prospective investors should consult their own tax advisors as to the particular tax considerations applicable to them relating to the purchase, ownership and disposition of the Equity Shares, including the applicability of the U.S. federal, state and local tax laws or non-tax laws, foreign tax laws, and any changes in applicable tax laws and any pending or proposed legislation or regulations.
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LEGAL PROCEEDINGS Except as described below, our Company and its Subsidiaries are not involved in any legal proceedings and disputes, and no proceedings are threatened, which may have, or have had, a material adverse effect on the business, financial condition, cash flows or operations of our Company and its Subsidiaries. The Company believes that the number of proceedings and disputes in which the Company and its Subsidiaries is involved is not unusual for a company of its size in the context of doing business in India and in international markets. Civil cases involving an amount of ₹ 50 million or more have been disclosed below. Additionally all material cases pertaining to the Company and the Subsidiaries involving public interest litigations, environmental cases, criminal cases and land disputes relating to project sites, have also been disclosed below.
Litigations involving our Company
1. Mr. Pramod Wankhade and Mr. Sunil Dhote (the “Petitioners”) have filed a public interest litigation before the Nagpur bench of High Court of Bombay, against our Company and others, alleging that a certain toll tax booth on National Highway-6 constructed by our Company was causing inconvenience and loss to the public. The Petitioners have petitioned for the toll plaza construction to be declared illegal and contrary to the National Highways Fee (Determination of Rates and Collection) Rules, 2008. Further, the Petitioners have petitioned for a direction against our Company to shift the particular toll booth and to restrain our Company from collecting the toll tax from persons proceeding towards certain villages till the disposal of this petition. The Petitioners have further amended the petition to challenge the intended increase in the toll rates from April 01, 2014 and have alleged the same to be illegal. Our Company has filed its reply dated January 27, 2015. The matter is pending.
2. Mr. Vasantrai Harilal Gohil and Mr. Vijay Vasantrai Gohil (the “Plaintiffs”) have filed a special civil suit before the Court of the Civil Judge (Senior Division) at Vasai, against our Company, certain of its directors and certain employees of our Company. The Plaintiffs have alleged that on January 05, 2011, certain employees of our Company acted violently and forcefully with them when they could not provide a money change at the toll plaza at Khanivade, Taluka Vasai. The Plaintiffs have alleged that they were chased, threatened and beaten by the employees of our Company which resulted in serious injuries. The Plaintiffs have sought a direction that our Company and its directors be directed to pay the medical expenses of ₹ 0.5 million incurred by the Plaintiffs along with damages of ₹ 50 million with interest. The Plaintiffs have also sought a direction from the court requiring our Company and the directors to disclose on oath, their respective movable and immovable property and to record charge of ` 50.5 million over such property until the decreetal amount is paid. The Plaintiffs have filed an application for adding IRB Surat Dahisar Tollway Private Limited as a necessary party in the suit. Our Company, its directors and employees have filed their reply in the matter. The matter is pending.
3. Mr. Arjun Rama Ghatal has filed a complaint against our Company and Modern Road Makers Private Limited (the “Opponents”) before the office of Tahasildar and Executive Magistrate, Palghar, for payment of land cess and compensation for possession of land by installing tar plant machine of our Company at land situated at Mauje Wada. Our Company has filed its replies dated July 4, 2013 and October 17, 2013. The matter is pending.
Litigation involving our Promoters/Directors
1. In 2009, pursuant to a complaint filed by a social worker and right to information activist (“RTI Activist”), a case was registered at Lonavala City police station against Mr. Deepak D. Gadgil, Head Realty, Airport and Hospitality of our Company and certain others including our Promoter, chairman and Managing Director, Mr. Virendra D. Mhaiskar, alleging illegal purchase of governmental land in village Pimpaloli and village Ozarde, Taluke Maval, District Pune on the basis of fake and forged documents. Further, on January 13, 2010, the RTI Activist was murdered by unknown persons and the investigation of the murder case of the RTI Activist was subsequently transferred from local police to the Central Bureau of Investigation (“CBI”). While the murder investigation was ongoing, a closure report filed by the police in relation to the illegal land purchase case which was accepted by the Judicial Magistrate, First Class Vadgaon Maval, District Pune in December 2011. The CBI has issued multiple notices to Mr. Virendra D. Mhaiskar, along with Mr. Deepak D. Gadgil and Mr. Jayant D. Dangre, Chief Liasoning Manager of Modern Road Makers Private Limited, our Subsidiary, asking for documents and information and personal appearance for questioning in connection with the murder investigation of the RTI Activist. Further, pursuant to a criminal writ petition filed before the Bombay High Court, it was ordered on August 8, 2014 that the matter relating to land acquisition be reinvestigated by the CBI in light of the murder investigation. CBI had filed a closure report dated August 11, 2014 (the “Closure Report”) before the Judicial Magistrate, First Class Vadgaon 186
Maval, District Pune after conducting its investigation against Mr. Deepak D. Gadgil and Mr. Virendra D. Mhaiskar and certain others. As per the publicly available sources, the CBI had stated in the Closure Report that there was no prosecutable definite evidence against any of the accused and there was no direct evidence against our Promoter in connection with the murder, and had recommended that the investigation be closed due to insufficient evidence. The Closure Report is pending acceptance or rejection, as the case may be, before the Judicial Magistrate, First Class Vadgaon Maval, District Pune and the matter has been transferred from the Judicial Magistrate, First Class Vadgaon Maval, District Pune to the Sessions Court, Pune. A relative of the deceased has challenged the Closure Report in the Bombay High Court and this matter is currently pending. Officers from the CBI visited the Company offices and certain other locations on January 5, 2015 in connection with the illegal land purchase reinvestigation ordered by the Bombay High Court (as specified above). We have also submitted certain documents and certain other items, including personal documents of our Promoter that the CBI officers had required during their visit to our offices. We understand from recent media reports that the CBI would also reinvestigate the murder case, for which the Closure Report is currently pending for acceptance (as mentioned above).
2. The Inspector of Legal Metrology, Amravati (Division 3) (“Complainant”) has filed a complaint before the Court of Chief Judicial Magistrate (First Class), Amravati, against certain current and former directors of our Company and seven directors of Rajdeep Info Techno Private Limited (together “Accused Persons”) for contravention of Rule 21 and 22 of the Maharashtra Legal Metrology (Enforcement) Rules, 2011 (the “Rules”). The Complainant had inspected the premises of MRMPL in District Amravati on December 6, 2014 and seized 10 automatic electronic “in-motion weigh bridges” for road vehicle weighing in motion (axle load weighing) with digital indication of series “SWIM-20” weighing indicators of make “Rajdeep Wim”. The matter is pending.
3. Registrar of Companies, Mumbai (“RoC”) had filed a case before the Additional Chief Metropolitan Magistrate, 40th Court, Girgaon, Mumbai, against Premier Automobiles Limited (“Premier”) and its directors including Mr. B.K. Khare, further to a complaint received from Mr. Shailesh Mehta one solitary shareholder, upon paying the dividend declared in the year 1997-98 late by two years and five months due to acute financial liquidity. Subsequently the dividend was paid off on December 14, 2001 along with 14% per annum interest. Mr. B. K. Khare had filed an affidavit to exempt him from litigation due to his advanced age, indifferent health and no direct involvement in the matter. As the dividend is already paid with interest to all shareholders long time back, Premier has approached the Ministry of Company Affairs, New Delhi for withdrawal of the case and has been granted approval for the same vide letter dated August 27, 2013.
4. Deputy Registrar of Companies (“Complainant”) filed a complaint before the Additional Chief Metropolitan Magistrate, Mumbai, against Globe Active Technologies Limited (“Global”), Mr. G G Desai and 3 others (together, the “Accused Persons”) alleging that Global failed in holding annual general meeting by September 30, 2003, and had also failed to file the annual returns as per the provisions of the Companies Act, 1956. The Complainant had prayed for process to be issued against the Accused Persons, directions to be issued to the Accused Persons to file the balance sheet and profit and loss statement and provide the minutes book of Global. Mr. G G Desai, vide letter dated May 5, 1999 informed the Complainant that he had ceased to be the director of Global from May 4, 1999. The matter is pending.
5. SBI Global Factors Limited has filed a complaint before the Metropolitan Court, Bandra, against Indage Vintners Limited, Indage Restaurants and Leisure Limited and its directors (including Mr. G. G Desai) under section 138 of the Negotiable Instruments Act, 1881, alleging the dishonour of cheques issued to them. A group of independent directors took up the matter to Bombay High Court, which held that the independent directors were not liable under 138 of the Negotiable Instruments Act, 1881. The petitions were withdrawn. The matter is pending.
6. The order dated July 9, 2013 was passed pursuant to a settlement application dated September 27, 2012 made by MEP Infrastructure Developers Limited (the “Settlement Application”) in relation to assessment years 2006-2007 to 2012-2013. On July 21, 2007, a search under section 132(1) of the Income Tax Act, 1961 was carried out on the business premises of MEP Infrastructure Developers Limited, MEP Infrastructure Private Limited, Baramati Tollways Private Limited, Raima Ventures Private Limited, A.J. Tolls Private Limited, Jayant D. Mhaiskar and Dattatray P. Mhaiskar (collectively, the “Parties”) by the income tax department where certain documents were found and seized, pursuant to which the Settlement Application was made by the Parties for settlement of income. The orders dated October 4, 2012, November 20, 2012 and July 9, 2013 passed by the Settlement Commission under sections 245D(1), 245D(2C) and 245D(4), respectively, of the Income Tax Act, 1961 have been challenged and a writ petition has been filed before the High Court of Bombay on the grounds that (a) the Settlement Application did not contain true and adequate disclosure of income which was not taken into account by the Settlement Commission while passing the impugned orders; (b) the Settlement Commission accepted disclosure on 187
account of unrecorded expenditure on the basis of expense vouchers instead of income from unaccounted toll receipts; and (c) the losses claimed in the application filed before the Settlement Commission were not authentic and the Income Tax Department was not given an opportunity to further investigate and examine the claims, thereby precluding a true and full investigation of the disclosure of income. The matter is currently pending in the High Court of Bombay.
Litigations involving IRB Kolhapur Integrated Road Development Company Private Limited
1. IRB Kolhapur Integrated Road Development Company Private Limited (“IRB Kolhapur”) in July 2013 had filed a writ petition in the High Court of Bombay seeking adequate police protection for each of the nine toll plazas and all other establishments under the comprehensive integrated road development project at Kolhapur (“Project”) so as to ensure that the collection of toll at the Project be commenced without interference. IRB Kolhapur has also alleged the delay in issuance of the provisional certificate by Kolhapur Municipal Corporation, which has to be issued upon completion of 95 % of the project, which would allow it to start collection of the toll. The Bombay High Court by order dated September 26, 2013 granted police protection to IRB Kolhapur for assisting them in the collection of toll at the Project. There were certain other writ petitions and public interest litigation filed in relation to the Project, which were finally dismissed by the High Court of Bombay by its order dated October 14, 2014. A special leave petition has been filed by Subhash Popatrao Wani and others before the Supreme Court of India under Article 136 of Constitution of India against the impugned order dated October 14, 2014 passed by the High Court of Bombay. The matter is pending.
2. New Shivaji Timber Market Association through its members (the “Appellant”) has filed a civil suit before Civil Judge (Senior Division), Kolhapur, against IRB Kolhapur, Kolhapur Municipal Corporation (“KMC”) and others, (collectively the “Respondents”), alleging that the plot given to IRB Kolhapur for commercial purposes on lease for 99 years was used by the Appellant for timber market business, after which the same was reserved for playground. The Appellant have sought that the plot should be taken back from IRB Kolhapur and the plan of construction of a hotel by Aryan Hospitality Private Limited, a Subsidiary of IRB Kolhapur, should not be carried out. IRB Kolhapur has filed its reply in the suit. The matter is pending.
3. Mr. Nivrutti Tukaram Chawgole and 41 others (collectively the “Petitioners”) have filed a civil suit before Civil Judge (Senior Division), Kolhapur, against IRB Kolhapur, Kolhapur Municipal Corporation (“KMC”) and others (collectively the “Respondents”). The Petitioners have sought that the Respondents be restricted to carry out the work on the IRB Kolhapur road project as the estimated cost of the project is too high and the necessary land has not been acquired by KMC. The Petitioners have further sought that a fresh tender be issued for the construction of roads and tolls in Kolhapur. IRB Kolhapur has filed its reply in the suit. The matter is pending
4. Mr. Ramesh Ramchandra Badi and Mr. Narayan Gundu Powar (collectively the “Plaintiffs”) have filed a suit before the court of Civil Judge (Senior Division), Kolhapur, against IRB Kolhapur and others (collectively the “Defendants”) for declaring the concession agreement dated July 10, 2008 for the implementation of Kolhapur Integrated Road Development Project in the city of Kolhapur, as illegal, void and not binding on the citizens of Kolhapur as the same is alleged to be sanctioned by fraud and undue influence. The Plaintiffs have also alleged that the concession agreement is not stamped and registered as required by law. IRB Kolhapur has filed its written statement in the suit. The matter is pending.
5. Mr. Bhagwan Shankarrao Patil (the “Plaintiff”) has filed a suit before the Court of Civil Judge (Senior Division) Kolhapur, against Commissioner (Kolhapur Municipal Corporation), IRB Kolhapur and others (the “Defendants”) for permanent injunction for issuing a permanent injunction against the Defendants from entering into the premises of the Plaintiff and carrying out any drainage work. The Plaintiff has alleged that the Defendants have demolished the compound wall and the gate of the compound of the Plaintiff’s house illegally and forcefully without paying heed to the objection of the Plaintiff’s wife which caused her a mental shock. The Plaintiff has prayed that the Defendants be ordered to reinstate the compound wall at their own cost. IRB Kolhapur has filed its reply dated February 15, 2012. The matter is pending.
6. Mr. Jairaj Koran Wellayan (the “Plaintiff”) has filed a suit before the Court of Civil Judge (Senior Division), Kolhapur, against IRB Kolhapur and six others (the “Defendants”) for a mandatory injunction against IRB Kolhapur directing them to remove the illegal construction of their toll booth on the northern side of Shahu Naka on the old Pune-Bangalore highway and thus give access through 50’east-west road to the society of the Plaintiff i.e. Vaibhav Co-operative Housing Society. The Plaintiff has alleged that IRB Kolhapur has not obtained any
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appropriate legal permission from the concerned departments for carrying out the construction to close the 50’east- west road. IRB Kolhapur has filed its reply dated November 2, 2012. The matter is pending.
Litigations involving Aryan Hospitality Private Limited
Mr. Jaykumar Govindrao Nikam and eight others (the “Plaintiffs”) have filed a suit before the Court of Civil Judge, (Senior Division) Kolhapur, against Aryan Hospitality Private Limited (“Aryan”) praying for a permanent injunction against Aryan restraining them from carrying out any construction on the property of the Plaintiffs along with directing Aryan to remove the construction from the property of the Plaintiffs. The Plaintiffs have alleged that Aryan had started illegal construction on the self-acquired property of the Plaintiffs, over which Aryan has no rights. Aryan has filed its reply dated April 1, 2014. The matter is currently pending.
Litigations involving ATR Infrastructure Private Limited
Mr. Kishore Dyanoba Shevkari (the “Petitioner”) has filed a writ petition before the High Court of Bombay, against ATR Infrastructure Private Limited (“ATR”) and others. The Petitioner has claimed that due to widening of Pune – Nashik National Highway, an existing water outlet meant for drawing out surplus water was affected and the water was getting accumulated in the service road and in the premises of the Petitioner. The Petitioner further contended that there was substantial accumulation of water because of which the public was unable to use the service road and there was an apprehension of spreading of diseases due to accumulation of water. The Petitioner claimed that no appropriate actions had been taken by the authorities and sought a direction that arrangements for draining of the sewerage and natural water on both sides of the Pune – Nashik National Highway should be provided by ATR and the other respondents. ATR has filed its reply dated December 12, 2014. The matter is pending.
Litigations involving IRB Pathankot Amritsar Toll Road Private Limited
1. Mr. Sartaj Singh (the “Petitioner”) has filed a petition before the Additional Civil Judge (Senior Division), Batala, against the Project Director of IRB Pathankot Amritsar Toll Road Private Limited (“IRB Pathankot”) and others (collectively, the “Respondents”) for restraining the Respondents from interfering in the ownership as well as cutting of trees on the land admeasuring 51 kanals 6 marlas situated in village Sekhpur (“Land”). The Additional Civil Judge (Senior Division), Batala, passed a decree dated September 26, 2009 for permanent injunction restraining the Respondents from interfering in the Land illegally and forcibly (“Decree”). The Petitioner has alleged that the Respondents deliberately violated the Decree by interfering in the Land for the purposes of encroachment in and over the Land and for cutting of trees standing on the Land. The Petitioner further filed an application dated November 24, 2012 for compliance of the Decree, issuance of contempt order against the Respondents, detention of Respondents in civil prison and the attachment of their personal properties. IRB Pathankot has filed its reply dated August 12, 2013. The matter is pending.
2. Mr. Gurudev Singh (the “Complainant”) has filed a first information report under section 154 of the Code of Criminal Procedure, 1973, against IRB Pathankot and its contractor, J.S Grover, alleging that his brother-in-law’s son fell down in the ditch and remained in the ditch all night due to unconsciousness on the service road which was under the maintenance of IRB Pathankot. The Complainant’s brother-in-law’s son was taken to the hospital next morning and died due to serious injuries. The matter is pending.
3. Mr. Sarvan Singh (the “Complainant”) has filed a first information report under section 154 of the Code of Criminal Procedure, 1973, against the road’s project manager of IRB Pathankot, alleging that his nephew fell in the ditch on the road and suffered serious injuries. The road was being managed by IRB Pathankot and the Complainant has alleged that the accident happened due to the absence of any indicator for stopping anybody from going that way. The matter is pending.
Ideal Road Builders Private Limited
1. Mr. Shamshuddin Miyalal Mushriff (the “Petitioner”) has filed a public interest litigation before the High Court of Bombay, against Ideal Road Builders Private Limited (the “Respondent”) and others, alleging that the action of the Respondent to collect tolls on the route between Pune to Kagal as illegal and against rules of law. The Petitioner has sought to declare certain provisions of the National Highways Act 1956 and the National Highways (Collection of Fees by any person for the use of section of National Highways/Permanent Bridge/Temporary/Bridge on National Highway) Rules, 1997 and the National Highways (Fees for the use of National Highway Section and Permanent Bridge - Public Funded Project) Rules, 1997 as being contrary to and in violation of the provisions of 189
the Constitution of India and to declare the said provisions as illegal. The Petitioner has also sought direction from the court to restrain the Respondent from collecting toll for the use of public funded projects and that the Respondent be ordered not to collect toll unless another common road has been provided. Further, the Petitioner has also sought a direction against the Central and State governments to stop BOT projects, other than highways and bridges, that have been given to private parties without crediting the amount collected to the public account of India or the State accounts. The Respondent has filed its reply in the matter. The matter is pending.
2. Mr. Pratap Sarnaik (the “Petitioner”) has filed a public interest litigation before the High Court of Bombay against Ideal Road Builders Private Limited (the “Respondent”) and others, alleging that the action of the Respondents of collecting toll at the Thane-Ghodbunder Road (the “Road”) is illegal and against the provision of the Tolls Act, 1851. The Petitioner has sought a direction restraining the Respondent from collecting toll at the Road and to submit the accounts to the Court showing cost incurred in construction, repair and maintenance of the Road and account of total toll collected from the Road. The Respondent has filed its reply in the matter. The matter is pending.
3. K.N.Patil (the “Complainant”) has filed a complaint before the Judicial Magistrate First Class, Thane, against Ideal Road Builders Private Limited, Mr. Dattatraya Mhaiskar, Mr. Virendra Mhaiskar and two others (the “Accused Persons”) alleging the Accused Persons for an offence under the Private Security Guards (Regulation and Employment) Scheme, 1981, read with section 3(3) of the Maharashtra Private Security Guards (Regulation and Employment) Act, 1981.
Litigations involving IRB Sindhudurg Airport Private Limited
Bhoomi Bachav Kriti Samiti and Mr. Chandravadan Balkrishna (the “Petitioners”) have filed a public interest litigation before the High Court of Bombay against IRB Sindhudurg Airport Private Limited (“IRBSAPL”) and others (collectively the “Respondents”). The Petitioners have alleged that State of Maharashtra, one of the Respondents, had acquired certain land for public purposes but had not used the same accordingly and leased it to IRBSAPL for a period of 95 years for construction and operation of a Greenfield Airport which according to Policy on Airport Infrastructure of India could not be allowed on that land. The Petitioners have sought directions to provide basic amenities and opportunities of employment to the people affected by the project. The High Court of Bombay passed an order dated January 17, 2014 asking the Respondents to take a decision with regard to providing temporary access to the acquired property for the inhabitants of the village. Further, the High Court of Bombay vide order dated July 1, 2014, directed the Superintendent of Land Records, Sindhudurg, to carry out a survey and demarcate the land leased to IRBSAPL. IRBSAPL has filed its reply in the matter. The matter is pending.
Litigations involving MVR Infrastructure Tollways Private Limited
1. Certain colleges in Salem (the “Petitioners”) have filed multiple writ petitions before the High Court of Madras, against MVR Infrastructure Tollways Private Limited (“MVR”) and others (collectively the “Respondents”) alleging the legality of act of collecting entry fee at increased rates from college buses. The Petitioners have sought the directions against Respondents to collect entry fee at toll plaza for educational institution vehicles at par with that of school buses. An order dated December 14, 2012 was passed by the High Court of Madras, which took into consideration various petitions filed against MVR regarding the abovementioned issue and held that the discounted rates were only applicable to school buses carrying school students and not to college buses. However, pursuant to an order dated January 24, 2013, the High Court of Madras has granted an interim stay and ordered MVR to collect entry fee from the college buses of the Petitioners at par with the rates applicable to school buses. The matter is pending.
2. Mr. A. Thamizharasu and Salem District Bus Owners Association (collectively the “Petitioners”) have filed two writ petitions before the High Court of Madras against MVR and others. The Petitioners have contended that the four lane of 180.000 km to 199.200 km of Thambipadi to Salem section on NH7 has been implemented by National Highways Authority of India except the construction of the flyover at Omalur Junction. MVR was awarded to implement the project between 207.050 km to 248.625 km of Salem to Namakkal section on NH7 under BOT scheme. MVR was establishing a toll plaza at Kottagoundampatti at 191.800 km of Thambipadi to Salem section on NH7. The Petitioners have alleged that as per the concession agreement, MVR could establish a toll plaza only between Salem to Namakkal section and not at 191.800 km at Kottagoundampatti, which is the project executed by National Highways Authority of India. The Petitioners have sought direction that MVR shall be restricted from setting up toll plaza at Kottagoundampatti at 191.800 km. MVR has filed its reply in the matter. The matter is pending. 190
Litigations involving Mhaiskar Infrastructure Private Limited
1. Mhaiskar Infrastructure Private Limited (the “Petitioner”) has filed a writ petition before the High Court of Bombay, against Maharashtra State Road Development Corporation (“MSRDC”). The Petitioner had entered into an agreement with MSRDC in the year 2004, wherein it was required to act as an agent of MSRDC for the purpose of expansion of roads and construction of bridges on National Highway No. 4. The Petitioner was required to pay MSRDC upfront amount of ₹ 9180 million on or before August 15, 2008. The Collector of Stamps and other authorities called upon the Petitioner to pay the deficit stamp duty of ₹ 275.4 million along with the penalty of ₹ 49.57 million levied from the date of the execution of the agreement to the date of issuance of the notice by the Collector of Stamps, under the Bombay Stamp Act, 1958. An order dated April 28, 2008, was passed by the High Court of Bombay wherein it placed the petition to be heard along with similar petitions before the Chief Justice for further appropriate orders. The matter is pending.
2. Ms. Juliee Dipak Patil (the “Plaintiff”) has filed a suit before the Court of Civil Judge (Junior Division) at Khalapur, Raigad, against Mhaiskar Infrastructure Private Limited (the “Defendant”) for issuing an injunction order restraining the Defendant from entering the premises of the Plaintiff. The Plaintiff has alleged that the contractors of the Defendant unauthorisedly and forcefully entered the property that belongs to the Plaintiff and started removing and carrying the soil even after the Plaintiff tried to stop them. The matter is currently pending.
Litigations involving Modern Road Makers Private Limited
1. For the assessment years 2008-09, 2009-10, 2010-11, 2011-12 and 2012-13, the income tax department passed assessment orders each dated March 28, 2014 (“Assessment Orders”), raising tax demand of ` 314.56 million including Interest of ` 119.62 million. The returned income of MRMPL has been enhanced for a number of reasons including disallowance of expenditure and disallowing depreciation on certain materials used in fixed assets. MRMPL has filed appeals dated April 16, 2014 against the Assessment Orders. The matter is pending.
2. The Regional Labor Commissioner, Baroda issued a show cause notice dated February 19, 2015 to Modern Road Makers Private Limited (“MRMPL”) to show cause as to why legal action should not be initiated for contravention of Building and other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 (the “Act”) and Rules made thereunder, further to the occurrence of an accident causing loss of life of Mesu Bijyabhai Kharediya on February 11, 2015 at the building and construction site of MRMPL at Dumad Chokdi flyover. MRMPL was alleged for not reporting an accident within four hour hours of its occurrence. MRMPL vide its letter dated March 4, 2015 replied to the Regional Labor Commissioner, Baroda submitting the form XIV under the Act. The matter is pending.
Litigations involving IRB Tumkur Chitradurga Tollway Private Limited
IRB Tumkur Chitradurga Tollway Private Limited (“Claimant”) has initiated an arbitration proceeding against National Highways Authority of India (“Respondent”) with respect to six laning of Tumkur Chitradurga section of National Highway-4 in the state of Karnataka (“Project”). The statement of claim was filed by the Claimant, claiming an amount of ₹ 170.89 million as on July 31, 2014 on account of losses incurred by the Claimant due to evasion of toll by the vehicles on the said route along with interest. The Claimant established some temporary toll booth to collect toll from the toll evaders. However, the Respondent has concluded that the toll booths were illegally placed and instructed their closure. The Claimant has sought the directions that the Claimant shall be allowed to construct the temporary toll booths and collect toll at such toll booths. The Respondent has filed its reply in the matter. The matter is pending.
Litigations involving IRB Goa Tollway Private Limited
IRB Goa Tollway Private Limited (“Claimant”) has initiated arbitration proceedings against National Highway Authority of India (“Respondent”) for wrongful termination of contract by the Respondent with respect to Goa/Karnataka to Panaji-Goa section of NH-4A in the State of Goa. The Claimant filed the statement of claim claiming an amount of approximately ₹ 2,671.2 million towards 150% of adjusted equity of ₹ 1,780.8 million arising out of termination of contract on account of the Respondent. Further, the Claimant claimed an amount of ₹ 47.1 million for damages on account of delay in fulfilment of conditions of the contract and an interest on the above amounts. The Respondent has filed its reply dated January 19, 2015. The matter is pending.
Litigations involving IRB Ahmedabad Vadodara Super Express Tollway Private Limited 191
IRB Ahmedabad Vadodara Super Express Tollway Private Limited (“Claimant”) has initiated arbitration proceedings against National Highway Authority of India (“Respondent”) for issuance of return tickets, monthly passes and discounted tickets to frequent travellers and local vehicles on Ahmedabad Vadodara Expressway. The Claimant has made a claim of ₹ 145.6 million as on November 30, 2014, which would be further accumulated upto final hearing. The matter is pending.
Litigations involving multiple Subsidiaries
1. Mr. Srinivas Anant Ghanekar and Mr. Eknath Shinde (collectively the “Petitioners”) have filed a public interest litigation before the High Court of Bombay, against Ideal Road Builders Private Limited (“Ideal”), Thane Ghodbunder Toll Road Private Limited (“TGTRPL”), Aryan Toll Road Private Limited (“Aryan”) and others (collectively the “Respondents”), alleging that the agreements entered into between the MSRDC, and Ideal, TGTRPL and Aryan are entered in the arbitrary, unreasonable and illegal manner and because of that the general public had to suffer financial losses. Ideal, TGTRPL and Aryan have filed their reply in the matter. The matter is pending.
2. Mr. Nitin Sardesai and another (the “Petitioners”) have filed two public interest litigations before the High Court of Bombay, against Mhaiskar Infrastructure Private Limited (“MIPL”) and Ideal Road Builders Private Limited (“IRBPL”, together “Respondents”) alleging unlawful and arbitrary imposition of toll charges on road transport specifically on Yashwantrao Chavan Mumbai-Pune Expressway (“Expressway”) and sections of National Highway 4 Mumbai Pune Expressway. It was alleged that the Respondents have relied on certain notification issued by Ministry of Road and Transport and Highways, which ignores the basic base fee formulae on the basis of which toll fee is decided and thus, have illegally recovered the toll fee from vehicles. The Petitioners sought the directions that the Respondents to install devices on the Expressway, appoint independent agency to monitor the traffic data and deposit excess toll fees recovered from the vehicles passing through the expressway in a separate account till the toll fee is decided as per the rules made under the National Highway Act, 1956. In one of the public interest litigation, the Petitioners have sought the direction to comply with the provisions of Manual of Specifications and Standards for Four laning of National Highways (“Manual”) issued by Government of India and to deposit toll fees received from the vehicles passing through the Expressway in separate account till the time prescribed facilities are provided by the Respondents and also directed to the Respondents to maintain and repair the damaged roads on the Expressway. The Respondents have filed their reply in both the public interest litigation. The matter is pending.
Request for information by SEBI
The Integrated Surveillance Department of SEBI by its e-mail dated December 16, 2014 (“SEBI E-mail”) advised our Company to provide certain information under Section 11 of the SEBI Act, 1992. The SEBI E-mail made reference to an announcement made by our Company on May 07, 2014 to the Stock Exchanges regarding receipt of a letter of award from NHAI for the project of four laning of Kaithal to Rajasthan section of NH 152/65. The SEBI E-Mail requested for the (i) names, designations, PAN numbers, addresses and DIN of the persons in the Company who were, directly or indirectly, aware of the aforesaid announcement made to the Stock Exchanges; and (ii) names, designations, PAN numbers, addresses & DIN, of the dependents of the persons mentioned at point (i) above. Our Company by its e-mail dated December 19, 2014 has provided the information required by SEBI through the SEBI E-mail.
Notices received by the Company and its Subsidiaries:
1. The Office of the Registrar of Companies, Mumbai, Maharashtra (“RoC”) by letter dated November 15, 2013 has issued a show cause notice to our Company for violation of Section 211, read with clause 3(xi) (c) Part-II of Schedule VI, of the Companies Act, 1956. The show cause notice alleges that the Company has shown the receipt of interest from long term investment of ₹ 266.78 million under schedule of income, but has not shown the tax deduction at source in the profit and loss account of the balance sheets as at March 31, 2011. Our Company has replied to the show cause notice by letter dated December 3, 2013 denying the allegations and stating that the Company had fully complied with the above mentioned provisions by providing the required information.
2. The RoC by letter dated September 13, 2012 to our Company, has asked for comments/ clarification and explanations on a complaint made by Mr. Sadashivrao Mandlik regarding corrupt practices adopted by our Company in relation to the award of the IRB Kolhapur Project vide his letter dated January 25, 2012. The 192
Company by its letter dated October 6, 2012 has replied to the letter issued by RoC stating that the claims and contentions raised by Mr. Mandlik were uncorroborated and misleading.
3. The RoC by letter dated August 21, 2012 to our Company has called upon the company to furnish information under section 234 of the Companies Act, 1956 in respect of balance sheet as at March 31, 2011. The RoC has also, amongst other things, asked for full details with documentary evidence for source and utilization of the loans given by our Company to its 19 wholly owned Subsidaries along with terms and conditions and details of compliance of Section 299, 300 and 301 of the Companies Act, 1956. Further, the RoC has called for information relating to the initial public offer (“IPO”) of our Company. Our Company submitted the information corresponding to the queries by its letter dated October 15, 2012.
4. The RoC by letter dated May 10, 2011 to our Company calling for information under section 234 of the Companies Act, 1956, in respect of the balance sheet as at March 31, 2008. Our company was asked, among other things, to obtain certificates from banks/ financial institutions to prove repayment of loans. Status of few complaints as per statement of investor grievance report, details regarding compliance of section 78 of the Companies Act, 1956, details of related party transactions with private limited companies as provided in IPO utilization statement, and compliance with AS-18 and section 297 of the Companies Act, 1956. Our Company has replied by its letters dated June 20, 2011 and July 18, 2011.
5. Securities and Exchange Board of India, by a letter dated October 30, 2012 called for comments on a complaint received by it against our Company. The complaint was with respect to work of internal roads in Kolhapur which was alleged to be substandard from quality point of view. The complaint also alleges the adoption of illegal and corrupt practices by our Company in relation to the award of the IRB Kolhapur Project. Our Company has submitted its reply to SEBI by a letter dated November 16, 2012 stating that the allegations were uncorroborated and misleading.
6. The RoC by letter dated June 28, 2013, has issued a show cause notice to Ideal Road Builders Private Limited (“Ideal”) for violation of Section 211, read with Part-II of Schedule VI of the Companies Act, 1956. The notice states, among other things, that Ideal has not segregated its assets into repairs and maintenance on machinery, building and other assets as required. Ideal has submitted its reply by a letter dated July 15, 2013 explaining its stand and requesting the RoC to drop the show cause notice. Further, the directors of Ideal (Mr. Dattatraya P. Mhaiskar, Mrs. Sudha Dattatraya Mhaiskar and Mr. Jayant Dattatraya Mhaiskar) had filed a compounding application before Company Law Board (“CLB”). CLB by its order dated May 15, 2014 compounded the offence against the three directors on payment of ` 3,000 by each defaulter.
7. The RoC by letter dated November 7, 2012 called upon Ideal, amongst other things, to furnish information such as details of investments, e-form 2 and unsecured loans raised by it, under section 234 of the Companies Act, 1956, in respect of balance sheet as at March 31, 2011. Reply to the above letter was sent on behalf of Ideal by a letter dated November 29, 2012, giving the requisite details.
8. Employee’s Provident Fund Organization, Ministry of Labour and Employment (“EPFO”) issued a notice dated February 5, 2014, to Mr. Basil Sebastain and Mr. Sagar Patel, as the employees of our Company (“Recipients”) in relation to the payment of outstanding provident fund dues of ₹ 0.29 million along with an additional interest @12% per annum, in respect of M/s. Pawar & Associates (“Complainant”). The Recipients sent their reply vide letter dated February 11, 2014 to the Recovery Officer and Assistant Provident Fund Commissioner, Pune. Further, another notice dated February 25, 2014, was issued by EPFO to the Recipients directing them to make the payment within seven days, failing which legal proceedings would be initiated against them for realization of the above mentioned amount. Further, pursuant to a letter dated March 1, 2014, our Company has responded to the Recovery Officer and Assistant PF Commissioner that our Company is only a notional stakeholder in the joint venture between Elsamex-Shinde-IRB and therefore, our Company has no documents in respect of M/s Pawar & Associates. Our Company has requested the Recovery Officer and Assistant PF Commissioner to approach the other party for recovery of dues.
9. Thane Municipal Corporation issued a show cause notice under section 260 (1)(2) of the Bombay Provincial Municipal Corporation Act, 1949, dated October 23, 2013 to Ideal Road Builders Private Limited and the sub- divisional engineer (public works department) to show as why the construction carried out should not be demolished since the construction plan was not approved by Thane Municipal Corporation.
10. Thane Municipal Corporation issued a notice dated February 14, 2014 to Ideal Road Builders Private Limited 193
and the sub-divisional engineer (national highway sub-division) asking to furnish information in relation to an ongoing construction in District of Thane.
11. Pimpri Chinchwad Municipal Corporation (“PCMC”) issued a notice dated January 2, 2013 to Mhaiskar Infrastructure Private Limited (“MIPL”) with regard to assessment of property tax of government property no 15/1/1929 out of gut no 1 within the limits of PCMC. Maharashtra State Road Development Corporation Limited (“MSRDC”) issued notices dated November 21, 2013 and January 13, 2014 to MIPL directing them to pay the arrears of tax laid down by PCMC. MIPL further sent a letter dated February 11, 2014 to Khopoli Municipal Council stating that property tax cannot be imposed on the buildings constructed by the government through privatization on BOT basis. Further MSRDC issued a tax demand notice dated July 11, 2014 to MIPL asking to pay a sum of ` 0.78 million with regard to their property.
12. MSRDC issued a tax payment receipt dated January 4, 2014 to MIPL asking them to pay an amount of ` 1.89 million towards property no 112/1 situated at Mauje Valvan.
13. Khopoli Municipal Council (“KMC”) issued a demand notice dated January 15, 2014 to MSRDC to make a payment of consolidated property tax of ` 95,743 towards the property situated in W.No.8 of KMC. MIPL sent a reply dated January 28, 2014 to KMC stating that property tax is not leviable on the buildings constructed on the BOT basis.
14. Thane Municipal Corporation (“TMC”) has issued a demand notice dated September 18, 2014 to Ideal Road Builders Private Limited (“Ideal”), demanding property tax and penalty for unauthorised construction of ` 10.01 million. The Company has paid the amount of ` 2.93 million towards property tax on February 13, 2015.
15. Office of Tehsildar, Kurla issued a notice dated December 20, 2013 to Ideal demanding increase of land revenue under Maharashtra Increase of Land Revenue and Special Assessment Act, 1974 (“Act”), of ` 0.75 million. Ideal vide its letter dated February 12, 2014 replied to the notice stating that the aggregate land holding is below the provisions of the Act.
16. Gram Panchayat, Chandoli has issued a property tax demand noticed dated May 11, 2013 to Modern Road Makers Private Limited asking to pay an amount of ` 0.12 million in relation to Pune-Nasik Highway toll plaza. ATR Infrastructure Private Limited vide its letter dated November 13, 2013 replied to the notice stating that the property tax is not applicable on the toll plaza.
17. Gram Panchayat, Kasurdi has issued a property tax demand noticed dated June 5, 2014 to Modern Road Makers Private Limited asking to pay an amount of ` 6,133 in relation to property no 843 situated at Kasurdi fata. Aryan Toll Road Private Limited vide its letter dated August 9, 2014 replied to the notice stating that the property tax is not applicable on the toll plaza.
18. Gram Panchayat, Kadamvakvasti has issued a property tax demand noticed dated November 21, 2013 to Modern Road Makers Private Limited asking to pay an amount of ` 9,842 in relation to property no 1/0474 located in the village Kadamvakvasti. Aryan Toll Road Private Limited vide its letter dated December 16, 2013 replied to the notice stating that the property tax is not applicable on the property.
19. The Office of the Assistant District Registrar and District Collector of Stamps, Raigad, issued a notice dated July 19, 2010 to Ideal Road Builder Private Limited (“Ideal”) requesting Ideal to submit their reply as to why for the agreement for recovery of toll given on the principles of BOT, a stamp duty of ` 3.97 million and also fine at 2% of stamp duty or not more than the double of the stamp duty from the date of execution of document, which is ` 7.94 million, aggregating to a total amount of `11.92 million should not be recovered from them. Ideal had replied vide its letter dated August 5, 2010.
20. The Collector of Stamps (Thane) and Assistant District Collector (Class I), Thane issued a demand notice dated January 10, 2006 against Ideal demanding a payment of ` 67.5 million as stamp duty payable for the agreement dated November 27, 2002 between MSRDC, Ideal and MEP Toll Road Private Limited (the “Parties”). In addition to the deficit stamp duty, the Parties have been ordered to pay a penalty of 2% per month on the deficient amount of stamp duty.
21. Chief Labour Commissioner, Ministry of Labour and Employment (Central) issued a notice dated February 16, 2015 to IRB Ahmedabad Vadodara Super Express Tollway Private Limited (“IRB-Ahmedabad”) directing IRB 194
Ahmedabad to obtain form V and other necessary documents from the NHAI for obtaining fresh labour license and show cause as to why their registration certificate dated October 10, 2014 should not be revoked under section 8 of the Contract Labour (Regulation and Abolition) Act, 1970 and Contract Labour (Regulation and Abolition), Central Rule, 1971. IRB Ahmedabad has replied vide its letter dated March 2, 2015.
22. NHAI has issued a notice dated February 21, 2015 to our Company asking to pay damages of ` 30,485 in relation to the toll plaza Krishnavaram. Our Company has replied vide letter dated March 4, 2015.
23. The Labour Department, Government of Karnataka has issued a notice dated November 21, 2014 to MRMPL in relation to registration of labourers of contractors and migrant workers. MRMPL is in the process of replying to the said notice.
24. Our Subsidiary, IRBPL, has been issued five notices demanding payment of deficit stamp duty along with penalty by various stamp authorities during the years 2005 and 2007. IRBPL has responded to the notices.
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STATUTORY AUDITORS S. R. Batliboi & Co. LLP, Chartered Accountants, Firm Registration No. 301003E, are our Company’s statutory auditors as required by the Companies Act. Further, S. R. Batliboi & Co. LLP, have audited the Consolidated Financial Statements for the years ended March 31, 2014, 2013 and 2012 and conducted a limited review under SRE 2410 on the Unaudited Condensed Interim Consolidated Financial Statements for the nine months period ended December 31, 2014. The respective audit reports and the review reports are included in this Preliminary Placement Document.
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GENERAL INFORMATION
1. The Company was incorporated as a private limited “DVJ Leasing and Finance Private Limited” on July 27, 1998 under the provisions of the Companies Act, 1956. The name of the Company was changed to “IRB Infrastructure Developers Private Limited” pursuant to a special resolution of the shareholders of the Company at an extraordinary general meeting held on October 30, 2006. The fresh certificate of incorporation consequent upon the change of name was granted on November 8, 2006 by the RoC. Subsequently, pursuant to a special resolution of the shareholders of the Company at an extraordinary general meeting held on November 25, 2006, the Company became a public limited company and the word “private” was deleted from its name. The certificate of incorporation to reflect the new name was issued on November 27, 2006 by the RoC. The registered office of the Company was shifted with effect from July 1, 1999 from Manisha Safalya, Mahatma Gandhi Road, Dombivli, Mumbai – 421 202, to 501, Dattashram, Hindu Colony, Lane No.1, Dadar, Mumbai – 400 014. Thereafter, the registered office of the Company was shifted to 3rd Floor, IRB Complex, Chandivali Farm, Chandivali Village, Andheri (East), Mumbai – 400 072 with effect from November 28, 2006.
2. The Equity Shares were listed on the BSE and on the NSE since February 25, 2008. The Issue was approved by the Board on November 5, 2014. The shareholders of the Company have, pursuant to a resolution passed through a postal ballot held on December 8, 2014, authorised raising of funds up to `15,000 million by way of issue of securities including Equity Shares pursuant to the Issue.
3. Our Company has received in-principle approvals under Clause 24(a) of the Listing Agreement to list the Equity Shares to be issued pursuant to the Issue, both on the BSE and the NSE on March 19, 2015.
4. Copies of Memorandum and Articles of Association will be available for inspection between 11:00 am to 1:00 pm on all working days, except Saturdays during the Bid/Issue Period at the Registered Office.
5. Except as disclosed in this Preliminary Placement Document, our Company has obtained necessary consents, approvals and authorisations required in connection with the Issue.
6. There has been no material change in the financial or trading position of our Company since March 31, 2014, the date of the Consolidated Financial Statements prepared in accordance with Indian GAAP included in this Preliminary Placement Document, except as disclosed herein.
7. Except as disclosed in this Preliminary 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.
8. Our Company’s statutory auditors, S. R. Batliboi & Co. LLP, Chartered Accountants, Firm registration no. 301003E, who have audited the Consolidated Financial Statements as of and for the financial year ended 2014, 2013 and 2012 and conducted a limited review on the Unaudited Condensed Interim Consolidated Financial Statements for the nine months ended December 31, 2014 which have been included in this Preliminary Placement Document.
9. Our Company confirms that it is in compliance with the minimum public shareholding requirements as required under the terms of the Listing Agreements.
10. The Floor Price for the Equity Shares under the Issue is ₹ 242.67 per Equity Share which has been calculated in accordance with Chapter VIII of the SEBI Regulations.
11. Our Company may offer a discount of not more than 5% on the Floor Price of ₹ 242.67 per Equity
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Share in terms of Regulation 85 of the SEBI Regulations.
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FINANCIAL STATEMENTS
Financial Statements Page No. Review report and Unaudited Condensed Interim Consolidated Financial Statements F-1 to F-17 for the nine months period ended December 31, 2014 Audit report and Audited Consolidated Financial Statements for the year ended March F-18 to F-45 31, 2014 Audit report and Audited Consolidated Financial Statements for the year ended March F-46 to F-74 31, 2013 Audit report and Audited Consolidated Financial Statements for the year ended March F-75 to F-99 31, 2012
199 F - 1 F - 2 F - 3 F - 4 F - 5 F - 6 F - 7 F - 8 F - 9 F - 10 F - 11 F - 12 F - 13 F - 14 F - 15 F - 16 F - 17 F - 18 F - 19 F - 20 F - 21 F - 22 F - 23 F - 24 F - 25 F - 26 F - 27 F - 28 F - 29 F - 30 F - 31 F - 32 F - 33 F - 34 F - 35 F - 36 F - 37 F - 38 F - 39 F - 40 F - 41 F - 42 F - 43 F - 44 F - 45 F - 46 F - 47 F - 48 F - 49 F - 50 F - 51 F - 52 F - 53 F - 54 F - 55 F - 56 F - 57 F - 58 F - 59 F - 60 F - 61 F - 62 F - 63 F - 64 F - 65 F - 66 F - 67 F - 68 F - 69 F - 70 F - 71 F - 72 F - 73 F - 74 F - 75 F - 76 F - 77 F - 78 F - 79 F - 80 F - 81 F - 82 F - 83 F - 84 F - 85 F - 86 F - 87 F - 88 F - 89 F - 90 F - 91 F - 92 F - 93 F - 94 F - 95 F - 96 F - 97 F - 98 F - 99
DECLARATION
Our Company certifies that all relevant provisions of Chapter VIII and Schedule XVIII of the SEBI Regulations have been complied with and no statement made in this Preliminary Placement Document is contrary to the provisions of Chapter VIII and Schedule XVIII of the SEBI Regulations and that all approvals and permissions required to carry on our Company’s business have been obtained, are currently valid and have been complied with. Our Company further certifies that all the statements in this Preliminary Placement Document are true and correct.
Signed by:
______Mr. Virendra D. Mhaiskar, Chairman and Managing Director Mr. Anil D. Yadav, Chief Financial Officer
Date: March 19, 2015 Place: March 19, 2015
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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 Preliminary Placement Document (which includes disclosures prescribed under Form PAS-4).
Signed by:
______Mr. Virendra D. Mhaiskar, Chairman and Managing Director
I am authorized by the Offering Committee for QIP, a committee of the Board of Directors of the Company, vide resolution dated March 19, 2015 to sign this form and declare that all the requirements of the 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:
______Mr. Anil D. Yadav, Chief Financial Officer
Date: March 19, 2015 Place: Mumbai
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IRB INFRASTRUCTURE DEVELOPERS LIMITED
Registered and Corporate Office 3rd Floor, IRB Complex, Chandivali Farm Chandivali Village, Andheri (East), Mumbai – 400 072, India Website: www.irb.co.in; CIN: L65910MH1998PLC115967
Compliance Officer Mr. Mehul N. Patel, Company Secretary 3rd Floor, IRB Complex, Chandivali Farm Chandivali Village, Andheri (East), Mumbai – 400 072, India Telephone: +91 6640 4220; Fascimile: +91 6675 1024; E-mail: [email protected]
ADVISOR TO THE COMPANY Bajaj Consultants Private Limited 74-B Mittal Court, Nariman Point Mumbai 400021, Maharashtra, India
BOOK RUNNING LEAD MANAGERS
IDFC Securities Limited ICICI Securities Limited Emkay Global Financial Services Naman Chambers ICICI Centre, H. T. Parekh Marg, Limited C - 32, G Block Churchgate, 7th Floor, The Ruby, Bandra Kurla Complex, Bandra (E) Mumbai- 400 020, Senapati Bapat Marg, Mumbai 400 051 Maharashtra, India Dadar - West, Mumbai – 400 028 Maharashtra, India Maharashtra, India
AUDITORS TO THE COMPANY S. R. Batliboi & Co. LLP 14th Floor, The Ruby 29 Senapati Bapat Marg, Dadar (West) Mumbai- 400 028 Maharashtra, India
DOMESTIC LEGAL COUNSEL TO DOMESTIC LEGAL COUNSEL TO INTERNATIONAL LEGAL THE COMPANY THE BOOK RUNNING LEAD COUNSEL TO THE BOOK MANAGERS RUNNING LEAD MANAGERS
J. Sagar Associates S&R Associates Jones Day Vakils House, 18, Sprott Road, 64, Okhla Industrial Estate Phase III 3 Church Street Ballard Estate New Delhi 110 020 #14-02 Samsung Hub Mumbai 400 001, Maharashtra, India India Singapore 049483