Description
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise
3/22/2013
A BRIEF PRESENTATION ON INFRASTRUCTURE FINANCE IN INDIA ? NEW AVENUES AND REFORMS
V.S. INFRASTRUCTURE CAPITAL LTD.
B?2/60, Safdarjung Enclave, New Delhi – 110029 Tel.: +91 11 26106565 Fax : +91 11 2610 6555 Email : [email protected]
Issues in Infrastructure Financing
• Funding Gap ? Funding Gap is the most important issue that we face on this front. According to the estimates made by the Planning Commission in March 2010, after taking into account the recent g, the funding g trends in different sources of infrastructure financing, gap in the infrastructure sector during the last two years of the Eleventh Five Year Plan is likely to be Rs.1,27,570 crore, which is around 18 per cent of the total estimated requirement. • Demand continues to outpace supply in all sectors of Infrastructure in India. • Fiscal Burden • Asset?Liability Mismatch of Commercial Banks • Need for an Efficient and Vibrant Corporate Bond Market • Public?Private Partnership Projects in Infrastructure • Financing Promoters’ Equity • Relaxation from Capital Market Exposure
19th March, 2013
V.S. Infrastructure Capital Ltd.
2
1
3/22/2013
Projected Investment in Infrastructure during the Twelfth Five Year Plan
Projected Investment in Infrastructure during the Twelfth Five Year Plan (R crore at (Rs. t 2006 2006-07 07 prices) i ) 2012-13 2013-14 2014-15 GDP 2015-16 2016-17 Twelfth Plan 4,11,90,064
68,82,549 75,01,978 81,77,156 89,13,100 97,15,280
Rate of Growth of GDP Infrastructure Investment as per cent of GDP Infrastructure Investment
9.00 9.00
9.00 9.50
9.00 9.90
9.00 10.30
9.00 10.70
9.00 9.95
6,19,429 7,12,688 8,09,538
9,18,049 10,39,535
40,99,240
Source: Mid-Term Appraisal of the Eleventh Five Year Plan, Planning Commission.
19th March, 2013
V.S. Infrastructure Capital Ltd.
3
Listing of Indian Corporates at Overseas Stock Exchanges
As per the Current Listing Rules, an Indian company is able to list overseas only after getting Listed first at the Indian S k Exchanges. Stock E h Af lot After l of f persuasion i and d presentations, i the Government has permitted the listing of Indian corporate via M&A Route to list at the Overseas Stock Exchanges. This particular reform is going to give a major boost to the infrastructure sector, SME Sector and Services Sector, as certain sectors are definitely going to have better valuation in overseas markets. This will bring large equity and foreign investment in the country to generate more employment, income and taxes. This will further give boost to some of the very critical infrastructure projects, especially in the field of sewerage, sanitation, irrigation etc.
19th March, 2013
V.S. Infrastructure Capital Ltd.
4
2
3/22/2013
ADVANTAGES
¾ Access to global markets ¾ Increased global profile and greater access to liquidity ¾ Greater choice of markets ? AIM ? AIM is the London Stock Exchange’s g international market for smaller growing companies. AIM is the most successful growth market in the world. Since its launch in 1995, over 3,000 companies from across the globe have chosen to join AIM. Powering the companies of tomorrow, AIM continues to help smaller and growing companies raise the capital they need for expansion. AIM has become the preferred destination for Indian corporates to raise funds. ¾ Sometimes, in case of unlisted firms, valuations would be higher than a listed one. ¾ Will give a major boost to the infrastructure sector, SME Sector and Services Sector, as certain sectors are definitely going to have better valuation in overseas markets.
19th March, 2013
V.S. Infrastructure Capital Ltd.
5
What more needs to be done?
• Making the Infrastructure Project Commercially Viable • Improving efficiency of the Corporate Bond Market • Credit Enhancement • Simplification of Procedures – Enabling Single Window Clearance • Infrastructure projects in developing countries like India are perceived as highly vulnerable to risks which constrains financing.
19th March, 2013 V.S. Infrastructure Capital Ltd. 6
3
3/22/2013
AIM ? the most successful growth market in the world
• AIM has also got a well diversified mix of emerging market companies from countries like Australia, Russia, India and Philippines, besides a large proportion of UK?based companies. • Main Market companies benefit from: –More efficient price discounting at IPO –Less underwriting fees –Generally lower professional fees. • Suits the profile of Indian businesses – as India is an emerging market and has a large number of entrepreneurial ventures. • Growing interest by Indian companies, as it provides access to foreign capital and a qualified investor base. base • Companies, whether listed or unlisted, should be allowed to access capital from wherever it suits those best ? which may not necessarily be an Indian stock exchange. • In fact, increasingly American companies are targeting the AIM market rather than listing domestically.
19th March, 2013 V.S. Infrastructure Capital Ltd. 7
Overseas Listing by Chinese Companies
• • OWNERSHIP is rarely straightforward in China. Several Chinese industries, such as mining, steel, education, telecommunications and the internet, are both capital?hungry and politically sensitive. They need foreign investment, but the law bans foreigners from owning stakes in them. them Eager investors and canny locals have found ways around the rules. Perhaps the most important is the creation of a complex investment vehicle called a “variable interest entity” (VIE). It works like this: valuable Chinese assets are placed in a Chinese company. This entity, the VIE, must be run by a Chinese citizen. A series of contracts are then arranged, shifting the returns from the VIE first to a foreign?owned company registered in China and then to an offshore company, perhaps in the Cayman Islands. This structure—a Chinese?owned company in China, a foreign?owned company in China and an offshore parent—is known as the “Sina” model, after the first Chinese internet company t be to b listed li t d overseas. It is i used d by b about b t half h lf of f the th Chinese Chi companies i listed li t d in i America. A i Numerous other unlisted companies use it as well. It allows Western companies to invest in China without breaking local ownership restrictions. There are signs, however, that the Chinese government has begun to frown on VIEs. In 2006 the Ministry of Information, which regulates internet firms, said it was taking a look at them. In fact, Chinese internet companies are still getting ready for overseas listings, despite the new rules and the shaky global markets.
V.S. Infrastructure Capital Ltd. 8
•
• •
19th March, 2013
4
3/22/2013
19th March, 2013
V.S. Infrastructure Capital Ltd.
9
19th March, 2013
V.S. Infrastructure Capital Ltd.
10
5
3/22/2013
Products
There are various products in the Market to support it, which are as follows : • SPAC ? A special?purpose acquisition company (SPAC) is a collective investment scheme that allows public stock market investors to invest in private equity type transactions, particularly leveraged buyouts. SPACs are shell or blank?check companies that have no operations but go public with the intention of merging with or acquiring a company with the proceeds of the SPAC's initial public offering (IPO). • CPC? A capital pool company (CPC) uses its cash holdings to evaluate promising businesses or assets that it would acquire in a qualifying transaction, which it has to complete within 24 months of listing. • APO ? An alternative public offering (APO) is the combination of a reverse merger with a simultaneous private investment of public equity (PIPE). It allows companies an alternative to an initial public offering (IPO) as a means of going public while raising capital.
19th March, 2013
V.S. Infrastructure Capital Ltd.
11
Products
(contd…)
• IPAC ?Innovated Public Acquisition Company ? After a period of tremendous popularity in 2007?2008, the SPAC market had come to a near standstill by the middle of 2009. 2009 As the credit markets dried up and global economies were undermined, many SPAC investors were simply unable to continue investing in them. One contributing factor was the amount of time required for the SEC to review the disclosure documents relating to the business combinations SPACs propose to engage in. To overcome this obstacle, a new structure called the IPAC, or an “Innovated Public Acquisition Company.” An IPAC is designed to operate like a SPAC, but permits a business combination to be consummated prior to SEC review.
19th March, 2013 V.S. Infrastructure Capital Ltd. 12
6
3/22/2013
Why would firms prefer to list in the US rather than locally?
• • • Superior valuations are a key reason. IT services companies that have gone public locally get a "reasonably rich" multiple if they're a tier?one entity, but tier?two and tier?three businesses rarely reap multiples of more than 1x. 1x Another important consideration for institutional investors is liquidity. Trading volumes are modest in India, especially for smaller?cap companies, so generating ongoing shareholder liquidity for anything other than a large?cap firm is a challenge. Listing overseas can also be an excellent way of raising capital for firms that are not yet profitable ? as was the case with MakeMyTrip. In the absence of a track record of income generation, a company must go through an onerous procedure to win regulatory approval for a domestic IPO. It would be a waste of time to go public in India if you don't already show profitability. fit bilit Another possible reason for MakeMyTrip being an outlier rather than a trend? setter is India's practice of selling early?stage stakes to secondary buyers. The appetite for these products and services certainly exists among a technologically cognizant investor community, which in itself can allow businesses to achieve higher valuations.
V.S. Infrastructure Capital Ltd. 13
•
• • •
19th March, 2013
Some Success Stories….
• MakeMyTrip is the first Indian company to get listed in the US in four years after WNS Holdings, which raised $255 million in July, 2006. . The initial public offering (IPO) of the Gurgaon?based company had a price band of $12?14 a share, but got priced at the upper end, following good investor response. At the issue price, the company’s valuation translates to about $478 million. However, the bumper listing helped the company nearly double its value to $903 million. • MakeMyTrip also has no immediate plans of get listed in India. Many companies prefer listing at Nasdaq to seek better valuations. • Coal India's (CIL) board of directors has approved a proposal for the mining firm to acquire stakes in unlisted firms overseas, provided the "offers were valid".
19th March, 2013 V.S. Infrastructure Capital Ltd. 14
7
3/22/2013
Thank you
V.S. Infrastructure Capital Ltd. 19th March, 2013 15
8
doc_795498447.pdf
Infrastructure is basic physical and organizational structures needed for the operation of a society or enterprise
3/22/2013
A BRIEF PRESENTATION ON INFRASTRUCTURE FINANCE IN INDIA ? NEW AVENUES AND REFORMS
V.S. INFRASTRUCTURE CAPITAL LTD.
B?2/60, Safdarjung Enclave, New Delhi – 110029 Tel.: +91 11 26106565 Fax : +91 11 2610 6555 Email : [email protected]
Issues in Infrastructure Financing
• Funding Gap ? Funding Gap is the most important issue that we face on this front. According to the estimates made by the Planning Commission in March 2010, after taking into account the recent g, the funding g trends in different sources of infrastructure financing, gap in the infrastructure sector during the last two years of the Eleventh Five Year Plan is likely to be Rs.1,27,570 crore, which is around 18 per cent of the total estimated requirement. • Demand continues to outpace supply in all sectors of Infrastructure in India. • Fiscal Burden • Asset?Liability Mismatch of Commercial Banks • Need for an Efficient and Vibrant Corporate Bond Market • Public?Private Partnership Projects in Infrastructure • Financing Promoters’ Equity • Relaxation from Capital Market Exposure
19th March, 2013
V.S. Infrastructure Capital Ltd.
2
1
3/22/2013
Projected Investment in Infrastructure during the Twelfth Five Year Plan
Projected Investment in Infrastructure during the Twelfth Five Year Plan (R crore at (Rs. t 2006 2006-07 07 prices) i ) 2012-13 2013-14 2014-15 GDP 2015-16 2016-17 Twelfth Plan 4,11,90,064
68,82,549 75,01,978 81,77,156 89,13,100 97,15,280
Rate of Growth of GDP Infrastructure Investment as per cent of GDP Infrastructure Investment
9.00 9.00
9.00 9.50
9.00 9.90
9.00 10.30
9.00 10.70
9.00 9.95
6,19,429 7,12,688 8,09,538
9,18,049 10,39,535
40,99,240
Source: Mid-Term Appraisal of the Eleventh Five Year Plan, Planning Commission.
19th March, 2013
V.S. Infrastructure Capital Ltd.
3
Listing of Indian Corporates at Overseas Stock Exchanges
As per the Current Listing Rules, an Indian company is able to list overseas only after getting Listed first at the Indian S k Exchanges. Stock E h Af lot After l of f persuasion i and d presentations, i the Government has permitted the listing of Indian corporate via M&A Route to list at the Overseas Stock Exchanges. This particular reform is going to give a major boost to the infrastructure sector, SME Sector and Services Sector, as certain sectors are definitely going to have better valuation in overseas markets. This will bring large equity and foreign investment in the country to generate more employment, income and taxes. This will further give boost to some of the very critical infrastructure projects, especially in the field of sewerage, sanitation, irrigation etc.
19th March, 2013
V.S. Infrastructure Capital Ltd.
4
2
3/22/2013
ADVANTAGES
¾ Access to global markets ¾ Increased global profile and greater access to liquidity ¾ Greater choice of markets ? AIM ? AIM is the London Stock Exchange’s g international market for smaller growing companies. AIM is the most successful growth market in the world. Since its launch in 1995, over 3,000 companies from across the globe have chosen to join AIM. Powering the companies of tomorrow, AIM continues to help smaller and growing companies raise the capital they need for expansion. AIM has become the preferred destination for Indian corporates to raise funds. ¾ Sometimes, in case of unlisted firms, valuations would be higher than a listed one. ¾ Will give a major boost to the infrastructure sector, SME Sector and Services Sector, as certain sectors are definitely going to have better valuation in overseas markets.
19th March, 2013
V.S. Infrastructure Capital Ltd.
5
What more needs to be done?
• Making the Infrastructure Project Commercially Viable • Improving efficiency of the Corporate Bond Market • Credit Enhancement • Simplification of Procedures – Enabling Single Window Clearance • Infrastructure projects in developing countries like India are perceived as highly vulnerable to risks which constrains financing.
19th March, 2013 V.S. Infrastructure Capital Ltd. 6
3
3/22/2013
AIM ? the most successful growth market in the world
• AIM has also got a well diversified mix of emerging market companies from countries like Australia, Russia, India and Philippines, besides a large proportion of UK?based companies. • Main Market companies benefit from: –More efficient price discounting at IPO –Less underwriting fees –Generally lower professional fees. • Suits the profile of Indian businesses – as India is an emerging market and has a large number of entrepreneurial ventures. • Growing interest by Indian companies, as it provides access to foreign capital and a qualified investor base. base • Companies, whether listed or unlisted, should be allowed to access capital from wherever it suits those best ? which may not necessarily be an Indian stock exchange. • In fact, increasingly American companies are targeting the AIM market rather than listing domestically.
19th March, 2013 V.S. Infrastructure Capital Ltd. 7
Overseas Listing by Chinese Companies
• • OWNERSHIP is rarely straightforward in China. Several Chinese industries, such as mining, steel, education, telecommunications and the internet, are both capital?hungry and politically sensitive. They need foreign investment, but the law bans foreigners from owning stakes in them. them Eager investors and canny locals have found ways around the rules. Perhaps the most important is the creation of a complex investment vehicle called a “variable interest entity” (VIE). It works like this: valuable Chinese assets are placed in a Chinese company. This entity, the VIE, must be run by a Chinese citizen. A series of contracts are then arranged, shifting the returns from the VIE first to a foreign?owned company registered in China and then to an offshore company, perhaps in the Cayman Islands. This structure—a Chinese?owned company in China, a foreign?owned company in China and an offshore parent—is known as the “Sina” model, after the first Chinese internet company t be to b listed li t d overseas. It is i used d by b about b t half h lf of f the th Chinese Chi companies i listed li t d in i America. A i Numerous other unlisted companies use it as well. It allows Western companies to invest in China without breaking local ownership restrictions. There are signs, however, that the Chinese government has begun to frown on VIEs. In 2006 the Ministry of Information, which regulates internet firms, said it was taking a look at them. In fact, Chinese internet companies are still getting ready for overseas listings, despite the new rules and the shaky global markets.
V.S. Infrastructure Capital Ltd. 8
•
• •
19th March, 2013
4
3/22/2013
19th March, 2013
V.S. Infrastructure Capital Ltd.
9
19th March, 2013
V.S. Infrastructure Capital Ltd.
10
5
3/22/2013
Products
There are various products in the Market to support it, which are as follows : • SPAC ? A special?purpose acquisition company (SPAC) is a collective investment scheme that allows public stock market investors to invest in private equity type transactions, particularly leveraged buyouts. SPACs are shell or blank?check companies that have no operations but go public with the intention of merging with or acquiring a company with the proceeds of the SPAC's initial public offering (IPO). • CPC? A capital pool company (CPC) uses its cash holdings to evaluate promising businesses or assets that it would acquire in a qualifying transaction, which it has to complete within 24 months of listing. • APO ? An alternative public offering (APO) is the combination of a reverse merger with a simultaneous private investment of public equity (PIPE). It allows companies an alternative to an initial public offering (IPO) as a means of going public while raising capital.
19th March, 2013
V.S. Infrastructure Capital Ltd.
11
Products
(contd…)
• IPAC ?Innovated Public Acquisition Company ? After a period of tremendous popularity in 2007?2008, the SPAC market had come to a near standstill by the middle of 2009. 2009 As the credit markets dried up and global economies were undermined, many SPAC investors were simply unable to continue investing in them. One contributing factor was the amount of time required for the SEC to review the disclosure documents relating to the business combinations SPACs propose to engage in. To overcome this obstacle, a new structure called the IPAC, or an “Innovated Public Acquisition Company.” An IPAC is designed to operate like a SPAC, but permits a business combination to be consummated prior to SEC review.
19th March, 2013 V.S. Infrastructure Capital Ltd. 12
6
3/22/2013
Why would firms prefer to list in the US rather than locally?
• • • Superior valuations are a key reason. IT services companies that have gone public locally get a "reasonably rich" multiple if they're a tier?one entity, but tier?two and tier?three businesses rarely reap multiples of more than 1x. 1x Another important consideration for institutional investors is liquidity. Trading volumes are modest in India, especially for smaller?cap companies, so generating ongoing shareholder liquidity for anything other than a large?cap firm is a challenge. Listing overseas can also be an excellent way of raising capital for firms that are not yet profitable ? as was the case with MakeMyTrip. In the absence of a track record of income generation, a company must go through an onerous procedure to win regulatory approval for a domestic IPO. It would be a waste of time to go public in India if you don't already show profitability. fit bilit Another possible reason for MakeMyTrip being an outlier rather than a trend? setter is India's practice of selling early?stage stakes to secondary buyers. The appetite for these products and services certainly exists among a technologically cognizant investor community, which in itself can allow businesses to achieve higher valuations.
V.S. Infrastructure Capital Ltd. 13
•
• • •
19th March, 2013
Some Success Stories….
• MakeMyTrip is the first Indian company to get listed in the US in four years after WNS Holdings, which raised $255 million in July, 2006. . The initial public offering (IPO) of the Gurgaon?based company had a price band of $12?14 a share, but got priced at the upper end, following good investor response. At the issue price, the company’s valuation translates to about $478 million. However, the bumper listing helped the company nearly double its value to $903 million. • MakeMyTrip also has no immediate plans of get listed in India. Many companies prefer listing at Nasdaq to seek better valuations. • Coal India's (CIL) board of directors has approved a proposal for the mining firm to acquire stakes in unlisted firms overseas, provided the "offers were valid".
19th March, 2013 V.S. Infrastructure Capital Ltd. 14
7
3/22/2013
Thank you
V.S. Infrastructure Capital Ltd. 19th March, 2013 15
8
doc_795498447.pdf