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RED HERRING PROSPECTUS
Dated January 14, 2008
Please read Section 60B of the Companies Act, 1956
100% Book Built Issue
IRB Infrastructure Developers Limited
(The Company was incorporated as a private limited company “DVJ
Leasing and Finance Private Limited” on July 27, 1998 under the
Companies Act, 1956, as amended (“Companies Act”). 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 Registrar of
Companies, Maharashtra, located at Mumbai (“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, Chandivli Farm, Chandivli
Village, Andheri (East), Mumbai – 400 072 with effect from November
28, 2006.
Registered Office: 3rd Floor, IRB Complex, Chandivli Farm,
Chandivli Village, Andheri (East), Mumbai – 400 072,
Maharashtra, India Telephone: +91 22 6640 4220; Facsimile: +91
22 6675 1024
Contact Person: Dhananjay K. Joshi; Tel: +91 22 6640 4220;
Email: [email protected] Website: www.irb.co.in
PUBLIC ISSUE OF 5,10,57,666 EQUITY SHARES OF RS. 10 EACH
(“EQUITY SHARES”) OF IRB
INFRASTRUCTURE DEVELOPERS LIMITED (“IRB” OR THE “COMPANY” OR THE
“ISSUER”) FOR CASH
AT A PRICE OF RS. [●] PER EQUITY SHARE AGGREGATING TO RS. [●]
CRORES (“ISSUE”). UP TO 125,000
EQUITY SHARES WILL BE RESERVED IN THE ISSUE FOR SUBSCRIPTION BY
ELIGIBLE EMPLOYEES (AS
SPECIFICALLY DEFINED HEREIN IN THE SECTION “DEFINITIONS AND
ABBREVIATIONS”) AT THE ISSUE
PRICE (“EMPLOYEE RESERVATION PORTION”). THE ISSUE LESS THE
EMPLOYEE RESERVATION
PORTION SHALL BE HEREINAFTER REFERRED TO AS THE “NET ISSUE”. THE
ISSUE WILL CONSTITUTE
15.36% OF THE FULLY DILUTED POST-ISSUE EQUITY SHARE CAPITAL OF
THE COMPANY.
PRICE BAND: RS. 185 TO RS. 220 PER EQUITY SHARE OF FACE VALUE
RS. 10 EACH. THE ISSUE PRICE IS 18.5 TIMES THE FACE VALUE AT THE
LOWER END OF THE PRICE BAND AND 22
TIMES THE FACE VALUE AT THE HIGHER END OF THE PRICE BAND.
In case of revision in the Price Band, the Bidding Period shall
be extended for three additional working days after such revision,
subject to the Bidding Period not exceeding 10 working days. Any
revision in the Price Band, and the revised Bidding Period, if
applicable, shall be widely disseminated by notification to the
Bombay Stock Exchange Limited (“BSE”) and the National Stock
Exchange of India Limited (“NSE”), by issuing a press release and
also by indicating the change on the website of the Sole Global
Coordinator and Book Running Lead Manager (“BRLM”), the Co-Book
Running Lead Manager (“CBRLM”) and the terminals of the Syndicate.
Pursuant to Rule 19(2)(b) of the SCRR (as defined below), this
Issue is for less than 25% of the post-Issue share capital of the
Company and is therefore being made through a 100% Book Building
Process (as defined below) wherein at least 60% of the Net Issue
shall be allocated on a proportionate basis to Qualified
Institutional Buyers (“QIBs”), out of which 5% shall be available
for allocation on a proportionate basis to Mutual Funds only and
the remainder shall be available for allocation on a proportionate
basis to all QIBs, including Mutual Funds, subject to valid Bids
being received at or above the Issue Price. In addition, in
accordance with Rule 19(2)(b) of the SCRR, a minimum of 20 lakh
securities are being offered to the public and the size of the
Issue shall aggregate to at least Rs. 100 crores. If at least 60%
of the Net Issue cannot be allotted to QIBs, then the entire
application money will be refunded forthwith. Further, not less
than 10% of the Net Issue shall be available for allocation on a
proportionate basis to Non-Institutional Bidders and not less than
30% of the Net Issue shall be available for allocation on a
proportionate basis to Retail Individual Bidders, subject to valid
Bids being received at or above the Issue Price. Further, 125,000
Equity Shares shall be available for allocation on a proportionate
basis to the Eligible Employees, subject to valid Bids being
received at or above the Issue Price.
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IPO GRADING
The Issue has been graded by Fitch Ratings India Private Limited
(“Fitch”), a credit rating agency registered with the Securities
and Exchange Board of India (“SEBI”). Fitch has assigned a grade of
4 (ind) out of a maximum of 5 (ind) indicating that the
fundamentals of the Issue are above average, relative to other
listed equity shares in India, through its letter dated December
17, 2007. For details of the grading of the Issue, see the section
“General Information” beginning on page 9 of this Red Herring
Prospectus.
RISKS IN RELATION TO FIRST ISSUE
This being the first issue of Equity Shares of the Company,
there has been no formal market for the Equity Shares of the
Company. The face value of the Equity Shares is Rs. 10 per Equity
Share and the Issue Price is [●] times the face value. The Issue
Price (as determined by the Company, in consultation with the BRLM
and the CBRLM, on the basis of the assessment of market demand for
the Equity Shares by way of the Book Building Process) should not
be taken to be indicative of the market price of the Equity Shares
after the Equity Shares are listed. No assurance can be given
regarding an active and/or sustained trading in the Equity Shares
of the Company or regarding the price at which the Equity Shares
will be traded after listing.
GENERAL RISKS
Investments in equity and equity-related securities involve a
degree of risk and investors should not invest any funds in this
Issue unless they can afford to take the risk of losing their
investment. Investors are advised to read the risk factors
carefully before taking an investment decision in this Issue. For
taking an investment decision, investors must rely on their own
examination of the Company and the Issue, including the risks
involved. The Equity Shares offered in the Issue have not been
recommended or approved by SEBI, nor does SEBI guarantee the
accuracy or adequacy of the contents of this Red Herring
Prospectus. Specific attention of the investors is invited to the
statements in the section “Risk Factors” beginning on page xi of
this Red Herring Prospectus.
COMPANY’S ABSOLUTE RESPONSIBILITY
The Company, having made all reasonable inquiries, accepts
responsibility for and confirms that this Red Herring Prospectus
contains all information with regard to the Company and the Issue
that is material in the context of the Issue, that the information
contained in this Red Herring Prospectus is true and correct in all
material aspects and is not misleading in any material respect,
that the opinions and intentions expressed herein are honestly held
and that there are no other facts, the omission of which makes this
Red Herring Prospectus as a whole or any of such information or the
expression of any such opinions or intentions misleading in any
material respect.
LISTING
The Equity Shares offered through the Red Herring Prospectus are
proposed to be listed on the BSE and the NSE. The Company has
received in-principle approvals from the BSE and the NSE for the
listing of the Equity Shares pursuant to letters dated October 12,
2007 and October 18, 2007, respectively. For the purposes of the
Issue, the BSE shall be the Designated Stock Exchange.
SOLE GLOBAL COORDINATOR
AND BOOK RUNNING LEAD
MANAGER
CO-BOOK RUNNING LEAD
MANAGER
REGISTRAR TO THE ISSUE
Deutsche Equities India Private Limited DB House Hazarimal
Somani Marg Fort Mumbai – 400 001, India Tel: +91 22 6658 4600 Fax:
+91 22 2200 6765 E-mail: [email protected] Investor Grievance:
[email protected] Contact Person: Mr. Pulkit Bhandari Website:
www.db.com/india SEBI Registration Number: INM000010833
Kotak Mahindra Capital Company
Limited
3rd Floor, Bakhtawar 229 Nariman Point Mumbai - 400 021, India
Tel: +91 22 6634 1100 Fax: +91 22 2284 0492 Email:
[email protected] Investor Grievance: [email protected]
Contact Person: Mr. Chandrakant Bhole Website: www.kotak.com SEBI
Registration Number: INM000008704
Karvy Computershare Private
Limited Plot No. 17 to 24, Vittalrao Nagar Madhapur Hyderabad -
500 081, India Tel: + 91 40 2342 0815 Fax: + 91 40 2342 0814
E-mail: [email protected] Contact Person: Mr. M. Murali Krishna
Website: www.karvy.com SEBI Registration Number: INR000000221
BID/ISSUE PROGRAM
BID/ISSUE OPENS ON: JANUARY 31, 2008 BID/ISSUE CLOSES ON:
FEBRUARY 05, 2008
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TABLE OF CONTENTS
Page
SECTION I: GENERAL
.........................................................................................................................i
DEFINITIONS AND
ABBREVIATIONS.................................................................................................i
PRESENTATION OF FINANCIAL, INDUSTRY AND MARKET DATA
............................................ix FORWARD-LOOKING
STATEMENTS..................................................................................................x
SECTION II: RISK
FACTORS..............................................................................................................xi
RISK
FACTORS........................................................................................................................................xi
SECTION III: INTRODUCTION
..........................................................................................................1
SUMMARY
...............................................................................................................................................1
THE ISSUE
................................................................................................................................................3
SUMMARY FINANCIAL INFORMATION
............................................................................................4
GENERAL
INFORMATION.....................................................................................................................9
CAPITAL
STRUCTURE...........................................................................................................................21
OBJECTS OF THE ISSUE
........................................................................................................................34
BASIS FOR THE ISSUE
PRICE...............................................................................................................43
STATEMENT OF GENERAL TAX
BENEFITS......................................................................................46
SECTION IV: ABOUT THE
COMPANY.............................................................................................56
INDUSTRY
OVERVIEW..........................................................................................................................56
BUSINESS
.................................................................................................................................................67
REGULATIONS AND POLICIES
............................................................................................................98
HISTORY AND CERTAIN CORPORATE
MATTERS...........................................................................104
OUR
MANAGEMENT..............................................................................................................................144
OUR PROMOTERS AND PROMOTER GROUP COMPANIES
............................................................155
RELATED PARTY
TRANSACTIONS.....................................................................................................169
DIVIDEND POLICY
.................................................................................................................................170
SECTION V: FINANCIAL
INFORMATION.......................................................................................171
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS AS PER CONSOLIDATED FINANCIAL
STATEMENTS......................................346 MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS AS PER UNCONSOLIDATED FINANCIAL STATEMENTS OF THE
COMPANY AND CERTAIN SUBSIDIARIES
.............................................................................................................369
SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN INDIAN GAAP AND U.S.
GAAP........399 OUR
INDEBTEDNESS.............................................................................................................................404
SECTION VI: LEGAL AND OTHER
INFORMATION.....................................................................423
OUTSTANDING LITIGATION AND MATERIAL DEVELOPMENTS
................................................423 GOVERNMENT AND
OTHER APPROVALS
........................................................................................454
OTHER REGULATORY AND STATUTORY
DISCLOSURES.............................................................463
SECTION VII: ISSUE
INFORMATION...............................................................................................472
TERMS OF THE
ISSUE............................................................................................................................472
ISSUE
STRUCTURE.................................................................................................................................475
ISSUE PROCEDURE
................................................................................................................................480
SECTION VIII: MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION
..........................506 SECTION IX: OTHER INFORMATION
.............................................................................................544
MATERIAL CONTRACTS AND DOCUMENTS FOR
INSPECTION...................................................544
DECLARATION........................................................................................................................................546
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SECTION I: GENERAL
DEFINITIONS AND ABBREVIATIONS
Unless the context otherwise indicates or requires, the
following terms shall have the following meanings in this Red
Herring Prospectus.
Company Related Terms
Term Description
The “Company” or the “Issuer” or “IRB”
IRB Infrastructure Developers Limited, a public limited company
incorporated under the Companies Act and whose registered office is
located at 3rd floor, IRB Complex, Chandivli Farm, Chandivli
Village, Andheri (East), Mumbai – 400 072, Maharashtra, India.
“we” or “us” or “our” or “IRB Group”
IRB Infrastructure Developers Limited, together with its
Subsidiaries, on a consolidated basis, as described in this Red
Herring Prospectus.
Articles/ Articles of Association
The articles of association of the Company, as amended.
Auditors S.R. Batliboi & Co., Chartered Accountants.
Board of Directors/ Board The board of directors of the Company,
as constituted from time to time, or a committee thereof.
Directors The directors on the Board of the Company, as
appointed from time to time.
Equity Shares Equity shares of the Company with a face value of
Rs. 10 each.
IDBI Industrial Development Bank of India.
Land Reserves The aggregate land area comprising all those
pieces and parcels of land in respect of which Aryan is the
registered title holder.
Memorandum/ Memorandum of Association
The memorandum of association of the Company, as amended.
Order Book Unbilled revenue from the uncompleted portions of our
“existing contracts”, i.e., the total contract value of the
“existing contracts” secured by the IRB Group as reduced by the
value of construction work billed until the date of such Order
Book. For purposes of our Order Book, we define “existing
contracts” as (i) construction contracts, including EPC contracts
and (ii) operation and maintenance contracts, whether relating to
funded construction projects or part of a BOT project, that have
been awarded to us and for which all pre-conditions to entry into
force have been met.
Promoters Mr. Virendra D. Mhaiskar, Mrs. Deepali V. Mhaiskar and
Virendra D. Mhaiskar (HUF).
Promoter Group or Promoter Group Companies
The individuals, companies, or other entities specified in the
section “Our Promoters and Promoter Group Companies” beginning on
page 155 of this Red Herring Prospectus.
Registered Office The registered office of the Company, which is
located at 3rd Floor, IRB Complex, Chandivli Farm, Chandivli
Village, Andheri (East), Mumbai – 400 072, Maharashtra, India.
Subsidiaries The subsidiaries of the Company comprising : 1.
Ideal Road Builders Private Limited (“IRBPL”) 2. Modern Road Makers
Private Limited (“MRM”) 3. Mhaiskar Infrastructure Private Limited
(“MIPL”) 4. Thane Ghodbunder Toll Road Private Limited (“TGTRPL”)
5. Aryan Toll Road Private Limited (“ATRPL”) 6. IDAA Infrastructure
Private Limited (“IDAA”) 7. NKT Road & Toll Private Limited
(“NKT”) 8. IRB Infrastructure Private Limited (“IRB Infra”) 9. MMK
Toll Road Private Limited (“MMK”)
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Term Description
10. ATR Infrastructure Private Limited (“ATR Infra”) 11. Aryan
Infrastructure Investments Private Limited (“Aryan”)
Issue Related Terms
Term Description
Allot/ allot/ Allotment/ allotment/ Allotted/ allotted/
Allocated/ allocated/ Allocation/ allocation
The issue/allotment of Equity Shares pursuant to the Issue.
Allottee A successful Bidder to whom Equity Shares are
Allotted.
Banker(s) to the Issue Deutsche Bank AG, Fort branch, Kotak
Mahindra Bank Limited, Nariman Point branch, Standard Chartered
Bank, Fort branch and HDFC Bank Limited, Fort branch, which are
registered with the SEBI as bankers to an issue.
Bid An indication to make an offer during the Bidding Period by
a prospective investor to subscribe for or purchase the Equity
Shares at a price within the Price Band, including all revisions
and modifications thereto.
Bid Amount The highest value of the optional Bids indicated in
the Bid-cum-Application Form and payable by the Bidder in respect
of the Bid.
Bid-cum-Application Form The form in terms of which the Bidder
shall make an offer to subscribe for or purchase the Equity Shares
and which will be considered as the application for Allotment
pursuant to the terms of the Red Herring Prospectus.
Bidder Any prospective investor who makes a Bid pursuant to the
terms of the Red Herring Prospectus and the Bid-cum-Application
Form.
Bidding Period The period between the Bid/Issue Opening Date and
the Bid/Issue Closing Date (inclusive of both days) and during
which prospective Bidders can submit their Bid(s) including any
revisions thereof.
Bid/Issue Closing Date The date after which the members of the
Syndicate will not accept any Bids for the Issue and which shall be
notified in a widely circulated English national newspaper, a
widely circulated Hindi national newspaper and a widely circulated
Marathi newspaper.
Bid/Issue Opening Date The date on which the members of the
Syndicate shall start accepting Bids for the Issue and which shall
be notified in a widely circulated English national newspaper, a
widely circulated Hindi national newspaper and a widely circulated
Marathi newspaper.
Book Building Process The book building process as described in
Chapter XI of the SEBI Guidelines, in terms of which the Issue is
being made.
BRLM/ Sole Global Coordinator and Book Running Lead Manager
Deutsche Equities India Private Limited.
BSE The Bombay Stock Exchange Limited.
CAN/ Confirmation of Allocation Note
The note or advice or intimation of allocation of Equity Shares
sent to the Bidders who have been allocated Equity Shares after
discovery of the Issue Price in accordance with the Book Building
Process.
Cap Price The higher end of the Price Band and the maximum price
at which the Issue Price will be finalised and above which no Bids
will be accepted.
CDSL The Central Depository Services (India) Limited.
CBRLM/ Co-Book Running Lead Manager
Kotak Mahindra Capital Company Limited.
Companies Act The Companies Act, 1956, as amended.
Cut-off Price Any price within the Price Band finalised by the
Company in consultation with the BRLM and the CBRLM. A Bid
submitted at the
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Term Description
Cut-off Price by a Retail Individual Bidder or an Eligible
Employee for a Bid Amount not exceeding Rs. 100,000 is a valid Bid.
Only Retail Individual Bidders and Eligible Employees are entitled
to Bid at the Cut-off Price for a Bid Amount not exceeding Rs.
100,000. QIBs, Non-Institutional Bidders and Eligible Employees
whose Bid amount is in excess of Rs. 100,000 are not entitled to
Bid at the Cut-off Price.
Debenture Subscription Agreement
A debenture subscription agreement dated March 19, 2007 between
Deutsche Bank AG, Hong Kong Branch, Jade Dragon (Mauritius)
Limited, CPI Ballpark Investments Limited (collectively the
“Investors”), Mr. Virendra D. Mhaiskar, Mrs. Deepali V. Mhaiskar
and the Company.
DEIPL Deutsche Equities India Private Limited.
Depositories NSDL and CDSL.
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/DP A depository participant as defined
under the Depositories Act.
Designated Date The date on which the Escrow Collection Banks
transfer the funds from the Escrow Account of the Company to the
Public Issue Account after the Prospectus is filed with the RoC,
following which the Board may approve the Allotment of Equity
Shares to successful Bidders.
Designated Stock Exchange The BSE.
Draft Red Herring Prospectus
The Draft Red Herring Prospectus dated September 28, as filed
with SEBI, which did not have, inter alia, complete particulars of
the price at which the Equity Shares are offered and the size (in
terms of value) of the Issue.
ECS Electronic Clearing System.
Eligible NRI NRIs from such jurisdictions outside India where it
is not unlawful to make an offer or invitation under the Issue and
in relation to whom the Red Herring Prospectus constitutes an
invitation to subscribe for or purchase the Equity Shares offered
thereby.
Employee or Eligible Employee (in the context of Employee
Reservation Portion)
Subject to the next paragraph, all or any of the following: (a)
A permanent employee of the Company; (b) A Director of the Company,
whether a whole time Director, part time Director or otherwise; or
(c) An employee as defined in sub-clauses (a) and (b) above of a
Subsidiary. An Employee or Eligible Employee, as used in the
context of the Employee Reservation Portion, means an Indian
National (as defined herein) that is a person resident in India (as
defined under FEMA), and excludes any Promoter or member of the
Promoter Group. The Eligible Employee should be on the payroll of
the Company or any Subsidiary on the date of filing the Red Herring
Prospectus with the RoC. Employee(s) or Eligible Employee(s) may
also be referred to as “Bidder(s) in the Employee Reservation
Portion” in this Red Herring Prospectus.
Employee Reservation Portion
The portion of the Issue being up to 125,000 Equity Shares
available for allocation to the Employees.
Escrow Account An account opened with the Escrow Collection
Bank(s) and in whose favour the Bidder will issue cheques or drafts
in respect of the Bid Amount.
Escrow Agreement An agreement to be entered into among the
Company, the Registrar, the
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Term Description
Escrow Collection Bank(s), the BRLM, the CBRLM and the Syndicate
Members for collection of the Bid Amounts and for remitting
refunds, if any to the Bidders.
Escrow Collection Bank(s) The banks that are clearing member and
registered with SEBI as bankers to the issue with whom the Escrow
Account will be opened, and in this Issue comprising of Deutsche
Bank AG, Kotak Mahindra Bank, Standard Chartered Bank and HDFC
Bank.
FCNR Account Foreign Currency Non Resident Account.
FEMA The Foreign Exchange Management Act, 1999, as amended and
the regulations framed thereunder.
FII Foreign Institutional Investors, as defined under the
Securities and Exchange Board of India (Foreign Institutional
Investors) Regulations, 1995, as amended and registered with
SEBI.
FIPB Foreign Investment Promotion Board.
First Bidder The Bidder whose name appears first in the
Bid-cum-Application Form or Revision Form.
Fiscal/fiscal/Financial Year/financial year/FY
A period of twelve months ended March 31 of that particular
year, unless otherwise stated.
Fitch Fitch Ratings India Private Limited.
Floor Price The lower end of the Price Band and the minimum
price at which the Issue Price will be finalised and below which no
Bids will be accepted.
GIR Number General Index Register Number.
Indian GAAP Generally accepted accounting principles in
India.
Indian National As used in the context of the Employee
Reservation Portion, a citizen of India as defined under the Indian
Citizenship Act, 1955, as amended, who is not an NRI.
Industrial Policy The policy and guidelines relating to
industrial activity in India issued by the Ministry of Commerce and
Industry, Government of India, as updated, modified or amended from
time to time.
Issue The public issue of 51,057,666 Equity Shares comprising
the Net Issue and the Employee Reservation Portion.
Issue Price The final price at which Equity Shares will be
Allotted in the Issue, as determined by the Company, in
consultation with the BRLM and the CBRLM on the Pricing Date.
Investors Deutsche Bank AG, Hong Kong Branch, Jade Dragon
(Mauritius) Limited, CPI Ballpark Investments Limited.
Investment Documentation The Debenture Subscription Agreement
and the Investor Rights Agreement.
Investor Rights Agreement An investor rights agreement dated
March 19, 2007 between Deutsche Bank AG, Hong Kong Branch, Jade
Dragon (Mauritius) Limited, CPI Ballpark Investments Limited, the
Company, Mr. Virendra D. Mhaiskar and Mrs. Deepali V. Mhaiskar.
KMCC Kotak Mahindra Capital Company Limited.
Margin Amount The amount paid by the Bidder at the time of
submission of the Bid, which may be between 10% and 100% of the Bid
Amount, as applicable.
MICR Magnetic Ink Character Recognition.
Monitoring Agency SICOM Limited.
Letter of Variation A letter of variation executed on September
27, 2007 between Deutsche Bank AG, Hong Kong Branch, Jade Dragon
(Mauritius) Limited, CPI Ballpark Investments Limited, Mr. Virendra
D. Mhaiskar (in his individual capacity and as the Karta of
Virendra D. Mhaiskar (HUF), Mrs. Deepali Mhaiskar and the
Company.
Mutual Funds Mutual funds registered with SEBI under the
Securities and Exchange Board of India (Mutual Funds) Regulations,
1996, as amended.
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Term Description
Mutual Fund Portion 5% of the QIB Portion, equal to a minimum of
1,527,980 Equity Shares, available for allocation to Mutual Funds
from the QIB Portion.
Net Issue The Issue less the Equity Shares included in the
Employee Reservation Portion.
Non-Institutional Bidders All Bidders that are not Qualified
Institutional Buyers or Retail Individual Bidders and have bid for
an amount greater than Rs. 100,000.
Non-Institutional Portion The portion of the Issue being not
less than 10% of the Net Issue consisting of 5,093,266 Equity
Shares, available for allocation to Non-Institutional Bidders,
subject to valid Bids being received at or above the Issue
Price.
Non-Residents/NRs All eligible Bidders that are persons resident
outside India, as defined under FEMA, including Eligible NRIs and
FIIs.
NRI/Non-Resident Indian A person resident outside India, as
defined under FEMA and who is a citizen of India or a person of
Indian origin as such terms are defined under the Foreign Exchange
Management (Deposit) Regulations, 2000, as amended.
NSDL The National Securities Depository Limited.
NSE The National Stock Exchange of India Limited.
OCB/ Overseas Corporate Body
A company, partnership, society or other corporate body owned
directly or indirectly to the extent of at least 60% by NRIs
including overseas trusts, in which not less than 60% of beneficial
interest is irrevocably held by NRIs directly or indirectly and
which was in existence on October 3, 2003 and immediately before
such date had taken benefits under the general permission granted
to OCBs under FEMA. OCBs are not permitted to invest in this
Issue.
Pay-in Date The Bid/ Issue Closing Date with respect to the
Bidders whose Margin Amount is 100% of the Bid Amount or the last
date specified in the CAN with respect to the Bidders whose Margin
Amount is less than 100% of the Bid Amount.
Pay-in Period (i) With respect to Bidders whose Margin Amount is
100% of the Bid Amount, the period commencing on the Bid/Issue
Opening Date and extending until the Bid/Issue Closing Date;
and
(ii) With respect to Bidders whose Margin Amount is less than
100% of the Bid Amount, the period commencing on the Bid/Issue
Opening Date and extending until the closure of the Pay-in Date
specified in the CAN.
Price Band The price band with a minimum price (Floor Price) of
Rs. 185 per
Equity Share and a maximum price (Cap Price) of Rs. 220 per
Equity
Share, including any revision to such Floor Price or Cap Price
as
permitted under the SEBI Guidelines. Pricing Date The date on
which the Issue Price is finalised by the Company in
consultation with the BRLM and the CBRLM.
Prospectus The prospectus filed with the RoC after the Pricing
Date containing, inter alia, the Issue Price, the size of the Issue
and certain other information.
Public Issue Account The account opened with the Bankers to the
Issue to receive money from the Escrow Account on the Designated
Date.
QIBs or Qualified Institutional Buyers
As defined under the SEBI Guidelines and includes public
financial institutions as defined in Section 4A of the Companies
Act, FIIs, scheduled commercial banks, mutual funds, multilateral
and bilateral development financial institutions, VCFs, state
industrial development corporations, insurance companies registered
with the Insurance Regulatory and Development Authority, provident
funds with a minimum corpus of Rs. 25 crore and pension funds with
a minimum
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vi
Term Description
corpus of Rs. 25 crore.
QIB Margin Amount An amount representing at least 10% of the Bid
Amount that QIBs are required to pay at the time of submitting a
Bid.
QIB Portion The portion of the Net Issue being at least 60% of
the Net Issue consisting of 30,559,600 Equity Shares, to be
allotted to QIBs on a proportionate basis.
Refund Account The account opened with (an) Escrow Collection
Bank(s) from which refunds, if any, of the whole or part of the Bid
Amount shall be made.
Registrar/Registrar to the Issue
Karvy Computershare Private Limited, having its registered
office as indicated on the cover page.
Retail Individual Bidders Bidders (including HUFs) who have bid
for Equity Shares of an amount less than or equal to Rs.
100,000.
Retail Portion The portion of the Net Issue being not less than
30% of the Net Issue consisting of 15,279,800 Equity Shares,
available for allocation to Retail Individual Bidders, subject to
valid Bids being received at or above the Issue Price.
Revision Form The form used by the Bidders to modify the
quantity of Equity Shares or the Bid price in any of their
Bid-cum-Application Forms or any previous Revision Form(s).
RHP or Red Herring Prospectus
This Red Herring Prospectus issued in accordance with Section
60B of the Companies Act, which will not have complete particulars
of the price at which the Equity Shares are offered and the size of
the Issue. The Red Herring Prospectus will be filed with the RoC at
least three days before the Bid/Issue Opening Date and will become
the Prospectus after filing with the RoC after the Pricing
Date.
RoC The Registrar of Companies, Maharashtra, located at
Mumbai.
RTGS Real Time Gross Settlement.
SCRA The Securities Contracts (Regulation) Act, 1956, as
amended.
SCRR The Securities Contracts (Regulation) Rules, 1957, as
amended.
SEBI The Securities and Exchange Board of India, constituted
under the SEBI Act.
SEBI Act The Securities and Exchange Board of India Act, 1992,
as amended.
SEBI Guidelines The Securities and Exchange Board of India
(Disclosure and Investor Protection) Guidelines, 2000, as
amended.
Securities Act The U.S. Securities Act of 1933, as amended.
Stock Exchanges The BSE and the NSE.
Syndicate Agreement The agreement to be entered into among the
Company and the members of the Syndicate, in relation to the
collection of Bids in this Issue.
Syndicate Members DEIPL and Kotak Securities Limited.
Syndicate or members of the Syndicate
The BRLM, the CBRLM and the Syndicate Members.
Takeover Code The Securities and Exchange Board of India
(Substantial Acquisition of Shares and Takeovers) Regulations,
1997, as amended.
TRS or Transaction Registration Slip
The slip or document issued by any of the members of the
Syndicate to a Bidder as proof of registration of the Bid.
Underwriters The BRLM, the CBRLM and the Syndicate Members.
Underwriting Agreement The agreement to be entered into among
the Underwriters and the Company on or after the Pricing Date.
U.S. GAAP Generally accepted accounting principles in the United
States of America.
VCFs Venture Capital Funds as defined under the Securities and
Exchange Board of India (Venture Capital Fund) Regulations, 1996,
as amended and registered with SEBI.
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vii
Industry Related Terms
Term Description
BOQ Bill of Quantities.
BOOT Build Own Operate Transfer.
BOT Build Operate Transfer.
COD Commercial Operations Date.
DBFO Design Build Finance and Operate.
EPC Engineering, Procurement and Construction.
FEED Front End Engineering and Design.
Km/km Kilometre.
MSRDC The Maharashtra State Road Development Corporation
Limited.
MPEW Mumbai-Pune Expressway.
MW Mega Watt.
NHAI The National Highways Authority of India.
NHDP National Highway Development Program.
NH National Highway.
NSEW North South East West.
O&M Operation and Maintenance.
PMGSY Pradhan Mantri Grameen Sadak Yojana.
RFP Request for Proposal.
SARDP-NE Special Accelerated Road Development Programme – North
East.
SPV Special purpose vehicle.
RFQ Request for Qualification.
Other Abbreviations/Terms
Abbreviation Full Form
AGM Annual General Meeting.
Air Act Air (Prevention and Control of Pollution) Act, 1981, as
amended.
Arbitration Act The Arbitration and Conciliation Act, 1996, as
amended.
AS Accounting Standards as issued by the Institute of Chartered
Accountants of India.
CAGR Compound Annual Growth Rate.
DIPP The Department of Industrial Policy and Promotion, Ministry
of Commerce and Industry, Government of India.
EBITDA Earnings Before Interest, Tax, Depreciation and
Amortisation.
EGM Extraordinary General Meeting.
EPS Earnings Per Share.
ESI Employee’s State Insurance.
ESIC Employee’s State Insurance Corporation.
ESOP Employee Stock Option Plan.
FCNR Account Foreign Currency Non-Resident Account.
FDI Foreign Direct Investment, as understood under applicable
laws and regulations in India.
FIPB The Foreign Investment Promotion Board, Government of
India.
GDP Gross Domestic Product.
GoI/Government of India/ Government
The Government of India.
HUF Hindu Undivided Family.
IPO Initial Public Offering.
IRDA The Insurance Regulatory and Development Authority
constituted under the Insurance Regulatory and Development
Authority Act, 1999,
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viii
Abbreviation Full Form
as amended.
I.T Information Technology.
I.T. Act The Income Tax Act, 1961, as amended.
ITES Information Technology Enabled Services.
LIBOR London Interbank Offered Rate.
N.A. Not Applicable.
NAV Net Asset Value.
NRE Account Non-Resident External Account.
NRO Account Non-Resident Ordinary Account.
P.A./ p.a. Per annum.
PAN Permanent Account Number.
P/E Ratio Price/Earnings Ratio.
PLR Prime Lending Rate.
RBI The Reserve Bank of India.
RoNW Return on Net Worth.
Rs./ Rupees Indian Rupees.
SICA The Sick Industrial Companies (Special Provisions) Act,
1985, as amended.
U.S., US or USA The United States of America, together with its
territories and possessions.
Water Act The Water (Prevention and Control of Pollution) Act,
1974, as amended.
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ix
PRESENTATION OF FINANCIAL, INDUSTRY AND MARKET DATA
Financial Data
Unless indicated otherwise, the financial data in this Red
Herring Prospectus is derived from our restated financial
statements prepared in accordance with generally accepted
accounting principles followed in India (“Indian GAAP”) and the
Companies Act and restated in accordance with the SEBI Guidelines.
Our fiscal year commences on April 1 and ends on March 31, so all
references to a particular fiscal year are to the 12 month period
ended March 31 of that year. In this Red Herring Prospectus, any
discrepancies in any table between the total and the sums of the
amounts listed are due to rounding off.
There are significant differences between Indian GAAP and
generally accepted accounting principles in the United States
(“U.S. GAAP”); accordingly, the degree to which the Indian GAAP
financial statements included in this Red Herring
Prospectus will provide meaningful information is entirely
dependent on the reader’s level of familiarity with Indian
accounting practices, Indian GAAP, the Companies Act and the
SEBI Guidelines. Any reliance by persons not familiar with
Indian accounting practices, Indian GAAP, the Companies Act and
the SEBI Guidelines on the financial disclosures
presented in this Red Herring Prospectus should accordingly be
limited. The Company has not attempted to quantify the
differences between Indian GAAP and U.S. GAAP or their impact on
the financial data included herein, and you should
consult your own advisors regarding such differences and their
impact on our financial data. For more information on these
differences, see the section “Summary of Significant Differences
between Indian GAAP and U.S. GAAP” beginning on
page 399 of this Red Herring Prospectus. Certain Conventions
All references to “Rupees” or “Rs.” are to Indian Rupees, the
official currency of the Republic of India. All references to “US$”
or “U.S. Dollars” are to United States Dollars, the official
currency of the United States of America.
Currency of Presentation
The following table sets forth, for each period indicated,
information concerning the number of Rupees for which one U.S.
Dollar could be exchanged at the noon buying rate in the City of
New York on the last business day of the applicable period for
cable transfers in Rupees as certified for customs purposes by the
Federal Reserve Bank of New York. The row titled “Average” in the
table below is the average of the daily noon buying rate for each
day in the period. Similarly, the rows titled “low” and “high” give
the lowest and highest noon buying rates during the period.
Fiscal 2007 Fiscal 2006 Fiscal 2005
Period End 43.10 44.48 43.62
Average 45.12 44.17 44.86
Low 42.78 43.05 43.27
High 46.83 46.26 46.45
On September 23, 2007, the noon buying rate was Rs. 39.65 per
U.S. Dollar. Translations of U.S. Dollar amounts into Indian Rupees
have been presented solely to comply with Clause 6.9.7.1 of the
SEBI Guidelines. These translations should not be construed as a
representation that such U.S Dollar amount could have been, or
could be, converted into Indian Rupees at any particular rate or at
all. Industry and Market Data
Unless stated otherwise, industry data used in this Red Herring
Prospectus has been obtained from industry publications. Industry
publications generally state that the information contained in
those publications has been obtained from sources believed to be
reliable but that their accuracy and completeness are not
guaranteed and their reliability cannot be assured. Although the
Company believes that the industry data used in this Red Herring
Prospectus is reliable, it has not been verified by any independent
source. Further, the extent to which the market data presented in
this Red Herring Prospectus is meaningful depends on the reader’s
familiarity with and understanding of the methodologies used in
compiling such data. There are no standard data gathering
methodologies in the industry in which we conduct our business, and
methodologies and assumptions may vary widely among different
industry sources.
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FORWARD-LOOKING STATEMENTS
This Red Herring Prospectus contains certain “forward-looking
statements”. These forward looking statements can generally be
identified by words or phrases such as “will”, “aim”, “will likely
result”, “believe”, “expect”, “will continue”, “anticipate”,
“estimate”, “intend”, “potential”, “plan”, “contemplate”, “seek
to”, “future”, “objective”, “goal”, “may”, “project”, “should”,
“will pursue” and similar expressions or variations of such
expressions. Similarly, statements that describe our objectives,
strategies, plans or goals are also forward-looking statements.
These forward looking statements are based on our current plans and
expectations and are subject to a number of uncertainties and risks
that could significantly affect our current plans and expectations,
and our future financial condition and results of operations.
Factors that could cause actual results to differ materially from
our expectations, include, but are not limited to:
• Substantial reliance on Government-owned and
Government-controlled entities for revenue;
• General economic and business conditions in India in general
and the construction and infrastructure industries in
particular;
• The ability to successfully implement our strategy and our
growth and expansion plans;
• Changes in political conditions in India;
• Changes in laws and regulations that apply to our customers,
suppliers, and the infrastructure development and construction
industries;
• Changes in the value of the Rupee and other currency changes;
and
• Increasing competition in and the conditions of our customers
and suppliers.
For a further discussion of factors that could cause our actual
results or performance to differ, see the sections “Risk Factors”,
“Business” and “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” beginning on pages xi, 67 and
346, respectively, of this Red Herring Prospectus. By their nature,
certain market risk disclosures are only estimates and could be
materially different from what actually occurs in the future. As a
result, actual future gains or losses could materially differ from
those that have been estimated. Forward looking statements speak
only as of the date of this Red Herring Prospectus. Neither the
Company, its Directors and officers, the Underwriters, nor any of
their respective affiliates or associates has any obligation to
update or otherwise revise any statements reflecting circumstances
arising after the date hereof or to reflect the occurrence of
underlying events, even if the underlying assumptions do not come
to fruition. In accordance with SEBI requirements, the Company, the
BRLM and the CBRLM will ensure that investors in India are informed
of material developments until such time as the commencement of the
final listing and trading on the Stock Exchanges of the Equity
Shares Allotted pursuant to the Issue.
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xi
SECTION II: RISK FACTORS
RISK FACTORS
An investment in Equity Shares involves a high degree of risk.
You should consider all of the information in this Red Herring
Prospectus, including the risk and uncertainties described below
and the sections "Business" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations"
beginning on pages 67 and 346, respectively, of this Red Herring
Prospectus before making an investment in our Equity Shares. If any
of the following risks or uncertainties actually occur, our
business, prospects, financial condition and results of operations
could suffer, the trading price of our Equity Shares could decline,
and you may lose all or part of your investment.
This Red Herring Prospectus also contains forward-looking
statements that involve risks and uncertainties. Our results could
differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including the
considerations described below and elsewhere in this Red Herring
Prospectus.
In this section, a reference to the “Company” means IRB
Infrastructure Developers Limited. Unless the context otherwise
requires, references to the “IRB Group”, “we”, “us”, or “our”
refers to IRB Infrastructure Developers Limited and its
Subsidiaries. In this section, a reference to “Project SPV” means
any of Ideal Road Builders Private Limited, ATR Infrastructure
Private Limited, Aryan Toll Road Private Limited, MMK Toll Road
Private Limited, Mhaiskar Infrastructure Private Limited, Thane
Ghodbunder Toll Road Private Limited, IDAA Infrastructure Private
Limited, NKT Road & Toll Private Limited and IRB Infrastructure
Private Limited, as applicable, through which we conduct our
infrastructure development business.
Internal Risk Factors
Risks Related to the Company
1. The audit reports relating to the consolidated and
unconsolidated financial statements of the Company and the
financial statements of certain of our Subsidiaries contain
qualifications.
The audit reports relating to the consolidated and
unconsolidated financial statements of the Company and the
financial statements of certain of our Subsidiaries contain certain
qualifications. The auditors’ report on the restated consolidated
financial statements of the IRB Group included in this Red Herring
Prospectus states that all qualifications in the auditors’ reports
relating to the audited consolidated and unconsolidated financial
statements of the Company and the audited financial statements of
the relevant Subsidiaries that require any adjustments to the
restated consolidated financial statements included in this Red
Herring Prospectus have been adjusted, except for the effect of
non-compliance with Section 295 of the Companies Act with respect
to loans given by IRBPL and MIPL to certain directors and Promoter
Group entities and non-compliance with Section 297 of the Companies
Act with respect to certain contracts entered into by IRBPL and
MIPL with other entities in the IRB Group and certain Promoter
Group entities (in which directors of IRBPL and MIPL had an
interest), the impact of which cannot be ascertained.
Non-compliance with Section 295 of Companies Act
Under Section 295 of the Companies Act, private companies that
are subsidiaries of public companies are required to obtain prior
approval of the Government of India for loans granted to directors
and entities in which such directors are interested. Since the
Company became a public limited company with effect from November
25, 2006, the requirements of Section 295 became applicable to
IRBPL and MIPL with effect from November 25, 2006. Subsequent to
November 25, 2006, certain loans were extended by IRBPL and MIPL to
their respective directors and to certain Promoter Group entities,
aggregating to Rs. 23.19 crores. Failure to obtain such approval
could result in fines up to Rs. 50,000 for IRBPL and MIPL and/or
simple imprisonment of up to six months for every person who is
knowingly a party to the contravention of the provisions of Section
295 of the Companies Act, including any person to whom such loan is
made. In addition, any director involved in such contravention may
be required to vacate office under Section 283(1)(h) of the
Companies Act. For further information on such qualification, see
Note 3A to Annexure IV (Notes to Accounts) relating to the restated
consolidated financial statements of the IRB Group included in
“Financial Information” beginning on page 171 of this Red Herring
Prospectus. The tables below provide certain information with
respect to these loans extended by IRBPL and MIPL.
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xii
Loans extended by IRBPL:
Person/entity to which loan granted by
IRBPL Aggregate loan amount granted subsequent
to November 25, 2006 (and interest thereon
and on other outstanding loans) to such
person/ entity
Outstanding loan amounts (inclusive of
interest thereon) as of August 31, 2007
(Rupees in crores) Aryan Constructions 2.34 8.12
D. S. Enterprises 2.07 9.38
Jan Transport 7.28 9.77
MEP Toll Road Private Limited 3.05 2.51
Mhaiskar Udyog 0.40 5.46
Mr. Dattatraya P. Mhaiskar 0.78 6.57
Total 15.92 41.81
Loans extended by MIPL:
Person/entity to which loan granted by
MIPL Aggregate loan amount granted subsequent
to November 25, 2006 (and interest thereon
and on other outstanding loans) to such
person/ entity
Outstanding loan amounts (inclusive of
interest thereon) as of August 31, 2007
(Rupees in crores) Company 3.37 3.37
Anuya Enterprises 1.21 1.21
Rideema Enterprises 1.21 1.21
D. P. Mhaiskar 1.44 1.44
Mr. Virendra D. Mhaiskar 0.03 0.03
S. D. Mhaiskar 0.005 0.005
Total 7.27 7.27
Non-compliance with Section 297 of Companies Act
With respect to certain agreements entered into by IRBPL and
MIPL with other entities in the IRB Group and certain Promoter
Group entities (in which directors of IRBPL and MIPL had an
interest), the requirements of Section 297 of the Companies Act,
which requires the approval of the board of directors of the
relevant entities and the prior approval of the Government of
India, were not complied with. Failure to obtain such approval may
result in a fine of Rs. 5 thousand for each instance of such
failure as well as a fine of Rs. 500 for every day during which
such contravention continues. However, such offence is compoundable
by the Government of India. For further information on such
qualification, see Note 3B to Annexure IV (Notes to Accounts)
relating to the restated consolidated financial statements of the
IRB Group included in “Financial Information” beginning on page 171
of this Red Herring Prospectus. The following tables provide
certain information with respect to the agreements with respect to
which the requirements of Section 297 were not complied with.
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xiii
Agreements entered into by IRBPL:
Agreements entered into by MIPL:
Sr.
No.
Principal
Contractor
Contractor Nature of Contract Duration Total amount Status
1 MIPL IRBPL Operation and maintenance contract (including
toll
collection)
15 years (August 10, 2004 to
August 9, 2019)
Toll collection: Rs. 50.86 crores
Toll collection charges: Rs. 2.13 crores
Toll contract discontinued on August 31, 2006
Internal audit systems
The auditors’ reports also included, as an annexure, a statement
on certain matters specified in the Companies (Auditor’s
Sr.
No.
Principal
Contractor
Contractor Nature of Contract Duration Total amount Status
1 MIPL IRBPL Operation and maintenance contract (including
toll
collection)
15 years (August 10,
2004 to August 9, 2019)
Toll collection paid (Reimbursement) : Rs. 50.86
crores
Toll collection charges received: Rs. 2.13 crores
Toll contract discontinued on August 31, 2006
2 IRBPL Dattakrupa Enterprises
Tolling contractor 15 years (August 10,
2004 to August 10, 2019)
Toll collection received (Reimbursement) : Rs. 50.86
crores Toll collection charges paid Rs.
2.10 crores
Discontinued on August 31, 2006
3 TGTRPL IRBPL Operation and maintenance contract (including
toll
collection)
15 years (December 23,
2005 to December 22,
2020)
Toll collection paid (Reimbursement) : Rs. 8.62
crores
Toll collection charges received : Rs. 0.76 crores
Discontinued on September 30,
2006
4 IRBPL Rideema Toll Private Limited
Tolling contractor April 1, 2006 to February 2,
2007
Toll collection received (Reimbursement) : Rs. 8.62
crore Toll collection charges paid
Rs. 0.70 crores
Discontinued on August 31, 2006
5 A.J. Toll Private Limited
IRBPL Tolling contractor (Durgadi)
April 1, 2006 to January 17, 2007 for toll
collection
Toll collection paid (Reimbursement) :Rs. 3.05
crores
Discontinued on September 30,
2006
6 MEP Toll Road Private
Limited
IRBPL Toll collection at five entry points of Mumbai city
April 1, 2006 to March 31, 2007
Toll collection paid (Reimbursement) : Rs. 63.36
crores
Discontinued on September 30,
2006
7 IRBPL Jan Transport Toll collection at five entry points of
Mumbai city
April 1, 2006 to March 31, 2007
Toll collection received (Reimbursement) : Rs. 67.79
crores
Discontinued on September 30,
2006
8 IRBPL Rideema Toll Private Limited
Toll collection at Chaltan April 1, 2006 to February 28,
2007
Toll collection received (Reimbursement) : Rs. 33.31
crores
Contract expired
9 IRBPL Rideema Enterprises
Toll collection at Vadodara - Bharuch NH 8
April 1, 2006 to July 31, 2006
Toll collection received (Reimbursement) : Rs. 14.68
crores
Contract expired
10 IRBPL Rideema Enterprises
Toll collection at Manor Shirsat
February. 22, 2005 to July 31,
2006
Toll collection paid Rs. 0.21 crores
Contract expired
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xiv
Report) Order, 2003, wherein qualifications have been made
indicating that the Company and its subsidiary IRBPL did not have
an internal audit system and that the internal audit systems of its
subsidiary MIPL was inadequate.
Suresh Surana & Associates, Chartered Accountants, have
subsequently been appointed as the internal auditors of the Company
and its Subsidiaries in October 2007.
Delay in payment of statutory dues
The auditors’ reports also included, as an annexure, a statement
on certain matters specified in the Companies (Auditor’s Report)
Order, 2003, wherein qualifications have been made in relation to
IRBPL’s and MIPL’s delay in payment of certain statutory dues in
fiscal 2007, including provident fund, employees’ state insurance,
professional tax, fringe benefit tax and income-tax deductions at
source, aggregating to Rs. 1.74 crores for IRBPL and Rs. 0.42
crores for MIPL. These delayed payments attracted payment of
certain interest aggregating to Rs. 0.18 crores which have been
paid by IRBPL and MIPL. The following table provides certain
information with respect to the delays in the payment of statutory
dues by IRBPL and MIPL:
Particulars of Delayed Payments Amount (Rupees in crores)
Delayed Payments by IRBPL
Provident fund 0.01
Professional tax 0.01
Fringe benefit tax 0.03
Income tax deducted at source 1.69
Delayed Payments by MIPL
Income tax deducted at source 0.42
Delay in repayment of certain loans
The auditors’ reports also included, as an annexure, a statement
on certain matters specified in the Companies (Auditor’s Report)
Order, 2003, wherein qualifications have been made with respect to
IRBPL’s delay in repaying certain loans due to HDFC in fiscal 2007
aggregating Rs. 13.12 crores. Such delayed payments resulted from
delays in the transfer of funds to the designated account for loan
repayments. IRBPL paid additional interest aggregating to Rs. 0.10
crores to HDFC in connection with such delayed payments. The
following table provides certain information with respect to such
delayed payments:
For the Month
Instalment Amount
(Rupees in crores)
Due on Paid on No. of Days
delayed
Additional Interest Paid
(Rupees in crores)
April 2006 1.35 April 30, 2006 May 16, 2006 15 0.01
May 2006 1.35 May 31, 2006 June 12, 2006 11 0.01
June 2006 1.33 June 30, 2006 July 17, 2006 16 0.01
July 2006 1.33 July 31, 2006 August 10, 2006 9 0.01
August 2006 1.33 August 31, 2006 September 20, 2006 19 0.02
September 2006 1.31 September 30, 2006 October 17, 2006 16
0.01
October 2006 1.31 October 31, 2006 November 11, 2006 13 0.01
November 2006 1.30 November 30, 2006 December 13, 2006 12
0.01
February 2007 1.25 February 28, 2007 March 2, 2007 1 -
March 2007 1.26 March 31, 2007 April 9, 2007 8 0.01
Total 13.12 0.10
2. The Company has, in the past, allotted its Equity Shares to
certain of its subsidiaries in contravention of the
Companies Act and may be subject to penalties imposed by the
RoC.
On November 17, 2006, the Company allotted an aggregate of 300
Equity Shares of Rs. 100 each, in contravention of Section 42 of
the Companies Act, to three of its subsidiaries, ATRPL, ATR Infra
and MRM. On September 7, 2007, the Company cancelled this allotment
of Equity Shares to such subsidiaries pursuant to a Board
resolution. The Company has intimated the RoC, pursuant to a letter
dated September 25, 2007, of its allotment of Equity Shares in
contravention of
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xv
Section 42 of the Companies Act and the subsequent cancellation
of these Equity Shares. We cannot assure you that the RoC will not
impose penalties on the Company in this regard. Further, we cannot
assure you that we will not, in the future, be subject to any
penalties or other sanctions by the RoC or other administrative or
regulatory authorities in respect of our corporate actions that may
not be compliant with applicable law. The RoC has not yet provided
any response to our letter dated September 25, 2007. Other than as
described herein, no Equity Shares of the Company were issued to or
held by any of the other Subsidiaries of the Company in
contravention of Section 42 of the Companies Act.
3. There are legal and regulatory proceedings that have been
initiated against us in connection with our business.
We are party to various legal and regulatory proceedings in the
ordinary course of our business. These proceedings are pending at
different levels of adjudication before various courts, tribunals,
enquiry officers, and appellate tribunals. Although we intend to
defend or appeal these proceedings, we may be required to devote
management and financial resources to such actions. Any adverse
decision may have a significant effect on our business and results
of operations. Significant proceedings include the following:
Stamp duty claims
On September 16, 2005 an order was passed by the Deputy
Inspector General of Registration, Deputy Collector of Stamps and
Collector of Stamps, Mumbai, State of Maharashtra against MIPL and
IRBPL demanding payment of Rs. 27.54 crores as stamp duty. In
addition to the deficit stamp duty, MIPL has also been ordered to
pay a penalty of 2% per month on the deficient stamp duty payable
under the Bombay Stamp Act, 1959. MIPL had contested the order
dated September 16, 2005 and had filed an appeal with the Inspector
General of Registration and Controller of Stamps, State of
Maharashtra. An order dated October 11, 2007 has been passed by the
Chief Controlling Revenue Authority in the said appeal whereby the
order dated September 16, 2006 passed by the Deputy Inspector
General of Registration, Deputy Collector of Stamps and Collector
of Stamps, Mumbai, Maharashtra, India has been upheld and the
appeal has been dismissed. MIPL has filed a writ petition in the
Bombay High Court for quashing the order dated October 11, 2007 of
the Chief Controlling Revenue Authority. The Hon’ble High court was
pleased to set aside the said order dated October 11, 2007 and
further directed Inspector General of Registration and Deputy
Collector of Stamps for a fresh hearing. For further details, see
the section “Outstanding Litigation and Material Developments”
beginning on page 423 of this Red Herring Prospectus.
Claim under toll agency arrangements
In a separate matter, the NHAI has served us with a show cause
notice dated December 12, 2006 for the shortfall of toll fees
aggregating to approximately Rs. 17.44 crores. The shortfall
dispute relates to a toll agency contract for the collection of
toll fees between IRBPL and the NHAI pursuant to which IRBPL was
responsible for the collection of toll fees at the Manglej and
Chalthan Toll Plaza. We have disputed this claim and this matter
has been referred to arbitration. For further details, see the
section “Outstanding Litigation and Material Developments”
beginning on page 423 of this Red Herring Prospectus.
The table below summarises outstanding litigation as of the date
of this Red Herring Prospectus with respect to the Company, its
Subsidiaries, its directors, its Promoters and Promoter Group
entities: Category Company Subsidiaries Directors Promoters
Promoter Group entities Civil proceedings Nil 16 proceedings,
aggregate amount under
consideration (for proceedings that may be quantified): Rs.
53.39 crores
Nil Nil Nil
Tax proceedings Nil Six proceedings, aggregate amount under
consideration (for proceedings that may be quantified): Rs. 4.86
crores
Nil Nil Nil
Labour cases Nil One proceeding, aggregate amount under
consideration (for proceedings that may be quantified): Rs. 0.02
crores
Nil Nil Nil
For further details on legal and regulatory proceedings, see the
section “Outstanding Litigation and Material Developments”
beginning on page 423 of this Red Herring Prospectus.
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xvi
4. The restated consolidated financial statements of the IRB
Group for fiscal 2007 do not reflect a full year of
results of operations at the consolidated level. The restated
consolidated financial statements of the IRB Group
for fiscal 2007 and as of and for the five months ended August
31, 2007 included in this Red Herring
Prospectus do not reflect any restructuring in the IRB Group
subsequent to March 31, 2007 and August 31,
2007, respectively.
The IRB Group has undergone significant restructuring in fiscal
2007 and subsequently. For detailed information relating to the
restructurings in the IRB Group, see “Management’s Discussion and
Analysis of Financial Condition and Results of Operations as per
Consolidated Financial Statements - Restructuring of the IRB Group
and presentation of Financial Information” beginning on page 346 of
this Red Herring Prospectus and the section “History and Certain
Corporate Matters” beginning on page 104 of this Red Herring
Prospectus. Prior to the restructuring of the IRB Group during
fiscal 2007, the Company did not have any subsidiaries. Pursuant to
the restructurings of the IRB Group in fiscal 2007, IRBPL, MIPL,
MRM, ATR Infra, ATRPL, MMK, IDAA, NKT, IRB Infra and TGTRPL became
direct or indirect subsidiaries of the Company with effect from
various dates during fiscal 2007. Since the various subsidiaries of
the Company became direct or indirect subsidiaries of the Company
at various points of time in fiscal 2007, and since such
subsidiaries were consolidated from the date on which effective
control of each such subsidiary was transferred to the Company, the
consolidated restated financial statements of the Company for
fiscal 2007 reflect the results of operations for each such
subsidiary from the date that such subsidiary became a subsidiary
of the Company. The consolidated restated financial statements of
the Company for fiscal 2007 therefore do not reflect a full fiscal
year of consolidated results of operations of the Company as
constituted on 31 March 2007.
We have included in this Red Herring Prospectus (i) historical
financial statements of the various Subsidiaries for the last five
completed fiscal years (to the extent applicable) and for the five
months ended August 31, 2007, restated in accordance with the SEBI
Guidelines, (ii) discussions on the results of operations of the
Company on an unconsolidated basis for fiscal 2005, 2006 and 2007
and for the five months ended August 31, 2007 and (iii) discussions
on the results of operations of each of IRBPL, MIPL and MRM (the
three largest subsidiaries of the Company, based on unconsolidated
turnover for the period ended March 31, 2007 and for the five
months ended August 31, 2007) for fiscal 2005, 2006 and 2007 and
for the five months ended August 31, 2007.
However, please note that as a result of various inter-company
transactions among the Company and/or its Subsidiaries, there are
significant consolidation adjustments that are reflected in the
consolidated restated financial statements of the Company for
fiscal 2007 and the five months ended August 31, 2007 included in
this Red Herring Prospectus. Accordingly, an aggregation of
unconsolidated financial information relating to the various
Subsidiaries in any fiscal period may not be reflective of the
consolidated results of operations of the Company for such period,
had the relevant Subsidiaries been direct or indirect subsidiaries
of the Company at the outset of such period. For further
information on our accounting policies and principles of
consolidation relating to our restated consolidated financial
statements included in this Red Herring Prospectus, see Annexure
IV-A “Significant Accounting Policies” relating to the consolidated
financial statements included in “Financial Information” beginning
on page 171 of this Red Herring Prospectus and “Management’s
Discussion and Analysis of Financial Condition and Results of
Operations as per Consolidated Financial Information - Critical
Accounting Policies of the Company on a Consolidated Basis” on page
346 of this Red Herring Prospectus.
The consolidated restated financial statements of the Company
for fiscal 2007 also do not take into account the various
restructurings in the IRB Group subsequent to March 31, 2007. Since
the IRB Group underwent certain additional restructurings between
April 1, 2007 and August 31, 2007, and the consolidated restated
financial statements of the Company for the five months ended
August 31, 2007 reflect such transactions, the consolidated
restated financial statements of the Company for the five months
ended August 31, 2007 reflects a different structure of the IRB
Group from that reflected in the consolidated restated financial
statements of the Company for fiscal 2007. In addition, since IDAA
and Aryan have not yet commenced commercial operation, no profit
and loss account has been prepared for either IDAA or Aryan for the
five months ended August 31, 2007 or any prior period. Accordingly,
the restated consolidated profit and loss account for fiscal 2007
and the five months ended August 31, 2007 do not reflect any income
with respect to IDAA or Aryan. The consolidated restated financial
statements of the Company for the five months ended August 31, 2007
do not reflect the various restructurings in the IRB Group
subsequent to August 31, 2007. Accordingly, any consolidated
financial statements
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of the Company for any period subsequent to August 31, 2007
which may be published by the Company will reflect a different
structure of the IRB Group from that reflected in, and will not be
directly comparable to, the consolidated restated financial
statements of the Company for fiscal 2007 or the consolidated
restated financial statements as of and for the five months ended
August 31, 2007 included in this Red Herring Prospectus. In
general, then, no financial statements are available which describe
the consolidated results or condition of the Company and its
current subsidiaries (reflecting the current structure of the IRB
Group) for any particular period, and investors will have to base
their assessment of the Company and the IRB Group as a whole on
financial statements which are not directly comparable with each
other or reflective of the current structure of the IRB Group. For
further information, see “Management’s Discussion and Analysis of
Financial Condition and Results of Operations as per Consolidated
Financial Statements - Restructuring of the IRB Group and
presentation of Financial Information” on page 346 of this Red
Herring Prospectus.
5. The Company has pledged and will continue to pledge a
significant portion of its equity interest in the Project SPVs in
favour of lenders, who may exercise their rights under the
respective pledge agreements in the event of
a default.
The Company has pledged, or has agreed to pledge, a significant
percentage of its equity interest in the Project SPVs in favour of
lenders as security for the loans provided to these Project SPVs.
If these Project SPVs default in their obligations under the
relevant financing agreements, the lenders may exercise their
rights under such pledges, resulting in such shareholding in the
Project SPVs being transferred to such lenders in accordance with
such financing arrangements to enable them to acquire management
control over such defaulting Project SPV. In such circumstances,
the Company could lose the value of such equity interest in the
relevant Project SPV.
6. We have substantial indebtedness and will continue to have
substantial indebtedness and debt service
obligations following the Issue.
As of August 31, 2007, we had total indebtedness of Rs. 2434.40
crores (not including outstanding fully convertible debentures of
Rs. 263.99 crores). Our substantial indebtedness could have a
material effect on our future financial results and business
prospects, including:
• increasing our vulnerability to a downturn in business in
India, inflation and other factors;
• limiting our ability to pursue our growth plans and expansion
of business operations;
• requiring us to dedicate a substantial portion of our cash
flow from operations to service debt, thereby reducing the
availability of cashflow to fund capital expenditures, meet working
capital requirements and use for other general corporate
purposes;
• limiting our flexibility in planning for, or reacting to,
changes in our business and the industry in which we operate;
or
• placing us at a competitive disadvantage to any of our
competitors that have less debt;
• requiring us to meet additional financial covenants; and
• limiting our ability to raise additional funds or refinance
existing indebtedness.
We cannot assure you that we will generate cash in an amount
sufficient to enable us to service our debt or fund other liquidity
needs. In addition, we may 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. The Company and our Promoters have given
guarantees as collateral security for amounts borrowed under many
of the financing agreements for funding our Project SPVs. We cannot
assure you that the 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.
Most of our financing arrangements are secured by our movable
and immovable assets, including a charge on our equipment. Many of
our financing agreements also include various conditions and
covenants that require the Company or the Project SPVs or both, to
obtain lender consents prior to carrying out certain activities and
entering into certain transactions. Failure to meet these
conditions or obtain these consents could have significant
consequences on our business and operations. Specifically, the
Company and/or the Project SPVs require, and may be unable to
obtain, lender consents to incur additional debt, issue equity,
change their respective capital structure, increase or modify their
respective capital
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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. Under certain of these financing agreements, the
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 MIPL and
TGTRPL, the relevant lenders have the right to nominate directors
to the board of directors of these entities.
We believe that our relationships with our lenders are good, and
we have in the past obtained consents from them to undertake
various actions and have informed them of our activities from time
to time. Compliance with the various terms of our financing
arrangements is, however, subject to interpretation and we cannot
assure you that we have requested or received all consents from our
lenders that are required by our financing documents. As a result,
it is possible that a lender could assert that we have not complied
with all terms under our existing financing documents. 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. Although there have been delays in
repayment of certain loan amounts (See “Risk Factors – Risks
related to the Company - The audit reports relating to the
consolidated and unconsolidated financial statements of the Company
and the financial statements of certain of our Subsidiaries contain
qualifications”), neither the Company nor any Subsidiary has
defaulted on the repayment of any loans.
The proceeds of the debenture issue of Rs. 264 crores were
invested in fixed deposits with banks and financial institutions
and overdraft facilities were obtained against such fixed deposits;
these facilities were utilized by the Company for acquisition of
shares in various Subsidiaries as well as for its operating
requirements. Particulars of utilization of such funds until
October 31, 2007 are as follows:
Funds utilized for Amount of funds utilized
(Rs. crores)
Acquisition of shares in Subsidiaries
Acquisition of further shares in IDAA on various dates between
April 30, 2007 and October 31, 2007 4.36
Acquisition of further shares in TGTRPL on September 8, 2007
12.21
Acquisition of further shares in NKT on September 8, 2007
2.5
Acquisition of further shares in MIPL on September 8, 2007
41.63
Acquisition of further shares in IRB Infra on September 8, 2007
2.33
Acquisition of further shares in IRBPL on September 8, 2007
23.32
Investment in share capital of Aryan on June 20, 2007 and July
18, 2007 54.57
Loans to Subsidiaries
Loan to ATRPL between July 19, 2007 and September 6, 2007
3.74
Loan to ATR Infra between July 10, 2007 and September 10, 2007
72.04
Operating and business requirements
Operating and business requirements of the Company 19.21
For more information regarding our indebtedness, see the section
titled “Management’s Discussion and Analysis of Financial Condition
and Results of Operations — Indebtedness” and “Our Indebtedness”
beginning on pages 346 and 404, respectively, of this Red Herring
Prospectus.
7. We have a number of contingent liabilities and our
profitability could be adversely affected if any of these
contingent liabilities materialises.
As on August 31, 2007, contingent liabilities appearing in our
restated consolidated financial statements aggregated to Rs. 180.45
crores, including claims against the Company not acknowledged as
debt of Rs. 29.24 crores, guarantees to banks for loans taken by
others of Rs. 139.84 crores and guarantees and counter guarantees
given by the Company of Rs. 11.37 crores.
Contingent liabilities of the Company as on August 31, 2007
arising from transactions relating to other entities in the IRB
Group include guarantees extended by the Company of Rs. 17.40
crores to IDBI Bank with respect to loans to MRM, of Rs. 591.41
crores to Union Bank of India with respect to loans to IDAA, of Rs.
75 crores to IDBI Bank for loans to MRM and of Rs. 500 crores to
Deutsche Bank AG, Mumbai branch in connection with an interest swap
arrangement entered into between IDAA and Deutsche Bank AG. The
interest swap arrangement between IDAA and Deutsche Bank AG was
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subsequently terminated on November 11, 2007 and accordingly the
guarantee of Rs. 500 crores to Deutsche Bank AG is no longer in
effect.
If any of these contingent liabilities materialise, our
profitability may be adversely affected. For more detailed
descriptions of our contingent liabilities, see “Financial
Information” beginning on page 171 of this Red Herring
Prospectus.
8. Information relating to our Order Book may not be
representative of our future results.
Our Order Book, as of October 31, 2007, is disclosed in the
section “Business—Order Book” beginning on page 67 of this Red
Herring Prospectus. Our Order Book as of any particular date
consists of unbilled revenue from the uncompleted portions of our
“existing contracts”, i.e., the total contract value of the
“existing contracts” secured by the IRB Group as reduced by the
value of construction work billed until the date of such Order
Book. For purposes of our Order Book, we define “existing
contracts” as (i) construction contracts, including EPC contracts
and (ii) operation and maintenance contracts, whether relating to
funded construction projects or part of a BOT project, that have
been awarded to us and for which all pre-conditions to entry into
force have been met. Our Order Book is not audited and may not
reflect our financial results. The Order Book amount does not
necessarily indicate future earnings related to the performance of
that work and 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. Future earnings related to the
performance of the work in the Order Book may not necessarily be
realised. Although projects in the 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 materially harm 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 Red Herring Prospectus.
9. 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 recognise revenue generated from our construction operations
on the “percentage of completion method” of accounting. Under this
method, revenue is recognised based on the stage of completion.
Percentage of completion is determined on the basis of surveys
performed. Stage of completion is determined with reference to
physical measurement of work done as compared to the total work
done. In case of any unmeasured work done at the balance sheet
date, revenue is recognised as work-in-progress at cost. In case
the actual work is lower than the work estimated in the survey, our
reported profits could be lower.
We also follow the “percentage of completion method” of
accounting with respect to income from BOT projects and BOT project
related expenses. However, until fiscal 2006, income from BOT
projects and BOT related expenses for BOT projects undertaken by
IRBPL, one of our significant subsidiaries, were capitalized on the
basis of the “completed contract” method. Under such accounting
method, the project was treated as incomplete until completion of
the concession period, and consequently, the toll income was
credited to project cost and expenses added to the project cost.
Further, amortization of intangible assets, i.e. toll collection
rights under the various concession agreements relating to such BOT
projects were not accounted for in the financial statements. In
fiscal 2007, IRBPL changed its accounting policy to record toll
income in the profit and loss account and corresponding expenses
based on the “percentage of completion method”. The construction
cost incurred is considered as exchanged against toll collection
rights and disclosed as intangible assets. Accordingly, certain
adjustments have been made to the restated financial statements of
IRBPL for fiscal 2007, 2006, 2005, 2004 and 2003.
For BOT contracts awarded to IRB Group entities that are
subcontracted to other entities within the IRB Group, the
inter-group transactions on BOT contracts result in realised
revenue and profits are therefore not eliminated on consolidation.
Revenue and profit in respect of such transactions during fiscal
2007 that have not been eliminated on consolidation was Rs. 39.17
crores and Rs. 8.84 crores , respectively while revenue and profit
in respect of such transactions during the five months ended August
31, 2007 that have not been eliminated on consolidation was Rs.
92.88 crores and Rs. 44.99 crores, respectively.
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For further information on accounting policies followed by the
IRB Group, see the section “Financial Information” beginning on
page 171 of this Red Herring Prospectus, together with
“Management’s Discussion and Analysis of Financial Conditions and
Results of Operations as per Consolidated Financial Statements –
Critical Accounting Policies” beginning on page 346 of this Red
Herring Prospectus. In the event of any change in law or Indian
GAAP which requires a change in the accounting policies followed by
us, our financial results may be adversely affected.
10. The Company’s financial results depend on the financial
performance of the Project SPVs and their ability to
declare and pay dividends.
The Company is a holding company and conducts no business
operations of its own and is not engaged in any activity other than
the holding of ownership interests in its Subsidiaries and the
proposed future subsidiaries.
Most of our infrastructure development projects are operated
through Project SPVs. The ability of these Project SPVs to make
dividend payments is subject to applicable laws and regulations in
India relating to payment of dividends. In addition, loans obtained
by these Project SPVs contain restrictions on 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 reorganisation 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.
11. Increases in interest rates may materially impact our
results of operations.
As our infrastructure development and construction business and
our real estate business are capital intensive, we are exposed to
interest rate risk. Interest rates for borrowings have increased 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
August 31, 2007, all our indebtedness was subject to variable
interest rates.
Although we may decide to 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.
12. We are subject to risks arising from exchange rate and
international interest rate fluctuations.
We have entered into interest and principal swap transactions
with respect to our Rupee borrowings in respect of MIPL whereby
adverse movements in international interest rates in the Dollar and
Yen may adversely impact our results of opera