Report on Funds Raising

7/31/2019 Report on Funds Raising

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1. Fund Raising An Introduction

1.1 Domestic Financing of Projects

Every year before finalization of Annual Plan, Planning Commission conducts anexercise for assessing the requirement of Internal Extra Budgetary Resources (IEBR)for finalizing the Annual Plan of the Organization. It has to be ensured that suchprojections do not vary with what is being finalized by Ministry of Finance (PlanFinance Division) and thus exercise of projections of Internal and Extra BudgetaryResources influence the overall plan size.

With the above in view, detailed exercise is done to determine the Internal Resourceswhich mainly comprise of depreciation and retained profits. Thus, the gap inresources in financing the annual plan is met through domestic funding i.e. by raisingterm loans from Banks/Financial Institutions or through issue of power bonds in thedomestic market. Thus, the role of financing the annual plan from domestic sources in

the organization cannot be over-emphasized. Ministry of Power in consultation withMinistry of Finance authorizes the organizations to raise domestic funds throughbonds/loans for specified amounts every year.

1.2 Role of Domestic Financing in Powergrid

Powergrid is engaged in the construction of the National Grid at the end of the 12 th

Plan i.e. by 2012. An estimated expenditure of approx. Rs. 50000 crores is required tobe spent by Powergrid directly and another Rs. 20000 crores is to be spent throughIndependent Power Transmission Companies (IPTC) and Joint Venture route.

Out of Rs. 50000 crores, approximately Rs. 21000 crores are to be mobilized byPowergrid through Internal Resources and domestic borrowing (Rs. 8000 crores andRs. 13000 crores respectively). Thus approx. 26% of the total funding has to bemobilized by Powergrid from domestic sources which is a huge task ahead and entailupon the Finance department a big role and responsibility.

1.3 Various Sources of Domestic Borrowings

There are various sources of raising domestic resources:

Issue of Bonds

Term Loans

Bridge loan/ Short Term loan

Commercial papers (CP)

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Cash credit

While the former two are for the purpose of long term utilization of funds, the lastthree are mainly used to meet the short term or temporary needs of Powergrid.

2. Procedure of Fund Raising

A project may be broken down into 4 types of tasks for the purpose of arrangingmoney from the market.

These are:

1. Preliminary Studies

The preliminary consulting and feasibility study takes place at the outset ofproposed project financing.

The purpose is to determine whether the proposal has sufficient merit towarrant further expenditure of time and effort to bring it about.

2. Planning

The planning phase covers everything from the initial consulting & review ofthe preliminary feasibility study to arranging the finances. Plans are maderegarding the best way to arrange the finances of the project, taking intoconsideration the currencies, the project will generate, the location of the

project and the capital needed.

3. Arranging the Finances

Having gone through the planning part and preparation of feasibility report,now the Information Memorandum is prepared.

Information Memorandum- It is a document for preparing and presentingthe following information to the prospective lenders:

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(A)Promoters

(B) Other Interested Parties- Guarantors, other sponsors, and parties otherthan these who will make vital contribution to the project.

A description of each of the interested parties and their pertinent

qualifications and expected contributions to the project are alsomentioned.

(C)Location- Special problem which may arise because of the location isdiscussed here.

(D)Estimated Construction Cost- Construction Schedule and expected costof interest on loan are explained.

(E) The Financial Plan- It reviews cash flow projections and expected use ofthose funds including principal and interest payment of the debt.

It explains the assumptions used, working capital needs, equity

contributions, supplier loan etc.

(F) Proposed term of financing-This is the heart of memorandum & outlinesthe amount, priorities, maturities & timing of the financing.

4. Monitoring & Administering of the finances

This phase is functional in three stages viz. Construction, Start- up,Operations.

In all these stages a constant vigil is maintained to be acquainted withthe manner in which funds are being used.

5. Selection of Outside Investor

In case the project is vast and involves huge funds, an outside investormay be appointed to get better results and outcome.

3. Fund Raising through Bonds

3.1 What are bonds?

Bonds are debt and are issued for a period of more than one year. When aninvestor buys bonds, he or she is lending money. The seller of the bond agrees

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to repay the principal amount of the loan at a specified time. Interest-bearingbonds pay interest periodically. Only government organizations can issuebonds.

Issue of bonds can be made:

Either issue bonds to the public at large i.e. public issueTo go through private placements i.e. Bonds are issued to a limited

no. of investors.

3.2 What are PSU Bonds?

Public Sector Undertaking Bonds (PSU Bonds): These are Medium or long termdebt instruments issued by Public Sector Undertakings (PSUs). The termusually denotes bonds issued by the central PSUs (i.e. PSUs funded by andunder the administrative control of the Government of India). PSU issues bondsthrough public issue or on private placement basis to the targeted investors at

market determined rates.

3.3 What is a difference between a bond and a debenture?

a) Long-term debt securities issued by the Government of India or any ofthe State Governments or undertakings owned by them or bydevelopment financial institutions are called as bonds. Instrumentsissued by other entities are called debentures.

b) The difference between the two is actually a function of where they are

registered and pay stamp duty and how they trade..

c) A debenture transfer has to be effected through a transfer formprescribed for under Companies Act. Issuance of stamp duty on bonds isunder Indian Stamp Act 1899 (Central Act). A bond is transferable byendorsement and delivery without payment of any transfer stamp duty.

3.4 What are the common terms used in association with bonds?

The following characteristics and terms are always associated with bonds andwe need to understand what they mean in order to understand bonds.

Nominal value: The nominal value of a bond is the par or face valueand sometimes, also referred to as the principal value of the bond. Thisis the amount the issuer of the bond has agreed to pay the bondholderat the maturity date. In view of this, the principal is also called theredemption or maturity value.

This terminology is applicable for bonds issued & redeemed at par.However, the bonds can be issued on premium or at discount.

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Coupon rate: The coupon rate is the amount of interest the bondholderwill receive periodically.

Term-to-maturity:This is the number of years over which the issuer ofthe bond has promised to meet the conditions and obligations of thebond issue. During this time, the bondholder is paid the promised

coupon payments and it also indicates the time period remaining beforethe bondholder is paid back the principal. The term-to-maturity alsoaffects the bond yield and the bond price.

Trust deed:A trust deed is the legal agreement executed by the bodycorporate in favour of the trustees named therein for the benefit ofdebenture holders. It details the issuers obligations related to the bondissue. It contains the terms of the bond issue and any restrictiveprovisions placed on the company, such as a requirement for thecompany to set up a sinking fund, or the inclusion of a call provision. Anindependent trustee administers the trust deed.

Trustee: Debenture trustee means a trustee of a trust deed for securingany issue of debenture of a body corporate. He is the third party withwhom the trust deed is made. The job of the trustee is to see that theterms and conditions of the trust deed are carried out. As the trust deedalso contains provisions in the event of default, the trustee wouldundertake action to protect the interests of the bondholders in the eventof a default.

Yield:There is often confusion between theyield and the coupon rate ofa bond. While the coupon rate is fixed at issue, and does not change tillmaturity, the yield is the discount rate or interest rate that an investorwants from investing in a bond. Price bonds are quoted in relation to

their yields. As the required yield increases, the price of the bonddecreases. The reverse is also true.

Call provision: A call provision entitles the issuer to repurchase orcall the bond form their holders at a stated price within apredetermined period.

Put Option: A put option entitles the investor to sell the bonds at astated price within a predetermined period. It is opposite of Call Option.

Sinking fund: In a sinking fund bond, the issuer periodically puts aside

money for the eventual repayment of the debt. This provision may be

included in the bond trust deed to protect investors.

DRR: Similarly as per SEBI guidelines, Companies issuing debenturesare supposed to set aside a portion of their profits for the final

redemption purposes. The account where this money is transferred is

called Debenture Redemption Reserve.

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3.5 Who Regulates Indian G-Secs and Debt Market?

a) RBI

The Reserve Bank of India is the main regulator for the MoneyMarket. Reserve Bank of India also controls and regulates the G-

Secs Market. It also regulates the manner in which variousscheduled banks raise money from depositors. Further, it controlsthe deployment of money through its policies on CRR, SLR,priority sector lending, export refinancing, guidelines oninvestment assets etc.

Another major area under the control of the RBI is the interestrate policy. Earlier, it used to strictly control interest rates througha directed system of interest rates. Each type of lending activitywas supposed to be carried out at a pre-specified interest rate.Over the years RBI has moved slowly towards a regime of marketdetermined controls.

b) SEBI

Regulator for the Indian Corporate Debt Market is the Securitiesand Exchange Board of India (SEBI). SEBI controls bond marketand corporate debt market in cases where entities raise moneyfrom public through public issues or private placement.

It regulates the manner in which such moneys are raised and triesto ensure a fair play for the retail investor. It forces the issuer tomake the retail investor aware, of the risks inherent in theinvestment, by way and its disclosure norms. SEBI is also aregulator for the Mutual Funds, SEBI regulates the entry of new

mutual funds in the industry. It also regulates the instruments inwhich these mutual funds can invest. SEBI also regulates theinvestments of debt FIIs.

3.6 Costs in issuing Bonds

The process of Issuance of Bonds includes certain expenses that are incurred by theissuer, and are better known as the Costs of Issuance. The Costs of Issuance that iscovered by the issuers during the sales of bonds includes all of the followingexpenditures:

Fees paid to the consultants/arrangers

Fees and charges towards legal expenses

Trustee's fees

Printing costs

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Discounts on bonds or notes

Costs of credit ratings

The execution and safekeeping fees and charges of bonds or notes, and

Fees for admitting the bonds in Stock Exchange and depositories.

Bond Issuance can be considered to be a vast procedure for it includes a lot ofsmaller processes as stated above.

Bond Issuing by organizations are done on the floors of the Primary Bond Marketswhere those who are interested in providing loans to the organizations IssuingBonds, buy the Bonds that are issued. In other words, bonds are purchased directlyfrom the issuer.

Later, when these Bonds that were issued earlier are traded amongst the Bond

owners at the Secondary Bond markets.

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4. Fund Raising Through Bonds in

Powergrid

Powergrid has been raising domestic finance through issue of bonds under privateplacement since its inception. It has so far raised 29 series of bonds. The bonds were

raised for financing its annual capital outlay. Issue of bonds has always remained a

major source of domestic financing for Powergrid. In future also it is expected to

remain so.

Up to 1996-97, Powergrid bonds used to be in bullet repayment structure. However,

from 1997-98 onwards (both VI th issue) bonds are being issued in the form of

staggered repayment basis usually with a moratorium of 3-4 years. This is mainly to

suit the long gestation period of transmission line projects. Because of the staggeredrepayment structure of the bonds there is no pressure on cash flow due to

redemption even though each issue size is approx. Rs.750-1000 crore.

4.1 Features of bonds issued by Power Grid:

Secured

A secured loan is a loan in which the borrower pledges some asset (e.g. acar or property) as collateral for the loan, which then becomes a secured

debt owed to the creditor who gives the loan.

There are two purposes for a loan secured by debt. In the first purpose, byextending the loan through securing the debt, the creditor is relieved ofmost of the financial risks involved because it allows the creditor to take theproperty in the event that the debt is not properly repaid.

Accordingly charge is to be created on the assets of the company to secureinterest as well as the interest on the bonds. The security is to be created infavour of the trustees for the bonds

Various bonds are secured through different means:

a) Equitable mortgage of Properties

b) By floating charge over the fixed assets of the Corporation

c) By way of Debenture Trust Deed ranking Pari Passu on immovableproperties of Powergrid.

d) Hypothecation of assets of various projects i.e. Transmission Linesand Sub-stations set up by Power Grid for transmission of electricity.

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Separately transferrable, redeemable Principal Parts (STRPPS)

Each bond is divided into separately tradable and transferrable partswhich are called STRPPS. Presently PowerGrid issue bonds in 12 STRPPs

of 12.5 lakhs each. Earlier it was mandatory to have each STRPPs ofRs.10 lakhs but this norm is no more a compulsion.

As the name suggest. Each part is separately tradable in the market.Such division helps in trading of bonds easily in the secondary market.Bonds can be sold/purchased in one STRPP or more.

D-Mat (Electronic Mode)

At present all the bonds are issued through D-Mat A/C (electronic mode),while earlier bonds were also issued in physical form. Though many ofthem have with time converted to electric mode and the remaining onesstill traded in their own format.

Green shoe option

This option is a feature attached to Power Grid Bonds where issuer canretain over subscription over and above the issue size.

WDM (Wholesale Debt Market)

This term is used to define the debt component of NSEwhere the fixedinterest earning bonds are listed in the stock exchange.

Depositories - NSDL, CDSL

Depositories are companies registered under the Companies Act and

registered with SEBI as depository. Depositories provide facilities to keep

securities in electronic form (in Demat Account) through its participants.

There are two depositories: NSDL, CDSL.

All the information of the trade is supplied to the beneficiary i.e. Account

Holder from time to time.

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Line of Credit

A line of credit is any credit facility extended to a business bya bank or financial institution. A line of credit may take several forms

such as cash credit, overdraft, demand loan, export packing credit, termloan, discounting or purchase of commercial bills etc. It is like anaccount that can readily be tapped into if the need arises or not touchedat all and saved for emergencies.Interest is only paid on the moneyactually taken out.

Lines of credit are often extended by banks and financial institutions tocredit worthy customers to overcome liquidity problems.

Non- convertible

The feature defines that the interest is paid periodically as per theterms of the issue.

Non- cumulative

This feature defines that the bonds issued will not have a feature ofannuity and the interest would be paid annually and would notaccumulate and compound to be paid as lump sum at the time ofmaturity.

Redeemable

It says that the bonds have a maturity and would have to be repaidwhen the maturity period ends.

Taxable

The term defines that the person earning on the investment in the bondsi.e. the investor who will earn by way of interest will have to pay intereston it.

Arrangers

Merchant bankers are the institutions who put in to arrange funds for theco. in case it is not confident of doing so on its own.

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Powergrid appoints arrangers from time to time depending upon marketconditions.

Private placement

The company doesnt raise money through inviting public at large for it.It can just ask for investment privately and there also the people ororganizations invited should not exceed 50.

Book building Process

Though no such procedure has been prescribed in law but moneymarket has evolved a process over time.

It means a process undertaken by which a demand for the securities

proposed to be issued by a body corporate is elicited and built up andprice for such securitites is assessed for the determination of thequantum of such securities. It is practically a price discovery processwhich tries to optimize issue size at the most competitive rate.

This will lead to decision about one cut-off rate for the entire issue afterconsidering the rates quoted by the investors.

Debenture Trust Deed

There is a deed made between the trustee and the investor which caters

to the interest of the investor. This deed is basically for setting the termsof bonds. The deed is executed at the time of the issue of bonds.

Borrowing Cost

All the borrowing cost are earmarked to specific projects. The costs soallocated are capitalized or charged to revenue, based on whether theproject is under construction or in operation.

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5. Guidelines to issue Bonds for A PSU

5.1 External Guidelines

Definition:

These guidelines apply to all PSUs wholly or partially owned by the Central Bank to

whom specific allocations for Bond issues are made by Central Govt.

The guidelines are:

6. Amount of issue should be approved by GOI.

Each PSU should preferably raise the amount in two or more trenches,each trench being linked to the loan requirement for the subsequent fewmonths.

7. Choice of issue

The choice of raising the amount as a public issue or by privateplacement will be left to the issuer.

8. SEBI Guidelines

All the PSUs are to abide by the SEBI guidelines set for the same, whereever public issues is made.

9. Maturity & Tax

Tax free bonds should have minimum maturity of 5 yrs but taxable oneshave no criteria.

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10.Private Placement

Company may go for private placement provided the terms of suchplacements including any front-end fees payable on the bond, are inconformity with the guidelines internally drawn up by the PSU and everyprivate placement proposal is approved by its board.

11.Buy-back arrangement

The organization issuing bonds can make use of buy-back but all theinformation about it should be mentioned and given beforehand.However, the bonds which the company is issuing here dont allow forbuy-back arrangement.

12.Arrangers

PSUs are free to appoint arrangers/ merchant bankers to manage theissue if the market conditions do not support raising of bonds itself bythe company.

The company is using this facility after 4 years because of liquiditycrunch and other market based difficulties.

13.Stock exchange.

All bonds to be raised should be listed on stock exchange with all thedocuments required to be filed with them.

Bonds have been listed with NSE for the present issue.

5.2 Internal Guidelines

Definition:

These guidelines are framed as per the rules of GOI, Ministry of finance,Investment Division of Bonds during the year 1993-94 vide press release dated13-10-1993 prescribes that every Public Sector Undertaking should frameinternal guidelines to ensure transparency in transactions relating to issue of

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Bonds on Private Placement Basis specifying inter-alia, the manner in which theorganizations for placement of bonds, the manner in which the organizationsfor placement of bonds are to be selected, the ceilings of the size of individualplacement, and the payment of any front-end fee.

1. Applicability

The guidelines shall be applicable to all private placements oftaxable/tax-free bonds made by the company and will be subject to theguidelines issued by GOI. They will remain applicable till there are anymodifications made by GOI or any fresh guidelines are issued for thesame.

2. Institutions eligible for Private Placement

Keeping in view the size of requirement of funds for the Company, thepotential investors who could subscribe funds to the extent required arelarge institutions/bodies.

As such individual investors are outside the scope of private placement.

Who all can apply for the bonds, if specifically approached?

a) Companies and bodies corporate including Public SectorUndertakings

b) Scheduled commercial banks.

c) Regional rural banks

d) Co- operative Banks

e) Subsidiaries of Nationalized Banks

f) Financial Institutions

g) Insurance Companies

h) Mutual Funds

i) Provident, Pension, Superannuation, & Gratuity Funds

j) Port Trust

k) Any other investor authorized to invest in these bonds, subject to

confirmation of the issuer

3. The size of private placement

The amount of bonds to be issued on private placement basis will bedetermined with reference to the funds required for next two quarters.

The total amount of Bonds to be raised by Power Grid from the capital

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market during the year will be approved by Board of Directors andPresident of India in terms of Articles of Association of the Company.

Terms & Conditions:

a) All the terms & conditions like Maturity Date, Coupon Rate, Call &

Put features should be approved by the Board of Directors.

b) Offers for PP will be invited directly from banks/institutions/Bodiesand no broker or intermediary will be appointed for the same.

c) Bonds will be fully paid and allotments will be made only afterreceipt of full application money.

Front End Fee:

The company should make efforts not to indulge withbrokers/commission agents etc. However, in case the payment offront end fee/ brokerage/ commission becomes inevitable then:

It should not exceed 2.5% of the total amount subscribedand allotted under Private Placement.

It would be made directly to the subscribers of the bondsand not to any intermediary.

4. Minimum & Maximum Limits

The minimum & maximum limits as to value of bonds to be allotted to asingle institution shall be Rs. 10 lakhs and Rs. 20 crores respectively.

5. Selection Criteria

There are various criterions through which Private Placement of Bondscan be made:

a) Direct dialogue with the funding institutions like LIC, GIC, UTI etc.

b) Direct invitation for bonds under PP from the institutions.

c) There are companies who dont respond to the invitations even ifthey have considerable amount of money, for such organizationsarrangers are appointed after approval from Board of Director forthe same.

6. Method of Evaluation & Approval

The offers will be evaluated by the committee for bonds with the CMD asthe incharge.

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6. Hierarchy of Functioning

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It works in the form of a hierarchy. The board of directors forms a committee for

bonds which consist of:

I. CMD- Chairman

II. Director (Finance)- Member

III. Director (Operation)- Member

IV. Director (Projects)- Member

Functioning

This committee has all the powers of decision making and permits the execution ofthe work.

It further delegates the tasks as per each department. For e.g. finance departmenthas a bonds section which looks into tasks related to the procedural aspects and the

cost part of the securities to be issued. This section is headed by Director Financewho is a member of the committee.

Since the members have the required authority so their subordinates work in theirname and responsibility.

All the departments function on these bases.

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7. Strategy of the Bond Issue

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Bond Issuance can be considered to be a vast procedure for it includes a number ofprocessess as stated above. Bond Issuing by organizations are done on the floors ofthe Primary Bond Markets where those who are interested in providing loans to theorganizations Issuing Bonds, buy the Bonds that are issued.

The issuer agrees and undertakes:

a) To designate the co. sec. as the compliance officer who shall be responsiblefor monitoring the process of registering transfer of securities and reportthe same at the meeting of Board of Directors subsequently.

b) To conduct due diligence survey to ascertain whether the Registrar &Transfer Agent (RTA) is sufficiently equipped with the infrastructurefacilities.

1. Decision to raise Bonds- Initial Approval

In the beginning of the financial year, board is supposed to approve thefunds requirement which is supposed to arise during the year.

On April9, 08, the board approved raising of funds amounting to Rs. 4235crores in the form of bonds or any other form of security in one or moretranches during the current financial year under private placement.

2. Role of Board of Director

On the same date the following decisions were made in the board meeting:

i. CMD/ED/GM/AGM/DGM are jointly or severally authorized tonegotiate the terms and conditions of the loans and do all suchacts and deeds and take all actions as may be necessary for raising ofsuch loans under the common seal wherever required as per the rules ofarticles of association.

ii. The board also approves raising of bonds either through arrangersor otherwise through the process of book building or otherwise, havingdenomination of Rs. 1250000 each or such other denomination deemedfit.

iii. It also gives committee of directors for bonds, the authority to

finalize the terms and conditions of shelf information Memorandum forprivate placement/ public issue of bonds, including finalization ofinterest, redemption/maturity period, issue, allotment, creation ofcharge etc. and any other deeds thereby required.

iv. CMD/Director /ED are authorized to appoint arrangers for theissue.

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v. Authorization is also given for the bonds to be listed in one ormore stock exchanges of the country.

vi. It is also resolved that copies of the bonds trust deed/ loanagreement, deed of hypothecation/ trustee agreement or any otherdocument executed by the company for creation of security for the said

bonds/term loans be placed before the board for information.

vii. It allows CMD/Director (Finance), to raise short term loans to meetany contractual requirements at the best available rate. These loans willbe repaid out of the fresh borrowings made in form of bonds.

In short, all the authority required by the committee to fulfill the responsibilities isprovided with, in addition to making the finance department known about theirareas of performance.

3. Private Placement

PowerGrid raises funds through private placement where it cannot invite more

than 49 people or organizations to invest their money.

Basically the amount involved in such transactions are huge and so the

institutions invited should be carefully considered so that the risk of default is

least and the operation of raising funds is low.

4. Rating of the Company

Company has to get itself valued by the credit rating agencies as per thenorms so that the investors have some confidence in its strength and ability topay back the investment. Three agencies viz. ICRA, CRISIL, Care rate thecompany taking into account the new bond issue.

a) ICRA

It relied back on November27 and assigned a rating LAAA toPOWERGRID and also announced the instrument to be totally risk free.

This is the highest credit-quality rating given by ICRA. It means theinstrument has lowest credit risk. However, it was as per theinformation about the terms and conditions supplied to them about the

issue, therefore any changes in them would affect the rating. Also if sohappens, it should be duly informed.

Also it was suggested that the rating is in no means anyrecommendation to buy the security.

b) CRISIL

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After due consideration the rating was affirmed as AAA/Stable ratingwhich indicates highest degree of safety with regard to timelypayment of interest and principal on the instrument by CRISIL.

c) Care

Care assigned a rating of AAA i.e. best credit quality, offeringhighest safety for timely servicing of debt obligations.

Companies should co-operate with the Credit Rating Agencies in giving correctand adequate information for potential review of the securities during lifetimeof the rated securities.

All the agencies provided with a good rating thus making the task ofarrangement a bit easier.

5. Arrangers

i. Decision about arrangers

At this stage i.e. when the actual demand arises, the decision regardingthe use of merchant bankers is to be decided. Looking at the marketconditions and its own capabilities, company either opts for getting thefunds themselves or through the merchant bankers.

In this bonds issue the company went for the services of merchant bankerbecause of the tough market which is not very supportive for the borrowers.

ii. Board Approval

The board approved that the committee of directors for bonds mayengage Merchant bankers/Arrangers including the three merchantbankers who were associated with the IPO of POWERGRID, for raising ofbonds.

iii. Invitation to Arrangers

Looking at the Prime League Table (Dated November1,07 October31,08), company selects first 12 companies (excluding theabove mentioned names), for the task. They are asked to send their bidsfor the fees they wish to charge, also specifying the reasons therein forthe same.

The two arrangers who were associated with the IPO were already therein the table consulted and so the third one was separately called.

HOWEVER this invitation is in no way to be construed as any indicationfor appointment as arrangers for the proposed band issue.

In case date is extended or changed then the arrangers should beinformed about it within stipulated time as here date had to be extended

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because of the incident of 26/11 in Mumbai and the work coming to ahalt for some time, So the due date was extended to dec1,08.

iv. Bid opening

They sent in their bids within the stipulated time and these bids are

opened on the due date in the presence of all the applicants. Acommittee comprising of one representative each of finance, companysecretariat, and contract services is constituted to open and evaluatethe quotation received from arrangers and submit theirrecommendations.

Following people will evaluate the quotations received as a committee:

i. Shri Mrinal Srivastava Manager (Co. Sectt.)

ii. Shri K.C. Pant (Fin.)

iii. Shri Tapan Das (CS)

If any company applies without an invitation then his bid is notconsidered received and is sent back without opening it.

v. Reasoning for the quote

The applicants are asked to justify their quotes as many of them haveproposed to charge 0% fees.

They rationalize in these ways:

a. The unique structure of the bonds. No other similar rated PSU isoffering this structure in the market.

b. The AAA ranking under the book building category.

c. Also book building would provide the company with liberty to investas per their comfort.

The association with such organization will improve their own status inPRIME LEAGUE TABLE which is widely accepted for studying the rankingof the organizations.

vi. Selection

The criteria for shortlisting the arrangers is given below

1. Period of Consideration : 01.11.2007 to 31.10.2008

2. Issue type : Debt Private Placement

3. Issuer type/ Industry :All

4. Other Conditions :

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a) All issues : Distributed, Structured, On-Tap & Mobilization

b) Issue amount in Indian Rupees

c) Excluding Capital Gain & Infrastructure Bonds

d) Full credit of issue to Arranger

e) Issue with tenure and Put/Call option of 1 yr and above

The arrangers are selected on the basis of their quotes and the abovecriteria.

Here, the arrangers who applied for 0% bid were selected and appointedas official arrangers for the company. The following were selected:

a) Axis Bank

b) I- SECPD

c) AK Capital

d) ICICI Bank

e) Stan Chart

f) HSBC

g) Kotak Bank

h) Citi Bank

i) IDFC- SSKI

j) Almondz

They are informed about the same.

6. Disclosure Document

The document has been prepared to facilitate investors to take a well informed

decision for making investment in the proposed issue. It should be clearly

understood that the Company is primarily responsible for the correctness,

adequacy and disclosure of all relevant information in this document.

The Bonds will be issued solely and sold on a private placement basis. ThisDisclosure Document cannot be acted upon by any person other than to whom

it has been specifically addressed. Multiple copies hereof given to the same

entity shall be deemed to be given to the same person and shall be treated as

such. This Disclosure Document has been prepared by the Company solely for

use in connection with the issue and sale of the Bonds. Each prospective

purchaser, by accepting delivery of this Disclosure Document, agrees to the

foregoing and to make no copies of this Disclosure Document.

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A disclosure document is to be approved by the committee for bonds.The

Company believes that the information contained in this Disclosure Document

is accurate in all respects as of the date hereof.

Some of the components of the document are given below:

a) Authority to the issue

It states the resolution passed under the Companies Act, 1956 by which

company is allowed to raise money in this form.

b) Description of the bond

c) WDM Segment

d) Trustee for the bond holders and registrar to the issue and their

addresses.

e) Arrangers to the issue

f) Names and addresses of the directors

g) Summary of business of issuer and its line of business

h) Brief history of issuer since incorporation including amalgamation,

change in capital structure and borrowings etc.

It talks about all the details related to details of the companys

incorporation

i) Information regarding registrar, bankers to issue, reg. compliance officer

j) Credit rating and rationale thereof

k) Debt equity prior and post the issue

l) Servicing behavior in other securities and borrowings

m) Undertaking regarding common form of transfer

n) Material event, Development or change at the time of issue

o) Permission/Consent from existing creditors

p) Statement containing particulars of the dates and parties to all material

contract agreements involving financial obligation of the issuer.

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q) Name of recognized stock exchange where securities are expected to be

listed

r) Terms of offer and all details from features to redemption

7. Discussing work with Arrangers

The selected arrangers are then called for a meeting to discuss about IssueStructure, Programme and Timing of the proposed raising of bonds. Theoutcome of this meeting is further approved by the committee of directors forBonds.

a) Meeting with the arrangers

The meeting is conducted for detailed discussion regarding timing,

size, coupon rate etc.

b) Arrangers inform that :

a. There are expectations in the market that RBI may cut theinterest rates.

b. Other PSUs with good ranking have coupon rates like 11%,11.25%, 10.70% etc.

These rates are quoted to give an idea of the prevailing market ratesand thereby helping in decision making.

c) Other details decided about the bond:

a. Size of the issue

b. Timing of the issue- opening and closing date, intimation date,pay-in date, deemed date of allotment.

c. Coupon band- cap @ 10.20%, floor kept open

The upper band was at 10.20% bearing in mind the AAA ranking ofPOWERGRID and the market volatility. The lower rate is kept open totake advantage of the expected interest rate cut.

8. Listing on a Stock Exchnage

As per stipulation of the guidelines issued by the GOI Ministry of finance for

issue of PSU Bonds, all bonds are to be listed in Stock Exchanges. As per the

guidelines, listing of the securities issued under private placement is

compulsorily to be listed on Stock Exchange. An application for listing of bonds

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at the WDM market in the prescribed format is furnished to the National Stock

Exchange along with prescribed annexure and certified true copies of relevant

documents.

On satisfactory compliance of all the required formalities, demand for listing

fees is raised by the Stock Exchange. Listing is done by the exchange onrelease of the requisite lisitng fee.

9. Market Study

The factors which govern the interest rates are mostly economy related and

are commonly referred to as macroeconomic. Some of these factors are:

a) Demand for money

b) Government borrowings

c) Supply of moneyd) Inflation rate

e) The Reserve Bank of India and the Government policies which determinesome of the variables mentioned above.

Based on these factors various outputs can be:

a) Prevailing financial crisis at global level, economic slowdown,increasing liquidity crunch in money market and rising interest ratescenario forces to set a rate at which investors come to provide withthe money required.

b) There are expectations in the market that RBI may cut the interestrates.

c) The upper band was at 10.20% bearing in mind the AAA ranking ofPOWERGRID and the market volatility.

d) The lower rate is kept open to take advantage of the expectedinterest rate cut.

10.Final Details

1. The duration and redemption is discussed with comparison to thealready floated government securities. Then the time is specified touse the G-Sec for comparison.

In this issue there is no other government security till now with suchfeatures. And since the duration is 9.5 yrs but G-Sec with 9 yrs is nottraded actively so the comparable G-sec would be the one with 10 yrsduration.

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2. The upper band was at 10.20% bearing in mind the AAA ranking ofPOWERGRID and the market volatility. The lower rate is kept open totake advantage of the expected interest rate cut.

3. Some details are decided like:

a. Size of the issue

b. Timing of the issue- opening and closing date, intimation date,pay-in date, deemed date of allotment.

c. Coupon band- cap @ 10.20%, floor kept open.

4. The face value is decided upon with the number of STRPPS. Themoratorium and maturity is also specified. Use of application formsand their allocation is given.

5. Trustee to the issue is appointed and their consent is obtained.

6. Citibank N.A. requested that Citigroup Global Market India Pvt. Ltd.,their 100% subsidiary who was a merchant banker for the IPO bepermitted to act as arranger and committee is requested to approvethe same, which is further approved.

11.Application forms

a) Arrangers apply for the application forms to be filled in and sent byinvestors for allotment of bonds, also specifying the name of concernedinvestors. Though they are provided with 4 application forms each togive to the investors .

b) Investors, arranged by arrangers confirm their investment throughwritten communication.

c) Letters sent to the organization applying for the bonds (specifying the

name of concerned arranger) for the amount they are supposed to pay

for the bonds allotted to them. The number of bonds and the cut-off rate

is specified in the letter itself.

d) Company sending the offer document containing the terms andconditions of the proposed issue and other instructions along with theletter of commitment and the application form.

12.Issue of bonds

Amount is received by bank and transferred to current A/C. the amount for

which the bonds are raised.

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Report on Funds Raising

Documents