Mergers, Foreign Collaborations and Financial Innovations in a Global Economy International Tax Conference on Cross Bor

1. Mergers, Foreign Collaborations and Financial Innovations in a Global Economy International Tax Conference on Cross Border Transactions Theme Presentation

2. Part I: India and the global economy Part II: The trends Part III: The Regulatory Framework Part IV: The Tax Framework Part V: Concluding Remarks

3. Part I: India and the global economy

5. Why India ? Sweeping reforms post liberalization Cost competitiveness Large scientific research capabilities Reforms in key growth areas like infrastructure and power Demographic changes Indian companies are warming to the concept of shareholder value

7. India: Cost competitiveness Increasing participation limits for FII and FDI in different sectors Lower custom tariffs leading to competition and lower prices More than half of cost diff between India & China is on account of high tariffs and taxes FTA with Thailand, CECA with SG, moving towards pact with ASEAN Almost half of the 30% cost difference between India and East Asian nations (mainly China) is due to lower taxes. Total domestic taxes in India are 30% (Excise + State VAT) as compared to 17% for China. Almost half of the 30% cost difference between India and East Asian nations (mainly China) is due to lower taxes. Total domestic taxes in India are 30% (Excise + State VAT) as compared to 17% for China.

8. India: Large scientific research capabilities More than 100 companies outsource R&D facilities from India GE, Monsanto, Eli Lily, to name a few have largest facilities outside US, in India Well established IT and ITES services market with CAGR of > 50% in last 5 yrs IT exports touch US$ 22bn in 2004, form 20% of total exports (goods+services) India has 1200 engineering colleges that put out 0.36m engineers every year.India has 1200 engineering colleges that put out 0.36m engineers every year.

9. India: Key reforms in growth areas Significant milestones in infrastructure developments over last 5 years New Telecom Policy of 1999 led to rapid penetration of telephony Government initiated NHDP at a cost of US$13.2bn (Phase 1&2) until 2008 Phase 3 to add another 10,000km by 2012 Plans to extend further by another 26,000km Electricity Act 2003 improves investment scenario in power sector US$ 62bn of investments only in generation until 2012 Additional investments in T&D and generation could push total to US$150bn Development of new airports and upgradation of major airports Private sector participation in ports Increased investments in mining (oil & gas, coal, minerals) NELP progressing well Private / Foreign participation in iron ore, coal into last lap of evolution

10. India: Demographic changes have �. Almost half the population is under 25 years Literacy levels among young significantly high Impact of mass media is potent Legacy savings nest of US$600bn+ Time to ditch the adage �Indians live poor but die rich�

11. � changed consumption patterns Rising share of spend on �new services� and lifestyle Savings rate remains high @ 24% Penetration of media, higher literacy and a nascent credit culture underpin the transition

12. India: Unlocking shareholder value Universal restructuring : Top 100�Midcap 200� down to SMEs Relearned the mantra post liberalisation: ROCE > WACC ! Focus on de-gearing and free cash flows Operating rates near peak � Cement, Automobiles, Steel, Mining, Electricity Well positioned for modular, �high yield� capex phase Job creation - Manufacturing renaissance Textiles, Tourism, Pharma R&D, Ad industry joins IT/ITES in globalisation/ outsourcing PSUs : �employment boomers� of 70s� to retire over next 3-5 years

13. Part II: The trends

14. International Investors have reposed faith in the Indian Economy � As per a study conducted by AT Kearney, India ranks among the top 3 in global FDI Confidence Index Growth opportunities in India have attracted global investors including VC funds and private equity investors PE Investments worth over USD1.75bn in FY2005 (USD 1bn in 1HFY06) and exits of over USD 545mn (USD 939mn in 1HFY06)

15. � which is reflected in bullish capital markets Strong rally in the market in spite of minor hiccups along the way Superior returns attracting increased FII participation Nearly 800 registered FIIs with a cumulative investment of over USD 39 bn Equity Mutual Funds have emerged as strong players with AUM of about USD12 bn

16. India Inc. is on a second wave of investments �

17. �underpinned by domestic capital raising �

18. � and overseas capital raising

19. Case Study 1: Reliance Industries Multi-currency Term Loan

20. Case Study 2: Motherson Sumi�s FCCB

21. Growth Through Consolidation and Inorganic Expansion: Predatory India Inc

22. Indian Corporates are Seeking International Acquisition Opportunities to Reach Global Size

23. International Companies are also Seeking a Foothold in the Growing Indian Market

24. Emerging Trends- M&A Cross-border M&A to continue In-bound M&A in sectors like IT/BPO, telecom and manufacturing Outbound M&A in pharmaceuticals, auto & auto ancillary, textiles, oil & gas Buyouts driven by private equity funds expected to gain ground

25. Emerging Trends- Private Equity Private Equity boom in emerging markets India�s phenomenal investment opportunities are attracting the likes of Carlyle and Blackstone Well entrenched capital markets and ease of transactions ensure smooth exits for PE players Buyouts driven by private equity funds expected to gain ground

26. Case Study 1: Tata Tea�s acquisition of Tetley First Leveraged Buy-out ( Rs. 2,135 cr) Instant access to Tetley�s worldwide operations, combined turnover at Rs 3,000 cr Financial Innovation at its best SPV created to ring fence risk with equity contributed by Tata Tea and Tata Tea Inc Debt of 235 mn pounds raised in the form of long term debt and revolver; charge against Tetley�s brand and assets Tata Tea�s exposure only to the extent of equity component of 70 mn pounds

27. Case Study 2: Amtek Group�s Global Steps

28. Case Study 3: Vodafone enters India Largest investment in the Indian telecom sector by overseas player (Deal Size: Rs 6700 cr) India is the third-largest mobile with 65 mn subscribers; growth of 54% Y/Y Bharti is the fastest-growing mobile market in Asia with 14 mn subscribers 10% of Bharti at Rs 351/sh with 4.39% indirectly from Bharti Enterprises and 5.61% from Warburg Pincus Exit for Warburg Pincus who originally invested US$ 300 mn for 18 % in 1999-2001

29. Part IV: The Regulatory framework

30. Investment in India � Alternatives Portfolio Investment by institutional investors through Securities and Exchange Board of India Regulations Requires registration with SEBI Foreign Direct Investment is freely allowed in all sectors including the services sector, except a few sectors where the existing and notified sectoral policy does not permit FDI beyond a ceiling FDI for virtually all items allowed through the automatic route under powers delegated to the Reserve Bank of India (RBI) and for the remaining items through Government approval Government approvals are accorded on the recommendation of the Foreign Investment Promotion Board (FIPB)

31. Investment in Existing Companies If the investment is made in a listed entity, the Acquirer needs to comply with various provisions of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997

32. Easing of Government Approval Process FDI limits being eased up 100% in all infrastructure projects, drugs and pharmaceuticals, hotels and tourism, etc Currently at 74% in banking, telecom services, exploration and mining 49% in civil aviation 26% in insurance Foreign investment approval through FIPB route do not require any further clearance from RBI for the purpose of receiving inward remittance and issue of shares to foreign investors RBI Notification: Notification by the company to the RBI within 30 days of receipt of inward remittances Filing the required documentation within 30 days after issue of shares

33. Part V: The Tax framework

34. Tax Regime � Taxing the Corporate

35. Tax Regime � Issues Carry Forward of Losses Can be carried forward and set off against future profits up to 8 years No carry backward of business losses

36. Tax Regime: Taxing the Foreign Corporate Non-residents Royalties, Fees from technical services, Income from GDRs, dividends, interest, etc. taxed at variable rates Applicability of MAT?

37. Part VI: Concluding Remarks

38. Recap The borders in a global economy are becoming seamless India occupies a favorable place for foreign investment Indian corporates are looking at opportunities abroad Financial innovation has spawned a host of products The Regulatory and the Tax framework Foreign Investment in the form of FII/FDI FII Investment requires SEBI registration FDI Investment through (a) approval and (b) automatic route Indian and Foreign corporates taxed differently Tax structure needs to be streamlined to facilitate cross border transactions