Finance

For any Company finance is just like a blood in a human being. Without availability of proper funds a company cannot run smoothly even for a single day. Therefore to manage funds effectively and efficiently is very important. Every decision with regard to finance should be taken in a very professional manner. Actually it is team efforts and thus coordination is very important. While making finance planning following points should be considered: 1. What is profit margin of the company? Whether it is appropriate enough to bear the burden of cost of capital i.e. Interest and other incidental expenses. 2. If the margin is not appropriate then how we can reduce the cost. 3. Explore the possibility of reducing the inventory holding cost and collection period. Normally a large part of funds blocked in dead inventory and debtors. 4. How we can improve the efficiency of the use of fixed assets. e.g. new technology may be adopted to increase the efficiency of plant and machinery. 5. Company should explore what is the best option for raising the funds. Following are the options available: Raising funds through Equity: Public Limited Company normally prefers raising of funds through equity because of the following reasons: (i) Funds raised through Equity represent permanent capital there is no liability for repayment. (ii) It is up to the company to pay dividend or not. Thus it does not involve any fixed obligation. (iii) It enhances the creditworthiness of the company. Larger the capital base, higher the ability of the company to obtain credit. (iv) Normally the companies raises funds through equity to fulfill its long term funds requirements, Expansion plans or major changes in technical know how etc. If the same funds are raised through Loan or debenture, the company will have to pay a very heavy interest and it will not be economical in the long run. For the investors they have the controlling power, increase in their wealth as the share market is booming and the dividend received by them is exempt under the income tax Act, 1961. On the other hand raising funds through equity is not an easy option for small or medium scale organization. Company will have to fulfill the requirement of SEBI, which is now a day is very strict and even the top listed companies have to face the problems. The goodwill of the company, its past performance particularly the financial results, the major stake holders of the company, the business of the company, possibility of future growth are the major points that the finance department must consider before going for the public issue.

Raising of Funds through Equity: First Maiden Issue Right Issue Sale of its own share or of the subsidiary company through book building. Debenture / Bonds Debenture is a loan raised by a company from the Capital Market as a source of longterm finance. Debentures are secured by a charge on the immovable properties of the company. The company promises the debenture holder to pay interest and repay the principal at a stipulated period. Main Characteristics of Debentures: Interest: The debentures carry a fixed rate of interest, the payment of which is legally binding on the company. Interest is taxable and normally is payable either yearly or half yearly. Maturity: Normally debentures are redeem at par of we can say at face value. Security: Debentures are generally secured by a charge on the present and future immovable assets of the company by way of an equitable mortgage. Credit Rating: To ensure timely payment of interest and redemption of principal, all debentures must be compulsorily rated by credit rating agencies such as CRISIL, ICRA, CARE etc. Types of Debenture: Non-Convertible Debentures: These debentures cannot be converted into equity shares and will be redeemed at the end of maturity period. Fully convertible Debenture: These debentures will be converted into equity shares after the stipulated time period Partly Convertible Debentures (PCD) under this plan a portion of debenture is converted into equity share capital after a specified period and the balance will be redeemed as per the terms of issue after the maturity period. Pro & Cons of Debenture: 1. For a company cost of issue of debentures are lower than the cost of preference or equity capital. Interest on debenture is a deductible expense for the company under the income tax Act.

2. Debenture financing does not result in dilution of control since debentures holders are not entitled to vote. 3. Debenture Interest and capital repayment are obligatory payments. Failure to meet these payments can cause embarrassment and legal action. 4. Debenture holders earn a stable rate of return. 5. Debenture holders enjoy priority in the event of liquidation. 6. Interest is fully taxable in the hands of debenture holders. Retained Earnings: It is the cheapest source of funds. It is internal source of finance that left behind from earnings after the payment of annual dividend. Normally all companies to promote the growth of the company, a certain part of earnings is retained and ploughed back into business. Retained earnings are readily available internally and there is no dilution of control. Due to retain earnings the share price increases which lead to hectic trading in shares and ultimately increases the wealth of the investors. On the other hand if the share market is falling then this may not happened.

Term Loans As the name suggests Term Loan is meant for specific period and for specific purpose In other words we can say it is project finance. Sources of funds are financial institutions & Commercial Banks. All nationalized bank, private sector banks and financial institutions such as LIC, UTI and various financial bodies set up by Central & state govt. to promote industrialization such as DSIDC, UPFC, etc. Term loans represent a source of debt finance, which is generally repayable in more than one year but less 10 years. The financial institutions provide project finance for new projects and also for expansion/diversification and modernization. The main features of term Finance are: Maturity: The maturity period of term loan sanctioned by Financial Institutions are typically longer and in the range of 6 to 10 years. Normally it is repaid in half yearly installments. Term Loan financed by Commercial banks is in the range of 3 to 5 years and is repayable in installments. Repayment schedule mainly depends upon the project report and financial date submitted by the company. Term loans are arranged on the fixed rate of interest and the interest is normally payable either on monthly basis or it may be quarterly or half yearly as agreed between the two parties. Security: All term loans are secure. While the assets financed by terms loans serve as primary security, all the other present and future assets of the company provide collateral/secondary security for the term loan. Generally all the present as well as the future immovable properties of the borrower constitute a general mortgage/first equitable mortgage/floating charges for the entire institutional loan including commitment charges, interest, liquidated damages and so on.

To protect their interest the financial institutions imposes certain stipulation with a restrictive terms and conditions on the borrower some of the conditions are: 1. 2. 3. 4. 5. 6.

Maintain minimum current ratio and debt equity ratio. Restriction on creation of further charge on asset. Restrict sale of fixed assets without the lenders approval. Restrict to obtain another loan without the approval of the lender. Use of funds for the same purpose for which purpose it has been taken. Furnishing of periodical reports/financial statements to the lenders.

Brief Analysis of Term Loan 1. Term Loan does not lead to dilution of control since lender is not entitled to voting or participate in the day today affairs of the business of the company. 2. Interest paid on term loan is a deductible expense under the income tax act; therefore the cost of term loan is lower than actual. 3. Payments of Interest and repayment installment are obligatory payments and failure to meet these obligations can cause a lot of embarrassment. 4. Because of various restrictive clauses management freedom may be affected. Cash Credit & Overdraft This facility is provided by the commercial banks to meet the short-term requirement. Under this facility banks specified a pre-determined limit for borrowings. The borrower can draw the amount as per their requirement provided the outstanding do not exceed the cash credit/overdraft limit. The borrower also enjoys the facility of repaying the amount partially or fully as and when he desires. Interest is charged only on the running daily balance and not on the limit sanctioned. This form of advance is highly attractive from the borrower’s point of view because while the borrower has the freedom of drawing the amount in installment as and when required, interest is payable only on the amount actually outstanding. Cash credit operates against security of inventory and accounts receivable (Debtors) in the form of hypothecation / pledge. Overdraft accounts operate against security in the form of pledge of shares and securities, assignment of life insurance policies and sometimes even mortgage of fixed assets. Leasing There are two parties under a contract of lease financing i.e. the owner and the user respectively known as the lessor and the lessee. Third party may be lease broker who acts as an intermediary in arranging lease deal. Lease represents a contractual agreement whereby the lesser grants the lessee the right to use an asset in return for periodical lease rental payments. In simple words the party who owns the assets provides that assets for use to another person over a certain agreed period of time for the consideration which is called lease rent.

The assets may be property or equipment such as automobile, plant and machinery, equipment, land and building, factory, a running business, aircraft etc. Main features of lease financing contract is that during the lease tenure, ownership remain with the lessor and its use is allowed to the lessee. On the expiry of the lease tenure the assets reverts to the lessor. Broadly there are two types of Lease arrangements: Operating Lease: It is a short-term lease and cancelable at short notice. The lessor is responsible for maintenance, insurance and taxes. Operating lease normally is not beneficial for the lessor as the lessee may misuse the asset. Moreover in the short run the lessor is unable to recover the cost and the desired return. Financial Lease: It is long-term non-cancelable arrangement. Normal period of financial lease is 5 years to 8 years. The lessee is responsible for maintenance, insurance and taxes. During the lease period the lessor recovers the full investments along with an acceptable rate of return. Hire Purchase Hire purchase involves a system under which term loans for purchase of goods and services are advanced and it is to be liquidated in stages through a contractual obligation. This credit normally provided by the seller himself by setting non-banking financial company. For example Sundaram Finance, Bajaj Auto Finance Ltd., Lakshmi General Finance Ltd. L & T Finance Ltd. etc. Some private banks such as IDBI, ICICI are also providing Hire purchase advances. Normally companies make hire purchase agreement for purchase of Vehicles and Machinery items. Public Deposits The amount accepted from Public by non-financial manufacturing Company is known as “Public Deposits”. Deposit will be subject to Section 58-A of the Companies Act, 1956 and Companies (Acceptance of Deposits) Rules, 1975 as amended from time to time. Conditions for Public Deposit: It cannot exceed 25% of the share capital and free reserves. The maximum maturity period allowed for public deposits is 3 years and the minimum maturity period is allowed 6 months. The company will have to keep reserves of an amount equal to 10% of the deposit maturing by 31st March of Current financial year. This investment must be made on or before by 30th April of the Current financial year and it can only be used for repaying such deposits. A company inviting deposits from the public is required to disclose certain facts about its financial performance and position.

Sources of International Finance Integration and globalization of capital market has opened up a vast area of new sources of finance. Internet plays a major role in this field. The Indian corporate can assess foreign capital easily. There are various options available of raising funds through International market i.e. Equity Capital, Bonds, loan from corporations, banks and Govt. agencies Raising of Equity Capital: The share should be issued in those countries where the company can get best price. Issue of shares depends upon the goodwill of the company in the international market. RBI guidelines, the law of that country in which the company is entering etc. There are few companies, which are traded in the international share market. International equity market is less well developed than bond market. Bond Financing: A foreign bond is sold in a foreign country in the currency of the country of issue. Foreign bond usually sold by brokers who are located in the country in which the bonds are issued. e.g. Euro Bonds will be sold outside Europe and similarly an U.S dollar bond will be sold outside U.S.A. External Commercial Borrowings: Corporate acquisitions in India are setting a new trend in raising funds through the External Commercial Borrowing (ECB) route and at the same time saving on the withholding tax. Air-India, which is in the process of raising funds overseas to purchase Boeing Aircraft, is planning to opt for lease financing rather than a direct purchase. Towards this, the public sector airliner and its consortium of lenders are setting up a Special Purpose Vehicle (SPV) in a foreign country, which would lease the aircraft to A-I. The SPV would help A-I avoid paying withholding tax on overseas funds arranged. This is because the SPV will be launched by the lenders in such a country from where leasing aircraft to Indian Companies are exempt from withholding tax under the current laws of international taxation. Usually, withholding tax is imposed by the Government on the borrowing raised by domestic corporate from foreign banks. Sources say another reason for working out the SPV structure could be the fact that India was not one of the signatories to the Cape Town Convention on aviation protocol. While the country for setting the SPV is yet to be decided, the shares of the SPV will be held either by the overseas lenders or jointly by A-I and the lenders. Therefore, going forward, if there is any legal hassle in getting the issues sorted, said the sources. On 7th August 2007 the Government announced fresh restriction on ECB, limiting their use for domestic expenditure. Companies will now be able to raise only upto $20 million abroad for rupee expenditure, and that too with prior approval from RBI. All ECBs above $20 million will be allowed only for foreign currency expenditure such as imports, acquisition etc. Bank financing & direct loans: This is very popular among MNC’s operating in India. This is given preference as compared to equity mainly because interest on debt is deductible under the income tax act.

Government and Development bank lending: Big Corporate houses and companies gets support from foreign Govt. & various development banks which includes world bank at a favorable terms. Global Depository receipts and American Depository Receipts: These are now very common GDR created by overseas depository banks, which are authorized by issuing companies in India to issue them outside the country. GDR’s are issued to nonresident investors against the shares of the issuing companies Foreign currency convertible bonds: These bonds issued in accordance with the scheme and subscribed by non-residents in foreign currency and convertible into ordinary shares of the issuing company. GDR’s & FCCB Our company has issued 1,00,000 0.5% FCCB of USD 1,000/- each aggregating to USD 100 million. These bonds are convertible into equity shares of 10 each at the conversion price of Rs.236.31 per share, with a fixed rate of exchange of Rs.43.785 equal to one USD. The conversion is at the option of bondholders at any time on or after 29.3.2005 and prior to the close of business on 10.2.2010. Till date about 90% of the FCCB have been converted into equity shares. In March 2006 the company had issued another FCCB aggregating EURO 165 million, which was also oversubscribed. If we convert this into Indian currency it will be about Rs.900 Crores. Main features of FCCB 1. Issue of GDR’s and FCCB’s need prior permission from the Ministry of Finance, Govt. of India. 2. The company should have a consistent track record of good performance for a minimum of three years. 3. Profit before tax is used as a criterion for assessing the profitability of the company. 4. The share issued upon conversion of FCCB is to be denominated only in India Currency. 5. FCCB issued against ordinary shares are treated, as direct foreign investment and therefore it should not exceed 51% of the issued capital of the company. 6. Interest payment is subject to liable to income tax i.e. TDS is applicable. 7. The converted equity shares can be sold in India without any lock in period and net proceed can be reconverted into foreign exchange without RBI approval. 8. The amount so received from this issue should be used only for that purpose for which has been defined. In other words the net proceeds cannot be used for meeting day-to-day expenses. Normally it is used for Capital Expenditure.

Financial Analysis and Planning. Users of Financial statement Traditionally Financial statements were prepared only for accounting purpose. Records were prepared and use to be dumped in the storeroom. But with rapid computerization, tough competition both from domestic and international and increase in awareness from all the sectors the concept and approach dramatically changed. Because of this the role of a finance controller has increased. Now the question arises what are these financial statement and who are the users. The prominent users are: 1. 2. 3. 4. 5. 6. 7.

Shareholders of the Company Investors and Creditors The Management of the company The business partners of the company Various Govt. agencies such as Income Tax, Sales Tax, Service Tax, Excise etc. Stock Exchange where shares of the company are listed. Financial Institutions.

In case of Govt. agencies these financial statement are statutory and are useful for the following purpose Collection of revenue, checking control over monopoly, reports on the financial health of economy etc. Ratio Analysis It is a widely used tool of financial analysis. The rationale behind is that it makes related information comparable. In ratio analysis the figures are generally obtained from the financial statement i.e. Profit & Loss Account and the Balance Sheet. Funds Flow Statement: A Financial statement, which depict the causes of changes in assets, liabilities and owners equity from the beginning of the accounting year to the end of accounting year. In other words it refers to change in the economic values of an entity. The event causing increase in the volume of funds are called sources of fund. On the contrary event leading to depletion of fund are called application of or usage of fund In short, funds flow when there is a transaction between: • •

A current asset and a fixed asset. A fixed asset and a current liability

• •

A fixed liability and a current asset A fixed liability and a current liability

On the other hand funds do not flow when the transactions effect: • A fixed asset and a fixed liability • A Current asset and a current liability • Two Current assets simultaneously and • Two current liabilities simultaneously. Cash Flow Statement. Availability of required Cash is very important, without which an organization cannot run smoothly. Cash is required for purchase of raw materials, payment of wages, meeting other operating expenses, repayment of loan etc. Significance of Cash Flow Statement 1. Indication of profitability and liquidity. 2. Planning and coordination. 3. Performance evaluation. 4. Capital budgeting decision 5. Projected Cash flow statement is must at the time submitting any loan proposal to any financial institution. Financial forecasting & Budgeting Generally most of the companies draw a financial plan for the future based on the past performance. In past the budgets were top-down in nature i.e. the top management were use to do the whole exercise. But now the approach changed altogether. It is rather bottom-top approach i.e. integration of decision from the shop-floor level to different level of management. Budgeting involves detailed analysis of (i) Various elements of revenues and costs. (ii) Cash inflows and outflow. (iii) Capital expenditure proposals. (iv) Financing plans. (v) Sales forecast. (vi) Preparation of budgeted Income Statement. (vii) Preparation of budgeted Balance sheet. (viii) Growth and external funds requirement.

According to Tondon Committee Report, the commercial Banks must follow the following three methods to supervise credit from the point of view of ensuring proper end use of funds and keeping a watch on safety of services. 1. As per the first method of lending, the borrower is required to bring in min Net Working Capital to the extent of 25% of WCG. The balance, which is maximum 75% of the WCG, will be the MPBF. Total Current Assets: Less Current Liability Working Capital Gap Less 25% from long term sources: Maximum permissible bank borrowings:

Rs.4000 Rs1000 Rs3000 Rs.750 Rs.2250/-

2. As per the second method of lending, the borrower is required to bring minimum NWC to the extent of 25 % of the total current assets & the balance the MPBP. Total Current Assets: Rs.4000 Less Current Liability Rs1000 Working Capital Gap Rs3000 Less 25% of CA from long-term sources: Rs.1000/Maximum permissible bank borrowings: Rs.2000/3. As per the third method the borrower contribution from long term funds will be to the extent of 25% of the balance current asset, thus strengthening the current ration further. Total Current Assets: Less Core Current Assets: Total Balance Current Asset: Less 25% of CA from long-term sources: Balance Current Assets: Less Current Liability Maximum permissible bank borrowings:

Rs.4000 Rs.500 Rs.3500 Rs.875/Rs.2625/Rs1000/Rs.1625/-

Questionnaire (Required by Financial Institutions / Banks) A. History and Overview •

• • •

Provide a description of the origins of the Company including a description of the initial business and how it developed and diversified and a description of the original and subsequent ownership. Describe the main historical events and the stages in the growth of the Company, including major events in its development such as product or service developments, acquisitions etc. Discuss growth opportunities as well as constraints on growth relating to the Company’s different markets. Outline any special risk factors particular to the Company and the industry. Discuss any major acquisitions, diversifications, restructuring or other material transactions being considered.

B. Business Strategy. • • •

• • •

•

•

Outline the Company’s corporate strategy for existing and new business. Discuss strategies for adding/dropping activities and major product groups. Provide an overview of how the mix of activities has shifted and is expected to shift. Give an overview of the industry and the trends within the industry in which the Company is operating. It includes commentary on participants in the market, supply/demand fundamentals, speculative activity, current market condition and outlook. Discuss the current concerns and priorities of Management. Have there been and changes in business activities or in business strategy which would significantly alter the Company’s balance sheet or competitive position, etc. Are any significant new factors expected to affect the Company during the next two years? Describe the significant areas of risk, which are currently facing Management and how Management mitigates or accounts for these risks in each case, Which (if any) of these risk can be attributed to the Company’s strategy. Is the Company active in derivatives in respect of (a) commodities (b) foreign Currency, (c) Interest rates or (d) other areas. Does the Company employ a strategy of hedging all/any of its operations? If so, how does the Company manage its exposure? How does the Company account for its derivative contracts? Describe the mix of assets, revenue and reserves (EBITDA) between the Company’s principal bases of operation.

(C)

Economic, Political and Regulatory Factors.

1. Outline the macroeconomic, regulatory and other factors that have affected and will affect the Company’s main business and other relevant industries in general and the Company in particular for the last three years and for the next two financial years. 2. Uncertainty- Comment on level of political and economic uncertainty in general; what risk does this pose for the Company. Any risk posed by foreign governments. 3. Overseas operations: Comment on any foreign operations and the risk related to these operations. 4. An overview of government relations (both national and regional) in the domicile of the operations. (D)

Competition

1. Outline the Company’s position in the industry, including peer group analysis and growth strategy. The factors that separates your company from its competitors. 2. What is the Company’s position on the industry cost curve both at present and based on future production projections. 3. Trends in competition: Consolidation, exploration expenditure, country risk, and technological advances. (E) Management 1. Provide a description of the functioning of the board of directors and their relationship with senior management or the executive officers and with the respective boards and senior management of the Company’s principal subsidiaries. 2. Describe the management structure in terms of reporting lines and the degree of autonomy in decision-making at senior managers. 3. State the full names, title and function within the company and date of initial appointment of members of the board of directors and of senior management. 4. Provide a one-paragraph biography of each board member and senior manager stating for example, their professional qualification, length of services with the company and the principal outside business and other activities performed by such persons where these are significant with respect of the Company’s activities. 5. Provide the aggregate cash remuneration paid to board members and senior managers as a class, together with non-cash remuneration, in each of the company’s last two financial years (including fees, salaries, loans, performance relating bonuses, share option plans, pension scheme, non-compete agreements in vogue in respect of any person in the Management.

6. Describe the Company’s dependence on key personnel. Describe any recent or proposed changes in senior management. 7. Provide a list of stock options held by directors or employees, their expiration date and their exercise prices. 8. State whether there have been any related party transactions in the last five years or since the Company’s last financial year. “Related party transaction” means any transactions which is material in size, directly or indirectly, with any of the management or 5% or more shareholders or promoters of the company or any other group company, or (b) any entity in which any such person is interested, or (c) any person who is connected or related to any such person, or (d) any entity which is not a subsidiary of the Company, where the transaction is not arms’ length and for full value. G. Employees and Labour Relations. 1. Provide in tabular form the details of employee with regard to numbers, distinction between part time and full time employee and also discuss the Company’s plan to increase or decrease its work force. 2. Describe the Company’s work force demographics (Age, Education). 3. Describe the Company’s employee’s turnover statistics. 4. Provide a breakdown of payroll costs across operations including distinction between employees and contractors. Does the company have any unfounded pension liabilities? 5. Describe any collective agreements with the Company’s employees and those in each operating division and generally relations with trade unions or other labour organization. Provide the number and percentage of employees of the Company who belongs to a trade union. Discuss any annual or periodic negotiations with trade unions and interaction between the Company’s unions and other. Are there any material outstanding disputes between management and employees? 6. Outline the circumstances of any industrial action within the last five years and any anticipated industrial action. What provisions or measures, if any, have been put in place to mitigate the effect of such? 7. Discuss any legislation expected to be introduced, which would increase the Company’s labour costs, either by provision of additional facilities for workers, reduction of normal working hours, provision of pension rights or other. 8. Discuss Company’s safety policy and culture. Details of lost time statistics of each operation.

9. Comment on the adequacy of pension provision and other related employer related plans to meet future liabilities. 10. Provide details of any service agreements between any officer or director and the Company. 11. Describe the Company’s compensation structure, salaried vs. hourly employees, incentive plans 12. Describe the Company’s personnel policies and procedures. 13. Discuss the Human Resources Development. It covers Training, performance appraisal, Industrial relations, Safety, Disaster Management Authority (DMA). 14. Are there any Government regulations or other arrangements that govern the company’s relations with its work force? 15. The state and Central Government have enacted laws and rules to govern employment conditions of workforce in the industry / establishment. Some of the important legislations are – Industrial Dispute Act, Industrial Employment (Standing Order) Act, Factories Act, Employees Provident Fund & Miscellaneous Provision Act, Payment of Gratuity Act, Payment of Bonus Act, ESI Act, Maternity Benefit Act, Contract Labour (Regulation & Abolition) Act, Trade Unions Act, Workmen’s Compensation Act, Payment of Wages Act, Minimum Wages Act, The Building and other Construction Workers (Regulation of Employment and Conditions of Service) Act, The shops and Establishment Act. 16. Which kind of union representation does the Company have? 17. Provide a comparison between the Company’s employee wages and employment conditions with those of its competitions. Accounting Information. 1. How frequently are the Company accounts audited? Do the auditors review the interim financial statements? 2. Have the auditors to the Company raised any issued or made any comments which would be considered material in the context of the Bonds 3. Comment on whether the Company has planned or expects any changes in accounting policies or anticipated changes that will affect Company’s financial statements. 4. Discuss any accounting weakness or issued identified by the Company’s external auditors and the Company’s response thereto. Are there any or have there been any disagreements with the auditors in repect of the choice of accounting policies, the application of these policies or any other matter?. If so how have/will these be resolved?

5. Provide a summary of major accounting policies and procedures. Has there been any recent changes in accounting policies and tax policies.---are any such changes planned? 6. Comment on whether there has been any fraud involving any Company in the Group by external parties or won employees in the last 5 years. 7. Comment on adequacy of financial systems and controls. Are there areas in which these could be improved? 8. Is there sufficient holding capital for present requirements? 9. Are there any surplus or deficit values of assets in the balance sheet crossreferencing market values 10. What is the impact of movement of interest rates on the Company? 11. How often does the Company meet with its auditors? 12. How often are the management accounts prepared? Financial Information 1. Discuss (to extent available) income statements (especially net turnover, total operating income and net profit), balance sheets and cash flow statements for the past two fiscal years. Describe material changes to the Company’s balance sheet since 31st March or income statement (compared to the same period in the previous year) since 31st March 2006. 2. Discuss the performance of the individual operating units, paying particular attention to any unit whose performance varied significantly form forecast or budgets. 3. Has there been any material change in the financial or trading position or prospects of the Company or the Group since 31st March 2006. 4. Discuss profitability over the last 2 years and trends therein. 5. Discuss the trend over the last 2 years and projected trend for the last 2 years regarding Capital Expenditure & Indebtedness. 6. Discuss factors (technology changes, competition, inflation or government regulation for instance), which may influence (positively or negatively) the profitability, growth, direction or prospects of the Company during the next 3 to 5 years. 7. What are the Company’s debt finance strategy, methods, markets, and currencies? Does the Company make and effort to diversify funding sources? 8. Significant cash investments and requirements including capital expenditure and debt service. 9. Discuss any available lines of credit with banks. How is the relationship with principal lenders? 10. Liquidity position and liquidity resources. What is the Company’s policy on debt? Debt/equities ratios compared to other companies in the industry? (Including domestic and international credit lines). 11. Significant financing, capital markets transactions or refinancing that are expected to occur in the next six months? 12. Significant contingent liabilities (including guarantees) and reserves?

13. Describe nature of debt currently outstanding including principal terms, amount, security granted, restrictions on repatriation of cash flow to Company and recourse to parent. Where guarantees exist provide description of nature and expected tenor. 14. Are there any borrowing restrictions or restrictions on payment of dividends in the company’s existing borrowings documentation or under its constitutional documents? 15. Is the Company in default on any of its obligations (including financial ratio covenants) under existing borrowings or contracts? Are there any onerous contracts that could lead to material losses? 16. What are the Company’s off-balance sheet liabilities: leases, unfounded pensions, hedging contracts, other contingencies, product liability etc? 17. Please review any extraordinary changes. 18. Foreign currency exposure: Policy in regard to hedging foreign currency denominated operating costs. 19. Interest rates/inflation/tax rates: Sensitivity of operations to changes. 20. Discuss any other derivatives activities including commodities and interest rates. How are derivatives exposure monitored? What is the strategy for use of land and the exposure to any derivative instruments? What is the internal authorization process for the use of derivatives? Provide details of current exposure to derivative contracts. 21. What is the intended use of the proceeds of the issue of the Bonds? 22. Have any significant acquisition joint ventures or dispositions or other major financial transactions occurred recently and does the Group plan any such transactions? 23. Are there any significant projects/joint ventures planned to be implemented or terminated during the next six months? 24. Are there any material contracts about to be entered into or lost? 25. Are there intentions to diversify into new business areas of dispose of peripheral business 26. Provide a description of any profit improvement/cost reduction programs and historical comparison of initial saving projected versus actual savings realized. 27. Describe history of collections and bad debts (including from wholesalers) experience to date, trends and projection for the future. 28. Describe the Company’s equity finance strategy. Any limitation to access to the stock markets? Describe capital raising activities during 2005. 29. If any equity issue is planned, will it materially affect the control and ownership of the Company? 30. Comment on the Company’s dividend policy and any expected changes to it. 31. Describe any financial or capital leases. 32. What are the major areas of opportunity and concern for the Group in the year to follow?

MANAGEMENT’S DISCUSSION AND ANALYSIS 1. Contribution at the operating income level and contribution to net income from each of the Company’s principal products or divisions and any anticipated changes in those contributions. 2. Gross margins, operating margins and net margins and trends in margins. 3. Quality of earnings and level of recurring revenues. 4. Does the Company have any equity issue plans? 5. Describe the Company’s actual results vs budget (including summary of actual results versus forecast) for the last three years. 6. How and when are budgets prepared and how are budgets compared against results? 7. How are forecasts for the Group made and how often are they revised? How accurate have recent forecasts been? Control / Technology 1. Comment on the adequacy of the Group’s financial system, management information systems and controls and whether all acquired companies are presently incorporated in the Group’s financial systems and controls. 2. Have there been any lapses in control and management procedures in the last two years? If so, how were these lapses rectified and what was their effect? 3. Have there been any frauds perpetrated against any company within the Group by external parties or by the Group’s own employees in the last 5 Years? 4. Discuss the Company’s overall IT Strategy. INSURANCE 1. Provide with respect to the Company the current level, type and cost of insurance cover and the strategy in relation to insurance cover. 2. Discuss past and present claims under the policies. 3. Discuss the strategy for future insurance cover. 4. State what you paid for your aggregate insurance premium, in each of the last three years. Pollution Control, Environment and Safety. 1. Discuss the Company’s present and historical compliance record with environmental, health, safety and other relevant regulations and the Company’s relationship with the government regulators, in particular discuss the constraints that the regulations, license and the regulators place on the Company’s freedom of action. Also does the Company have all relevant permits, licenses and consents? 2. What approach does the Company take towards environmental risk management? Does the Company have an environment policy? What is the state of compliance with local, national and World Bank environmental guidelines?

3. Describe the likely future environmental health, safety and other laws and regulations relevant to the Company and the likely affect of such regulations on the Company. 4. State whether the Company or any of its operating divisions has carried out any environmental, health or safety audits. If so, please supply details of them and discuss any actual or potential environmental, health or safety liabilities identified. 5. State whether there are any incidents or circumstances, which have or could lead to, environmental or other liabilities for the Company. 6. How would the company react if their hydroelectric schemes received a similar level of attention to that of other Indian hydro projects? Particularly relating to the allegation of a sub-standard Environmental Impact Assessment and public consultation. LITIGATION / REGULATORY 1. Describe the Company’s internal controls and procedures for ensuring compliance with law and regulations. 2. Describe any litigation, arbitration or other proceeding made or threatened against or being brought by the Company. Provide details of each such proceeding, where the value of the claim exceeds U.S 500,000 or equivalent in local currency, including an assessment by lawyers as to its chance of success. Provide details of each material judgments awarded or claim settled within the last five years and since the Company last financial year. 3. Discuss any activities, which may be illegal or subject to adverse public comment. 4. Has the Company breached/failed to satisfy any regulatory or contractual requirements over the past 2 years? Including (a) liquidity, (b) management (c) minimum paid in Capital? 5. Describe the Company’s relationship with regulators in general. 6. Are there any regulatory or administrative proceedings pending or threatened against any Group Company? 7. Are there any governmental controls (including import duties or excise taxes, trade agreements between different countries in relations to pricing, wages, foreign exchange transactions, imports and exports, regulation of the Company’s industry, environmental protection or other areas of the Company’s operations? What is the effect on the Company? 8. Give information on the applicable license, patents, franchises or trademarks of the Company up to date. 9. Has any director, officer or employee of the Company ever been charged with or invested in respect of any criminal offence, which might affect the Company’s business? 10. Please comment on all material contracts entered into in the ordinary course of business. 11. Please give details of any material breach by the Group of any material contract to which it is a party.

12. Has the Group entered into any contracts of a material or unusual nature outside of the normal course of business? 13. Has the Company or any director, officer or employee ever violated or otherwise breached any relevant regulations? TAX 1. Describe the corporate tax regime from the Company’s perspective and discuss any disputes pending, threatened or anticipated with tax authorities in main market. 2. Discuss how the Company’s tax liabilities are calculated and what percentage of taxable profits of the Company pays as tax-to-tax authorities. 3. Ascertain the most recent date up to which the tax authorities have agreed the Company’s tax liability. When did the last tax audit occur? Any additional assessments expected? 4. Discuss any management anticipated or forthcoming tax changes and how any recent changes affect the Company’ results and plans for future financings. 5. Provide details of any disputes between the Company and any government, tax or regulatory authority. Discuss whether the Company has ever been the subject of an investigation by any such body over the last 10 years. GENERAL 1. Is there any intention in the near term to submit the Company to a formal credit rating? 2. Is any Group Company in default or potentially in default under any of its borrowings? What would be the consequences of a default for the Group and with your shareholders and investors? 3. Are there any developments or announcements, which may occur or be made over the next few months, which we should be aware of? 4. Are there any other or additional risks associated with the Group’s business or the industry or otherwise? 5. Is there anything else that is material, which has not been disclosed, that is likely to be of concern to us investors? GENERAL CORPORATE INFORMATION 1. Provide (a) Date of incorporation of the Company (b) Legislation under which the Company was incorporated (c) If relevant, description of the Company’s principal objects and the clause of the articles of incorporation in which they are described (d) Amount of the Company’s authorized and issued share capital (e) The number and classes of shares of which the Company’s capital is composed (f) Details of any issued share capital which is not fully paid up

(g) If the Company has authorized but unissued share capital or is committed to increase the capital (h) The terms and arrangements for the issue of such unissued capital (i) Details of any outstanding long-term debt or debt programs, including debt covenants