Reliance Infra Nfo Presentation

Reliance Infrastructure Fund An Open-Ended Equity Scheme NFO Opens on: 25th May 09 NFO Closes on: 23rd June 09

A Reliance Capital

Table of Contents 

Equity Markets



India Infrastructure



Funding Options



Investment Opportunities



Reliance Infrastructure Fund

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Indian Equity Markets – Visible Change Oct 2008

Now

- Major global banks failed, more probable

- Looks remote

- Liquidity evaporated

- Liquidity all around

- Risk aversion

- Risk appetite returning

- Companies facing capital shortage

- Equity raising easier, change in B/S

- Election uncertainty in India

- Biggest Election verdict since 1984

- FIIs major sellers

- FIIs becoming big buyers

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Now

Equity Markets – Our View 

The Catapult - Election - A big positive game changer - Accompanied by improving monetary and economic conditions - Governance, infrastructure and inclusive growth looks to be key goals of incumbent Government - FII/FDI inflows can be very strong - Earnings upgrades may follow - Sustainable attractive returns from Indian equities look possible



What can go wrong? - Another global financial catastrophe - Big disappointment in pace of Government actions over next 6 months 4 of 36

Everything Going For India 

Youngest population in the world



Largest middle-class and consuming population



Domestic focused economy



Banking system proved to be amongst the healthiest



Global leader in services



Lowest cost producer in metals



Huge savings and investment rates

However…… Source: Internal - RMF Research 5 of 36

Infrastructure – Miles To Go World Bank’s “ Global Competitiveness Report 2007-08” 

‘Inadequate supply of infrastructure’ - Most problematic factor for doing business in India



India ranked 48th out of 131 counties in the Global Competitive Index 2007 - Ranked 67th on the quality of infrastructure



India lags behind in infrastructure facility usage compared to US & China Comparision of Infrastructure Facilities Particulars

India

US

China

618

14240

1684

2983

21443

1471

Steel Consumption per capita (kg)

34

357

244

Rail route per mn people (km)

56

755

57

572

7953

4265

71

4780

151

Electric consumption per capita (KwH) Roads per mn people (km)

Cargo handled at ports per capita (kg) No. of passengers handled at airports per 1,000 persons

Source: Published Media, Global Research 2007-08 6 of 36

Infrastructure Investment – China Vs India

8.5% Of 2008 GDP(USD 380 Bn)

6% Of 2008 GDP(Rs. 267,356 Cr) 7 of 36

Source: India Infoline, 2008, Exchange Rate: USD = 6.85 RMB

Infrastructure Investment – China Vs India

8.5% Of 2008 GDP(USD 380 Bn)

6% Of 2008 GDP(Rs. 267,356 Cr) 8 of 36

Source: India Infoline, 2008, Exchange Rate: USD = 6.85 RMB

Realisation – Very Evident Prime Minister Dr. Manmohan Singh

Ex – Finance Minister P. Chidambaram

Our growth potential will be realized only if we can ensure that our infrastructure does not become a severe handicap

Infrastructure development is essential to sustain high growth rates in future

Dy. Chairman – India Planning Commission Montek Singh Ahluwalia

Chairman – Tata Sons – Ratan Tata

One of the critical constraints which holds back our growth rate is really the quality of infrastructure

We have a large deficit in almost every infrastructure sector whether airports, power, roads, etc. This is an area that needs large amounts of investment.

Ex-CEO Infosys, Nandan Nilekani

CEO, Bharti Airtel, Sunil Mittal

India has achieved excellence in human capital, but the country’s shabby infrastructure is proving to be a major stumbling block for the country’s development

Indian industry would expect significant initiatives in the area of resource mobilization for infrastructure projects

Source: CLSA Research April 2008 9 of 36

Factors Driving Demand For Better Infrastructure Economic Factors

Demographic Factors

Global Integration

Growing economy

Rising population

Rising international

Rising disposable incomes

Increasing urbanization

trade and travel

Inadequate road width,

Massive under capacity in railways for freight and passenger traffic

poor riding quality, low speeds 10-14% power shortages, frequent

Poor WSS is major contributor to diseases

brown outs WSS: Water Supply & Sanitation

Delays, congestion, fuel wastage in air travel High turnaround time, poor connectivity at ports

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Source: CLSA research, April 2008

Now Also Political Pressure

Source: Election Commission 2009

GSDP: Gross State Domestic Product

Source: RBI: A study of budgets of 2008-09

States with focus on higher development expenditure has proved to be a boon for the Ruling Party 11 of 36

Manifestos Unanimous On Infrastructure BJP

- Commits to an agenda for change guided by three goals: Good Governance, Development & Security - Investing heavily in infrastructure projects are at the top of our agenda

DMK

- Implement the Sethu Samundaram project early - Super fast bullet train service between Chennai, Madurai & Coimbatore - Dedicated freight corridor is to be implemented between Chennai & New Delhi

Trinamool Congress

Left

The party aimed at forming a secular, progressive and stable government at the centre which would focus on economic reforms, industry, agricultural development and adopt pro-people policies

- Reviewing of privatisation of infrastructure through PPP - Emphasis on rural infrastructure - Increased outlay on rural roads, electrification etc

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Source: Media Reports, Election Manifesto of Respective Parties

Congress Manifesto 

Manifesto makes intentions clear -

Increase public investment in infrastructure

-

Ensure that India adds at least 12000-15000 MW of power capacity every year

-

Rural electrification & reduction in distribution losses

-

Implement a scheme to supply energy to poor families at affordable prices

-

Promises a very significant increase in the share of nuclear power

-

Connect villages through broadband network within 3 years

Source: Congress Manifest 2009

Strongest Government platform in India over the last 2 decades..& the opportunities could be substantial 13 of 36

Intentions Evident In Interim Budget 2009 

Government approval to 37 infrastructure projects worth Rs.70,000 Cr from August, 2008 to January, 2009 alone



Under PPP mode, 54 Central sector infrastructure projects, in-principal or final approval and 23 projects approved for viability gap funding in 2008-09



IIFCL to refinance up to 60 % of commercial bank loans for PPP projects involving investment of Rs.1,00,000 Cr in infrastructure over the next 18 months

IIFCL: India Infrastructure Finance Company Limited

Source: http://indiabudget.nic.in 14 of 36

The Size Of Opportunity Particulars Expressways (Km) Air Passenger Traffic (Mn) Cargo Traffic (Major Ports) (Mn Tons) Power Generation Capacity (GW) Finished Steel (Mn Tons) Cement (Mn Tons)

India (2008)

Year when China Achieved

200 120 519 143 58 218

1989 2006 1991 1992 1991 1989

Source: India Infoline Research, Department of shipping India, National Bureau of statistics China

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China (2007) 53,000 186 3,882 720 465 1,500

XIth FYP – Infrastructure Investment Sector

2007-08

2008-09

2009-10

th 2010-11 2011-12 Total XI FYP

Power Roads Telecom Railway Irrigation Water Supply & Sanitation Ports Airports Storage Gas

74,205 51,352 33,075 33,207 27,002 25,840 9,691 6,223 3,777 2,984

92,829 54,318 39,834 39,964 33,839 31,110 11,740 6,459 4,098 3,454

116,541 58,729 50,293 48,626 42,625 37,868 14,271 6,814 4,446 4,005

146,914 67,901 63,408 59,738 53,946 46,555 17,397 7,296 4,824 4,651

186,038 79,516 80,390 76,466 65,718 57,754 20,841 7,956 5,234 5,407

616,527 311,816 267,000 258,001 223,130 199,127 73,940 34,748 22,379 20,500

Total Investment Total (USD Billion) Investment as % of GDP

267,356 65 6.0

317,645 77 6.5

384,218 94 7.2

472,630 115 8.1

585,320 143 9.2

2,027,168 494 7.5

Rs. Crore(At 2006-07 prices), Exchange Rate of Rs.41/$ (2006-07) Source: Investment in Infrastructure during the Eleventh Plan published by The Secretariat for the Committee on Infrastructure

FYP : Five Year Plan 16 of 36

Much Bigger Outlay In The XIIth FYP 

The projected investment in infrastructure sector in the XIIth FYP would be USD 1,128 Billion Projected GCFI (XIIth Plan) 2011E-12E 2012E-13E 2013E-14E 2014E-15E 2015E-16E GDP at Market Prices

2016E-17E

6,347,900

6,919,300

7,542,000

8,220,800

8,960,600

9,767,100

Rate of growth of GDP (%)

9.00%

9.00%

9.00%

9.00%

9.00%

9.00%

GCF in Infrastructure as a % of GDP

9.00%

9.25%

9.50%

9.75%

10.00%

10.25%

571,311

640,035

716,490

801,528

896,060

1,001,128

GCF in Infrastructure (Rs. Crore)

Total GCFI (Rs. Crore) Total GCFI (USD Billion)

4,626,552 1,128

Rs. Crore(At 2006-07 prices), Exchange Rate of Rs.41/$ (2006-07) Source: Planning Commission of India Estimates: GDP to grow at 9% per year, GCFI as % of GDP to increase from 9% in 2011-12 to 10.25% in 2016-17

FYP : Five Year Plan, GCFI: Gross Capital Formation In Infrastructure 17 of 36

Plans Fine – Show Me The Money 

Question marks on infrastructure spending - Huge budgetary and fiscal deficit - Past record on foreign flows so-so and not very robust



However, future looks brighter - Avenues to control deficit in sight - PPP - Foreign investments

PPP: Public Private Partnership

Source: Internal - RMF Research 18 of 36

Fiscal Deficit – Likely To Reduce Going Forward Subsidy and Fiscal Deficit 2007A-2010E (Rs bn)

2007A

2008A 2009RE

Food Fertilizer Petroleum Total

24,014 12,977 2,699 39,690

31,330 27,060 14,080 72,470

43,630 47,500 78,820 169,950

55,000 31,700 28,100 114,800

28

57

52

28

Subsidy/Fiscal deficit %

2010E

Subsidies as a contributor to fiscal deficit is expected to decrease

Source: Ministry of Finance, Kotak Institutional Equities Estimates

3 G Auctions Bids at reserve price Bids at 2x reserve price Bids at 3x reserve price

Rs Crore 8,590 17,180 25,770

Source: Internal - RMF Research

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Expected revenue from 3G spectrum auction

Divestment… Name

Mcap Govt. (Rs. Cr) Holding (%)

Oil & Natural Gas Corp Ltd NTPC Ltd MMTC Ltd NMDC Ltd Bharat Heavy Electricals Ltd Steel Authority Of India Ltd Indian Oil Corp Ltd Power Grid Corp of India Ltd GAIL India Ltd Power Finance Corp Ltd National Aluminium Co Ltd Neyveli Lignite Corp Ltd Rural Electrification Corp Ltd Container Corp Of India Mahanagar Telephone Nigam Shipping Corp Of India Ltd Engineers India Ltd Rashtriya Chemicals & Fert Total

212,026 171,794 118,137 110,219 99,884 68,276 56,049 49,791 38,955 24,591 23,517 19,923 12,446 12,016 5,572 5,164 4,320 3,603 1,036,282

74 90 99 98 68 86 80 86 57 90 87 94 82 63 56 80 90 93

Divestment of minority stake in listed PSUs to reduce fiscal burden

Divestment of profitable unlisted PSUs like BSNL, DVC etc

Sale of residual minority stake in privatised PSUs like VSNL(26%), Balco(49%) &

Divestment can give 5% Divestment 10% Divestment

Hindustan Zinc(29%) 51,814 103,628

Source: Bloomberg Note: The name of the companies mentioned above are for illustration purposes only 20 of 36

Cash – Rich PSUs 

Will be key infra-developers without needing resources from Government budget : - NTPC: Cash on books as on FY08 is Rs15,360 Crs It can develop 20GW of capacity without raising capital - ONGC: Cash on books as on FY 08 is Rs 18,652 Crs - Railways: Generating cash of over Rs20,000crs every year - Others like BSNL, AAI, DVC also have enough cash to fund their projects

Source: Internal - RMF Research Note: The name of the companies mentioned above are for illustration purposes only 21 of 36

PPP Concept Gaining Credence

Growth Rate of PPP Projects by value in the last 3 years over previous 8 years is 104%

PPP Projects Awarded – Sector Wise Sector

More than 117 PPP deals closed in last 3 years when compared to 104 in the previous 8 years

Road Urban Development Airports Ports Railways

Total Source: Company, DEA PPP Database and Citi Investment Research and Analysis 22 of 36

% by Volume

% by value

71% 12% 2% 14% 1%

37% 5% 14% 43% 1%

100%

100%

PPP & Privatisation 

Government is targeting around 30% of the total funding to come from PPP Schemes - As compared to 17% in Xth FYP - 4x times the investment by private sector in the Tenth FYP



In XIth FYP, almost all sectors like power, roads, railways, airports etc, are going to witness increased private participation Funding by PPP 30% of total Infrastructure Investment in 11th FYP Power

Investment Target % of Sector Share PPP Oppourtunity % of Private Share

616,527 30 162,517 26

Road Telecom Railways Irrigation Sanitation Ports Airports Storage 311,816 15 112,503 36

267,000 13 177,689 67

258,001 13 50,491 20

223,130 11 N.A 0

Rs. Crore(At 2006-07 prices) Source: Planning Commission of India

199,127 73,940 10 4 5,396 54,457 3 74

34,748 2 21,165 61

Gas

Total

22,379 20,500 2,027,168 1 1 100 11,190 6,499 601,905 50 32 30

PPP : Public Private Partnership, FYP : Five Year Plan 23 of 36

Funding Pattern - XIth FYP Funding of XI FYP X Plan Sectors Electricity Roads & Bridges Telecommunication Railways Irrigation WSS Ports Airports Storage Gas Total

Centre 102,463 71,534 49,013 108,950 13,617 42,316 2,185 3,823 577 8,713 403,191

State 97,553 66,354 10,402 97,886 21,465 1,530 12 866 296,068

Private 91,834 7,004 54,352 307 1,022 10,356 2,936 3,377 1,000 172,188

Total 291,850 144,892 103,365 119,659 111,503 64,803 14,071 6,771 4,820 9,713 871,447

Rs. Crore(At 2006-07 prices) Source: Planning Commission of India

Private Funding Gains Importance FYP : Five Year Plan 24 of 36

Centre 255,316 107,359 80,753 201,453 24,759 42,003 29,889 9,288 4,476 10,327 765,623

XI Plan State Private 225,697 185,512 100,000 106,792 177,686 10,000 50,354 228,543 96,306 5,421 3,627 54,479 50 21,630 6,713 11,189 6,528 670,936 619,591

Total 666,525 314,151 258,439 261,807 253,302 143,730 87,995 30,968 22,378 16,855 2,056,150

Success Stories Of Infrastructure Privatisation Mundra Port

New Hyderabad Airport

Mumbai – Pune Expressway 25 of 36

Case For Foreign Investments In Infrastructure 

Attractive returns - 16% in power (through PPA Arrangement), attractive double digits in others over a 20-30 year period



Potential to invest huge sums of money given India’s need for infrastructure



Stable political environment with the current decisive mandate



Currency outlook - stable to appreciating Rupee



Liberal policies – FDI allowed 74% to 100% in most infrastructure sectors

PPA: Power Purchase Agreement

Source: Internal - RMF Research, CERC 26 of 36

FDI – India Can Attract Much More Sector Rs. Crore

2005-06

2006-07

2007-08

(Apr-Mar)

(Apr-Mar)

(Apr-Dec)

2,399 2,776 667 171 386

21,047 2,155 4,424 2,121 713

26,589 5,103 6,989 8,749 3875

24,074 11,155 8,287 11,316 4268

79,771 27,902 21,672 22,477 13,898

24,613 5.5

70,630 15.7

98,664 24.6

112,896 25.4

382,996 87.9

Services Sector Telecommunications Construction Activities Housing & Real Estate Power Total FDI in India(2000-09)(Rs. Cr) Total FDI in India(2000-09)(USD Billion)

compared to India

♂

China attracted 9X FDI as

Source: Department of Industrial Policy & Promotion, Internal - RMF Research 27 of 36

2008-09

Cumulative

(Apr-Feb) (Apr00-Feb 09)

% Of Total Inflows 22.00% 8.00% 6.00% 6.00% 4.00%

Private Equity – An Important Source Of Funding

Source: Grant Thornton 28 of 36

Infrastructure Fund – Why Now ? 2008

Now



Valuations very stretched



Despite recent spurt, still attractive



Political concerns at peak



Political stability for five years



Global scenario –very scary and



Some stability. Investors will move

hazy 

to higher growth economies

Raising debt and equity



Interest rates plunge, debt

impossible – a must for

available, investors looking for

infrastructure

equity investments 29 of 36

Valuations: Reasonable given growth prospects

Source: Bloomberg Note: The name of the companies mentioned above are for illustration purposes only We do not recommend any action based on the above illustration % Change in price from 2007-08 high is compared to prices as on 22nd May 09 30 of 36

Introducing Reliance Infrastructure Fund

A Reliance Capital

Investment Strategy 

Investment in Equities of Infrastructure Companies : 65%-100%*



Investment in Debt & Money Market Securities : 0% - 35%*



Multi – Cap Strategy



Investment with a medium to longer term horizon

* Please refer detailed asset allocation on slide no 33 32 of 36

Scheme Features Investment Objective

Nature of Scheme

The primary investment objective of the scheme is to generate long term capital appreciation by investing predominantly in equity & equity related instruments of companies engaged in infrastructure & infrastructure related sectors & which are incorporated or have their area of primary activity, in India & the secondary objective is to generate consistent returns by investing in debt & money market securities An Open Ended Equity Scheme

Benchmark

Proposed Asset Allocation

BSE 100 Equity & Equity Related Securities including derivatives engaged in infrastructure sectors & infrastructure related sectors# 65%-100% Debt & Money Market Securities ** 0% - 35%

Fund Manager

Sunil Singhania New Fund Offer Price: Rs.10/- per unit plus applicable load

** including securitised debt up to 30% #An overall limit of 100% of the portfolio value has been introduced for the purpose of equity derivatives in the scheme. The margin money requirement for the purpose of derivative exposure will be as per the SEBI Regulations. The derivate exposure will be restricted to such limit so that the scheme does not leverage upon margin requirements

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Scheme Features Choice of Plans/Options Retail & Institutional Plan Growth Plan: Growth & Bonus Option Dividend Plan : Dividend Payout Option Dividend Reinvestment Option

Minimum Application Amount For Retail Plan : Rs.5000/For Institutional Plan: Rs.5 Crs

SIP Available : Retail Plan Mode of Payment : Only through Direct Electronic Debit to the investor’s bank account. This facility is offered only to the investors having bank accounts in HDFC Bank, Axis Bank

Load Structure : During New Fund Offer & Continuous Offer including SIP Installments For Retail Plan: Entry Load: • For subscription below Rs. 2 Crs – 2.25% • For subscription of Rs.2 Crs & above & below Rs.5 Crs – 1.25% • For subscription of Rs.5 Crs & above - Nil Exit Load: For subscriptions of less than Rs 5 Crs per purchase transactions • 1% If redeemed/ switched on or before completion of 1 year from the date of allotment • Nil If redeemed/ switched after completion of 1 year from the date of allotment For subscriptions of more than Rs. 5 Crs : Nil

For Institutional Plan: Entry Load : Nil Exit Load : Nil

Waiver of Load for Direct Applications : As per SEBI Circular no. SEBI/MD/CIR no. 10/112153/07 dated December 31, 2007, no entry load shall be charged for direct applications received by the Asset Management Company (AMC) i.e. applications received through internet, submitted to AMC or collection centre/Investor Service Centre that are not routed through any distributor/agent/broker

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Risk Factors The views expressed herein are the personal views of the Fund Managers. The views constitute only the opinions and do not constitute any guidelines or recommendation on the course of the action to be followed. Readers are strongly advised to verify the contents before taking any investment decision based on this opinion. The above is meant for general reading purpose only and is not meant to serve as a professional guide for the readers. The readers should exercise due caution and/or seek independent professional advice before making any investment decision or entering into any financial obligation based on information, statement or opinion which is expressed herein. These are not necessarily the views of Reliance Capital Asset Management Ltd. Neither the AMC, the trustees, the Fund nor any of their affiliates or representatives assume any responsibility/liability for the accuracy, completeness, adequacy and reliability of information provided herein. The information contained herein has been obtained from sources published by third parties. While such publications are believed to be reliable and we have made best efforts to avoid any errors or omissions, however, neither the AMC, the Trustees, the Fund nor any of their affiliates or representatives assume any responsibility for the accuracy, completeness, adequacy and reliability of such information. Sponsor: Reliance Capital Limited. Trustee: Reliance Capital Trustee Co. Limited. Investment Manager: Reliance Capital Asset Management Limited. Statutory Details: The Sponsor, the Trustee and the Investment Manager are incorporated under the Companies Act 1956. Scheme Specific Risk Factors: Portfolio Turnover : Given the nature of the scheme, the portfolio turnover ratio may be very high and the AMC may change the portfolio according to the asset allocation commensurate with the investment objective of the scheme. The effect of high portfolio turnover could be higher brokerage and transaction costs. Due to these factors the NAV of scheme might be impacted. Terms of Issue: The Units are available at Rs. 10/- per unit plus applicable load during the New Fund Offer Period and thereafter at applicable NAV based prices. The AMC will calculate and disclose the first NAV not later than 30 days from the closure of the New Fund Offer Period. Subsequently, the NAV will be calculated and disclosed at the close of every working day which shall be published in at least in two daily newspapers and also uploaded on AMFI site i.e. www.amfiindia.com and Reliance Mutual Fund website i.e. www.reliancemutual.com. General Risk Factors: Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the Scheme will be achieved. As with any investment in securities, the NAV of the Units issued under the Scheme can go up or down depending on the factors and forces affecting the capital markets. Past performance of the Sponsor/AMC/Mutual Fund is not indicative of the future performance of the Scheme. Reliance Infrastructure Fund is only the name of the Scheme and does not in any manner indicate either the quality of the Scheme; it's future prospects or returns. The Sponsor is not responsible or liable for any loss resulting from the operation of the Scheme beyond their initial contribution of Rs.1 lakh towards the setting up of the Mutual Fund and such other accretions and additions to the corpus. The Mutual Fund is not guaranteeing or assuring any dividend. The Mutual Fund is also not assuring that it will make periodical dividend distributions, though it has every intention of doing so. All dividend distributions are subject to the availability of the distributable surplus in the Scheme. For details of scheme features apart from those mentioned above and scheme specific risk factors, please refer to the provisions of the scheme information document. Scheme information document and KIM cum application form is available at all the DISCs/ Distributors of RMF/www.reliancemutual.com. Please read the scheme information document carefully before investing. The information contained herein has been obtained from sources published by third parties.

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Thank you

A Reliance Capital