DOING BUSINESS IN INDIA Financial Perspective

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DOING BUSINESS IN INDIAFinancial Perspective
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• Dalip Puri
• Head of Multicultural Commercial Banking UK
• HSBC Holdings Plc

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Contents
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• Section 1 INDIA OVERVIEW
• Section 2 TRADE FLOWS
• Section 3 INVESTING IN INDIA
• Section 4 AVAILABILITY OF CREDIT
• Section 5 HSBC IN INDIA
• Disclaimer This presentation pertains to
  investment issues, financial markets and other
  related areas and is for information purpose
  only. Investors and interested parties should
  seek to get relevant business related information
  from a qualified professional.

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Section 1 INDIA OVERVIEW
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India Overview Snapshot
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• Population 1.123 billion (Est. 2007)
• Average literacy rate is 65
• Land area 1.27 million square miles (1/3 of
  US)
• Languages 18 Languages (English widely used)
• New Government Strong Mandate Reform Driven
  Agenda
• Executive system Constitutional head
  President real executive power vests in the
  Council of Ministers with the Prime Minister as
  its head.

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India Overview Economic Indicators
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Average GDP growth of 7.5 from 2001-2008.
GDP growth expected to slow down to 6.2 in
2009 GDP growth is forecast to accelerate to
8.0 in 2010 Per Capital Income increased 30
over the last 3 years.
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India Overview Financial Landscape
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Section 2 TRADE FLOWS
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Trade Flows India
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IMPORT/EXPORT DESTINATIONS
Source Ministry of Commerce, Govt. of India, Feb
2008
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Trade Flows India/UK
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UK 16th Largest exporter to India UK is
Indias 2nd largest trading partner in
Europe MAJOR ITEMS OF TRADE
Exports from India Textiles Precious
stones Jewellery Leather products
Tea/Coffee Ore Minerals
Imports into India Pharmaceutical Products
Biotechnology Product Engineering products
Cosmetics Precision instruments Watches
Source Ministry of Commerce Industry, Febl 2009
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FDI
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FDI from UK to India Cumulative FDI 2000-09
5.24bn UK 4th Largest investor in
India Please note UK is No 1 investor in India
once you take into account (indirect) trade flows
through Mauritius according to Ernst
Young. Main FDI Sectors from UK Services
sector Computer software Hardware
Telecommunications Engineering Positively
Supported Sectors Biotech Healthcare
Pharmaceuticals Automotive IT and Hi-Tech
areas
SHARE OF TOP INVESTING COUNTRIES FDI EQUITY
INFLOWS
SECTORS ATTRACTING HIGHEST FDI EQUITY INFLOWS
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Section 3 INVESTING IN INDIA
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Investing in India
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• Foreign Equity Ownership Limits - Automatic
  Route
• Insurance (26)
• Airlines (Domestic/ cargo)/ Telecom services/
  Private sector banks (74)
• Pharmaceuticals, Non banking financial
  companies, Food processing (100)
• Foreign Equity Ownership Limits With
  Permission (Foreign Investment Promotion Board)
• News current affairs (26)
• Broadcasting - Cable, DTH (49)
• Trading (100)
• Development of airports (100)
• Foreign Institutional Investors Investment in
  primary and secondary markets
• Registration with Securities and Exchange Board
  of India
• Own upto10 of the paid-up capital of an Indian
  company
• Foreign Institutional Investors can
  cumulatively hold up to 24 of paid-up capital of
  a company

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Investing in India Business Presence
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INDIAN INCORPORATED COMPANIES Joint Venture
Strategic alliances with Indian partners where
sectoral caps do not allow foreign companies to
set up business on its own Advantages
established distribution / marketing set up of
the Indian partner available financial resource
contacts of the Indian partners Wholly Owned
Subsidiary Is treated as a domestic company
(limited liability) for tax purposes
Advantages provides flexibility of operations
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Investing in India Business Presence
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FOREIGN CONCERN Liaison Offices, Representative
Offices No commercial or industrial activity
may be undertaken Branch Offices Manufacturing
and Trading companies may open branch offices
Specific Reserve Bank of India approval required
registration with Registrar of Companies
required, Advantages Can acquire immovable
property Post-tax profits freely
repatriable Project Offices For those that have
been awarded an Indian project Treated as a
branch office for tax purposes No prior
permission required from RBI
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Investing in India Taxation
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Corporate tax for companies incorporated in
India 33.9 Foreign Companies operating in
India 41.2 Tax on dividends 15
Withholding Tax - Royalties and Fees for
Technical Services 15-20 Income tax holiday
for new units exporting goods or services from a
Special Economic Zone (SEZ) 100 for the first
5 years and 50 for another 5 years 10 year
income tax holiday for infrastructure/housing
projects Currency transfer methods SWIFT,
Multiple Currency Accounts
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Section 4 AVAILABILITY OF CREDIT
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Raising Debt Finance for SMEs
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• Types of Debt Products
• Working Capital
• Overdrafts / On Demand Loans
• Letters of Credit, Buyers Credit, Suppliers
  Credit
• Receivable Financing, Factoring, Purchase order
  finance
• Vanilla Long Term Loans
• INR term loans for Capex
• FCY term loans for Capex under RBI ECB norms
  (limited appetite)
• Structured Finance (limited appetite)
• Bridge Loans
• Acquisition Financing
• Highly Leveraged transactions

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Debt Finance - Typical Credit Requirements

• Working Capital
• Business plan of the company with projections for
  one year
• MPBF (Max. permissible bank finance) assessed in
  India by banks in line with companys trade
  cycle
• Usually banks finance 75 of the working capital
  and the balance is promoters contribution
• Security - function of the company credit
  standing, however basic terms are
• First charge over current assets
• First / Second charge over fixed assets
• Personal guarantees (subject to negotiation)

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Debt Finance - Typical Credit Requirements
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• Term Loans
• Business plan of the company with projections up
  to the tenor of the loan.
• Such loans are usually for a defined capital
  expenditure for which a separate project report
  is expected. Typical Debt / Equity 21
• Green field projects / non core diversifications
  are discouraged in this environment. Higher
  equity contributions expected.
• Hedging solutions are a important for FCY Loans
• Some basic terms for security are as follows
• First charge over fixed assets -1.3x asset
  cover at least
• First / Second charge over current assets
• Personal guarantees (subject to negotiation)

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Section 5 HSBC IN INDIA
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HSBC in India
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The Leading International Bank in India
Presence in India since 1853 Coverage with 47
branches Presence in 26 cities Arrangements
with 10 Public Private sector correspondence
Banks. Correspondence Bank Network reaches out
to 3000 cities.