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Voting Advisory

24 August 2012 Reliance Infrastructure Ltd 1|P a g e

Reliance Infrastructure Ltd

Company Profile BSE: 500390 |NSE: RELINFRA ISIN: INE036A01016 Industry: Infrastructure Index: BSE 100/CNX Nifty Face Value: Rs.10 Mkt Price: Rs.511 (22 August 2012) Fiscal Year End: March

Promoter: Anil Ambani and family, through AAA Project Ventures Pvt Ltd

Total Stake % Pledged

48.5% -

Financials Particulars FY12 (Rs bn)

Total Income 186

Net Worth 185

Equity Capital 2.6

Mkt. Cap 127

Overview (Rs.)

52 week H-L 680-328

Current P/E (x) 6.7

Industry P/E (x) 14.0

Current P/B (x) 0.7

Source: IIAS Research, Moneycontrol

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Annual General Meeting (AGM)

Meeting Date: 4 September 2012, 4:00 pm

Proxy Deadline: 1 September 2012

Notice Date: 5 June 2012

Meeting Venue: Birla Matushri Sabhagar, 19, New Marine Lines, Mumbai 400 020

Company background

Reliance Infrastructure Ltd (RInfra) is an infrastructure company having interests in power, engineering procurement & contracts (EPC) projects and Infrastructure. It generates 941 MW of power from its plants located in Maharashtra, Andhra Pradesh, Kerala, Karnataka and Goa. It also executes power projects on an EPC basis. Its infrastructure division is a concessionaire in airports, roads and metro projects. Recently, it has forayed into the manufacturing of cement.

Agenda Items Sl. No

Type[1]

Description of resolution IIAS

Recommendation

1 Ord. Adoption of financial statements See Analysis

2 Ord. Declaration of dividend FOR

3 Ord. Re-appointment of Sateesh Seth as director FOR

4 Ord. Re-appointment of Haribhakti & Co and Pathak H D &

Associates as auditors FOR

5 Ord. Approve appointment of SS Kohli as director FOR

6 Ord. Approve appointment of CP Jain as director FOR

7 Ord. Approve appointment of VK Chaturvedi as director FOR

8 Ord. Issue of securities to qualified institutional buyers FOR

9 Spl. Appointment of Ramesh Shenoy as manager FOR [1]

Ordinary/Special Resolution

Executive Summary (click on respective link for detailed analysis)

Accounts RInfra’s total income grew 82% to Rs.186 bn (Rs.102 bn in FY11). PAT grew by 85% to Rs.20 bn (Rs.10.8 bn in FY11).

Board Appointments

The board of RInfra comprises six non-executive directors. The company classifies three of its six, or 50% of its directors as independent. We recommend voting FOR the appointment/reappointment of Sateesh Seth, SS Kohli, CP Jain and CK Chaturvedi as directors.

Auditors Haribhakti & Co and Pathak H D & Associates are the joint auditors of the company since FY11 (two years). We recommend voting FOR their appointment.

Issue of securities

RInfra proposes to issue securities to qualified institutional buyers with an objective to enhance its competitiveness and improve its financial strength. The qualified institutional placement will dilute the pre-issue paid up share capital of the company by over 25%. While we recommend voting FOR the resolution, we note the following:

Usually, the general purpose of an issuance by infrastructure companies is to strengthen its balance sheet and to invest in new projects. RInfra after seeking shareholder approval in the previous year did not raise any money through issuance of securities but bought back 4.43 mn equity shares from the market. RInfra can issue securities (excluding debt and related securities) after 13 August 2012, as its buyback period ended on 13 February 2012.

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Financial Performance Price Performance Particulars (Rs bn except per share figures)

FY10 FY11 FY12

Total Income 108.1 102.1 186.2

EBITDA 18.8 16.7 33.3

EBITDA Margin 17.4% 16.3% 17.9%

PAT 11.5 10.8 20.0

PAT Margin 10.6% 10.6% 10.7%

EPS 50.3 40.5 75.7

ROANW 8.9% 6.8% 11.4%

ROACE 6.0% 5.3% 8.1%

Debt/EBITDA (x) 2.2 2.4 2.7

Source: Company Filings, IIAS Research

3 Yrs: 22 August 2009 to 21 August 2012 5 Yrs: 22August 2007 to 21 August 2012 Source: IIAS Research

Public Shareholders >1%

Sl. No. Name of the Shareholder No. of Shares held

(millions) Shares as % of Total No.

of Shares

1 Life Insurance Corporation of India 22.0 8.4

2 New India Assurance Company Ltd 4.4 1.7

3 LIC Market Plus - 1 Growth Fund 4.3 1.6

4 Oriental Insurance Company Ltd 3.4 1.3

5 John Hancock Global Opportunities Fund 3.0 1.1

6 General Insurance Corporation of India 2.9 1.1

Total 40.0 15.2

Source: BSE

Change in Shareholding Pattern (%) Year Promoter DII FII Others

Mar-12 48.5 21.2 15.2 15.1

Dec-11 48.5 21.0 14.5 16.0

Sep-11 48.4 21.0 15.0 15.5

Mar-11 47.7 21.9 15.8 14.6

Mar-10 42.7 26.5 14.3 16.5

Mar-09 37.6 27.5 15.8 19.2

Mar-08 36.0 23.2 18.5 22.3

Mar-07 34.5 28.8 20.3 16.4

Source: BSE

Shareholding Pattern (%)

Source: BSE, as at 31 March 2012

-53.8%

-34.6%

16.8% 27.4%

19.5%

30.3%

-60.0%

-40.0%

-20.0%

0.0%

20.0%

40.0%

3 YR 5 YR

RInfra BSE 100 CNX Nifty

Promoter, 48.5

DII, 21.2

FII, 15.2

Others, 15.1

Voting Advisory


Category: Accounts

IIAS Evaluation Parameter Result Risk Level

Details

Are the accounts qualified? No -

Are the contingent liabilities likely to have a material impact on the net worth? Yes Moderate Refer Box 1

Have the financials of the company been restated in the past three years? * -

Has the company changed its accounting policy in the last two years? Yes Low Refer Box 1(5)

Has the company appointed an internal auditor to verify the financial statements?

Yes -

Is the chairman of the audit committee independent? Yes -

Does the audit committee comprise a majority of independent directors and financial experts?

Yes -

Are all subsidiary accounts audited? Yes -

Overall Low * Regulatory change

Discussion IIAS does not provide voting recommendations on the resolution for adoption of accounts. Our comments on the financial results, directors’ report, auditors’ reports, and annexures to the auditors’ report, management discussions and notes to accounts are given below: Box 1: Observations on Accounts

Items Discussion

Performance The total income of the company grew 82% to Rs.186 bn (Rs.102 bn in FY11). The growth in revenue from EPC and contract business grew to Rs.114.3 bn from Rs.33.5 bn in the previous year and other operating income increased to Rs.5.5 bn (Rs.0.4 bn in FY11). EBDITA doubled to Rs.33.3 bn (Rs.16.7 bn in FY11). EBIDTA margins increased to 17.9% from 16.3% in FY11 on account of control over cost of electrical energy purchased, employee expense and cost of fuel consumed. Finance cost increased to Rs.5.7 bn (Rs.2.5 bn in FY11). PAT grew by 85% to Rs.20 bn (Rs.10.8 bn in FY11).

Business Segments On standalone basis, RInfra reports its revenues in two business segments, viz, Electrical Energy and Engineering, Procurement and Contracts (EPC). Electrical Energy contributed 34.7% of the revenue, while EPC contributed 65.3%. The contribution from EPC segment grew by 2.3 times relative to the previous year. On consolidated basis, RInfra reports its revenue in three business segments, viz, electrical energy, EPC and infrastructure. Electrical energy contributed 53% (79.6% in FY11) of revenue, EPC contributed 45.5% (19.7% in FY11) and infrastructure contributed 1.5% (0.8% in FY11).

Resolution 1: Adoption of Accounts

To consider and adopt the financial statements for FY12 together with the reports of the directors and auditors thereon.

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Contingent Liabilities

Contingent liabilities include - i. counter guarantees given to banks against guarantees issued by the banks, Rs.3.9 bn ii. corporate guarantees given to banks and other parties, Rs.26.2 bn iii. Claims against company not acknowledged as debt, Rs.19.5 bn The first two items relate to the normal business activity of the company. Excluding those, other contingent liabilities account to 11% of the net worth.

Other observations 1. Violation of accounting standard 5: As at 31 March 2012, against the provisions of accounting standard 5, the company reported an extra-ordinary loss of Rs.9.3 bn. This was created on account of scheme of amalgamation between the company and Reliance Infraprojects Ltd. RInfra debited this amount to its income statement. However to mitigate the impact on net profit, it transferred the equivalent amount from general reserves (Provisions for extraordinary and exceptional items reserve account). Thereby, the net profit of the company is higher by Rs.9.3 bn. 2. Investments adjusted against Capital Reserve: Pursuant to the scheme of arrangement between Reliance Energy Ltd, Reliance Infraventures Ltd, Reliance Goa & Samalkot Power Limited (RGSPL), Reliance Energy Generation Limited (REGL), Reliance Property Developers Limited (RPDL) and Reliance Infrastructure Engineers Private Limited (RIEPL), all the assets and liabilities of these companies were transferred at their respective book values to Reliance Infrastructure Ltd at an aggregate value of Rs.12.1 bn. The company’s investment in each of these companies was adjusted against the RInfra’s capital reserve. According to accounting standard 14, the same should have been adjusted against general reserve. Thereby, the capital reserve is inflated and general reserve is deflated by equivalent amount. 3. Investment in five subsidiary companies written off from general reserve: The company has written off investments in five subsidiary companies amounting to Rs.9.9 bn. An equivalent amount has been transferred from general reserve resulting in profit before tax of the company being higher by Rs.9.9 bn in FY12. The auditors have also highlighted concerns on the above three points. 4. Depreciation and amortization provided from Reserves: Similarly, the FY12 income statement also shows that the company has provided depreciation and amortization amounting to Rs.368.4 mn from reserves. Of this, the company has transferred Rs.297.1 mn from revaluation reserve and Rs.71.3 mn from capital reserve (Service Line reserve account) respectively. As a result, the profit before tax and exception items is higher and the net worth is lower by an equivalent amount. 5. Change in accounting policy i. RInfra has changed its dividend recognition policy. As per the revised schedule VI, the company should recognize dividend from its subsidiary companies when the right to receive the same is established vis-à-vis the earlier practice of recognizing dividend upon announcement by the subsidiary company. ii. The company has adopted a policy of charging depreciation as per the rates prescribed under the Electricity Act. As per Ministry of Corporate Affairs (MCA) the rate of depreciation and methodology notified under Electricity Act prevails over the rate of depreciation allowed under Schedule XIV of the companies Act. According to the circular released by MCA in May 2011, the rates prescribed by Electricity Act prevails over Schedule XIV as it a special, industry specific act. As per it, depreciation upto 90% of the cost of the asset can be provided by the companies. RInfra adopted this change effective 1 April 2009. As the depreciation charge as per Electricity Act

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is low compared to Schedule XIV, the company has written back accumulated depreciation amounting to Rs.2.3 bn (difference of Electricity Act over Schedule XIV) and reported it as other operating income. Similarly, FY12 depreciation expense is lower by Rs.559.6 mn, resulting in profits being higher by adequate amount. 6. Buyback of equity shares RInfra announced buyback of its equity shares on 11 April 2012. During the year the company bought back 4.43 mn equity shares at Rs.2.35 bn from the secondary market. The company utilized its securities premium account of Rs 2.3 bn and capital redemption reserve of Rs.44.3 mn for the buyback. According to section 77A of the companies act, buyback shall be completed within 12 months from date of passing the resolution. As RInfra’s buyback was below 10% of its net worth, shareholders resolution via special resolution was not required. A board resolution is sufficient to buy back shares upto 10% of its net worth. As per the act, the company cannot issue securities (including equity shares) for next six months after expiry of the buyback period. As RInfra buyback period started 11 April 2011 onwards and ended on 13 February 2012, it is allowed to issue securities after 13 August 2012. Reliance Infrastructure v/s Tata Power: Relative to Tata Power, Reliance Infrastructure is trading at a lower price to earnings and price to book value ratios. Presently, RInfra is trading at a price to book value of 0.7x v/s 2x for Tata Power. It has a price to earnings ratio of 6.5x v/s 20.5x for Tata Power. Table 1: Peer comparison

Standalone (Rs mn) RInfra Tata Power

Particulars FY11 FY12 FY11 FY12

Total revenue 102.1 186.1 74.6 95.5

EBIDTA 16.7 33.3 27.7 20.8

PAT 10.8 20.0 9.4 11.7

PAT margin 10.6% 10.7% 12.6% 12.3%

EPS* 40.5 75.7 4.0 4.9

BV/share* 693.3 642.6 47.1 49.5

ROACE 5.4% 8.3% 8.1% 9.8%

ROAE 6.8% 11.4% 8.4% 9.9%

Current P/E

6.5

20.5

Current P/BV

0.7

2.0

*Tata Power has a face value of Rs.1 per share v/s Rs.10 for RInfra Source: Company, Moneycontrol

Source: Company Filings, IIAS Research

Voting Advisory


Declaration of dividend

IIAS Evaluation Parameter for declaration of dividend Analysis Risk Level Details

Has the company paid dividend in the last three years? Yes - Refer Table 2

Has the payout ratio been consistent over the last three years? No Low Refer Table 2

Is the growth in dividend commensurate with the growth in profitability? No Low Refer Table 2

Does the company have a stated dividend policy? No Low

Overall Low

Discussion Reliance Infrastructure Limited does not have a stated dividend policy.

The company’s dividend payout ratio for FY12 decreased to 11.2% (20.6% for FY11).

The company has proposed a final dividend of Rs.7.30 per share (Rs.7.20 per share in FY11). On standalone basis, the dividend paid by the company marginally increased from Rs.2,223 mn in FY11 to Rs.2,231 mn in FY12 (PAT of Rs.20bn).

Table 2: Key financials (Standalone)

Particulars (Rs mn) FY10 FY11 FY12

Profit after tax 11,517 10,809 20,003

Growth in PAT 1.1% -6.1% 85.1%

Final proposed dividend 6,104 16,131 (4,461)

Total dividend 1,739 2,223 2,231

Growth in dividend -5.8% 27.8% 0.4%

Payout Ratio[2] 15.1% 20.6% 11.2% [2]

Dividend payout ratio is calculated excluding dividend distribution tax

Source: Company

We recommend voting FOR the resolution.

Resolution 2 : Dividend on equity shares

To approve dividend of Rs.7.30 on equity shares of Rs.10 each.

IIAS Recommendation: FOR

Voting Advisory


Category: Board Appointments

Resolution 3: To re-appoint Sateesh Seth as director Resolution 5: To approve appointment of SS Kohli as director Resolution 6: To approve appointment of CP Jain as director Resolution 7: To approve appointment of VK Chaturvedi as director

IIAS Recommendation: FOR IIAS Recommendation: FOR IIAS Recommendation: FOR IIAS Recommendation: FOR

IIAS Evaluation Parameters for Board Appointments

Parameter Result Risk Level Details

Is the chairman of the board an independent director? No Low Refer Table 3

Is there a separation in the roles between the Chairman and CEO? Yes -

Proportion of independent directors on the board 50% - Refer Table 3

Proportion of non-executive directors on the board 100% - Refer Table 3

Is there at least one woman director on the board? No Low Refer Table 3

Does the company have policy on the retirement age of directors? No Low

Does the company have a policy on the tenure of independent directors? Yes -

Do all the board committees have at least one independent director? Yes -

Is there any whistleblower policy for the independent directors? No Low

Proportion of promoter and promoter relatives on board 13% Low

Overall Low Source: Company Filings, IIAS Research

Table 3: Board Composition

Sl. No

Name of director Director Category

Occupation Age Tenure (years)

% of attendance

Other directorships

[3]

Compensation/Commission

(Rs.mn)

Non-Executive

1 Anil Ambani Promoter Chairman 53 9 100% 5 0.1

2 Sateesh Seth Non-independent Vice Chairman 56 9 60% 2 0.9

3 Dr V K Chaturvedi [4]

Non-independent Former CMD, NPCIL

69 <1 - 1 0.0

4 R R Rai Independent Director of Tourism Finance Corp.

61 1 100% 1 0.2

5 S S Kohli[5]

Independent Former CMD, IIFCL

67 <1 100% 7 0.0

6 C P Jain[5]

Independent Former CMD, NTPC

66 <1 0% 4 0

[3] directorship/s in Public Ltd Companies

[4] Dr. V K Chaturvedi was appointed on the Board on 21 April 2012

[5] S S Kohli and C P Jain were appointed on the Board on 14 February 2012

Source: Company, IIAS Research

Seeking re-appointment Seeking appointment

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Table 4: Proposed Appointments – IIAS Checklist

IIAS Director Checklist Sateesh Seth SS Kohli CP Jain VK Chaturvedi

Executive/Non-executive Non-executive Non-executive Non-executive Non-executive

Category of Appointment Non-independent Independent Independent Non independent

IIAS Director Classification Non-independent Independent Independent Non independent

Independence - -

Tenure

Attendance x

Other Affiliations

Shares Held - - 68,000 -

ESOPs - - - -

Compensation

Qualification*

IIAS Recommendation FOR FOR FOR FOR

*Refer Director Profile section

Director Profiles Sateesh Seth Sateesh Seth, 56, is a chartered accountant and a law graduate. He has experience in general

management. He was appointed as a director of Reliance Infrastructure Ltd in November 2004. He represents the promoters and is the vice chairman of the company. He attended three out of five board meetings held during the year. For attending board and committee meetings, he was paid total remuneration of Rs.860,000, including Rs.60,000 as sitting fees and Rs.800,000 as commission. He is also a director in two other public limited companies, viz, Reliance Telecom Ltd and Reliance Dhirubhai Ambani Group Ltd.

SS Kohli SS Kohli, 67, was chairman of and managing director of India Infrastructure Finance Company Limited (IIFCL). He has over 40 years of experience including as a chairman as Punjab and Sind Bank, Small Industries Development Bank of India (SIDBI) and Punjab National Bank. He was appointed as a director of Reliance Infrastructure Ltd in February 2012. He attended one board meeting held after his appointment and was paid Rs.20,000 as sitting fees. He is also a director in seven other public limited, listed below- Box 2: Directorships of SS Kohli

Public Companies: i. SME Rating Agency of India Limited, ii. Infrastructure Development Finance Company Limited, iii. MBL Infrastructure Limited, iv. PTC India Financial Services Limited, v. IL&FS Financial Services Limited, vi. Trimax IT Infrastructure and Services Limited and vii. ACB (India) Limited.

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CP Jain CP Jain, 66, is a chartered accountant. He was chairman and managing director of National Thermal Power Corporation Ltd between September 2000 and March 2006. He has experience of 40 years in the fields of financial management, general management, strategic management and business leadership. He was appointed as a director of Reliance Infrastructure in February 2012. He holds 68,000 equity shares of the company. He is also a director in four other public limited, listed below- Box 3: Directorships of CP Jain

Public Companies: i. Reliance Capital Limited, ii. IL&FS Infrastructure Development Corporation Limited, iii. PCI Limited and iv. Reliance Securities Limited.

VK Chaturvedi V K Chaturvedi, 69, is a mechanical engineer from Vikram University. He is also a post graduate in nuclear engineering from Bhabha Atomic Research Centre training school, Mumbai. He was a chairman and managing director of Nuclear Power Corporation of India Limited (NPCIL). VK Chaturvedi was appointed as director of Reliance Infrastructure in April 2012. He is also a director in Reliance Power Ltd.

Source: Company filings and IIAS research

The board of RInfra comprises six non-executive directors. The company classifies three of its six, or 50% of its directors as independent.

IIAS notes the poor attendance of Sateesh Seth in board meetings held in the past three years. He attended three out of five (60%) board meetings held in the last three financial years. As he represents the promoter group, we are not voting against his reappointment. IIAS expects directors to attend 75% of the board meetings each year.

Category: Appointment of manager

Resolution 9: To appoint Ramesh Shenoy as manager and revise his remuneration


Discussion:

Ramesh Shenoy, 62, is a company secretary from the Institute of Company Secretary of India. He is a graduate of arts and bachelor in law. He has over 42 years of experience in the fields of secretarial, legal, finance and general management. Ramesh Shenoy is the company secretary of RInfra. He is also the Chief Executive Officer (CEO) of the company within the meaning of of clause 49-V of the Listing Agreement. In the ensuing AGM, the company proposes its shareholders to appoint him as a manager of the company effective 21 April 2012 to 31 October 2014. He will be paid Rs.7.1 mn per annum as remuneration including salary, incentives and perquisites. Additionally, he is also eligible for discretionary bonus and increment as may be decided by board or/and the nomination committee. His remuneration will not exceed the limits specified in the Schedule XIII of the companies act. We recommend voting FOR the resolution.

Voting Advisory


Category: Auditors

IIAS Evaluation Parameters for Auditor re-appointment

Parameter Analysis Risk Level Details

Is the tenure of the auditor firms more than six consecutive years? No -

Has the audit partner been rotated in the last three years? Yes -

Does the company have an auditor rotation policy in place? No Low

Has the audit fees increased consistently? No - Refer Table 3

Is the auditor remuneration in line with the industry peers and companies of similar size and scale?

Yes -

IIAS Recommendation FOR Source: Company Filings, IIAS Research

Discussion Haribhakti & Co. and Pathak H D & Associates have been the statutory auditors of the company for the last two years (since FY11). Rakesh Rathi has been the signing partner for Haribhakti & Co and Vishal Shah for Pathak H D & Associates during the period. Table 5: Auditor remuneration

Particulars (Rs mn) FY10^ FY11^ FY12

Audit fee 6.8 10.9

Limited review 2.4 3.8

Total audit fees 22.6 9.2 14.7

Management services 17.8

Other services 1.6 2.6

Total non-audit fees 6.0 19.4 2.6

Total fees[6]

28.6 28.6 17.3

Non-audit to total fees 21.0% 67.8% 15.0% [6]

Excludes reimbursement of expenses ^ Includes remuneration paid to previous auditors

In this case, the proportion of non-audit to total fees has varied between 15% and 68% in the last three years. The remuneration paid to auditors in FY10 and FY11 includes remuneration paid to previous auditors, therefore the FY12 remuneration paid to auditors is not comparable to that of earlier years. Further, Haribhakti & Co. and Pathak H D & Associates were appointed as joint auditors only in FY11. However, the reason for such fluctuations in audit fees is unclear. Shareholders could seek clarification on this matter. But as the the ratio of audit fees to total fees is below 50%, we support the re-appointment of auditors.

Resolution 4: Re-appointment of Haribhakti & Co. and Pathak H D & Associates as auditors

To appoint Haribhakti & Co. and Pathak H D & Associates as statutory auditor of the company. They shall hold office from the conclusion of this annual general meeting (AGM) until the conclusion of the next AGM.

To authorize the board of directors of the company to fix their remuneration IIAS Recommendation: FOR

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Box 4: Guidelines on auditor appointment

According to MCA, in order to maintain independence of auditors, an audit partner should be rotated every three years and an audit firm should be rotated every five years. A cooling period of three years should elapse before a partner can resume an audit assignment for the company. This period should be five years for the firm. According to IIAS policy, to maintain the independence of auditors – tenure of audit partner should not exceed three years and audit firm should be rotated every six years. According to clause 139 of the new Companies Bill 2011, an auditor will be permitted to hold office for a five year term and can then be reappointed for another five year term. After two consecutive five-year terms, there needs to be a cooling-off period of five years before subsequent reappointments. When the new Companies Bill is passed into law, audit firms would be allowed to hold office for ten consecutive years. Investors should note that IIAS is currently re-evaluating its criteria for auditor tenure and this may change in line with the new Companies bill.


Category: Issuance of securities

IIAS Evaluation Parameters for Issuance of Securities

Parameter Result Risk Level Details

Are these being issued to the promoter? No -

Is the allottee a current shareholder/stakeholder in the company? Not known Moderate

What is the impact on ‘minority’ investors? Max 25% High Pre-issuance

dilution

Has the reasons for fund raising been clearly disclosed by the company? No Low

IIAS Recommendation FOR

In the previous annual general meeting held in September 2011, RInfra proposed to its shareholders to give enabling power to the board for the issuance of securities to qualified institutional buyers. The pre-issuance dilution of equity share capital of the company was limited to 25%. The company did not conclude qualified institutional placement, neither did it issue any equity shares to any class of investors.

The notice of the meeting also failed to clearly mention the planned utilization of proceeds and to mention the business segment in which it plans to invest the proceeds from the proposed issuance.

A similar preposition is proposed in the ensuing AGM. RInfra proposes its shareholders to give similar enabling powers to its board of director. The maximum dilution of equity shares pre-issuance will be 25%. The relevant date for issuance of securities will be the date on which the board decides to open the issue and will be priced as per the guidelines stated by SEBI (ICDR).

Resolution 8: Issuance of securities to qualified institutional buyers To raise funds through the issuance of securities including equity shares, fully convertible debentures, non-convertible debentures with warrants or other securities excluding warrants and/or other securities convertible into equity shares


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The securities proposed to be issued could be any of the following –

a. Equity shares, b. Fully convertible debentures, c. Non-convertible debentures with warrants, and /or d. Any other securities convertible into equity shares excluding warrants

According to the company, objective of the proposed issuance of securities is to -

i. enhance its global competitiveness, ii. Enhance its ability to compete in domestic and international markets, iii. Strengthen its financial position and net worth, and iv. General corporate purposes Box 5: Regulatory snapshot - Issuance of securities and share buyback related stipulation

As per Section 77A of the companies act, shareholder approval via special resolution is not required for a buyback of equity shares less than 10% of paid up equity capital and free reserves of the company and must be completed within twelve months from the date of passing the resolution. The company is prohibited from making further issuances of same kind of shares within a period of six months (excluding conversion of warrants, stock option schemes, sweat equity and/or conversion of preference shares/debentures).

As the company’s buyback period ended on 13 February 2012, it can issue equity shares 13 August 2012 onwards (Refer box 1 - other observations for details). The resolution gives the company the necessary flexibility in its fund raising. Assuming a market price of Rs.511 (market capitalization of Rs.133 bn), the company will issue securities amounting to Rs.33.3 bn. Of this, the mix of equity and debt securities is not mentioned by the company. RInfra has a FY 12 standalone debt to equity ratio and debt to EBIDTA ratio of 0.49 and 2.74 respectively. RInfra’s long term debt rated by Crisil is AA+/Negative and short term debt is A1+. Post the issuance of securities, the leverage ratios of the company will not be significantly impacted. (See table below) Table 6: Scenario Analysis

Particulars Current If 100% through equity If 100% through debt

Debt - equity ratio 0.49 0.48 0.51

Debt-EBIDTA 2.74 2.74 2.84


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This document has been prepared by Institutional Investor Advisory Services India Limited (IIAS). IIAS is a full service Institutional Shareholder Advisory Service Company. The information contained herein is from publicly available data or other sources believed to be reliable, but we do not represent that it is accurate or complete and it should not be relied on as such. IIAS shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provided for assistance only and is not intended to be and must not alone be taken as the basis for any Voting or investment decision. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigation as it deems necessary to arrive at an independent evaluation of the individual resolutions which may affect their investment in the securities of companies referred to in this document (including the merits and risks involved). The discussions or views expressed may not be suitable for all investors. This information is strictly confidential and is being furnished to you solely for your information. This information should not be reproduced or redistributed or passed on directly or indirectly in any form to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject IIAS to any registration or licensing requirements within such jurisdiction. The distribution of this document in certain jurisdictions may be restricted by law, and persons in whose possession this document comes, should inform themselves about and observe, any such restrictions. The information given in this document is as of the date of this report and there can be no assurance that future results or events will be consistent with this information. This information is subject to change without any prior notice. IIAS reserves the right to make modifications and alterations to this statement as may be required from time to time. However, IIAS is under no obligation to update or keep the information current. Nevertheless, IIAS is committed to providing independent and transparent recommendation to its client and would be happy to provide any information in response to specific client queries. Neither IIAS nor any of its affiliates, group companies, directors, employees, agents or representatives shall be liable for any damages whether direct, indirect, special or consequential including lost revenue or lost profits that may arise from or in connection with the use of the information. . The disclosures of interest statements incorporated in this document are provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. The analyst for this report certifies that all of the views expressed in this report accurately reflect his or her personal views about the subject company or companies and its or their securities, and no part of his or her compensation was, is or will be, directly or indirectly related to specific recommendations or views expressed in this report. The information provided in these reports remains, unless otherwise stated, the copyright of IIAS. All layout, design, original artwork, concepts and other Intellectual Properties, remains the property and copyright of IIAS and may not be used in any form or for any purpose whatsoever by any party without the express written permission of the copyright holders.

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