Performance in a challenging global economy India – a new world of opportunity

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Performance in a challenging global economy

India – a new world of opportunity

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David CarthyChairman

Ireland India Business Association(IIBA)

September 2009

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• Welcome & Thank you• New IIBA Website – www.iiba.ie• 80+ members and growing• Irish Business Success in India• Other events• Join us – www.iiba.ie

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Indian Opportunity Update

SEPTEMBER 2009

HIGH GROWTH MARKETS

KPMG



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India in the current global context

Global impact Impact on India

Financial Institutions

Collapse of leading investment banks, institutions and insurance companies

Surviving entities converted into commercial banks or nationalized

No major impact on Indian banks. Most had limited/no exposure to sub-prime debt

Liquidity Crunch Money market crisis leading to severe credit crunch in US and Europe

Substantial liquidity injections by US Federal Bank/European Central Bank

Crisis of confidence seen in the Indian markets

Large liquidity injections into the system by the Central Bank

Capital Markets Capital markets in developed world slump from Dec 2007 levels e.g. US (-31%), UK (-33%)

Emerging markets fall steeply, Russia (-52%),China ( -51% ), Brazil (-31%)

Outflow of FII money strongly impact Indian markets, losing over 50% in 2008

Markets surged by over 20% with re-election of a Congress Coalition with Left support

Economic growth

Clear recession signs in US & Europe Most developed countries moving

around the zero/negative zones

India too affected by recession Growth revised from 9% to 6%



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Government’s Priority Agenda

List of Priorities Scorecard

I Expeditious Economic Revival

A Inclusive/Rural Growth Agenda Good intent ‘but’ bordering on Populism

BFiscal Responsibility and Budget Management

Precarious deficit threatens to derail economy

II Fast-track Reforms

A Disinvestment Weak announcement

B InfrastructureSave for roads, no statement on other segments

C HRD Skills/EducationDisappointing, post build-up of reform climate

D Agriculture Logistics Continues to lag

E GovernanceThrust on improving Delivery Mechanism clearly initiated for first time



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Why India now?

Businesses in Ireland have been affected by recession that seems likely to continue

India offers itself as a solution on two counts:

Sourcing Hub

Indian and Regional Markets



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Promising sectors on the Ireland-India bridge

Telecoms & IT Education

ConstructionInfrastructure Food Technology

Clean Technology



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Foraying into India

Market Dynamics

Market Dynamics

Bureaucratic Tangles

Bureaucratic Tangles

Infrastructure Deficiency

Infrastructure Deficiency

Regulatory ConstraintsRegulatory Constraints

Difficulty in EnforcementDifficulty in

Enforcement

Business Culture

Business Culture

Operating Environment

Operating Environment

Investors will have to bear some important things in mind …



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Navigating in India

Clear Strategy is the Key

Localize product Value for Money Locations

Negotiate Aggressively

Protective clauses Conditions precedent Exit mechanisms

Ensure conduct of Background Checks

Project diligence Engage best

advisor/counsel Local partner’s

diligence

Understand Operating Environment

Regional model Global best practices Expatriate-local

management



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Way forward

Detailed study of Indian landscape particularly from standpoint of your business

Go with local partner unless there are other considerations

Structure investment holdings efficiently from a tax perspective

Organize business/management per ‘best practices’/specific needs of the case



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Presenter Contacts

Ian GomesChairmanHigh Growth Markets PracticeKPMG LLP+44 (0) 20 [email protected]

Performance in a challenging global economy – India, A New World of Opportunity

Speaker : Ananth Krishnan Head of Trade & Supply Chain

22nd September 2009

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CONTENTS

Brief Introduction to India

Key trading indicators – India & Ireland

Overview of India’s banking Environment

Overview of HSBC

Brief Introduction to India

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6th Largest country in the world; World’s largest democracy

Number of cell phone users by 2010 : 500 M

Population : 1.12 Bn

Number of Languages spoken : 18 official, 1600 dialects

Number of movies released in 1 year : Around 1000

India – Some Key Metrics

GDP : $ 1.2 Trillion

Largest producer of milk, tea, sugarcane, cashew nuts

Second Largest producer of rice, fruit, wheat, sugar

Number of banks : 88

Number of bank branches : > 50000

Number of ATMs : 17000

Demographics

Economy

Banking

Key Trading Indicators – India & Ireland

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India Trade in the past six years

0

50,000

100,000

150,000

200,000

250,000

300,000Total Exports Total Imports

Total Exports 63,843 83,536 103,091 126,263 162,904 162,255

Total Imports 78,149 111,517 149,166 185,604 251,439 272,031

2003-04 2004-05 2005-06 2006-07 2007-08 2008-09

USD M

Source: Ministry of Commerce website

Export CAGR 21%Import CAGR 28%

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India Top 5

Petroleum products

Gems & Jewellery

Chemicals & Related products

Textiles & Textile related products

Engineering goods

Petroleum products

Gems, Jewellery & precious metals

Heavy Machinery

Electronic Goods

Chemicals & Fertilisers

USA

UAE

China

Singapore

Hong Kong

Exports Imports

China

USA

Saudi Arabia

UAE

IranTo

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Ireland Trade Statistics – A Snapshot

Key Trading Partners for Merchandise ( EUR€ M)

19151[34%] 17284

[30%]6676[12%]

13995[24%]

15847[18%] 37874

[44%]16656[19%]

15917[18%]

Great Britain &Northern Ireland

Other EUCountries

USA Rest of World

Exports

Imports

Top 5 Commodities exported from Ireland

Organic Chemicals

Medical & Pharmaceutical products

Computers

Essential oils, perfume materials & toilet cleansing paper

Electrical Machinery and apparatus

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Irish-India Trade – Few pointers

Ireland-India Trade flows currently around € 500 M.

― Grew by 13% in 2008 and expected to grow by 25% in 2009

Ireland’s English Speaking population and access to EU markets can be leveraged

India’s upsurge as a global economy could present immense opportunities

Irish companies are keen to invest in the following sectors in India

― Cement

― Publishing

― Medical Technology

― IT

Ireland imports products like yarn,

garment and pharmaceuticals from

India

India imports telecom, sound equipment, automatic data processing machines

from Ireland.

Overview of India’s Banking Environment

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Commercial Banking Landscape

27 State owned banks Pan-India coverage (including rural areas).

Major players

31 Private sector banks.

The two major players ICICI Bank and HDFC Bank have branches in over 200 cities / towns

The 30 Foreign Banks have branches in metropolitan cities and other big towns.

Major players include -

E-banking is gaining momentum in the big cities but rural areas still prefer branch banking

Banks and financial institutions are strictly regulated by the Reserve Bank of India

Detailed guidelines and notifications exist for investments and international trade

Foreign BanksPrivate Sector BanksState Owned Banks

Overview of HSBC

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Our Strengths

To leverage HSBC’s global platform to serve our Irish clients.

Our Benefits

About HSBC

Our Aim

Largest European Bank by market capitalisation

International bank of choice, with locations in 83 countries, 10,000 offices, and 125m customers

Unparalleled franchise in Middle-East and Far-East

HSBC London has the largest Treasury and Capital Markets business in Europe.

Access to banking services in 83 countries through one central internet banking platform, HSBCnet, centralising payments and cash management.

Access to local relationship teams in 83 countries and a dedicated relationship management team in Dublin to manage the relationship globally.

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HSBC Group Global Distribution – International network

330,000 employees

SydneyAuckland

Wellington

Christchurch

BrisbanePerth

Adelaide

Melbourne

Jakarta

BandungSemarang

Surabaya

Manila

Medan

Kuala Lumpur

SingaporeBandar Seri Begawan

Kota Kinabalu

Kuching

Labuan

Bangkok

TaipeiHong KongMacau

Guangzhou

Hanoi

Shenzhen

Ho Chi Minh City

Colombo

Mumbai

Trivandrum

New Delhi

Bangalore

Chennai

Kolkata

Visakhapatnam

ChengduChongqing

DhakaMuttrah

Salalah

DubaiKarachi

MuscatJeddah

RiyadhDammam

Manama

Tehran

DohaAbu Dhabi

Beirut

AmmanCairo

Alexandria

Ramallah

NicosiaTel Aviv Wuhan

QingdaoTianjin

Beijing

Osaka

Tokyo

Xiamen

Shanghai

Dalian

Pusan

Seoul

Almaty

Istanbul

Moscow

Valletta

Yerevan

Baku

Athens

Sofia

WarsawPrague

Zurich Frankfurt

Stockholm

RomeMilan

LuganoMonaco

Madrid

GenevaParis

Channel IslandsCardiff

Valencia

Barcelona

Birmingham

Dublin

Casablanca

Luxembourg

Isle of ManLeeds

ManchesterEdinburgh

London

Düsseldorf

BrusselsAmsterdam

Port Louis (Mauritius)

Kampala

Luanda

Accra

Abidjan

Durban

Johannesburg

Cape TownSantiago

Salta

Manaus

Córdoba

San Juan

Mendoza

Neuquén

ResistenciaTucumán

Bahía Blanca

Buenos AiresLa Plata

Pergamino

Porto Alegre

Montevideo

Mar del Plata

Curitiba

CorrientesPosadas

Santa Fé

Punta del EsteParaná

São Paulo

Campo Grande

Brasília

Ribeirão Preto

SalvadorRecife

Fortaleza

Belém

Rio de JaneiroBelo Horizonte

Nassau

CaymanIslands

Colón

Panama CityCaracas

Miami

New York City

Chicago

HoustonDallas

VancouverCalgary

SaskatoonWinnipeg

Seattle Portland

San Francisco

Los Angeles

BostonGlastonbury

Philadelphia

Fredericton

St John’sQuébec

Montréal

Bermuda

Ottawa

Washington

Mexico City

Monterrey

Beverly Hills

Buffalo

TorontoTigard

Salinas

San Diego

TijuanaTorreónGuadalajara

PueblaAcapulco

Veracruz

CancúnMérida

BrandonJacksonville

Las Vegas Chesapeake

Virginia Beach

Atlanta

Lewisville

Prospect HeightsKansas City

Sioux Falls

New Castle

Bridgewater

Algiers

Tripoli

Belfast

Budapest

AnkaraAdana

Izmir

Malé (Maldives)

Pune

Chandigarh

Hyderabad

Ahmedabad

Cebu City

Cook Islands

Tortola (British Virgin Islands)

10,000 offices

83 countries and territories

HSBC Group

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HSBC - Ireland

Corporate Banking Dublin

Syndicated Finance

Structured Finance

Trade Finance

Financing

Global Payments & Cash Management

Supply Chain

FX

Derivatives

Investments

HSBC has been operating in Ireland since 1979.

We have over 500 people in our Dublin office, and in excess of 650 people on the island of Ireland.

We have recently grown our corporate banking team in Dublin to serve our Irish clients.

The Dublin team is staffed with corporate banking specialists with experience in both Irish and global banking.

We have specialist teams dedicated to Trade, Treasury, and Payments/Cash Management.

Position Location

Location Position

Transaction Banking Treasury & Risk Management

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A leading participant in Irish Corporate Debt Syndications

Global and International mandates for Irish based PLC’s

Providing counterparty strength on International Trade

HSBC Ireland - Our Successes

Commitment to Balance Sheet growth in Ireland

Expansion of our Irish based Team

Access to our International Banking platform

Access to Asian & US capital markets

Safe haven for deposits.

Dublin Treasury desk active across all tradable currencies.

Joint Lead arrangers for Bord Gais Bond

Prime Broker for Irish Government Debt

Banking Advisers to NAMA

Capital Markets

Corporate Banking

Money Markets

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HSBC in India

In 1959 HSBC acquired the Mercantile Bank of India, which was established in Bombay in 1853.

47 branches across 26 commercial cities

A full service bank – Working capital finance

– Foreign exchange

– Treasury operations

– Cash management

– Investment banking

– Asset management

– Insurance

– Private equity and personal banking

Well established long term relationships with top multinational and domestic corporate, public sector companies and financial institutions

First bank to introduce ATM in India

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Thank YouSpeaker : Ananth Krishnan

Head of Trade & Supply Chain

Ph: 353 1 635 6683 http://www.hsbc.ie

DOING BUSINESS IN INDIA

Financial Perspective

Dalip Puri

Head of Multicultural Commercial Banking UK

HSBC Holdings Plc

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Contents

• Section 1 INDIA OVERVIEW

• Section 2 INVESTING IN INDIA

• Section 3 AVAILABILITY OF CREDIT

• Section 4 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

• 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.

4

India Overview – Economic Indicators

Per capita Income (US$)

757

9401,016 982

0

200

400

600

800

1,000

2006 2007 2008 2009*

Source: *IMF estimates, WEO April 2009

• 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 GDP (US$ Bn)

1,102 1,210 1,285 1,387

0200400600800

1,0001,2001,4001,6001,800

2007 2008 2009* 2010*

Source: *IMF estimates, WEO April 2009

India Overview – Financial Landscape 6

RESERVE BANK OF INDIACentral bank and supreme monetary

authority

Commercial BanksForeign Banks

Regional Banks

Co-operative BanksUrbanState

Public Sector Banks

Public Sector

Private Sector Banks

Private Sector

Section 2

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

Investing in India8

Investing in India – Business Presence

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 PresenceFOREIGN 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

• 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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Company profile:

A real estate company, started in 2007 dedicated to promoting Indian property investment opportunities.

Investing in India – A case studyB

usi

nes

s E

volv

es

• Business established

• Growth opportunity identified in India

• Conducted research on Indian real estate industry.

• Sources used (economic data, government report and consultants)

• Legal & accounting advice taken

• Limited company setup in India (Pvt Ltd)

• Indian employees hired

• Business starts trading

•2007 •2008

Best three business decisions made

1) Conduct detailed research and seek appropriate advice.

2) Treating Indian companies as partners rather than just suppliers.

3) Hiring talented Indian staff.

Worst three business decisions made

1) Having a rigid itinerary.

2) Not fully understanding Indian hierarchical system.

3) Starting business before a global slowdown.

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Section 3

AVAILABILITY OF CREDIT

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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

Raising Debt Finance14

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 company’s trade cycle

Usually banks finance 75% of the working capital and the balance is promoter’s 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

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 – 2:1

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)

Debt Finance - Typical Credit Requirements16

Section 4

HSBC IN INDIA

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HSBC in India

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.

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Documents

Performance in a challenging global economy India – a new world of opportunity