STERLITE INDUSTRIES (INDIA) LIMITED
As filed with the Securities and Exchange Commission on
November 15, 2006
Registration
No. 333-
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form F-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
Sterlite Industries (India) Limited
(Exact name of Registrant as specified in its charter)
Not Applicable
(Translation of Registrants name into English)
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Republic of India
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3330 |
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Not Applicable |
(State or Other Jurisdiction of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number) |
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(I.R.S. Employer
Identification Number) |
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Vedanta, 75 Nehru Road
Vile Parle (East)
Mumbai, Maharashtra 400 099, India
(91-22) 6646-1000 |
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(Address, including zip code, and telephone number, including
area code, of Registrants principal executive offices) |
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CT Corporation System |
111 Eighth Avenue
New York, New York 10011
United States of America
(212) 894-8940 |
(Name, address, including zip code, and telephone number,
including area code, of agent for service) |
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Copies to: |
Michael W. Sturrock, Esq.
Anthony J. Richmond, Esq.
Latham & Watkins LLP
80 Raffles Place
#14-20 UOB Plaza 2
Singapore 048624
(65) 6536-1161 |
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Matthew D. Bersani, Esq.
Shearman & Sterling LLP
12th Floor, Gloucester Tower
The Landmark, 11 Pedder Street
Central, Hong Kong
(852) 2978-8000 |
Approximate date of commencement of proposed sale to the
public: As soon as practicable after the effective date of
this registration statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act, check the following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
number of the earlier effective registration statement for the
same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
CALCULATION OF REGISTRATION FEE
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Proposed Maximum |
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Title of Each Class of |
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Aggregate |
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Amount of |
Securities to be Registered |
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Offering Price(1)(2) |
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Registration Fee |
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Equity shares, par value Rs. 2 per equity share, each
represented by one American Depositary Share(3)
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$2,000,000,000 |
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$214,000 |
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(1) |
Includes additional equity shares represented by American
Depositary Shares which may be purchased by the underwriters at
their option to cover over-allotments, if any. |
(2) |
Estimated solely for the purpose of computing the amount of the
registration fee in accordance with Rule 457(o) under the
Securities Act. |
(3) |
American Depositary Shares evidenced by American Depositary
Receipts issuable upon deposit of the equity shares registered
hereby are being registered pursuant to a separate registration
statement on
Form F-6
(Registration
No. 333- ). |
The Registrant hereby amends this registration statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this registration statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until this registration
statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to such
Section 8(a), may determine.
The information
in this preliminary prospectus is not complete and may be
changed. These securities may not be sold until the registration
statement filed with the Securities and Exchange Commission is
effective. This preliminary prospectus is not an offer to sell
these securities and it is not soliciting offers to buy these
securities in any state where the offer or sale is not
permitted.
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PRELIMINARY PROSPECTUS |
SUBJECT TO COMPLETION, DATED NOVEMBER 15, 2006 |
American
Depositary Shares
Sterlite Industries (India) Limited
Representing equity
shares
This is the initial public offering of our equity shares in the
form of American Depositary Shares, or ADSs. Each ADS represents
the right to receive one of our equity shares. The ADSs are
evidenced by American Depositary Receipts, or ADRs. See
Description of Share Capital and Description
of American Depositary Shares.
Prior to this ADS offering, there has been no public market for
our equity shares or ADSs in the United States. Our equity
shares are listed and traded in India on the National Stock
Exchange of India Limited, or the NSE, and the Bombay Stock
Exchange Limited, or the BSE. The price to the public per ADS
will be determined by reference to the prevailing market prices
of our equity shares in India after taking into account market
conditions and other factors, and the price to the public per
ADS will not be greater than 5% above the closing market price,
nor less than 10% below the closing market price, of our equity
shares on the NSE or the BSE (whichever has the higher average
daily trading volume for the five business days preceding the
day the price to the public per ADS is determined) on the day
the price to the public per ADS is determined. On
November 14, 2006, the last closing price per equity share
was Rs. 534.60 ($11.87) on the NSE and Rs. 534.50
($11.86) on the BSE, assuming an exchange rate of Rs. 45.05
per US dollar, the noon buying rate for cable transfers of
Indian Rupees as certified for customs purposes by the Federal
Reserve Bank of New York on that date. We intend to apply to
have our ADSs listed on the New York Stock Exchange under the
symbol SRL.
Investing in our ADSs involves risks. See Risk
Factors beginning on page 13 to read about factors
you should consider before buying our ADSs.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the accuracy or adequacy of this
prospectus. Any representation to the contrary is a criminal
offense.
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Per ADS | |
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Total | |
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Initial public offering price
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$ |
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$ |
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Underwriting discounts and commissions
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$ |
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$ |
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Proceeds, before expenses, to Sterlite Industries (India) Limited
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$ |
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$ |
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We have granted to the underwriters an option to purchase up to
an
additional ADSs
to cover over-allotments at the initial public offering price
less underwriting discounts and commissions.
The underwriters expect to deliver the ADSs to purchasers
on ,
2006.
Joint Bookrunners
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Merrill Lynch & Co.
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Morgan Stanley |
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Citigroup |
The date of this prospectus
is ,
2006
TABLE OF CONTENTS
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ii |
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1 |
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13 |
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F-1 |
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EX-3.1 CERTIFICATE OF INCORPORATION OF STERLITE INDUSTRIES (INDIA) LIMITED, AS AMENDED. |
EX-3.2 MEMORANDUM OF ASSOCIATION OF STERLITE INDUSTRIES (INDIA) LIMITED, AS AMENDED. |
EX-3.3 ARTICLES OF ASSOCIATION OF STERLITE INDUSTRIES (INDIA) LIMITED, AS AMENDED. |
EX-5.1 OPINION OF AMARCHAND & MANGALDAS & SURESH A. SHROFF & CO. |
EX-8.2 OPINION OF LATHAM & WATKINS LLP AS TO CERTAIN US TAX MATTERS. |
EX-10.1 VEDANTA RESOURCES PLC LONG-TERM INCENTIVE PLAN. |
EX-10.2 RELATIONSHIP AGREEMENT DATED DECEMBER 5, 2003 AMONG VEDANTA RESOURCES PLC, VOLCAN INVESTMENTS LIMITED, DWARKA PRASAD AGARWAL, AGNIVESH AGARWAL AND ANIL AGARWAL. |
EX-10.3 SHARED SERVICES AGREEMENT DATED DECEMBER 5, 2003 AMONG VEDANTA RESOURCES PLC, STERLITE OPTICAL TECHNOLOGIES LIMITED, STERLITE GOLD LIMITED AND STERLITE INDUSTRIES (INDIA) LIMITED |
EX-10.4 CONSULTANCY AGREEMENT DATED MARCH 29, 2005 BETWEEN VEDANTA RESOURCES PLC AND STERLITE INDUSTRIES (INDIA) LIMITED. |
EX-10.5 REPRESENTATIVE OFFICE AGREEMENT DATED MARCH 29, 2005 BETWEEN VEDANTA RESOURCES PLC AND STERLITE INDUSTRIES (INDIA) LIMITED. |
EX-10.6 SHAREHOLDERS' AGREEMENT BETWEEN THE PRESIDENT OF INDIA AND STERLITE OPPORTUNITIES AND VENTURES LIMITED DATED APRIL 4, 2002. |
EX-10.7 SHAREHOLDERS' AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED, GOVERNMENT OF INDIA AND BHARAT ALUMINIUM COMPANY LIMITED DATED MARCH 2, 2001. |
EX-10.8 GUARANTEE AGREEMENT BETWEEN THE PRESIDENT OF INDIA, STERLITE INDUSTRIES (INDIA) LIMITED, STERLITE OPTICAL TECHNOLOGIES LIMITED AND STERLITE OPPORTUNITIES AND VENTURES LIMITED DATED APR 4, 2002 |
EX-10.9 AGREEMENT BETWEEN VEDANTA ALUMINA LIMITED AND ORISSA MINING CORPORATION LIMITED DATED OCTOBER 5, 2004. |
EX-10.10 MINING LEASE BETWEEN THE GOVERNMENT OF RAJASTHAN AND HINDUSTAN ZINC LIMITED DATED MARCH 13, 1980 RENEWED ON SEPTEMBER 15, 2000. |
EX-10.11 $92.6 MILLION TERM FACILITY AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AS BORROWER AND CALYON, STANDARD CHARTERED BANK AND ICICI BANK LIMITED AS LENDERS DATED MARCH 22, 2006. |
EX-10.12 JAPANESE YEN 3,570 MILLION AND $19.65 MILLION TERM LOAN FACILITIES AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AS BORROWER DATED SEPTEMBER 19, 2005. |
EX-10.13 $125 MILLION TERM FACILITY AGREEMENT BETWEEN HINDUSTAN ZINC LIMITED AS BORROWER DATED JULY 29, 2005. |
EX-10.14 RS. 7,000 MILLION RUPEE TERM FACILITY AGREEMENT BETWEEN BHARAT ALUMINIUM COMPANY LIMITED AS BORROWER DATED AUGUST 18, 2004. |
EX-10.15 $50 MILLION FACILITY AGREEMENT BETWEEN BHARAT ALUMINIUM COMPANY LIMITED AS BORROWER DATED NOVEMBER 8, 2004. |
EX-10.16 $50 MILLION FACILITY AGREEMENT BETWEEN BHARAT ALUMINIUM COMPANY LIMITED AS BORROWER DATED NOVEMBER 10, 2004. |
EX-10.17 RS. 10,000 MILLION FACILITY AGREEMENT BETWEEN BHARAT ALUMINIUM COMPANY LIMITED AS BORROWER DATED SEPTEMBER 16, 2003. |
EX-10.18 SUBSCRIPTION AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND THE LIFE INSURANCE CORPORATION OF INDIA DATED APRIL 9, 2003. |
EX-10.19 OPTION AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED, INDIA FOILS LIMITED AND ICICI BANK LIMITED DATED FEBRUARY 18, 2005. |
EX-10.20 CORPORATE GUARANTEE BY STERLITE INDUSTRIES (INDIA) LIMITED TO ICICI BANK LIMITED ON BEHALF OF INDIA FOILS LIMITED DATED FEBRUARY 8, 2005. |
EX-10.21 CORPORATE GUARANTEE BY STERLITE INDUSTRIES (LIMITED) TO ICICI BANK LIMITED DATED DECEMBER 4, 2004. |
EX-10.22 FRAME CONTRACT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND THE COPPER MINES OF TASMANIA PTY LTD DATED JULY 1, 2004, AS AMENDED ON JUL 1, 2004. |
EX-10.23 COPPER CONCENTRATE PURCHASE CONTRACT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND THE COPPER MINES OF TASMANIA PTY LTD DATED JULY 1, 2005. |
EX-10.24 AGREEMENT FOR SALE AND PURCHASE OF THE POWER TRANSMISSION LINE DIVISION BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND STERLITE OPTICAL LIMITED DATED AUGUST 30, 2006. |
EX-10.25 AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND NAVIN AGARWAL DATED OCTOBER 8, 2003. |
EX-10.26 AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND KULDIP KUMAR KAURA DATED SEPTEMBER 12, 2006. |
EX-10.27 AGREEMENT BETWEEN STERLITE INDUSTRIES (INDIA) LIMITED AND TARUN JAIN DATED DECEMBER 6, 2004. |
EX-21.1 LIST OF SUBSIDIARIES OF STERLITE INDUSTRIES (INDIA) LIMITED. |
EX-23.1 CONSENT OF DELOITTE HASKINS & SELLS, MUMBAI, INDIA, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM WITH RESPECT TO STERLITE INDUSTRIES (INDIA) LIMITED. |
EX-23.4 CONSENT OF SRK CONSULTING (SOUTH AFRICA) PTY LTD. |
EX-23.5 CONSENT OF SRK CONSULTING (UK) LIMITED. |
EX-23.6 CONSENT OF STEFFEN ROBERTSON AND KIRSTEN (AUSTRALASIA) PTY LTD. |
Until ,
2006 (25 days after the date of the final prospectus), all
dealers that effect transactions in the ADSs, whether or not
participating in this ADS offering, may be required to deliver a
prospectus. This is in addition to the dealers obligations
to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
You should rely only on the information contained in this
prospectus. We have not authorized anyone to provide you with
information that is different. We and the underwriters are not
making an offer of our ADSs or our equity shares in any
jurisdiction or state where the offer is not permitted. The
information in this prospectus is accurate only as of the date
of this prospectus, regardless of the time of delivery of this
prospectus or time of any sale of the ADSs or our equity shares.
Other than as required by law, we are under no duty to update
the information in this prospectus.
We have not taken any action to permit a public offering of
our ADSs outside the United States or to permit the possession
or distribution of this prospectus for purposes of the ADS
offering outside the United States. Persons outside the United
States who have come into possession of this prospectus for
purposes of the ADS offering must inform themselves about and
observe restrictions relating to the ADS offering and the
distribution of this prospectus outside of the United States.
CONVENTIONS WHICH APPLY TO THIS PROSPECTUS
In this prospectus, we refer to information regarding the
copper, zinc and aluminum industries and our competitors from
market research reports, analyst reports and other publicly
available sources. Although we believe that this information is
reliable, we have not independently verified the accuracy and
completeness of the information. We caution you not to place
undue reliance on this data.
In this prospectus, references to this offering or
the ADS offering are to the initial public offering
of our equity shares in the form of ADSs in the United States.
In this prospectus, references to US or the
United States are to the United States of America,
its territories and its possessions. References to
UK are to the United Kingdom. References to
India are to the Republic of India. References to
$, US$, dollars or
US dollars are to the legal currency of the
United States, references to Rs., Rupees
or Indian Rupees are to the legal currency of India
and references to AUD, Australian
dollars or A$ are to the legal currency of the
Commonwealth of Australia. References to ¢ are
to US cents and references to lb are to the imperial
pounds (mass) equivalent to 0.4536 kilograms. References to
tons are to metric tons, a unit of mass
equivalent to 1,000 kilograms or 2,204.6 lb. Unless
otherwise indicated, the accompanying financial information for
our company has been prepared in accordance with US generally
accepted accounting principles, or US GAAP, for the fiscal
years ended March 31, 2004, 2005 and 2006. References to a
particular fiscal year are to our fiscal year ended
March 31 of that year. Our fiscal quarters end on
June 30, September 30 and December 31. References
to a year other than a fiscal year are to the
calendar year ended December 31.
We conduct our businesses both directly and through a
consolidated group of companies that we have ownership interests
in. See Business Our History and Relationship
with Vedanta for more information on these companies and
their relationships to us. Unless otherwise stated in this
prospectus or unless the context otherwise requires, references
in this prospectus to we, us,
our, Sterlite, our company
or our consolidated group of companies mean Sterlite
Industries (India) Limited, its consolidated subsidiaries and
its predecessors, collectively, including Monte Cello BV, or
Monte Cello, Copper Mines of Tasmania Pty Ltd, or CMT, Thalanga
Copper Mines Pty Ltd, or TCM, Bharat Aluminium Company Limited,
or BALCO, Sterlite Energy Limited, or Sterlite Energy, Sterlite
Opportunities and Ventures Limited, or SOVL, and Hindustan Zinc
Limited, or HZL. Sterlite Energy became part of our consolidated
group on October 3, 2006 when it was acquired by us. Our
financial information does not include Vedanta Resources plc, or
Vedanta, Vedanta Resources Holdings Limited, or VRHL, Konkola
Copper Mines plc, or KCM, Twin Star Holdings Limited, or Twin
Star, The Madras Aluminium Company Limited, or MALCO, India
Foils Limited, or IFL, Sterlite Optical Technologies Limited, or
SOTL, Sterlite Gold Limited, or Sterlite Gold, SIL Employees
Welfare Trust, or SEWT, Monte Cello NV, or MCNV, Twin Star
Infrastructure Limited or Vedanta Alumina Limited, or Vedanta
Alumina, except that as to Vedanta Alumina, our consolidated
financial statements account for our 29.5% minority interest
therein under the equity method of accounting, but Vedanta
Alumina is not otherwise included in our consolidated group of
companies or our consolidated financial statements. References
to the Vedanta group are to Vedanta and its
subsidiaries.
In this prospectus, references to The London Metal Exchange
Limited, or LME, price of copper, zinc or aluminum are to the
cash seller and settlement price on the LME for copper, zinc or
aluminum for the period indicated. References to primary market
share in this prospectus are to the market that includes sales
by producers of metal from copper concentrate or alumina, as
applicable, and do not include sales by producers of recycled
metal or imports.
ii
The following table sets forth the publishers and their
respective publications referred to as sources for certain
statistical information contained in this prospectus:
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Date(s) |
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Aluminium Association of India, or AAI
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Supplemental industry data compiled by AAI |
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Not Applicable |
Bloomberg L.P
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Metal Bulletin |
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Not Applicable |
Brook Hunt & Associates Ltd., or Brook Hunt
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Aluminum Metal Service Quarterly Data Volume |
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September 2006 |
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Copper Metal Service Quarterly Data Volume |
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September 2006 |
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Zinc Metal Service Quarterly Data Volume |
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September 2006 |
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Supplemental industry data compiled by Brook Hunt |
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Not Applicable |
Central Electricity Authoritys General Review
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All India Electricity Authority General
Review 2005 |
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2004-2005 |
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Website, specifically the following address: |
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Not Applicable |
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http://www.cea.nic.in/ power_sec_reports/
executive_summary/ 2006_04/ index.htm |
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Centre for Monitoring Indian Economy
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Monthly Review of the Indian Economy |
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June 2006 |
CRISIL Research & Information Services Ltd., or CRIS
INFAC
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Copper Outlook |
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May 2006 |
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CRIS INFAC Aluminium Annual Review |
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September 2005 |
India Lead Zinc Development Association, or ILZDA
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Supplemental industry data compiled by ILZDA |
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Not Applicable |
International Copper Promotion Council, India, or ICPCI
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Supplemental industry data compiled by ICPCI |
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Not Applicable |
The London Metal Exchange Limited, or LME
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Website, specifically the following address: |
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Not Applicable |
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http://www.lme.com |
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Ministry of Coal
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Website, specifically the following address: |
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Not Applicable |
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http://www.coal.nic.in/reserve2.htm |
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iii
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Publisher |
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Publication(s) or Data |
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Date(s) |
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Ministry of Power
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Website, specifically the following addresses: |
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Not Applicable |
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http://powermin.nic.in/ indian_electricity_scenario/
power_sector_at_a_glance.htm |
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http://powermin.nic.in/ whats_new/ pdf/
development_of_project.pdf |
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http://powermin.nic.in/ transmission/
transmission_overview.htm |
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http://powermin.nic.in/ indian_electricity_scenario/
growth_of%20the_power_sector.htm |
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http://www.cea.nic.in/ power_sec_reports/
executive_summary/ 2006_04/ index.htm |
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Annual Report |
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2004-05 and 2005-06 |
Geological Survey of India
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Website, specifically the following address: |
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Not Applicable |
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http://www.gsi.gov.in |
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Solely for the convenience of the reader, this prospectus
contains translations of certain Indian Rupee and Australian
dollar amounts into US dollars at specified rates. Except as
otherwise stated in this prospectus, all translations from
Indian Rupees or Australian dollars to US dollars are based on
the noon buying rates of Rs. 44.48 per $1.00 and AUD
1.40 per $1.00 in the City of New York for cable transfers
of Indian Rupees and Australian dollars, respectively, as
certified for customs purposes by the Federal Reserve Bank of
New York on March 31, 2006. No representation is made that
the Indian Rupee or Australian dollar amounts represent
US dollar amounts or have been, could have been or could be
converted into US dollars at such rates or any other rates. Any
discrepancies in any table between totals and sums of the
amounts listed are due to rounding.
IsaSmelttm
and
IsaProcesstm
are trademarks of Xstrata Plc.
Ausmelttm
is a trademark of Ausmelt Limited.
ISPtm
is a trademark of Imperial Smelting Processes Ltd.
iv
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in
this prospectus and does not contain all of the information that
you should consider before investing in our ADSs. You should
read this entire prospectus, including Risk Factors
and the consolidated financial statements and related notes,
before making an investment decision. Unless otherwise
specifically stated, the information in this prospectus does not
take into account the possible purchase of additional ADSs by
the underwriters pursuant to the underwriters
over-allotment option. This prospectus includes forward-looking
statements that involve risks and uncertainties. See
Special Note Regarding Forward-Looking
Statements.
Sterlite Industries (India) Limited
We are Indias largest non-ferrous metals and mining
company based on net sales and are one of the fastest growing
large private sector companies in India based on the increase in
net sales from fiscal 2005 to 2006. In India, one of the fastest
growing large economies in the world with an 8.5% increase in
real gross domestic product from 2004 to 2005, we have three
primary businesses:
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Copper. We are one of the two custom copper smelters in
India, with a leading 43% primary market share by volume in
India in fiscal 2006, according to International Copper
Promotion Council, India, or ICPCI. In 2005, our Tuticorin
smelter had one of the lowest costs of production of all copper
smelting operations worldwide and our Tuticorin and Silvassa
refineries had the lowest and second lowest cost of production,
respectively, of all copper refining operations worldwide,
according to Brook Hunt & Associates Ltd., or Brook
Hunt, a metals and mining consulting firm. |
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Zinc. Our majority-owned subsidiary Hindustan Zinc
Limited, or HZL, is Indias only integrated zinc producer
and had a 73% market share by volume in India in fiscal 2006,
according to the India Lead Zinc Development Association, or
ILZDA. HZLs Rampura Agucha zinc mine is the third largest
in the world in terms of contained zinc deposits on a production
basis and the fourth largest on a reserve basis and was
estimated to have the third lowest cost of producing zinc
concentrate in 2005, and HZL was the worlds fourth largest
lead-zinc mining company in 2005 based on mine production,
according to Brook Hunt. |
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Aluminum. Our majority-owned subsidiary Bharat Aluminium
Company Limited, or BALCO, is one of the four primary producers
of aluminum in India and had a 19% primary market share by
volume in India in fiscal 2006, among the primary producers of
the country, according to the Aluminium Association of India, or
AAI. BALCO was the fastest growing primary producer of aluminum
in India in fiscal 2006 based on quantity of aluminum produced
as a result of the ramp-up in production at its new Korba
aluminum smelter. BALCOs captive power plants provide
nearly all of its required power, making it an energy-integrated
aluminum producer. |
New businesses we currently have an interest in or plan to
develop are as follows:
|
|
|
Vedanta Alumina. We hold a 29.5% minority interest in
Vedanta Alumina Limited, or Vedanta Alumina, a 70.5%-owned
subsidiary of our parent corporation, Vedanta Resources plc, or
Vedanta. Vedanta Alumina expects to commission a new
1.0 million tons per annum, or tpa, alumina refinery,
expandable to 1.4 million tpa, subject to governmental
approvals, and associated captive power plant in March 2007. It
is also planning to build a greenfield 500,000 tpa aluminum
smelter together with an associated captive power plant. |
|
|
Commercial Power Generation. We intend to develop a
commercial power generation business in India that leverages our
experience in building and operating captive power plants used
to support our primary businesses. Our experience includes
operating six captive power plants with a total power generation
capacity of 1,040 MW, five of which we built, including two
thermal coal-based captive power plants with a total power
generation capacity of 694 MW in the last three years. We
believe that with Indias large coal resources, ongoing
government deregulation and high demand for power |
1
|
|
|
relative to supply, this business represents an attractive
growth opportunity. We intend to invest approximately
Rs. 84.512 million ($1,900.0 million) over the
next four years to build the first phase, totaling
2,400 MW, of a thermal coal-based power facility, which
project will be pursued by our wholly-owned subsidiary Sterlite
Energy Limited, or Sterlite Energy. In addition, BALCO has
entered into a memorandum of understanding under which, among
other things, feasibility studies will be undertaken for a
potential investment of approximately Rs. 50,000 million
($1,124.1 million) to build a thermal coal-based
1,200 MW power facility. |
We have experienced significant growth in the Indian copper,
zinc and aluminum markets. Our net sales increased from Rs.
56,788 million in fiscal 2004 to
Rs. 128,608 million ($2,891.3 million) in fiscal
2006, representing a compound annual growth rate of 50.5%, due
to our capacity expansions and commodity prices increasing to
historical highs.
We believe that we have the following competitive strengths:
|
|
|
High quality assets and resources making us a low-cost
producer in copper and zinc. We believe that our business
has high quality assets of global size and scale, such as our
Rampura Agucha lead-zinc mine and Tuticorin copper smelter and
refinery. As a result, our costs of production in copper and
zinc are competitive with those of leading metals and mining
companies in the world. |
|
|
Leading non-ferrous metals and mining company in India with a
diversified product portfolio. We have substantial market
shares across the copper, zinc and aluminum metals markets in
India. |
|
|
Ideally positioned to capitalize on Indias growth and
resource potential. We believe that our experience in
operating and expanding our business in India will allow us to
capitalize on attractive growth opportunities arising from
Indias large mineral reserves, economic growth, proximity
to other growing economies and large and inexpensive labor and
talent pools. |
|
|
Strong pipeline of growth projects. We have ongoing
projects to further improve the operational efficiencies at
Tuticorin to expand production, add a second new zinc smelter at
HZLs Chanderiya facility and enter the commercial power
generation business. We also have a minority interest in Vedanta
Alumina, which is building a new alumina refinery and planning
to build a new aluminum smelter. |
|
|
Experience for entry into commercial power generation
business in India. We have been building and operating
captive power plants in India since 1997 and are currently
operating six captive power plants with a total power generation
capacity of 1,040 MW, including two thermal coal-based
captive power plants with a total power generation capacity of
694 MW that we built within the last three years. We
believe this experience positions us to enter the commercial
power generation business in India. |
|
|
Experienced and focused management with strong project
execution and acquisition skills. Our management and
execution teams have a proven track record of successfully
implementing capital-intensive expansion projects and acquiring
and improving the operations and profitability of other
businesses. |
|
|
Ability and capacity to finance world-class projects. Our
strong recent cash flows and balance sheet allow us to pursue
world-class projects. |
2
Our goal is to generate strong financial returns and create a
world-class metals and mining company. To achieve this goal, we
intend to take full advantage of our competitive strengths. Key
elements of our strategy include:
|
|
|
Increasing our capacities through greenfield and brownfield
projects. We intend to continue to construct new facilities
to capitalize upon the growing demand for metals in India and
abroad, particularly in China, Southeast Asia and the Middle
East. |
|
|
Leveraging our project execution and operating skills and
experience in building and operating captive power plants to
develop a commercial power generation business. We believe
the commercial power generation business represents an
attractive growth opportunity in India and that our experience
in building and operating captive power plants positions us to
develop this as a stand-alone business. |
|
|
Continuing to focus on asset optimization and reducing the
cost of production. We focus on reducing our cost of
production, including through maximizing throughput and plant
availability, reducing energy costs and consumption, increasing
automation, improving recovery ratios, reducing our raw material
costs and seeking better utilization of by-products. |
|
|
Seeking further growth and acquisition opportunities that
leverage our transactional, project execution and operational
skills. We continually seek new growth and acquisition
opportunities in the metals and mining and related businesses,
primarily in India, including through government privatization
programs. |
|
|
Consolidating our corporate structure and increasing our
direct ownership of our underlying businesses to derive
additional synergies as an integrated group. We have
exercised our option to acquire the Government of Indias
remaining 49.0% ownership interest in BALCO and are seeking to
complete this acquisition, although the exercise is currently
subject to dispute. Further, the Government of India has the
right and has expressed an intention to sell 5.0% of BALCO to
BALCO employees. We own 64.9% of HZL and intend to exercise our
call option to acquire the Government of Indias remaining
interest in HZL after it becomes exercisable on or after
April 11, 2007. However, it has been reported that the
Government of India is taking steps to sell its remaining
ownership interest in HZL through a public offer prior to our
exercise of the call option. |
|
|
|
Risks Associated with Our Business |
Our business is subject to numerous risks, as more fully
described in the section entitled Risk Factors. We
may be unable, for many reasons, including some beyond our
control, to implement our current business strategy. Those
reasons could include: a decline in the treatment charge and
refining charge, or TcRc, for copper or the commodity price of
copper, zinc or aluminum, a shortage of or inability to secure
raw materials, including copper concentrate, alumina and coal,
disruptions to operations, failure to make or effectively
utilize capital expenditures, failure to acquire additional
equity shares of BALCO or HZL, failure to be successful in the
commercial power generation business, changes in legal or
regulatory conditions in India, including tax and environmental
regulations, losses in litigation matters in which we are
involved or actions by our controlling shareholder, Vedanta,
that are detrimental to our interests.
Sterlite Industries (India) Limited was incorporated on
September 8, 1975 under the laws of India and maintains a
registered office at B-10/4, MIDC Industrial Area, Waluj,
District of Aurangabad, Maharashtra 431 133, India. Our
principal executive office is located at Vedanta, 75 Nehru
Road, Vile Parle (East), Mumbai, Maharashtra 400 099, India
and the telephone number for this office is
(91-22) 6646-1000.
Our equity shares are listed on the National Stock Exchange of
India Limited, or the NSE, and the Bombay Stock Exchange
Limited, or the BSE, which are collectively referred to as the
Indian Stock Exchanges. Our website address is
www.sterlite-industries.com.
Information contained on our
3
website, or the website of any of our subsidiaries or
affiliates, including Vedanta and other members of the Vedanta
group, is not a part of this prospectus.
|
|
|
Our Relationship with Vedanta |
We are a 76.0%-owned subsidiary of Vedanta, a public company
listed on the London Stock Exchange, or LSE, and included in the
FTSE 100 Index. Vedantas 76.0% ownership interest in
us is equal to the sum of the 72.3% ownership interest in us
held by Twin Star Holdings Limited, or Twin Star, plus 80.0% of
the 4.6% ownership interest in us held by The
Madras Aluminium Company Limited, or MALCO (reflecting
Vedantas 80% ownership interest in MALCO). After this
offering, Vedanta will continue to own a majority of our equity
shares. Vedanta is in turn 53.8%-owned by Volcan Investments
Limited, or Volcan, a holding company wholly-owned and
controlled by members of the Agarwal family, specifically
Mr. Anil Agarwal, the Executive Chairman of Vedanta and our
Non-Executive Chairman, his father, Mr. Dwarka Prasad
Agarwal, and his son, Mr. Agnivesh Agarwal, the
Non-Executive Chairman of HZL. See Business
Our History and Relationship with Vedanta.
4
The following diagram summarizes the corporate structure of our
consolidated group of companies and our relationship with
Vedanta and other key entities as of October 20, 2006:
Notes:
|
|
(1) |
Volcan is owned and controlled by members of the Agarwal family,
specifically Mr. Anil Agarwal, his father, Mr. Dwarka
Prasad Agarwal, and his son, Mr. Agnivesh Agarwal.
Mr. Dwarka Prasad Agarwal and Mr. Agnivesh Agarwal,
the Non-Executive Chairman of HZL, own all of the shares of
Volcan. Mr. Anil Agarwal, the Executive Chairman of Vedanta
and our |
5
|
|
|
Non-Executive Chairman, may also
be deemed to beneficially own all shares that may be owned or
deemed to be beneficially owned by Volcan.
|
(2) |
Madras Stock Exchange Limited.
|
(3) |
We exercised our option to
acquire the remaining 49.0% of BALCO owned by the Government of
India on March 19, 2004. The exercise of this option has
been contested by the Government of India. The Government of
India has the right and has expressed an intention to sell 5.0%
of BALCO to BALCO employees. See Business
Options to Increase Interests in HZL and BALCO for more
information.
|
(4) |
Sterlite Opportunities and
Ventures Limited, or SOVL, has a call option, exercisable on or
after April 11, 2007, to acquire from the Government of
India a further 29.5% of HZL (or 26.0% if the Government of
India exercises in full its right to sell 3.5% of HZL to HZL
employees). However, it has been reported that the Government of
India is taking steps to sell its remaining ownership interest
in HZL through a public offer prior to our exercise of the call
option. See Business Options to Increase
Interests in HZL and BALCO for more information.
|
6
The Offering
|
|
|
ADSs that we are offering and to be outstanding immediately
after this offering |
|
ADSs. |
|
Number of equity shares per ADS |
|
One equity share, par value Rs. 2 per equity share. |
|
Equity shares outstanding immediately prior to this offering |
|
equity
shares. |
|
Equity shares to be outstanding immediately after this offering |
|
equity
shares. |
|
The ADSs |
|
Each ADS represents the right to receive one equity share. The
ADSs will be evidenced by ADRs executed and delivered by
Citibank, N.A., as Depositary. |
|
|
|
The Depositary will be the holder of the equity
shares underlying your ADSs and you will have rights as provided
in the deposit agreement and the ADRs. |
|
|
|
Subject to compliance with the relevant requirements
set out herein and in the deposit agreement, you may surrender
your ADSs to the Depositary and withdraw the equity shares
underlying your ADSs. |
|
|
|
The Depositary will only deliver equity shares upon
surrender of ADSs to the extent the number of equity shares at
that time deposited with Citibank, N.A., Mumbai Branch, as
Custodian, have been listed for trading on the Indian Stock
Exchanges and dematerialized. The Depositary will process
requests for withdrawal of the equity shares represented by ADSs
surrendered to it on a first come, first served basis. We expect
the equity shares to be represented by the ADSs offered hereby
to be (i) listed for trading on the Indian Stock Exchanges
45 days after the closing of this offering and
(ii) dematerialized in the account of the Custodian
10 days following receipt by the Depositary of confirmation
of listing on the Indian Stock Exchanges. We expect the equity
shares to be represented by the ADSs issuable upon exercise of
the over-allotment option to be (i) listed for trading on
the Indian Stock Exchanges 45 days after the closing of the
over-allotment option and (ii) dematerialized in the
account of the Custodian 10 days following receipt by the
Depositary of confirmation of listing on the Indian Stock
Exchanges. |
|
|
|
The Depositary will charge you fees for withdrawals
and other transactions. |
|
|
|
You should carefully read Description of American
Depositary Shares to better understand the terms of the
ADSs. You should also read the deposit agreement and the form of
the ADRs, which are exhibits to the registration statement filed
with the US Securities and Exchange Commission, or the
Commission, on Form F-6 (Registration
No. 333- )
to register the ADSs. |
7
|
|
|
Shareholder approval of offering |
|
Pursuant to applicable Indian regulations, consummation of this
offering requires the approval of a three-fourths majority of
our shareholders. On November 15, 2006, our board of
directors approved an increase in our authorized share capital
and this offering and recommended that our shareholders approve
an increase in our authorized share capital and this offering. A
meeting of our shareholders has been scheduled for
December 11, 2006 to consider and vote upon an increase in
our authorized share capital and this offering. Twin Star, which
owns 72.3% of our outstanding equity shares, MALCO, which owns
4.6% of our outstanding equity shares, and Vedanta, which
controls both Twin Star and MALCO, will each agree with the
underwriters to vote or cause to be voted all of our equity
shares owned or controlled by each of them for an increase in
our authorized share capital and this offering. |
|
Offering price |
|
Pursuant to applicable Indian regulations, the offer price of
the ADSs cannot be less than the average of the weekly high and
low closing prices of our equity shares, as quoted on the NSE or
BSE, whichever is higher, during the six-month and during the
two-week periods immediately preceding November 11, 2006,
the date 30 days prior to the date on which a meeting of
our shareholders is expected to be held to consider this
offering. |
|
|
|
Subject to these restrictions, the price to the public per ADS
will be determined by reference to the prevailing market prices
of our equity shares in India after taking into account market
conditions and other factors, and the price to the public per
ADS will not be greater than 5% above the closing market price,
nor less than 10% below the closing market price, of our equity
shares on the NSE or the BSE (whichever has the higher average
daily trading volume for the five business days preceding the
day the price to the public per ADS is determined) on the day
the price to the public per ADS is determined. |
|
Over-allotment option |
|
We have granted to the underwriters an option to purchase up to
an
additional ADSs
from us to cover over-allotments in this offering at the initial
public offering price less underwriting discounts and
commissions. If the underwriters exercise this option in
full, ADSs
and equity
shares would thereafter be outstanding. See
Underwriting. |
|
Use of proceeds |
|
Our net proceeds from the sale
of ADSs
in this offering will total approximately
$ million
(Rs. million)
after deducting the underwriting discounts and commissions and
estimated offering expenses which are payable by us. We intend
to use the net proceeds from this offering for general corporate
purposes, including capital expenditures and working capital,
for reduction of debt and for possible acquisitions of
complementary businesses and consolidation of the ownership of
our subsidiaries. See Use of Proceeds. |
|
Risk factors |
|
See Risk Factors and other information included in
this prospectus for a discussion of the risks you should
carefully consider before deciding to invest in our ADSs. |
8
|
|
|
Payment and settlement |
|
The ADSs are expected to be delivered against payment
on ,
2006. The ADRs evidencing the ADSs will be deposited with a
custodian for, and registered in the name of a nominee of, The
Depository Trust Company, or DTC, in New York,
New York. Unless you elect to receive an ADR certificate
evidencing your ADSs, in general, beneficial interests in the
ADSs will be shown on, and transfers of these beneficial
interests will be effected through, records maintained by DTC
and its direct and indirect participants. |
|
Listing and trading |
|
We will apply to have the ADSs listed on the New York Stock
Exchange, or NYSE. Our outstanding equity shares are listed and
traded in India on the NSE and the BSE. Our equity shares are
also listed, though not currently traded, on the Calcutta Stock
Exchange Association Limited, or the CSE. We have applied to
have our equity securities delisted from the CSE, which
application is currently pending. |
|
|
|
We expect the equity shares to be represented by the ADSs
offered hereby to be (i) listed for trading on the Indian
Stock Exchanges 45 days after the closing of this offering
and (ii) dematerialized in the account of the Custodian
10 days following receipt by the Depositary of confirmation
of listing on the Indian Stock Exchanges. We expect the equity
shares to be represented by the ADSs issuable upon exercise of
the over-allotment option to be (i) listed for trading on
the Indian Stock Exchanges 45 days after the closing of the
over-allotment option and (ii) dematerialized in the
account of the Custodian 10 days following receipt by the
Depositary of confirmation of listing on the Indian Stock
Exchanges. |
|
Proposed NYSE symbol for the
ADSs |
|
SRL. |
|
Depositary for the ADSs |
|
Citibank, N.A. |
|
Lock-up |
|
We have agreed with the underwriters not to issue, and our
principal shareholders, Twin Star, a wholly-owned subsidiary of
Vedanta, and MALCO, an 80.0%-owned subsidiary of Vedanta, have
agreed not to offer, sell or contract to sell, directly or
indirectly, or otherwise dispose of or hedge, any of our equity
shares or ADSs or securities convertible into or exchangeable
for equity shares or ADSs or any similar securities or economic
interest therein during the period from the date of this
prospectus continuing through the date 180 days after the
date of this prospectus, subject to certain exceptions. See
Underwriting. |
9
|
|
|
Restrictions on ADSs relating to the Indian Stock Exchanges |
|
ADR holders may not surrender their ADSs to the Depositary for
the purpose of withdrawing the deposited shares until we have
confirmed to the Depositary that we have received confirmation
from the Indian Stock Exchanges that the underlying equity
shares have been listed for trading thereon and have therefore
become listed shares. We expect to receive the confirmation from
the Indian Stock Exchanges of the listing of the equity shares
underlying the ADSs approximately 45 days after the closing
of the ADS offering, or approximately 45 days after the
closing of the over-allotment option for any ADSs that are sold
as part of an exercise of the ADS offering over-allotment
option. The Depositary will process applications for withdrawal
of ADSs for cancellation on a first come, first served basis and
only to the extent of the number of listed shares deposited at
that time with the Custodian. |
10
Summary Consolidated Financial Information
The summary historical consolidated statements of operations
data for fiscal 2004, 2005 and 2006, and the summary historical
consolidated balance sheet data as of March 31, 2005 and
2006, have been derived from the audited consolidated financial
statements appearing elsewhere in this prospectus. You should
read this information together with the consolidated financial
statements and related notes and the section entitled
Managements Discussion and Analysis of Financial
Condition and Results of Operations included elsewhere in
this prospectus. Our consolidated financial statements are
prepared and presented in accordance with US GAAP. Our
historical results do not necessarily indicate results expected
for any future period. The translations of Indian Rupee amounts
to US dollars are solely for the convenience of the reader and
are based on the noon buying rate of Rs. 44.48 per $1.00 in
the City of New York for cable transfers of Indian Rupees as
certified for customs purposes by the Federal Reserve Bank
of New York on March 31, 2006. No representation is
made that the Indian Rupee amounts represent US dollar amounts
or have been, could have been or could be converted into US
dollars at such rates or any other rates.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except share and per share data) | |
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
Rs. 56,788 |
|
|
|
Rs. 71,183 |
|
|
|
Rs. 128,608 |
|
|
$ |
2,891.3 |
|
Other operating revenues
|
|
|
682 |
|
|
|
652 |
|
|
|
1,362 |
|
|
|
30.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
57,470 |
|
|
|
71,835 |
|
|
|
129,970 |
|
|
|
2,921.9 |
|
Cost of sales
|
|
|
(42,119 |
) |
|
|
(54,640 |
) |
|
|
(92,041 |
) |
|
|
(2,069.3 |
) |
Selling and distribution expenses
|
|
|
(1,544 |
) |
|
|
(1,620 |
) |
|
|
(2,330 |
) |
|
|
(52.4 |
) |
General and administration expenses
|
|
|
(2,452 |
) |
|
|
(2,402 |
) |
|
|
(2,605 |
) |
|
|
(58.6 |
) |
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary retirement scheme expenses
|
|
|
(611 |
) |
|
|
(186 |
) |
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
|
|
|
|
|
(1,276 |
) |
|
|
|
|
|
|
|
|
|
Guarantees, impairment of investments and loans
|
|
|
|
|
|
|
|
|
|
|
(1,300 |
) |
|
|
(29.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
10,744 |
|
|
|
11,711 |
|
|
|
31,694 |
|
|
|
712.4 |
|
Interest income
|
|
|
1,609 |
|
|
|
2,181 |
|
|
|
2,419 |
|
|
|
54.4 |
|
Interest expense
|
|
|
(1,997 |
) |
|
|
(2,007 |
) |
|
|
(3,331 |
) |
|
|
(74.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interests and equity in net
loss of associate
|
|
|
10,356 |
|
|
|
11,885 |
|
|
|
30,782 |
|
|
|
691.9 |
|
Income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(2,636 |
) |
|
|
(2,724 |
) |
|
|
(8,000 |
) |
|
|
(179.9 |
) |
|
|
Deferred
|
|
|
(350 |
) |
|
|
(831 |
) |
|
|
(1,111 |
) |
|
|
(25.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income after income taxes, before minority interests and equity
in net loss of associate
|
|
|
7,370 |
|
|
|
8,330 |
|
|
|
21,671 |
|
|
|
487.0 |
|
Minority interests
|
|
|
(2,349 |
) |
|
|
(2,764 |
) |
|
|
(6,073 |
) |
|
|
(136.5 |
) |
Equity in net loss of associate, net of taxes
|
|
|
|
|
|
|
|
|
|
|
(99 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
Rs. 5,021 |
|
|
|
Rs. 5,566 |
|
|
|
Rs. 15,499 |
|
|
$ |
348.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except share and per share data) | |
Earnings per
share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
Rs. 13.99 |
|
|
|
Rs. 12.22 |
|
|
|
Rs. 28.02 |
|
|
$ |
0.63 |
|
|
Diluted
|
|
|
Rs. 13.68 |
|
|
|
Rs. 12.05 |
|
|
|
Rs. 28.02 |
|
|
$ |
0.63 |
|
Weighted average number of equity shares used in computing
earnings per
share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
359,007,797 |
|
|
|
455,343,743 |
|
|
|
553,216,634 |
|
|
|
553,216,634 |
|
|
Diluted
|
|
|
367,697,507 |
|
|
|
465,108,143 |
|
|
|
553,216,634 |
|
|
|
553,216,634 |
|
Note:
|
|
(1) |
Earnings per share and weighted average number of equity shares
used in computing earnings per share have been adjusted for the
five-for-two stock split and one-for-one bonus issue effective
May 12, 2006. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, | |
|
|
| |
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents(1)
|
|
|
Rs.5,909 |
|
|
|
Rs.9,258 |
|
|
$ |
208.1 |
|
Total
assets(1)
|
|
|
133,197 |
|
|
|
167,539 |
|
|
|
3,766.6 |
|
Long-term debt, net of current portion
|
|
|
28,794 |
|
|
|
30,237 |
|
|
|
679.8 |
|
Short-term and current portion of long-term debt
|
|
|
8,663 |
|
|
|
4,390 |
|
|
|
98.7 |
|
Total shareholders
equity(1)
|
|
|
37,388 |
|
|
|
53,498 |
|
|
|
1,202.6 |
|
Note:
|
|
(1) |
A $1.00
(Rs. )
increase (decrease) in the assumed initial public offering price
of
$ (Rs. )
per ADS would increase (decrease) each of cash and cash
equivalents, total assets and total shareholders equity by
$ million
(Rs. million). |
12
RISK FACTORS
This prospectus contains forward-looking statements that
involve risks and uncertainties. Our actual results could differ
materially from those anticipated in these forward-looking
statements as a result of a number of factors, including those
described in the following risk factors and elsewhere in this
prospectus. You should consider the following risk factors
carefully in evaluating us and our business before investing in
our ADSs. If any of the following risks actually occur, our
business, financial condition and results of operations could
suffer, the trading price of our ADSs could decline and you may
lose all or part of your investment.
Risks Relating to Our Business
|
|
|
Our copper and aluminum businesses depend upon third party
suppliers for a substantial portion of their copper concentrate
and alumina requirements, and their profitability and operating
margins depend upon the market prices for those raw
materials. |
Our copper and aluminum businesses source a majority of their
copper concentrate and alumina requirements from third parties.
As a result, profitability and operating margins of our copper
and aluminum businesses depend upon our ability to obtain the
required copper concentrate and alumina at prices that are low
relative to the market prices of the copper and aluminum
products that we sell.
We purchase copper concentrate at The London Metal Exchange
Limited, or LME, price for copper metal for the relevant
quotational period less a TcRc that we negotiate with our
suppliers but which is influenced by the prevailing market rate
for the TcRc. The TcRc has historically fluctuated independently
and significantly from the copper LME price. We attempt to make
the LME price a pass through for us as both our copper
concentrate purchases and sales of finished products are based
on LME prices. Nevertheless, we are also exposed to differences
in the LME price between the quotational periods for the
purchase of copper concentrate and sale of the finished copper
products, and any decline in the copper LME price between these
periods will adversely affect us. We attempt to hedge against
such risks, but are still exposed to timing and quantity
mismatches. In addition, some of our long-term copper
concentrate supply agreements provide for a TcRc that is a
percentage of the prevailing LME price, and hence would
fluctuate with the LME price, or provide our third party
supplier with price participation terms linked to LME prices.
See Managements Discussion and Analysis of Financial
Condition and Results of Operations Factors
Affecting Results of Operations Metal Prices and
Copper TcRc.
We purchase alumina from third party suppliers through
short-term contracts and on the spot market. The market price
for alumina has historically fluctuated independently and
significantly from the market price of aluminum. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Factors
Affecting Results of Operations Metal Prices and
Copper TcRc Zinc and Aluminum.
Both the market prices of the copper concentrate and alumina
that we purchase and the market prices of the copper and
aluminum metals that we sell have experienced volatility in the
past, and any increases in the market prices of those raw
materials relative to the market prices of the metals that we
sell would adversely affect the profitability and operating
margins of our copper and aluminum businesses, which could have
a material and adverse effect on our results of operations and
financial condition.
|
|
|
Our operations are subject to operating risks that could
result in decreased production, increased cost of production and
increased cost of or disruptions in transportation, which could
adversely affect our revenue, results of operations and
financial condition. |
We are subject to operating conditions and events beyond our
control that could, among other things, increase our mining,
transportation or production costs, disrupt or halt operations
at our mines and
13
production facilities permanently or for varying lengths of time
or interrupt the transport of our products to our customers.
These conditions and events include:
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|
|
|
|
Disruptions in mining and production due to equipment
failures, unexpected maintenance problems and other
interruptions. All of our operations are vulnerable to
disruptions. Our aluminum smelters are particularly vulnerable
to disruptions in the supply of power which, even if lasting
only a few hours, can cause the contents of the furnaces or
cells to solidify, which would necessitate a plant closure and a
shutdown in operations for a significant period, as well as
involve expensive repairs. For example, power interruptions
caused BALCO to partially suspend operations at its new
245,000 tpa aluminum smelter at Korba in May 2006, and as a
result of this interruption the smelter did not become fully
operational again until November 2006. The loss from this
interruption includes lost production, repair costs and other
expenses. |
|
|
|
Availability of raw materials for energy requirements.
Any shortage of or increase in the prices of any of the raw
materials needed to satisfy our businesses energy
requirements may interrupt our operations or increase our cost
of production. We are particularly dependent on coal, which is
used in many of our captive power plants. Our aluminum business,
which has high energy consumption due to the energy-intensive
nature of aluminum smelting, is significantly dependent on
receiving allocations from Coal India Limited, or Coal India,
the government-owned coal monopoly in India. Starting
April 1, 2005, a shortage of coal led Coal India to reduce
the amount of coal supplied to all its customers, including
BALCO, except utilities, forcing BALCO to utilize higher-priced
imported coal and increasing power generation costs. |
|
|
|
Availability of water. The mining operations of our zinc
and aluminum businesses and our captive power plants depend upon
the supply of a significant amount of water. There is no
assurance that the water required will continue to be available
in sufficient quantities or that the cost of water will not
increase. For example, BALCO is currently in a dispute with the
National Thermal Power Corporation Limited, or NTPC, regarding
the right of way for a water pipeline that provides one of
BALCOs captive power plants access to a body of water
adjacent to NTPC premises. An unfavorable resolution to this
dispute may significantly increase BALCOs costs of
obtaining water for that power plant. |
|
|
|
Disruptions to or increased costs of transport services.
We depend upon seaborne freight, rail, trucking, overland
conveyor and other systems to deliver bauxite, alumina, zinc
concentrate, copper concentrate, coal and other supplies to our
operations and to deliver our products to customers. Any
disruption to or increase in the cost of these transport
services, including as a result of interruptions that decrease
the availability of these transport services or as a result of
increases in demand for transport services from our competitors
or from other businesses, or any failure of these transport
services to be expanded in a timely manner to support an
expansion of our operations, could have a material adverse
effect on our operations and operating results. |
|
|
|
Accidents at mines, smelters, refineries, cargo terminals and
related facilities. Any accidents or explosions causing
personal injury, property damage or environmental damage at or
to our mines, smelters, refineries, cargo terminals and related
facilities may result in expensive litigation, imposition of
penalties and sanctions or suspension or revocation of permits
and licenses. Risks associated with our open-pit mining
operations include flooding of the open-pit, collapses of the
open-pit wall and operation of large open-pit mining and rock
transportation equipment. Risks associated with our underground
mining operations include underground fires and explosions
(including those caused by flammable gas), cave-ins or ground
falls, discharges of gases or toxic chemicals, flooding,
sinkhole formation and ground subsidence and underground
drilling, blasting and removal and processing of ore. Injuries
to and deaths of workers at our mines and facilities have
occurred in the past and may occur in the future. We are
required by law to compensate employees for work-related
injuries. Failure to make adequate provisions for our
workers compensation liabilities could harm our future
operating results. |
14
|
|
|
|
|
Strikes and industrial actions or disputes. The majority
of the total workforce of our consolidated group of companies is
unionized. Strikes and industrial actions or disputes have in
the past and may in the future lead to business interruptions
and halts in production. For example, the trade unions of BALCO
initiated a 67-day-long strike in May 2001 in opposition to the
divestment of equity shares of BALCO by the Government of India.
We also experienced short strikes and work stoppages in 2005 and
2006. In addition, we may be subject to union demands and
litigation for pay raises and increased benefits, and our
existing arrangements with trade unions may not be renewed on
terms favorable to us, or at all. The current wage settlement
agreements entered into by HZL and BALCO with their respective
unions will be up for renewal in 2007 and 2009, respectively.
Other work stoppages or other labor-related developments,
including the introduction of new labor regulations in India or
Australia, may occur in the future. |
The occurrence of any one or more of these conditions or events
could have a material adverse effect on our results of
operations and financial condition.
|
|
|
We are substantially dependent upon our Rampura Agucha
zinc mine, and any interruption in our operations at that mine
could have a material adverse effect on our results of
operations and financial condition. |
Our Rampura Agucha zinc mine produced 88.9% of the total mined
metal in zinc concentrate that we produced in fiscal 2006 and
constituted 77.8% of our proven and probable zinc reserves as of
March 31, 2006. Our zinc business provided 67.2% of our
operating income in fiscal 2006. Our results of operations have
been and are expected to continue to be substantially dependent
on the reserves and low cost of production of our Rampura Agucha
mine, and any interruption in our operations at the mine for any
reason could have a material adverse effect on the results of
operations and financial condition of our business as a whole.
|
|
|
If we are unable to secure additional reserves of copper,
zinc and bauxite that can be mined at competitive costs or
cannot mine existing reserves at competitive costs, our
profitability and operating margins could decline. |
If our existing copper, zinc and bauxite reserves cannot be
mined at competitive costs or if we cannot secure additional
reserves that can be mined at competitive costs, we may become
more dependent upon third parties for copper concentrate, zinc
concentrate and alumina. Because our mineral reserves decline as
we mine the ore, our future profitability and operating margins
depend upon our ability to access mineral reserves that have
geological characteristics enabling mining at competitive costs.
Replacement reserves may not be available when required or, if
available, may not be of a quality capable of being mined at
costs comparable to the existing or exhausted mines.
We may not be able to accurately assess the geological
characteristics of any reserves that we acquire, which may
adversely affect our profitability and financial condition.
Because the value of reserves is calculated based on that part
of our mineral deposits that are economically and legally
exploitable at the time of the reserve calculation, a decrease
in commodity prices of the metals may result in a reduction in
the value of any mineral reserves that we do obtain as less of
the mineral deposits contained therein would be economically
exploitable at the lower prices. Exhaustion of reserves at
particular mines may also have an adverse effect on our
operating results that is disproportionate to the percentage of
overall production represented by such mines. Further, with
depletion of reserves, we will face higher unit extraction costs
per mine.
Our ability to obtain additional reserves in the future could be
limited by restrictions under our existing or future debt
agreements, competition from other copper, zinc and aluminum
companies, lack of suitable acquisition candidates, government
regulatory and licensing restrictions, difficulties in obtaining
mining leases and surface rights or the inability to acquire
such properties on commercially reasonable terms, or at all. To
increase production from our existing bauxite and lead-zinc
mines, we must apply for governmental approvals, which we may
not be able to obtain in a timely manner, or at all.
15
|
|
|
Our business requires substantial capital expenditures and
the dedication of management and other resources to maintain
ongoing operations and to grow our business through projects,
expansions and acquisitions, which projects, expansions and
acquisitions are subject to additional risks that could
adversely affect our business, financial condition and results
of operations. |
Capital requirements. We require capital for, among other
purposes, expanding our operations, making acquisitions,
managing acquired assets, acquiring new equipment, maintaining
the condition of our existing equipment and maintaining
compliance with environmental laws and regulations. To the
extent that cash generated internally and cash available under
our existing credit facilities are not sufficient to fund our
capital requirements, we will require additional debt or equity
financing, which may not be available on favorable terms, or at
all. Future debt financing, if available, may result in
increased finance charges, increased financial leverage,
decreased income available to fund further acquisitions and
expansions and the imposition of restrictive covenants on our
business and operations. In addition, future debt financing may
limit our ability to withstand competitive pressures and render
us more vulnerable to economic downturns. If we fail to generate
or obtain sufficient additional capital in the future, we could
be forced to reduce or delay capital expenditures, sell assets
or restructure or refinance our indebtedness.
In light of this, our planned and any proposed future expansions
and projects may be materially and adversely affected if we are
unable to obtain funding for such capital expenditures on
satisfactory terms, or at all, including as a result of any of
our existing facilities becoming repayable before its due date.
In addition, there can be no assurance that our planned or any
proposed future expansions and projects will be completed on
time or within budget, which may adversely affect our cash flow.
These projects include HZLs investment of approximately
Rs. 13,344 million ($300.0 million) to build a
new 170,000 tpa zinc smelter and associated captive power
plant through a brownfield expansion at its Chanderiya facility
and our investment of approximately Rs. 1,000 million
($22.5 million) to achieve operational efficiency
improvements at our Tuticorin facility.
Cost overruns and delays. Our current and future projects
may be significantly delayed by failure to receive regulatory
approvals or renewal of approvals, failure to obtain sufficient
funding, technical difficulties due to human resource,
technological or other resource constraints or for other
unforeseen reasons, events or circumstances. As a result, these
projects may incur significant cost overruns and may not be
completed on time, or at all. Our decision to undertake or
continue any of these projects will be based on assumptions of
future demand for our products which may not materialize. As a
consequence of project delays, cost overruns, changes in demand
for our products and other reasons, we may not achieve the
reductions in the cost of production or other economic benefits
expected from these projects, which could adversely affect our
business, financial condition and results of operations.
Demands on management. Our efforts to continue our growth
will place significant demands on our management and other
resources and we will be required to continue to improve
operational, financial and other internal controls, both in
India and elsewhere. Our ability to maintain and grow our
existing business and integrate new businesses will depend on
our ability to maintain the necessary management resources and
on our ability to attract, train and retain personnel with
skills that enable us to keep pace with growing demands and
evolving industry standards. We are in particular dependent to a
large degree on the continued service and performance of our
senior management team and other key team members in our
business units. These key personnel possess technical and
business capabilities that are difficult to replace. The loss or
diminution in the services of members of our senior management
or other key team members, or our failure otherwise to maintain
the necessary management and other resources to maintain and
grow our business, could have a material adverse effect on our
results of operations, financial condition and prospects.
Acquisition risks. As part of our growth strategy, we
intend to continue to pursue acquisitions to expand our
business. There can be no assurance that we will be able to
identify suitable acquisition, strategic investment or joint
venture opportunities, obtain the financing necessary to
complete and support such acquisitions or investments, integrate
such businesses or investments or that any business acquired
will be profitable. If we attempt to acquire non-Indian
companies, we may not be able to satisfy certain
16
Indian regulatory requirements for such acquisitions and may
need to obtain the prior approval of the Reserve Bank of India,
or the RBI, which we may not be able to obtain. In addition,
acquisitions and investments involve a number of risks,
including possible adverse effects on our operating results,
diversion of managements attention, failure to retain key
personnel, risks associated with unanticipated events or
liabilities and difficulties in the assimilation of the
operations, technologies, systems, services and products of the
acquired businesses or investments. Any failure to achieve
successful integration of such acquisitions or investments could
have a material adverse effect on our business, results of
operations or financial condition.
|
|
|
If we do not continue to invest in new technologies and
equipment, our technologies and equipment may become obsolete
and our cost of production may increase relative to our
competitors, which would have a material adverse effect on our
ability to compete, results of operations, financial condition
and prospects. |
Our profitability and competitiveness are in large part
dependent upon our ability to maintain a low cost of production
as we sell commodity products with prices we are unable to
influence. Unless we continue to invest in newer technologies
and equipment and are successful at integrating such newer
technologies and equipment to make our operations more
efficient, our cost of production relative to our competitors
may increase and we may cease to be profitable or competitive.
However, newer technologies and equipment are expensive and the
necessary investments may be substantial. Moreover, such
investments entail additional risks as to whether the newer
technologies and equipment will reduce our cost of production
sufficiently to justify the capital expenditures to obtain them.
Any failure to make sufficient or the right investments in newer
technologies and equipment or in integrating such newer
technologies and equipment into our operations could have a
material adverse effect on our ability to compete and our
financial condition, results of operations and prospects.
|
|
|
We intend to develop a commercial power generation
business, a line of business in which we have limited
experience, from which we may never recover our investment or
realize a profit and which may result in our managements
focus being diverted from our core copper, zinc and aluminum
businesses. |
In July 2006, our board of directors resolved and our
shareholders subsequently approved in principle a new strategy
for us to enter into the commercial power generation business in
India. We expect that our initial strategy will be an investment
of approximately Rs. 84,512 million
($1,900.0 million) over the next four years to build the
first phase, totaling 2,400 MW (comprising four units of
600 MW each), of a thermal coal-based power facility, which
project will be pursued by our wholly-owned subsidiary Sterlite
Energy. See Business Our Future Commercial
Power Generation Business Our Plans for Commercial
Power Generation.
In addition, on October 7, 2006, BALCO entered into a
memorandum of understanding with the Government of Chhattisgarh,
India, and the Chhattisgarh State Electricity Board, or CSEB,
under which, among other things, feasibility studies will be
undertaken for a potential investment of approximately
Rs. 50,000 million ($1,124.1 million) to build a
thermal coal-based 1,200 MW power facility, along with an
integrated coal mine, in the State of Chhattisgarh.
The entry by BALCO into the commercial power generation business
will require board and shareholder approval, including the
specific consent of the Government of India and the consents of
lenders, and require BALCO to amend its memorandum of
association. There can be no assurance that any such approval
will be obtained, on satisfactory terms or at all.
Although we have some experience building and operating captive
power plants to provide a significant percentage of the power
requirements of our copper, zinc and aluminum businesses, we
have never before attempted to compete in the commercial power
generation business. In addition to the significant capital
investment, our managements focus will also be directed
towards this new business.
17
In particular, our proposed commercial power generation business
involves various risks, such as:
|
|
|
|
|
We may face many uncertainties, including regulatory
requirements and restrictions which may change by the time our
planned power facility is completed. These may include a change
in the tariff policy, which may have an adverse impact on our
revenues and reduce our margins. |
|
|
|
We must obtain the consent of certain of our lenders to commence
a new business, and there can be no assurance that we will
obtain such consents. |
|
|
|
We will be dependent upon third parties for the construction,
delivery and commissioning of the power facilities, the supply
and testing of equipment and transmission and distribution of
any power we produce. |
|
|
|
We do not have our own coal mines, and given recent shortages in
coal supplies in India, we may also not be successful at
procuring an adequate supply of coal at sufficiently attractive
prices, or at all, for our power plant to operate and generate a
return on our investment. |
|
|
|
The commercial power generation business is highly competitive
and we will be competing with established commercial power
generation companies, including NTPC, Tata Power Limited and
Reliance Energy Limited, with significant resources and many
years of experience in the commercial power generation business.
Our parent company, Vedanta, has also announced plans to enter
the commercial power generation business and we may compete with
them. |
There can be no assurance that we will recover our investment in
this new business, that we will realize a profit from this new
business or that diverting our managements attention to
this new business will not have a material adverse effect on our
existing copper, zinc and aluminum businesses, any of which
results may have a material adverse effect on our results of
operations, financial condition and prospects.
|
|
|
If any power facilities we build and operate as part of
our future commercial power generation business do not meet
operating performance requirements and agreed norms as may be
set out in our agreements, or otherwise do not operate as
planned, we may incur increased costs and penalties and our
revenues may be adversely affected. |
Operating power plants involves many operational risks,
including the breakdown or failure of generation equipment or
other equipment or processes, labor disputes, fuel interruption
and operating performance below expected levels. However, the
power purchase agreements and other agreements we may enter into
may require us to guarantee certain minimum performance
standards, such as plant availability and generation capacity,
to the power purchasers. If our facilities do not meet the
required performance standards, the power purchasers with whom
we have power purchase agreements may not reimburse us for any
increased costs arising as a result of our plants failure
to operate within the agreed norms, which in turn may affect our
results of operations. In addition to the performance
requirements specified in our power purchase and other
agreements, national and state regulatory bodies and other
statutory and government mandated authorities may from time to
time impose minimum performance standards upon us. Failure to
meet these requirements could expose us to the risk of penalties.
|
|
|
The validity of the Government of Indias divestment
of 64.9% of HZL to us is currently pending adjudication and our
option to purchase the Government of Indias remaining
shares in HZL may be challenged. |
A public interest litigation was filed in 2003 against the
Government of India, HZL, SOVL and others, challenging the
Government of Indias divestment of 64.9% of HZL to us.
This public interest litigation proceeds on the same grounds as
a decision of the Supreme Court of India, which held that the
Government of India may not divest its shares in companies in
which assets have been vested pursuant to an Act of Parliament
without first repealing or amending the applicable Act of
Parliament.
18
The Supreme Court of India has directed that all pending
challenges to divestments of government-owned companies be heard
together by a larger bench of the Supreme Court of India. No
date has been set for such a hearing.
There can be no assurance that we will successfully defend the
challenge to the Government of Indias divestment of shares
in HZL or that a challenge will not be made to any future
divestment of shares in HZL by the Government of India. In
addition, the Government of India is reportedly taking steps
towards making a public offer of its remaining ownership
interest in HZL, which it has a right to do prior to an exercise
of our call option to acquire such residual ownership interest,
which call option becomes exercisable on or after April 11,
2007. If, prior to the exercise of our call option, the
Government of India does not sell its residual ownership
interest in HZL through a public offer and we seek to exercise
our call option to acquire such remaining ownership interest,
there can be no assurance that such an acquisition by us will
not be challenged, including a challenge on the grounds of our
existing litigation with respect to the Government of
Indias prior divestments of HZL to us or a challenge on
the same grounds as those raised in respect of our exercise of
the BALCO call option discussed below. Any adverse ruling may
undermine our ownership and control of HZL or preclude or delay
us from exercising our option to increase our ownership interest
in HZL, either of which outcomes would be likely to have a
material adverse effect upon our operational flexibility,
results of operations and prospects. Alternatively, we may only
be able to acquire the Government of Indias remaining
ownership interest in HZL at a price in excess of the market
value or fair value of those shares, which could have a material
adverse effect on our results of operations and financial
condition. See Business Options to Increase
Interests in HZL and BALCO.
|
|
|
The Government of India has disputed our exercise of the
call option to purchase its remaining 49.0% ownership interest
in BALCO. |
Under the terms of the shareholders agreement between us
and the Government of India, we were granted an option to
acquire the shares of BALCO held by the Government of India at
the time of exercise. We exercised this option on March 19,
2004. However, the Government of India has contested the
purchase price and validity of the option. We have sought an
interim order from the High Court of Delhi to restrain the
Government of India from transferring or disposing of its
shareholding pending resolution of the dispute. However, the
court directed on August 7, 2006 that the parties attempt
to settle the dispute by way of amicable negotiation and
conciliation. Negotiations are currently underway between the
parties and the next hearing date is January 10, 2007.
Notwithstanding the outcome of the dispute, the Government of
India retains the right and has expressed an intention to sell
5.0% of BALCO to BALCO employees. See Business
Options to Increase Interests in HZL and BALCO.
There is no assurance that the outcome of the negotiations will
be favorable to us. In the event of an unfavorable outcome, we
may be unable to purchase the Government of Indias
remaining 49.0% stake in BALCO or may be required to pay a
higher purchase price, which may adversely affect our
operational flexibility, results of operations and prospects.
|
|
|
We are involved in a number of litigation matters, both
civil and criminal in nature, and any final judgments against us
could have a material adverse effect on our business, results of
operations, financial condition and prospects. |
We are involved in a variety of litigation matters, including
matters relating to alleged violations of environmental and tax
laws and alleged price manipulation of our equity shares on the
Indian Stock Exchanges. A final judgment against us or our
directors in one or more of these disputes may result in damages
being awarded that we must pay or injunctions against us, or
criminal proceedings being instituted against us or our
directors, which may require us to cease or limit certain of our
operations and have a material adverse effect on our business,
results of operations, financial condition and prospects. For a
detailed discussion of material litigation matters pending
against us, see Business Litigation.
19
|
|
|
Defects in title or loss of any leasehold interests in our
properties could limit our ability to conduct operations on our
properties or result in significant unanticipated costs. |
Our ability to mine the land on which we have been granted
mining lease rights is dependent on the surface rights that we
acquire separately and subsequently to the grant of mining lease
rights and generally over only part of the land leased.
Additional surface rights may be negotiated separately with
landowners, though there is no guarantee that these rights will
be granted. Although we expect to be able to continue to obtain
additional surface rights in the future in the ordinary course,
any delay in obtaining or inability to obtain surface rights
could negatively affect our financial condition and results of
operations.
A significant part of our mining operations are carried out on
leasehold properties. Our right to mine some of our reserves may
be materially and adversely affected if defects in title or
boundary disputes exist or if a lease expires and is not renewed
or if a lease is terminated due to our failure to comply with
its conditions. For example, as a result of pending litigation,
we and Vedanta Alumina are not in compliance with certain
conditions of the leases granted to us by the Orissa
Infrastructure Development Corporation, or OIDC, in respect of
certain of our lands at Lanjigarh. These conditions require us
and Vedanta Alumina to commence operations within a specified
period of taking possession of the land, which we have not
complied with though an extension of the terms of the leases has
been applied for. See Business
Litigation. Any challenge to our title or leasehold
interests could delay our mining operations and could ultimately
result in the loss of some or all of our interests. Also, in any
such case, the investigation and resolution of title issues
would divert managements time from our business and our
results of operations could be adversely affected. Further, if
we mine on property that we do not own or lease, we could incur
liability for such mining.
We can also be subject to claims challenging our title to our
non-mine properties. For example, BALCO is currently engaged in
a dispute with the State Government of Chhattisgarh regarding
alleged encroachment on state-owned land at its Korba facility.
See Business Litigation.
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Our operations are subject to extensive governmental and
environmental regulations which have in the past and could in
the future cause us to incur significant costs or liabilities or
interrupt or close our operations, any of which events may
adversely affect our results of operations. |
Numerous governmental permits, approvals and leases are required
for our operations as the industries in which we operate and
seek to operate are subject to numerous laws and extensive
regulation by national, state and local authorities in India and
Australia. Failure to comply with any laws or regulations or to
obtain or renew the necessary permits, approvals and leases may
result in the loss of the right to mine or operate our
facilities, the assessment of administrative, civil or criminal
penalties, the imposition of cleanup or site restoration costs
and liens, the imposition of costly compliance procedures, the
issuance of injunctions to limit or cease operations, the
suspension or revocation of permits and other enforcement
measures that could have the effect of closing or limiting
production from our operations. In addition, a significant
number of approvals are required from government authorities in
India for metals and mining and commercial power generation
projects, and any such approvals may be subject to challenge.
Our business, financial condition, results of operations and
prospects may be materially and adversely affected by any of a
number of significant legal and regulatory matters to which we
are subject. See Business Litigation and
Business Regulatory Matters.
The costs, liabilities and requirements associated with
complying with existing and future laws and regulations may be
substantial and time-consuming and may delay the commencement or
continuation of exploration, mining or production activities.
For example, a gas leak at HZLs sulphuric acid plant in
Chanderiya caused the Rajasthan State Pollution Control Board to
shut down the entire plant for a period of 12 days in
November 2005.
New legislation or regulations may be adopted in the future that
may materially and adversely affect our operations, our cost
structure or our customers ability to use our products.
New legislation or regulations, or different or more stringent
interpretation or enforcement of existing laws and regulations,
20
may also require us or our customers to change operations
significantly or incur increased costs, which could have a
material adverse effect on our results of operations or
financial condition.
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Any increase in competition in our target markets could
result in lower prices or sales volumes of the copper, zinc and
aluminum products we produce, which may cause our profitability
to suffer. |
There is substantial competition in the copper, zinc and
aluminum industries, both in India and internationally, and we
expect this to continue. Our competitors in the copper, zinc and
aluminum markets outside India include major international
producers. Certain of these international producers have
significantly larger scale of operations, greater financial
resources and manufacturing and technological capabilities, more
established and larger marketing and sales organizations and
larger technical staffs than we do.
In the Indian copper market, we compete primarily against
Hindalco Industries Limited, or Hindalco, Hindustan Copper
Limited, or Hindustan Copper, and imports. In the Indian zinc
market, we compete primarily against imports. In the Indian
aluminum market, we compete primarily against National Aluminium
Company Limited, or NALCO, Hindalco, MALCO, a subsidiary of
Vedanta, and imports. Many of our competitors are also expanding
their production capacities. If domestic demand is not
sufficient to absorb these increases in capacity, our
competitors could reduce their prices, which may force us to do
the same or cause us to lose market share or sell our products
in overseas markets at lower prices.
The end-user markets for our metal products are highly
competitive. Copper competes with a number of other materials,
including aluminum and plastics. Zinc metal faces competition as
a result of substitution of materials, including aluminum,
stainless steel and other alloys, plastics and other materials
being substituted for galvanized steel and epoxies, paints and
other chemicals being used to treat steel in place of
galvanization in the construction market. Aluminum competes with
materials such as plastic, steel, iron, glass and paper, among
others, for various applications. In the past, customers have
demonstrated a willingness to substitute other materials for
copper, zinc and aluminum. The willingness of customers to
accept substitutes could have a material adverse effect on our
business, results of operations and prospects.
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Our insurance coverage may prove inadequate to satisfy
future claims against us. |
We maintain insurance which we believe is typical in our
industry in India and Australia and in amounts which we believe
to be commercially appropriate. Nevertheless, we may become
subject to liabilities, including liabilities for pollution or
other hazards, against which we have not insured adequately or
at all or cannot insure. Our insurance policies contain
exclusions and limitations on coverage, and we do not have
business interruption insurance. In addition, our insurance
policies may not continue to be available at economically
acceptable premiums, or at all. As a result, our insurance
coverage may not cover the extent of any claims against us,
including for environmental or industrial accidents or
pollution. See Business Insurance.
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Third party interests in our subsidiary companies and
restrictions due to stock exchange listings of our subsidiary
companies will restrict our ability to deal freely with our
subsidiaries, which may have a material adverse effect on our
operations. |
We do not wholly own all of our operating subsidiaries. Although
we have management control of HZL and BALCO, and we intend to
increase our ownership interests in both, each of these
companies has other shareholders who, in some cases, hold
substantial interests in them. The minority interests in our
subsidiaries and the listing of HZL on the BSE may limit our
ability to increase our equity interests in these subsidiaries,
combine similar operations, utilize synergies that may exist
between the operations of different subsidiaries or reorganize
the structure of our business in a tax effective manner. For
example, the Government of India, which is a minority
shareholder in each of HZL and BALCO, has entered into
shareholders agreements for HZL and BALCO and it is a term
of the shareholders agreements that HZL and BALCO may not
grant loans to companies which are under the same management as
HZL or
21
BALCO, as the case may be, without the prior consent of the
Government of India. In addition, the Government of India has
the right to appoint directors and has veto power over certain
management decisions. These restrictions on our ability to deal
freely with our subsidiaries caused by the minority interests
may have a material adverse effect on our results of operations
or financial condition as our ability to move funds among the
different parts of our business will be restricted and we will
be unable to access cash held in HZL or BALCO except through
dividend payments by HZL and BALCO which would be payable to all
shareholders. This will limit our ability to make payments of
interest and principal in respect of financial liabilities and
obligations which we have undertaken on behalf of our
consolidated group of companies. Further, pursuant to the
requirements for the continued listing of the shares of HZL on
the BSE, in the event we exercise our call option to acquire the
Government of Indias remaining ownership interest in HZL,
we would have to either divest a portion of our shareholding in
HZL within a period of one year from the acquisition such that
the minimum public shareholding requirement of 10% is complied
with or delist HZLs shares from the BSE by making an offer
to purchase the equity shares held by the remaining HZLs
shareholders at a price determined by way of a reverse
book-build process, which could adversely impact our financial
condition and results of operations. See
Business Options to Increase Interests in HZL
and BALCO.
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We may be liable for additional taxes if the tax holidays,
exemptions and tax deferral schemes which we currently benefit
from expire without renewal, and the benefits of the tax
holidays, exemptions and tax deferral schemes may be limited by
the minimum alternative tax. |
We currently benefit from significant tax holidays, exemptions
and tax deferral schemes. These tax holidays, exemptions and tax
deferral schemes are for limited periods. For example,
HZLs captive power plant at Debari benefits from tax
exemptions on the profits generated from transfers of power to
HZLs other units, which are expected to generate
substantial savings through fiscal 2013. In the case of the
Chanderiya captive power plant, we have not yet claimed a tax
exemption that we have the option to claim for a period of ten
consecutive years within the first 15 years of operations. The
captive power plants in our copper business benefit from tax
exemptions on the profits generated from transfers of power to
the smelter which are expected to generate savings through
fiscal 2015. One of our two copper refineries also enjoys tax
benefits on profits generated through fiscal 2008. These tax
incentives resulted in a decrease in our effective tax rate
compared to the tax rate that we estimate would have applied if
these incentives had not been available. Our copper refinery and
copper rod plant at Tuticorin have also been awarded the status
of export oriented units, under which we are eligible for tax
exemptions on raw materials and capital goods procured and
finished goods sold until June 1, 2011. There can be no
assurance that these tax holidays or exemptions will be renewed
when they expire or that any applications we make for new tax
holidays or exemptions will be successful. The expiry or loss of
existing tax holidays, exemptions and tax deferral schemes or
the failure to obtain new tax holidays, exemptions or tax
deferral schemes will likely increase our tax obligations and
any increase could have a material adverse effect on our
financial condition or results of operations.
In addition, we are subject to a minimum alternative tax which
sets a minimum amount of tax we must pay each year based on our
profits. The effective minimum alternative tax rate is 11.2% as
of the date of this prospectus. The minimum alternative tax may
prevent us from taking full advantage of any tax holidays,
exemptions or tax deferral schemes that may be available to us.
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Shortage of skilled labor in the metals and mining
industry could increase our costs and limit our ability to
maintain or expand our operations, which could adversely affect
our results of operations. |
Mining and metal refining, smelting and fabrication operations
require a skilled and experienced labor force. If we experience
a shortage of skilled and experienced labor, our labor
productivity could decrease and costs could increase, our
operations may be interrupted or we may be unable to maintain
our current production or increase our production as otherwise
planned, which could have a material adverse effect on our
results of operations, financial condition and business
prospects.
22
Risks Relating to Our Industry
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The recent increases in commodity prices and the copper
TcRc may not be sustainable. |
Our recent high levels of profitability and high operating
margins are in large part due to the increase in international
copper, zinc and aluminum commodity prices to historical highs.
In addition, there has been an increase in the market rate of
the TcRc for copper smelting and refining, which has contributed
to our recent increases in profitability and operating margins.
There can be no assurance that such international commodity
prices or the copper TcRc will continue to increase, or that
they will not decline, and thus our recent growth and
profitability may not be indicative of our future results. Our
profitability and operating margins depend on the level of
international commodity prices and the market TcRc rate for
copper relative to our overall costs of production, including
the costs of raw materials. Any material decline in the prices
we receive without a corresponding decrease in our cost of
production could adversely affect our results of operations and
financial condition and reduce the value of our reserves.
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Commodity prices and the copper TcRc may be
volatile. |
Historically, the international commodity prices for copper,
zinc and aluminum and the prevailing market TcRc rate for copper
have been volatile and subject to wide fluctuations in response
to relatively minor changes in the supply of, and demand for,
such commodities, market uncertainties, the overall performance
of world or regional economies and the related cyclicality in
industries we directly serve and a variety of other factors.
Commodity prices and the market TcRc rate for copper may
continue to be volatile and subject to wide fluctuations in the
future. A decline in the prices we receive for our copper, zinc
or aluminum metals and in the market TcRc rate for copper would
adversely affect our revenue and results of operations, and a
sustained drop would have a material adverse effect on our
revenue, results of operations and financial condition.
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Our ore reserves are estimates based on a number of
assumptions, any changes to which may require us to lower our
estimated reserves. |
The ore reserves stated in this prospectus are estimates and
represent the quantity of copper, zinc, lead and bauxite that we
believed, as of March 31, 2006, could be mined, processed,
recovered and sold at prices sufficient to cover the estimated
future total costs of production, remaining investment and
anticipated additional capital expenditures. These estimates are
subject to numerous uncertainties inherent in estimating
quantities of reserves and could vary in the future as a result
of actual exploration and production results, depletion, new
information on geology and fluctuations in production, operating
and other costs and economic parameters such as metal prices,
smelter treatment charges and exchange rates, many of which are
beyond our control. As a result, you should not place undue
reliance on the reserve data contained in this prospectus. In
the event that any of these assumptions turn out to be
incorrect, we may need to revise our ore reserves downwards and
this may adversely affect our
life-of-mine plans and
consequently the total value of our mining asset base, which
could increase our costs and decrease our profitability.
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Changes in tariffs, royalties, customs duties and
government assistance may reduce our domestic premium, which
would adversely affect our profitability and results of
operations. |
Copper, zinc and aluminum are sold in the Indian market at a
premium to the international market prices of these metals due
to tariffs payable on the import of such metals.
Between March 2002 and February 2006, customs duties on imported
copper, zinc and aluminum decreased from 35.0% to 7.5%. In
January 2004, the special additional duty, or SAD, of 4% which
was also levied on imports of copper, zinc and aluminum was
abolished, reducing the effective customs duties levied on all
imports. The Government of India may reduce customs duties
further in the future, although the timing and extent of such
reductions cannot be predicted. As we sell the majority of the
commodities we produce in India, any further reduction in Indian
tariffs on imports will decrease the premiums we receive in
respect of those sales. Our profitability is dependent to a
significant extent on the continuation
23
of import duties and any material reduction would have a
material adverse effect on our results of operations and
financial condition.
We pay royalties to the State Governments of Chhattisgarh and
Rajasthan based on our extraction of bauxite and lead-zinc ore,
respectively and to the State Government of Tasmania in
Australia based on our extraction of copper ore. Most
significant of these is the royalty that HZL is required to pay
to the State Government of Rajasthan, where all of HZLs
mines are located, at a rate of 6.6% of the LME zinc metal price
payable on the zinc metal contained in the ore mined and 5.0% of
the LME lead metal price payable on the lead metal contained in
the ore mined. The royalties we pay are subject to change. Any
upward revision to the royalty rates being charged currently may
adversely affect our profitability. Additionally, the Department
of Mines and Geology of the State of Rajasthan has raised
additional demands for payment through several show cause
notices to HZL for mining minerals associated with lead and zinc
such as cadmium and silver. Any upward revision to the royalty
rates being charged currently or payment of additional royalty
for mining of associated minerals may adversely affect our
profitability. See Business
Litigation Royalty Demands against HZL.
Indian exports of copper, aluminum and zinc receive assistance
premiums from the Government of India, which have been reduced
since 2002. These export assistance premiums have been reduced
in recent years and may be further reduced in the future. Any
reduction in these premiums will decrease the revenue we receive
from export sales and may have a material adverse effect on our
results of operations or financial condition. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Factors
Affecting Results of Operations Government
Policy.
Risks Relating to Our Relationship with Vedanta
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We are controlled by Vedanta and your ability to influence
matters requiring shareholder approval will be extremely
limited. |
Immediately upon the completion of this offering, we will
continue to be a majority-owned and controlled subsidiary of
Vedanta. Vedanta is in turn 53.8%-owned by Volcan. Volcan is
owned and controlled by members of the Agarwal family,
specifically Mr. Anil Agarwal, the Executive Chairman of
Vedanta and our Non-Executive Chairman, his father,
Mr. Dwarka Prasad Agarwal, and his son, Mr. Agnivesh
Agarwal, the Non-Executive Chairman of HZL. As part of
Vedantas listing on the LSE, Volcan and Messrs. Anil
Agarwal, Dwarka Prasad Agarwal and Agnivesh Agarwal entered into
an agreement with Vedanta which seeks to regulate the ongoing
relationship between them so that Vedanta is able to carry on
its business independently of Volcan and the Agarwal family. See
Certain Relationships and Related Transactions.
However, we cannot assure you that the agreement among Vedanta,
Volcan and the Agarwal family will be effective at insulating
Vedanta, and in turn us, from being influenced or controlled by
Volcan and the Agarwal family, which influence or control could
have a material adverse effect on the holders of the ADSs and
other holders of our equity shares.
As long as Vedanta, through its subsidiaries, owns a majority of
our outstanding equity shares, Vedanta will have the ability to
control or influence significant matters requiring board
approval and to take shareholder action without the vote of any
other shareholder, and the investors in this offering will not
be able to affect the outcome of any shareholder vote. Vedanta
will have the ability to control all matters affecting us.
In the event Vedanta ceases to be our majority shareholder, we
will be required to immediately repay all of the amounts
outstanding under our loan agreements, which was Rs. 34,627
million ($778.5 million) as of March 31, 2006.
Vedantas voting control may discourage transactions
involving a change of control of us, including transactions in
which you as a holder of our ADSs might otherwise receive a
premium for your ADSs over the then-current market price.
Subject to the lock-up
agreements of Twin Star and MALCO described elsewhere in this
prospectus, Vedanta is not prohibited from selling a controlling
interest in us to a third party and may do so without your
approval and without providing for a purchase of your ADSs.
24
Accordingly, your ADSs may be worth less than they would be if
Vedanta did not maintain voting control over us.
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Vedanta may decide to allocate business opportunities to
other members of the Vedanta group instead of to us, which may
have a material adverse effect on our business, results of
operations, financial condition and prospects. |
Vedantas control of us means it can determine the
allocation of business opportunities among us, itself and its
other subsidiaries. For example, Vedanta owns 51.0% of Konkola
Copper Mines plc, or KCM, an integrated copper producer in
Zambia, 80.0% of MALCO, an aluminum metals and mining company in
India with which we compete, and 70.5% of Vedanta Alumina, which
is seeking to develop an alumina refining and aluminum smelting
business. As Vedanta controls KCM, MALCO, Vedanta Alumina and
us, it determines the allocation of business opportunities
between KCM, MALCO, Vedanta Alumina and us, as well as the
strategies and actions of KCM, MALCO, Vedanta Alumina and us.
Vedanta may determine to have KCM, MALCO, Vedanta Alumina or
another of its subsidiaries, instead of us, pursue business
opportunities in the copper, zinc, aluminum or commercial power
generation business, or any other business, or cause such
companies or us to undertake corporate strategies, the effect of
which is to benefit such companies instead of us and which could
be detrimental to our interests. If Vedanta were to take any
such actions, our business, results of operations, financial
condition and prospects could be materially and adversely
affected and the value of our equity shares and the ADSs may
decline.
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We have issued several guarantees and a put option as
security for the obligations of certain of our subsidiaries and
other companies within the Vedanta group and we will have
liability under these guarantees and put option in the event of
any failure by such entities to perform their obligations, which
could have a material adverse effect on our results of
operations and financial condition. |
We have issued several guarantees and a put option in respect of
the obligations of certain of our subsidiaries and other
companies within the Vedanta group, including guarantees and a
put option issued as security for loan obligations, credit
facilities or issuance of customs duty bonds for import of
capital equipment at concessional rates of duties. Our
outstanding guarantees and put option cover obligations
aggregating Rs. 11,422 million ($256.8 million)
as of March 31, 2006, the liabilities for which have not
been recorded in our consolidated financial statements. We will
have a liability in the event that any of these entities fails
to perform its obligations under the loan agreements, credit
facilities or bonds, which could have a material adverse effect
on our results of operations and financial condition. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Guarantees and
Put Option.
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Any disputes that arise between us and Vedanta or other
companies in the Vedanta group could harm our business
operations. |
Disputes may arise between Vedanta or other companies in the
Vedanta group and us in a number of areas, including:
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intercompany agreements setting forth services and prices for
services between us and Vedanta or other companies in the
Vedanta group; |
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business combinations involving us; |
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sales or distributions by Vedanta of all or any portion of its
ownership interest in us; or |
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business opportunities that may be attractive to us and Vedanta,
or other companies in the Vedanta group. |
We may not be able to resolve any potential conflicts, and even
if we do, the resolution may be less favorable than if we were
dealing with an unaffiliated party.
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Our agreements with Vedanta and other companies in the Vedanta
group may be amended upon agreement between the parties. As we
are controlled by Vedanta, Vedanta may require us to agree to
amendments to these agreements that may be less favorable to us
than the original terms of the agreements.
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Some of our directors and executive officers may have
conflicts of interest because of their ownership of Vedanta
shares, options to acquire Vedanta shares and positions with
Vedanta. |
Some of our directors and executive officers own Vedanta shares
and options to purchase Vedanta shares, and will continue to
have such interests in Vedanta after the completion of this
offering, including through their continued participation in the
Vedanta Long-Term Incentive Plan 2003, or the Vedanta LTIP. In
addition, some of our directors and executive officers are
directors or executive officers of Vedanta and will continue to
hold such positions after the completion of this offering.
Ownership of Vedanta shares and options to purchase Vedanta
shares and the presence of an executive officer of Vedanta on
our board of directors could create, or appear to create,
potential conflicts of interest and other issues with respect to
their fiduciary duties to us when our directors and officers are
faced with decisions that could have different implications for
Vedanta than for us.
In addition, we are a party to a shared services agreement with
Vedanta and certain other subsidiaries of Vedanta under which
our managements time and services are shared between the
Vedanta group and us. As a result, our management, including our
senior management, is not solely focused on our business and may
be distracted by, or have conflicts as a result of, the demands
of Vedanta or other businesses within the Vedanta group, which
may materially and adversely affect our business, results of
operations and financial condition. For more information on the
shared services agreement, see Certain Relationships and
Related Transactions Related Transactions.
Risks Relating to Investments in Indian Companies and
International Operations Generally
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A substantial portion of our assets and operations are
located in India and we are subject to regulatory, economic,
social and political uncertainties in India. |
We are incorporated in India. Our primary operating
subsidiaries, HZL and BALCO, as well as our associate company,
Vedanta Alumina, are also incorporated in India. A substantial
portion of our assets and employees are located in India and we
intend to continue to develop and expand our facilities in
India. Consequently, our financial performance and the market
price of our ADSs will be affected by changes in exchange rates
and controls, interest rates, changes in government policies,
including taxation policies, social and civil unrest and other
political, social and economic developments in or affecting
India.
The Government of India has exercised and continues to exercise
significant influence over many aspects of the Indian economy.
Since 1991, successive Indian governments have pursued policies
of economic liberalization, including by significantly relaxing
restrictions on the private sector. Nevertheless, the role of
the Indian central and state governments in the Indian economy
as producers, consumers and regulators has remained significant
and we cannot assure you that such liberalization policies will
continue. The present government, formed in May 2004, has
announced policies and taken initiatives that support the
continued economic liberalization policies that have been
pursued by previous governments for more than a decade. However,
the present government is a multiparty coalition and therefore
there is no assurance that it will be able to generate
sufficient cross-party support to implement such policies. The
rate of economic liberalization could change, and specific laws
and policies affecting metals and mining companies, foreign
investments, currency exchange rates and other matters affecting
investment in India could change as well. Further, government
corruption scandals and protests against privatizations, which
have occurred in the past, could slow the pace of liberalization
and deregulation. For example, the present government changed
the governments policy on divestments and stated a new
divestment policy that profit-making public sector companies
will generally not be privatized, and all privatization will be
considered on a transparent and consultative case-by-case basis.
Given the change in government policy on divestments, there can
be no assurance that any of the proposed privatizations in which
we have registered
26
expressions of interest will be implemented or completed in the
near future, or at all. A significant change in Indias
policy of economic liberalization and deregulation could
adversely affect business and economic conditions in India
generally and our business in particular if new restrictions on
the private sector are introduced or if existing restrictions
are increased.
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As the domestic Indian market constitutes the major source
of our revenue, a downturn in the rate of economic growth in
India will be detrimental to our results of operations. |
In fiscal 2006, approximately 57.4% of our net sales were
derived from commodities that we sold to customers in India. The
performance and growth of our business are necessarily dependent
on the health of the overall Indian economy. Any downturn in the
rate of economic growth in India, whether due to political
instability or regional conflicts, economic slowdown elsewhere
in the world or otherwise, may have a material adverse effect on
demand for the commodities we produce. The Indian economy has
grown significantly over the past few years. The Indian economy
is also largely driven by the performance of the agriculture
sector, which depends on the quality of the monsoon, which is
difficult to predict. In the past, such economic slowdowns have
harmed manufacturing industries, including companies engaged in
the copper, zinc and aluminum sectors, as well as the customers
of manufacturing industries. Any future slowdown in the Indian
economy could have a material adverse effect on our financial
condition and results of operations.
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Terrorist attacks and other acts of violence involving
India or other neighboring countries could adversely affect our
operations directly, or may result in a more general loss of
customer confidence and reduced investment in these countries
that reduces the demand for our products, which would have a
material adverse effect on our business, results of operations,
financial condition and cash flows. |
Terrorist attacks and other acts of violence or war involving
India or other neighboring countries may adversely affect the
Indian markets and the worldwide financial markets. The
occurrence of any of these events may result in a loss of
business confidence, which could potentially lead to economic
recession and generally have an adverse effect on our business,
results of operations, financial condition and cash flows. In
addition, any deterioration in international relations may
result in investor concern regarding regional stability which
could adversely affect the price of our equity shares and ADSs.
South Asia has also experienced instances of civil unrest and
hostilities among neighboring countries from time to time,
especially between India and Pakistan. In recent years, military
confrontations between India and Pakistan have occurred in the
region of Kashmir and along the India/ Pakistan border. There
have also been incidents in and near India such as terrorist
attacks in Mumbai, Delhi and on the Indian Parliament, troop
mobilizations along the India/ Pakistan border and an aggravated
geopolitical situation in the region. Such military activity or
terrorist attacks in the future could adversely affect the
Indian economy by disrupting communications and making travel
more difficult. Resulting political tensions could create a
greater perception that investments in Indian companies involve
a high degree of risk. Furthermore, if India were to become
engaged in armed hostilities, particularly hostilities that were
protracted or involved the threat or use of nuclear weapons, we
might not be able to continue our operations. Our insurance
policies for a substantial part of our business do not cover
terrorist attacks or business interruptions from terrorist
attacks or for other reasons.
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If natural disasters or environmental conditions in India,
including floods and earthquakes, affect our mining and
production facilities, our revenues could decline. |
Our mines and production facilities are spread across India, and
our sales force is spread throughout the country. Natural
calamities such as floods, rains, heavy downpours (such as the
rains in Mumbai and other parts of the State of Maharashtra in
2005 and other states in 2006) and earthquakes could disrupt our
mining and production activities and distribution chains and
damage our storage facilities. Other regions in India have also
experienced floods, earthquakes, tsunamis and droughts in recent
years. In December 2004, Southeast Asia, including the eastern
coast of India, experienced a massive tsunami, and in October
2005, the State of Jammu and Kashmir experienced an earthquake,
both of which events
27
caused significant loss of life and property damage.
Substantially all of our facilities and employees are located in
India and there can be no assurance that we will not be affected
by natural disasters in the future. In addition, if there were a
drought or general water shortage in India or any part of India
where our operations are located, the Government of India or
local, state or other authorities may restrict water supplies to
us and other industrial operations in order to maintain water
supplies for drinking and other public necessities.
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Currency fluctuations among the Indian Rupee, the
Australian dollar and the US dollar could have a material
adverse effect on our results of operations. |
Although substantially all of our revenue is tied to commodity
prices that are typically priced by reference to the
US dollar, most of our expenses are incurred and paid in
Indian Rupees or Australian dollars. In addition, in fiscal
2006, approximately 42.6% of our net sales were derived from
commodities that we sold to customers outside India. The
exchange rates between the Indian Rupee and the US dollar,
and between the Australian dollar and the US dollar have
changed substantially in recent years and may fluctuate
substantially in the future. Our results of operations could be
adversely affected if the US dollar depreciates against the
Indian Rupee or Australian dollar or the Indian Rupee or
Australian dollar appreciates against the US dollar. We
seek to mitigate the impact of
short-term movements in
currency on our business by hedging most of our
near-term exposures.
Typically, all of our exposures with a maturity of less than
two years are hedged completely. However, large or
prolonged movements in exchange rates may have a material
adverse effect on our results of operations and financial
condition.
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If financial instability occurs in other countries,
particularly emerging market countries in Asia, our business
could be disrupted and the price of our ADSs could go
down. |
The Indian market and the Indian economy are influenced by
economic and market conditions in other countries, particularly
emerging market countries in Asia. Financial turmoil in Asia,
Russia and elsewhere in the world in recent years has affected
the Indian economy. Although economic conditions are different
in each country, investors reactions to developments in
one country can have adverse effects on the securities of
companies in other countries, including India. A loss of
investor confidence in the financial systems of other emerging
markets may cause increased volatility in Indian financial
markets and in the Indian economy in general. Any worldwide
financial instability could also have a negative impact on the
Indian economy. Financial disruptions may occur again and could
have a material adverse effect on our business, our financial
performance and the price of our equity shares and ADSs.
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If Indias inflation worsens or the prices of oil or
other raw materials continue to rise, we may not be able to pass
the resulting increased costs to our customers and this may
adversely affect our profitability or cause us to suffer
operating losses. |
In 2005, Indias wholesale price inflation suggested an
increasing inflation trend compared to recent years. Recently,
international prices of crude oil have risen to historical
highs, increasing transportation costs. Inflation, increased
transportation costs and an increase in energy prices generally,
which may be caused by a rise in the price of oil, or an
increase in the price of thermal coal in particular, could cause
our costs for raw material inputs required for production of our
products to increase, which would adversely affect our financial
condition and results of operations if we cannot pass these
added costs along to customers.
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Stringent labor laws in India may adversely affect our
profitability. |
India has stringent labor legislation that protects the
interests of workers, including legislation that sets forth
detailed procedures for dispute resolution and employee removal
and imposes financial obligations on employers upon employee
layoffs. This makes it difficult for us to maintain flexible
human resource policies, discharge employees or downsize, which
may adversely affect our business and profitability.
28
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As a foreign private issuer under US securities laws and a
controlled company within the meaning of the NYSE
rules, we are subject to different US securities laws and
NYSE rules than non-controlled domestic US issuers.
Consequently, the corporate governance standards which we are
required to adhere to are different than those applicable to
such companies, which may limit the information available to,
and the shareholder rights of, holders of our ADSs. |
As a foreign private issuer, we are subject to requirements
under the Securities Act of 1933, as amended, or the Securities
Act, and the Securities Exchange Act of 1934, as amended, or the
Exchange Act, which are different from the requirements
applicable to domestic US issuers. For example, our
officers, directors and principal shareholders are exempt from
the reporting and short-swing profit recovery
provisions of Section 16 of the Exchange Act and the rules
thereunder with respect to their purchases and sales of our
ADSs. The periodic disclosure required of foreign private
issuers is more limited than that required of domestic
US issuers and there may therefore be less publicly
available information about us than is regularly published by or
about US public companies. See Where You Can Find
More Information.
In addition, we qualify as a controlled company
within the meaning of the NYSE rules as Vedanta will have
effective control of a majority of our equity shares after the
completion of this offering. This will allow Vedanta to, among
other things, control the composition of our board of directors
and direct our management and policies.
As a foreign private issuer and a controlled
company, we are exempt from complying with certain
corporate governance requirements of the NYSE, including the
requirement that a majority of our board of directors consist of
independent directors. As the corporate governance standards
applicable to us are different than those applicable to domestic
non-controlled US issuers, you may not have the same
protections afforded under US law and the NYSE rules as
shareholders of companies that do not have such exemptions. It
is also possible that the Agarwal familys significant
ownership interest of us as a result of their majority ownership
of Vedantas majority shareholder, Volcan, could adversely
affect investors perceptions of our corporate governance.
For a summary of the differences between the corporate
governance standards applicable to us as a listed company in
India and as a foreign private issuer and controlled
company in the United States and such standards applicable
to a domestic non-controlled US issuer, see
Comparison of Corporate Governance Standards.
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There are certain differences in shareholder rights and
protections between the laws of India and the United States and
between governance standards for a US public company and a
foreign private issuer such as us. |
We are incorporated in India and investors should be aware that
there are certain differences in the shareholder rights and
protections between the laws of India and the United States.
There are also certain differences in the corporate governance
standards for a domestic US issuer and those applicable to
a foreign private issuer such as us. See Comparison of
Shareholders Rights.
In addition, there may be less information available about
companies listed on Indian securities markets than companies
listed on securities markets in other countries as a result of
differences between the level of regulation and monitoring of
the Indian securities markets and of the transparency of the
activities of investors and brokers in India compared to some
more developed economies.
The Securities and Exchange Board of India, or SEBI, and the
various Indian stock exchanges are responsible for improving and
setting standards for disclosure and other regulatory standards
for the Indian securities markets. SEBI has issued regulations
and guidelines on disclosure requirements, insider trading and
other matters. Nevertheless, there may be less information made
publicly available in respect of Indian companies than is
regularly made available by public companies in the United
States. Similarly, our disclosure obligations under the rules of
the Indian Stock Exchanges on which our equity shares are listed
may be less than the disclosure obligations of public companies
on the NYSE.
29
Risks Relating to the ADS Offering and Our ADSs
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There has been no public market for our ADSs prior to this
offering, and the offering price of the ADSs may not be
indicative of the value of the ADSs in the future. We cannot
assure you that an active trading market or a specific ADS price
will be established, and restrictions on a holders ability
to re-deposit equity shares with the depositary could adversely
affect the price of our ADSs. |
Before the ADS offering, there has been no public trading market
for our ADSs. An active trading market for our ADSs may not
develop or be sustained after the ADS offering, which would
adversely affect the liquidity and market price of our ADSs. ADS
holders are entitled to withdraw the equity shares underlying
the ADSs from the depositary at any time, provided that the
underlying shares are listed on the Indian Stock Exchanges.
Under current Indian law, subject to certain limited exceptions,
equity shares so acquired may not be eligible for redeposit with
the depositary. Therefore, the number of outstanding ADSs will
in all likelihood decrease to the extent that equity shares are
withdrawn from the depositary, which may adversely affect the
market price and the liquidity of your ADSs. The initial public
offering price per ADS will be determined by negotiation between
us and the representatives of the underwriters, with reference
to the trading price of our equity shares on the Indian Stock
Exchanges, and may not be indicative of the market price of our
ADSs after our initial public offering. We cannot assure you
that you will be able to resell your ADSs at or above the
initial public offering price.
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Because the initial public offering price per ADS is
substantially higher than our book value per ADS, purchasers in
the ADS offering will immediately experience a substantial
dilution in net tangible book value. |
Purchasers of our ADSs will experience immediate and substantial
dilution in net tangible book value per ADS from the initial
public offering price per ADS. After giving effect to the sale
of ADSs offered by this prospectus at an assumed public offering
price of
$ per
ADS, based on the closing price of our shares on the BSE
on ,
2006, of
Rs. per
equity share and after deducting underwriting discounts and
commissions and the estimated offering expenses payable by us in
the ADS offering, our net tangible book value as
of ,
2006 would have been approximately
Rs. million
($ million),
or
Rs. ($ ) per
ADS. This represents an immediate dilution in net tangible book
value of
$ per
ADS to investors in the ADS offering. For a calculation of the
dilution purchasers in this offering will incur, see
Dilution.
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Substantial future sales of our equity shares or ADSs in
the public market, or the perception of such sales, could cause
the market price of our ADSs to fall. |
If our existing shareholders sell a substantial number of our
equity shares in the open market, or if there is a perception
that such sale or distribution could occur, the market price of
our equity shares and ADSs could be adversely affected. While we
have agreed with the underwriters not to issue, and our
principal shareholders, Twin Star and MALCO, have agreed not to
offer, sell, or contract to sell, directly or indirectly, or
otherwise dispose of or hedge, any of our equity shares or ADSs
or similar securities, or any economic interest therein, during
the period from the date of this prospectus continuing through
the date 180 days after the date of this prospectus,
subject to certain exceptions, no assurance can be given that
such equity shares or ADSs will not be sold as soon as the
restrictions are lifted, which sales, or the perception that
such sales may occur, could materially and adversely affect the
value of our equity shares and ADSs. The representatives of the
underwriters may release such
locked-up shares in
their sole discretion at any time and without prior public
announcement.
Upon the completion of this offering, we will
have equity
shares outstanding. Of these equity shares,
the equity
shares represented by ADSs offered hereby will be freely
tradable without restriction in the public markets. Upon the
completion of this offering, our existing shareholders will
own equity shares, which will
represent % of our outstanding
share capital. If the underwriters exercise their over-allotment
option in full, the number of equity shares held by our existing
shareholders upon completion of this offering will
be ,
which will represent % of our
30
outstanding share capital. Of our outstanding equity
shares, will
be freely tradable on the Indian Stock Exchanges immediately
upon the completion of this offering. Also immediately upon the
completion of this offering, Vedanta, through Twin Star and
MALCO, will continue to have effective control over a majority
of our outstanding equity shares, which will
represent % of our outstanding
share capital, or approximately %
if the underwriters exercise their over-allotment option in
full, which equity shares will be subject to the
180-day
lock-up period. Immediately following the completion
of this offering, the holders of
approximately equity
shares (directly or in the form of ADSs) will be entitled to
dispose of their equity shares or ADSs pursuant to the volume
and other restrictions of Rule 144 under the Securities
Act. The holders of
approximately equity
shares (directly or in the form of ADSs) will be entitled to
dispose of their equity shares or ADSs following the expiration
of an initial 180-day
lock-up period pursuant to the volume and other
restrictions of Rule 144. See Shares Available for
Future Sale for a discussion of possible future sales of
our equity shares.
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Fluctuations in the exchange rate between the Indian Rupee
and the US dollar could have a material adverse effect on
the value of our ADSs and our equity shares to be represented by
such ADSs, independent of our actual operating results. |
The price of the ADSs will be quoted in dollars. Our equity
shares are quoted in Rupees on the Indian Stock Exchanges. Any
dividends in respect of our equity shares will be paid in Rupees
and subsequently converted into dollars for distribution to ADS
holders.
Currency exchange rate fluctuations will affect the dollar
equivalent of the Rupee price of our equity shares on the Indian
Stock Exchanges and, as a result, the prices of our ADSs, as
well as the dollar value of the proceeds a holder would receive
upon the sale in India of any of our equity shares withdrawn
from the depositary under the deposit agreement and the dollar
value of any cash dividends we pay on our equity shares. Holders
may not be able to convert Rupee proceeds into dollars or any
other currency, and there is no guarantee of the rate at which
any such conversion will occur, if at all. Currency exchange
rate fluctuations will also affect the value received by ADS
holders from any dividends paid by us in respect of our equity
shares. Holders of our ADSs will bear all of the risks with
respect to a decline in the value of the Indian Rupee as
compared to the dollar, which would adversely affect the price
of our ADSs and the dollar value of any dividends we pay that
are received by ADS holders.
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We will have broad discretion in how we use the proceeds
of this offering and we may not use these proceeds effectively.
This could affect our profitability and cause the prices of our
equity shares and ADSs to decline. |
Our management will have considerable discretion in the
application of the net proceeds of this offering, and you will
not have the opportunity, as part of your investment decision,
to assess whether we are using the proceeds appropriately. We
currently intend to use the net proceeds of this offering for
general corporate purposes, including capital expenditures and
working capital, reduction of debt and for possible acquisitions
of complementary businesses and consolidation of the ownership
of our subsidiaries. We have not yet finalized the amount of net
proceeds that we will use specifically for each of these
purposes. We may use the net proceeds for corporate purposes
that do not improve our profitability or increase our market
value, which could cause the prices of our equity shares and
ADSs to decline.
We retain broad discretion in our use of proceeds from this
offering and may not be able to use such proceeds in the manner
we have indicated in this prospectus. As a result, we may use
such proceeds in a different manner, which may have a material
adverse effect upon our business, results of operations or
financial condition.
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Transfers of the underlying shares by persons resident
outside India to residents of India are subject to certain
pricing norms. |
Under current Indian regulations, subject to certain conditions,
no prior regulatory approval is required for the sale of any
equity shares, including any equity shares withdrawn from the
ADS facilities, by a
31
person resident outside India to a resident of India. However,
certain reporting requirements would need to be complied with by
the parties to the sale transaction. Also, the prior approval of
the RBI would be required in the event of a sale of the equity
shares underlying our ADSs by a non-resident investor to a
resident investor if the sale price is greater than the maximum
price set by the RBI under Indian foreign exchange laws. Any
such approval required from the RBI or any other government
agency may not be obtained on terms favorable to a non-resident
investor, or at all.
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Holders of ADSs may be restricted in their ability to
exercise preemptive rights under Indian law and thereby may
suffer future dilution of their ownership positions. |
Under the Indian Companies Act, the holders of equity shares of
a company incorporated in India have a preemptive right to
subscribe and pay for a proportionate number of shares to
maintain their existing ownership percentages prior to the
issuance of any new equity shares by the company, unless the
preemptive rights have been waived by adopting a special
resolution passed by 75% of the shareholders present and voting
at a general meeting. Holders of ADSs may be unable to exercise
preemptive rights for the underlying equity shares of the ADSs
unless a registration statement under the Securities Act is
effective with respect to such rights or an exemption from the
registration requirements of the Securities Act is available. We
are not obligated to prepare and file such a registration
statement and our decision to do so will depend on the costs and
potential liabilities associated with any such registration
statement, as well as any other factors we consider appropriate
at the time. No assurance can be given that we would file a
registration statement under these circumstances. If we issue
any such securities in the future, such securities may be issued
to the depositary, which may sell the securities for the benefit
of the holders of the ADSs. The value the depositary would
receive from the sale of such securities cannot be predicted. To
the extent that holders of ADSs are unable to exercise
preemptive rights granted in respect of our equity shares
represented by their ADSs, their proportional ownership
interests in us would be diluted.
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We may be classified as a passive foreign investment
company, which could result in adverse United States federal
income tax consequences to US Holders. |
Based on the price of the ADSs in this offering and the expected
price of our ADSs and equity shares following the completion of
this offering, and the composition of our income and assets, we
do not expect to be considered a passive foreign investment
company, or PFIC, for United States federal income tax purposes
for our current taxable year ending March 31, 2007.
However, we must make a separate determination each year as to
whether we are a PFIC (after the close of each taxable year).
Accordingly, we cannot assure you that we will not be a PFIC for
our current taxable year ending March 31, 2007, or any
future taxable year. A non-United States corporation will be
considered a PFIC for any taxable year if either (1) at
least 75% of its gross income is passive income or (2) at
least 50% of the value of its assets (based on an average of the
quarterly values of the assets during a taxable year) is
attributable to assets that produce or are held for the
production of passive income. The value of our assets generally
will be determined by reference to the market price of our ADSs
and equity shares, which may fluctuate considerably. In
addition, there are uncertainties regarding the application of
the relevant rules and the composition of our income and assets
will be affected by how, and how quickly, we spend the cash we
raise in any offering. If we were to be treated as a PFIC for
any taxable year during which a US Holder holds an ADS or
an equity share, certain adverse United States federal income
tax consequences could apply to the US Holder. See
Certain Income Tax Considerations United
States Federal Income Taxation Passive Foreign
Investment Company.
32
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements
that are based on our current expectations, assumptions,
estimates and projections about our company and our industry.
These forward-looking statements are subject to various risks
and uncertainties. Generally, these forward-looking statements
can be identified by the use of forward-looking terminology such
as anticipate, believe,
estimate, expect, intend,
will, project, seek,
should and similar expressions. These statements
include, among other things, the discussions of our business
strategy and expectations concerning our market position, future
operations, margins, profitability, liquidity and capital
resources. We caution you that reliance on any forward-looking
statement involves risks and uncertainties, and that, although
we believe that the assumptions on which our forward-looking
statements are based are reasonable, any of those assumptions
could prove to be inaccurate and, as a result, the
forward-looking statements based on those assumptions could be
materially incorrect. Factors which could cause these
assumptions to be incorrect include but are not limited to:
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a decline or volatility in the prices of or demand for copper,
zinc or aluminum; |
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events that could cause a decrease in our production of copper,
zinc or aluminum; |
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unavailability or increased costs of raw materials for our
products; |
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our actual economically recoverable copper ore, lead-zinc ore or
bauxite reserves being lower than we have estimated; |
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our ability to expand our business, effectively manage our
growth or implement our strategy; |
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our ability to retain our senior management team and hire and
retain sufficiently skilled labor to support our operations; |
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regulatory, legislative and judicial developments and future
regulatory actions and conditions in our operating areas; |
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increasing competition in the copper, zinc or aluminum industry; |
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political or economic instability in India or around the region; |
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worldwide economic and business conditions; |
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our ability to successfully consummate strategic acquisitions; |
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the outcome of outstanding litigation in which we are involved; |
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our ability to maintain good relations with our trade unions and
avoid strikes and lock-outs; |
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any actions of our controlling shareholder, Vedanta; |
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our business future capital requirements and the
availability of financing on favorable terms; |
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the continuation of tax holidays, exemptions and deferred tax
schemes we enjoy; |
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changes in tariffs, royalties, customs duties and government
assistance; and |
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terrorist attacks and other acts of violence, natural disasters
and other environmental conditions and outbreaks of infectious
diseases and other public health concerns in India, Asia and
elsewhere. |
These and other factors are more fully discussed in Risk
Factors, Managements Discussion and Analysis
of Financial Condition and Results of Operations and
elsewhere in this prospectus. In light of these and other
uncertainties, you should not conclude that we will necessarily
achieve any plans, objectives or projected financial results
referred to in any of the forward-looking statements. Except as
required by law, we do not undertake to release revisions of any
of these forward-looking statements to reflect future events or
circumstances.
33
ENFORCEMENT OF CIVIL LIABILITIES
We are a limited liability company incorporated in India and our
primary operating subsidiaries, HZL and BALCO, are also
incorporated in India. A majority of our directors and executive
officers are not residents of the United States and
substantially all of our assets and the assets of those persons
are located outside the United States. As a result, it may not
be possible for you to effect service of process within the
United States upon those persons or us. In addition, you may be
unable to enforce judgments obtained in courts of the
United States against those persons outside the
jurisdiction of their residence, including judgments predicated
solely upon US securities laws. Moreover, it is unlikely
that a court in India would award damages on the same basis as a
foreign court if an action were brought in India or that an
Indian court would enforce foreign judgments if it viewed the
amount of damages as excessive or inconsistent with Indian
practice.
Section 44A of the Indian Code of Civil Procedure, 1908, as
amended, or the Civil Code, provides that where a foreign
judgment has been rendered by a superior court in any country or
territory outside of India which the Government of India has by
notification declared to be a reciprocating territory, such
foreign judgment may be enforced in India by proceedings in
execution as if the judgment had been rendered by an appropriate
court in India. However, the enforceability of such judgments is
subject to the exceptions set forth in Section 13 of the
Civil Code. This section, which is the statutory basis for the
recognition of foreign judgments, states that a foreign judgment
is conclusive as to any matter directly adjudicated upon except:
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where the judgment has not been pronounced by a court of
competent jurisdiction; |
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where the judgment has not been given on the merits of the case; |
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where the judgment appears on the face of the proceedings to be
founded on an incorrect view of international law or a refusal
to recognize the law of India in cases where such law is
applicable; |
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where the proceedings in which the judgment was obtained were
opposed to natural justice; |
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where the judgment has been obtained by fraud; or |
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where the judgment sustains a claim founded on a breach of any
law in force in India. |
Section 44A of the Civil Code is applicable only to
monetary decrees not being in the nature of amounts payable in
respect of taxes or other charges of a similar nature or in
respect of fines or other penalties and does not include
arbitration awards.
If a judgment of a foreign court is not enforceable under
Section 44A of the Civil Code as described above, it may be
enforced in India only by a suit filed upon the judgment,
subject to Section 13 of the Civil Code and not by
proceedings in execution. Accordingly, as the United States has
not been declared by the Government of India to be a
reciprocating territory for the purposes of Section 44A, a
judgment rendered by a court in the United States may not be
enforced in India except by way of a suit filed upon the
judgment.
The suit must be brought in India within three years from the
date of the judgment in the same manner as any other suit filed
to enforce a civil liability in India. Generally, there are
considerable delays in the disposition of suits by Indian courts.
A party seeking to enforce a foreign judgment in India is
required to obtain prior approval from the RBI under the Indian
Foreign Exchange Management Act, 1999, or FEMA, to repatriate
any amount recovered pursuant to such enforcement. Any judgment
in a foreign currency would be converted into Indian Rupees on
the date of judgment and not on the date of payment.
We have appointed CT Corporation System as our agent to receive
service of process with respect to any action brought against us
in the US District Court for the Southern District of New York
under the federal securities laws of the United States or of any
state in the United States or any action brought against us in
the Supreme Court of the State of New York in the County of
New York under the securities laws of the State of
New York.
34
USE OF PROCEEDS
Our net proceeds from the sale
of ADSs
in this offering will total approximately
$ million
(Rs. million),
after deducting underwriting discounts and commissions and
estimated offering expenses which are payable by us, and
assuming an initial public offering price of
$ (Rs. )
per ADS, based on the closing price of our equity shares on the
BSE
on ,
2006 and no exercise of the underwriters over-allotment
option. A $1.00
(Rs. )
increase (decrease) in the assumed initial public offering price
of
$ (Rs. )
per ADS would increase (decrease) the net proceeds to us from
this offering by
$ million
(Rs. million),
after deducting the estimated underwriting discounts and
commissions and estimated offering expenses payable by us and
assuming no exercise of the underwriters over-allotment
option and no other change to the number of ADSs offered by us
as set forth on the cover page of this prospectus.
We intend to use the net proceeds from this offering for general
corporate purposes, including capital expenditures and working
capital, reduction of debt and for possible acquisitions of
complementary businesses and consolidation of the ownership of
our subsidiaries. Specifically, we may use all or part of the
proceeds of the ADS offering towards any of the following
purposes:
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Our current intention to exercise our call option to acquire the
Government of Indias remaining 29.5% ownership interest in
HZL (or 26.0% if the Government of India exercises in full its
right to sell 3.5% of HZL to HZL employees) after the call
option becomes exercisable on or after April 11, 2007.
However, it has been reported that the Government of India is
taking steps to sell its remaining ownership interest in HZL
through a public offer prior to our exercise of the call option,
though we have received no communication from the Government of
India on this matter. See Business Options to
Increase Interests in HZL and BALCO. If the Government of
India sells its remaining ownership interest in HZL through a
public offer, we may look into alternative means of increasing
our ownership interest in HZL. |
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Entering the commercial power generation business in India by
building the first phase, totaling 2,400 MW, of a thermal
coal-based power facility in the State of Orissa, India through
our wholly-owned subsidiary Sterlite Energy, as described in
Business Our Future Commercial Power
Generation Business, at a cost of approximately
Rs. 84,512 million ($1,900.0 million) over four years.
We expect that the proceeds from this offering will be used
towards only a portion of this project as we expect that a
significant part, currently estimated to be approximately 70%,
of this project will be funded by external debt, the equity
contribution for the project is expected to be spread out over
the next four years and we intend to also use
internally-generated capital towards this project. |
|
|
|
A reduction of debt in an amount of up to
Rs. 6,672 million ($150.0 million). |
|
|
|
Acquiring complementary businesses that we determine to be
attractive opportunities, though we have no agreements or
commitments for material acquisitions of any businesses as of
the date of this prospectus. |
The amounts that we actually expend for these and other purposes
and for working capital will vary significantly depending on a
number of factors, including the timing and size of capital
expenditures and possible exercise of our call option, future
revenue growth, if any, and the amount of cash that we generate
from operations. As a result, we will retain broad discretion
over the allocation of the net proceeds of the ADS offering. See
Risk Factors Risks Relating to the ADS
Offering and Our ADSs We will have broad discretion
in how we use the proceeds of this offering and we may not use
these proceeds effectively. This could affect our profitability
and cause the prices of our equity shares and ADSs to
decline. Pending their use, we intend to invest our net
proceeds in high quality interest-bearing investments.
35
DIVIDENDS AND DIVIDEND POLICY
We have paid dividends every year since fiscal 1982. The
following table sets forth, for the periods indicated, the
dividend per equity share and the total amount of dividends
declared on the equity shares, both exclusive of dividend
distribution tax. All dividends were paid in Indian Rupees.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Per | |
|
Total Amount of | |
Fiscal Year |
|
Equity Share | |
|
Dividend Declared | |
|
|
| |
|
| |
|
|
|
|
|
|
(in millions) | |
2004
|
|
|
Rs. 3.00 |
|
|
$ |
0.07 |
|
|
|
Rs. 215 |
|
|
$ |
4.8 |
|
2005
|
|
|
3.00 |
|
|
|
0.07 |
|
|
|
330 |
|
|
|
7.4 |
|
2006(1)
|
|
|
1.25 |
|
|
|
0.03 |
|
|
|
698 |
|
|
|
15.7 |
|
Note:
|
|
(1) |
The dividend for fiscal 2006 was recommended by our board
of directors on May 30, 2006 and approved by our
shareholders at the general meeting held on September 20,
2006. The dividend paid in fiscal 2006 was paid after the
five-for-two stock
split and one-for-one
bonus issue effective May 12, 2006. |
Our dividends are generally paid in the fiscal year following
the year in which they are declared. Under Indian law, a company
pays dividends upon a recommendation by its board of directors
and approval by a majority of the shareholders at the annual
general meeting of shareholders held within six months of the
end of each fiscal year. The shareholders have the right to
decrease but not to increase the dividend amount recommended by
the board of directors.
Under Indian law, a company is allowed to pay dividends in
excess of 10.0% of its
paid-up capital in any
year from profits for that year only if it transfers a specified
percentage of the profits of that year to reserves. We make such
transfers for any dividends we pay to general reserves.
If profits for that year are insufficient to declare dividends,
the dividends for that year may be declared and paid out from
accumulated profits on the following conditions:
|
|
|
|
|
the rate of dividend to be declared shall not exceed the average
of the rates at which dividends were declared in the five years
immediately preceding that year or 10.0% of our paid-up share
capital, whichever is less; |
|
|
|
the total amount to be drawn from the accumulated profits earned
in previous years and transferred to the reserves shall not
exceed an amount equal to one-tenth of the sum of our paid-up
share capital and net reserves, and the amount so drawn shall
first be utilized to set off the losses incurred in the
financial year before any dividend in respect of preference or
equity share is declared; and |
|
|
|
the balance of the reserves after such withdrawal shall not fall
below 15.0% of our
paid-up share capital. |
Dividends must be paid within 30 days from the date of the
declaration and any dividend which remains unpaid or unclaimed
after that period must be transferred within seven days to a
special unpaid dividend account held at a scheduled bank. We
must transfer any money which remains unpaid or unclaimed for
seven years from the date of such transfer to the Investor
Education and Protection Fund established by the Government of
India.
The tax rates imposed on us in respect of dividends paid in
prior periods have varied. Currently, the effective tax rate on
dividends is 14.0%, which is a direct tax paid by us. Taxes on
dividends are not payable by our shareholders and are not
withheld or deducted from the dividend payments set forth above.
36
Future dividends will depend on our revenue, cash flows,
financial condition (including capital position) and other
factors. ADS holders will be entitled to receive dividends
payable in respect of the equity shares represented by ADSs.
Cash dividends in respect of the equity shares represented by
your ADSs will be paid to the depositary in Indian Rupees and,
except as otherwise described under Description of
American Depositary Shares, will be converted by the
depositary into dollars. The depositary will distribute these
proceeds to you. The equity shares represented by ADSs will rank
equally with all other equity shares in respect of dividends.
ADS holders will bear all of the currency exchange rate risk of
the conversion of any dividends from Indian Rupees to dollars,
and a decline in the value of the Indian Rupee as compared to
the dollar would reduce the dollar value of any dividends we pay
that are received by ADS holders.
37
CAPITALIZATION
The following table sets forth our indebtedness and
capitalization as of March 31, 2006:
|
|
|
|
|
on an actual basis; and |
|
|
|
as adjusted to give effect to the sale by us
of ADSs
(each ADS representing one equity share) offered in the ADS
offering at an assumed offering price of
$ (Rs. )
per ADS, based on the closing price of our equity shares on the
BSE
on ,
2006, after deducting underwriting discounts and commissions and
estimated offering expenses payable by us in this offering and
further assuming no exercise of the underwriters
over-allotment option and no other change to the number of ADSs
sold by us as set forth in Prospectus Summary. |
The as adjusted information below is illustrative only and our
capitalization following the completion of this offering is
subject to adjustment based on the actual initial public
offering price of our ADSs in this offering and other terms of
this offering determined at pricing. You should read this table
in conjunction with Use of Proceeds, Selected
Consolidated Financial Information,
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and related notes that are included
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2006 | |
|
|
| |
|
|
Actual | |
|
As Adjusted | |
|
Actual | |
|
As Adjusted | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Long-term debt, net of current portion
|
|
|
Rs. 30,237 |
|
|
|
Rs. |
|
|
$ |
679.8 |
|
|
$ |
|
|
1% cumulative mandatorily redeemable preference shares of par
value Rs. 10, Authorized: 30,000,000 Issued: 21,875,000
|
|
|
1,947 |
|
|
|
|
|
|
|
43.8 |
|
|
|
|
|
Shareholders equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shares of par value Rs. 2,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Authorized: 600,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued:
558,494,411(1)
|
|
|
559 |
|
|
|
|
|
|
|
12.5 |
|
|
|
|
|
|
|
Additional paid-in
capital(2)
|
|
|
26,883 |
|
|
|
|
|
|
|
604.4 |
|
|
|
|
|
Retained earnings
|
|
|
26,575 |
|
|
|
|
|
|
|
597.5 |
|
|
|
|
|
Accumulated other comprehensive losses
|
|
|
(519 |
) |
|
|
|
|
|
|
(11.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders
equity(2)
|
|
|
Rs.53,498 |
|
|
|
|
|
|
$ |
1,202.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
capitalization(2)
|
|
|
Rs.85,682 |
|
|
|
Rs. |
|
|
$ |
1,926.2 |
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
(1) |
The number and par value of authorized and issued equity shares
have been adjusted for the five-for-two stock split and
one-for-one bonus issue effective May 12, 2006. |
(2) |
A $1.00
(Rs. )
increase (decrease) in the assumed initial public offering price
of
$ (Rs. )
per ADS in this offering would increase (decrease) each of
additional paid-in capital, total shareholders equity and
total capitalization by
Rs. million
($ million). |
38
DILUTION
If you invest in our ADSs, your investment will be diluted to
the extent the initial public offering price per ADS exceeds the
net tangible book value per ADS immediately after this offering.
Our net tangible book value as of March 31, 2006 was
approximately Rs. 53,498 million
($1,202.6 million) or Rs. 95.79 ($2.15) per equity
share/ADS. Net tangible book value per equity share/ADS is equal
to the amount of our total tangible assets (total assets less
intangible assets) less total liabilities and less minority
interests, divided by the number of equity shares issued as of
March 31, 2006, adjusted for the five-for-two stock split
and one-for-one bonus issue effective May 12, 2006.
Assuming:
|
|
|
|
|
the sale by us of ADSs offered by this prospectus at an assumed
public offering price of
$ per
ADS, based on the closing price of our shares on the BSE
on ,
2006 of
Rs. per
equity share; and |
|
|
|
no exercise of the underwriters over-allotment option and
no other change to the number of ADSs or equity shares set forth
in Prospectus Summary, |
and after deducting underwriting discounts and commissions and
the estimated offering expenses payable by us in the ADS
offering, our net tangible book value as of March 31, 2006
would have been approximately
Rs. million
($ million),
or
Rs. ($ )
per equity share/ADS. This represents an immediate increase in
net tangible book value of
$ (Rs. )
per equity share to existing shareholders and an immediate
dilution of
$ (Rs. )
per ADS to investors in the ADS offering.
The following table illustrates this per ADS dilution:
|
|
|
|
|
|
|
|
|
|
|
|
ADS Offering | |
|
|
Only | |
|
|
| |
Assumed initial public offering price per ADS
|
|
|
|
|
|
$ |
|
|
|
Net tangible book value per equity shares/ADS as of
March 31, 2006
|
|
$ |
|
|
|
|
|
|
|
Increase in net tangible book value attributable to this
offering(1)
|
|
$ |
|
|
|
|
|
|
Net tangible book value per ADS after the ADS
offering(1)
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Dilution per ADS to investors in the ADS
offering(1)
|
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
Note:
|
|
(1) |
If the underwriters over-allotment option is exercised in
full, the net tangible book value per ADS after this offering
would be
$ (Rs. ),
the increase in net tangible book value attributable to this
offering would be
$ (Rs. )
per equity share and dilution per ADS to investors in the ADS
offering would be
$ (Rs. ). |
A $1.00 increase (decrease) in the assumed initial public
offering price of
$ (Rs. )
per ADS would increase (decrease) our net tangible book value
after giving effect to this offering by
Rs. million
($ million),
the net tangible book value per ADS after giving effect to this
offering by
$ (Rs. )
per ADS and the dilution in net tangible book value per ADS to
investors in the ADS offering by
$ (Rs. )
per ADS, assuming there is no change to the number of shares of
ADSs offered by us as set forth on the cover page of this
prospectus, and after deducting underwriting discounts and
commissions and other expenses of this offering. Our net
tangible book value following the completion of this offering is
subject to adjustment based on the actual offering price of our
ADSs and other terms of this offering determined at pricing.
39
The following table sets forth as of March 31, 2006 the
differences between existing shareholders and investors in the
ADS offering with respect to the number of equity shares and
ADSs purchased from us, the total consideration paid and the
average price per equity share or ADS paid (before deducting the
estimated underwriting discounts and commissions and our
estimated offering expenses and assuming that the
underwriters over-allotment option is not exercised),
assuming an initial public offering price of
$ (Rs. )
per ADS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Shares or | |
|
|
|
|
|
|
ADSs Purchased | |
|
Total Consideration | |
|
Average | |
|
|
| |
|
| |
|
Price Per | |
|
|
Number | |
|
Percentage | |
|
Number | |
|
Percentage | |
|
Share | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
Existing shareholders
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
|
$ |
|
|
ADS investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100.0% |
|
|
|
|
|
|
|
100.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00
(Rs. )
increase (decrease) in the assumed initial public offering price
of
$ (Rs. )
per ADS would increase (decrease) total consideration paid by
investors in the ADS offering, total consideration paid by all
shareholders and the average price per ADS paid by all
shareholders by
$ million
(Rs. million),
$ million
(Rs. million)
and
$ million
(Rs. million),
respectively, assuming no change in the number of ADS sold by us
in the ADS offering set forth above, and without deducting
underwriting discounts and commissions and other expenses of
this offering.
40
EXCHANGE RATES
Substantially all of our revenue is denominated or paid with
reference to US dollars and most of our expenses are
incurred and paid in Indian Rupees or Australian dollars. We
report our financial results in Indian Rupees. The exchange
rates among the Indian Rupee, the Australian dollar and the US
dollar have changed substantially in recent years and may
fluctuate substantially in the future. The results of our
operations are affected as the Indian Rupee and the Australian
dollar appreciate or depreciate against the dollar and, as a
result, any such appreciation or depreciation will likely affect
the market price of our ADSs in the United States.
The following table sets forth, for the periods indicated,
information concerning the exchange rates between Indian Rupees
and US dollars based on the noon buying rate in New York
City for cable transfers in Indian Rupees as certified by the
Federal Reserve Bank of New York:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period End(1) |
|
Average(1)(2) |
|
High |
|
Low |
|
|
|
|
|
|
|
|
|
Fiscal Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
Rs. 48.83 |
|
|
|
Rs. 47.71 |
|
|
|
Rs. 48.91 |
|
|
|
Rs. 46.58 |
|
|
2003
|
|
|
47.53 |
|
|
|
48.43 |
|
|
|
49.07 |
|
|
|
47.53 |
|
|
2004
|
|
|
43.40 |
|
|
|
45.96 |
|
|
|
47.46 |
|
|
|
43.40 |
|
|
2005
|
|
|
43.62 |
|
|
|
44.86 |
|
|
|
46.45 |
|
|
|
43.27 |
|
|
2006
|
|
|
44.48 |
|
|
|
44.17 |
|
|
|
46.26 |
|
|
|
43.05 |
|
|
2007 (through November 14, 2006)
|
|
|
45.05 |
|
|
|
45.26 |
|
|
|
46.83 |
|
|
|
44.39 |
|
Month:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 2006
|
|
|
44.21 |
|
|
|
44.23 |
|
|
|
44.54 |
|
|
|
44.10 |
|
|
March 2006
|
|
|
44.48 |
|
|
|
44.34 |
|
|
|
44.58 |
|
|
|
44.09 |
|
|
April 2006
|
|
|
44.86 |
|
|
|
44.83 |
|
|
|
45.09 |
|
|
|
44.39 |
|
|
May 2006
|
|
|
46.22 |
|
|
|
45.20 |
|
|
|
46.22 |
|
|
|
44.69 |
|
|
June 2006
|
|
|
45.87 |
|
|
|
45.89 |
|
|
|
46.25 |
|
|
|
45.50 |
|
|
July 2006
|
|
|
46.49 |
|
|
|
46.37 |
|
|
|
46.83 |
|
|
|
45.84 |
|
|
August 2006
|
|
|
46.43 |
|
|
|
46.45 |
|
|
|
46.61 |
|
|
|
46.32 |
|
|
September 2006
|
|
|
45.95 |
|
|
|
46.01 |
|
|
|
46.38 |
|
|
|
45.74 |
|
|
October 2006
|
|
|
44.90 |
|
|
|
45.36 |
|
|
|
45.97 |
|
|
|
44.90 |
|
|
November 2006 (through November 14, 2006)
|
|
|
45.05 |
|
|
|
44.73 |
|
|
|
45.05 |
|
|
|
44.46 |
|
Notes:
|
|
(1) |
The noon buying rate at each period end and the average rate for
each period may have differed from the exchange rates used in
the preparation of financial statements included elsewhere in
this prospectus. |
(2) |
Represents the average of the noon buying rate for all days
during the period. |
Although we have translated selected Indian Rupee amounts in
this prospectus into US dollars for convenience, this does not
mean that the Indian Rupee amounts referred to represent
US dollar amounts or have been, could have been or could
be, converted to US dollars at any particular rate, the
rates stated above, or at all. Unless otherwise stated herein,
all translations in this prospectus from Indian Rupees to
US dollars are based on the noon buying rate in New York
City for cable transfers in Indian Rupees as certified by the
Federal Reserve Bank of New York on March 31, 2006, which
was Rs. 44.48 per $1.00.
41
The following table sets forth, for the periods indicated,
information concerning the exchange rates between the Australian
dollar and US dollars based on the noon buying rate in New
York City for cable transfers in Australian dollars as certified
by the Federal Reserve Bank of New York:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period End(1) |
|
Average(1)(2) |
|
High |
|
Low |
|
|
|
|
|
|
|
|
|
Fiscal Year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
|
AUD1.88 |
|
|
|
AUD1.95 |
|
|
|
AUD2.07 |
|
|
|
AUD1.86 |
|
|
2003
|
|
|
1.65 |
|
|
|
1.78 |
|
|
|
1.90 |
|
|
|
1.62 |
|
|
2004
|
|
|
1.31 |
|
|
|
1.45 |
|
|
|
1.68 |
|
|
|
1.25 |
|
|
2005
|
|
|
1.29 |
|
|
|
1.35 |
|
|
|
1.46 |
|
|
|
1.25 |
|
|
2006
|
|
|
1.40 |
|
|
|
1.33 |
|
|
|
1.42 |
|
|
|
1.28 |
|
|
2007 (through November 14, 2006)
|
|
|
1.31 |
|
|
|
1.33 |
|
|
|
1.39 |
|
|
|
1.29 |
|
Month:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2005
|
|
|
AUD1.36 |
|
|
|
AUD1.35 |
|
|
|
AUD1.38 |
|
|
|
AUD1.32 |
|
|
January 2006
|
|
|
1.32 |
|
|
|
1.33 |
|
|
|
1.36 |
|
|
|
1.32 |
|
|
February 2006
|
|
|
1.35 |
|
|
|
1.35 |
|
|
|
1.36 |
|
|
|
1.32 |
|
|
March 2006
|
|
|
1.40 |
|
|
|
1.38 |
|
|
|
1.42 |
|
|
|
1.34 |
|
|
April 2006
|
|
|
1.32 |
|
|
|
1.36 |
|
|
|
1.39 |
|
|
|
1.32 |
|
|
May 2006
|
|
|
1.33 |
|
|
|
1.31 |
|
|
|
1.33 |
|
|
|
1.29 |
|
|
June 2006
|
|
|
1.35 |
|
|
|
1.35 |
|
|
|
1.37 |
|
|
|
1.33 |
|
|
July 2006
|
|
|
1.30 |
|
|
|
1.33 |
|
|
|
1.33 |
|
|
|
1.30 |
|
|
August 2006
|
|
|
1.31 |
|
|
|
1.31 |
|
|
|
1.32 |
|
|
|
1.30 |
|
|
September 2006
|
|
|
1.34 |
|
|
|
1.32 |
|
|
|
1.34 |
|
|
|
1.30 |
|
|
October 2006
|
|
|
1.29 |
|
|
|
1.33 |
|
|
|
1.35 |
|
|
|
1.29 |
|
|
November 2006 (through November 14, 2006)
|
|
|
1.31 |
|
|
|
1.30 |
|
|
|
1.31 |
|
|
|
1.29 |
|
Notes:
|
|
(1) |
The noon buying rate at each period end and the average rate for
each period may have differed from the exchange rates used in
the preparation of financial statements included elsewhere in
this prospectus. |
(2) |
Represents the average of the noon buying rate for all days
during the period. |
Except as otherwise stated in this prospectus, all translations
from Australian dollar to US dollars are based on the noon
buying rate in New York City for cable transfers in Australian
dollars as certified by the Federal Reserve Bank of New York on
March 31, 2006, which was AUD 1.40 per $1.00. No
representation is made that the Australian dollar amounts
represent US dollar amounts or have been, could have been or
could be converted into US dollars at such a rate or any other
rate, or at all.
Any discrepancies in any table between totals and sums of the
amounts listed are due to rounding.
42
MARKET INFORMATION
Our outstanding equity shares are currently listed and traded on
the National Stock Exchange of India Limited, or the NSE, and
the Bombay Stock Exchange Limited, or the BSE. For information
regarding conditions in the Indian securities markets, see
Risk Factors Risks Relating to Investments in
Indian Companies and International Operations Generally
and The Indian Securities Market. We have applied to
have our equity securities delisted from the Calcutta Stock
Exchange Association Limited, which application is currently
pending.
As of September 30, 2006, 558,494,411 equity shares
were outstanding. The prices for equity shares as quoted in the
official list of each of the Indian Stock Exchanges are in
Indian Rupees.
The following table shows:
|
|
|
|
|
the reported high and low trading prices quoted in Indian Rupees
for our equity shares on the NSE and BSE; |
|
|
|
the imputed high and low trading prices for our equity shares,
translated into dollars, based on the noon buying rate of the
Federal Reserve Bank of New York on the last business day of
each period presented; and |
|
|
|
the average of the aggregate trading volume of our equity shares
on the NSE and BSE, |
all as adjusted to reflect the one-for-one bonus issue effective
February 5, 2004 and the five-for-two stock split and
one-for-one bonus issue adjusted for on the Indian Stock
Exchanges on May 5, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average | |
|
|
|
|
|
|
|
|
|
Average | |
|
|
|
|
Daily Equity | |
|
|
|
Daily Equity | |
|
|
NSE Price Per Equity Share(1) | |
|
Share | |
|
BSE Price Per Equity Share | |
|
Share | |
|
|
| |
|
Trading | |
|
| |
|
Trading | |
Fiscal Year |
|
High | |
|
Low | |
|
High | |
|
Low | |
|
Volume | |
|
High | |
|
Low | |
|
High | |
|
Low | |
|
Volume | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
2004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
|
Rs. |
|
|
|
Rs. |
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
Rs.34.69 |
|
|
|
Rs.15.74 |
|
|
$ |
0.78 |
|
|
$ |
0.35 |
|
|
|
92,696 |
|
|
2nd Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61.93 |
|
|
|
29.23 |
|
|
|
1.39 |
|
|
|
0.66 |
|
|
|
541,706 |
|
|
3rd Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
158.19 |
|
|
|
63.65 |
|
|
|
3.56 |
|
|
|
1.43 |
|
|
|
960,026 |
|
|
4th Quarter
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
147.57 |
|
|
|
98.59 |
|
|
|
3.32 |
|
|
|
2.22 |
|
|
|
593,954 |
|
2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
|
90.46 |
|
|
|
83.89 |
|
|
|
2.03 |
|
|
|
1.89 |
|
|
|
16,214 |
|
|
|
108.26 |
|
|
|
66.70 |
|
|
|
2.43 |
|
|
|
1.50 |
|
|
|
224,903 |
|
|
2nd Quarter
|
|
|
118.07 |
|
|
|
86.81 |
|
|
|
2.65 |
|
|
|
1.95 |
|
|
|
120,115 |
|
|
|
118.16 |
|
|
|
87.69 |
|
|
|
2.66 |
|
|
|
1.97 |
|
|
|
146,310 |
|
|
3rd Quarter
|
|
|
130.26 |
|
|
|
104.91 |
|
|
|
2.93 |
|
|
|
2.36 |
|
|
|
153,630 |
|
|
|
129.70 |
|
|
|
105.02 |
|
|
|
2.92 |
|
|
|
2.36 |
|
|
|
135,213 |
|
|
4th Quarter
|
|
|
155.92 |
|
|
|
110.34 |
|
|
|
3.51 |
|
|
|
2.48 |
|
|
|
189,703 |
|
|
|
155.91 |
|
|
|
110.25 |
|
|
|
3.51 |
|
|
|
2.48 |
|
|
|
143,526 |
|
2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
|
144.05 |
|
|
|
115.07 |
|
|
|
3.24 |
|
|
|
2.59 |
|
|
|
128,467 |
|
|
|
144.53 |
|
|
|
115.07 |
|
|
|
3.25 |
|
|
|
2.59 |
|
|
|
96,698 |
|
|
2nd Quarter
|
|
|
187.14 |
|
|
|
122.36 |
|
|
|
4.21 |
|
|
|
2.75 |
|
|
|
283,759 |
|
|
|
187.13 |
|
|
|
122.39 |
|
|
|
4.21 |
|
|
|
2.75 |
|
|
|
175,420 |
|
|
3rd Quarter
|
|
|
207.22 |
|
|
|
139.69 |
|
|
|
4.66 |
|
|
|
3.14 |
|
|
|
504,833 |
|
|
|
207.03 |
|
|
|
139.74 |
|
|
|
4.65 |
|
|
|
3.14 |
|
|
|
241.235 |
|
|
4th Quarter
|
|
|
350.20 |
|
|
|
258.10 |
|
|
|
7.87 |
|
|
|
5.80 |
|
|
|
945,576 |
|
|
|
349.89 |
|
|
|
214.96 |
|
|
|
7.87 |
|
|
|
4.83 |
|
|
|
416,264 |
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1st Quarter
|
|
|
600.65 |
|
|
|
264.45 |
|
|
|
13.50 |
|
|
|
5.95 |
|
|
|
3,275,359 |
|
|
|
604.05 |
|
|
|
263.85 |
|
|
|
13.58 |
|
|
|
5.93 |
|
|
|
1,227,445 |
|
|
2nd Quarter
|
|
|
474.05 |
|
|
|
348.10 |
|
|
|
10.66 |
|
|
|
7.83 |
|
|
|
2,905,384 |
|
|
|
473.90 |
|
|
|
348.40 |
|
|
|
10.65 |
|
|
|
7.83 |
|
|
|
1,168,648 |
|
|
3rd Quarter(2)
|
|
|
556.75 |
|
|
|
438.95 |
|
|
|
12.52 |
|
|
|
9.87 |
|
|
|
1,523,173 |
|
|
|
556.90 |
|
|
|
438.55 |
|
|
|
12.52 |
|
|
|
9.86 |
|
|
|
568,260 |
|
Notes:
|
|
(1) |
Prices unavailable for fiscal 2004 as we only commenced trading
on the NSE on May 28, 2004. |
(2) |
Through November 14, 2006. |
43
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected historical consolidated statements of operations,
cash flows and other consolidated financial data presented below
for fiscal 2004, 2005 and 2006, and the selected historical
consolidated balance sheet data as of March 31, 2005 and
2006, have been derived from our audited consolidated financial
statements, which have been audited by Deloitte
Haskins & Sells, Mumbai, India, an independent
registered public accounting firm. Our consolidated financial
statements are prepared and presented in accordance with
US GAAP. Our historical results do not necessarily indicate
our expected results for any future period. The translations of
Indian Rupee amounts to US dollars are solely for the
convenience of the reader and are based on the noon buying rate
of Rs. 44.48 per $1.00 in the City of New York for
cable transfers of Indian Rupees as certified for customs
purposes by the Federal Reserve Bank of New York on
March 31, 2006. No representation is made that the Indian
Rupee amounts represent US dollar amounts or have been, could
have been or could be converted into US dollars at such rates or
any other rates.
We were incorporated on September 8, 1975 and since then we
have prepared our financial statements in accordance with Indian
generally accepted accounting principles, or Indian GAAP, which
were presented in Indian Rupees. We represent that selected
financial data for fiscal 2002 and fiscal 2003 cannot be
prepared and presented below in accordance with US GAAP on
a comparable basis without incurring unreasonable effort or
expense.
You should read the following information in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements included elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
Rs.56,788 |
|
|
|
Rs.71,183 |
|
|
|
Rs.128,608 |
|
|
$ |
2,891.3 |
|
Other operating revenues
|
|
|
682 |
|
|
|
652 |
|
|
|
1,362 |
|
|
|
30.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
57,470 |
|
|
|
71,835 |
|
|
|
129,970 |
|
|
|
2,921.9 |
|
Cost of sales
|
|
|
(42,119 |
) |
|
|
(54,640 |
) |
|
|
(92,041 |
) |
|
|
(2,069.3 |
) |
Selling and distribution expenses
|
|
|
(1,544 |
) |
|
|
(1,620 |
) |
|
|
(2,330 |
) |
|
|
(52.4 |
) |
General and administration expenses
|
|
|
(2,452 |
) |
|
|
(2,402 |
) |
|
|
(2,605 |
) |
|
|
(58.6 |
) |
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary retirement scheme expenses
|
|
|
(611 |
) |
|
|
(186 |
) |
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
|
|
|
|
|
(1,276 |
) |
|
|
|
|
|
|
|
|
Guarantees, impairment of investments and loans
|
|
|
|
|
|
|
|
|
|
|
(1,300 |
) |
|
|
(29.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
10,744 |
|
|
|
11,711 |
|
|
|
31,694 |
|
|
|
712.4 |
|
Interest income
|
|
|
1,609 |
|
|
|
2,181 |
|
|
|
2,419 |
|
|
|
54.4 |
|
Interest expense
|
|
|
(1,997 |
) |
|
|
(2,007 |
) |
|
|
(3,331 |
) |
|
|
(74.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interests and equity in net
loss of associate
|
|
|
10,356 |
|
|
|
11,885 |
|
|
|
30,782 |
|
|
|
691.9 |
|
Income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(2,636 |
) |
|
|
(2,724 |
) |
|
|
(8,000 |
) |
|
|
(179.9 |
) |
|
Deferred
|
|
|
(350 |
) |
|
|
(831 |
) |
|
|
(1,111 |
) |
|
|
(25.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Income after income taxes, before minority interests and equity
in net loss of associate
|
|
|
7,370 |
|
|
|
8,330 |
|
|
|
21,671 |
|
|
|
487.0 |
|
Minority interests
|
|
|
(2,349 |
) |
|
|
(2,764 |
) |
|
|
(6,073 |
) |
|
|
(136.5 |
) |
Equity in net loss of associate, net of taxes
|
|
|
|
|
|
|
|
|
|
|
(99 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
Rs.5,021 |
|
|
|
Rs.5,566 |
|
|
|
Rs.15,499 |
|
|
$ |
348.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
Earnings per
share:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
Rs.13.99 |
|
|
|
Rs.12.22 |
|
|
|
Rs.28.02 |
|
|
$ |
0.63 |
|
|
Diluted
|
|
|
Rs.13.68 |
|
|
|
Rs.12.05 |
|
|
|
Rs.28.02 |
|
|
$ |
0.63 |
|
Weighted average number of equity shares used in computing
earnings per
share:(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
359,007,797 |
|
|
|
455,343,743 |
|
|
|
553,216,634 |
|
|
|
553,216,634 |
|
|
Diluted
|
|
|
367,697,507 |
|
|
|
465,108,143 |
|
|
|
553,216,634 |
|
|
|
553,216,634 |
|
Dividend declared per
share(2)
|
|
|
Rs.3.00 |
|
|
|
Rs.3.00 |
|
|
|
Rs.1.25 |
|
|
$ |
0.03 |
|
Notes:
|
|
(1) |
Earnings per share and weighted average number of equity shares
used in computing earnings per share have been adjusted for the
five-for-two stock split and one-for-one bonus issue effective
May 12, 2006. |
|
(2) |
The dividend for fiscal 2006 was recommended by our board of
directors on May 30, 2006 and approved by our shareholders
at the general meeting held on September 20, 2006. The
dividend paid in fiscal 2006 was paid after the
five-for-two stock
split and one-for-one
bonus issue effective May 12, 2006. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, | |
|
|
| |
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash
equivalents(1)
|
|
|
Rs.5,909 |
|
|
|
Rs.9,258 |
|
|
$ |
208.1 |
|
Total
assets(1)
|
|
|
133,197 |
|
|
|
167,539 |
|
|
|
3,766.6 |
|
Long-term debt, net of current portion
|
|
|
28,794 |
|
|
|
30,237 |
|
|
|
679.8 |
|
Short term and current portion of long-term debt
|
|
|
8,663 |
|
|
|
4,390 |
|
|
|
98.7 |
|
Total shareholders
equity(1)
|
|
|
37,388 |
|
|
|
53,498 |
|
|
|
1,202.6 |
|
Note:
|
|
(1) |
A $1.00
(Rs. )
increase (decrease) in the assumed initial public offering price
of
$ (Rs. )
per ADS would increase (decrease) each of cash and cash
equivalents, total assets and total shareholders equity by
Rs. million
($ million). |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
Rs.6,205 |
|
|
|
Rs.6,075 |
|
|
|
Rs.19,595 |
|
|
$ |
440.3 |
|
|
Investing activities
|
|
|
(18,356 |
) |
|
|
(21,391 |
) |
|
|
(16,676 |
) |
|
|
(375.0 |
) |
|
Financing activities
|
|
|
13,084 |
|
|
|
17,321 |
|
|
|
375 |
|
|
|
8.4 |
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Other Consolidated Financial Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
Rs.27,046 |
|
|
|
Rs.34,508 |
|
|
|
Rs.67,921 |
|
|
$ |
1,527.0 |
|
|
Zinc
|
|
|
18,213 |
|
|
|
21,967 |
|
|
|
38,573 |
|
|
|
867.2 |
|
|
Aluminum
|
|
|
8,217 |
|
|
|
10,168 |
|
|
|
16,297 |
|
|
|
366.4 |
|
|
Corporate and others
|
|
|
3,312 |
|
|
|
4,540 |
|
|
|
5,817 |
|
|
|
130.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Rs.56,788 |
|
|
|
Rs.71,183 |
|
|
|
Rs.128,608 |
|
|
$ |
2,891.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
Rs.2,853 |
|
|
|
Rs.2,440 |
|
|
|
Rs.7,659 |
|
|
$ |
172.2 |
|
|
Zinc
|
|
|
7,097 |
|
|
|
8,309 |
|
|
|
21,287 |
|
|
|
478.5 |
|
|
Aluminum
|
|
|
591 |
|
|
|
1,824 |
|
|
|
3,496 |
|
|
|
78.5 |
|
|
Corporate and others
|
|
|
203 |
|
|
|
(862 |
) |
|
|
(748 |
) |
|
|
(16.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Rs.10,744 |
|
|
|
Rs.11,711 |
|
|
|
Rs.31,694 |
|
|
$ |
712.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment
profit(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
Rs.4,114 |
|
|
|
Rs.3,899 |
|
|
|
Rs.8,982 |
|
|
$ |
201.9 |
|
|
Zinc
|
|
|
8,237 |
|
|
|
9,785 |
|
|
|
23,216 |
|
|
|
521.9 |
|
|
Aluminum
|
|
|
1,818 |
|
|
|
2,504 |
|
|
|
4,752 |
|
|
|
106.7 |
|
|
Corporate and others
|
|
|
238 |
|
|
|
242 |
|
|
|
591 |
|
|
|
13.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Rs.14,407 |
|
|
|
Rs.16,430 |
|
|
|
Rs.37,541 |
|
|
$ |
843.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
|
|
(1) |
Segment profit is calculated by adjusting operating income for
depreciation, depletion and amortization, voluntary retirement
scheme expenses, impairment of assets and guarantees, impairment
of investments and loans. Segment profit is not a recognized
measurement under US GAAP. Our segment profit may not be
comparable to similarly titled measures reported by other
companies due to potential inconsistencies in the method of
calculation. We have included our segment profit because we
believe it is an indicative measure of our operating performance
and is used by investors and analysts to evaluate companies in
our industry. Our segment profit should be considered in
addition to, and not as a substitute for, other measures of
financial performance and liquidity reported in accordance with
US GAAP. We believe that the inclusion of supplementary
adjustments applied in our presentation of segment profit are
appropriate because we believe it is a more indicative measure
of our baseline performance as it excludes certain charges that
our management considers to be outside of our core operating
results. In addition, our segment profit is among the primary
indicators that our management uses as a basis for planning and
forecasting of future periods. The following table reconciles
operating income to segment profit for the periods presented: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Copper:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
Rs.2,853 |
|
|
|
Rs.2,440 |
|
|
|
Rs.7,659 |
|
|
$ |
172.2 |
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
1,261 |
|
|
|
1,239 |
|
|
|
1,323 |
|
|
|
29.7 |
|
|
Impairment of assets
|
|
|
|
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
Rs.4,114 |
|
|
|
Rs.3,899 |
|
|
|
Rs.8,982 |
|
|
$ |
201.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
Rs.7,097 |
|
|
|
Rs.8,309 |
|
|
|
Rs.21,287 |
|
|
$ |
478.5 |
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
1,112 |
|
|
|
1,290 |
|
|
|
1,929 |
|
|
|
43.4 |
|
|
Voluntary retirement scheme expenses
|
|
|
28 |
|
|
|
186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
Rs.8,237 |
|
|
|
Rs.9,785 |
|
|
|
Rs.23,216 |
|
|
$ |
521.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Aluminum:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
Rs.591 |
|
|
|
Rs. 1,824 |
|
|
|
Rs. 3,496 |
|
|
$ |
78.5 |
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
644 |
|
|
|
680 |
|
|
|
1,256 |
|
|
|
28.2 |
|
|
Voluntary retirement scheme expenses
|
|
|
583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
Rs.1,818 |
|
|
|
Rs.2,504 |
|
|
|
Rs.4,752 |
|
|
$ |
106.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and others:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
Rs.203 |
|
|
|
Rs.(862 |
) |
|
|
Rs.(748 |
) |
|
$ |
(16.8 |
) |
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
35 |
|
|
|
48 |
|
|
|
39 |
|
|
|
0.9 |
|
|
Impairment of assets
|
|
|
|
|
|
|
1,056 |
|
|
|
|
|
|
|
|
|
|
Guarantees, impairment of investments and loan
|
|
|
|
|
|
|
|
|
|
|
1,300 |
|
|
|
29.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
Rs.238 |
|
|
|
Rs.242 |
|
|
|
Rs.591 |
|
|
$ |
13.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
(in US dollars per ton, except as | |
|
|
indicated) | |
Market and Cost Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
London Metal Exchange
(LME) price(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
$ |
2,051 |
|
|
$ |
2,999 |
|
|
$ |
4,099 |
|
|
Zinc
|
|
|
900 |
|
|
|
1,108 |
|
|
|
1,614 |
|
|
Aluminum
|
|
|
1,496 |
|
|
|
1,779 |
|
|
|
2,028 |
|
Treatment charge and refining charge
(TcRc)(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
8.8¢/lb |
|
|
|
8.6¢/lb |
|
|
|
23.1¢/lb |
|
Cost of
production(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper smelting and
refining(4)
|
|
|
7.8¢/lb |
|
|
|
7.1¢/lb |
|
|
|
6.1¢/lb |
|
|
Zinc(5)
|
|
$ |
571 |
|
|
$ |
695 |
|
|
$ |
691 |
|
|
Aluminum(6)
|
|
|
1,239 |
|
|
|
1,347 |
|
|
|
1,497 |
|
Notes:
|
|
(1) |
Calculated as the daily average cash seller settlement price for
the period. |
(2) |
Represents our average realized TcRc for the period. |
(3) |
Cost of production is not a recognized measure under
US GAAP. We have included cost of production as a measure
of effectiveness because we believe it is an indicative measure
of our operating performance and is used by investors and
analysts to evaluate companies in our industry. Our computation
of cost of production should be considered in addition to, and
not as a substitute for, other measures of financial performance
and liquidity reported in accordance with US GAAP. We
believe that the cost of production measure is a meaningful
measure of our production cost efficiency as it is more
indicative of our production or conversion costs and is a
measure that our management considers to be controllable. Cost
of production is a measure intended for monitoring the operating
performance of our operations. This measure is presented by
other non-ferrous metal companies, though our measure may not be
comparable to similarly titled measures reported by other
companies. Cost of production as reported for our metal products
consists of direct cash cost of production and excludes non-cash
cost and indirect cost (such as depreciation and interest
payments), and are offset for any amounts we receive upon the
sale of the by-products
from the refining or smelting process. In the case of copper,
where cost of production relates only to our custom smelting and
refining operations, cost of production is the cost of
converting copper concentrate into copper cathodes. In the case
of zinc, where we have integrated operations from production of
zinc ore to zinc metal, cost of production is the cost of
extracting ore and conversion of the ore into zinc metal. In the
case of aluminum, where cost of production relates only to
BALCOs old Korba smelter, which has integrated operations
from production of bauxite to aluminum metal, cost of production
is the cost of producing bauxite and conversion of bauxite into
aluminum metal. Cost of production is divided by the daily
average exchange |
47
|
|
|
rate for the year to calculate US
dollar cost of production per lb or per ton of metal as
reported. The following table reconciles segment cost,
calculated as segment sales less segment profit, to cost of
production for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
(in millions, except Production output and | |
|
|
Cost of production) | |
Copper:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment sales
|
|
|
Rs. 27,046 |
|
|
|
Rs. 34,508 |
|
|
|
Rs. 67,921 |
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
(4,114 |
) |
|
|
(3,899 |
) |
|
|
(8,982 |
) |
|
|
|
|
|
|
|
|
|
|
|
Segment cost
|
|
|
22,932 |
|
|
|
30,609 |
|
|
|
58,939 |
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased concentrate/rock
|
|
|
(18,728 |
) |
|
|
(27,136 |
) |
|
|
(55,132 |
) |
|
By-product/free copper net sales
|
|
|
(712 |
) |
|
|
(977 |
) |
|
|
(1,520 |
) |
|
Cost for downstream products
|
|
|
(514 |
) |
|
|
(599 |
) |
|
|
(722 |
) |
|
Others, net
|
|
|
(1,567 |
) |
|
|
(686 |
) |
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
Rs. 1,411 |
|
|
|
Rs. 1,211 |
|
|
|
Rs. 1,627 |
|
|
|
|
|
|
|
|
|
|
|
|
Production output (in tons)
|
|
|
178,654 |
|
|
|
171,992 |
|
|
|
273,048 |
|
|
Cost of
production(a)
|
|
|
7.8¢/lb |
|
|
|
7.1¢/lb |
|
|
|
6.1¢/lb |
|
Zinc:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment sales
|
|
|
Rs. 18,213 |
|
|
|
Rs. 21,967 |
|
|
|
Rs. 38,573 |
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
(8,237 |
) |
|
|
(9,785 |
) |
|
|
(23,216 |
) |
|
|
|
|
|
|
|
|
|
|
|
Segment cost
|
|
|
9,976 |
|
|
|
12,182 |
|
|
|
15,357 |
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased metal
|
|
|
(38 |
) |
|
|
(1 |
) |
|
|
(539 |
) |
|
Cost of tolling including raw material cost
|
|
|
(1,393 |
) |
|
|
(2,140 |
) |
|
|
(1,502 |
) |
|
Cost of intermediary product sold
|
|
|
(853 |
) |
|
|
(620 |
) |
|
|
(1,188 |
) |
|
By-product net sales
|
|
|
(802 |
) |
|
|
(1,113 |
) |
|
|
(1,253 |
) |
|
Cost of lead metal sold
|
|
|
(544 |
) |
|
|
(452 |
) |
|
|
(690 |
) |
|
Others, net
|
|
|
(560 |
) |
|
|
(1,219 |
) |
|
|
(1,536 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
Rs. 5,786 |
|
|
|
Rs. 6,638 |
|
|
|
Rs. 8,649 |
|
|
|
|
|
|
|
|
|
|
|
|
Production output (in tons)
|
|
|
220,664 |
|
|
|
212,445 |
|
|
|
282,668 |
|
|
Cost of production (per
ton)(a)
|
|
$ |
571 |
|
|
$ |
695 |
|
|
$ |
691 |
|
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
(in millions, except Production output and | |
|
|
Cost of production) | |
Aluminum:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment sales
|
|
|
Rs. 8,663 |
|
|
|
Rs. 10,453 |
|
|
|
Rs. 17,721 |
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
(1,818 |
) |
|
|
(2,504 |
) |
|
|
(4,752 |
) |
|
|
|
|
|
|
|
|
|
|
|
Segment cost
|
|
|
6,845 |
|
|
|
7,949 |
|
|
|
12,969 |
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of intermediary product sold
|
|
|
(82 |
) |
|
|
(151 |
) |
|
|
(154 |
) |
|
By-product net sales
|
|
|
(110 |
) |
|
|
(291 |
) |
|
|
(408 |
) |
|
Cost for downstream products
|
|
|
(768 |
) |
|
|
(742 |
) |
|
|
(822 |
) |
|
Cost for new Korba plant
|
|
|
|
|
|
|
(210 |
) |
|
|
(4,773 |
) |
|
Others, net
|
|
|
(375 |
) |
|
|
(558 |
) |
|
|
186 |
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
Rs. 5,510 |
|
|
|
Rs. 5,997 |
|
|
|
Rs. 6,998 |
|
|
|
|
|
|
|
|
|
|
|
|
Production output (hot metal) (in tons)
|
|
|
96,827 |
|
|
|
99,031 |
|
|
|
105,593 |
|
|
Cost of production (per
ton)(a)
|
|
$ |
1,239 |
|
|
$ |
1,347 |
|
|
$ |
1,497 |
|
|
|
|
|
(a) |
Exchange rates used in calculating cost of production were based
on the daily RBI reference rates for the years ended
March 31, 2004, 2005 and 2006 of Rs. 45.92 per $1.00,
Rs. 44.96 per $1.00 and Rs. 44.28 per $1.00,
respectively. |
|
|
(4) |
Cost of copper smelting and refining includes cost of freight of
copper anodes from Tuticorin to Silvassa and excludes the
benefit of the phosphoric acid plant. Revenues earned from the
sale of sulphuric acid and copper metal recovered in excess of
paid copper metal are deducted from the cash costs. The total
cash costs are divided by the total number of pounds of copper
metal produced to calculate the cost of production per pound of
copper metal produced. |
(5) |
Cost of production of zinc consists of total direct cost of
producing zinc from the mines and smelters. Revenue earned from
the sale of sulphuric acid is deducted from the total costs to
calculate the total cash costs to HZL of producing zinc metal.
Royalties paid are included in the cost of production of zinc.
The total cash cost is divided by the total number of tons of
zinc metal produced to calculate the cost of production per ton
of zinc metal produced. |
(6) |
Cost of production of aluminum relates to cost of production for
BALCOs old Korba smelter and excludes cost of production
for BALCOs new Korba smelter. Cost of production of
aluminum consists of total direct cash costs. Revenue earned
from the sale of by- products, such as vanadium, reduces the
total cash costs. The total cost is divided by the total
quantity of hot metal produced at the old Korba smelter to
calculate the cost of production per ton of aluminum hot metal
produced. Hot metal production output is used instead of the
cast metal production output disclosed elsewhere in this
prospectus in calculating cost of production as the hot metal
production, which excludes the value-added cost of casting, is
the measure generally used in the aluminum metal industry for
calculating cost of production. |
49
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion in conjunction with
Selected Consolidated Financial Information and our
consolidated financial statements and the related notes included
elsewhere in this prospectus. Some of the statements in the
following discussion are forward-looking statements. See
Special Note Regarding Forward-Looking
Statements. Our actual results could differ materially
from those anticipated in these forward-looking statements as a
result of certain factors, including those set forth under
Risk Factors and elsewhere in this prospectus and
those set forth below.
Overview
We are Indias largest non-ferrous metals and mining
company based on net sales and are one of the fastest growing
large private sector companies in India based on the increase in
net sales from 2005 to 2006. In India, one of the fastest
growing large economies in the world with an 8.5% increase in
real gross domestic product from 2004 to 2005, we are one of the
two leading custom copper smelters by volume, the leading and
only integrated zinc producer and the third largest aluminum
producer by volume. We also have a minority interest in Vedanta
Alumina, an alumina refining and aluminum smelting company, and
intend to develop a commercial power generation business in
India that leverages our experience in building and operating
captive power plants used to support our copper, zinc and
aluminum businesses. We have experienced significant growth in
recent years through various expansion projects which have
expanded our copper smelting business, by acquiring our zinc and
aluminum businesses in 2002 and 2001, respectively, through
Government of India privatization programs and by successfully
growing our acquired businesses. We believe our experience in
operating and expanding our business in India will allow us to
capitalize on attractive growth opportunities arising from
Indias large mineral reserves, relatively low cost of
operations and large and inexpensive labor and talent pools. We
believe we are also well positioned to take advantage of the
significant growth in industrial production and investments in
infrastructure in India, China, Southeast Asia and the Middle
East, which we expect will continue to create strong demand for
metals.
Our net sales and operating income increased from
Rs. 56,788 million and Rs. 10,744 million in
fiscal 2004 to Rs. 128,608 million
($2,891.3 million) and Rs. 31,694 million
($712.4 million) in fiscal 2006, representing compound
annual growth rates of 50.5% and 71.8%, respectively.
The following tables are derived from our selected consolidated
financial data and set forth:
|
|
|
|
|
the net sales for each of our business segments as a percentage
of our net sales on a consolidated basis; |
|
|
|
the operating income for each of our business segments as a
percentage of our operating income on a consolidated
basis; and |
|
|
|
the segment profit, calculated by adjusting operating income for
depreciation, depletion and amortization, voluntary retirement
scheme expenses, impairment of assets and guarantees, impairment
of investments and loans, for each of our business segments as a
percentage of our segment profit on a consolidated basis. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Net Sales:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
47.6 |
% |
|
|
48.5 |
% |
|
|
52.8 |
% |
|
Zinc
|
|
|
32.1 |
|
|
|
30.9 |
|
|
|
30.0 |
|
|
Aluminum
|
|
|
14.5 |
|
|
|
14.3 |
|
|
|
12.7 |
|
|
Corporate and others
|
|
|
5.8 |
|
|
|
6.3 |
|
|
|
4.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Operating income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
26.6 |
% |
|
|
20.8 |
% |
|
|
24.2 |
% |
|
Zinc
|
|
|
66.1 |
|
|
|
71.0 |
|
|
|
67.2 |
|
|
Aluminum
|
|
|
5.5 |
|
|
|
15.6 |
|
|
|
11.0 |
|
|
Corporate and others
|
|
|
1.8 |
|
|
|
(7.4 |
) |
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
Segment
profit(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper
|
|
|
28.6 |
% |
|
|
23.7 |
% |
|
|
23.9 |
% |
|
Zinc
|
|
|
57.2 |
|
|
|
59.6 |
|
|
|
61.8 |
|
|
Aluminum
|
|
|
12.6 |
|
|
|
15.2 |
|
|
|
12.7 |
|
|
Corporate and others
|
|
|
1.6 |
|
|
|
1.5 |
|
|
|
1.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
Note:
|
|
(1) |
Segment profit is calculated by adjusting operating income for
depreciation, depletion and amortization, voluntary retirement
scheme expenses, impairment of assets and guarantees, impairment
of investments and loans. Segment profit is not a recognized
measurement under US GAAP. Our segment profit may not be
comparable to similarly titled measures reported by other
companies due to potential inconsistencies in the method of
calculation. We have included our segment profit because we
believe it is an indicative measure of our operating performance
and is used by investors and analysts to evaluate companies in
our industry. Our segment profit should be considered in
addition to, and not as a substitute for, other measures of
financial performance and liquidity reported in accordance with
US GAAP. We believe that the inclusion of supplementary
adjustments applied in our presentation of segment profit are
appropriate because we believe it is a more indicative measure
of our baseline performance as it excludes certain charges that
our management considers to be outside of our core operating
results. In addition, our segment profit is among the primary
indicators that our management uses as a basis for planning and
forecasting of future periods. The following table reconciles
operating income to segment profit for the periods presented: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Copper:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
Rs.2,853 |
|
|
|
Rs.2,440 |
|
|
|
Rs.7,659 |
|
|
$ |
172.2 |
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
1,261 |
|
|
|
1,239 |
|
|
|
1,323 |
|
|
|
29.7 |
|
|
Impairment of assets
|
|
|
|
|
|
|
220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
Rs.4,114 |
|
|
|
Rs.3,899 |
|
|
|
Rs.8,982 |
|
|
$ |
201.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zinc:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
Rs.7,097 |
|
|
|
Rs.8,309 |
|
|
|
Rs.21,287 |
|
|
$ |
478.5 |
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
1,112 |
|
|
|
1,290 |
|
|
|
1,929 |
|
|
|
43.4 |
|
|
Voluntary retirement scheme expenses
|
|
|
28 |
|
|
|
186 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
Rs.8,237 |
|
|
|
Rs.9,785 |
|
|
|
Rs.23,216 |
|
|
$ |
521.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aluminum:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
Rs.591 |
|
|
|
Rs.1,824 |
|
|
|
Rs.3,496 |
|
|
$ |
78.5 |
|
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
644 |
|
|
|
680 |
|
|
|
1,256 |
|
|
|
28.2 |
|
|
Voluntary retirement scheme expenses
|
|
|
583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
Rs.1,818 |
|
|
|
Rs.2,504 |
|
|
|
Rs.4,752 |
|
|
$ |
106.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Corporate and Others:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
Rs.203 |
|
|
|
Rs.(862 |
) |
|
|
Rs.(748 |
) |
|
$ |
(16.8 |
) |
|
Plus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
35 |
|
|
|
48 |
|
|
|
39 |
|
|
|
0.9 |
|
|
Impairment of assets
|
|
|
|
|
|
|
1,056 |
|
|
|
|
|
|
|
|
|
|
Guarantees, impairment of investments and loans
|
|
|
|
|
|
|
|
|
|
|
1,300 |
|
|
|
29.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
Rs.238 |
|
|
|
Rs.242 |
|
|
|
Rs.591 |
|
|
$ |
13.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business Summary
Our company is comprised of the following business segments:
|
|
|
|
|
Copper. Our wholly-owned copper business is
principally one of custom smelting and includes a smelter,
refinery, phosphoric acid plant, sulphuric acid plant and copper
rod plant at Tuticorin in Southern India and a refinery and two
copper rod plants at Silvassa in Western India. In addition, we
own the Mt. Lyell copper mine in Tasmania, Australia, which
provides a small percentage of our copper concentrate
requirements. Our primary products are copper cathodes and
copper rods. Net sales and operating income of our copper
business have increased from Rs. 27,046 million and
Rs. 2,853 million in fiscal 2004 to
Rs. 67,921 million ($1,527.0 million) and
Rs. 7,659 million ($172.2 million) in fiscal
2006, representing compound annual growth rates of 58.5% and
63.8%, respectively. |
|
|
|
Zinc. Our zinc business is owned and operated by
HZL, Indias leading and only integrated zinc producer with
a 73% market share by volume of the Indian zinc market in fiscal
2006, according to ILZDA. We have a 64.9% ownership interest in
HZL. The remainder of HZL is owned by the Government of India
(29.5%) and institutional and public shareholders (5.6%). HZL is
a fully integrated zinc producer with operations including three
lead-zinc mines, two zinc smelters, one lead smelter and one
lead-zinc smelter in Northwest India and one zinc smelter in
Southeast India. HZLs primary products are zinc and lead
ingots. Net sales and operating income of our zinc business have
increased from Rs. 18,213 million and
Rs. 7,097 million in fiscal 2004 to
Rs. 38,573 million ($867.2 million) and
Rs. 21,287 million ($478.5 million) in fiscal
2006, representing compound annual growth rates of 45.5% and
73.2%, respectively. |
|
|
|
Aluminum. Our aluminum business is primarily owned
and operated by BALCO. We have a 51.0% ownership interest in
BALCO. The remainder of BALCO is owned by the Government of
India. We have exercised our option to acquire the Government of
Indias remaining 49.0% ownership interest, though the
exercise of this option has been contested by the Government of
India and the Government of India retains the right and has
expressed an intention to sell 5.0% of BALCO to BALCO employees.
BALCOs operations include two bauxite mines, one refinery,
two smelters, a fabrication facility and two captive power
plants in Central India. BALCOs primary products are
aluminum ingots, rods and rolled products. Net sales and
operating income of our aluminum business have increased from
Rs. 8,217 million and Rs. 591 million in
fiscal 2004 to Rs. 16,297 million
($366.4 million) and Rs. 3,496 million
($78.5 million) in fiscal 2006, representing compound
annual growth rates of 40.8% and 143.2%, respectively. |
|
|
|
Corporate and Others. Our corporate and other
business segment is primarily comprised of our aluminum
conductor business, which is engaged in the manufacture and sale
of aluminum-based transmission conductors used by power
transmission companies and also includes our equity investment
in Vedanta Alumina and our guarantees, investments and loans
with respect to India Foils Limited, or IFL. We have entered
into an agreement to sell our aluminum conductor business to
Sterlite Optical Technologies Limited, or SOTL, a company owned
and controlled by Volcan, for Rs. 1,485 million
($33.4 million). The sale of this non-core business was
approved by our shareholders on September 30, 2006 and
remains subject to approval by statutory and regulatory |
52
|
|
|
|
|
authorities, and the estimated loss on account of this sale will
be Rs. 52 million ($1.2 million) based on a
June 30, 2006 valuation. We hold a 29.5% minority interest
in Vedanta Alumina, which is not consolidated into our financial
results and which is accounted for as an equity investment. |
We also intend to develop a commercial power generation business
which we anticipate will be a separate business segment.
Factors Affecting Results of Operations
Our results of operations are primarily affected by commodity
prices, our cost of production, our production output,
government policy in India and exchange rates.
|
|
|
Metal Prices and Copper TcRc |
Our results of operations are significantly affected by the TcRc
of copper in our copper business and the commodity prices of the
metals that we produce, which are based on LME prices, in our
zinc and aluminum businesses. Both the TcRc of copper and the
commodity prices of the metals we produce can vary significantly
when supply of and demand for copper smelting and refining
capacity and the metals we produce fluctuate. While copper
smelters and metal producers are unable to influence the market
rate of the TcRc or commodity prices directly, events such as
changes in copper smelting or commodity production capacities,
temporary price reductions or other attempts to capture market
share by individual smelters and metal producers, including by
our consolidated group of companies, may have an effect on
market prices. Moreover, the prices realized by us can, to some
extent, be affected by the particular terms we are able to
negotiate for the contractual arrangements we enter into with
buyers. Price variations and market cycles, including recent
volatility for both LME prices and the copper TcRc, have
historically influenced, and are expected to continue to
influence, our financial performance.
The net sales of our copper business fluctuate based on the
volume of our sales and the LME price of copper. However, as our
copper business is primarily one of custom smelting and
refining, with only a small percentage of our copper concentrate
requirements sourced from our own mine, the profitability of our
copper business is significantly dependent upon the market rate
of the TcRc. We purchase copper concentrate at the LME price for
the relevant quotational period less a TcRc that we negotiate
with our suppliers but which is influenced by the prevailing
market rate for the TcRc. The market rate for the TcRc is
significantly dependent upon the availability of copper
concentrate, worldwide copper smelting capacity and
transportation costs. Some of our contracts for the purchase of
copper concentrate include a provision under which a component
of TcRc is variable and is determined based on the LME price for
copper. The TcRc that we are able to negotiate is also
substantially influenced by the TcRc terms established by
certain large Japanese custom smelters. The profitability of our
copper business as to the portion of our copper business where
we source copper concentrate from third parties, which accounted
for 89% of our copper concentrate requirements in fiscal 2006,
is thus dependent upon the amount by which the TcRc we are able
to negotiate exceeds our smelting and refining costs. The
following table sets forth the average TcRc that we have
realized for each of the last three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
(in US cents per pound) | |
Copper TcRc
|
|
|
8.8¢/lb |
|
|
|
8.6¢/lb |
|
|
|
23.1¢/lb |
|
53
In addition to affecting the variable component of TcRc included
in some of our contracts for the purchase of copper concentrate,
the LME price of copper affects our profitability as to the
portion of our copper business where we source copper
concentrate from our own mine, which accounted for 11% of our
copper concentrate requirements in fiscal 2006 and which is
expected to decrease as a percentage in the future as the
reserves of our sole remaining copper mine, Mt. Lyell in
Tasmania, Australia, are expected to be exhausted by fiscal 2010
and to the extent we seek to increase our copper smelting and
refining capacity. The following table sets forth the daily
average copper LME price for each of the last three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
(in US dollars per ton) | |
Copper LME
|
|
$ |
2,051 |
|
|
$ |
2,999 |
|
|
$ |
4,099 |
|
The net sales of our zinc and aluminum businesses fluctuate
based on the volume of our sales and the respective LME prices
of zinc and aluminum. Our zinc business is fully integrated, so
its profitability is dependent upon the difference between the
LME price of zinc and our cost of production, which includes the
costs of mining and smelting. BALCO was a fully integrated
producer in fiscal 2005 and prior years, with all of its alumina
requirements being supplied by its own bauxite mines and alumina
refinery. However, following the completion of a large expansion
project at Korba to increase aluminum smelting capacity, BALCO
sourced approximately 40% of its alumina requirements from the
international markets in fiscal 2006. Going forward, we expect
BALCO to source a majority of its alumina requirements from
third parties. For the portion of our aluminum business where
the alumina is sourced internally, profitability is dependent
upon the LME price of aluminum less our cost of production,
which includes the costs of bauxite mining, the refining of
bauxite into alumina and the smelting of alumina into aluminum.
For the portion of our aluminum business where alumina is
sourced from third parties, profitability is dependent upon the
LME price of aluminum less the cost of the sourced alumina and
our cost of production. The following table sets forth the daily
average zinc and aluminum LME prices for each of the last three
fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
(in US dollars per ton) | |
Zinc LME
|
|
$ |
900 |
|
|
$ |
1,108 |
|
|
$ |
1,614 |
|
Aluminum LME
|
|
|
1,496 |
|
|
|
1,779 |
|
|
|
2,028 |
|
Generally, our products sold in India are sold at a premium to
the LME market price due to a number of factors including the
customs duties levied on imports by the Government of India, the
costs to transport metals to India and regional market
conditions. See Government Policy. As a
result, we endeavor to sell as large a quantity of our products
as possible domestically.
We have historically engaged in hedging strategies to partially
mitigate our exposure to fluctuations in commodity prices, as
further described in Quantitative and
Qualitative Disclosures About Market Risk
Qualitative Analysis Commodity Price Risk.
Our results of operations are, to a significant degree,
dependent upon our ability to efficiently run our operations and
maintain low costs of production. Efficiencies relating to
recovery of metal from the ore, process improvements,
by-product management
and increasing productivity help drive our costs down.
54
Costs associated with mining and metal production include energy
costs, ore extraction and processing costs at our captive mines,
labor costs and other manufacturing expenses. Cost of production
also includes cost of alumina for our aluminum business, as
described under Metal Prices and Copper
TcRc. Cost of production does not include the cost of
copper concentrate for our copper business, though such cost is
included in our cost of sales.
Energy cost is the most significant component of the cost of
production in all our businesses. Most of our power requirements
are met by captive power plants, which are primarily
coal-fueled. Thermal coal, diesel fuel and fuel oil, which are
used in the running of our power plants, and metcoke, which is
used in the zinc smelting process, are currently sourced from a
combination of
long-term contracts and
the open market. Our aluminum business, which has high energy
consumption due to the power-intensive nature of aluminum
smelting, sources 60-70% of its thermal coal requirement from
Coal India. The quantity of the coal supplied by Coal India to
all its customers is subject to a maximum amount fixed by Coal
India from time to time based on percentage of each
customers power plant capacity. Subject to such maximum
amount, the quantity of coal to be supplied by Coal India to any
customer is reset quarterly and is determined based on the
performance of such customers power plant. In addition,
shortages of coal at Coal India may require that a greater
amount of higher priced imported coal be utilized. For example,
in April 2005, a shortage of coal led Coal India to reduce
the amount of coal supplied to all its customers, including
BALCO, except utilities, forcing BALCO to utilize higher priced
imported coal. Any change in coal prices or the mix of coal that
is utilized, primarily whether the coal is sourced locally or
imported, can affect the cost of generating power.
For our zinc business and the portions of our copper and
aluminum businesses where we source the ore from our own mines,
ore extraction and processing costs affect our cost of
production. In our zinc and copper businesses, the ore
extraction and processing costs to produce concentrates are
generally a small percentage of our overall cost of production
of the finished metals. In our aluminum business, the bauxite
ore extraction cost is not significant but the refining cost to
produce alumina from bauxite ore represents approximately
one-third of the cost of production of aluminum. In addition, a
significant cost of production in our zinc business is the
royalty that HZL pays on the lead-zinc ore that is mined, which
royalty is a function of the LME prices of zinc and lead. See
Government Policy Taxes and
Royalties.
Labor costs are principally a function of the number of
employees and increases in compensation from time to time.
Improvements in labor productivity in recent years have resulted
in a decrease in the per-unit labor costs. We outsource a
majority of BALCOs and Copper Mines of Tasmania Pty
Ltds, or CMTs, mining operations and a limited
number of functions at our copper, zinc and aluminum smelting
operations to third party contractors.
Other manufacturing expenses include, among other things,
additional materials and consumables that are used in the
production processes and routine maintenance to sustain ongoing
operations. None of these represents a significant portion of
our costs of production.
Cost of production as reported for our metal products includes
an offset for any amounts we receive upon the sale of the
by-products from the refining or smelting processes. We divide
our cost of production by the daily average exchange rate for
the year to calculate the US dollar cost of production
per lb or ton of metal as reported.
55
Production output has a substantial effect on our results of
operations. We are generally able to sell all of the products we
can produce, so our net sales generally fluctuate as a result in
changes of production output. Production output is dependent on
our production capacity, which has increased in recent years
across all of our businesses. For our mining operations,
production output is also dependent upon the quality and
consistency of the ore.
Per-unit production
costs are also significantly affected by changes in production
output in that higher volumes of production generally reduce the
production costs. Therefore, our production levels are a key
factor in determining our overall cost competitiveness. We have
benefited from significant economies of scale as we have
increased production volumes in recent years. The following
table summarizes our production volumes for our primary products
for the last three fiscal years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
|
|
| |
Segment |
|
Product |
|
2004 | |
|
2005 | |
|
2006 | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
(tons) | |
Copper
|
|
Copper
cathode(1) |
|
|
178,654 |
|
|
|
171,992 |
|
|
|
273,048 |
|
|
|
Copper
rods(2) |
|
|
122,713 |
|
|
|
125,406 |
|
|
|
166,497 |
|
Zinc
|
|
Zinc(3)(4) |
|
|
220,664 |
|
|
|
212,445 |
|
|
|
283,698 |
|
|
|
Lead(5) |
|
|
25,089 |
|
|
|
15,727 |
|
|
|
23,636 |
|
Aluminum
|
|
Ingots(6) |
|
|
13,149 |
|
|
|
8,609 |
|
|
|
58,750 |
|
|
|
Rods(7) |
|
|
48,243 |
|
|
|
48,045 |
|
|
|
64,602 |
|
|
|
Rolled Products |
|
|
35,631 |
|
|
|
43,618 |
|
|
|
50,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Aluminum |
|
|
97,023 |
|
|
|
100,272 |
|
|
|
173,743 |
|
Notes:
|
|
(1) |
Copper cathode is used as a starting material for copper rods.
Approximately one ton of copper cathode is required for the
production of one ton of copper rods. |
(2) |
Includes production of copper rods produced by third parties
using copper cathode supplied by us in fiscal 2004, 2005 and
2006 of 744 tons, 2,802 tons and 336 tons,
respectively. |
(3) |
Includes production capitalized in fiscal 2006 of
1,030 tons. |
(4) |
Excludes tolled metal in fiscal 2004, 2005 and 2006 of
40,562 tons, 53,479 tons and 34,890 tons,
respectively. |
(5) |
Excludes production capitalized in fiscal 2006 of 153 tons. |
(6) |
Includes production capitalized in fiscal 2006 of 12,288 tons. |
(7) |
Includes production capitalized in fiscal 2006 of
1,300 tons. |
In addition, the mix of products we produce can have a
substantial impact on our results of operations as we have
different operating margins in each of our businesses, and
within each business our operating margins vary between the
lower margins of primary metals and the higher margins of
value-added products such as copper rods and aluminum rolled
products. As the production outputs of our various products
fluctuate primarily based on market demand and our production
capacity for such products, the percentage of our revenues from
those products will also fluctuate between higher and lower
margin products, which will in turn cause our operating income
and operating margins to fluctuate.
Periodically, our facilities are shut down for planned and
unplanned repairs and maintenance which temporarily reduces our
production output.
56
We sell our products in India at a premium to the LME price, due
in part to the customs duties payable on imported products. Our
profitability is affected by the levels of customs duties as we
price our products sold in India generally on an import-parity
basis. We also pay a premium on certain raw materials that we
import or which are sourced locally but which are priced on an
import-parity basis as a result of customs duties, with copper
concentrate, coal, petroleum products, alumina, carbon and
caustic soda being the primary examples. The following table
sets forth the customs duties that were applicable for the
periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1, | |
|
January 9, | |
|
July 8, | |
|
March 1, | |
|
|
|
|
|
|
2002 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
March 1, | |
|
|
As of | |
|
to | |
|
to | |
|
to | |
|
to | |
|
2006 | |
|
|
February 28, | |
|
January 8, | |
|
July 7, | |
|
February 28, | |
|
February 28, | |
|
to | |
|
|
2002 | |
|
2004 | |
|
2004 | |
|
2005 | |
|
2006 | |
|
Present | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Copper
|
|
|
35.0% |
|
|
|
25.0% |
|
|
|
20.0% |
|
|
|
15.0% |
|
|
|
10.0% |
|
|
|
7.5% |
|
Copper concentrate
|
|
|
5.0% |
|
|
|
5.0% |
|
|
|
5.0% |
|
|
|
5.0% |
|
|
|
5.0% |
|
|
|
2.0% |
|
Zinc
|
|
|
35.0% |
|
|
|
25.0% |
|
|
|
20.0% |
|
|
|
15.0% |
|
|
|
10.0% |
|
|
|
7.5% |
|
Aluminum
|
|
|
25.0% |
|
|
|
15.0% |
|
|
|
15.0% |
|
|
|
15.0% |
|
|
|
10.0% |
|
|
|
7.5% |
|
In addition, the Finance Act (2 of 2004), which has been in
effect since July 8, 2004, levies an additional surcharge
at the rate of 2% of the total customs duty payable. Effective
January 9, 2004, the SAD of 4% which had until that time
been levied on imports was abolished, reducing the effective
customs duties levied on all imports. The Government of India
may further reduce customs duties in the future, which could
adversely affect our results of operations.
The Government of India provides a variety of export incentives
to Indian companies. Indian exports of copper, aluminum and zinc
receive assistance premiums from the Government of India, which
have been progressively reduced since 2002, and which is
consistent with a similar reduction in custom duties. Export
incentives do not outweigh the Indian market price premiums.
Accordingly, notwithstanding the export incentives, we endeavor
to sell as large a quantity of our products as possible
domestically.
In fiscal 2004, 2005 and 2006, exports accounted for 41.5%,
53.2% and 63.7%, respectively, of our copper business net
sales. The following table sets forth the export assistance
premiums, either as Indian Rupees per ton of exports or as a
percentage of the Free on Board, or FOB, value of exports, on
copper cathode and copper rods for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to | |
|
January 19, 2005 | |
|
May 5, 2005 to | |
|
November 21, 2005 to | |
|
July 15, 2006 to | |
|
|
January 19, 2005 | |
|
to May 4, 2005 | |
|
November 20, 2005 | |
|
July 14, 2006 | |
|
Present | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(per ton of exports) | |
|
(percentage of FOB value in exports) | |
Copper cathode
|
|
|
Rs. 13,300 |
|
|
|
Rs. 6,500 |
|
|
|
4.5%(1 |
) |
|
|
5.0%(3 |
) |
|
|
2.2%(4 |
) |
Copper rods
|
|
|
Rs. 18,100 |
|
|
|
Rs. 9,000 |
|
|
|
5.0%(2 |
) |
|
|
5.0%(2 |
) |
|
|
2.2%(5 |
) |
Notes:
|
|
(1) |
Subject to a cap of Rs. 7,700 per ton. |
(2) |
Subject to a cap of Rs. 10,050 per ton. |
(3) |
Subject to a cap of Rs. 9,000 per ton. |
(4) |
Subject to a cap of Rs. 7,500 per ton. |
(5) |
Subject to a cap of Rs. 7,760 per ton. |
57
In fiscal 2004, 2005 and 2006, exports accounted for 14.3%,
17.9% and 24.0%, respectively, of our zinc business net
sales. The following table sets forth the export assistance
premiums, as a percentage of the FOB value of exports, on zinc
concentrate, zinc ingots and lead concentrate for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to | |
|
May 26, 2005 to | |
|
July 3, 2006 to | |
|
|
May 26, 2005 | |
|
July 2, 2006 | |
|
Present | |
|
|
| |
|
| |
|
| |
|
|
(percentage of FOB value of exports) | |
Zinc concentrate
|
|
|
3.0% |
|
|
|
2.0% |
|
|
|
2.0% |
|
Zinc ingots
|
|
|
9.0% |
|
|
|
6.0% |
|
|
|
4.0% |
|
Lead concentrate
|
|
|
3.0% |
|
|
|
2.0% |
|
|
|
2.0% |
|
In fiscal 2004, 2005 and 2006, exports accounted for 1.1%, 2.4%
and 8.7%, respectively, of our aluminum business net
sales. The following table sets forth the export assistance
premiums, as a percentage of the FOB value of exports, on
aluminum ingots, aluminum rods and aluminum rolled products for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior to | |
|
May 26, 2005 to | |
|
July 3, 2006 to | |
|
|
May 26, 2005 | |
|
July 2, 2006 | |
|
Present | |
|
|
| |
|
| |
|
| |
|
|
(percentage of FOB value of exports) | |
Aluminum ingots
|
|
|
3.0% |
|
|
|
2.0% |
|
|
|
2.0% |
|
Aluminum rods
|
|
|
3.0% |
|
|
|
2.0% |
|
|
|
2.0% |
|
Aluminum rolled products
|
|
|
7.0% |
|
|
|
4.0% |
|
|
|
3.0% |
|
The Government of India may further reduce customs duties and
export incentives in the future, which would adversely affect
our results of operations.
Income tax on Indian companies is presently charged at a
statutory rate of 30.0% plus a surcharge of 10.0% and has an
additional charge of 2.0% on the tax including surcharge, which
resulted in an effective tax rate of 33.7% for fiscal 2006. We
have in the past had an effective tax rate lower than the
statutory rate, benefiting from capital allowances permitted
under Indian tax law, as well as tax incentives in
infrastructure projects and in specific locations. However,
Indian companies are subject to a minimum alternative tax, the
effective rate of which as of the date of this prospectus is
11.2% on the book profits as determined under the Indian
Companies Act. Amounts paid as minimum alternative tax may be
applied towards regular income taxes payable in any of the
succeeding seven years.
A tax on dividends declared and distributed by Indian companies
is charged at an effective tax rate of 14.0%. This tax is
payable by the company distributing the dividends. Dividends
from our subsidiaries to us are also subject to this tax, though
we do not pay income tax upon the receipt of any such dividends.
We currently pay an excise duty of 16.0% based on all of our
domestic production intended for domestic sale and charge this
excise duty to our domestic customers.
We are also subject to other government royalties. We pay
royalties to the State Governments of Chhattisgarh and
Rajasthan, India, based on our extraction of bauxite and
lead-zinc ore. Most significant of these is the royalty that HZL
is currently required to pay to the State of Rajasthan, where
all of HZLs mines are located, at a rate of 6.6% of the
LME zinc metal price payable on the zinc metal contained in the
ore mined and 5.0% of the LME lead metal price payable on the
lead metal contained in the ore mined. The royalties paid by
BALCO on extraction of bauxite are not material to our results
of operations. We also pay royalties to the State Government of
Tasmania in Australia based on the operations at CMT at a rate
equal to the sum of 1.6% of the net sales plus 0.4 times the
profit multiplied by the profit margin over net sales, subject
to a cap of 5.0% of net sales.
We sell commodities that are typically priced by reference to US
dollar prices. However, a majority of our direct costs in our
zinc and aluminum businesses and our smelting and refining costs
in our copper
58
business are incurred in Indian Rupees and to a much lesser
extent in Australian dollars. Also, all costs with respect to
imported material for all our businesses are generally incurred
in US dollars. As a result, an increase in the value of the
US dollar compared to the Indian Rupee, and to a lesser
extent the Australian dollar is generally beneficial to our
results of operations, except to the extent that the increase
results in increased costs of copper concentrate, alumina and
other imported materials for our businesses. A decrease in the
value of the US dollar relative to the Indian Rupee or
Australian dollar has the opposite effect on our results of
operations.
The following table sets forth the fluctuations in the value of
the Indian Rupee against the US dollar for the Australian
dollar against the US dollar and the periods indicated:
Number of Indian Rupees equal to
one US dollar (April 1, 2003 to
September 30, 2006)
Number of Australian dollars equal to
one US dollar (April 1, 2003 to
September 30, 2006)
Source: Federal Reserve Bank of New York.
We expect our future results of operations to be affected by our
plan to enter the commercial power generation business. The
effect of this new business will depend on the timing of and our
success in executing this plan. See Business
Our Future Commercial Power Generation Business for
additional details on our plans for this future business.
Critical Accounting Estimates
The discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with US GAAP.
In the course of preparing these financial statements, our
management has made estimates based on, and assumptions that
impact, the amounts recognized in our consolidated financial
statements. For a discussion of our significant accounting
policies, see note 2 to our consolidated financial
statements. We believe the critical accounting estimates
described below are those that are both important to reflect our
financial condition and results and require difficult,
subjective or complex judgments, often as a result of the need
to make estimates about the effect of matters that are
inherently uncertain.
Mine Properties
The carrying value of mine properties is determined by depleting
the assets over the life of the respective mine using the unit
of production method based on proven and probable reserves. The
estimation of our proven and probable reserves is subject to
assumptions and may change when new information becomes
available. Changes in reserve estimates as a result of factors
such as production cost, recovery rates, grade of reserves or
commodity prices could impact depleting rates, asset carrying
values and environmental and restoration accruals.
59
Useful Economic Lives of
Assets and Impairment
Property, plant and equipment, other than mine properties, are
depreciated over their useful economic lives. Management reviews
the useful economic lives at least once a year and any changes
could affect the depreciation rates prospectively and hence the
asset carrying values.
We also review our property, plant and equipment, including mine
properties, for possible impairment if there are events or
changes in circumstances that indicate that the carrying value
of an asset may not be recoverable and exceeds its fair value.
In assessing property, plant and equipment for impairment,
factors leading to significant reductions in profits such as
changes in commodity prices, our business plans and significant
downward revisions in the estimated mining reserves are taken
into consideration. The carrying value of the assets and
associated mining reserves is not recoverable if it exceeds the
sum of the undiscounted cash flows expected to result from the
use and eventual disposition of the assets. This involves
management estimate of commodity prices, market demand and
supply, economic and regulatory climates, long-term mine plans
and other factors. Any subsequent changes to cash flow due to
changes in the above mentioned factors could impact on the
carrying value of the assets.
Asset Retirement
Obligations
Liabilities have been recognized for costs associated with
restoration and rehabilitation of mine sites as the obligation
to incur such costs arises and when a reasonable estimate of
such costs can be made. Such costs are typical of extractive
industries and they are normally incurred at the end of the life
of the mine. The costs are estimated on the basis of mine
closure plans and the estimated discounted costs of dismantling
and removing these facilities. The costs of restoration are
capitalized when incurred, reflecting our obligations at that
time, and a corresponding liability is created. The capitalized
asset is charged to the income statement over the life of the
asset through depreciation and the accretion of the discount on
the liability over the life of the operation. Management
estimates are based on local legislation and/or other
agreements. The actual costs and cash outflows may differ from
estimates because of changes in laws and regulations, changes in
prices, analysis of site conditions and changes in restoration
technology.
Commitments, Contingencies
and Guarantees
We also have significant capital commitments in relation to
various capital projects which are not recognized on the balance
sheet. In the normal course of business, contingent liabilities
may arise from litigation and other claims against us.
Guarantees are also provided in the normal course of business.
There are certain obligations which management has concluded,
based on all available facts and circumstances, are not probable
of payment or are very difficult to quantify reliably, and such
obligations are treated as contingent liabilities and disclosed
in the notes but are not reflected as liabilities in the
consolidated financial statements. Although there can be no
assurance regarding the final outcome of the legal proceedings
in which we are involved, it is not expected that such
contingencies will have a materially adverse effect on our
financial position or profitability.
Deferred Tax
In preparing our consolidated financial statements, we recognize
income taxes in each of the jurisdictions in which we operate.
In each jurisdiction, we estimate the actual amount of taxes
currently payable or receivable. We also estimate the tax bases
of assets and liabilities based on estimates, and such estimates
may change when the tax returns are prepared. Deferred income
tax assets and liabilities are measured using enacted tax rates
expected to apply to the year when the asset is realized or the
liability is settled based on tax rates (and tax laws) that have
been enacted as of the balance sheet date. We do not record
deferred taxes on unremitted earnings of subsidiaries,
associates and joint ventures based on timing of the reversal of
the temporary differences where it is probable that the
temporary differences will not reverse in the foreseeable future
or management intends to reinvest such unremitted earnings
indefinitely. Deferred tax assets are reviewed for
recoverability and a valuation allowance is recorded against
deferred tax assets to the extent that it is more likely than
not that the deferred tax asset will not be realized. If we
60
determine that we will ultimately be able to realize all or a
portion of the related benefits for which a valuation allowance
has been provided, all or a portion of the related valuation
allowance will be reduced with a credit to income tax expense.
Results of Operations
|
|
|
Consolidated Statement of Operations Data |
The following table is derived from our selected consolidated
financial data and sets forth our historical operating results
as a percentage of net sales for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
100.0 |
% |
|
|
100.0 |
% |
|
|
100.0 |
% |
Other operating revenues
|
|
|
1.2 |
|
|
|
0.9 |
|
|
|
1.1 |
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
101.2 |
|
|
|
100.9 |
|
|
|
101.1 |
|
Cost of sales
|
|
|
(74.2 |
) |
|
|
(76.8 |
) |
|
|
(71.6 |
) |
Selling and distribution expenses
|
|
|
(2.7 |
) |
|
|
(2.3 |
) |
|
|
(1.8 |
) |
General and administration expenses
|
|
|
(4.3 |
) |
|
|
(3.4 |
) |
|
|
(2.0 |
) |
Other expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary retirement scheme expenses
|
|
|
(1.1 |
) |
|
|
(0.2 |
) |
|
|
|
|
|
Impairment of assets
|
|
|
|
|
|
|
(1.7 |
) |
|
|
|
|
|
Guarantees, impairment of investments and loans
|
|
|
|
|
|
|
|
|
|
|
(1.0 |
) |
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
18.9 |
|
|
|
16.5 |
|
|
|
24.7 |
|
Interest income
|
|
|
2.8 |
|
|
|
3.1 |
|
|
|
1.9 |
|
Interest expense
|
|
|
(3.5 |
) |
|
|
(2.8 |
) |
|
|
(2.6 |
) |
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interests and equity in net
loss of
associate
|
|
|
18.2 |
|
|
|
16.8 |
|
|
|
24.0 |
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(4.6 |
) |
|
|
(3.8 |
) |
|
|
(6.2 |
) |
|
Deferred
|
|
|
(0.6 |
) |
|
|
(1.2 |
) |
|
|
(0.9 |
) |
|
|
|
|
|
|
|
|
|
|
Income after income taxes, before minority interests and equity
in net loss of associate
|
|
|
13.0 |
|
|
|
11.8 |
|
|
|
16.9 |
|
Minority interests
|
|
|
(4.1 |
) |
|
|
(3.9 |
) |
|
|
(4.7 |
) |
Equity in net loss of associate, net of taxes
|
|
|
|
|
|
|
|
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
8.9 |
% |
|
|
7.9 |
% |
|
|
12.1 |
% |
|
|
|
|
|
|
|
|
|
|
61
|
|
|
Net Sales by Geographic Location |
The primary markets for our products are India and the Far East.
Our exports to the Far East are primarily to China, Korea,
Singapore and Thailand. Other markets include a variety of
countries mostly in the Middle East and Europe. While we
endeavor to sell as large a quantity of our products as possible
domestically due to the Indian market premium that we receive on
domestic sales, our domestic sales as a percentage of our total
sales have decreased in recent years as our production volume
increased more rapidly than demand in the domestic market. The
following table sets forth our net sales from each of our
primary markets and our net sales from each of our primary
markets as a percentage of our total net sales for the periods
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
|
|
% of | |
|
|
|
% of | |
|
|
|
% of | |
|
|
Net Sales | |
|
Net Sales | |
|
Net Sales | |
|
Net Sales | |
|
Net Sales | |
|
Net Sales | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions, except percentages) | |
India
|
|
|
Rs. 42,648 |
|
|
|
75.1 |
% |
|
|
Rs. 48,334 |
|
|
|
67.9 |
% |
|
|
Rs. 73,847 |
|
|
$ |
1,660.2 |
|
|
|
57.4 |
% |
Far
East(1)
|
|
|
9,168 |
|
|
|
16.1 |
|
|
|
14,269 |
|
|
|
20.0 |
|
|
|
22,660 |
|
|
|
509.4 |
|
|
|
17.6 |
|
Other(2)
|
|
|
4,972 |
|
|
|
8.8 |
|
|
|
8,580 |
|
|
|
12.1 |
|
|
|
32,101 |
|
|
|
721.7 |
|
|
|
25.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Rs. 56,788 |
|
|
|
100.0 |
% |
|
|
Rs. 71,183 |
|
|
|
100.0 |
% |
|
|
Rs. 128,608 |
|
|
$ |
2,891.3 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
|
|
(1) |
Far East includes a number of countries, primarily including
China, Korea, Singapore and Thailand. |
|
(2) |
Other includes Kenya, Nigeria, Ethiopia, Algeria, Sudan,
Morocco, Namibia, Egypt, Oman, United Arab Emirates, or U.A.E.,
Turkey, Jeddah, Qatar, Saudi Arabia, Syria, Dubai, Israel,
Bangladesh, Sri Lanka, Pakistan, Belgium, France, Germany,
Italy, Jordan, UK, The Netherlands, Luxembourg, Rotterdam,
Spain, Sweden, Switzerland and Australia. |
The following table sets forth for the periods indicated:
|
|
|
|
|
the percentage of our net sales accounted for by our ten largest
customers on a consolidated basis; and |
|
|
|
for each of our three primary businesses, the percentage of the
net sales of such business accounted for by the ten largest
customers of such business. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
| |
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Consolidated
|
|
|
17.4 |
% |
|
|
16.8 |
% |
|
|
19.1 |
% |
Copper
|
|
|
26.3 |
|
|
|
25.0 |
|
|
|
32.0 |
|
Zinc
|
|
|
39.2 |
|
|
|
35.5 |
|
|
|
27.6 |
|
Aluminum
|
|
|
46.9 |
|
|
|
38.1 |
|
|
|
42.1 |
|
No single customer accounted for 10% or more of our net sales on
a consolidated basis or for any of our primary businesses in any
of the periods indicated, except that JSW Limited accounted for
11% of the net sales of our zinc business in fiscal 2004.
|
|
|
Comparison of Years Ended March 31, 2005 and
March 31, 2006 |
|
|
|
Net Sales, Other Operating Revenues and Operating Income |
Net sales increased from Rs. 71,183 million in fiscal
2005 to Rs. 128,608 million ($2,891.3 million) in
fiscal 2006, an increase of Rs. 57,425 million, or
80.7%. Net sales increased primarily as a result of higher sales
volumes, enabled by the commissioning of our new capacities at
Tuticorin for copper smelting,
62
at Korba for aluminum smelting and at Chanderiya for zinc
smelting, and by higher metal prices. Our copper, zinc and
aluminum businesses contributed 58.2%, 28.9% and 10.7% of our
increase in net sales, respectively.
Other operating revenues increased from
Rs. 652 million in fiscal 2005 to
Rs. 1,362 million ($30.6 million) in fiscal 2006,
an increase of Rs. 710 million, or 108.9%. The
increase was due to sales of surplus power by BALCO and HZL to
state electricity boards, or SEBs, as the captive power plants
for their respective Korba and Chanderiya expansions were
completed and fully operational while the new smelters were
still being ramped-up and did not use all of the available power
capacity. These sales of surplus power were due to temporary
situations that are not expected to occur in future periods as
to these particular Korba and Chanderiya expansions, though
similar situations may occur with respect to any of our future
expansion projects as a result of captive power plants being
completed in advance of the facilities for which they were built
to provide power.
Operating income increased from Rs. 11,711 million in
fiscal 2005 to Rs. 31,694 million
($712.4 million) in fiscal 2006, an increase of
Rs. 19,983 million, or 170.6%. The increase was
primarily as a result of increased operating income in our zinc
and copper businesses. Operating margin increased from 16.5% in
fiscal 2005 to 24.7% in fiscal 2006 as a result of increased
operating margins in all of our businesses, and particularly in
our zinc business. Contributing factors to our consolidated
operating income were as follows:
|
|
|
|
|
Cost of sales increased from Rs. 54,640 million in
fiscal 2005 to Rs. 92,041 million
($2,069.3 million) in fiscal 2006, an increase of
Rs. 37,401 million, or 68.4%. Cost of sales increased
primarily in our copper business as we purchased significantly
more copper concentrate to support the increased production at
our Tuticorin smelter and as a result of higher copper
concentrate prices. Cost of sales as a percentage of net sales,
however, decreased from 76.8% in fiscal 2005 to 71.6% in fiscal
2006, primarily due to the increase in selling prices due to
higher commodity prices relative to the cost of production,
which was relatively unchanged except for the cost of copper
concentrate. |
|
|
|
Selling and distribution expenses increased from
Rs. 1,620 million in fiscal 2005 to
Rs. 2,330 million ($52.4 million) in fiscal 2006,
an increase of Rs. 710 million, or 43.8%. This
increase was due to increased sales volumes across all our
businesses as most of the selling and distribution expenses are
proportional to sales volume. As a percentage of net sales,
however, selling and distribution expenses decreased from 2.3%
in fiscal 2005 to 1.8% in fiscal 2006 as a result of higher
metal prices. |
|
|
|
General and administrative expenses increased from
Rs. 2,402 million in fiscal 2005 to
Rs. 2,605 million ($58.6 million) in fiscal 2006,
an increase of Rs. 203 million, or 8.5%, and as a
percentage of net sales decreased from 3.4% in fiscal 2005 to
2.0% in fiscal 2006. As these expenses are of a relatively fixed
nature, as a percentage of net sales such expenses decreased
between fiscal 2005 and fiscal 2006 as a result of the increase
in net sales. |
|
|
|
We incurred voluntary retirement scheme expenses in fiscal 2005
of Rs. 186 million for a voluntary retirement package
offered to employees of HZL, with no voluntary retirement scheme
expenses in fiscal 2006. |
|
|
|
We recorded impairment of assets relating to certain plants,
machinery and buildings as part of our annual impairment review
and recognized an expense of Rs. 1,276 million in
fiscal 2005. This expense consisted primarily of the impairment
of the inactive assets of a paper company that we had previously
invested in but which never became operational and which we
determined not to pursue further. We intend to dispose of these
assets and expect to realize their remaining net book value upon
disposal. We had no impairment of assets charges in fiscal 2006. |
|
|
|
In fiscal 2006, we reviewed the corporate guarantees we had
given to certain banks in relation to debts of IFL, a company in
which MALCO owns 38.8%. We also reviewed the investments in
preference shares of and loans we provided to IFL. We recorded
impairments of Rs. 240 million |
63
|
|
|
|
|
($5.4 million) in relation to preference share investment,
Rs. 276 million ($6.2 million) in relation to
loans and Rs. 784 million ($17.6 million) in
relation to corporate guarantees, totaling
Rs. 1,300 million ($29.2 million). |
|
|
|
Depreciation, depletion and amortization increased from
Rs. 3,257 million in fiscal 2005 to
Rs. 4,547 million ($102.2 million) in fiscal
2006, an increase of Rs. 1,290 million, or 39.6%. This
increase related primarily to capitalization of our expanded
capacities in our aluminum and zinc businesses. |
Net sales in the copper segment increased from
Rs. 34,508 million in fiscal 2005 to
Rs. 67,921 million ($1,527.0 million) in fiscal
2006, representing an increase of Rs. 33,413 million,
or 96.8%. This increase was primarily due to a 58.0% increase in
sales volume and a 36.7% increase in the average copper LME
price between fiscal 2005 and 2006. Specifically:
|
|
|
|
|
Copper cathode production increased from 171,992 tons in
fiscal 2005 to 273,048 tons in fiscal 2006, an increase of
58.8%, enabled by a capacity expansion at our Tuticorin facility
which increased the smelters copper anode capacity from
180,000 tpa to 300,000 tpa and the addition of a
refinery at our Tuticorin facility with a capacity of
120,000 tpa of copper cathode. Copper cathode sales
increased from 48,476 tons in fiscal 2005 to
105,268 tons in fiscal 2006, an increase of 117.2%. Copper
cathodes are converted in our copper rod plant into copper rods,
a value-added product which has a higher margin than copper
cathodes. As copper rods have higher margin, we endeavor to sell
as large a quantity of copper rods as possible. |
|
|
|
Production of copper rods increased from 125,406 tons in
fiscal 2005 to 166,497 tons in fiscal 2006, an increase of
32.8%. This resulted from the increase in our rod mill capacity
at Tuticorin. Copper rod sales increased from 123,384 tons
in fiscal 2005 to 166,356 tons in fiscal 2006, an increase
of 34.8%. The increase in sales was due to our increase in
production. |
|
|
|
The daily average copper cash settlement prices on the LME
increased from $2,999 per ton in fiscal 2005 to
$4,099 per ton in fiscal 2006, an increase of 36.7%. |
|
|
|
Sales of copper in the Indian market increased from
82,564 tons in fiscal 2005 to 106,270 tons in fiscal
2006, an increase of 28.7%, and our exports increased from
89,296 tons in fiscal 2005 to 165,354 tons in fiscal
2006, an increase of 85.2%. In the domestic market, we increased
our market share from 38% in fiscal 2005 to 43% in fiscal 2006
for primary copper due to our increased production levels
enabling us to fill much of the increased market demand. Our
increase in exports was enabled by our increased production
levels, and growth in nearby export markets. While we endeavor
to sell as large a quantity of our products as possible
domestically, our domestic sales declined between fiscal 2005
and fiscal 2006 as a percentage of total sales as our production
volume increased more rapidly than demand in the domestic market. |
Operating income in the copper segment increased from
Rs. 2,440 million in fiscal 2005 to
Rs. 7,659 million ($172.2 million) in fiscal
2006, an increase of Rs. 5,219 million, or 213.9%.
This was achieved as a result of higher sales volume, higher
TcRc rates and lower cost of production, as well as increased
profitability from our captive copper mines due to higher copper
LME prices. In particular:
|
|
|
|
|
TcRc rates increased from an average of 8.6¢/lb realized in
fiscal 2005 to an average of 23.1¢/lb realized in fiscal
2006 as a result of favorable market conditions. |
|
|
|
Cost of production, which consists of cost of smelting and
refining costs, decreased from 7.1¢/lb in fiscal 2005 to
6.1¢/lb in fiscal 2006, due to higher volumes and improved
realization of by-products, partially offset by higher energy
costs. |
|
|
|
Higher copper LME prices contributed to increased profitability
of our mining operations, which was partially offset by reduced
production due to the closure of one of our two mines in
Australia in July 2005. |
64
Net sales in the zinc segment increased from
Rs. 21,967 million in fiscal 2005 to
Rs. 38,573 million ($867.2 million) in fiscal
2006, an increase of Rs. 16,606 million, or 75.6%.
This increase was primarily due to a 45.7% increase in the
average zinc LME price and an 11.7% increase in sales volumes
between fiscal 2005 and fiscal 2006. Specifically:
|
|
|
|
|
The daily average zinc cash settlement prices on the LME
increased from $1,108 per ton in fiscal 2005 to
$1,614 per ton in fiscal 2006, an increase of 45.7%. |
|
|
|
Zinc ingot production increased from 212,445 tons in fiscal
2005 to 283,698 tons in fiscal 2006, an increase of 33.5%,
as a result of the commissioning of HZLs new
170,000 tpa hydrometallurgical zinc smelter at Chanderiya
in May 2005. The new zinc smelter at Chanderiya produced
71,049 tons of zinc in fiscal 2006. |
|
|
|
Zinc ingot sales increased from 288,866 tons in fiscal 2005
to 322,744 tons (including 1,030 tons capitalized) in
fiscal 2006, an increase of 11.7%, enabled by higher production
and strong market demand. |
|
|
|
Zinc ingot sales in the domestic market increased from
266,586 tons in fiscal 2005 to 309,128 tons in fiscal
2006, an increase of 16.0%, enabling an increase of HZLs
domestic market share from 71% in fiscal 2005 to 73% in fiscal
2006. Export sales decreased from 22,280 tons in fiscal
2005 to 13,616 tons in fiscal 2006, a decrease of 38.9%,
due to increased sales in the domestic market as a result of
higher demand. |
|
|
|
HZLs domestic sales were augmented by the tolling of zinc
concentrate. Our tolling arrangements involve sending surplus
zinc concentrate from our mines to third party smelters who
return the zinc metal post- conversion to us. We engage in
tolling from time to time to take advantage of domestic demand.
HZL tolled 53,479 tons of zinc in fiscal 2005 and
34,890 tons in fiscal 2006. The decrease in tolling was due
to the increase in production from HZLs new zinc smelter
at Chanderiya. |
|
|
|
HZL also sold surplus zinc concentrate of 57,699 dry metric
tons, or dmt, in fiscal 2005 and 194,704 dmt in fiscal
2006. Lead concentrate sales were 52,039 dmt in fiscal 2005
and none in fiscal 2006. |
|
|
|
Lead ingot production increased from 15,727 tons in fiscal
2005 to 23,636 tons in fiscal 2006, an increase of 50.3%.
Sales of lead ingots increased from 14,622 tons in fiscal
2005 to 26,928 tons in fiscal 2006, an increase of 84.2%.
The sales were higher than production as we sold our lead ingot
inventory remaining from the previous fiscal year. |
Operating income in the zinc segment increased from
Rs. 8,309 million in fiscal 2005 to
Rs. 21,287 million ($478.5 million) in fiscal
2006, an increase of Rs. 12,978 million, or 156.2%.
Operating margin increased from 37.8% in fiscal 2005 to 55.2% in
fiscal 2006. Operating income and margin increased as a result
of higher zinc ingot and zinc concentrate sales volumes and
higher zinc LME prices, while cost of production remained
stable. Unit cost of production was $691 per ton in fiscal
2006, which was marginally lower than the fiscal 2005 level of
$695 per ton. The reduced cost of production was enabled by
increased volumes, improved operating efficiencies and reduced
raw material costs, primarily metcoke and thermal coal. This was
partially offset by higher zinc LME-linked royalties which
adversely impacted cost of production by $35 per ton.
Net sales in the aluminum segment increased from
Rs. 10,168 million in fiscal 2005 to
Rs. 16,297 million ($366.4 million) in fiscal
2006, an increase of Rs. 6,129 million, or 60.3%, due
to an
65
increase in sales volume by 71.0% and an increase in the average
aluminum LME price by 14.0% between fiscal 2005 and fiscal 2006.
Primary and contributing factors to the increase include the
following:
|
|
|
|
|
Aluminum production increased from 100,272 tons in fiscal
2005 to 173,743 tons in fiscal 2006, an increase of 73.3%,
as our new Korba smelter of 245,000 tpa commenced phased
commissioning in fiscal 2006. The new smelter at Korba produced
69,014 tons of aluminum in fiscal 2006. The existing
smelter production increased from 100,272 tons in fiscal
2005 to 104,729 tons in fiscal 2006, an increase of 4.4%
achieved through improved operational efficiencies. |
|
|
|
Aluminum sales increased from 100,142 tons in fiscal 2005
to 171,206 tons (including 13,588 tons capitalized) in
fiscal 2006, an increase of 71.0%. Sales of aluminum ingots
increased from 8,625 tons in fiscal 2005 to
57,100 tons in fiscal 2006, an increase of 562.0%, as
production from the new Korba smelter was primarily sold in
ingot form. Wire rod sales increased from 48,183 tons in
fiscal 2005 to 64,499 tons in fiscal 2006, an increase of
33.9%. Rolled product sales increased from 43,334 tons in
fiscal 2005 to 49,607 tons in fiscal 2006, an increase of
14.5%. The increases in sales of wire rods and rolled products
reflect increased demand for these products in the domestic
market, particularly in the electrical and construction sectors,
and our increased focus on the sale of value-added products. |
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We exported 12,418 tons of aluminum in fiscal 2006 and none
in fiscal 2005. Our exports in fiscal 2006 were due to increased
production as our new Korba smelter commenced phased
commissioning, and as production continues to increase, we
anticipate increased sales to the export markets. The remainder
of our sales were to the domestic market where we are able to
sell our products at a higher price. |
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The daily average aluminum cash settlement prices on the LME
increased from $1,779 per ton in fiscal 2005 to $2,028 per
ton in fiscal 2006, an increase of 14.0%. |
Operating income in the aluminum segment increased from
Rs. 1,824 million in fiscal 2005 to
Rs. 3,496 million ($78.5 million) in fiscal 2006,
an increase of Rs. 1,672 million, or 91.7%. Operating
margin improved from 17.9% in fiscal 2005 to 21.5% in fiscal
2006. Operating income and margin improvements were achieved due
to higher sales volume and higher aluminum LME prices in fiscal
2006, which offset increases in the cost of production as
follows:
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Cost of production of the existing smelter increased from
$1,347 per ton in fiscal 2005 to $1,497 per ton in
fiscal 2006, an increase of 11.1%. Cost of production increased
on account of higher power cost due to a change in coal mix to
higher-priced imported coal as well due to higher coal prices
generally. Starting April 1, 2005, a shortage of coal led
Coal India to reduce the amount of coal supplied to all its
customers, including BALCO, except utilities, forcing BALCO to
utilize higher-priced
imported coal and increasing its total power generation costs.
The cost of some of the other key raw materials also increased,
in particular caustic soda, fluoride and carbon. |
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Cost of production of the new smelter at Korba was
$2,045 per ton in fiscal 2006. Cost of production was
higher than the existing smelter on account of high alumina
prices as the new Korba smelter uses alumina sourced from
external suppliers. Average cost of alumina per ton of aluminum
was $1,160. Other manufacturing costs at the new Korba smelter
were progressively reduced during fiscal 2006 due to the
increase in production volume, stabilization of operating
parameters at the smelter and the addition of the new
540 MW captive power plant, though the increase in the cost
of coal has increased the cost of production at the new Korba
smelter. |
Net sales in our corporate and other business segment increased
from Rs. 4,540 million in fiscal 2005 to
Rs. 5,817 million ($130.7 million) in fiscal
2006, an increase of 28.1%. This increase was mainly due to
increased sales volume in the aluminum conductor business.
66
Operating loss in our corporate and other business segment
decreased from Rs. 862 million in fiscal 2005 to
Rs. 748 million ($16.8 million) in fiscal 2006.
Operating loss in fiscal 2006 was due to impairment of
investment, loans and guarantees of Rs. 1,300 million
pertaining to IFL, while operating loss in fiscal 2005 was due
to impairment of Rs. 1,056 million of the inactive
assets of a paper company that we had previously invested in but
which never became operational and which we determined not to
pursue further. These losses were offset by increased
profitability of our aluminum conductor business from fiscal
2005 to fiscal 2006, which business is being divested.
Interest income increased from Rs. 2,181 million in
fiscal 2005 to Rs. 2,419 million ($54.4 million)
in fiscal 2006, an increase of Rs. 238 million, or
10.9%, due to higher levels of term deposits and investments.
Interest expense increased from Rs. 2,007 million in
fiscal 2005 to Rs. 3,331 million ($74.9 million)
in fiscal 2006, an increase of Rs. 1,324 million, or
66.0%. The increase in interest expense was due to the borrowing
costs related to our capacity expansions at Korba and
Chanderiya, which had previously been capitalized, being charged
to the income statement with the partial commissioning of the
new Korba smelter and the full commissioning of the new
Chanderiya smelter in fiscal 2006.
Income taxes increased from Rs. 3,555 million in
fiscal 2005 to Rs. 9,111 million ($204.9 million)
in fiscal 2006. Our effective income tax rate, calculated as
income taxes owed divided by our income before income taxes,
minority interests and equity in net loss of associate, was
29.9% in fiscal 2005 and 29.6% in fiscal 2006. During this
period, the statutory corporate tax rate decreased from 36.6% in
fiscal 2005 to 33.7% in fiscal 2006, a decrease of 2.9%.
Disallowed expenses towards impairment of assets, guarantees,
impairment of investments and loans in fiscal 2005 and fiscal
2006 also increased the effective tax rate. Though the amount of
disallowed expenses did not change much, its impact was lower in
fiscal 2006 due to increased profits. A lower amount of tax
exemptions available at our copper and zinc operations in India
also increased the effective tax rates as not all increased
profits were covered by tax exemptions.
Minority interests as a percentage of net profits decreased from
33.2% in fiscal 2005 to 28.0% in fiscal 2006. This decrease was
as a result of a change in the profit mix between subsidiaries,
with a greater percentage of profits coming from our
wholly-owned copper business in fiscal 2006.
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Equity in Net Loss of Associate, Net of Taxes |
Equity in net loss of associate was none in fiscal 2005 as
compared to a net loss of Rs. 99 million
($2.2 million) in fiscal 2006, which was related to foreign
exchange loss and the interest income and expenditure on the
project funds temporarily deployed pending utilization on the
project for Vedanta Alumina.
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Comparison of Years Ended March 31, 2004 and
March 31, 2005 |
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Net Sales, Other Operating Revenues and Operating Income |
Net sales increased from Rs. 56,788 million in fiscal
2004 to Rs. 71,183 million in fiscal 2005, an increase
of Rs. 14,395 million, or 25.3%. Net sales increased
as a result of price increases in all of our major businesses
and volume increases in the zinc business, partially offset by
the effects of a reduction in the import tariff, the removal of
the SAD and appreciation of the Indian Rupee against the
US dollar.
67
Other operating revenues decreased from
Rs. 682 million in fiscal 2004 to
Rs. 652 million in fiscal 2005, a decrease of
Rs. 30 million, or 4.4%. This was primarily a result
of a decrease in income from the sale of excess power in fiscal
2005 at BALCO resulting from increased power consumption as
production was ramped-up at the new Korba smelter.
Operating income increased from Rs. 10,744 million in
fiscal 2004 to Rs. 11,711 million in fiscal 2005, an
increase of Rs. 967 million, or 9.0%. The increase was
attributable to increased sales volume in the zinc segment and
higher metal prices. Operating margin decreased from 18.9% in
fiscal 2004 to 16.5% in fiscal 2005 largely as a result of asset
impairment and voluntary retirement scheme expenses.
Contributing factors to our consolidated operating income were
as follows:
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Cost of sales increased from Rs. 42,119 million in
fiscal 2004 to Rs. 54,640 million in fiscal 2005, an
increase of Rs. 12,521 million, or 29.7%. Cost of
sales increased primarily in the copper segment as a result of
higher copper concentrate prices in fiscal 2005 as compared to
fiscal 2004. Cost of sales in the zinc segment also increased as
a result of increased cost of production. As a result, cost of
sales as a percentage of net sales increased from 74.2% in
fiscal 2004 to 76.8% in fiscal 2005. |
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Selling and distribution expenses increased from
Rs. 1,544 million in fiscal 2004 to
Rs. 1,620 million in fiscal 2005, an increase of
Rs. 76 million, or 4.9%. This increase was due to
increased sales volumes across all our businesses as most of the
selling and distribution expenses are proportional to sales
volume. However, as a percentage of net sales, they decreased
from 2.7% in fiscal 2004 to 2.3% in fiscal 2005 as a result of
higher metal prices. |
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General and administrative expenses decreased from
Rs. 2,452 million in fiscal 2004 to
Rs. 2,402 million in fiscal 2005, a decrease of
Rs. 50 million, or 2.0%, and as a percentage of net
sales, they decreased from 4.3% in fiscal 2004 to 3.4% in fiscal
2005. As these expenses are of a relatively fixed nature, such
expenses decreased as a percentage of net sales between fiscal
2005 and fiscal 2006 as a result of the increase in net sales. |
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We incurred voluntary retirement scheme expenses of
Rs. 611 million in fiscal 2004, comprising a
Rs. 583 million package offered to employees of BALCO
and Rs. 28 million to employees of HZL. In fiscal
2005, we incurred Rs. 186 million for a voluntary
retirement package offered to employees of HZL. |
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We recorded asset impairments relating to certain plants,
machinery and buildings as part of our annual impairment review
and recognized an expense of Rs. 1,276 million in
fiscal 2005. This expense consisted primarily of the impairment
of the inactive assets of a paper company that we had previously
invested in but which never became operational and which we
determined not to pursue further. We intend to dispose of these
assets and expect to realize their remaining net book value upon
disposal. We had no asset impairment charges in fiscal 2004. |
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Depreciation, depletion and amortization increased from
Rs. 3,052 million in fiscal 2004 to
Rs. 3,257 million in fiscal 2005, an increase of
Rs. 205 million, or 6.7%. This increase primarily
related to the partial capitalization of capital expenditures
for capacity expansions in our zinc business. |
Net sales in the copper segment increased from
Rs. 27,046 million in fiscal 2004 to
Rs. 34,508 million in fiscal 2005, an increase of
Rs. 7,462 million, or 27.6%. This increase was
primarily due to higher copper LME prices in fiscal 2005 as
compared to fiscal 2004, partially offset by a reduction in
sales volumes in fiscal 2005. There was a reduction in the
premium over LME prices on domestic sales due to the change in
customs duties on imports in July 2004 and further in March
2005. The removal of the 4% SAD in January 2004 adversely
impacted our results of operations for all of fiscal 2005, as
compared to only the
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last three months of fiscal 2004. Other factors which
contributed to our net sales during the period include the
following:
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Copper cathode production decreased from 178,654 tons in
fiscal 2004 to 171,992 tons in fiscal 2005, a decrease of
3.7%. This decrease was due to lower production in the first
quarter of fiscal 2005 at the Tuticorin smelter as a result of a
planned shutdown of 20 days after 24 months of
operation. Copper cathode sales decreased from 57,802 tons
in fiscal 2004 to 48,476 tons in fiscal 2005, a decrease of
16.1% as a result of lower production. |
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Production of higher margin copper rods increased slightly from
122,713 tons in fiscal 2004 to 125,406 tons in fiscal
2005, an increase of 2.2%. Copper rod sales increased marginally
from 121,200 tons in fiscal 2004 to 123,384 tons in
fiscal 2005, an increase of 1.8%. |
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The daily average copper cash settlement prices on the LME
increased from $2,051 per ton in fiscal 2004 to
$2,999 per ton in fiscal 2005, an increase of 46.2%. |
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Sales of copper in the domestic market decreased from
94,708 tons in fiscal 2004 to 82,564 tons in fiscal
2005, a decrease of 12.8%, while our exports increased from
84,294 tons in fiscal 2004 to 89,296 tons in fiscal
2005, an increase of 5.9%. Sales in the domestic market
decreased due to a reduction of demand for primary copper as a
result of an increase in duty free imports from Sri Lanka and
other neighboring countries under free trade agreements. |
Operating income in the copper segment decreased from
Rs. 2,853 million in fiscal 2004 to
Rs. 2,440 million in fiscal 2005, a decrease of
Rs. 413 million, or 14.5%. The decrease in operating
income was mainly attributable to lower volumes, reduction in
import tariffs and export incentives, an appreciation of the
Indian Rupee against the US dollar and impairment of assets
of Rs. 220 million, partially offset by increase in
profitability of our Australian mining operations due to an
increase in copper LME price and lower cost of production. This
was partially offset by a reduction in the cost of production.
In particular:
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TcRc rates marginally decreased from an average of 8.8¢/lb
realized in fiscal 2004 to an average of 8.6¢/lb realized
in fiscal 2005 due to adverse market conditions in the first
half of fiscal 2005 where we realized TcRc of 6.6¢/lb and
then improved in the second half of fiscal 2005. |
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Cost of production decreased from 7.8¢/lb in fiscal 2004 to
7.1¢/lb in fiscal 2005 due to better recovery of metal and
improved by-product management, notably with respect to
sulphuric acid. |
Net sales in the zinc segment increased from
Rs. 18,213 million in fiscal 2004 to
Rs. 21,967 million in fiscal 2005, an increase of
Rs. 3,754 million, or 20.6%. This increase was due to
a 23.1% increase in average zinc LME prices and an 11.5%
increase in sales volume between fiscal 2004 and fiscal 2005.
This was partially offset by reduced premiums to the LME prices
as a result of lower tariff rates on both zinc and lead.
Specifically:
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The daily average zinc cash settlement prices on the LME
increased from $900 per ton in fiscal 2004 to
$1,108 per ton in fiscal 2005, an increase of 23.1%. |
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Zinc ingot production reduced marginally from 220,664 tons
in fiscal 2004 to 212,445 tons in fiscal 2005, a decrease
of 3.7%. This was due to inconsistent qualities of metcoke,
caused by short supply, which adversely impacted the production
process at HZLs Chanderiya pyrometallurgical smelter. |
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Zinc ingot sales increased from 259,130 tons in fiscal 2004
to 288,866 tons in fiscal 2005, an increase of 11.5%, due
to liquidation of inventory and tolling of zinc concentrates
notwithstanding the reduced production. |
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Zinc ingot sales in the domestic market increased from
253,529 tons in fiscal 2004 to 266,586 tons in fiscal
2005, an increase of 5.1%, enabling an increase of HZLs
domestic market share from 62.4% in fiscal 2004 to 70.6% in
fiscal 2005. Export sales increased from 5,601 tons in
fiscal 2004 to 22,280 tons in fiscal 2005, an increase of
16,679 tons, as we focused on developing the export |
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market for HZLs zinc products since we expected HZLs
production capacity to increase more rapidly than the demand in
the domestic market starting in fiscal 2006 when HZLs new
Chanderiya smelter commenced production. |
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HZLs sales were augmented by the tolling of zinc
concentrate. HZL tolled 40,562 tons of zinc in fiscal 2004
and 53,479 tons in 2005. The increase in tolling was as a
result of the increase in production capacity of HZLs
Rampura Agucha mine ahead of the commissioning of the new
Chanderiya hydrometallurgical smelter, which resulted in excess
zinc concentrate production, and also as a result of our
advantage of increased domestic demand for zinc. |
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HZL also sold surplus zinc concentrate of 145,714 dmt in
fiscal 2004 and 57,699 dmt in fiscal 2005. Lead concentrate
sales were 10,293 dmt in fiscal 2004 and 52,039 dmt in
fiscal 2005. |
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Lead ingot production was 25,089 tons in fiscal 2004 and
15,727 tons in fiscal 2005, a decrease of 37.3%. Sales of
lead ingots were 25,489 tons in fiscal 2004 and
14,622 tons in fiscal 2005, a decrease of 42.6% as a
majority of the lead produced in fiscal 2005 was consumed
internally for making anodes for HZLs new Chanderiya
hydrometallurgical smelter. |
Operating income in the zinc segment increased from
Rs. 7,097 million in fiscal 2004 to
Rs. 8,309 million in fiscal 2005, an increase of
Rs. 1,212 million, or 17.1%. The increase in operating
income was due to increased zinc prices, partially offset by
increases in the cost of production and reduction of tariffs on
zinc and lead. Cost of production of zinc increased from
$571 per ton in fiscal 2004 to $695 per ton in fiscal
2005, an increase of 21.7%. The increase was largely due to an
increase in the prices of metcoke by almost 100%, which affected
the cost of production at the pyrometallurgical smelter at
Chanderiya, and increased energy costs and royalty costs linked
to zinc LME prices. The increases in cost of production,
voluntary retirement scheme expenses and reduced tariffs
resulted in the operating margin declining from 39.0% in fiscal
2004 to 37.8% in fiscal 2005.
Net sales in the aluminum segment increased from
Rs. 8,217 million in fiscal 2004 to
Rs. 10,168 million in fiscal 2005, an increase of
Rs. 1,951 million, or 23.7%. This increase was due to
higher LME prices and a marginal increase in sales volume,
partially offset by the reduction in the premium over LME prices
as a result of removal of the 4% SAD in January 2004, which
adversely impacted our results of operations for the entire
fiscal 2005, as compared to only three months at the end of
fiscal 2004. Primary contributing factors to the increase
include:
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Aluminum production increased from 97,023 tons in fiscal
2004 to 100,272 tons in fiscal 2005, an increase of 3.3%.
The introduction of a fifth boiler at the 270 MW captive
power plant at BALCO allowed more stable power output with fewer
interruptions in power supply, which together with better
control of management processes helped to increase output. |
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Aluminum sales increased from 96,835 tons in fiscal 2004 to
100,142 tons in fiscal 2005, an increase of 3.4%. Sales of
aluminum ingots decreased from 13,232 tons in fiscal 2004
to 8,625 tons in fiscal 2005, while wire rods remained largely
the same and rolled products increased from 35,093 tons in
fiscal 2004 to 43,334 tons in fiscal 2005. The increase in
sales of rolled products was achieved as a result of the
commissioning by BALCO of a new cold rolling facility of
36,000 tpa during the end of fiscal 2004. |
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The daily average aluminum cash settlement prices on the LME
increased from $1,496 per ton in fiscal 2004 to
$1,779 per ton in fiscal 2005, an increase of 18.9%. |
Operating income in the aluminum segment increased from
Rs. 591 million in fiscal 2004 to
Rs. 1,824 million in fiscal 2005, an increase of
Rs. 1,233 million, or 208.6%. Operating margin also
improved from 7.2% in fiscal 2004 to 17.9% in fiscal 2005. The
increases were due to higher aluminum LME prices and a marginal
increase in sales volume, which were partially offset by a
reduction in the premium over LME prices that could be realized
on sales as a result of a lowering of tariffs, increases in
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the cost of production and no voluntary retirement scheme
expenses in fiscal 2005 as compared to fiscal 2004 where
voluntary retirement scheme expenses were
Rs. 583 million. Cost of production increased from
$1,239 per ton in fiscal 2004 to $1,347 per ton in fiscal
2005, an increase of 8.7%, primarily due to the increased prices
of all key inputs, particularly petroleum products, non-coking
coal and caustic soda.
Net sales in our corporate and other business segment increased
from Rs. 3,312 million in fiscal 2004 to
Rs. 4,540 million in fiscal 2005, an increase of
37.1%. This increase was mainly due to increased sales volume in
the aluminum conductor business.
Operating income of Rs. 203 million in fiscal 2004
changed to an operating loss of Rs. 862 million in
fiscal 2005. Operating loss in fiscal 2005 was due to impairment
of assets.
Interest income increased from Rs. 1,609 million in
fiscal 2004 to Rs. 2,181 million in
fiscal 2005, an increase of 35.6%. This increase was due to
the interest earned on funds borrowed to finance expansion
projects but before making disbursements towards such projects.
Interest expense increased slightly from
Rs. 1,997 million in fiscal 2004 to
Rs. 2,007 million in fiscal 2005, an increase of
Rs. 10 million.
Income taxes increased from Rs. 2,986 million in
fiscal 2004 to Rs. 3,555 million in fiscal 2005. Our
effective income tax rate, calculated as income taxes owed
divided by our income before income taxes, minority interests
and equity in net loss of associate, was 28.8% in fiscal 2004
and 29.9% in fiscal 2005, a moderate increase of 1.2%, primarily
as a result of increase in the statutory corporate tax rate from
35.9% in fiscal 2004 to 36.6% in fiscal 2005. Credits to income
tax provisions based on completed tax assessments decreased the
effective tax rate in fiscal 2004. A lower tax charge in our
Australian operations on account of reversal of valuation
allowance and higher non-taxable income decreased the tax charge
in fiscal 2005.
Minority interests as a percentage of net profits increased from
31.9% in fiscal 2004 to 33.2% in fiscal 2005 as a result of a
change in the profit mix with a higher share of profits coming
from our aluminum business in which the minority interest is
49.0%.
Liquidity and Capital Resources
Our principal financing requirements primarily include:
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capital expenditures, towards expansion of capacities in
existing businesses including modernization of facilities; |
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consolidation of our ownership in our various subsidiaries,
including acquisition of the Government of Indias residual
ownership interest in HZL; |
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the establishment of our planned commercial power generation
business; and |
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acquisitions of complementary businesses that we determine to be
attractive opportunities. |
We continue to consider increasing capacities of our existing
businesses through greenfield and brownfield projects and
through acquisitions as one of our major growth strategies.
Historically, funding of
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this strategy came from cash flows from existing operations,
external financing sources and our shareholders in the form of
contributions to our share capital. We intend to finance
acquisitions and our capital expenditures in the future through
cash flow generated by our business, as well as external debt,
and from the proceeds of this offering.
Our business is heavily dependent on plant and machinery for the
production of our copper, zinc and aluminum products, as well as
investments in our mining operations and our planned commercial
power generation business. Investments to maintain and expand
production facilities are, accordingly, an important priority
and have a significant effect on our cash flows and future
results of operations. We spent Rs. 14,374 million in
fiscal 2004, Rs. 22,225 million in fiscal 2005 and
Rs. 15,919 million ($357.9 million) in fiscal
2006, largely on our capacity expansion projects at Korba,
Chanderiya and Tuticorin. We do not expect to incur any
additional significant capital expenditures on these projects.
In fiscal 2007 and 2008, we expect capital expenditures of
approximately Rs. 13,344 million ($300.0 million)
for the expansion of our zinc business. Further, we currently
expect capital expenditures of approximately
Rs. 84,512 million ($1,900.0 million) over the
next four years by our wholly-owned subsidiary Sterlite Energy
for the first phase, totaling 2,400 MW, of a planned
thermal coal-based power facility and, subject to the outcome of
feasibility studies and the approval of BALCOs lenders,
its board of directors and shareholders, including the specific
consent of the Government of India, and the amendment of its
memorandum of association, Rs. 50,000 million
($1,124.1 million) over a period of time not yet
determinable by BALCO to build a thermal coal-based
1,200 MW power facility, both as part of our plan to
develop a commercial power generation business. We plan to
finance our capital expenditures out of our cash flows from
operations and financing activities, including the proceeds of
this offering. Our failure to make planned expenditures could
adversely affect our ability to maintain or enhance our
competitive position and develop higher margin products.
Consistent with our strategy to consolidate our ownership
interests in our key subsidiaries, and assuming the Government
of India does not exercise its right prior to the exercise of
our call option to sell its remaining ownership interest in HZL
through a public offer, which it is reportedly taking steps
towards making, we intend to exercise our call option to acquire
the Government of Indias 29.5% ownership interest in HZL
(or 26.0% if the Government of India exercises in full its right
to sell 3.5% of HZL to HZL employees). See
Business Options to Increase Interests in HZL
and BALCO for more information. The option value will be
the fair market value determined by an independent appraiser,
and will entail significant capital requirements. In fiscal
2004, we acquired an additional 18.9% shareholding in HZL at a
purchase consideration of Rs. 3,239 million from the
Government of India through the exercise of our call option.
We have consistently paid dividends and have increased dividends
declared from Rs. 215 million for fiscal 2004 to
Rs. 330 million for fiscal 2005 and
Rs. 698 million ($15.7 million) for fiscal 2006.
We plan to finance our capital requirements through a mix of
cash flows from operating and financing activities.
Historically, our major sources of cash have been cash provided
by operations and external debt, and we expect that these
sources will continue to be our principal sources of cash in the
next few years. Accordingly, in addition to the proceeds from
this offering, we intend to continue to rely primarily on cash
provided by operations and borrowings to meet our working
capital and other capital requirements. We do not depend on
off-balance sheet financing arrangements.
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Net Cash Provided by Operating Activities |
Net cash provided by continuing operating activities was
Rs. 19,595 million ($440.3 million) in fiscal
2006 compared to Rs. 6,075 million in fiscal 2005 and
Rs. 6,205 million in fiscal 2004. Cash generation
increased in fiscal 2006 primarily on account of higher
operating income across all our businesses, with our zinc
business accounting for a substantial portion of this increase.
The cash used in operating assets and liabilities in fiscal 2006
was Rs. 8,731 million ($196.3 million), of which
Rs. 5,919 million
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($133.1 million) was towards short-term investments and
deposits. Cash used for working capital purposes was
Rs. 2,812 million ($63.2 million), which
consisted of an increase in accounts receivables, other current
and non-current assets, and inventories which were partially
offset by an increase in accounts payable and accrued expenses
and other current and non-current liabilities. For fiscal 2005,
cash used in operating assets and liabilities was
Rs. 7,397 million, of which
Rs. 4,885 million was towards short-term investments
and deposits, and Rs. 2,512 million was cash used for
working capital purposes. The increase in working capital was
primarily due to an expansion in the volume of our business
through capacity expansions and also due to substantial
increases in prices across all our products for fiscal 2005. For
fiscal 2004, cash used in operating assets and liabilities was
Rs. 4,624 million, consisting of an increase in
short-term investments
and deposits of Rs. 9,371 million, partially offset by
an increase in cash from working capital of
Rs. 4,747 million primarily as a result of an increase
in accounts payable for our copper business in India.
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Net Cash Provided by or Used in Investing
Activities |
Net cash used in investing activities was Rs. 18,356
million in fiscal 2004, Rs. 21,391 million in fiscal 2005
and Rs. 16,676 million ($375.0 million) in fiscal 2006. The
major part of the cash used in investing activities for fiscal
2004, 2005 and 2006 was towards our three expansion projects
across our copper, aluminum and zinc businesses where we spent
Rs. 27,141 million ($610.2 million) towards BALCOs
new aluminum smelter and captive power plant and Rs. 14,084
million ($316.6 million) towards HZLs Chanderiya smelter
and captive power plant and Rampura Agucha expansion. We spent
Rs. 3,931 million ($88.4 million) towards our
Tuticorin expansion project. We also used cash to meet ongoing
maintenance capital expenditure requirements.
In fiscal 2006, we spent Rs. 15,919 million ($357.9
million) on capital expenditures, mainly on BALCOs
expansion program. In fiscal 2005, we spent Rs. 22,225
million on capital expenditures which included the capital
expenditures at HZL as well as BALCO. In fiscal 2004, we spent
Rs. 14,374 million on capital expenditures at BALCO, HZL
and Tuticorin. In fiscal 2004, we also spent Rs. 3,239
million on acquisition of an 18.9% minority interest in HZL from
the Government of India and Rs. 485 million on acquisition
of the minority interest in SOVL to make SOVL our wholly-owned
subsidiary.
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Net Cash Provided by or Used in Financing
Activities |
Net cash provided by financing activities was Rs. 375
million ($8.4 million) in fiscal 2006, primarily as a result of
an increase in debt of Rs. 1,056 million ($23.7 million),
partially offset by payment of dividends of Rs. 672 million
($15.1 million). In fiscal 2005, net cash provided by financing
activities was Rs. 17,321 million, which consisted
primarily of Rs. 19,723 million in proceeds from the
issuance of additional equity shares to existing shareholders in
a rights issue in September 2004, partially offset by reduction
in debt of Rs. 1,870 million and payment of dividends of
Rs. 539 million. In fiscal 2004, net cash provided by
financing activities was Rs. 13,084 million, which was
primarily as a result of an increase in short-term and
long-term debt.
Besides existing facilities, we had undrawn facilities in excess
of Rs. 23,656 million ($531.8 million) available
to us as of March 31, 2006.
We tap both the domestic and offshore markets for our long-term
funding needs. Since we have sizeable imports and exports, we
access both import and export credits, based on cost
effectiveness, both in the Indian Rupee and in foreign
currencies, to finance our short-term working capital
requirements. We have in place both secured and unsecured
borrowings, with our secured borrowings being generally Indian
Rupee denominated bonds.
We have tapped different segments of borrowing resources,
including banks and capital markets, both in India and overseas.
We have credit ratings of above investment grade from the local
rating agencies such as Credit Rating Information Services of
India Limited, or CRISIL, and ICRA Limited. We therefore have
not had, and do not believe that we will have, difficulty in
gaining access to short-term and long-term financing sufficient
to meet our current requirements.
73
Outstanding Loans
The principal loans held by us and our subsidiaries, and the
amounts outstanding thereunder, as of March 31, 2006 were
as follows:
|
|
|
|
|
US dollar foreign currency term loan facility with
$92.6 million (Rs. 4,119 million) outstanding,
consisting of a $67.6 million (Rs. 3,007 million)
tranche repayable in June 2007 and a $25.0 million
(Rs. 1,112 million) tranche repayable in September
2008. Interest on this facility is based on London Inter-Bank
Offer Rate, or LIBOR, plus 44 basis points. |
|
|
|
Japanese Yen and US dollar foreign currency term loan facility
with Rs. 2,165 million ($48.7 million) outstanding, to
be repaid between August 2006 and August 2008 in five tranches.
Interest on the Japanese Yen facility is based on JPY LIBOR plus
42 basis points and interest on the US dollar facility is
based on LIBOR plus 42 basis points. |
|
|
|
US dollar foreign currency syndicated loan with
$125.4 million (Rs. 5,576 million) outstanding. This
$125.0 million (Rs. 5,560 million) loan is repayable
in the amounts of $30.0 million in November 2006,
$65.0 million in November 2008 and $30.0 million in
November 2010. Interest on this loan is based on LIBOR plus 61
basis points. HZL has given notice under the loan that it
intends to repay the full amount of $125 million on
November 24, 2006. |
|
|
|
Indian Rupee fixed-rate term loan facilities with
Rs. 15,904 million ($357.6 million) outstanding.
The first loan, under which Rs. 10,002 million
($224.9 million) is outstanding, is repayable in 12
quarterly installments beginning January 2007 and the second
loan, under which Rs. 5,902 million ($132.7 million)
is outstanding, is repayable in eight quarterly installments
beginning on May 2009. The average interest rate on these
facilities is 7.3% per annum. These facilities are secured by a
first charge on the movable and immovable properties, present
and future tangible or intangible assets and other than current
assets of BALCO. |
|
|
|
Indian Rupee non-convertible debentures of
Rs. 1,000 million ($22.5 million). The debentures
were established in two tranches, with Rs. 400 million
($9.0 million) due in April 2010 and
Rs. 600 million ($13.5 million) due in April
2013. Interest rates are linked to annualized Indian Government
Security rates. The applicable interest rates have varied from
7.9% to 8.0% per annum. These debentures are secured by certain
of our immovable properties. |
Contractual Obligations
The following table sets out our total future commitments to
settle contractual obligations as of March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment Due by Period | |
|
|
| |
|
|
|
|
|
|
|
|
|
|
More than | |
|
|
Total | |
|
Less than 1 Year | |
|
1-3 Years | |
|
3-5 Years | |
|
5 Years | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Bank loans and borrowings
|
|
|
Rs. 34,627 |
|
|
$ |
778.5 |
|
|
|
Rs. 4,390 |
|
|
$ |
98.7 |
|
|
|
Rs. 19,156 |
|
|
$ |
430.7 |
|
|
|
Rs. 10,199 |
|
|
$ |
229.3 |
|
|
|
Rs. 882 |
|
|
$ |
19.8 |
|
Capital commitments
|
|
|
6,304 |
|
|
|
141.7 |
|
|
|
6,304 |
|
|
|
141.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Rs. 40,931 |
|
|
$ |
920.2 |
|
|
|
Rs. 10,694 |
|
|
$ |
240.4 |
|
|
|
Rs. 19,156 |
|
|
$ |
430.7 |
|
|
|
Rs. 10,199 |
|
|
$ |
229.3 |
|
|
|
Rs. 882 |
|
|
$ |
19.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We also have commitments to purchase copper concentrate for our
copper custom smelting operations. These commitments are based
on future copper LME prices which are not ascertainable as of
the date of this prospectus.
Export Obligations
We have export obligations of Rs. 34,225 million
($769.5 million) over the next eight years on account of
concessional rates received on import duties paid on capital
goods under the Export Promotion Capital Goods Scheme enacted by
the Government of India. If we are unable to meet these
obligations, the liability would be Rs. 4,920 million
($110.6 million), reduced in proportion to actual exports.
We do
74
not anticipate any liability on these obligations and hence have
not recorded any liability in our consolidated financial
statements.
Guarantees and Put Option
We have given the following guarantees:
|
|
|
|
|
Guarantees on the issuance of customs duty bonds amounting to
Rs. 1,153 million ($25.9 million) for import of
capital equipment at concessional rates of duty. The obligations
under the bonds have been fulfilled and procedural formalities
are yet to be completed by the authorities for releasing the
bonds. Our management does not anticipate any liability on these
guarantees. |
|
|
|
Guarantees on behalf of IFL against its loan obligations to the
extent of Rs. 1,820 million ($40.9 million) and
the outstanding amounts against these guarantees as of
March 31, 2006 is Rs. 1,664 million
($37.4 million). For loan obligations of
Rs. 1,270 million ($28.6 million) of IFL
guaranteed by us, we have also granted a put option to a bank
under which the bank may require us to purchase the loan from
the bank in lieu of looking to the guarantee. We would have a
liability under these guarantees and the put option in the event
IFL fails to fulfill its loan obligations. The maximum potential
amount of future payments which we would be required to pay is
Rs. 1,664 million ($37.4 million) as of
March 31, 2006. We reviewed our liabilities under the
guarantees and put option taking into consideration the
financial position of IFL and estimated that the fair value of
the guarantees and put option as of March 31, 2006 was
Rs. 880 million ($19.8 million). As a result, we
recognized a liability of Rs. 784 million
($17.6 million) for the guarantees and put option in
fiscal 2006. |
|
|
|
Corporate guarantee to MALCO for using various credit facilities
from different banks to the extent of
Rs. 1,100 million ($24.7 million). MALCO in turn
has issued a corporate guarantee with us as the beneficiary in
the event of any default by MALCO in fulfilling its obligations
to the banks. As of March 31, 2006, MALCO had completed all
its obligations under the guarantee and hence our management has
determined that no liability would arise for us. |
|
|
|
Corporate guarantee of Rs. 3,000 million
($67.4 million) on behalf of Vedanta Alumina for obtaining
credit facilities. We also issued a corporate guarantee of
Rs. 1,571 million ($35.3 million) for importing
capital equipment at concessional rates of duty under the Export
Promotion Capital Goods scheme enacted by the Government of
India. Vedanta Alumina is obligated to export goods worth eight
times the value of concessions enjoyed in a period of eight
years following the date of import, failing which we will be
liable to pay the dues to the Government of India. With respect
to the corporate guarantee of Rs. 1,571 million
($35.3 million), Vedanta Alumina has issued a counter
guarantee to us indemnifying us for any liability on such
guarantee. Vedanta Alumina is still in its development stage and
is expected to commence its operational activities in fiscal
2007, after which it is expected to start fulfilling its
obligations under this scheme. As of March 31, 2006, our
management determined that we have no liability on either of
these corporate guarantees. |
|
|
|
Corporate guarantee of Rs. 271 million ($6.1 million) on
behalf of CMT for credit and banking facilities or for entering
into any other treasury-related transaction as defined in and
covered by an International Swaps and Derivatives Association,
or ISDA, master agreement. This guarantee was cancelled on
August 17, 2006. |
|
|
|
Bank guarantee of AUD 5.0 million (Rs. 159 million or
$3.6 million) in favor of the Ministry for Economic
Development, Energy and Resources of Australia as a security
against rehabilitation liability on behalf of CMT. This bank
guarantee is backed up by the issuance of a corporate guarantee
of Rs. 320 million ($7.2 million). These
liabilities are fully recognized in our consolidated financial
statements. Our management does not anticipate any liability on
these guarantees. |
|
|
|
Bank indemnity guarantees amounting to AUD 6.8 million
(Rs. 223 million or $5.0 million) in favor of the
State Government of Queensland, Australia, as a security against
rehabilitation |
75
|
|
|
|
|
liabilities that are expected to occur at the closure of the
mine. The environmental liability has been fully recognized in
our consolidated financial statements. Our management does not
anticipate any liability on these guarantees. |
|
|
|
Performance bank guarantees amounting to
Rs. 2,268 million ($51.0 million) as of
March 31, 2006. These guarantees are issued in the normal
course of business while bidding for supply contracts or in lieu
of advances received from customers. The guarantees have varying
maturity dates normally ranging from six months to
three years. These are contractual guarantees and are
enforceable if the terms and conditions of the contracts are not
met and the maximum liability on these contracts is the amount
mentioned above. Our management does not anticipate any
liability on these guarantees. |
|
|
|
Bank guarantees for securing supplies of materials and services
in the normal course of business. The value of these guarantees
as of March 31, 2006 was Rs. 525 million
($11.8 million). Bank guarantees have also been issued in
the normal course of business for an aggregate value of
Rs. 334 million ($7.5 million) for litigations,
against provisional valuation and for other liabilities. Our
management does not expect any liability on these guarantees. |
Our outstanding guarantees and put option cover obligations
aggregating Rs. 11,422 million ($256.8 million)
as of March 31, 2006, the liabilities for which have not
been recorded in our consolidated financial statements.
Off-Balance Sheet Arrangements
In the normal course of business, we enter into certain capital
commitments and also give certain financial guarantees. The
aggregate amount of indemnities and other guarantees, on which
we do not expect any material losses, was
Rs. 16,022 million ($360.2 million) as of
March 31, 2006. Details of our guarantees are set out in
Guarantees and Put Option. Details of
our capital commitments and contingencies are as follows:
Capital Commitments
We have a number of continuing operational and financial
commitments in the normal course of business, including
completion of the construction and expansion of certain assets.
Significant capital commitments as of March 31, 2006
amounted to Rs. 6,304 million ($141.7 million).
These commitments related primarily to capacity expansion
projects through both the construction of new facilities and
expansion of existing facilities.
We are from time to time subject to litigation and other legal
proceedings. Certain of our operating subsidiaries have been
named as parties to legal actions by third party claimants and
by the Indian sales tax, excise and related tax authorities for
additional sales tax, excise and indirect duties. These claims
primarily relate either to the assessable values of sales and
purchases or to incomplete documentation supporting our tax
returns. We have ongoing disputes with income tax authorities
relating to the tax treatment of certain items. These mainly
include disallowed expenses, tax treatment of certain expenses
claimed by us as deductions, and the computation of, or
eligibility of, certain tax incentives or allowances. Some of
the disputes relate to the year in which the tax consequences of
financial transactions were recognized, and in the event these
disputes are not resolved in our favor, the tax consequences may
be reflected in the tax year allowed by the income tax
authorities and are therefore timing differences. Most of these
disputes and disallowances, being repetitive in nature, have
been raised by the department consistently in most of the years.
We have a right of appeal to the High Court or the Supreme Court
of India against adverse initial assessments by the appellate
authorities for matters involving questions of law. The tax
authorities have similar rights of appeal. The total claims
related to these tax liabilities is Rs. 2,186 million
($49.1 million) of which Rs. 1,609 million
($36.2 million) has been recorded as current liabilities as
of March 31, 2006.
76
The approximate claims by third party claimants amounted to
Rs. 1,853 million ($41.7 million) as of March 31,
2006, of which Rs. 73 million ($1.6 million) has been
recorded as current liabilities.
We intend to vigorously defend these claims as necessary.
Although the results of legal actions cannot be predicted with
certainty, it is the opinion of our management, after taking
appropriate legal advice, that the resolution of these actions
will not have a material adverse effect, if any, on our
business, financial condition or results of operations.
Therefore, we have not recorded any additional liability in
relation to litigation matters in the accompanying consolidated
financial statements.
Quantitative and Qualitative Disclosures About Market Risk
The results of our operations may be affected by fluctuations in
the exchange rates between the Indian Rupee and Australian
dollar against the US dollar. This table illustrates the
effect of a 10% movement in exchange rates between these
currencies on our operating income for fiscal 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10% movement in currency |
|
For Rs./US$ | |
|
For AUD/US$ | |
|
|
| |
|
| |
|
|
(in millions) | |
Copper
|
|
|
Rs.744 |
|
|
$ |
16.7 |
|
|
|
Rs.324 |
|
|
$ |
7.3 |
|
Zinc
|
|
|
2,798 |
|
|
|
62.9 |
|
|
|
|
|
|
|
|
|
Aluminum
|
|
|
1,250 |
|
|
|
28.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
Rs.4,792 |
|
|
$ |
107.7 |
|
|
|
Rs.324 |
|
|
$ |
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We use hedging instruments to manage the currency risk
associated with the fluctuations in the Indian Rupee and
Australian dollar against the US dollar in line with our
risk management policy. Typically all exposures for maturity of
less than two years are managed using simple instruments such as
forward contracts. As long-term exposures draw nearer, we hedge
them progressively to insulate these from the fluctuations in
the currency markets. In our Australian operations, apart from
funds to meet local expenses which are denominated in Australian
dollars, we strive to retain our surplus funds in US dollar
terms. These exposures are reviewed by appropriate levels of
management on a monthly basis.
Hedging activities in India are governed by the RBI with whose
policies we must comply. The policies under which the RBI
regulates these hedging activities can change from time to time
and these policies affect the effectiveness with which we manage
currency risk.
We have in the past held or issued instruments such as options,
swaps and other derivative instruments for purposes of
mitigating our exposure to currency risk. We do not enter into
hedging instruments for speculative purposes.
Our short-term debt is principally denominated in Indian Rupees
with fixed rates of interest. Typically, our foreign currency
debt has floating rates of interest linked to US dollar
LIBOR. The costs of floating rate borrowings may be affected by
the fluctuations in the interest rates. We have selectively used
interest rate swaps, options and other derivative instruments to
manage our exposure to interest rate movements. These exposures
are reviewed by appropriate levels of management on a monthly
basis.
Borrowing and interest rate hedging activities in India are
governed by the RBI and we have to comply with its regulations.
The policies under which the RBI regulates these borrowing and
interest rate hedging activities can change from time to time
and can impact the effectiveness with which we manage our
interest rate risk.
77
We have in the past held or issued instruments such as swaps,
options and other derivative instruments for purposes of
mitigating our exposure to interest rate risk. We do not enter
into hedging instruments for speculative purposes. This table
illustrates the impact of a 0.5% to 2.0% movement in interest
rates on interest payable on loans for fiscal 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US Dollar | |
|
Indian Rupee | |
|
|
Movement in interest rates |
|
Interest Rates | |
|
Interest Rates | |
|
Total | |
|
|
| |
|
| |
|
| |
|
|
(in millions) | |
0.5%
|
|
|
Rs. 83.1 |
|
|
$ |
1.9 |
|
|
|
Rs. 79.5 |
|
|
$ |
1.8 |
|
|
|
Rs. 162.6 |
|
|
$ |
3.7 |
|
1.0%
|
|
|
166.2 |
|
|
|
3.7 |
|
|
|
159.0 |
|
|
|
3.6 |
|
|
|
325.3 |
|
|
|
7.3 |
|
2.0%
|
|
|
332.5 |
|
|
|
7.5 |
|
|
|
318.1 |
|
|
|
7.1 |
|
|
|
650.5 |
|
|
|
14.6 |
|
We use commodity hedging instruments such as forwards, swaps,
options and other derivative instruments to manage our commodity
price risk in our copper and zinc businesses. Currently, we use
commodity forward contracts to partially hedge against changes
in the LME prices of copper and zinc. We enter into these
hedging instruments for the purpose of reducing the variability
of our cash flows on account of volatility in commodity prices.
These hedging instruments are typically of a maturity of less
than one year and almost always less than two years.
Hedging activities in India are governed by the RBI and we have
to comply with its regulations. The policies under which the RBI
regulates these hedging activities can change from time to time
and can impact on the effectiveness with which we manage
commodity price risk.
We have in the past held or issued derivative instruments such
forwards, options and other derivative instruments for purposes
of mitigating our exposure to commodity price risk. We do not
enter into hedging instruments for speculative purposes.
This table illustrates the impact of a $100 movement in LME
prices based on fiscal 2006 volumes, costs and exchange rates
and provides the estimated impact on operating income assuming
all other variables remain constant.
|
|
|
|
|
|
|
|
|
|
$100 movement in LME price |
|
Change in Operating Income | |
|
|
| |
|
|
(in millions) | |
Copper
|
|
|
Rs. 151 |
|
|
$ |
3.4 |
|
Zinc
|
|
|
1,832 |
|
|
|
41.2 |
|
Aluminum
|
|
|
829 |
|
|
|
18.6 |
|
|
|
|
|
|
|
|
|
Total
|
|
|
Rs. 2,812 |
|
|
$ |
63.2 |
|
|
|
|
|
|
|
|
78
Quantitative
Analysis
The fair value of our open derivative positions (excluding
normal purchase and sale contracts), recorded within other
current assets and current financial liabilities is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, | |
|
|
| |
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Asset | |
|
Liability | |
|
Asset | |
|
Liability | |
|
Asset | |
|
Liability | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(in millions) | |
Cash Flow Hedge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
Rs. |
|
|
|
Rs. |
|
|
|
Rs.103 |
|
|
|
Rs.325 |
|
|
$ |
2.3 |
|
|
$ |
7.3 |
|
Forward foreign currency contracts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18 |
|
|
|
|
|
|
|
0.4 |
|
Interest rate swap (floating to fixed)
|
|
|
|
|
|
|
|
|
|
|
41 |
|
|
|
|
|
|
|
0.9 |
|
|
|
|
|
Fair Value Hedge:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
|
|
|
|
|
|
|
|
434 |
|
|
|
197 |
|
|
|
9.7 |
|
|
|
4.4 |
|
Forward foreign currency contracts
|
|
|
|
|
|
|
|
|
|
|
44 |
|
|
|
13 |
|
|
|
1.0 |
|
|
|
0.3 |
|
Other
|
|
|
|
|
|
|
|
|
|
|
48 |
|
|
|
|
|
|
|
1.1 |
|
|
|
|
|
Non-qualifying Hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts
|
|
|
45 |
|
|
|
268 |
|
|
|
1,033 |
|
|
|
997 |
|
|
|
23.2 |
|
|
|
22.4 |
|
Forward foreign currency contracts
|
|
|
2 |
|
|
|
795 |
|
|
|
103 |
|
|
|
451 |
|
|
|
2.3 |
|
|
|
10.1 |
|
Interest rate swap
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
15 |
|
|
|
|
|
|
|
21 |
|
|
|
|
|
|
|
0.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
|
Rs.53 |
|
|
|
Rs.1,078 |
|
|
|
Rs.1,806 |
|
|
|
Rs.2,022 |
|
|
$ |
40.6 |
|
|
$ |
45.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recently Issued Accounting Pronouncements |
|
|
|
Financial Accounting Standards Board, or FASB Staff
Position, or FSP Nos.
FAS 115-1 and
FAS 124-1,
The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain
Investments |
In March 2004, the Emerging Issue Task Force, or EITF, issued
EITF Issue No. 03-1,
The Meaning of Other-Than-Temporary Impairment and Its
Application to Certain Investments. EITF Issue
No. 03-1 provides
guidance for evaluating whether an investment is
other-than-temporarily
impaired and requires disclosures about unrealized losses on
investments in debt and equity securities. In September 2004,
the FASB issued FSP on EITF
Issue 03-1-1,
Effective Date of
Paragraphs 10-20
of EITF Issue
No. 03-1,
which deferred the effective date of the recognition and
measurement provisions of the consensus until further guidance
is issued.
In November 2005, the FASB issued FSP
Nos. FAS 115-1
and FAS 124-1,
The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain Investments,
revising the recognition and measurement provisions of EITF
Issue No. 03-1.
This FSP clarified and reaffirmed existing guidance as to when
an investment is considered impaired, whether that impairment is
other than temporary, and the measurement of an impairment loss.
Certain disclosures about unrealized losses on
available-for-sale debt
and equity securities that have not been recognized as
other-than-temporary
impairments are required under the FSP. The FSP is effective for
fiscal years beginning after December 15, 2005. The
adoption of the FSP did not have a significant impact on our
financial position, operating results or cash flows.
|
|
|
SFAS No. 154, Accounting Changes and Error
Corrections replacement of APB Opinion No. 20
and FASB Statement No. 3 |
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections a
replacement of the Accounting Principles Board, or APB, Opinion
No. 20 and FASB Statement No. 3.
SFAS No. 154 generally requires retroactive
application to prior periods financial statements of all
voluntary changes in accounting principle and changes required
when a new pronouncement does not
79
include specific transition provisions. The statement applied to
us beginning January 1, 2006 and did not have a material
impact on our financial position, operating results or cash
flows.
|
|
|
EITF Issue
No. 05-6,
Determining the Amortization Period for Leasehold
Improvements Purchased after Lease Inception or Acquired in a
Business Combination |
In June 2005, the EITF reached a consensus on Issue
No. 05-6, or EITF
No. 05-6,
determining the amortization period for leasehold improvements.
EITF No. 05-6
provides guidance on determining the amortization period for
leasehold improvements acquired in a business combination or
acquired subsequent to lease inception. The guidance in EITF
No. 05-6 will be
applied prospectively and is effective for periods beginning
after June 29, 2005. We do not expect the adoption of EITF
No. 05-6 to have a
material effect on our results of operations or financial
condition.
|
|
|
Financial Accounting Interpretations 48, Accounting
for Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, Accounting for Income
Taxes (FIN 48) |
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109, Accounting
for Income Taxes (FIN 48), which clarifies the
accounting for uncertainty in income taxes. FIN 48
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The
interpretation requires us to recognize in the financial
statements the impact of a tax position, if that position is
more likely than not of being sustained on audit, based on the
technical merits of the position. FIN 48 also provides
guidance on derecognition, classification, interest and
penalties, accounting in interim periods and disclosure. The
provisions of FIN 48 are effective for fiscal years
beginning after December 15, 2006 with the cumulative
effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. The adoption of this
statement is not expected to have a material impact on our
consolidated financial position or results of operations.
80
OVERVIEW OF INDUSTRIES
Unless otherwise indicated, all data relating to the copper,
zinc and aluminum industries contained in this prospectus is
primarily derived from Brook Hunt, CRISIL Research &
Information Services Ltd., or CRIS INFAC, and other industry
sources.
Unless otherwise indicated, all financial and statistical data
relating to the power industry in India in the following
discussion is derived from the Ministry of Powers Annual
Report (2004-05 & 2005-06), the Central Electricity
Authoritys General Review (2004-2005), and the Ministry of
Power website (last updated on July 31, 2006). The data may
have been re-classified for the purpose of presentation. Unless
otherwise indicated, the data presented excludes captive power
generation capacity and captive power generation. The term
units as used herein refers to kilowatt-hours (kWh).
Copper Industry
Copper is a non-magnetic, reddish-colored metal with a high
electrical and thermal conductivity (among pure metals at room
temperature, only silver has a higher electrical conductivity),
tensile strength and resistance to corrosion.
Copper consumption has three main product groups: copper rods,
copper alloy products and other copper products. Over the last
ten years, the predominant intermediate use of copper has been
the production of copper rods, which accounted for approximately
half of total copper production in 2005. Copper rods are used in
wire and cable products such as energy cables, building wires
and magnet wires. Copper alloy products were the next largest
users of copper in 2005, followed by other copper products,
which include non-electrical applications such as tubes for air
conditioners and refrigerators, foils for printed circuit boards
and other industrial and consumer applications.
In the copper market in the western world in 2004, the
construction segment accounted for 37% of copper consumption,
followed by the electronic products segment (26%), the
industrial machinery segment (15%), the transportation equipment
segment (11%) and the consumer products segment (11%). In the
Indian copper market in fiscal 2005, the building and
construction segment accounted for only 7% of copper
consumption, while the electrical and electronic products
segment accounted for 57%, the consumer and general products
segment for 20%, the general engineering segment for 9% and the
transportation equipment segment for 7%, according to
Copper Update May 2006, a publication of
CRIS INFAC. In addition to direct applications, copper is also
used in a number of alloys, including brass (copper and zinc),
bronze (copper and tin), nickel silver, phosphor bronze and
aluminum bronze.
The copper industry has three broad categories of producers:
|
|
|
|
|
Miners, which mine the copper ore and produce copper concentrate; |
|
|
|
Custom smelters, which smelt and refine copper concentrate to
produce copper metal; and |
|
|
|
Integrated producers, which mine copper ore from captive mines
and produce copper metal either through smelting and refining or
through leaching. |
Global copper consumption increased from 15.5 million tons
in 2003 to 17.0 million tons in 2004, an increase of 9.7%,
and then decreased to 16.9 million tons in 2005. The 0.6%
decrease from 2004 to 2005 was primarily due to copper users
drawing down their existing inventories instead of making new
purchases. Growth in consumption is expected to resume in 2006
with an increase to 17.7 million tons, or 4.8%, over the
2005 consumption, driven mainly by demand from the construction
and power sectors.
81
Asia (including the Middle East), Western Europe and North
America together account for nearly 85% of global copper
consumption. Europe and North America accounted for over 60% of
copper consumption during the 1980s, but strong growth in Asia,
led by China and Japan, has since significantly changed global
consumption patterns. With a compound annual growth rate of 7.3%
between 2003 and 2005, Asia has been the fastest growing copper
market in the world. Strong growth in Asia (including the Middle
East) is expected to continue over the next five years.
The following table sets forth the regional consumption pattern
of refined copper from 2003 to 2006 (estimated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2006(1) | |
|
|
| |
|
| |
|
| |
|
| |
Region |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(thousands of tons, except percentages) | |
Rest of
Asia(2)
|
|
|
3,959 |
|
|
|
25.5 |
% |
|
|
4,269 |
|
|
|
25.1 |
% |
|
|
4,195 |
|
|
|
24.9 |
% |
|
|
4,248 |
|
|
|
24.0 |
% |
China
|
|
|
3,020 |
|
|
|
19.4 |
|
|
|
3,565 |
|
|
|
21.0 |
|
|
|
3,815 |
|
|
|
22.6 |
|
|
|
3,975 |
|
|
|
22.5 |
|
Western Europe
|
|
|
3,716 |
|
|
|
23.9 |
|
|
|
3,796 |
|
|
|
22.3 |
|
|
|
3,559 |
|
|
|
21.1 |
|
|
|
3,809 |
|
|
|
21.6 |
|
North America
|
|
|
2,497 |
|
|
|
16.1 |
|
|
|
2,737 |
|
|
|
16.1 |
|
|
|
2,549 |
|
|
|
15.1 |
|
|
|
2,630 |
|
|
|
14.9 |
|
CEE and
CIS(3)
|
|
|
840 |
|
|
|
5.4 |
|
|
|
1,001 |
|
|
|
5.9 |
|
|
|
1,066 |
|
|
|
6.3 |
|
|
|
1,210 |
|
|
|
6.8 |
|
Latin America
|
|
|
837 |
|
|
|
5.4 |
|
|
|
909 |
|
|
|
5.4 |
|
|
|
939 |
|
|
|
5.6 |
|
|
|
978 |
|
|
|
5.5 |
|
India
|
|
|
319 |
|
|
|
2.0 |
|
|
|
342 |
|
|
|
2.0 |
|
|
|
396 |
|
|
|
2.3 |
|
|
|
435 |
|
|
|
2.5 |
|
Africa
|
|
|
172 |
|
|
|
1.1 |
|
|
|
196 |
|
|
|
1.2 |
|
|
|
205 |
|
|
|
1.2 |
|
|
|
232 |
|
|
|
1.3 |
|
Oceania
|
|
|
184 |
|
|
|
1.2 |
|
|
|
169 |
|
|
|
1.0 |
|
|
|
155 |
|
|
|
0.9 |
|
|
|
156 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,544 |
|
|
|
100.0 |
% |
|
|
16,984 |
|
|
|
100.0 |
% |
|
|
16,879 |
|
|
|
100.0 |
% |
|
|
17,672 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
(1) |
Estimated. |
(2) |
Rest of Asia is Asia excluding China and India but including the
Middle East. |
(3) |
Central and Eastern Europe and Commonwealth of Independent
States. |
Source: Brook Hunt, September 2006.
Global mine production is the principal source of copper, with
scrap recycling accounting for only a minor part of the
aggregate supplies. The five largest copper mining countries are
Chile (36.1%), the United States (7.8%), Indonesia (7.1%), Peru
(6.6%) and Australia (6.0%), which together accounted for
approximately 63.6% of the total copper mined worldwide in 2005.
Approximately two-thirds of global copper mine production is
integrated, with the remainder sold in the custom smelting
market. The five largest copper mining companies are
Corporación Nacional del Cobre, Chile, or Codelco, the BHP
Billiton Group, the Phelps Dodge Corporation, or Phelps Dodge,
Rio Tinto plc and Grupo México SA de CV, or Grupo Mexico.
The major custom smelting locations include China (15.2%), Chile
(12.6%), Japan (10.7%), the Russian Federation (5.9%) and
Germany (4.3%), which together accounted for 48.7% of global
production and thus are major importers of copper concentrate in
2005. The five largest copper producing countries are Chile
(17.1%), China (16.0%), Japan (8.4%), the United States (7.5%)
and the Russian Federation (5.6%), which together accounted for
about 54.6% of the total copper produced worldwide in 2005. The
five largest copper smelting companies are Codelco, Grupo
Mexico, KGHM Polska Miedz, Mitsubishi Materials Corporation and
Nippon Mining & Metals Co., Ltd while the five largest
copper refining companies are Codelco, Phelps Dodge, Grupo
Mexico, KGHM Polska Miedz and Norddeutsche Affinerie AG.
Global copper production increased from 15.3 million tons
in 2003 to 15.9 million tons in 2004, an increase of 3.9%,
and then further increased to 16.7 million tons in 2005, an
increase of 5.0% over 2004.
82
Global copper production lagged behind global copper consumption
during all three years. Asian markets witnessed a supply deficit
of 2.5 million tons in 2005, a significant proportion of
which occurred in China.
The following table sets forth the regional production pattern
of refined copper from 2003 to 2006 (estimated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2006(1) | |
|
|
| |
|
| |
|
| |
|
| |
Region |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(thousands of tons, except percentages) | |
Latin America
|
|
|
3,920 |
|
|
|
25.7 |
% |
|
|
3,968 |
|
|
|
24.9 |
% |
|
|
3,985 |
|
|
|
24.0 |
% |
|
|
4,005 |
|
|
|
22.5 |
% |
Rest of
Asia(2)
|
|
|
2,630 |
|
|
|
17.2 |
|
|
|
2,569 |
|
|
|
16.1 |
|
|
|
2,770 |
|
|
|
16.7 |
|
|
|
3,077 |
|
|
|
17.3 |
|
China
|
|
|
1,836 |
|
|
|
12.0 |
|
|
|
2,199 |
|
|
|
13.8 |
|
|
|
2,600 |
|
|
|
15.7 |
|
|
|
3,040 |
|
|
|
17.1 |
|
CEE and
CIS(3)
|
|
|
1,968 |
|
|
|
12.9 |
|
|
|
2,108 |
|
|
|
13.2 |
|
|
|
2,145 |
|
|
|
12.9 |
|
|
|
2,156 |
|
|
|
12.1 |
|
North America
|
|
|
1,762 |
|
|
|
11.5 |
|
|
|
1,845 |
|
|
|
11.6 |
|
|
|
1,771 |
|
|
|
10.7 |
|
|
|
1,866 |
|
|
|
10.5 |
|
India
|
|
|
386 |
|
|
|
2.5 |
|
|
|
420 |
|
|
|
2.6 |
|
|
|
504 |
|
|
|
3.0 |
|
|
|
647 |
|
|
|
3.6 |
|
Western Europe
|
|
|
1,821 |
|
|
|
11.9 |
|
|
|
1,817 |
|
|
|
11.4 |
|
|
|
1,841 |
|
|
|
11.1 |
|
|
|
1,886 |
|
|
|
10.6 |
|
Africa
|
|
|
464 |
|
|
|
3.1 |
|
|
|
516 |
|
|
|
3.2 |
|
|
|
511 |
|
|
|
3.1 |
|
|
|
612 |
|
|
|
3.5 |
|
Australia
|
|
|
489 |
|
|
|
3.2 |
|
|
|
504 |
|
|
|
3.2 |
|
|
|
460 |
|
|
|
2.8 |
|
|
|
489 |
|
|
|
2.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Total
|
|
|
15,276 |
|
|
|
100.0 |
% |
|
|
15,946 |
|
|
|
100.0 |
% |
|
|
16,587 |
|
|
|
100.0 |
% |
|
|
17,778 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Driven
Adjustment(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(171 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
15,276 |
|
|
|
|
|
|
|
15,946 |
|
|
|
|
|
|
|
16,587 |
|
|
|
|
|
|
|
17,607 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
(1) |
Estimated. |
(2) |
Rest of Asia is Asia excluding China and India but including the
Middle East. |
(3) |
Central and Eastern Europe and Commonwealth of Independent
States. |
(4) |
Market driven adjustment is an allowance for strikes and
production disruptions. |
Source: Brook Hunt, September 2006.
Copper is traded on the LME. Although prices are determined by
LME price movements, producers normally charge a regional
premium that is market driven. The following table sets forth
the movement in copper prices from 1996 to 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
Copper Prices |
|
1996 | |
|
1997 | |
|
1998 | |
|
1999 | |
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ per ton, except percentages) | |
LME Cash Price
|
|
$ |
2,290 |
|
|
$ |
2,276 |
|
|
$ |
1,653 |
|
|
$ |
1,574 |
|
|
$ |
1,814 |
|
|
$ |
1,578 |
|
|
$ |
1,558 |
|
|
$ |
1,780 |
|
|
$ |
2,868 |
|
|
$ |
3,684 |
|
% Change
|
|
|
|
|
|
|
(0.6 |
)% |
|
|
(27.4 |
)% |
|
|
(4.8 |
)% |
|
|
15.2 |
% |
|
|
(13.0 |
)% |
|
|
(1.3 |
)% |
|
|
14.2 |
% |
|
|
61.1 |
% |
|
|
28.5 |
% |
Source: LME.
For custom smelters, TcRc rates have a significant impact on
profitability as prices for copper concentrate are equal to the
LME price net of TcRc and prices of copper finished products are
equal to the LME price plus a premium. A significant proportion
of concentrates are sold under frame contracts and TcRc is
negotiated annually. The TcRc rates are influenced by the
demand-supply situation in the concentrate market, prevailing
and forecasted LME prices and mining and freight costs.
83
The following table sets forth the movement in copper TcRc from
1996 to 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
Copper TcRc |
|
1996 | |
|
1997 | |
|
1998 | |
|
1999 | |
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(¢/lb, except percentages) | |
TcRc
|
|
|
24.5 |
|
|
|
28.2 |
|
|
|
23.6 |
|
|
|
15.3 |
|
|
|
15.9 |
|
|
|
17.4 |
|
|
|
15.5 |
|
|
|
13.9 |
|
|
|
13.0 |
|
|
|
29.6 |
|
% Change
|
|
|
|
|
|
|
15.1 |
% |
|
|
(16.3 |
)% |
|
|
(35.2 |
)% |
|
|
3.9 |
% |
|
|
9.4 |
% |
|
|
(10.9 |
)% |
|
|
(10.3 |
)% |
|
|
(6.5 |
)% |
|
|
127.7 |
% |
Source: Brook Hunt, June 2006.
The Indian copper industry consists primarily of custom smelters
as there are limited copper deposits in the country. The
available deposits are owned by the government-owned Hindustan
Copper, which was the only producer in India until 1995. Since
then, the industry has transformed significantly with our entry
and the entry of Birla Copper, now owned by Hindalco. We,
together with Hindalco, accounted for 84% of the primary market
share by volume in fiscal 2006. Over the last ten years,
industry capacity in India has grown nearly 18 times from a
modest 47,500 tons in fiscal 1996 to 847,500 tons in fiscal
2006, according to CRIS INFACs Copper
Update May 2006.
From 2000 to 2004, consumption in the Indian primary copper
market increased at a compound annual growth rate of 5.6%, which
was lower than the growth rates in prior periods as a result of
a sharp decline in demand for jelly filled telecom cables, the
largest use of copper in India. Decreased demand for jelly
filled telecom cables was driven by increased penetration by the
cellular telecommunications industry as well as a decrease in
optic fiber prices. This led to reduced demand from
government-owned purchasers, impacting copper consumption growth
adversely. However, supported by strong growth in other user
segments such as winding wires, power cables and other
applications, industry demand is expected to rebound. The total
domestic demand for primary copper increased from 342,000 tons
in 2004 to 396,000 tons in 2005, an increase of 15.8%.
Indian copper prices track global prices as the metal is priced
on the basis of landed costs of imported metal. Copper imports
in India are currently subject to a customs duty of 7.5% and an
additional surcharge of 2.0% of the customs duty. The customs
duty has been reduced in a series of steps from 25.0% in 2003 to
7.5% in the recent Indian Union Budget of 2006. Indian producers
are also able to charge a regional premium, which is market
driven.
The rapidly developing Asian market is expected to drive copper
consumption growth. The countries from Asia that are
contributing to this rapid growth are primarily China and India.
Copper demand is expected to continue to be dominated by its use
in electric wires and cables. Total consumption of copper is
expected to increase from 16.9 million tons in 2005 to
17.7 million tons in 2006, an increase of 4.7%. Asia is
expected to contribute 42.6% of this incremental growth. This
will translate into a compound annual consumption growth rate
from 2003 to 2006 of 6.3% for Asia, compared to 4.4% for the
world and 2.7% for the world excluding Asia.
Anticipated production capacity expansions are barely sufficient
to match the forecasted demand and the world is expected to
remain in a copper supply deficit for at least the next few
years. China is rapidly expanding its copper smelting and
refining capacities. However, its domestic mining supplies fall
well short
84
of its smelter demands and thus China will continue to remain a
major importer of copper concentrate. Apart from China, major
smelting and refining capacity expansions are expected in India,
Chile, Mexico, Peru, Brazil, Russia, Zambia, the Philippines,
Japan and Australia.
To meet the forecast copper demand, copper smelting capacity is
expected to grow until 2008. The major projects expected to
contribute to copper smelting capacity include Jinchuan (China),
Ilo (Peru), Toyo (Japan) and Camacari (Brazil).
The Indian market outlook is expected to remain positive, with
strong growth in key user segments such as power, construction
and engineering. Domestic consumption is expected to increase
from 396,000 tons in 2005 to an estimated 434,000 tons in
2006, an increase of 9.6%. This growth is significantly lower
than the historical averages, largely on account of negative
growth in the telecom cable segment which continues to suffer
from increasing penetration of the cellular telecommunication
industry and low prices of optic fibers in the international
markets.
Indian producers, however, benefit from attractive opportunities
in the regional markets, which had reported an aggregate supply
deficit of 2.5 million tons in 2005. This Asian deficit is
expected to continue for the next few years.
Zinc Industry
Zinc is a moderately reactive bluish-white metal that tarnishes
in moist air, producing a layer of carbonate. It reacts with
acids and alkalis and other non-metals. Zinc is the fourth most
common metal in worldwide annual production, trailing only iron,
aluminum and copper in worldwide annual production.
The principal use for zinc in the western world is galvanizing,
which involves coating steel with zinc to guard against
corrosion. Galvanizing, including sheet, tube, wire and general
galvanizing, accounts for approximately 54% of total western
world consumption of zinc in 2005. The main end-use industries
for galvanized steel products are the manufacture of automobiles
and domestic appliances and the construction industry, and it is
these industries on which zinc consumption ultimately depends.
Other major uses for zinc include brass semis and castings
(15%), die-casting alloys (13%), oxides and chemicals (7%),
rolled and extruded products (7%) and other uses (4%). Alloys
are principally used in toys, vehicles and hardware.
The zinc industry has three broad categories of producers:
|
|
|
|
|
Miners, which mine the lead-zinc ore and produce zinc
concentrate for sale to smelters, and usually receive payment
for 85% of the zinc contained in the concentrate less a
treatment charge, or TC; |
|
|
|
Smelters, which purchase concentrate and sell refined metal,
with some smelters also having some integrated production
downstream; and |
|
|
|
Integrated producers, which are involved in both the mining and
smelting of zinc. |
Most integrated producers are only partially integrated and
therefore need to either buy or sell some concentrate. Only
approximately one-third of total western world zinc production
can be attributed to integrated producers.
Global zinc consumption increased from 9.6 million tons in
2003 to 10.3 million tons in 2004, an increase of 7.3%, and
then further increased to 10.7 million tons in 2005, an
increase of 3.9% over 2004. Global zinc consumption is expected
to increase to 11.3 million tons in 2006, an increase of
6.0% over
85
2005. The key growth driver is demand from the steel galvanizing
market, which has been growing due to demand from the automotive
and automotive parts industries.
Asia, Europe and North America together account for
approximately 90% of global zinc consumption in 2005. With a
compound annual growth rate of 11.0% between 2003 and 2005, Asia
has been the fastest growing zinc market in the world. Driven by
continuing strong growth in China and other regional markets,
strong growth in Asia is expected to continue over the next few
years.
The following table sets forth the regional consumption pattern
of refined zinc from 2003 to 2006 (estimated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2006(1) | |
|
|
| |
|
| |
|
| |
|
| |
Region |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(thousands of tons, except percentages) | |
China
|
|
|
1,982 |
|
|
|
20.5 |
% |
|
|
2,417 |
|
|
|
23.4 |
% |
|
|
2,853 |
|
|
|
26.8 |
% |
|
|
3,252 |
|
|
|
28.6 |
% |
Europe
|
|
|
2,809 |
|
|
|
29.1 |
|
|
|
2,825 |
|
|
|
27.4 |
|
|
|
2,709 |
|
|
|
25.4 |
|
|
|
2,815 |
|
|
|
24.8 |
|
Rest of
Asia(2)
|
|
|
2,157 |
|
|
|
22.4 |
|
|
|
2,232 |
|
|
|
21.6 |
|
|
|
2,268 |
|
|
|
21.3 |
|
|
|
2,360 |
|
|
|
20.7 |
|
North America
|
|
|
1,337 |
|
|
|
13.9 |
|
|
|
1,440 |
|
|
|
14.0 |
|
|
|
1,365 |
|
|
|
12.8 |
|
|
|
1,409 |
|
|
|
12.4 |
|
Latin America
|
|
|
591 |
|
|
|
6.1 |
|
|
|
615 |
|
|
|
5.9 |
|
|
|
623 |
|
|
|
5.9 |
|
|
|
646 |
|
|
|
5.7 |
|
India
|
|
|
332 |
|
|
|
3.4 |
|
|
|
347 |
|
|
|
3.4 |
|
|
|
388 |
|
|
|
3.6 |
|
|
|
423 |
|
|
|
3.7 |
|
Oceania
|
|
|
267 |
|
|
|
2.8 |
|
|
|
269 |
|
|
|
2.6 |
|
|
|
262 |
|
|
|
2.5 |
|
|
|
273 |
|
|
|
2.4 |
|
Africa
|
|
|
173 |
|
|
|
1.8 |
|
|
|
176 |
|
|
|
1.7 |
|
|
|
185 |
|
|
|
1.7 |
|
|
|
193 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,648 |
|
|
|
100.0 |
% |
|
|
10,321 |
|
|
|
100.0 |
% |
|
|
10,653 |
|
|
|
100.0 |
% |
|
|
11,371 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
(1) |
Estimated. |
(2) |
Rest of Asia is Asia excluding China and India but including the
Middle East. |
Source: Brook Hunt, September 2006.
There are zinc mining operations in approximately 40 countries.
The five largest zinc mining countries are China (25.4%),
Australia (13.7%), Peru (11.5%), the United States (7.3%) and
Canada (6.7%), which together accounted for 64.6% of total zinc
mined worldwide in 2005. Mine production has fallen in North
America in the last few years as a result of mine closures,
which have resulted principally from reserve exhaustion and also
from economic pressures. The five largest zinc mining companies
are Teck Cominco Limited, Zinifex Limited, or Zinifex, Glencore
International AG, our majority-owned subsidiary HZL and Anglo
American plc.
Australia and Peru are the largest net exporters, and Peru is
the worlds largest supplier of zinc concentrate. Much of
this is supplied through traders rather than sold directly to
smelters. The largest importing region is Western Europe,
followed by South Korea and Japan. The main custom smelters are
located in these regions. China also has a large net concentrate
import requirement.
Zinc smelting is less geographically concentrated than zinc
mining. With a production of 2.7 million tons of zinc in
2005, China is the largest single zinc-producing country. The
other major zinc producing countries and regions include Europe
and Canada, which along with China account for approximately
59.4% of total global zinc production. The five largest zinc
producing companies are Korea Zinc Company Limited, Zinifex,
Xstrata AG, Umicore N.V. and New Boliden AB, which together
accounted for about 30.6% of the total zinc produced worldwide
in 2005.
The zinc manufacturing industry continues to exhibit a degree of
fragmentation. The recent trend towards industry consolidation
is expected to continue in the current favorable pricing
environment, as evidenced by the recent acquisition of
Falconbridge Limited by Xstrata AG.
86
World production of refined zinc has risen between 1998 and 2005
as new capacity has been added, though the increase in capacity
has not always kept pace with world consumption, which has led
to a supply/demand deficit in 2004 and 2005, which is expected
to persist until 2008.
The following table sets forth the regional production pattern
of refined zinc from 2003 to 2006 (estimated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2006(1) | |
|
|
| |
|
| |
|
| |
|
| |
Region |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(thousands of tons, except percentages) | |
China
|
|
|
2,334 |
|
|
|
23.6 |
% |
|
|
2,519 |
|
|
|
24.9 |
% |
|
|
2,670 |
|
|
|
26.5 |
% |
|
|
3,108 |
|
|
|
28.9 |
% |
Europe
|
|
|
2,754 |
|
|
|
27.8 |
|
|
|
2,736 |
|
|
|
27.0 |
|
|
|
2,578 |
|
|
|
25.6 |
|
|
|
2,540 |
|
|
|
23.6 |
|
Rest of
Asia(2)
|
|
|
1,871 |
|
|
|
18.9 |
|
|
|
1,915 |
|
|
|
18.9 |
|
|
|
1,936 |
|
|
|
19.3 |
|
|
|
2,072 |
|
|
|
19.3 |
|
North America
|
|
|
1,101 |
|
|
|
11.1 |
|
|
|
1,139 |
|
|
|
11.2 |
|
|
|
1,056 |
|
|
|
10.5 |
|
|
|
1,099 |
|
|
|
10.2 |
|
Latin America
|
|
|
821 |
|
|
|
8.3 |
|
|
|
827 |
|
|
|
8.2 |
|
|
|
805 |
|
|
|
8.0 |
|
|
|
794 |
|
|
|
7.4 |
|
Australia
|
|
|
553 |
|
|
|
5.6 |
|
|
|
474 |
|
|
|
4.7 |
|
|
|
456 |
|
|
|
4.5 |
|
|
|
443 |
|
|
|
4.1 |
|
India
|
|
|
264 |
|
|
|
2.7 |
|
|
|
265 |
|
|
|
2.6 |
|
|
|
292 |
|
|
|
2.9 |
|
|
|
406 |
|
|
|
3.8 |
|
Africa
|
|
|
195 |
|
|
|
2.0 |
|
|
|
256 |
|
|
|
2.5 |
|
|
|
272 |
|
|
|
2.7 |
|
|
|
295 |
|
|
|
2.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Total
|
|
|
9,893 |
|
|
|
100.0 |
% |
|
|
10,131 |
|
|
|
100.0 |
% |
|
|
10,065 |
|
|
|
100.0 |
% |
|
|
10,757 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
Adjustment(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
9,893 |
|
|
|
|
|
|
|
10,131 |
|
|
|
|
|
|
|
10,065 |
|
|
|
|
|
|
|
10,807 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
(1) |
Estimated. |
(2) |
Rest of Asia is Asia excluding China and India but including the
Middle East. |
(3) |
Production Adjustment is an allowance for production disruptions. |
Source: Brook Hunt, September 2006.
Zinc is traded on the LME. Although prices are determined by LME
price movements, producers normally charge a regional premium
that is market driven. A surge of large mine
start-ups in the period
from 1999 to 2000 led to substantial global zinc supply
surpluses and a
build-up of commercial
stocks from 2002 to 2003. As a result, the refined zinc price
slumped, reaching a low of $779 per ton in 2002. The most
vulnerable mines closed down during this period. However,
Chinas consumption growth increased rapidly and in 2004,
refined zinc consumption surpassed production. A zinc supply
deficit is expected to continue until 2008. With strong
consumption growth and rapidly falling commercial stocks, zinc
prices appreciated strongly in 2004 and 2005.
The following table sets forth the movement in zinc prices from
1996 to 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
Zinc Prices |
|
1996 | |
|
1997 | |
|
1998 | |
|
1999 | |
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ per ton, except percentages) | |
LME Cash Price
|
|
$ |
1,025 |
|
|
$ |
1,318 |
|
|
$ |
1,023 |
|
|
$ |
1,077 |
|
|
$ |
1,128 |
|
|
$ |
886 |
|
|
$ |
779 |
|
|
$ |
828 |
|
|
$ |
1,048 |
|
|
$ |
1,382 |
|
% Change
|
|
|
|
|
|
|
28.6 |
% |
|
|
(22.4 |
)% |
|
|
5.3 |
% |
|
|
4.7 |
% |
|
|
(21.5 |
)% |
|
|
(12.1 |
)% |
|
|
6.3 |
% |
|
|
26.6 |
% |
|
|
31.9 |
% |
Source: LME.
87
The Indian zinc industry has only two producers. The leading
producer is our majority-owned subsidiary HZL, which had a 73%
market share by volume in India in fiscal 2006. HZL has a
refined zinc capacity of 411,000 tpa. The other is Binani
Zinc Limited, or Binani Zinc, which has a refined zinc capacity
of 30,000 tpa.
Consumption of refined zinc in India reached 388,000 tons in
2005, an increase of 11.8% from the previous year. The principal
use of zinc in the Indian market is in the galvanizing sector,
which currently accounts for an estimated 70% of total
consumption. Galvanization is primarily used for tube, sheet and
structural products. The other significant end-user of zinc in
India is the alloys sector. This contrasts with western world
consumption trends, where galvanizing, although still the most
common use of zinc, is relatively less important and increased
demand has been seen for die-casting alloys, and reflects the
emphasis of the Government of Indias current five-year
economic program on infrastructure.
Indian zinc prices track global prices as the metal is priced on
the basis of the landed costs of imported metal. Zinc imports in
India are currently subject to a customs duty of 7.5% and an
additional surcharge of 2.0% of the customs duty. The customs
duty has been reduced in a series of steps from 25% in 2003 to
7.5% in the recent Indian Union Budget of 2006. Indian producers
are also able to charge a regional premium, which is market
driven.
The key end segment for zinc consumption is the galvanizing
segment. Chinas zinc consumption is driving the global
zinc demand growth. The total consumption of zinc is expected to
increase to 11.3 million tons by 2006, with Asia
contributing 52.9% of that consumption. That will translate to
Asian consumption growth at an expected compound annual growth
rate of 10.1% between 2003 and 2006, which compares to global
consumption growth at an expected compound annual growth rate of
5.4% for the same period and to world excluding Asia consumption
growth at an expected compound annual growth rate of 0.9% for
the same period.
In 2005, several mining companies committed to mining projects
that the strong resources sector and the high metals prices made
feasible, but concentrate supply shortages are not expected to
be fully eliminated until 2008 when these new projects reach
full capacity. Therefore, refined zinc output from smelters for
the period from 2005 to 2007 has been and is expected to
continue to be constrained by concentrate availability from
mines. Smelter expansions have also continued worldwide, but
major smelter expansions and construction of new smelters have
been deferred, except in China and India. Any new smelter
commitments in 2006 are unlikely to contribute significantly to
production until 2009 or later. For the next few years, smelter
capacity will be insufficient to produce large refined capacity
surpluses, so commercial stocks are expected to rebuild slowly.
The Indian market outlook is expected to remain positive, with
strong growth in key user segments such as sheet galvanizing.
Domestic consumption is expected to increase from 388,000 tons
in 2005 to an estimated 420,000 tons in 2006, an increase of
8.2%.
88
Aluminum Industry
Aluminum is lightweight in relation to its strength, durable and
resistant to corrosion. It can be extruded, rolled, formed and
painted for a wide variety of uses. According to CRIS INFAC,
three end-use sectors account for approximately 80% of aluminum
consumption in the United States: construction, transport and
packaging. The remaining 20% is accounted for by a wide variety
of applications including power, machinery and equipment and
consumer durables. Aluminum is also increasingly substituted for
steel in the automobile industry to reduce weight and improve
fuel economy.
The raw material from which aluminum is produced is bauxite,
which is a very common mineral found mainly in tropical regions.
It normally occurs close to the surface and can be mined by
open-pit methods. The bauxite is refined into alumina.
Typically, bauxite ranges from 35% to 60% contained alumina.
There are several different types of bauxite and alumina
refineries are usually designed to treat a specific type. The
majority of alumina refineries are therefore integrated with
mines.
Aluminum production has become increasingly more concentrated in
recent years, with the leading ten producers accounting for
58.3% of world primary aluminum production in 2005, with Alcoa
Inc. and Alcan Inc. accounting for 12.7% and 11.9%, respectively.
Global production of primary aluminum increased from
28.0 million tons in 2003 to 29.9 million tons in
2004, an increase of 6.6%, and then further increased to
31.9 million tons in 2005, an increase of 6.9% over 2005.
In 2005, North America, Western Europe and China together
accounted for approximately 54.9% of global primary aluminum
production. Asia has shown the largest annual increases in
consumption of primary aluminum, driven largely by increased
industrial consumption in China, which has emerged as the
largest aluminum consuming nation, accounting for 24.4% of
global primary aluminum production in 2005.
The following table sets forth the actual and estimated regional
production of primary aluminum from 2003 to 2006 (estimated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2006(1) | |
|
|
| |
|
| |
|
| |
|
| |
Region |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(thousands of tons, except percentages) | |
China
|
|
|
5,547 |
|
|
|
19.8 |
% |
|
|
6,671 |
|
|
|
22.3 |
% |
|
|
7,806 |
|
|
|
24.4 |
% |
|
|
9,100 |
|
|
|
27.0 |
% |
North America
|
|
|
5,495 |
|
|
|
19.6 |
|
|
|
5,111 |
|
|
|
17.1 |
|
|
|
5,382 |
|
|
|
16.8 |
|
|
|
5,343 |
|
|
|
15.9 |
|
East/ Central Europe
|
|
|
4,349 |
|
|
|
15.5 |
|
|
|
4,521 |
|
|
|
15.1 |
|
|
|
4,597 |
|
|
|
14.4 |
|
|
|
4,673 |
|
|
|
13.9 |
|
Western Europe
|
|
|
4,069 |
|
|
|
14.5 |
|
|
|
4,295 |
|
|
|
14.4 |
|
|
|
4,352 |
|
|
|
13.6 |
|
|
|
4,175 |
|
|
|
12.4 |
|
Rest of
Asia(2)
|
|
|
1,871 |
|
|
|
6.7 |
|
|
|
2,127 |
|
|
|
7.1 |
|
|
|
2,440 |
|
|
|
7.7 |
|
|
|
2,634 |
|
|
|
7.8 |
|
Latin America
|
|
|
2,273 |
|
|
|
8.1 |
|
|
|
2,356 |
|
|
|
7.9 |
|
|
|
2,391 |
|
|
|
7.5 |
|
|
|
2,503 |
|
|
|
7.4 |
|
Oceania
|
|
|
2,198 |
|
|
|
7.8 |
|
|
|
2,246 |
|
|
|
7.5 |
|
|
|
2,252 |
|
|
|
7.1 |
|
|
|
2,276 |
|
|
|
6.8 |
|
Africa
|
|
|
1,428 |
|
|
|
5.1 |
|
|
|
1,711 |
|
|
|
5.7 |
|
|
|
1,753 |
|
|
|
5.5 |
|
|
|
1,861 |
|
|
|
5.5 |
|
India
|
|
|
805 |
|
|
|
2.9 |
|
|
|
851 |
|
|
|
2.9 |
|
|
|
968 |
|
|
|
3.0 |
|
|
|
1,110 |
|
|
|
3.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Production Total
|
|
|
28,035 |
|
|
|
100.0 |
% |
|
|
29,888 |
|
|
|
100.0 |
% |
|
|
31,941 |
|
|
|
100.0 |
% |
|
|
33,675 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Highly Probable
Projects(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
28,035 |
|
|
|
|
|
|
|
29,888 |
|
|
|
|
|
|
|
31,941 |
|
|
|
|
|
|
|
33,703 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
Notes:
|
|
(1) |
Estimated. |
(2) |
Rest of Asia is Asia excluding China and India. |
(3) |
Highly Probable Projects is an adjustment for projects likely to
be completed. |
Source: Brook Hunt Aluminum Metal Service, September 2006.
World primary aluminum consumption increased from
27.8 million tons in 2003 to 30.3 million tons in
2004, an increase of 9.1%, and then further increased to
32.0 million tons in 2005, an increase of 6.0% over 2004.
This growth was primarily due to increased demand in China,
which between 2003 and 2005 saw demand increase at a compound
annual growth rate of 17.5%, compared to 7.2% for the world
demand.
The following table sets forth the regional consumption of
primary aluminum from 2003 to 2006 (estimated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2006(1) | |
|
|
| |
|
| |
|
| |
|
| |
Region |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(thousands of tons, except percentages) | |
China
|
|
|
5,054 |
|
|
|
18.2 |
% |
|
|
5,968 |
|
|
|
19.7 |
% |
|
|
6,983 |
|
|
|
21.8 |
% |
|
|
8,379 |
|
|
|
24.5 |
% |
North America
|
|
|
6,535 |
|
|
|
23.5 |
|
|
|
7,011 |
|
|
|
23.1 |
|
|
|
7,175 |
|
|
|
22.5 |
|
|
|
7,332 |
|
|
|
21.4 |
|
Western Europe
|
|
|
6,506 |
|
|
|
23.4 |
|
|
|
6,692 |
|
|
|
22.1 |
|
|
|
6,760 |
|
|
|
21.2 |
|
|
|
7,021 |
|
|
|
20.5 |
|
Rest of
Asia(2)
|
|
|
5,386 |
|
|
|
19.4 |
|
|
|
6,032 |
|
|
|
19.9 |
|
|
|
6,151 |
|
|
|
19.2 |
|
|
|
6,310 |
|
|
|
18.4 |
|
East/ Central Europe
|
|
|
1,708 |
|
|
|
6.1 |
|
|
|
1,744 |
|
|
|
5.8 |
|
|
|
1,798 |
|
|
|
5.6 |
|
|
|
1,915 |
|
|
|
5.6 |
|
Latin America
|
|
|
1,070 |
|
|
|
3.8 |
|
|
|
1,191 |
|
|
|
3.9 |
|
|
|
1,316 |
|
|
|
4.1 |
|
|
|
1,410 |
|
|
|
4.1 |
|
India
|
|
|
798 |
|
|
|
2.9 |
|
|
|
860 |
|
|
|
2.8 |
|
|
|
930 |
|
|
|
2.9 |
|
|
|
977 |
|
|
|
2.9 |
|
Oceania
|
|
|
400 |
|
|
|
1.4 |
|
|
|
435 |
|
|
|
1.4 |
|
|
|
450 |
|
|
|
1.4 |
|
|
|
456 |
|
|
|
1.3 |
|
Africa
|
|
|
357 |
|
|
|
1.3 |
|
|
|
400 |
|
|
|
1.3 |
|
|
|
410 |
|
|
|
1.3 |
|
|
|
430 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
27,814 |
|
|
|
100.0 |
% |
|
|
30,334 |
|
|
|
100.0 |
% |
|
|
31,973 |
|
|
|
100.0 |
% |
|
|
34,230 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
(1) |
Estimated. |
(2) |
Rest of Asia is Asia excluding China and India. |
Source: Brook Hunt Aluminum Metal Service, September 2006.
Notwithstanding the rise in aluminum production and capacities
in the region, aluminum supplies in Asia have lagged behind
demand, resulting in a supply deficit of 2.8 million tons
during 2005. During this period, China had a surplus of
0.8 million tons while the rest of Asia had a deficit of
3.7 million tons. Despite increased production capacities
in Asia, the demand-supply gap is likely to remain at similar
levels given the strong demand growth expected in these markets.
Alumina is a key raw material for aluminum production. Generally
it takes two tons of alumina to produce one ton of primary
aluminum.
90
The following table sets forth the regional production of
alumina from 2003 to 2006 (estimated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2006(1) | |
|
|
| |
|
| |
|
| |
|
| |
Region |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
Volume | |
|
% | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(thousands of tons, except percentages) | |
Oceania
|
|
|
16,792 |
|
|
|
28.1 |
% |
|
|
16,975 |
|
|
|
26.8 |
% |
|
|
17,918 |
|
|
|
26.9 |
% |
|
|
18,590 |
|
|
|
24.9 |
% |
Latin America
|
|
|
12,509 |
|
|
|
21.0 |
|
|
|
13,076 |
|
|
|
20.7 |
|
|
|
13,188 |
|
|
|
19.8 |
|
|
|
14,965 |
|
|
|
20.0 |
|
China
|
|
|
6,180 |
|
|
|
10.4 |
|
|
|
6,985 |
|
|
|
11.0 |
|
|
|
8,536 |
|
|
|
12.8 |
|
|
|
13,500 |
|
|
|
18.1 |
|
North America
|
|
|
6,094 |
|
|
|
10.2 |
|
|
|
6,886 |
|
|
|
10.9 |
|
|
|
6,929 |
|
|
|
10.4 |
|
|
|
7,018 |
|
|
|
9.4 |
|
East/ Central Europe
|
|
|
5,712 |
|
|
|
9.6 |
|
|
|
6,355 |
|
|
|
10.0 |
|
|
|
6,774 |
|
|
|
10.2 |
|
|
|
6,940 |
|
|
|
9.3 |
|
Western Europe
|
|
|
6,120 |
|
|
|
10.3 |
|
|
|
6,378 |
|
|
|
10.1 |
|
|
|
6,560 |
|
|
|
9.8 |
|
|
|
6,697 |
|
|
|
8.9 |
|
Rest of
Asia(2)
|
|
|
2,652 |
|
|
|
4.4 |
|
|
|
2,908 |
|
|
|
4.6 |
|
|
|
2,942 |
|
|
|
4.4 |
|
|
|
3,198 |
|
|
|
4.3 |
|
India
|
|
|
2,867 |
|
|
|
4.8 |
|
|
|
2,973 |
|
|
|
4.7 |
|
|
|
3,062 |
|
|
|
4.6 |
|
|
|
3,076 |
|
|
|
4.2 |
|
Africa
|
|
|
731 |
|
|
|
1.2 |
|
|
|
779 |
|
|
|
1.2 |
|
|
|
736 |
|
|
|
1.1 |
|
|
|
668 |
|
|
|
0.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
59,657 |
|
|
|
100.0 |
% |
|
|
63,314 |
|
|
|
100.0 |
% |
|
|
66,645 |
|
|
|
100.0 |
% |
|
|
74,652 |
|
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
(1) |
Estimated. |
(2) |
Rest of Asia is Asia excluding China and India. |
Source: Brook Hunt Aluminum Metal Service, September 2006
The sharp increase in alumina production in China in 2006 is
expected to turn the global alumina market from a deficit in
2005 to a surplus in 2006.
The following table sets forth the demand-supply balance for
alumina from 2003 to 2006 (estimated):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
2003 | |
|
2004 | |
|
2005 | |
|
2006(1) | |
|
|
| |
|
| |
|
| |
|
| |
|
|
(thousands of tons) | |
Global Alumina Surplus/(Deficit)
|
|
|
52 |
|
|
|
(320 |
) |
|
|
(1,411 |
) |
|
|
3,084 |
|
Note:
Source: Brook Hunt Aluminum Metal Service, September 2006.
Aluminum is an LME traded metal. It is either sold directly to
consumers or on a terminal market. The price is determined by
based on LME price but producers are also able to charge a
regional price premium, which generally reflects the cost of
obtaining the metal from an alternative source.
Alumina prices are negotiated on an individual basis between
buyers and sellers but are usually determined by reference to
the LME price for aluminum. The negotiated agreements generally
take the form of long-term contracts, but fixed prices can be
negotiated for shorter periods and a relatively small spot
market also exists.
91
The following table sets forth the movement in the aluminum and
alumina prices from 1996 to 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, | |
|
|
| |
|
|
1996 | |
|
1997 | |
|
1998 | |
|
1999 | |
|
2000 | |
|
2001 | |
|
2002 | |
|
2003 | |
|
2004 | |
|
2005 | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
($ per ton, except percentages) | |
Aluminum(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LME Cash Price
|
|
$ |
1,504 |
|
|
$ |
1,599 |
|
|
$ |
1,356 |
|
|
$ |
1,362 |
|
|
$ |
1,549 |
|
|
$ |
1,444 |
|
|
$ |
1,349 |
|
|
$ |
1,432 |
|
|
$ |
1,717 |
|
|
$ |
1,898 |
|
% Change
|
|
|
(16.7 |
)% |
|
|
6.3 |
% |
|
|
(15.1 |
)% |
|
|
0.4 |
% |
|
|
13.7 |
% |
|
|
(6.8 |
)% |
|
|
(6.5 |
)% |
|
|
6.1 |
% |
|
|
19.9 |
% |
|
|
10.5 |
% |
Alumina
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spot
Price(2)
|
|
$ |
180 |
|
|
$ |
202 |
|
|
$ |
189 |
|
|
$ |
208 |
|
|
$ |
311 |
|
|
$ |
155 |
|
|
$ |
149 |
|
|
$ |
271 |
|
|
$ |
404 |
|
|
$ |
452 |
|
% Change
|
|
|
(32.5 |
)% |
|
|
12.1 |
% |
|
|
(6.6 |
)% |
|
|
9.8 |
% |
|
|
50.0 |
% |
|
|
(50.0 |
)% |
|
|
(4.0 |
)% |
|
|
81.9 |
% |
|
|
48.9 |
% |
|
|
12.1 |
% |
Alumina/ Aluminum(%)
|
|
|
12.0 |
% |
|
|
12.6 |
% |
|
|
13.9 |
% |
|
|
15.3 |
% |
|
|
20.1 |
% |
|
|
10.7 |
% |
|
|
11.0 |
% |
|
|
18.9 |
% |
|
|
23.5 |
% |
|
|
23.8 |
% |
Notes:
|
|
(1) |
Source: LME. |
(2) |
Source: Bloomberg, Metal Bulletin; alumina metallurgical
grade spot FOB, average for the year. |
While aluminum prices have risen by 40.7% from 2002 to 2005,
alumina prices have risen by more than 200% during the same
period.
Besides alumina, power is the other key cost of production for
aluminum. Lack of sufficient power and a high cost of power
resulted in curtailment of aluminum production in North America
in 2002 and in China in 2004 and 2005.
The domestic Indian aluminum industry consists of four primary
producers: Hindalco, NALCO, BALCO, which we control, and MALCO,
which is controlled by Vedanta. BALCO is only integrated as to
100,000 tpa of its total 345,000 tpa capacity.
According to CRIS INFAC, India has the fifth largest bauxite
reserves in the world with an estimated reserve of
2,600 million tons of bauxite ore. Bauxite deposits are
spread across the states of Orissa, Andhra Pradesh, Jharkhand,
Chhattisgarh, Gujarat and Maharashtra. Indian bauxite is of
superior quality and is largely located on a single plateau,
thus making bulk mining possible and resulting in significant
cost advantages.
Primary aluminum production in India increased at a compound
annual growth rate of 9.3% from 805,000 tons in 2003 to 961,000
tons in 2005. The majority of aluminum produced in India is
consumed in the building and construction, transport, electrical
appliance and equipment and packaging industries, with limited
exports to countries including Singapore, Taiwan and the United
Arab Emirates.
Indian demand for primary aluminum increased at a compound
annual growth rate of 8.0% from 798,000 tons in 2003 and 930,000
tons in 2005.
In 1970, the Government of India instituted the Aluminum Control
Order to regulate the domestic aluminum industry, which
compelled domestic producers to sell approximately 50% of their
primary aluminum to the Indian electricity sector. Despite the
removal of this order in 1989, electrical applications continue
to be the largest end-use sector, consuming approximately 36% of
aluminum production in 2005 as a result of the continuing drive
to provide electricity throughout the country. Transport is also
a major consumer, contributing approximately 22% of demand in
2005, but average aluminum use in Indian-made automobiles is
still approximately one-third of that in western-made
automobiles.
92
Domestic aluminum prices track global price trends as producers
usually price the metal at a marginal discount to the landed
cost of imported metal. Though value-added product prices also
track metal price movement, they usually have relatively less
volatility and command a premium reflecting the degree of value
addition and quality, as indicated by the brand.
Aluminum imports are currently subject to a customs duty of 7.5%
and an additional surcharge of 2.0% of the customs duty. The
customs duty has been reduced in a series of steps from 15.0% in
2003 to 7.5% in the recent Indian Union Budget of 2006.
Primary aluminum production is expected increase by 5.3% from
2005 to 2006, led primarily by increases in production in China
(14.0%) and India (15.6%). The recent expansion at BALCOs
aluminum facility is likely to contribute to the increase in
Indias production.
Despite the growth in aluminum production, the aluminum market
in 2006 is expected to show a modest deficit for the third
successive year. Global aluminum consumption is expected to
increase by 6.0% from 2005 to 2006, led primarily by a 17.0%
increase in demand in China.
In comparison to the expected 5.3% increase in aluminum
production, alumina production is expected to increase by 10.3%
from 2005 to 2006. Nearly 60% of the 6.9 million ton
increase in alumina production is expected to occur in China,
which is expected to drive the global alumina market from a
deficit in 2005 to a surplus in 2006. With alumina becoming more
available and a relative slow down in consumption in China,
aluminum supply is expected to catch up with demand in 2007.
According to CRIS INFAC, from fiscal 2006 to fiscal 2010, the
domestic demand for the aluminum industry is expected to grow at
a compound annual growth rate of 6% to 8%, primarily driven by
expected growth in disposable income and government investment
in infrastructure.
In addition, the Government of India is planning to
significantly increase power generation capacity in the next few
years. The Ministry of Power plans to increase power capacity to
212,000 MW by 2012. Coupled with the increased demand
resulting from the privatization of electricity transmission and
distribution and a greater emphasis on improving the existing
electricity distribution infrastructure in India, especially in
rural areas, the power sector is expected to boost domestic
aluminum demand.
Similarly, improving prospects for the domestic automotive
industry will translate into higher aluminum demand. CRIS INFAC
expects the annual domestic sales for passenger cars and
sport-utility vehicles to grow at 12% per year over the
next five years while growth in motorcycles and motor scooters
is expected at 12.7% per year through 2009 or 2010.
The construction sector is also expected to see continued growth
due in part to the opening up of the real estate sectors to
foreign direct investment. Backed by increasing acceptance of
aluminum as an alternative to wood, demand from this sector is
expected to grow in the coming years.
In addition, CRIS INFAC also sees continued demand for aluminum
in packaging and air conditioning.
|
|
|
Commercial Power Generation Business |
The Electricity Act was enacted in 2003 in order to eliminate
the multiple legislation governing the electricity generation,
transmission and distribution sectors and to enhance the scope
of power sector
93
reforms aimed at addressing systemic deficiencies in the Indian
power industry. The key provisions of the Electricity Act
allowed for de-licensing of power generation, open access in
power transmission and distribution, unbundling of SEBs,
compulsory metering of all consumers and more stringent
penalties for the theft of electricity. It also included
provisions to facilitate captive power plants. However, the pace
of implementation of these reforms varies across states. The
Electricity Act read with the recently notified National Tariff
Policy, or NTP, in January 2006 also mandates that all future
power purchases by distribution licensees must be based on
competitive bidding to obtain the benefits of reduced capital
costs and efficiency of operations through competition.
As of September 30, 2006, Indias power system had an
installed generation capacity of approximately 127,423 MW.
The Central Power Sector Utilities, or CPSU, accounted for
approximately 32.5% of total power generation capacity as of
September 30, 2006, while the various state entities and
private sector companies accounted for approximately 55.5% and
12.0%, respectively.
|
|
|
Future Capacity Additions |
To sustain the strong recent economic growth in India, the
Ministry of Power in India has set an ambitious target of
providing Power for All, with a target of achieving
an installed capacity of 212,000 MW by 2012 by adding
approximately 100,000 MW of generation capacity.
As part of the planned target of approximately 100,000 MW
of capacity addition by 2012, the Government of India has
proposed the setting up of six Ultra Mega Power Plants, or
UMPPs. Each of these projects is expected to be commissioned
during the period 2008 to 2012.
|
|
|
Transmission and Distribution |
In India, the transmission and distribution, or T&D, system
is comprised of state grids, regional grids (which are formed by
interconnecting neighboring state grids) and distribution
networks. The distribution networks and the state grids are
mostly owned and operated by the SEBs or state governments
through SEBs, while most of the inter-state transmission links
are owned and operated by the Power Grid Corporation of India
Limited. These regional grids facilitate transfers of power from
power-surplus states to a power-deficit states and gradually
being integrated to form a national grid. The existing
inter-regional power transfer capacity of 9,000 MW is
expected to be enhanced to 30,000 MW by 2012 through the
creation of Transmission Super Highways.
With the enactment of the Electricity Act and the recently
notified guidelines for competitive bidding in transmission
projects, private investment was permitted in power transmission
which became recognized as an independent activity. Power
distribution in the States of Delhi and Orissa has been
privatized and distribution networks are now operated by private
utilities companies such as The Tata Power Company Limited, CESC
Limited, Reliance Energy Limited, Torrent Power AEC &
SEC and Noida Power Company Limited and a number of other
distribution companies.
94
Although electricity generation capacity has increased
substantially in recent years, the demand for electricity in
India still substantially exceeds available generation supply.
The following table shows the gap between the total electricity
required versus total electricity made available from fiscal
1999 to 2006.
Actual Power Supply Position (Fiscal 1999-Fiscal
2006)
Source: Ministry of Power Annual Report, 2005-2006; Ministry
of Power website
(http://powermin.nic.in/reports/pdf/ar05_06.pdf); Central
Electricity Authority website
(http://www.cea.nic.in/power_sec_reports/executive_summary/2006_04/index.htm).
The industrial, domestic and agriculture sectors are the main
consumers of electrical energy, consuming over 80% of total
electrical energy in fiscal 2004.
95
While per capita consumption in India has grown significantly,
it continues to lag behind power consumption in other leading
developed and emerging economies by a large margin. The Ministry
of Power is projecting a per-capita consumption of
932 kWh/year in 2012. The following charts compare per
capita electricity consumption in India, other countries and the
world average consumption.
|
|
|
Per Capita World Consumption (2001)
|
|
India Growth Pattern Over Years |
|
|
|
Note:
(1) Countries that are members of the Organization for
Economic Co-operation and Development (http://www.oecd.org)
Source: Key World Energy Statistics (2003); as quoted on
Ministry of Power website, December 2005
(http://powermin.nic.in/indian_electricity_scenario/
growth_of%20the_power_sector.htm). |
|
Source:
Ministry of Power website
(http://powermin.nic.in/indian_electricity_scenario/growth_of%20
the_power_sector.htm and http://powermin.nic.in/indian_
electricity_scenario/power_sector_at_a_glance.htm). |
Power trading takes place between suppliers with surplus
capacity and areas with deficits. Recent regulatory developments
include the announcement of rules and provisions for open access
and licensing related to interstate trading in electricity to
promote competition. Several entities, including PTC India
Limited (formerly Power Trading Corporation of India Limited),
or PTC, NTPCs subsidiary, NTPC Vidyut Vyapar Nigam Limited
and Tata Power Trading Company Private Limited have started
trading operations or have applied for trading licenses.
Until the end of 2005, the tariff regime in India for all
electricity generators was regulated and determined by either
the Central Electricity Regulatory Commission, or CERC, or the
State Electricity Regulatory Commissions, or SERCs, that set the
tariff on a cost-plus basis consisting of a capacity charge, a
variable energy charge and an unscheduled interchange charge.
The tariff regime guaranteed a fixed return on equity to the
generators and treated all costs as pass through in the tariff.
96
In order to improve efficiency and provide cheaper electricity
cost to consumers and at the same time attract adequate
investments and accelerate development in the power sector, the
Government of India notified the NTP in January 2006 with the
key objectives of:
|
|
|
|
|
ensuring availability of electricity to consumers at reasonable
and competitive rates; |
|
|
|
promoting transparency, consistency and predictability in
regulatory approvals across jurisdictions and minimizing the
perception of regulatory risks; and |
|
|
|
promoting competition, efficiency in operations and improvement
in quality of supply. |
To achieve these objectives, the NTP mandated that power
procurement for future requirements by all distribution
licensees should be through a transparent competitive bidding
mechanism using the Guidelines for Determination of Tariff by
Bidding Process for Procurement of Power by Distribution
Licensees, dated January 19, 2005, issued by the Ministry
of Power.
Further, to facilitate merit order dispatch, an
availability-based tariff mechanism has also been introduced
whereby the electricity tariffs are split into two parts
comprising a fixed capacity charge and a variable energy charge.
The fixed cost elements like interest on loans, return on
equity, depreciation, operations and maintenance expenses,
insurance, taxes and interest on working capital are covered by
the capacity charge. The variable cost (that is, fuel cost) of
the power plant for generating energy is covered by the energy
charge.
The NTP also provides that power purchase agreements should
ensure adequate and bankable payment security arrangements like
letters of credit and escrow of cash flows for the benefit of
the generating companies. In case of persisting default,
generating companies may sell power to other buyers.
Historically, management of the power sector by SEBs was driven
by local populist politics that caused the financial health of
central and state utilities to deteriorate, which led to
under-investment, continued loss and theft and cash leakage. In
response, the Government of India launched a combination of
regulatory and development initiatives which, among other
measures, made anti-theft laws more stringent, prohibited
unfunded subsidies and required 100% metering in all states.
Initiatives have also been introduced to address poor T&D
infrastructure and dilapidated metering systems. These
initiatives include concessional loans from the Government of
India to fund up to half the costs of state T&D projects and
incentive payments to the states linked to the reduction in
annual cash losses of the SEBs.
97
BUSINESS
Overview
We are Indias largest non-ferrous metals and mining
company based on net sales and are one of the fastest growing
large private sector companies in India based on the increase in
net sales from fiscal 2005 to 2006. In India, one of the fastest
growing large economies in the world with an 8.5% increase in
real gross domestic product from 2004 to 2005, we are one of the
two custom copper smelters by volume, the leading and only
integrated zinc producer and one of the four primary producers
of aluminum. In addition to our three primary businesses of
copper, zinc and aluminum, we also intend to develop a
commercial power generation business in India that leverages our
experience in building and operating captive power plants used
to support our primary businesses. We have experienced
significant growth in the Indian copper, zinc and aluminum
markets. Our net sales increased from
Rs. 56,788 million in fiscal 2004 to
Rs. 128,608 million ($2,891.3 million) in fiscal
2006, representing a compound annual growth rate of 50.5%, due
to our capacity expansions and commodity prices increasing to
historical highs. We believe our experience in operating and
expanding our business in India will allow us to capitalize on
attractive growth opportunities arising from Indias large
mineral reserves, relatively low cost of operations and large
and inexpensive labor and talent pools. We believe we are also
well positioned to take advantage of the significant growth in
industrial production and investments in infrastructure in
India, China, Southeast Asia and the Middle East, which we
expect will continue to create strong demand for metals.
Our copper business is principally one of custom smelting and
includes one of the worlds lowest cost smelters at
Tuticorin in Southern India, the worlds lowest cost
refinery at Tuticorin and the worlds second lowest cost
refinery at Silvassa in Western India in 2005, according to
Brook Hunt. In addition, we own the Mt. Lyell copper mine in
Tasmania, Australia, which provides a small percentage of our
copper concentrate requirements. Our copper cathode production
has increased from 178,654 tons in fiscal 2004 to
273,048 tons in fiscal 2006, representing a compound annual
growth rate of 23.6%. The production increases, together with
higher realized TcRc rates and copper market prices, drove net
sales of our copper business from Rs. 27,046 million
in fiscal 2004 to Rs. 67,921 million
($1,527.0 million) in fiscal 2006, representing a compound
annual growth rate of 58.5%.
Our fully-integrated zinc business is owned and operated by HZL,
Indias leading zinc producer with a 73% market share by
volume of the Indian zinc market in fiscal 2006, according to
ILZDA. HZLs Rampura Agucha zinc mine is the third largest
in the world in terms of contained zinc deposits on a production
basis and the fourth largest on a reserve basis and was
estimated to have the third lowest cost of producing zinc
concentrate in 2005, and HZL was the worlds fourth largest
zinc mining company in 2005 based on mine production, according
to Brook Hunt. We have a 64.9% ownership interest in HZL, with
the remainder owned by the Government of India (29.5%) and
institutional and public shareholders (5.6%). It is our current
intention to exercise our call option to acquire the Government
of Indias remaining ownership interest in HZL after it
becomes exercisable on or after April 11, 2007, assuming
the Government of India does not exercise its right prior to the
exercise of our call option to sell its remaining ownership
interest through a public offer, which it is reportedly taking
steps towards making. HZLs operations include three
lead-zinc mines, two zinc smelters, one lead smelter and one
lead-zinc smelter in Northwest India and one zinc smelter in
Southeast India. HZLs zinc production has increased from
220,664 tons in fiscal 2004 to 283,698 tons in fiscal
2006, representing a compound annual growth rate of 13.4%. The
production increases, together with higher zinc market prices,
drove net sales from Rs. 18,213 million in fiscal 2004
to Rs. 38,573 million ($867.2 million) in fiscal
2006, representing a compound annual growth rate of 45.5%.
Our aluminum business is primarily owned and operated by BALCO,
in which we have a 51.0% ownership interest. BALCO is one of the
four primary producers of aluminum in India and had a 19%
primary market share by volume in India in 2006, among the
primary producers in the country, according to AAI. BALCO was
the fastest growing primary producer of aluminum in India in
fiscal 2006 based on quantity of aluminum produced as a result
of the ramp-up in production at its new Korba aluminum smelter.
We have exercised our option to acquire the Government of
Indias remaining 49.0% ownership
98
interest, although the exercise is currently subject to dispute.
Further, the Government of India has the right and has expressed
an intention to sell 5.0% of BALCO to BALCO employees.
BALCOs operations include bauxite mines, captive power
plants and refining, smelting and fabrication facilities in
Central India. BALCOs operations benefit from relatively
cost effective access to power, the most significant cost
component in aluminum smelting due to the power-intensive nature
of the process. This is to a considerable extent due to BALCO
being an energy-integrated aluminum producer. With BALCOs
recently expanded and upgraded aluminum smelting capabilities,
it is seeking to lower its cost of production. BALCO has
increased its production from 97,023 tons in fiscal 2004 to
173,743 tons in fiscal 2006, representing a compound annual
growth rate of 33.8%. The production increases, together with
higher aluminum market prices, drove net sales from
Rs. 8,217 million in fiscal 2004 to
Rs. 16,297 million ($366.4 million) in fiscal
2006, representing a compound annual growth rate of 40.8%.
We hold a 29.5% minority interest in Vedanta Alumina, a
70.5%-owned subsidiary of Vedanta. Vedanta Alumina is building a
new 1.0 million tpa alumina refinery, expandable to
1.4 million tpa, subject to governmental approvals, and
associated captive power plant in the State of Orissa in Eastern
India that it expects will be commissioned by March 2007. In
addition, Vedanta Alumina is planning to build a greenfield
500,000 tpa aluminum smelter project together with an associated
coal-based 1,215 MW captive power plant to be set up in
Jharsuguda in the State of Orissa. The project will be
implemented in two phases of 250,000 tpa each, with construction
of the first phase expected to be completed in the second half
of 2009 and the second phase expected to be completed by the end
of 2010.
We have been building and operating captive power plants since
1997. As of September 30, 2006, the total power generating
capacity of our six captive power plants was 1,040 MW, of
which 694 MW was from two thermal coal-based captive power
plants completed within the last three years. In July 2006,
our board of directors resolved and our shareholders
subsequently approved in principle a new strategy for us to
enter into the commercial power generation business in India. We
intend to invest approximately Rs. 84,512 million
($1,900.0 million) over the next four years for our
wholly-owned subsidiary Sterlite Energy to build the first
phase, totaling 2,400 MW (comprising four units of
600 MW each), of a thermal coal-based power facility. We
intend for Sterlite Energy to build this power facility in the
State of Orissa, which has abundant coal resources estimated at
62 billion tons as of January 1, 2006, according to
the Ministry of Coal of the Government of India. In addition, on
October 7, 2006, BALCO entered into a memorandum of
understanding with the Government of Chhattisgarh, India, and
the CSEB under which, among other things, feasibility studies
will be undertaken for a potential investment of approximately
Rs. 50,000 million ($1,124.1 million) to build a
thermal coal-based 1,200 MW power facility, along with an
integrated coal mine, in the State of Chhattisgarh. We believe
that by leveraging our experience in building and operating
captive power plants we can compete successfully in the
commercial power generation business and capitalize on this
growth opportunity.
We have been a public listed company in India since 1988 and our
equity shares are listed and traded on the NSE and BSE. We are,
and after this offering will continue to be, a majority-owned
and controlled subsidiary of Vedanta, a public company in the
United Kingdom listed on the LSE and included in the
FTSE 100 Index. Vedanta is a leading metals and mining
company with operations in copper, zinc and aluminum located
primarily in India, though with a copper business in Zambia. We
and Vedanta share a common management team with a common
strategic vision, and we form the core of Vedantas
operations.
Vedanta is 53.8%-owned by Volcan, a holding company owned and
controlled by members of the Agarwal family, specifically
Mr. Anil Agarwal, the Executive Chairman of Vedanta and our
Non-Executive Chairman, his father, Mr. Dwarka Prasad
Agarwal, and his son, Mr. Agnivesh Agarwal, the
Non-Executive Chairman of HZL. As part of Vedantas listing
on the LSE in December 2003, Volcan and Messrs. Anil
Agarwal, Dwarka Prasad Agarwal and Agnivesh Agarwal entered into
a relationship agreement with Vedanta that seeks to enable
Vedanta to carry on its business independently of Volcan and the
Agarwal family. See Certain Relationships and Related
Transactions.
99
Competitive Strengths
We believe that we have the following competitive strengths:
|
|
|
High quality assets and resources making us a low-cost
producer in copper and zinc |
We believe that our business has assets of global size and
scale. Our costs of production in copper and zinc are
competitive with those of leading metals and mining companies in
the world. According to Brook Hunt, our largest zinc mine,
Rampura Agucha, is ranked third in the world in terms of
contained zinc deposits on a production basis and the fourth
largest on a reserve basis. Rampura Agucha had deposits of
53.4 million tons as of March 31, 2006. Moreover, the
low strip ratio and good ore mineralogy of the mine provide a
high metal recovery ratio and a low overall cost of production
for zinc concentrate extracted from the mine. In 2005, our
Tuticorin copper smelter had one of the lowest costs of
production for all copper smelting operations worldwide and our
Tuticorin and Silvassa refineries had the lowest and second
lowest cost of production, respectively, of all copper refining
operations worldwide, according to Brook Hunt. With our aluminum
business recently expanded and upgraded aluminum smelting
capacity and its relatively cost effective access to power,
including as a result of it being an energy-integrated aluminum
producer, we are seeking to lower our costs in this business as
well. Other factors contributing to our success in lowering our
costs of production include:
|
|
|
|
|
our focus on continually reducing manufacturing costs and
seeking operational efficiency improvements; |
|
|
|
our building and operating our own captive power plants to
supply a substantial majority of the power requirements of our
operations; and |
|
|
|
the relatively large and inexpensive labor and talent pools in
India. |
We view strict cost management and increases in productivity as
fundamental aspects of our
day-to-day operations
and continually seek to improve efficiency.
|
|
|
Leading non-ferrous metals and mining company in India
with a diversified product portfolio |
We have substantial market share across the copper, zinc and
aluminum metals markets in India. Specifically:
|
|
|
|
|
we are one of two custom copper smelters in India, with a
leading 43% primary market share by volume in India in fiscal
2006, according to ICPCI; |
|
|
|
HZL is Indias only integrated zinc producer and had a 73%
market share by volume in India in fiscal 2006, according to
ILZDA, and was the worlds fourth largest zinc mining
company in 2005 based on mine production, according to
Brook Hunt; and |
|
|
|
BALCO is one of the four primary producers of aluminum in India
and had a 19% primary market share by volume in India in fiscal
2006, among the primary producers of the country according to
AAI, and was the fastest growing primary producer of aluminum in
India in fiscal 2006 based on quantity of aluminum produced as a
result of the ramp-up in production at its new Korba aluminum
smelter. |
According to Brook Hunt, the demand for copper, zinc and
aluminum in India is expected to grow from 396,000 tons,
388,000 tons and 930,000 tons in 2005 to
867,000 tons, 664,000 tons and 1.5 million tons
in 2015, representing compound annual growth rates of 8.2%, 5.5%
and 4.9%, respectively. Similarly, Brook Hunt expects that China
will continue to provide an attractive market, with demand for
copper, zinc and aluminum expected to grow from 3.8 million
tons, 2.9 million tons and 7.0 million tons in 2005 to
8.0 million tons, 5.1 million tons and
16.7 million tons in 2015, representing compound annual
growth rates of 7.9%, 5.6% and 8.6%, respectively. This compares
to world demand for copper, zinc and aluminum, which Brook Hunt
estimates will grow from 16.9 million tons,
10.7 million tons and 32.0 million tons in
100
2005 to 24.4 million tons, 14.6 million tons and
50.2 million tons in 2015, representing compound annual
growth rates of 3.7%, 3.5% and 4.6%, respectively.
With our copper, zinc, aluminum and other businesses
representing 52.8%, 30.0%, 12.7% and 4.5% of our net sales and
24.2%, 67.2%, 11.0% and (2.4)% of our operating income in fiscal
2006, respectively, we believe that we have a diversified
product portfolio and intend to further diversify our business
through our planned entry into the commercial power generation
business.
|
|
|
Ideally positioned to capitalize on Indias growth
and resource potential |
We believe that our experience operating and expanding our
business in India will allow us to capitalize on attractive
growth opportunities arising from factors including:
|
|
|
|
|
Indias large mineral reserves. According to the
Geological Survey of India 2004, the total copper ore, lead-zinc
ore, bauxite and thermal coal resources of India are estimated
at 0.5 billion tons, 0.5 billion tons,
2.6 billion tons and 245.7 billion tons, respectively. |
|
|
|
Indias economic growth and proximity to other growing
economies. India, with an 8.5% increase in real gross
domestic product from 2004 to 2005, is one of the fastest
growing large economies in the world, with significant growth in
industrial production and investments in infrastructure.
According to the Centre for Monitoring Indian Economy, June
2006, Indias gross domestic product is expected to grow by
7.9% in fiscal 2007 with industry growth expected at 8.6%,
supported by growth in infrastructure and power spending. We
believe that our focus on the metals and power segments will
allow us to directly benefit from this growth. In addition,
India is strategically located close to other growing economies
in China, Southeast Asia and the Middle East. |
|
|
|
Indias large and inexpensive labor and talent
pools. India has, compared to other industrialized nations,
low labor costs as a result of its large and skilled labor pool
and the availability of many well-educated professionals. |
|
|
|
Strong pipeline of growth projects |
We possess a strong portfolio of greenfield and brownfield
projects that we intend to pursue:
|
|
|
|
|
Copper segment: Improve operational efficiencies at our
Tuticorin smelter to increase production to 400,000 tpa. |
|
|
|
Zinc segment: A second 170,000 tpa
hydrometallurgical zinc smelter similar to the one recently
completed, together with a coal-based 77 MW captive power
plant, which we expect to complete by early 2008. |
|
|
|
Power segment: A plan to enter the commercial power
generation business with Sterlite Energys construction of
four thermal coal-based 600 MW power plants to be completed
over the next four years as part of a 2,400 MW power
facility. In addition, BALCO has entered into a memorandum of
understanding under which, among other things, feasibility
studies will be undertaken for the possible construction of a
thermal coal-based 1,200 MW power facility. |
We have a track record of successfully completing projects on
time and within budget.
In addition, we have a minority interest in Vedanta Alumina,
which expects to commission a 1.0 million tpa alumina
refinery and a 75 MW captive power plant, expandable to
1.4 million tpa and 90 MW, respectively, subject to
governmental approvals, in the State of Orissa, India, in
March 2007. It is also planning to build a greenfield
500,000 tpa aluminum smelter and 1,215 MW captive
power plant in the State of Orissa, subject to governmental
approvals.
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Experience for entry into commercial power generation
business in India |
We have been building and operating captive power plants in
India since 1997 and are currently operating six captive power
plants with a total power generation capacity of 1,040 MW,
including two thermal coal-based captive power plants with a
total power generation capacity of 694 MW that we built
within the last three years. In July 2006, our board of
directors resolved and our shareholders subsequently approved in
principle a new strategy for us to enter into the commercial
power generation business in India. Demand for power in India to
support its growing economy has in recent years exceeded supply.
Per capita consumption of power in India, despite having
increased significantly in recent years, continues to lag behind
power consumption in other leading developed and emerging
economies by a large margin. See Overview of
Industries Commercial Power Generation
Business Consumption. In addition, it has
large thermal coal resources of over 250 billion tons and
the coal industry is in the process of government deregulation
that is expected to increase the availability of coal for power
generation among other uses. We believe these factors make the
commercial power generation business an attractive growth
opportunity in India and that, by leveraging our project
execution and operating skills and experience in building and
operating captive power plants, we can compete successfully in
this business.
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Experienced and focused management with strong project
execution and acquisition skills |
Our senior management has significant experience in all aspects
of our business and has transformed us from a small wire and
cable manufacturing company in the early 1980s into our current
status as a leading non-ferrous metals and mining company in
India. Mr. Anil Agarwal, our founder, remains involved in
overseeing our business as our Non-Executive Chairman. Our
experienced and focused management and dedicated project
execution teams have a proven track record of:
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successfully implementing capital-intensive projects to increase
our production capacities on time and within budget; |
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selecting attractive acquisition opportunities and successfully
improving the operations and profitability of acquired
businesses; |
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increasing the copper cathode capacity of our Tuticorin copper
smelter from 180,000 tpa to 300,000 tpa; |
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completing a brownfield expansion with the addition of a
170,000 tpa hydrometallurgical zinc smelter, together with
a coal-based 154 MW captive power plant, at Chanderiya,
India; |
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increasing the capacity of the Rampura Agucha lead-zinc mine and
processing plant from 2.0 million tpa, to
3.7 million tpa of ore to supply the brownfield zinc
smelter expansion at Chanderiya; and |
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expanding the Korba facility by adding a 245,000 tpa aluminum
smelter to bring the total installed capacity at that facility
to 345,000 tpa of aluminum. |
We utilize project monitoring and assurance systems to
facilitate timely execution of our projects. In addition, we
have established relationships with leading domestic and
international vendors that support our expansion projects. We
have successfully completed expansion projects across our
copper, zinc and aluminum businesses on which we have spent
Rs. 45,156 million ($1,015.2 million) over the last
three years.
We acquired our zinc business in April 2002 through our
acquisition of HZL and our aluminum business in March 2001
through our acquisition of BALCO. In both instances we have been
successful at increasing production levels from the existing
assets by improving operational efficiencies, lowering the costs
of production by commissioning captive power plants and growing
the businesses through capacity expansions, specifically:
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increasing the production of HZLs three zinc smelters and
three lead-zinc mines that were operational when we acquired
management control of HZL in 2002 from 172,140 tons of zinc |
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ingots and 214,447 tons of zinc mined metal content to
their present 212,649 tons of zinc ingots and
472,195 tons of zinc mined metal content, representing an
increase of 23.5% for zinc ingots and 120.1% for zinc mined
metal content, respectively; and |
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increasing the production of BALCOs original aluminum
smelter from 89,164 tpa when we acquired management control
of BALCO in 2001 to its present 104,728 tpa. |
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Ability and capacity to finance
world-class projects |
We have generated strong cash flows in recent years due to our
substantial volume growth, robust commodity prices and our cost
reduction measures as illustrated by our improved cash flow from
operations of Rs. 19,595 million ($440.3 million)
in 2006 compared with Rs. 6,075 million in 2004.
Moreover, we have a strong balance sheet with low leverage.
We believe that holding substantial cash and current assets and
maintaining low leverage are important to provide sufficient
liquidity and to meet the cash outflow requirements of our
capacity expansion projects in the event of any adverse
movements in commodity prices.
Strategy
Our goal is to generate strong financial returns and create a
world-class metals and mining company. Our strategy is to
continue to grow our business by completing our existing
expansion projects as well as setting up new greenfield and
brownfield projects. We intend to take advantage of our low-cost
base, expand our position in India as a supplier of copper, zinc
and aluminum products and further develop our exports of these
products. We are also leveraging our experience in building and
operating captive power plants to develop a commercial power
generation business in India and will continue to closely
monitor the Indian resource markets in our existing lines of
business as well as new opportunities such as iron ore and coal.
Key elements of our strategy include:
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Increasing our capacities through greenfield and
brownfield projects |
We intend to continue to increase our capacities through the
construction of new facilities. We believe that increasing our
capacities is critical to enable us to continue to capitalize
upon the growing demand for metals in India and abroad,
particularly in China, Southeast Asia and the Middle East. We
seek to implement our expansion projects quickly and with the
minimum necessary capital costs in order to generate a high
internal rate of return on the projects. The most recent and
ongoing projects to increase our production capacities are as
follows:
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in February 2006, HZL commissioned a new lead smelter that is
expected to increase capacity from 35,000 tpa to 85,000 tpa of
lead metal at the lead-zinc smelter at Chanderiya; and |
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in early 2006, HZL began construction of a second
170,000 tpa hydrometallurgical zinc smelter and an
additional 77 MW captive power plant at Chanderiya, which
are expected to be completed by early 2008. |
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Leveraging our project execution and operating skills and
experience in building and operating captive power plants to
develop a commercial power generation business |
The demand for power in India to support its growing economy has
in recent years exceeded supply. Per capita consumption of power
in India, despite significant increases in recent years,
continues to lag behind other leading developed and emerging
economies by a large margin. India has large thermal coal
resources and the coal industry is in the process of government
deregulation that is expected to increase the availability of
coal for power generation among other uses. We believe these
factors make the commercial power generation business an
attractive growth opportunity in India and that, by leveraging
our project execution and operating skills and experience in
building and operating captive power plants, we can compete
successfully in this business. In July 2006, our board of
directors resolved and our shareholders subsequently approved in
principle our new strategy to enter the commercial power
generation
103
business in India, which strategy includes an investment of
approximately Rs. 84,512 million
($1,900.0 million) over the next four years for Sterlite
Energy to build the first phase, totaling 2,400 MW, of a
thermal coal-based power facility in the State of Orissa. On
October 7, 2006, BALCO entered into a memorandum of
understanding with the Government of Chhattisgarh, India, and
the CSEB under which, among other things, feasibility studies
will be undertaken for a potential investment of approximately
Rs. 50,000 million ($1,124.1 million) to build a
thermal coal-based 1,200 MW power facility, along with an
integrated coal mine, in the State of Chhattisgarh.
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Continuing focus on asset optimization and reducing the
cost of production |
We intend to continue to improve our production processes and
methods and increase operational efficiencies to reduce our cost
of production. Our current initiatives include:
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seeking improvements in operations to maximize throughput and
plant availability to achieve production increases at our
existing facilities with minimum capital expenditures to
optimize our asset utilization; |
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reducing energy costs and consumption, including through
continued investment in advanced technologies to reduce the
power consumed in the refining and smelting processes and in
captive power plants to provide the required power; |
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increasing automation to reduce the manpower required for a
given level of production volume; |
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improving recovery ratios such that more finished product is
obtained from a given amount of raw material; |
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reducing purchase costs, including by entering into long-term
contracts for raw materials, making investments in mining
operations and optimizing the mix of raw material sourcing
between long-term contracts, mining operations and the
commodities spot markets to address fluctuations in demand and
supply; and |
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seeking better utilization of by-products, including through
adding additional processing capabilities to produce additional
end-products from the by-products that can be sold at higher
prices and help lower the cost of production of our core metals. |
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Seeking further growth and acquisition opportunities that
leverage our transactional, project execution and operational
skills |
Our senior management has significant experience in all aspects
of our business and has transformed us from a small wire and
cable manufacturing company in the early 1980s into our current
status as a leading non-ferrous metals and mining company in
India. Our successful acquisitions of HZL and BALCO contributed
substantially to our growth. We continually seek new growth and
acquisition opportunities in the metals and mining and related
businesses primarily in India, including through government
privatization programs. We continue to closely monitor the
Indian resource markets in our existing lines of business as
well as seeking out new opportunities such as iron ore and coal.
By selecting the opportunities for growth and acquisition
carefully and leveraging our transactional, project execution,
and operational skills, we expect to continue to expand our
business.
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Consolidating our corporate structure and increasing our
direct ownership of our underlying businesses to derive
additional synergies as an integrated group |
We have consolidated and are continuing to seek to increase our
direct ownership of our underlying businesses to simplify and
derive additional synergies as an integrated group, in
particular by acquiring major shareholders to consolidate our
corporate structure to simplify and more closely integrate our
operations. As part of this strategy we continue to seek to
increase our direct ownership of our underlying businesses to
derive additional synergies as an integrated group. In March
2004, we exercised our option to acquire the Government of
Indias remaining 49.0% ownership interest in BALCO in
order to make
104
BALCO a wholly-owned subsidiary, though the exercise of this
option has been contested by the Government of India and the
Government of India retains the right and has expressed an
intention to sell 5.0% of BALCO to BALCO employees. We own 64.9%
of HZL and we intend to acquire from the Government of India a
further 29.5% of the shares in HZL (or 26.0% if the Government
of India exercises in full its right to sell 3.5% of HZL to HZL
employees) after our call option to do so becomes exercisable on
or after April 11, 2007, assuming the Government of India
does not exercise its right to sell its remaining ownership
interest in HZL through a public offer prior to the exercise of
our call option. The Government of India is reportedly taking
steps towards making such a public offer. See Risk
Factors Risks Relating to Our Business
The validity of the Government of Indias divestment of
64.9% of HZL to us is currently pending adjudication and our
option to purchase the Government of Indias remaining
shares in HZL may be challenged and Options
to Increase Interests in HZL and BALCO.
Our History and Relationship with Vedanta
We were acquired by Mr. Anil Agarwal and his family in 1979
and have grown from a small wire and cable manufacturing company
to one of Indias leading non-ferrous metals and mining
companies. In 1988, we completed an initial public offering of
our shares in India. In 1991, we commissioned a copper rod plant
and in 1997 we commissioned the first privately developed and
licensed copper smelter in India at Tuticorin. In 2000, in order
to obtain a source for some of the copper concentrate
requirements of our Tuticorin smelter, we acquired CMT, which
owns the Mt. Lyell copper mine in Australia, and Thalanga Copper
Mines Pty Ltd, or TCM, which owns 70% of the Highway Reward
copper mine in Australia which has since closed in July 2005.
CMT and TCM had been acquired by Monte Cello BV, or Monte
Cello, in 1999, and we acquired them through our acquisition of
Monte Cello from a subsidiary of Twin Star in 2000.
We acquired our aluminum business through our acquisition of a
51.0% interest in BALCO from the Government of India on
March 2, 2001. On March 19, 2004, we gave notice to
exercise our call option to purchase the Government of
Indias remaining 49.0% shareholding in BALCO at a price
determined in accordance with the shareholders agreement
entered into by us and the Government of India. The exercise of
this option has been contested by the Government of India.
Further, the Government of India retains the right and has
expressed an intention to sell 5.0% of BALCO to BALCO employees.
See Options to Increase Interests in HZL and
BALCO for more information.
On April 11, 2002, we acquired through SOVL a 26.0%
interest in HZL from the Government of India and a further 20.0%
interest through an open market offer. On November 12,
2003, we acquired through SOVL a further 18.9% interest in HZL
following the exercise of a call option granted by the
Government of India, taking our interest in HZL to 64.9%. In
addition, SOVL has a call option exercisable on or after
April 11, 2007 to acquire the Government of Indias
remaining ownership interest in HZL.
On October 3, 2006, we acquired 100% of Sterlite Energy
from Twin Star Infrastructure Limited, Mr. Anil Agarwal and
Mr. Dwarka Prasad Agarwal for a total consideration of
Rs. 4.9 million ($0.1 million). Sterlite Energy
is our subsidiary through which we intend to pursue our plans to
set up a thermal coal-based 2,400 MW power facility in the
State of Orissa.
105
The following diagram summarizes the corporate structure of our
consolidated group of companies and our relationship with
Vedanta and other key entities as of October 20, 2006:
Notes:
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(1) |
Volcan is owned and controlled by members of the Agarwal family,
specifically Mr. Anil Agarwal, his father, Mr. Dwarka
Prasad Agarwal, and his son, Mr. Agnivesh Agarwal.
Mr. Dwarka Prasad Agarwal and Mr. Agnivesh Agarwal,
the Non-Executive Chairman of HZL, own all of the shares of
Volcan. Mr. Anil Agarwal, the Executive Chairman of Vedanta
and our Non-Executive Chairman, may also be deemed to
beneficially own all shares that may be owned or deemed to be
beneficially owned by Volcan. |
(2) |
We exercised our option to acquire the remaining 49.0% of BALCO
owned by the Government of India on March 19, 2004. The
exercise of this option has been contested by the Government of
India. The Government of India has the right and has expressed
an intention to sell 5.0% of BALCO to BALCO employees. See
Options to Increase Interests in HZL and
BALCO for more information. |
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(3) |
SOVL has a call option, exercisable on or after April 11,
2007, to acquire from the Government of India a further 29.5% of
HZL (or 26.0% if the Government of India exercises in full its
right to sell 3.5% of HZL to HZL employees). However, it has
been reported that the Government of India is taking steps to
sell its remaining ownership interest in HZL through a public
offer prior to our exercise of the call option. See
Options to Increase Interests in HZL and BALCO for more
information. |
The principal members of our consolidated group of companies are
as follows:
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Sterlite Industries (India) Limited. We are incorporated
in Kolkata, State of West Bengal, India, our registered office
is in Aurangabad, State of Maharashtra, India and we are
headquartered in Mumbai. We have been a public listed company in
India since 1988 and our equity shares are listed and traded on
the BSE and NSE. Vedanta, through Twin Star and MALCO, owns
76.0% of our issued share capital and has management control of
us. Vedantas 76.0% ownership interest in us is equal to
the sum of Twin Stars 72.3% ownership interest in us plus
80.0% of the 4.6% ownership interest in us of MALCO (reflecting
Vedantas 80% ownership interest in MALCO). We are a
majority-owned and controlled subsidiary of Vedanta. The
remainder of our share capital is held by SIL Employees
Welfare Trust, or SEWT (3.0%), Life Insurance Corporation of
India (1.4%) and other institutional and public shareholders
(18.7%). We operate our copper business within Sterlite, except
for our Australian copper mine, which is owned and operated by
our wholly-owned subsidiary CMT. |
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Bharat Aluminium Company Limited. BALCO is incorporated
in New Delhi, State of Delhi, India and is headquartered at
Korba in the State of Chhattisgarh. We own 51.0% of BALCOs
share capital and have management control of the company. The
Government of India owns the remaining 49.0%. We exercised an
option to acquire the Government of Indias remaining
ownership interest in BALCO on March 19, 2004, which has
been contested by the Government of India. Further, the
Government of India retains the right and has expressed an
intention to sell 5.0% of BALCO to BALCO employees. See
Options to Increase Interests in HZL and
BALCO for more information. BALCO owns and operates our
aluminum business. |
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Hindustan Zinc Limited. HZL is incorporated in Jaipur,
State of Rajasthan, India and is headquartered in Udaipur in
Rajasthan. HZL is listed on the BSE. We own 64.9% of HZLs
share capital through our wholly-owned subsidiary SOVL. The
remainder of HZLs share capital is owned by the Government
of India (29.5%) and institutional and public shareholders and
employees of HZL (5.6%). Through SOVL we have management control
of HZL, which owns and operates our zinc business, and own a
call option, exercisable on or after April 11, 2007, to
acquire the Government of Indias remaining ownership
interest at a fair market value to be determined by an
independent appraiser. However, it has been reported that the
Government of India is taking steps to sell its remaining
ownership interest in HZL through a public offer prior to our
exercise of the call option. See Options to
Increase Interests in HZL and BALCO for more information. |
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Sterlite Energy Limited. Sterlite Energy is incorporated
in Mumbai, State of Maharashtra, India and its registered office
is located in Mumbai, Maharashtra. Sterlite Energy is our
wholly-owned subsidiary. |
The key entities that control us are as follows:
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Volcan Investments Limited. Volcan was incorporated in
the Bahamas on November 25, 1992, and is owned and
controlled by members of the Agarwal family, specifically
Mr. Anil Agarwal, the Executive Chairman of Vedanta and our
Non-Executive Chairman, his father, Mr. Dwarka Prasad
Agarwal, and his son, Mr. Agnivesh Agarwal, the
Non-Executive Chairman of HZL. As part of Vedantas listing
on the LSE in December 2003, Volcan, Messrs. Dwarka Prasad
Agarwal, Agnivesh Agarwal and Anil Agarwal and Vedanta entered
into a relationship agreement dated December 5, 2003, which
seeks to regulate the ongoing relationship between them to
enable Vedanta to carry on its business independently of Volcan
and the Agarwal family. Volcan owns approximately 53.8% of the
issued ordinary share capital of Vedanta. |
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Vedanta Resources plc. On April 22, 2003, Vedanta
was created as a new company
wholly-owned by Volcan.
We and a number of other companies owned directly or indirectly
by the Agarwal family at that time became subsidiaries of
Vedanta. On December 10, 2003, Vedanta completed an initial
public offering of its shares in the United Kingdom and its
shares were listed on the LSE, as a result of which
Volcans ownership interest in Vedanta was reduced to 53.8%
as of the date of this prospectus. Vedanta is a leading metals
and mining company that is listed on the LSE and included in the
FTSE 100 Index. |
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We are, and after this offering will continue to be, a
majority-owned and controlled subsidiary of Vedanta. We are a
party to a shared services agreement with Vedanta and other
entities regarding the sharing of management services. See
Certain Relationships and Related Transactions. |
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In 2004, Vedanta, through its wholly-owned subsidiary, Vedanta
Resources Holdings Limited, or VRHL, acquired 51.0% of KCM,
which is incorporated in Zambia. KCM is the largest copper
metals and mining company in Zambia and exports substantially
all of its copper production to the Middle East and Southeast
Asia. KCM competes with us on the world copper markets. |
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The Madras Aluminium Company Limited. MALCO was
incorporated in 1960 in the State of Tamil Nadu, India where it
is also headquartered. MALCO is listed on the MSE. Vedanta has
management control of MALCO. MALCO is a fully integrated
aluminum producer and its alumina and aluminum products are
primarily sold in the domestic Indian market. MALCO, a
competitor of BALCO, had a primary market share in the Indian
market of 5% by volume in fiscal 2006, compared to 19% by volume
for BALCO. MALCO owns 38.8% of IFL, which owns and operates an
aluminum foil business. |
We also have an associate company, Vedanta Alumina, which is
incorporated in the State of Maharashtra, India, and is
70.5%-owned by Vedanta through Twin Star, following a
Rs. 4,421 million investment in March 2005. We own the
remaining 29.5% minority interest. Vedanta Alumina is part of
Vedantas consolidated group of companies but is not part
of our consolidated group of companies. Vedanta Alumina is
building an alumina refinery and has plans for the construction
of a 500,000 tpa aluminum smelter. See
Overview.
Basis of Presentation of Reserves
Our reported mineral reserves are derived following a systematic
evaluation of geological data and a series of technical and
economic studies by our geologists and engineers and an audit of
the results by the independent consulting firms of SRK
Consulting (South Africa) Pty Ltd, SRK Consulting (UK) Ltd and
Steffen Robertson and Kirsten (Australasia) Pty Ltd, which are
together referred to in this prospectus as SRK. The results are
reported using the guidelines and terminology defined by the
2004 edition of the Australasian Code for Reporting of
Identified Mineral Resources and Ore Reserves, which is
prepared by the Joint Ore Reserves Committee of the Australasian
Institute of Mining and Metallurgy, Australian Institute of
Geoscientists, and Minerals Council of Australia, and is
commonly referred to as the JORC Code. We have used
the JORC Code as the basis for reporting our reserve
estimates for historical reasons and these results have already
been published in Vedantas 2006 annual report. The
definitions in the 2004 edition of the JORC Code are either
identical to, or not materially different from, the
international definitions adopted in the United States, Canada,
South Africa, UK, Ireland and many countries in Europe, and as a
result our mineral reserves have been reported in compliance
with Industry Guide 7 of the Commission.
Under the JORC Code, the estimation of the quantity and quality
of the mineral occurrence is defined in two stages. In the first
stage, the location, quantity, grade, geological characteristics
and continuity of a Mineral Resource are interpreted and
estimated from specific geological evidence and knowledge. The
geological evidence is gathered from exploration, sampling and
testing information through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill
holes. Mineral Resources are sub-divided, in order of increasing
geological confidence, into Inferred, Indicated and Measured
categories.
108
In the second stage, the ore reserve is defined. An
ore reserve is the economically mineable part of a
measured and/or indicated mineral resource. It includes diluting
materials and allowances for losses, which may occur when the
material is mined. Appropriate assessments and studies have been
carried out, and include consideration of and modification by
realistically assumed mining, metallurgical, economic,
marketing, legal, environmental, social and governmental
factors. These assessments demonstrate at the time of reporting
that extraction could reasonably be justified. Ore Reserves are
sub-divided in order of increasing confidence into probable ore
reserves and proven ore reserves. The reported probable ore
reserves and proven ore reserves are the same whether calculated
under the JORC Code or the Commissions Industry
Guide 7.
We retained SRK to conduct independent reviews of our ore
reserve estimates at the Mt. Lyell copper mine, the Rampura
Agucha, Rajpura Dariba and Zawar lead-zinc mines and the Mainpat
and Bodai-Daldali bauxite mines. SRK visited each site and
reviewed the methodology and data used to develop the reserve
estimates. SRK noted that the geological information at
Mt. Lyell and Rampura Agucha are modeled using conventional
computerized models, the information at Rajpura Dariba is
modeled using a proprietary modeling system, and the information
at Zawar and the bauxite mines is modeled using paper based
sections. SRK conducted a series of checks at each mine to
verify that the resulting estimate of the quantity and quality
of ore present was appropriate.
SRK also verified that future projections on the modifying
factors were consistent with historic performance and that the
cut-off grades used were consistent with current operating
costs. At each site the long-term metal prices used in the
economic projections are based on either our estimate of
long-term metal prices and smelting charges or on independent
forecasts. For the lead-zinc and bauxite mines, these long-term
prices are similar to the average metal price for the last three
fiscal years and using the average metal price for the last
three fiscal years would not have resulted in a decrease in our
proven and probable reserves. For our Mt. Lyell copper
mine, these long-term prices were higher than the average metal
price for the last three fiscal years, which, if used, would
have resulted in a lower cut-off grade and reduced our proven
and probable reserves by approximately eight million tons.
In addition to the mineral reserves, we have identified further
mineral deposits as either extensions to or in addition to our
existing operations that are subject to ongoing exploration and
evaluation.
Our Copper Business
Our copper business is principally one of custom smelting and
includes a smelter, refinery, phosphoric acid plant, sulphuric
acid plant and copper rod plant at Tuticorin in Southern India
and a refinery and two copper rod plants at Silvassa in Western
India. In addition, we own the Mt. Lyell copper mine in
Tasmania, Australia, which provides a small percentage of our
copper concentrate requirements.
As a custom smelter, we buy copper concentrate at LME-linked
prices for copper. We sell refined copper at LME-linked prices
in the domestic and export markets. The TcRc is influenced by
global copper concentrate demand, supply of copper smelting and
refining capacity, LME trends, LME-linked price participation
and other factors. We source our concentrate from various global
suppliers and our Australian mine.
In recent years, we have improved the operating performance of
our copper business by improving operational efficiencies and
reducing unit costs, including reducing power costs by
constructing a captive power plant at Tuticorin. In 2005, our
Tuticorin smelter had one of the lowest costs of production of
all copper smelting operations worldwide and our Tuticorin and
Silvassa refineries had the lowest and second lowest cost of
production, respectively, of all copper refining operations
worldwide, according to Brook Hunt. We intend to further improve
the operating performance of our copper business by continuing
to reduce unit operating costs through improvements in recovery
rates, lowering power and transport costs, achieving economies
of scale and the achievement of other operational efficiencies.
109
Our copper cathodes are square shaped with purity levels of
99.99% copper. These cathodes meet international quality
standards and are registered as LME A Grade. The
major uses of copper cathodes are in the manufacture of copper
rods for the wire and cable industry and copper tubes for
consumer durable goods. Copper cathodes are also used for making
alloys like brass, bronze and alloy steel, with applications in
defense and construction.
Our copper continuous cast rods meet all the requirements of
international quality standards. Our copper rods are currently
used primarily for power and communication cables, transformers
and magnet wires.
We produce sulphuric acid at our sulphuric acid plant through
conversion of sulphur dioxide gas that is generated from the
copper smelter. A significant amount of the sulphuric acid is
consumed by our phosphoric acid plant in the production of
phosphoric acid, and the remainder of the sulphuric acid is sold
to fertilizer manufacturers and other industries.
We produce phosphoric acid at our phosphoric acid plant by
chemical reaction of sulphuric acid and rock phosphate, which we
import. Phosphoric acid is sold to fertilizer manufacturers and
other industries.
Other by-products of our copper smelting operations are gypsum
and anode slimes, which we sell to third parties.
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Our copper business has a number of elements which are
summarized in the following diagram and explained in greater
detail below:
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Supply of Copper Concentrate |
As a custom smelter, we source a significant majority of our
copper concentrate from third party suppliers at the LME price
less a TcRc. A small percentage of our copper concentrate is
sourced from our own mine in Tasmania, Australia. All of the
copper concentrate used in our operations, whether from our own
mine in Australia or from third party suppliers, is imported
through the port of Tuticorin in Southern India and transported
by road to our Tuticorin smelter.
Our Tuticorin smelter processes copper concentrate by combining
it with silica flux and lime, where required, and feeding it
into the
IsaSmelttm
furnaces. The furnaces smelt the copper concentrate, producing
copper matte, slag, and sulphur dioxide gas. The slag and the
copper matte flow into a holding furnace, where they are
separated. The slag is further smelted to extract additional
copper matte and then the remaining slag is discarded. The
copper matte is transferred to a converter, where it is oxidized
to produce blister copper. The blister copper is fed into the
anode furnace where additional sulphur dioxide is removed and
the copper is cast as copper anodes.
The sulphur dioxide gas produced from the
IsaSmelttm
furnaces at Tuticorin in the process of creating copper anodes
is fed through the sulphuric acid plant at Tuticorin to be
converted into sulphuric acid. Most of the sulphuric acid is
further treated in our phosphoric acid plant to be converted
into phosphoric acid. Both the sulphuric acid and the phosphoric
acid are sold primarily to fertilizer manufacturers. The
treatment of the sulphur dioxide gas creates sulphuric acid and
phosphoric acid by-products, including gypsum, from the copper
smelting process and avoids the release of the harmful sulphur
dioxide gas.
|
|
|
Silvassa and Tuticorin Refineries |
In the refineries at Silvassa and Tuticorin, which use
IsaProcesstm
technology, copper anodes are electrolytically refined to
produce copper cathodes with a purity of 99.99% and slimes,
which are treated further in a slimes treatment plant to recover
additional copper. The residual slimes are sold to third
parties. Copper cathodes are either sold to customers or sent to
our copper rod plants.
|
|
|
Silvassa and Tuticorin Copper Rod Plants |
In our copper rod plants, copper cathodes are first melted in a
furnace and cast in a casting machine, and then extruded and
passed through a cooling system that begins solidification of
copper into 51x38 mm or 54x38 mm copper bars. The
resulting copper bars are gradually stretched in a rolling mill
to achieve the desired diameter. The rolled bar is then cooled
and sprayed with a preservation agent and collected in a rod
coil that is compacted and sent to customers.
The copper cathodes, copper rods, phosphoric acid and other
by-products are shipped for export or transported by road to
customers in India.
112
The following map shows the locations of each of our copper
mines and production facilities and the reserves or production
capacities, as applicable:
113
The Mt. Lyell mine is located at Queenstown on the west
coast of Tasmania, Australia, approximately 164 kilometers
south of Burnie and approximately 260 kilometers northeast
of Hobart. Mt. Lyell has well established infrastructure as
mining has been conducted in the area since 1883. The town of
Queenstown, originally established to service the mines,
continues to provide a range of mining services which are
supplemented from Burnie and Hobart. Mt. Lyell is connected
by paved public road to Burnie and Hobart. There is a rail
connection to the port of Burnie.
The Mt. Lyell mine is owned and operated under the terms and
conditions as stipulated in Mining Leases 1M95 and 5M95 granted
by the State Government of Tasmania. Mining Lease 1M95 was
granted on January 1, 1995 for a period of 15 years
and Mining Lease 5M95 was granted on February 1, 1995 for a
period of 14 years. Both are renewable and are subject to
the terms and conditions specified in the Mineral Resources
Development Act, 1995 as amended. The mine is also covered by
the Copper Mines of Tasmania Pty Ltd Agreement (Act) 1999
between the State Government of Tasmania and CMT, which limits
the environmental liabilities to the impact of current
operations, thereby insulating CMT from any historical legacy
claims.
The Mt. Lyell mining district was first discovered in 1883 and
15 separate orebodies have been mined over its life. It is
estimated that in excess of 100 million tons of ore has
been extracted from the district. Monte Cello acquired CMT in
1999 from Mt. Lyell Mining Company Limited, or MLMC, formerly
Gold Mines of Australia, when MLMC entered voluntary
administration due to hedging difficulties. Since Monte Cello
took over the mine, annual production has increased from
2.0 million tpa to 2.6 million tpa in fiscal 2006. We
acquired Monte Cello, and with it CMT, from a subsidiary of Twin
Star in 2000.
The principal deposits in the Mt. Lyell region are all of
the volcanic disseminated pyrite-chalcopyrite type, which
accounts for 86% of the known ore in the region. The geology of
the Mt. Lyell mine consists of a series of intercalated
felsic to mafic-intermediate volcanics. Lithologies are highly
altered quartz-sericite-chlorite volcanics with individual units
delineated largely by the relative abundance of phyllosilicates.
Volcaniclastic and rhyolitic lithologies occur sporadically
throughout the sequence, as does pervasive iron mineralization
in the form of haematite, magnetite and siderite.
Chalcopyrite is the principal ore mineral and occurs chiefly in
higher grade lenses enveloped by lower grade halos. The overall
structure of Mt. Lyell is that of a steepy dipping
overturned limb of a large anticline. The hanging wall
(stratigraphic footwall) of the ore body consists of weakly
mineralized chloritic schists with disseminated pyrite. The
footwall is sharply defined by the Great Lyell Fault
Owen Conglomerate contact which truncates the ore body at its
southern end.
All mining operations at CMT are undertaken by contractors while
the processing and mill maintenance operations are undertaken by
CMT employees. A sub-level caving underground mining method is
used at the Prince Lyell ore body. Ore is loaded into trucks by
front end loader at draw points and then transported to the
underground crusher and skip loading area. Crushed ore is then
hauled via the Prince Lyell shaft and unloaded onto a conveyor
feeding the ore bin at the Mt. Lyell processing plant. At
the processing plant, the ore is crushed and ground prior to
processing by floatation to produce copper concentrate, which is
then filtered to form a cake and trucked to the Melba Flats
railway siding for transport to the port of Burnie. The
concentrate is stored at Burnie until it is loaded into ships
for transport to the port of Tuticorin in south India from where
it is trucked to the Tuticorin smelter.
The tailings dam is a valley-fill type and excess water is
discharged via a spillway. The water quality is sampled before
the water is released from the site. The tailings are deposited
on beaches some 300 meters from the dam spillway.
CMTs accepted closure plan is to flood the tailings which
will require CMT to raise the tailings dam wall.
CMT has an active exploration and evaluation program at
Mt. Lyell which involves upgrading resources below the
Prince Lyell reserves and testing additional exploration targets
on the mining lease. The Western Tharsis deposit lies to the
west of the Prince Lyell ore body, but CMT has not yet
114
committed to its development. Additional targets include Tasman
& Crown, Glen Lyell, Copper Clays and NW Geophysics.
The processing plant is approximately 30 years old and has
been partially refurbished following our acquisition with the
addition of crushers, a float cell and a regrind mill at the
surface. While the condition of the plant is ageing, maintenance
is carried out as required to ensure that the process plant
remains in safe and efficient condition.
Power at the mine is supplied through an electricity supply
agreement with Aurora Energy Pty Ltd to supply
130 GW per house with rates fixed until June 30,
2007. There is a plentiful supply of water from mine water and
storm water captured on the tailings dam.
The gross value of fixed assets including capital works in
progress is approximately at AUD 53.1 million
(Rs. 1,686 million or $37.9 million) as of
March 31, 2006.
In fiscal 2006, Mt. Lyell mined and processed
2.6 million tons of ore to produce 105,690 tons of
copper concentrate. Although the grade of copper at Mt. Lyell is
low, it produces a clean concentrate that is valuable in the
smelting process. Based on current reserves and anticipated
production, the estimated mine life at Mt. Lyell is
approximately four years.
The economic cut-off grade is defined using the forecasted metal
prices for the expected life of the reserves and current
operating fixed and variable costs and efficiencies. The metal
prices forecasted for the expected life of the reserves are
$3,750 per ton for copper and $500 per ounce for gold.
The reserves are derived from stopes which are designed such
that the limits of the stope are defined by a cut-off grade of
1.0% copper and have an average grade that exceeds 1.0% copper.
The revenue derivation of the cut-off grade includes the gold
credit. The break-even cut-off grade of 0.75% copper is the
grade that makes enough margin to cover the fixed and variable
costs while the actual or operational cut-off grade used is 1.0%
copper. CMT operates on a 1.0% copper operational cut-off grade
in practice, prefering to take a higher revenue at the expense
of a longer mine life. A stope drawpoint is drawn until the
average grade of the broken material drops below the operational
cut-off grade of 1.0% copper.
The following table sets out our proven and probable copper
reserves as of March 31, 2006. The figures show the split
between the ore derived from primary, or in-situ, ore and
secondary ore, which consists of broken fresh ore from previous
levels, remnants of ore from the open-pit side wall and pillars
remaining from a former mining method together with sub-economic
dilution from the mineralized material surrounding the ore body.
The quantity and grade of the secondary ore was determined from
the analysis of historical production. The estimate of the
quantity and grade of the remnant material has been evaluated
from previous studies and only uses a small proportion of this
source of ore. Consequently, we believe that this allowance can
be sustained for the forecast life of the reserves.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proven and |
|
|
|
|
Proven Reserve |
|
Probable Reserve |
|
Probable Reserves |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Copper |
|
|
|
Copper |
|
|
|
Copper |
Mine |
|
Source |
|
Quantity |
|
Grade |
|
Quantity |
|
Grade |
|
Quantity |
|
Grade |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(million tons) |
|
(%) |
|
(million tons) |
|
(%) |
|
(million tons) |
|
(%) |
Mt. Lyell
|
|
|
In-situ ore |
|
|
|
6.7 |
|
|
|
1.4 |
|
|
|
2.2 |
|
|
|
1.5 |
|
|
|
8.9 |
|
|
|
1.4 |
|
|
|
|
Secondary ore |
|
|
|
3.8 |
|
|
|
0.9 |
|
|
|
1.4 |
|
|
|
1.0 |
|
|
|
5.2 |
|
|
|
0.9 |
|
|
|
|
Surface stockpile |
|
|
|
0.1 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
0.1 |
|
|
|
1.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
10.6 |
|
|
|
1.3 |
|
|
|
3.6 |
|
|
|
1.3 |
|
|
|
14.2 |
|
|
|
1.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These reserves were calculated using an average estimated copper
price for the period to 2010 of $3,700 per ton to
define the economic cut-off grade. If these reserves had been
calculated using the average copper metal price for the last
three fiscal years of $2,694 per ton, this would have
resulted in a lower cut-off grade and reduced our proven and
probable reserves by approximately eight million tons to
around six million tons.
115
|
|
|
Our Smelter and Refineries |
The following table sets forth the total capacities as of
March 31, 2006 at our Tuticorin and Silvassa facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity | |
|
|
| |
|
|
Copper | |
|
Copper | |
|
Copper | |
|
Sulphuric | |
|
Phosphoric | |
|
Captive Power | |
Facility |
|
Anode(1) | |
|
Cathode(2) | |
|
Rods(2) | |
|
Acid(3) | |
|
Acid(3) | |
|
Plant | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(tpa) | |
|
(MW) | |
Tuticorin
|
|
|
300,000 |
|
|
|
120,000 |
|
|
|
90,000 |
|
|
|
1,068,000 |
|
|
|
180,000 |
|
|
|
46.5 |
|
Silvassa
|
|
|
|
|
|
|
180,000 |
|
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
300,000 |
|
|
|
300,000 |
|
|
|
240,000 |
|
|
|
1,068,000 |
|
|
|
180,000 |
|
|
|
46.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes:
|
|
(1) |
Copper anode is an intermediate product produced by copper
smelters and is not sold to customers. It is used for the
production of copper cathode by copper refineries. Approximately
one ton of copper anode is required for the production of one
ton of copper cathode. |
(2) |
Copper cathode is used as a starting material for copper rods.
Approximately one ton of copper cathode is required for the
production of one ton of copper rods. |
(3) |
Sulphuric acid is used as a starting material for phosphoric
acid. Approximately 2.8 tons of sulphuric acid are required
for the production of one ton of phosphoric acid. |
Our Tuticorin facility, commissioned in 1997, is located
approximately 17 kilometers inland from the port of
Tuticorin in Tamil Nadu in Southern India. Tuticorin is one of
Indias two largest copper smelters, based on production
volume. Our Tuticorin facility consists of a smelter, a
refinery, a copper rod plant, a sulphuric acid plant, a
phosphoric acid plant and two captive power plants with a total
capacity of 46.5 MW. In 2005, we completed an expansion of
the smelter which increased the installed capacity from
approximately 180,000 tpa to approximately 300,000 tpa of
copper anode. In addition, we commissioned the 120,000 tpa
copper refinery and 90,000 tpa copper rod plant and
increased the capacity of the phosphoric acid plant from 120,000
tpa to 180,000 tpa. A captive power plant of 22.5 MW
was also installed as part of the expansion and this, together
with a further 11.2 MW generated from the smelter waste
heat boiler and the supply from the existing 24 MW captive
power plant, meets most of the facilitys power
requirements. The remaining power requirements of the facility,
which amount to approximately 3% of its total power
requirements, are obtained from the state power grid. Our
captive power plants at Tuticorin operate on low sulphur heavy
stock procured through long-term contracts with various oil
companies.
The smelter at the Tuticorin facility utilizes
IsaSmelttm
furnace technology. The recently completed refinery uses
IsaProcesstm
technology to produce copper cathode and the new copper rod
plant uses Properzi Continuously Cast and Rolled, or CCR, copper
rod technology from Continuus-Properzi S.p.A. to produce copper
rods.
Our Silvassa facility commissioned in 1997, comprises a refinery
and two copper rod plants and is located approximately, 140
kilometers from Mumbai in the union territory of Dadra and Nagar
Haveli in Western India. Its refinery uses
IsaProcesstm
technology in the production of copper cathode and its copper
rod plants use Properzi CCR copper rod technology. The refinery
has an installed capacity of approximately 180,000 tpa of
copper cathode and the copper rod plants have a total installed
capacity of approximately 150,000 tpa of copper rods. Our
Silvassa facility draws on the state power grid to satisfy its
power requirements.
116
The following table sets out our total production from Tuticorin
and Silvassa for the three years ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
|
|
| |
Facility |
|
Product | |
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(tons) | |
Tuticorin
|
|
|
Copper anode(1) |
|
|
|
175,242 |
|
|
|
177,020 |
|
|
|
273,049 |
|
|
|
|
Sulphuric acid(2) |
|
|
|
541,721 |
|
|
|
546,647 |
|
|
|
844,122 |
|
|
|
|
Phosphoric acid(2) |
|
|
|
117,614 |
|
|
|
104,902 |
|
|
|
171,892 |
|
|
|
|
Copper cathode(3) |
|
|
|
|
|
|
|
|
|
|
|
98,796 |
|
|
|
|
Copper rods(3) |
|
|
|
|
|
|
|
|
|
|
|
30,180 |
|
Silvassa
|
|
|
Copper cathode(3) |
|
|
|
178,654 |
|
|
|
171,992 |
|
|
|
174,252 |
|
|
|
|
Copper rods(3) |
|
|
|
122,713 |
|
|
|
125,406 |
|
|
|
136,317 |
|
|
Total
|
|
|
Copper anode |
|
|
|
175,242 |
|
|
|
177,020 |
|
|
|
273,049 |
|
|
|
|
Copper cathode |
|
|
|
178,654 |
|
|
|
171,992 |
|
|
|
273,048 |
|
|
|
|
Copper rods |
|
|
|
122,713 |
|
|
|
125,406 |
|
|
|
166,497 |
|
|
|
|
Sulphuric acid |
|
|
|
541,721 |
|
|
|
546,647 |
|
|
|
844,122 |
|
|
|
|
Phosphoric acid |
|
|
|
117,614 |
|
|
|
104,902 |
|
|
|
171,892 |
|
Notes:
|
|
(1) |
Copper anode is an intermediate product produced by copper
smelters and is not sold to customers. It is used for the
production of copper cathode by copper refineries. Approximately
one ton of copper anode is required for the production of one
ton of copper cathode. |
(2) |
Sulphuric acid is used as a starting material for phosphoric
acid. Approximately 2.8 tons of sulphuric acid are required
for the production of one ton of phosphoric acid. |
(3) |
Copper cathode is used as a starting material for copper rods.
Approximately one ton of copper cathode is required for the
production of one ton of copper rods. |
The following table sets out the total mine copper extraction
from the Mt. Lyell mine that we own through CMT as well as
from the Highway Reward mine (closed in July 2005) that our
wholly-owned subsidiary, TCM, has a 70.0% ownership interest in,
for the three years ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
|
|
| |
Mine (Type of Mine) |
|
Product | |
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
|
|
(tons, except for percentages) | |
Mt. Lyell (Underground)
|
|
|
Ore mined |
|
|
|
2,674,946 |
|
|
|
2,417,468 |
|
|
|
2,605,969 |
|
|
|
|
Ore grade |
|
|
|
1.24 |
% |
|
|
1.22 |
% |
|
|
1.25 |
% |
|
|
|
Copper recovery |
|
|
|
91.18 |
% |
|
|
91.57 |
% |
|
|
90.46 |
% |
|
|
|
Copper concentrate |
|
|
|
97,007 |
|
|
|
98,141 |
|
|
|
105,690 |
|
|
|
|
Copper in concentrate |
|
|
|
28,334 |
|
|
|
27,593 |
|
|
|
29,770 |
|
Highway
Reward(1)
(Underground)
|
|
|
Ore mined |
|
|
|
792,568 |
|
|
|
305,437 |
|
|
|
147,917 |
|
|
|
|
Copper concentrate |
|
|
|
103,345 |
|
|
|
47,843 |
|
|
|
21,506 |
|
|
|
|
Copper in concentrate |
|
|
|
27,211 |
|
|
|
12,272 |
|
|
|
5,616 |
|
|
Total
|
|
|
Ore mined |
|
|
|
3,467,514 |
|
|
|
2,722,905 |
|
|
|
2,753,886 |
|
|
|
|
Copper concentrate |
|
|
|
200,352 |
|
|
|
145,984 |
|
|
|
127,196 |
|
|
|
|
Copper in concentrate |
|
|
|
55,545 |
|
|
|
39,865 |
|
|
|
35,386 |
|
117
Note:
|
|
(1) |
TCM has a 70.0% ownership interest in the Highway Reward mine,
which was closed in July 2005. The figures shown represent total
mine production at the Highway Reward underground mine,
including the portion attributable to TCMs joint venture
partner, BML Holdings Pty Ltd, during the times when the mine
was open, which was used in our business. |
The principal inputs of our copper business are copper
concentrate, rock phosphate and power. We have in the past been
able to secure an adequate supply of the principal inputs for
our copper production.
Copper concentrate is the principal raw material of our copper
smelter. In fiscal 2006, we sourced 89% of our copper
concentrate requirements from third party suppliers, either
through long-term contracts or on spot markets. We purchase
copper concentrate at the LME price less a TcRc that we
negotiate with our suppliers but which is influenced by the
prevailing market rate for the TcRc. In fiscal 2006, we sourced
only 11% of our copper concentrate requirements from our own
mines in Australia. We expect the percentage we purchase from
third party suppliers to increase in future periods as we closed
the Highway Reward mine in July 2005 and the reserves of our
sole remaining copper mine, Mt. Lyell, are expected to be
exhausted by fiscal 2010. We expect the percentage we purchase
from third party suppliers to also increase in future periods to
the extent we seek to increase our copper smelting and refining
capacity.
In general, our long-term agreements run for a period of three
to five years, and are renewable at the end of the period. The
quantity of supply for each contract year is fixed at the
beginning of the year and terms like TcRc and freight
differential are negotiated each year depending upon market
conditions. During fiscal 2006, we sourced approximately 65% of
our copper concentrate requirements through long-term agreements.
We also purchase copper concentrate on a spot basis to fill any
gaps in our requirements based on production needs for quantity
and quality. These deals are struck on the best possible TcRc
during the period and are specific for short-term supply. During
fiscal 2006, we sourced approximately 24% of our copper
concentrate requirements through spot purchases.
Our rock phosphate is currently sourced from Jordan pursuant to
contracts renewed on an annual basis, with pricing fixed for the
year. These contracts provide for minimum supply quantities with
an option to increase if required.
The electricity requirements of our copper smelter and refinery
at Tuticorin are primarily met by the
on-site captive power
plants. Our captive power plants at Tuticorin operate on low
sulphur heavy stock that is procured through long-term contracts
with various oil companies. Our Silvassa facility relies on the
state power grid for its power requirements.
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Distribution, Logistics and Transport |
Copper concentrate from the Mt. Lyell processing facility
is transported by road to a rail head and then transported by
rail to the port of Burnie, Tasmania, from which it is shipped
to the port of Tuticorin in India. Copper concentrate sourced
from both our Mt. Lyell processing facility and from third
parties is received at the port of Tuticorin and then
transported by road to the Tuticorin facility.
118
Once processed at the Tuticorin facility, copper anodes are
either refined at Tuticorin or transported by road to Silvassa.
Copper cathodes, copper rods, sulphuric acid, phosphoric acid
and other by-products are shipped for export or transported by
road to customers in India.
The ten largest customers of our copper business accounted for
approximately 26%, 25% and 32% of our copper business net sales
in fiscal 2004, 2005 and 2006. No customer accounted for greater
than 10% of our copper net sales in any of the last three fiscal
years.
Our copper sales and marketing head office is located in Mumbai,
and we have field sales and marketing offices in most major
metropolitan centers in India. We sell our copper rods and
cathodes in both the domestic and export markets. In fiscal
2004, 2005 and 2006, exports accounted for approximately 42%,
53% and 64% of the net sales of our copper business,
respectively. Our export sales were primarily to China, Japan,
the Philippines, Singapore, South Korea, Taiwan, Thailand and
various countries in the Middle East. We also sell phosphoric
acid and other by-products in both the domestic and export
markets.
Domestic sales are normally conducted on the basis of a fixed
price for a given month that we determine from time to time on
the basis of average LME price for the month, as well as
domestic supply and demand conditions. The price for copper we
sell in India is normally higher than the price we charge in the
export markets due to the tariff structure on costs, smaller
order sizes that domestic customers place and the packaging,
storing and truck loading expenses that we incur when supplying
domestic customers.
Our export sales of copper are made on the basis of both
long-term sales agreements and spot sales. The sales prices of
our copper exports include the LME price plus a producers
premium. We do not enter into fixed price long-term copper sales
agreements with our customers.
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Projects and Developments |
Our current project involves improving the operational
efficiency of our Tuticorin copper smelter to achieve
400,000 tpa production, which we expect to complete by
early 2007.
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Market Share and Competition |
We are one of the two custom copper smelters in India and had a
leading 43% primary market share by volume in India in fiscal
2006, according to ICPCI. The other custom copper smelter in
India is Hindalco, which had a primary market share by volume in
India of approximately 41% in fiscal 2006. The remainder of the
primary copper market in India was served by Hindustan Copper in
fiscal 2006.
Copper is a commodity product and we compete primarily on the
basis of price and service, with price being the most important
consideration when supplies of copper are abundant. Our metal
products also compete with other materials, including aluminum
and plastics, that can be used in similar applications by
end-users. Copper is sold directly to consumers or on terminal
markets such as the LME. Prices are established based on the LME
price, though as a regional producer we are able to charge a
premium to the LME price which reflects the cost of obtaining
the metal from an alternative source.
Our Zinc Business
Our zinc business is owned and operated by HZL. HZLs
fully-integrated zinc operations include three lead-zinc mines,
two zinc smelters, one lead smelter and one lead-zinc smelter in
the State of Rajasthan in Northwest India and one zinc smelter
in the State of Andhra Pradesh in Southeast India. HZLs
mines supply all of its concentrate requirements and allow HZL
to also export surplus zinc and lead concentrates.
119
We first acquired an interest in HZL in April 2002 and since
then have significantly improved its operating performance
through expansion and by improving operational efficiencies and
reducing unit costs. HZL intends to improve its operating
performance further by:
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benefiting from low-cost production available from its newly
commissioned 170,000 tpa hydrometallurgical smelter at
Chanderiya; |
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increasing the percentage of concentrates being sourced from its
Rampura Agucha mine as compared to its other mines to lower its
cost of obtaining zinc concentrate; |
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continuing its initiatives to improve operational efficiencies
at its existing operations; |
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reducing power costs; |
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reducing the size of its workforce including through a voluntary
retirement plan; and |
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increasing productivity and upgrading existing technology. |
We have a 64.9% ownership interest in HZL, with the remainder
owned by the Government of India (29.5%) and institutional and
public shareholders (5.6%). We currently hold a call option that
is exercisable on or after April 11, 2007 to acquire the
Government of Indias remaining ownership interest at a
fair market value to be determined by an independent appraiser.
However, it has been reported that the Government of India is
taking steps to sell its remaining ownership interest in HZL
through a public offer prior to our exercise of the call option.
See Options to Increase Interests in HZL and
BALCO for more information.
We produce and sell zinc ingots in all three international
standard grades: Special High Grade (SHG), High Grade (HG) and
Prime Western (PW). We sell most of our zinc ingots to Indian
steel producers for galvanizing steel to improve its durability.
Some of our zinc is also sold to alloy, dry cell battery, die
casting and chemical manufacturers.
We produce and sell lead ingots of 99.99% purity primarily to
battery manufacturers and to a small extent to chemical
manufacturers.
We sell sulphuric acid to fertilizer manufacturers and other
industries.
We produce and sell silver ingots primarily to industrial users
of silver.
120
Our zinc business has a number of elements which are summarized
in the following diagram and explained in greater detail below:
121
HZL sources all of the lead-zinc ore required for its business
from its Rampura Agucha open-pit mine and Zawar and Rajpura
Dariba underground mines in Northwest India. Lead-zinc ore
extracted from the mines is conveyed to
on-site concentrators
and beneficiation plants that process the ore into zinc and lead
concentrates. With its low strip ratio and good ore mineralogy
providing a high metal recovery ratio, the Rampura Agucha mine
accounted for 88.9% of HZLs total mined metal in zinc
concentrate produced in fiscal 2006, with the Zawar and Rajpura
Dariba mines accounting for the remaining 6.0% and 5.1%,
respectively. The zinc and lead concentrates are then
transported by road to the nearby Chanderiya and Debari smelters
and by rail to the Vizag smelter in Southeast India. HZL has
also sold significant quantities of surplus zinc and lead
concentrates from its mines to third party smelters.
Our current Indian Bureau of Mines, or IBM, approvals for the
Rampura Agucha mine, the Zawar mine and the Rajpura Dariba mine
limit our extraction of lead-zinc ore from the mines to
approximately 3.7 million tpa, 0.9 million tpa and
1.0 million tpa, respectively, in fiscal 2007.
HZL has two types of zinc smelters, hydrometallurgical and
pyrometallurgical. Three of HZLs smelters are
hydrometallurgical and one of HZLs smelters is
pyrometallurgical.
The hydrometallurgical smelting process is a roast, leach and
electrowin, or RLE, process. Zinc concentrate is first oxidized
in the roaster and the gases generated are cleaned and sent to
the sulphuric acid plant. The primary output from the roaster,
called calcine, is sent to the leaching plant to produce a zinc
sulphate solution that is then passed through a cold/hot
purification process to produce purified zinc sulphate solution.
The purified zinc solution then goes through an electrolysis
process to produce zinc cathodes. Finally, the zinc cathodes are
melted and cast into zinc ingots.
The pyrometallurgical smelter uses the Imperial Smelting
Process,
ISPtm,
which process starts with sintering, where a mixture consisting
of lead and zinc concentrates and fluxes is passed through the
sinter machine to remove the sulphur. The gases generated from
the sintering process are sent to the sulphuric acid plant. The
de-sulphurized output of the sinter machine is broken for size
reduction before being fed into an Imperial Smelting Furnace, or
ISF, where it is smelted with preheated metcoke and air. During
the smelting process, molten lead trickles down to the bottom of
the ISF and zinc rises up as vapor. The vapor is passed into a
condenser where it is then absorbed back into the molten lead.
The molten lead is cooled to separate out the zinc, which is
then passed through a process of double distillation and
condensation through which any remaining lead is removed to
produce pure zinc metal which is cast into ingots. The lead
removed through this process is sent to the pyrometallurgical
lead smelter.
HZL has two lead smelters, one of which uses the
pyrometallurgical ISF process and is part of the
pyrometallurgical zinc smelter described above and the other of
which uses
Ausmelttm
technology.
The pyrometallurgical process involves the smelting of lead and
zinc together as described under Zinc
Smelters. Lead removed from the pyrometallurgical process
is sent for further refining where it passes through a series of
processes to remove impurities. In this process, silver is also
produced as a
by-product. The refined
lead is cast into lead ingots.
HZLs
Ausmelttm
lead plant is based on Top Submerged Lance technology where lead
concentrate is smelted directly in a vertical furnace along with
flux. Lead bullion produced in this process is then treated in
the lead refinery plant to produce high purity lead ingots.
Off-gas containing sulphur dioxide gas is then cleaned and
treated in the sulphuric acid plant.
122
The zinc and lead ingots and the silver and sulphuric acid
by-products are transported by road to customers in India. Zinc
ingots are also shipped for export.
The following map shows the locations of HZLs lead-zinc
mines and production facilities and the reserves or production
capacities, as applicable:
123
The following map shows the locations of HZLs facilities
in the State of Rajasthan:
The following local map shows details of the locations of
HZLs facilities in the State of Rajasthan:
124
The Rampura Agucha zinc mine is located in Gulabpura, District
Bhilwara in the State of Rajasthan, northwestern India. It can
be accessed by paved road from the major centers of Udaipur,
approximately 225 kilometers to the south, and Jaipur, the
capital of the State of Rajasthan, which lies approximately
235 kilometers to the north. The nearest railway to the
mine lies approximately five kilometers to the west. This
railway provides access to Jaipur in the north and Chittorgarh
in the south where the Chanderiya lead-zinc smelting facility is
located.
The Rampura Agucha deposit is the third largest lead-zinc mine
in the world in terms of contained zinc deposits on a production
basis and fourth largest on a reserve basis, according to Brook
Hunt. It is a sediment-hosted zinc deposit which lies within
gneisses and schists of the Precambrian Mangalwar Complex. The
main ore body is 1.5 kilometers long and has a width
ranging from five meters to 120 meters with an average
of approximately 58 meters. It extends from the surface
with recent exploration intersecting up to 35 meter wide
mineralized zones at depths of over 800 meters. The
southern boundary of the ore body is sharp and steeply dipping
while the northern margin is characterized by a thinning
mineralized zone. Grades remain relatively consistent with
depth. The ore body consists of sphalerite and galena, with
localized concentrations of pyrite, aresenopyrite, pyrrhotite
and tetrahedrite-tennantite.
The Rampura Agucha mine is Indias largest producer of lead
and zinc ore and one of the five largest producers in the world.
The ore body is mined by open-pit methods. The capacity of the
mine and concentrator was expanded between 2003 and 2005 from
2.4 million tpa to 3.7 million tpa through
the purchase of additional mining equipment, upgrades to the
truck fleet, improvements to the operational efficiency of the
plant and the installation of a new semi-autogenous, or SAG, and
ball mill circuit.
Mining at Rampura Agucha is a simple drill and blast, load and
haul sequence using 78 and 95 ton trucks and nine and 15
cubic meter excavators. Ore is trucked to the primary crusher at
the mill and waste is trucked to the waste dump. The mining
equipment is all owner-operated. The processing facility is a
conventional crushing, milling and differential lead-zinc
floatation plant which was commissioned in 1991. Ore from the
open-pit is crushed in a series of three crushing circuits and
then milled in three identical milling circuits, comprising a
rod mill in open circuit and a ball mill in closed circuit. The
milled ore is then sent to the lead flotation circuit which
includes roughing, scavenging and three stages of cleaning. The
lead concentrates are thickened and filtered ahead of storage
and transport to the Chanderiya lead smelter. The lead flotation
tails proceed to zinc flotation which comprises roughing,
scavenging and four stages of cleaning. Zinc concentrates are
thickened and filtered ahead of storage and transport to all
three of the HZL zinc smelters. Zinc flotation tails are
thickened ahead of disposal to the tailings dam.
Exploration at Rampura Agucha since 2004 has resulted in
significant increases in the reserves at the mine. As of
March 31, 2004, the reserve at Rampura Agucha was
40.1 million tons with an average grade of 12.8% zinc and
1.9% lead. Following an extensive drilling program
(44 holes, approximately 23,900 meters) to convert
resources to reserves, better define the boundaries of the ore
body and add resources, the reserve as of March 31, 2006
was increased by 13.3 million tons to 53.4 million
tons with an average grade of 12.8% zinc and 2.0% lead after
depletion, notwithstanding the mining of 6.0 million tons
during fiscal 2006. Further studies have been commissioned to
evaluate the potential to increase the reserves by either
deepening the open-pit mine or developing an underground mine in
the known extension of the deposit.
The Rampura Agucha open-pit mine was commissioned in 1991 by
HZL and operated as a state-owned enterprise until 2002
when it was acquired by us. The low strip ratio and good ore
minerology of the mine provide a high metal recovery ratio and a
low overall cost of production for zinc concentrate extracted
from the mine. An
on-site concentrator is
used to produce zinc and lead concentrates which are
125
shipped mainly to HZLs smelters though surplus
concentrates are exported through the port of Kandla. The mining
and processing facilities are modern and in good condition.
In fiscal 2006, 3,496,000 tons of ore were mined from
Rampura Agucha, which produced 790,050 tons of zinc concentrate
and 65,194 tons of lead concentrate.
The 12 square kilometers mining lease was granted by the
State Government of Rajasthan and runs until March 2020. Mining
leases are governed in accordance with the Mineral Concession
Rules 1960 and the Mineral Conservation and Development
Rules, 1988. We have also obtained consents under various
environmental laws to operate the mine.
Power is supplied from a 154 MW captive power plant at
Chanderiya with two backup 5 MW generators on-site. Water
to the site is pumped 57 kilometers from radial wells in
the Banas River. A water extraction permit has been granted,
which provides sufficient water for a production rate of
approximately 3.7 million tpa.
The gross book value of the Rampura Agucha mines fixed
assets and mining equipment was approximately
Rs. 4,853 million ($109.1 million) as of
March 31, 2006.
HZL estimates the remaining mine life at Rampura Agucha based on
current reserves and production to be approximately
14 years. In 2004, HZL commissioned the first exploration
program since the mine opened and over the past two years has
increased the reserves at Rampura Agucha by approximately 30%
after depletion. HZL also believes that additional
mineralization exists at depth below the established reserves.
Exploration drilling is continuing to evaluate the potential of
this deeper mineralization.
The economic feasibility was tested using the widely used pit
optimizing software NPV Scheduler. The metal prices
used reflect long-term forecasts for metal prices and treatment
charges, while the operating costs and process recoveries were
based on fiscal 2005 results. Additionally, for the pit
optimization, the mining costs were adjusted by depth and a
capital charge was added to reflect the cost of increasing the
mining fleet to cope with increasing depth and increased strip
ratio. This analysis showed that at long-term prices, the
diluted in-situ average cut-off grade should be 2.2% combined
lead and zinc, though the actual cut-off grade used by the
software varies according to depth. The optimization analysis
was manually constrained to a maximum pit depth of
400 meters as the existing geotechnical studies were not
considered to be sufficiently representative for greater depths.
Rajpura Dariba is a medium sized underground lead-zinc mine and
processing facility located approximately 75 kilometers by
paved road northeast of Udaipur in the Rajsamand district of
Rajasthan, northwestern India. Roads to Chittorgarh and Udaipur
are used to transport concentrates to the HZL smelters at
Chanderiya and Debari. The railway is used to transport
concentrate to the HZL smelter at Vizag on the east coast of
India.
The ore at Rajpura Dariba occurs in the north, south and east
lenses which are typically 25 to 50 meters thick, are
conformable with the stratigraphy and dip approximately
60 degrees to the east. The lenses have strike lengths of
1,200 meters, 500 meters and 600 meters,
respectively. They lie within a synclinal structure with a
north-south axis, which is overturned to the west with steep
easterly dips. The lead and zinc mineralization is hosted within
silicified dolomites and graphite mica schists. The main ore
minerals are galena and sphalerite, with minor amounts of
pyrite, pyrrhotite and silver bearing tetrahedrite-tennantite.
Mining at Rajpura Dariba commenced in 1983 and is carried out
using the Vertical Crater Retreat method with mined out stopes
backfilled with cemented tailings. In certain areas the ground
conditions adversely affect slope stability and dilution. These
ground conditions are the result of the weak graphitic nature of
the shear zone combined with the dissolution of fractured and
sheared dolomites by percolating acidic groundwater derived for
overlying adjacent oxidized zones.
126
The mine is serviced by two vertical six meter diameter shafts
approximately 600 meters deep. The main shaft has the
capacity to hoist 1.0 million tpa of ore and is
equipped with a modern multi-rope Koepe winder. All personnel
and materials are hoisted in a large counterbalanced cage. The
surface infrastructure includes ventilation fans, compressors
and ore loading facilities.
The ore is crushed underground before being hoisted to the
surface. It is then crushed again and milled before undergoing a
lead flotation process incorporating roughing, scavenging and
three stages of cleaning. A facility exists at the mine to
direct lead rougher concentrate to multi-gravity separators in
order to reduce the graphite levels in the final concentrate as
required. The final lead concentrate is thickened and filtered
and subsequently stored and sent to our Chanderiya lead smelters.
Lead flotation tails are sent to the zinc flotation process,
which comprises roughing, scavenging and three stages of
cleaning. The facility is able to direct zinc rougher
concentrate to column flotation cells to reduce silica levels in
the final concentrate if required. Zinc concentrates are
thickened, filtered and stored prior to dispatch to HZL
smelters. Zinc flotation tails proceed to a backfill plant where
they are cycloned with the underflow proceeding to intermediate
storage where cement is added in preparation for use as
underground fill. The cyclone overflow is thickened to recover
water ahead of disposal in the tailings dam.
Power for the mine is supplied largely from HZLs
154 MW captive power plant at Chanderiya and through a
contract with Ajmer Vidyut Vitran Nigam Limited. Water is
sourced via a 22 kilometer long pipeline from the Matri
Kundia Dam on the seasonal Banas River as well as from
underground. Water supply has been erratic in the past requiring
supplemental supplies to be delivered by truck.
The gross book value of the Rajpura Dariba mines fixed
assets and mining equipment was approximately
Rs. 1,206 million ($27.1 million) as of
March 31, 2006.
HZL estimates the remaining life of the mine based on current
reserves to be approximately eight years, though additional
resources have been defined in the mine vicinity and a program
to upgrade these resources to reserves is planned. An
exploration program is also underway to identify new resources
with the potential to be upgraded to reserves, and has been and
continues to be focused on maintaining the reserve position
after annual mining depletion.
The average grade for each individual stope was defined using
standard parameters for internal waste and dilution and a
geological cut-off grade of 3% combined lead and zinc, though
the mineralization generally has a sharp natural contact. The
economic cut-off grade was then calculated based on a
long-term metal prices,
long-term treatment charges and fiscal 2006 cost and performance
levels. This analysis showed that at long-term prices the
diluted in-situ cut-off grade should be 5.4% combined lead and
zinc. Stopes with average grades below this economic cut-off
grade were excluded from the reserve estimate. The final reserve
estimate is the sum of the stopes with an average grade above
the economic cut-off limit. As the stopes are all accessed using
the existing infrastructure and as there is sufficient capacity
on the tailings dam, the capital expenditure was limited to the
replacement of mining equipment and was therefore considered not
to have a material impact on the cut-off grade.
The latest addition to the Rajpura Dariba mining operation is
the Sindesar Khurd underground mine deposit that was explored
during the years 1992 to 1995. The mine production began in
April 2006.
Sindesar Khurd is a small scale underground mine which commenced
operations in mid-2006. The deposit lies five kilometers
north of the Rajpura Dariba mine and the ore is fed to the
Rajpura Dariba mill and processing plant. The two mines are
connected by all-weather gravel road.
The Sindesar Khurd ore body is conformable with the host
stratigraphy. The mineralization lies within silicified dolomite
and graphite mica schist which are overlain by quartzite. The
deposit has been drilled to a depth of approximately
400 meters below surface and, while the grade and thickness
of the mineralization diminishes with depth and to the north and
south, the limits of the ore body have not been defined.
Access to the mine is via a decline from surface while ore is
hauled up an inclined shaft. The ore body is accessed via
horizontal drives on three levels. The long-hole open stoping
mining method is used.
127
Exploration at the south part of Sindesar Khurd has been ongoing
since March 2005 with a drilling program aimed at
increasing the size of the resource. To date a total of 25 holes
have been drilled, the deepest being 700 meters below
surface.
Zawar consists of four separate mines, Baroi, Zawarmala, Mochia
and Balaria. The deposit is located approximately
60 kilometers south of the city of Udaipur in the district
of Udaipur in Rajasthan, in northwestern India. It is accessed
by paved road from Udaipur in the north and Ahamadabad, the
capital of the State of Gujarat, to the south. All of the
deposits lie within a 36.2 square kilometers mining lease
granted by the State Government of Rajasthan, which is due for
renewal in 2010. The Mochia and Balaria mines pre-date, and are
not governed by, current environmental clearance regulations,
though HZL has applied for renewal of the consents to operate
the mines as they expire in September 2006. The renewal
application was submitted in June 2006.
The four deposits at Zawar are hosted by low grade metamorphosed
sediments consisting of greywackes, phyllites, dolomites and
quartzites that unconformably overlay the Pre-Cambrian basement.
The zinc-lead-pyrite mineralization is strata bound and occurs
as vein-stringers reflecting the high level of fractures within
the more competent dolomites. There are multiple ore bodies that
are complex in some areas as the lenses split and enclose waste
rock. The ore bodies are steeply dipping.
Zawar uses the open stoping mining method for the majority of
its production with shrinkage stoping being used where the ore
body geometry dictates.
Ore processing is carried out in a conventional comminution and
differential lead-zinc flotation plant that comprises two
separate circuits. The first was commissioned in 1971, the
second in 1977 and then the first was refurbished in 2001. The
ore is crushed underground and then hoisted to the surface
before being crushed and milled to 74 microns. Milled ore
is conveyed separately to two lead flotation circuits and
undergoes a process incorporating roughing, scavenging and
cleaning. Final lead concentrate is thickened and filtered then
stored before dispatch to the Chanderiya lead smelters. Lead
flotation tails proceed to two zinc flotation circuits
comprising roughing, scavenging and cleaning. Zinc concentrates
are thickened and filtered, then stored and dispatched to the
Debari and Chanderiya zinc smelters. Zinc flotation tails are
thickened and then disposed of in a valley fill type tailings
dam.
Power is supplied through a combination of a 6 MW captive
power plant and a contract with the Rajasthan State Electricity
Board to supply an additional 8.5 MW. Water consumption is
controlled by an active water conservation programme with
supplementary water supplies sourced from a dedicated
300 million cubic foot dam. The process plant is in a
reasonable structural, electrical and mechanical condition and a
planned maintenance program is in place.
The gross book value of the Zawar fixed assets and mining
equipment was approximately Rs. 1,147 million
($25.8 million) as of March 31, 2006.
Based on current reserves and annual production levels, HZL
estimates the remaining life of the Zawar operation to be
approximately six years. The focus of exploration at Zawar has
been maintenance of reserves following mining depletion.
Drilling is carried out on a grid of between 25 meters and
30 meters which is then infilled to 12 meters and
15 meters immediately prior to development. This past
exploration has outlined additional in-mine mineral resources
which require further delineation to add to reserves and further
extend the mine life.
The average grade for each individual stope was defined using
standard parameters for internal waste and dilution and a
geological cut-off grade of 3% combined lead and zinc. The
economic cut-off grade was then calculated based on long-term
metal prices, long-term treatment charges and fiscal 2006 cost
and performance levels. This analysis showed that at long-term
prices, the diluted in-situ cut-off grade should be 3.6%
combined lead and zinc. Stopes with average grades below this
economic cut-off grade were excluded from the reserve estimate.
The final reserve estimate is the sum of the stopes with an
average grade above the economic cut-off limit. As the stopes
are all accessed using the existing infrastructure and
128
as there is sufficient capacity on the tailings dam, the capital
expenditure was limited to the replacement of mining equipment
and was therefore considered not to have a material impact on
the cut-off grade.
The following table sets out HZLs proven and probable zinc
and lead reserves as of March 31, 2006:
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Total Proven and Probable | |
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Proven Reserves | |
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Probable Reserves | |
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Reserves | |
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Zinc | |
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Lead | |
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Zinc | |
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Lead | |
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Zinc | |
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Lead | |
Mine |
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Quantity | |
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Grade | |
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Grade | |
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Quantity | |
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Grade | |
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Grade | |
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Quantity | |
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Grade | |
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Grade | |
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(million tons) | |
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(%) | |
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(%) | |
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(million tons) | |
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(%) | |
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(%) | |
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(million tons) | |
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(%) | |
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(%) | |
Rampura Agucha
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19.8 |
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13.3 |
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2.0 |
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33.6 |
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12.5 |
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2.0 |
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53.4 |
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12.8 |
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2.0 |
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Rajpura Dariba
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5.1 |
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6.0 |
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1.3 |
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4.3 |
|
|
|
6.0 |
|
|
|
2.2 |
|
|
|
9.4 |
|
|
|
6.0 |
|
|
|
1.7 |
|
Zawar
|
|
|
3.9 |
|
|
|
4.5 |
|
|
|
2.0 |
|
|
|
1.9 |
|
|
|
4.0 |
|
|
|
1.9 |
|
|
|
5.8 |
|
|
|
4.3 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
28.8 |
|
|
|
10.8 |
|
|
|
1.9 |
|
|
|
39.8 |
|
|
|
11.4 |
|
|
|
2.0 |
|
|
|
68.6 |
|
|
|
11.2 |
|
|
|
2.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table sets forth the total current capacities as
of March 31, 2006 at HZLs Chanderiya, Debari and
Vizag facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity | |
|
|
| |
|
|
|
|
Sulphuric | |
|
Captive Power | |
Facility |
|
Zinc | |
|
Lead | |
|
Silver | |
|
Acid | |
|
Plant | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(tpa) | |
|
(MW) | |
Chanderiya
|
|
|
275,000 |
|
|
|
85,000 |
|
|
|
74 |
|
|
|
465,000 |
|
|
|
154 |
|
Debari
|
|
|
80,000 |
|
|
|
|
|
|
|
|
|
|
|
131,200 |
|
|
|
29 |
|
Vizag
|
|
|
56,000 |
|
|
|
|
|
|
|
|
|
|
|
90,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
411,000 |
|
|
|
85,000 |
|
|
|
74 |
|
|
|
687,196 |
|
|
|
183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Chanderiya facility is located approximately
120 kilometers east of Udaipur in the State of Rajasthan in
Northwest India. The facility contains three smelters:
|
|
|
|
|
An
ISPTM
pyrometallurgical lead-zinc smelter with a capacity of
105,000 tpa of zinc and 35,000 tpa of lead that was
commissioned in 1991; |
|
|
|
An RLE hydrometallurgical zinc smelter with a capacity of
170,000 tpa that uses RLE technology and was commissioned
in May 2005; and |
|
|
|
An
Ausmelttm
lead smelter with a capacity of 50,000 tpa that was
commissioned in February 2006. |
All of the power for the facility is provided by a coal-based
154 MW captive power plant commissioned in 2005. The
captive power plant requires approximately 50,000 tons of
coal per month, which we procure through tenders, with contracts
made on the basis of one to three shipments of 50,000 to
70,000 tons each and the particulars depending on price and
other circumstances. The coal is imported from a number of third
party suppliers. In addition, HZL secured in January 2006, as
part of a consortium with five other partners, the award of a
coal block to meet the coal requirements of its captive power
plant, with HZLs share of the coal block being
approximately 31.5 million tons.
129
The Debari zinc smelter is located approximately
12 kilometers east of Udaipur in the State of Rajasthan.
The hydrometallurgical zinc smelter was commissioned in 1968,
uses RLE technology and has a capacity of 80,000 tpa. A
majority of the power requirements of the facility is sourced
from the coal-based captive power plant at Chanderiya and the
balance is sourced from an
on-site liquid
fuel-based 29 MW captive power plant commissioned in March
2003. The liquid fuel is procured from domestic oil-producing
companies through a tender process for a yearly contract.
The Vizag zinc smelter is located approximately
17 kilometers from the Vizag inner harbor on the Bay of
Bengal in the State of Andhra Pradesh in Southeast India. The
hydrometallurgical zinc smelter was commissioned in 1977, uses
older RLE technology and has a capacity of 56,000 tpa. HZL
obtains approximately 50% of the facilitys power
requirements from Andhra Pradesh Gas Power Corporation Limited,
a gas utility company in which HZL holds an 8% equity interest.
The remaining power is obtained from the Transmission Company of
Andhra Pradesh, a government-owned enterprise.
The following table sets out HZLs total production from
its Chanderiya, Debari and Vizag facilities for the three years
ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
|
|
| |
Facility |
|
Product |
|
2004 | |
|
2005 | |
|
2006 | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
(tons, except for silver which is in kgs) | |
Chanderiya
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pyrometallurgical lead-zinc smelter
|
|
Zinc |
|
|
100,331 |
|
|
|
88,889 |
|
|
|
82,610 |
|
|
|
Lead |
|
|
25,089 |
|
|
|
15,727 |
|
|
|
19,070 |
|
|
Silver refinery
|
|
Silver |
|
|
34,666 |
|
|
|
10,732 |
|
|
|
24,098 |
|
|
Hydrometallurgical zinc smelter
|
|
Zinc |
|
|
|
|
|
|
|
|
|
|
71,049 |
|
|
Ausmelttm
lead smelter
|
|
Lead |
|
|
|
|
|
|
|
|
|
|
4,566 |
|
|
Sulphuric acid plant
|
|
Sulphuric acid |
|
|
192,920 |
|
|
|
189,532 |
|
|
|
324,657 |
|
Debari
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydrometallurgical zinc smelter
|
|
Zinc |
|
|
69,577 |
|
|
|
73,928 |
|
|
|
77,487 |
|
|
Sulphuric acid plant
|
|
Sulphuric acid |
|
|
103,698 |
|
|
|
107,441 |
|
|
|
105,943 |
|
Vizag
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hydrometallurgical zinc smelter
|
|
Zinc |
|
|
50,756 |
|
|
|
49,628 |
|
|
|
52,552 |
|
|
Sulphuric acid plant
|
|
Sulphuric acid |
|
|
74,804 |
|
|
|
74,197 |
|
|
|
71,356 |
|
|
Total
|
|
Zinc |
|
|
220,664 |
|
|
|
212,445 |
|
|
|
283,698 |
|
|
|
Lead |
|
|
25,089 |
|
|
|
15,727 |
|
|
|
23,636 |
|
|
|
Silver |
|
|
34,666 |
|
|
|
10,732 |
|
|
|
24,098 |
|
|
|
Sulphuric acid |
|
|
371,422 |
|
|
|
371,170 |
|
|
|
501,956 |
|
130
The following table sets out HZLs total ore, zinc
concentrate and lead concentrate production for the three years
ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
|
|
| |
Mine (Type of Mine) |
|
Product |
|
2004 | |
|
2005 | |
|
2006 | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
(tons, except percentages) | |
Rampura Agucha (Open-pit)
|
|
Ore mined |
|
|
2,200,025 |
|
|
|
2,451,725 |
|
|
|
3,496,000 |
|
|
|
Ore grade Zinc |
|
|
13.34 |
% |
|
|
13.16 |
% |
|
|
13.13 |
% |
|
|
Lead |
|
|
2.07 |
% |
|
|
2.02 |
% |
|
|
1.97 |
% |
|
|
Recovery Zinc |
|
|
90.38 |
% |
|
|
90.19 |
% |
|
|
91.20 |
% |
|
|
Lead |
|
|
58.50 |
% |
|
|
58.16 |
% |
|
|
59.62 |
% |
|
|
Zinc concentrate |
|
|
509,780 |
|
|
|
549,785 |
|
|
|
790,050 |
|
|
|
Lead concentrate |
|
|
40,643 |
|
|
|
47,266 |
|
|
|
65,194 |
|
Zawar (Underground)
|
|
Ore mined |
|
|
851,100 |
|
|
|
938,100 |
|
|
|
807,500 |
|
|
|
Ore grade Zinc |
|
|
3.78 |
% |
|
|
3.98 |
% |
|
|
4.07 |
% |
|
|
Lead |
|
|
2.23 |
% |
|
|
2.25 |
% |
|
|
2.08 |
% |
|
|
Recovery Zinc |
|
|
88.20 |
% |
|
|
88.48 |
% |
|
|
88.93 |
% |
|
|
Lead |
|
|
83.18 |
% |
|
|
83.53 |
% |
|
|
83.92 |
% |
|
|
Zinc concentrate |
|
|
51,122 |
|
|
|
61,083 |
|
|
|
52,975 |
|
|
|
Lead concentrate |
|
|
23,612 |
|
|
|
26,439 |
|
|
|
21,299 |
|
Rajpura Dariba (Underground)
|
|
Ore mined |
|
|
593,038 |
|
|
|
538,715 |
|
|
|
491,624 |
|
|
|
Ore grade Zinc |
|
|
5.53 |
% |
|
|
6.46 |
% |
|
|
5.74 |
% |
|
|
Lead |
|
|
1.37 |
% |
|
|
1.57 |
% |
|
|
1.43 |
% |
|
|
Recovery Zinc |
|
|
80.92 |
% |
|
|
80.62 |
% |
|
|
80.64 |
% |
|
|
Lead |
|
|
61.55 |
% |
|
|
62.16 |
% |
|
|
64.35 |
% |
|
|
Zinc concentrate |
|
|
54,036 |
|
|
|
55,556 |
|
|
|
45,982 |
|
|
|
Lead concentrate |
|
|
10,061 |
|
|
|
10,546 |
|
|
|
9,245 |
|
|
Total
|
|
Ore mined |
|
|
3,644,163 |
|
|
|
3,928,540 |
|
|
|
4,795,124 |
|
|
|
Zinc concentrate |
|
|
614,938 |
|
|
|
666,424 |
|
|
|
889,007 |
|
|
|
Lead concentrate |
|
|
74,316 |
|
|
|
84,251 |
|
|
|
95,738 |
|
The principal inputs of HZLs zinc smelting business are
zinc and lead concentrates and power. HZL has in the past been
able to secure an adequate supply of the principal inputs for
its business.
|
|
|
Zinc and Lead Concentrates |
Zinc and lead concentrates are the principal raw material of
HZLs smelters. HZLs lead-zinc mines have provided
all of its requirements for zinc and lead concentrates in the
past. With the recent expansion of the Rampura Agucha mine, we
expect HZLs mines to continue to provide all of its zinc
and lead concentrate requirements for the foreseeable future.
Most of HZLs operations are powered by the coal-based
captive power plant at Chanderiya, for which HZL imports the
necessary thermal coal from a number of third party suppliers.
In addition, HZL recently secured a 31.5 million ton coal
block to help meet the requirements of the captive power plant
in the future. HZLs remaining operations source their
required power from liquid fuel-based captive power plants or
from local power companies. The liquid fuel is sourced from
third party suppliers on yearly contracts.
131
In addition, HZLs pyrometallurgical smelter at Chanderiya
requires metcoke that is used in the smelting process. HZL
currently sources its metcoke requirements from third parties
under long-term contracts and the open market.
|
|
|
Distribution, Logistics and Transport |
Zinc and lead concentrates from HZLs lead-zinc mines are
transported to the Chanderiya and Debari smelters by road. Zinc
concentrate from HZLs mines is also transported by road,
or a combination of road and rail, to the Vizag smelter, which
is located approximately 1,200 kilometers
south-east of the
mines. Zinc concentrate may also be shipped for export. Zinc and
lead ingots and silver, and sulphuric acid by-products are
transported by road to customers in India.
HZLs ten largest customers accounted for approximately
39%, 36% and 28% of its net sales in fiscal 2004, 2005 and 2006,
respectively. JSW Limited accounted for 11% of HZLs net
sales in fiscal 2004. Otherwise, no customer accounted for
greater than 10% of HZLs net sales in fiscal 2004, 2005 or
2006.
HZLs marketing office is located in Mumbai, and it has
field sales and marketing offices in most major metropolitan
centers in India. HZL sells substantially all the zinc and lead
metal it produces in the Indian market. HZL expects that it will
export some of the zinc metal it produces from the expanded
capacity of Chanderiya. HZL has in the past also sold some
surplus zinc concentrate to third party smelters, primarily
outside of India.
Approximately 65% of the zinc metal that HZL produced in fiscal
2006 was sold under annual contracts specifying quantity, grade
and price, with the remainder sold on the spot market. In some
of the contracts, a premium over the LME price is fixed while in
other contracts sales take place at a price equal to HZLs
list price less an agreed discount. HZLs list prices are
based on the LME prices, the prevailing market premium, tariffs
and logistics costs. HZL periodically revises its list prices
based on LME price trends. Thus, the price that HZL receives for
its zinc is dependent upon, and subject to fluctuations in, the
LME price.
|
|
|
Projects and Developments |
HZL has announced that it will build a second 170,000 tpa
hydrometallurgical zinc smelter at Chanderiya, identical to the
smelter recently commissioned at Chanderiya in May 2005.
Construction of the smelter commenced in March 2006 and the
smelter is expected to be commissioned by early 2008. HZL
estimates that the expansion will cost
Rs. 13,344 million ($300.0 million), including
the cost of construction of an additional 77 MW captive
power plant. HZL intends to fund the expansion from internal
sources. The expansion is expected to further reduce HZLs
unit cost of production and increase HZLs total zinc
smelting capacity to approximately 581,000 tpa. Additional
concentrate requirements will be supplied by increasing
production from HZLs existing mines.
|
|
|
Market Share and Competition |
HZL is the only integrated zinc producer in India and had a
market share by volume of the Indian zinc market of 73% in
fiscal 2006, according to ILZDA. The only other zinc producer in
India is Binani Zinc which has a 30,000 tpa zinc smelter,
but which is not integrated and depends on imports of zinc
concentrate. In fiscal 2006, Binani Zinc had an Indian market
share of 4% of zinc production, according to ILZDA. Imports
accounted for the remaining 23% market share.
Zinc is a commodity product and HZL competes primarily on the
basis of price, time of delivery and location. Zinc metal also
faces competition as a result of substitution of materials,
including aluminum, stainless steel and other alloys, plastics
and other materials being substituted for galvanized steel and
epoxies, paints and other chemicals being used to treat steel in
place of galvanizating in the construction market.
132
HZL is the only primary lead producer in India, with competition
coming from imports which provide a substantial majority of the
lead consumed in India. Lead is a commodity product and HZL
competes primarily on the basis of price, time of delivery and
location.
Our Aluminum Business
Our aluminum business is owned and operated by BALCO.
BALCOs partially integrated aluminum operations are
comprised of two bauxite mines and the Korba facility, which
includes one alumina refinery, two aluminum smelters, two
captive power plants and a fabrication facility, all of which
are located in the State of Chhattisgarh in Central India.
We acquired our interest in BALCO in 2001 and have since worked
to improve its operating performance through expansions and by
improving operational efficiencies and reducing unit costs of
production. Most recently, we completed a large expansion
project at Korba to increase aluminum smelting capacity by
adding a new 245,000 tpa aluminum smelter and associated
coal-based captive power plant. Prior to the Korba expansion,
BALCO was a fully integrated producer with its alumina
requirements being supplied by its bauxite mines and alumina
refinery, but following the Korba expansion, BALCO is primarily
an aluminum smelter and sources a majority of its alumina
requirements from Indian and international markets. BALCO
intends to further improve its operating performance by
continuing to reduce unit operating costs at the Korba facility,
including by lowering power consumption and improving the
operating efficiency of the captive power plant. BALCO also
intends to focus on the production of fabricated products with
higher margins.
We own a 51.0% ownership interest in BALCO and have management
control of the company. The remainder of BALCO is owned by the
Government of India, which established BALCO in 1965. We
acquired our interest in BALCO from the Government of India on
March 2, 2001. On March 19, 2004, we exercised an
option to acquire the the Government of Indias remaining
ownership interest. The exercise of this option has been
contested by the Government of India. Further, the Government of
India retains the right and has expressed an intention to sell
5.0% of BALCO to BALCO employees. See Options
to Increase Interests in HZL and BALCO for more
information.
Primary aluminum is produced from the smelting of metallurgical
grade alumina. BALCO produces primary aluminum in the form of
ingots and wire rods for sale. Ingots are used extensively for
aluminum castings and fabrication in the construction and
transportation industries. Wire rods are used in various
electrical applications especially in the form of electrical
conductors and cables.
Rolled products, namely coils and sheets, are value-added
products that BALCO produces from primary aluminum. Rolled
products are used for a variety of purposes in different
industries, including aluminum foil manufacturing, printing,
transportation, consumer durables, building and architecture,
electrical and communications, packaging and general engineering
industries.
Vanadium sludge is a by-product of the alumina refining process
and primarily used in the manufacture of vanadium-based ferro
alloys.
133
BALCOs business has a number of elements which are
summarized in the following diagram and explained in greater
detail below:
134
BALCO has two captive bauxite mines, Mainpat and Bodai-Daldali,
that used to provide all of its bauxite requirements for its
alumina refinery at Korba prior to the addition of the new
245,000 tpa aluminum smelter at Korba. See
Additional Supply of Alumina. As the bauxite deposits at
these mines occur close to the surface, they are mined by
open-pit methods. The mining operation employed is
semi-mechanized, where bauxite sorting and sizing are carried
out through manual labor. Overburden, which is in the form of
soil and laterite, is first excavated by a combination of a
shovel or excavator and a dumper in order to expose the bauxite
ore. The bauxite ore is then drilled and blasted. The blasted
ore is sorted according to grade at the mine-face, and the
rejected ore is back-filled into the mine. The overburden is
then returned and the area is leveled and reforested. The sorted
ore is transported by road to the Korba complex for further
processing.
BALCOs alumina refinery at Korba uses the conventional
high pressure Bayer process to produce alumina from bauxite. In
the Bayer process, caustic soda is used to extract the alumina
content from ground bauxite, at temperatures suitable for the
particular mineralogy of bauxite, after which the resultant
sodium aluminate solution is separated from the undissolved
residue called red mud. The solution is then subjected to seeded
precipitation to produce alumina hydrate, which is then calcined
into alumina and transported to the smelter.
|
|
|
Additional Supply of Alumina |
BALCOs alumina refinery was configured with a capacity of
200,000 tpa of alumina to meet the alumina requirements of
BALCOs older 100,000 tpa aluminum smelter at Korba. It
takes approximately two tons of alumina to produce one ton of
aluminum. With the addition of the new 245,000 tpa aluminum
smelter at Korba, fully commissioned in May 2006, the additional
alumina required for BALCOs smelters in excess of the
capacity of its alumina refinery are obtained by purchasing
alumina on both the domestic Indian and international markets.
Alumina purchased from third party suppliers is transported by
road to BALCOs smelters at Korba.
BALCOs older 100,000 tpa aluminum smelter uses Vertical
Stud Soderberg, or VSS, technology to produce aluminum from
alumina. Alumina is dissolved in an electrolytic bath of molten
cryolite (sodium aluminum fluoride) in a large carbon or
graphite lined steel container known as a pot. An
electric current is passed through the electrolyte at low
voltage but at a very high current. The electric current flows
between a carbon anode (positive), made of petroleum coke and
pitch, and a cathode (negative), formed by the thick carbon or
graphite lining of the pot. Molten aluminum is deposited at the
bottom of the pot and is siphoned off periodically. The molten
aluminum is then taken to a holding furnace, cleaned and sent to
the fabrication facility.
BALCOs newer 245,000 tpa aluminum smelter uses pre-baked
technology from the Guiyang Aluminum Magnesium
Design & Research Institute, or GAMI, of China. In this
pre-baked process,
alumina is converted into primary aluminum through a smelting
process using electrolytic reduction. The reduction process
takes place in a reduction cell, referred to as the pot, where
alumina is reduced to molten aluminum. From the pot-line, the
molten aluminum is sent to the fabrication facility.
BALCOs fabrication facility, consisting of a cast house
and a sheet rolling shop, processes the molten aluminum from the
smelters into ingots, wire rods and rolled products. The cast
house uses continuous rod casters from Continuus-Properzi S.p.A.
and has a foundry which has twin-roll continuous casters with a
SNIF degasser and hydraulically driven semi-continuous ingot
casting machine to produce ingots and wire rods. Molten metal is
cast into slabs and either hot-rolled and sold as hot-rolled
sheets or converted into
135
cold-rolled sheets in the cold rolling mills. Alternatively,
molten metal is directly used in strip casting and then fed to
the cold rolling mills to convert it into cold-rolled sheets or
coils.
Ingots, wire rods and rolled products are transported by trucks
to customers in India and to ports for export.
The following map shows the locations of BALCOs mines and
production facilities and the reserves or production capacities,
as applicable:
136
The following local map shows details of the locations of
BALCOs facilities in the State of Chhattisgarh:
The Chhattisgarh mines and deposits comprise the operating mines
at Mainpat and Bodai-Daldali. Mainpat is an open-pit bauxite
mine located approximately 150 kilometers from the Korba complex
in the Surguja district of the State of Chhattisgarh in central
India. The Mainpat mine was commissioned in 1993 and lies within
a mining lease granted by the Government of India which is due
for renewal on July 8, 2012. The mining lease covers an
area of 6.39 square kilometers. The bauxite extraction
limit for the mine approved by the IBM was 450,000 tpa.
BALCO has applied to increase the bauxite extraction limit to
750,000 tpa. The Bodai-Daldali deposits are located
approximately 260 kilometers from Korba in the Kawardhha
district of the State of Chhattisgarh. Bodai-Daldali was
commissioned in 2004 by BALCO and lies within a 6.3 square
kilometers renewable mining lease that is valid until
March 27, 2017. The bauxite extraction limit for
Bodai-Daldali approved by the IBM is 300,000 tpa. We have
applied to increase the bauxite extraction limit to
1,250,000 tpa.
The Chhattisgarh bauxite deposits are situated on a series of
steep sided plateau at an elevation of approximately
1000 meters, for Mainpat, and approximately
500 meters, for Bodai-Daldali, above the surrounding land.
The bauxite generally is one meter to three meters thick and
lies within a laterite sequence overlying thick Tertiary basalts
of the Deccan Traps. The cover of laterite and thin topsoil is
up to five meters thick but is generally less than two meters.
The bauxite outcrops around much of the plateau rims and is also
visible as boulders strewn across fields topping the edge of the
plateau.
137
A typical profile of the Chhattisgarh deposits comprises topsoil
and soft overburden above the laterite. The upper laterite
consists of hard, loose or indurated bauxite pebbles and
boulders with a clear contact with the underlying hard bauxites.
The bauxite occurs in discontinuous lenses up to six meters in
thickness with laterite infilling joints and fractures with the
bauxite. The contact with the softer lower laterite is usually
gradational and irregular.
The bauxite is hard to very hard with a natural moisture content
of 5-10%, an in-situ density of 2.3-2.4 tons per cubic
meter and a low porosity (less than 2%). It comprises primarily
gibbsite with boehmite and minor diaspore. The reactive silica
content is low and iron is present in the form of hematite and
aluminous goethite. The average grade of the bauxite is, at
present, approximately 48% aluminum oxide (available alumina is
approximately 43%) and silica levels of less than 4%.
All mining and transportation at Mainpat is undertaken by
contractors. One thin top soil layer is removed by excavator and
is either transported to an adjacent storage point or an area
that is being backfilled. The laterite layer is drilled and
blasted. The overburden is then removed by backhoe excavators
and 20-ton trucks. Broken ore is hand-sorted, leaving waste
material behind. Ore productivity is around two tons per person
per day in the dry season, dropping to around 1.25 tons per
person per day in the wet season. Excavator loading is employed
in areas where bauxite deposit is more consistent.
The ore pile is loaded by hand into non-tipping 10 to
20 ton trucks. Loaded trucks undertake a one-way trip of
approximately 250 kilometers via public roads to the
offloading point at BALCOs Korba plant. The journey takes
around eight to nine hours depending upon truck condition and
road conditions which are highly variable, ranging from
seven-meter wide, drained, cambered, smooth bitumen highways to
non-surfaced, ungraded, three meter wide dirt tracks. BALCO has
commissioned an extensive road building and improvement program
to reduce the average one-way haul distance from approximately
250 kilometers to approximately 140 kilometers. At
Mainpats processing site, the trucks are unloaded manually
and the bauxite is bulldozed onto an armored pan feeder
conveyor, where it is fed into the crusher.
The current exploration drilling program is based on a 50-meter
square pattern and is reduced to 25 meter centers for
detailed mine planning. Sampling is normally in 0.40 meter
lengths and core is currently split and retained for future
reference. Bauxite samples are tested for silica and aluminum
oxide at laboratories situated on site and at the Korba plant.
Selected samples are re-assayed as part of a quality control
program.
Since commencing operations, the Mainpat mine has produced
approximately 3.6 million tons of bauxite, with production
in fiscal 2006 totaling 565,301 tons. The production in
fiscal 2006 was in excess of the bauxite extraction limit
for the mine fixed by the IBM. See Risk
Factors Risks Relating to Our Business
Our operations are subject to extensive governmental and
environmental regulations which have in the past and could in
the future cause us to incur significant costs or liabilities or
interrupt or close our operations, any of which events may
adversely affect our results of operations.
Power and water requirements at Mainpat are minimal and can be
supplied by small
on-site diesel
generators and from boreholes in the mine.
BALCO estimates the reserves at Mainpat to be 5.3 million
tons and, based on current production rates, expects that the
mine will continue to operate for approximately ten years.
Total production at the Bodai-Daldali mine since the
commencement of production has been approximately
70,000 tons of bauxite. As at the Mainpat mine, manual
sorting and sizing of ore is carried out due to the bauxite
occurring as boulders, though trials for mechanized crushing and
screening on-site are planned. Power is supplied by
on-site diesel
generators and ground water provides the water requirements for
the mine.
BALCO estimates the total probable bauxite reserves at
Bodai-Daldali to be 6.3 million tons as of March 31,
2006. Further detailed resource evaluation drilling is underway
and is expected to be completed in 2006.
138
A cut-off grade of 44% aluminum oxide was used to define the
reserves at BALCOs mines, which cut-off grade was
primarily defined by geological limits. As the bauxite is
hand-sorted and the mining recovery adjustment factor is based
on reconciliation studies, there is a high degree of confidence
in the cut-off limits. Also, BALCOs operations are
vertically integrated and all bauxite mined at the Mainpat and
Bodai-Daldali mines is only suitable for use at BALCOs
Korba alumina refinery. Consequently, the economic feasibility
of the reserves depends on the economic feasibility of the
company. Based on current costs and historical prices,
BALCOs operations are forecast to remain profitable and
therefore the deposits at the Mainpat and Bodai-Daldali mines
fulfill the requirements for being classified as reserves.
|
|
|
Summary of Bauxite Mine Reserves |
The following table sets out BALCOs proven and probable
bauxite reserves as of March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Proven and | |
|
|
Proven Reserves | |
|
Probable Reserves | |
|
Probable Reserves | |
|
|
| |
|
| |
|
| |
Ore body |
|
Quantity | |
|
Oxide | |
|
Quantity | |
|
Oxide | |
|
Quantity | |
|
Oxide | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
(million tons) | |
|
(%) | |
|
(million tons) | |
|
(%) | |
|
(million tons) | |
|
(%) | |
Mainpat
|
|
|
5.3 |
|
|
|
47.0 |
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
5.3 |
|
|
|
47.0 |
|
Bodai-Daldali
|
|
|
0.0 |
|
|
|
0.0 |
|
|
|
6.3 |
|
|
|
46.7 |
|
|
|
6.3 |
|
|
|
46.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
5.3 |
|
|
|
47.0 |
|
|
|
6.3 |
|
|
|
46.7 |
|
|
|
11.6 |
|
|
|
46.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALCOs Korba facility is located at Korba in the State of
Chhattisgarh in Central India and consists of one alumina
refinery, two aluminum smelters, two captive power plants and a
fabrication facility. The following table sets forth the total
current capacities as of March 31, 2006 at BALCOs Korba
facility:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capacity | |
|
|
| |
|
|
|
|
Captive Power | |
Facility |
|
Alumina(1) | |
|
Aluminum | |
|
Plant | |
|
|
| |
|
| |
|
| |
|
|
|
|
(MW) | |
|
|
(tpa) | |
|
|
Korba
|
|
|
200,000 |
|
|
|
345,000 |
|
|
|
810 |
|
Note:
|
|
(1) |
Alumina is used for production of aluminum. Approximately two
tons of alumina is required for the production of one ton of
aluminum. |
The Korba alumina refinery was commissioned in 1973, uses the
conventional high pressure Bayer process and has a capacity of
200,000 tpa of alumina.
There are two aluminum smelters at Korba. The older smelter was
commissioned in 1975, uses the VSS technology to produce
aluminum from alumina and has a capacity of 100,000 tpa.
The newer aluminum smelter, which uses pre-baked GAMI technology
and has a capacity of 245,000 tpa, was fully commissioned
in November 2006.
The fabrication facility at Korba has two parts, a cast house
and a sheet rolling shop.
139
The cast house uses continuous rod casters from
Continuus-Properzi S.p.A. and has a foundry which has twin-roll
continuous casters with a SNIF degasser and hydraulically driven
semi-continuous ingot casting machine to produce ingots and wire
rods.
The sheet rolling shop has three parts: a hot rolling mill with
a capacity of 75,000 tpa, an older cold rolling mill with a
capacity of 30,000 tpa and a newer cold rolling mill
commissioned in 2004 with a capacity of 36,000 tpa. Molten metal
is cast into slabs and then either hot-rolled and sold as
hot-rolled sheets or converted into cold-rolled sheets in the
cold rolling mills. Alternatively, molten metal is directly used
in strip casting and then fed to the cold rolling mills to
convert it into cold-rolled sheets or coils.
Smelting requires a substantial continuous supply of power and
interruptions can cause molten metal to solidify and damage or
destroy the pots.
Power for the Korba facility is for the most part provided by
the older coal-based 270 MW captive power plant
commissioned in 1988 together with a new coal-based 540 MW
captive power plant commissioned in March 2006 as part of the
expansion project. Thermal coal is a key raw material required
for the operation of BALCOs captive power plants. BALCO
sources 60-70% of its thermal coal requirements from Coal India
under short-term contracts, with the remainder obtained through
open market purchases and imports of coal.
The following table sets out BALCOs total production from
its Korba facility for the three years ended March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
|
|
| |
Facility |
|
Product |
|
2004 | |
|
2005 | |
|
2006 | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
(tons) | |
Korba
|
|
Alumina(1) |
|
|
203,080 |
|
|
|
205,470 |
|
|
|
219,485 |
|
|
|
Ingots |
|
|
13,149 |
|
|
|
8,609 |
|
|
|
58,750 |
|
|
|
Rods |
|
|
48,243 |
|
|
|
48,045 |
|
|
|
64,602 |
|
|
|
Rolled products |
|
|
35,631 |
|
|
|
43,618 |
|
|
|
50,391 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
97,023 |
|
|
|
100,272 |
|
|
|
173,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Note:
|
|
(1) |
Reflects alumina production. Alumina that is produced is used in
production of aluminum and rolled products. Additional alumina
needed for production of aluminum is purchased from third
parties and not reflected in alumina production numbers.
Approximately two tons of alumina is required for the
production of one ton of aluminum. |
140
The following table sets out the total bauxite ore production
for each of BALCOs mines for the three years ended
March 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, | |
|
|
|
|
| |
Mine (Type of Mine) |
|
Product |
|
2004 | |
|
2005 | |
|
2006 | |
|
|
|
|
| |
|
| |
|
| |
|
|
|
|
(tons, except for percentages) | |
Mainpat (Open-pit)
|
|
Bauxite ore mined |
|
|
517,322 |
|
|
|
493,422 |
|
|
|
565,301 |
|
|
|
Ore grade |
|
|
46.38 |
% |
|
|
46.32 |
% |
|
|
45.72 |
% |
Bodai-Daldali (Open-pit)
|
|
Bauxite ore mined |
|
|
|
|
|
|
2,717 |
|
|
|
65,821 |
|
|
|
Ore grade |
|
|
|
|
|
|
50.06 |
% |
|
|
48.55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
517,322 |
|
|
|
496,139 |
|
|
|
631,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
The principal inputs of BALCOs operations are bauxite,
alumina, power, carbon, caustic soda and certain other raw
materials. BALCO has in the past been able to secure an adequate
supply of the principal inputs for its business.
Bauxite is the primary raw material used in the production of
alumina. BALCO sources the bauxite required for its alumina
refinery from its own mines.
Alumina is the primary raw material used in the production of
aluminum. BALCO currently sources in excess of 60% of its
alumina from third party suppliers on both the Indian and
international markets, with the remainder provided by its
alumina refinery.
Smelting primary aluminum requires a substantial, continuous
supply of electricity. A reliable and inexpensive supply of
electricity, therefore, significantly affects the viability and
profitability of aluminum smelting operations. As a result,
power is a key input at BALCOs Korba facility, where it is
provided by two coal-based captive power plants of 270 MW
and 540 MW, respectively. Power for BALCOs mines is
provided by on-site
diesel generators.
Water is also an important input for BALCOs captive power
plants. BALCO sources its water requirements at Korba from a
nearby canal, with the water transported by pipelines. BALCO is
currently in a dispute with NTPC regarding the right of way for
its water pipeline that supplies water to its 270 MW
captive power plant, which has been built through NTPC premises.
See Risk Factors Risks Relating to Our
Business Our operations are subject to operating
risks that could result in decreased production, increased cost
of production and increased cost of or disruptions in
transportation, which could adversely affect our revenue,
results of operations and financial condition.
Carbon is an important raw material to the aluminum smelting
process. Carbon is used in the process of electrolysis, in the
form of cathodes and anodes, with the latter the biggest
component of BALCOs carbon costs. Anodes are made up of
carbonaceous material of high purity. For pre-baked anodes,
green carbon paste made of calcined petroleum coke and coal tar
pitch is compacted or pressed into the required form. These
anodes are baked before their use in electrolytic cells, or pots.
141
BALCO has in-house facilities to manufacture carbon anodes to
meet its entire carbon anode requirements. Calcined petroleum
coke, coal tar pitch and fuel oil, which are the key ingredients
for the manufacture of carbon anodes, are sourced primarily from
the Indian market. There is an adequate supply of these raw
materials in India, though their prices are generally determined
by movements in global prices.
Caustic soda is a key raw material used to dissolve the bauxite
in the alumina refining process. The caustic soda requirement
varies significantly depending on the silica content of the
bauxite and the technology employed. BALCO sources its caustic
soda requirements from various domestic manufacturers.
BALCO also uses other raw materials such as fluorides and other
chemicals. For these raw materials, there are several sources of
supplies in the domestic markets and BALCO does not foresee any
difficulty in securing supplies when needed.
|
|
|
Distribution, Logistics and Transport |
Bauxite mined from the Mainpat and Bodai-Daldali mines is
transported by road approximately 250 and 260 kilometers,
respectively, from the mines to the Korba facility. Alumina
purchased from third party suppliers is obtained from a
combination of domestic sources and imports, and is transported
to the Korba facility by road from domestic third party
suppliers or ports. BALCOs aluminum products are
transported from the Korba facility to domestic customers
through a combination of road and rail, and shipped for export.
BALCOs ten largest customers accounted for approximately
47%, 38% and 42% of its net sales in fiscal 2004, 2005 and 2006,
respectively. No customer accounted for greater than 10% of
BALCOs net sales in the last three fiscal years.
BALCOs sales and marketing head office is located in
Mumbai, and it has field sales and marketing offices in most
major metropolitan centers in India. Currently, BALCO sells its
products primarily in the Indian market, with limited focus on
exports. However, with the commissioning of the new aluminum
smelter, a significant part of the additional production may be
sold in the export market. BALCOs key customers include
conductor manufacturers, state road transport corporations,
railways, defense contractors and electrical equipment and
machinery manufacturers.
Domestic sales are normally conducted on the basis of a fixed
price for a given month that BALCO determines from time to time
on the basis of average LME price for the month, as well as
domestic supply and demand conditions. The price for aluminum
BALCO sells in India is normally higher than the price it
charges in the export markets due to the tariff structure,
smaller order sizes that domestic customers place and the
packaging, storing and truck loading expenses incurred when
supplying domestic customers.
BALCOs export sales of aluminum are currently on a spot
basis at a price based on the LME price plus a premium.
|
|
|
Market Share and Competition |
BALCO is the third largest aluminum primary producer in India,
based on production volume, with a primary market share by
volume in India of 19% in fiscal 2006. BALCOs main
competitors (and their respective primary market shares by
volume in India in fiscal 2006) are Hindalco (44%), NALCO,
a Government of India enterprise (32%), and MALCO, a
subsidiary of Vedanta (5%).
142
Aluminum ingots, wire rods and rolled products are commodity
products and BALCO competes primarily on the basis of price and
service, with price being the most important consideration when
supplies are abundant. Aluminum competes with other materials,
particularly plastic, steel, iron, glass, and paper, among
others, for various applications. In the past, customers have
demonstrated a willingness to substitute other materials for
aluminum.
Vedanta Alumina
We hold a 29.5% ownership interest in Vedanta Alumina. The other
70.5% of Vedanta Alumina is owned by Vedanta. Vedanta Alumina is
not part of our consolidated group of companies.
Vedanta Alumina is establishing an alumina refinery with an
initial installed capacity of 1.0 million tpa and an
associated 75 MW captive power plant, expandable to
1.4 million tpa and 90 MW, respectively, subject to
governmental approvals, at Lanjigarh, in the State of Orissa in
Eastern India. Vedanta Alumina expects that the refinery will be
commissioned in March 2007.
Vedanta Alumina also plans to invest an estimated
Rs. 93,408 million ($2,100.0 million) to develop
a greenfield 500,000 tpa aluminum smelter, together with an
associated thermal coal-based 1,215 MW captive power plant,
in Jharsuguda, in the State of Orissa.
|
|
|
Projects and Developments |
|
|
|
Lanjigarh Alumina Refinery |
Vedanta Alumina has entered into an agreement with the Orissa
Mining Corporation Limited, or OMC, regarding the establishment
of the alumina refinery, an aluminum smelter and associated
captive power plant in the Lanjigarh district, which is located
approximately 450 kilometers from BALCOs Korba
facility. Vedanta Alumina estimates that the initial cost of the
project will be approximately Rs. 35,584 million
($800.0 million). Subject to OMC obtaining a mining lease
for the Lanjigarh mines, OMC and Vedanta Alumina have agreed to
set up a joint venture company to operate the mines. Subject to
obtaining the necessary leases, permits and approvals, Vedanta
Alumina expects that the alumina refinery and captive power
plant will be commissioned by March 2007. Development of the
mine and commencement of operations at the alumina refinery at
Lanjigarh are subject to litigation before the High Court of
Orissa and the Supreme Court of India. See Risk
Factors Risks Relating to Our Business
Our operations are subject to extensive governmental and
environmental regulations which have in the past and could in
the future cause us to incur significant costs or liabilities or
interrupt or close our operations, any of which events may
adversely affect our results of operations, Risk
Factors Risks Relating to Our Business
Defects in title or loss of any leasehold interests in our
properties could limit our ability to conduct operations on our
properties or result in significant unanticipated costs
and Litigation. Alumina from the
proposed Orissa refinery is expected initially to be transported
to BALCOs aluminum smelter at Korba for processing or sold
on the domestic or export markets.
|
|
|
Jharsuguda Aluminum Smelter |
Vedanta Alumina plans to invest an estimated
Rs. 93,408 million ($2,100.0 million) in the
Jharsuguda project, which involves the development of a
greenfield 500,000 tpa aluminum smelter, together with an
associated thermal coal-based 1,215 MW captive power plant,
in Jharsuguda, Orissa in India.
The Jharsuguda project will be implemented in two phases of
250,000 tpa each and pre-construction work commenced in the
second quarter of 2006. Construction of the first phase is
expected to be completed in the second half of 2009 and the
second phase is expected to be completed by the end of 2010. The
associated thermal coal-based captive power plant will be
comprised of nine units of 135 MW each, five of which will
be commissioned as part of the first phase. The commissioning of
the captive
143
power plant units is scheduled to meet the power requirements of
the new Jharsuguda smelter and all other power requirements of
the facility.
Vedanta Aluminas planned investment in Jharsuguda includes
the costs of building the smelter, the associated power
facilities and all necessary infrastructure including railway
networks, water pipelines and a township for employees, and it
has applied to set up a special economic zone. A special
economic zone is a designated duty-free enclave approved by the
Government of India which is treated as foreign territory for
purposes of trade operations, duties and tariffs. For the import
or procurement of capital goods, raw materials, consumables,
spares and other products into the special economic zone, there
is no customs duty or excise duty. There is 100% income tax
exemption for a period of five years, a 50% income tax
exemptions for a period of two years and an exemption for up to
50% of profits that are reinvested into the zone for a period
three years under
Section 10-A of
the Income Tax Act 1961, or the Income Tax Act.
Our Future Commercial Power Generation Business
Demand for power in India to support its growing economy has in
recent years exceeded supply. Per capita consumption of power in
India, despite having increased significantly in recent years,
continues to lag behind power consumption in other leading
developed and emerging economies by a large margin. See
Overview of Industries Commercial Power
Generation Business Consumption. India has
large thermal coal resources, and the coal industry is in a
process of government deregulation that is expected to increase
the availability of coal. We believe these factors make the
power generation business an attractive growth opportunity in
India and that, by leveraging our project execution and
operating skills in building and operating captive power plants,
we may compete successfully in this business.
|
|
|
Our Experience with Captive Power Plants |
We have been building and operating captive power plants since
1997. As of June 30, 2006, the total power generating
capacity of our captive power plants was 1,040 MW, of which
964 MW was from thermal
coal-based power plants
and 694 MW was from two thermal coal-based power plants
completed within the last three years.
The following table sets forth information relating to our
existing captive power plants:
|
|
|
|
|
|
|
|
|
|
Year Commissioned |
|
Capacity | |
|
Location |
|
Fuel Used |
|
|
| |
|
|
|
|
|
|
(MW) | |
|
|
|
|
1988(1)
|
|
|
270 |
|
|
Korba |
|
Thermal coal |
1997
|
|
|
24 |
|
|
Tuticorin |
|
Liquid fuel |
2003
|
|
|
29 |
|
|
Debari |
|
Liquid fuel |
2005
|
|
|
23 |
|
|
Tuticorin |
|
Liquid fuel |
2005
|
|
|
154 |
|
|
Chanderiya |
|
Thermal coal |
2006
|
|
|
540 |
|
|
Korba |
|
Thermal coal |
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,040 |
|
|
|
|
|
Note:
|
|
(1) |
Commissioned by BALCO prior to our acquisition of BALCO in 2001. |
We also have a thermal coal-based 77 MW captive power plant
under construction at Chanderiya.
We have been successful in building captive power plants at
reasonable cost through our partnerships with a number of
established suppliers. Our captive power plants at Chanderiya
and Korba were commissioned at a capital cost of Rs. 4,466
million, or Rs. 29 million per MW, and Rs. 13,068
million, or Rs. 24 million per MW, respectively.
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Our Plans for Commercial Power Generation |
In July 2006, our board of directors resolved and our
shareholders subsequently approved a new strategy for us to
enter into the power generation business in India. We intend to
build a pit-head thermal coal-based power facility in the State
of Orissa, which project will be pursued by our wholly-owned
subsidiary Sterlite Energy. The plant is intended to have a
total capacity of 3,600 MW and is proposed to be executed
in two phases. The first phase is for 2,400 MW (comprising
four units of 600 MW each) and the second phase is for
1,200 MW (comprising two units of 600 MW each).
Sterlite Energy has commenced construction of the first phase of
the project. We intend to invest approximately
Rs. 84,512 million ($1,900.0 million) over the
next four years to build the first phase totaling 2,400 MW.
Sterlite Energy has entered into contracts which provide for,
among other things, the design and engineering of a facility,
manufacture, procurement and supply of plant and equipment to
bring into commercial operation a thermal coal-based power
plant. Our board of directors has not yet approved the second
phase, which in order to proceed would require approval of our
board of directors and notice to be provided to the contractor
to proceed with the construction within 12 months of
May 10, 2006. Any delay in providing this notice or in
canceling the second phase may result in us incurring costs and
making additional payments.
According to the Ministry of Coal of the Government of India,
the State of Orissa has approximately 25% of Indias coal
resources of 247 billion tons. The plant would require
approximately 13 million tpa of coal, which would be
obtained from coal blocks to be alloted.
Further, Sterlite Energy entered into a memorandum of
understanding with the State Government of Orissa under which
the government has agreed to assist us in our acquisition of
approximately 3,000 acres of land for the power facility,
including the rehabilitation and resettlement of persons to be
displaced, the obtaining of environmental clearances, the
allocation of coal blocks,
long-term coal
linkages, water allocations and the sourcing of power during the
construction period. The process of making arrangements for a
water reservoir, railway marshalling yard, coal stockpile, ash
pond and other required facilities is currently underway. The
memorandum of understanding provides for approximately
600 MW of power to be supplied to the State Government of
Orissa. In addition, the memorandum of understanding also
provides that the power generated from the facility in excess of
a plant load factor of 80% will be made available to the State
Government of Orissa at a variable price plus an incentive to be
determined by the CERC. The power generated from the plant would
be sold to entities including SEBs and power trading companies.
In order to sell the power to more than one state, we would be
required to create an evacuation system through a 400 KV or
765 KV power transmission line and a substation
approximately 200 kilometers from the plant.
Sterlite Energy also entered into a memorandum of understanding
with PTC on April 12, 2006 for the sale of approximately
600 MW of power from the first phase of the thermal
coal-based 3,600 MW power facility proposed to be
constructed by it in the State of Orissa. The memorandum of
understanding also provided that in the event of a sale of power
through competitive bidding to any SEB or distribution company,
either PTC will participate or the parties will jointly bid in
the bidding process to the extent of 600 MW. Thus, Sterlite
Energy may not be able to individually participate in any
bidding process in relation to such portion. This memorandum of
understanding is valid for a period of one year from the date of
execution.
On October 7, 2006, BALCO entered into a memorandum of
understanding with the Government of Chhattisgarh, India, and
the CSEB under which feasability studies will be undertaken for
a potential investment of approximately
Rs. 50,000 million ($1,124.1 million) to build a
thermal coal-based 1,200 MW power facility, along with an
integrated coal mine, in the State of Chhattisgarh. Any entry by
BALCO into the commercial power generation business would
require the approval of its lenders, its board
145
of directors and its shareholders, including the specific
consent of the Government of India and an amendment to its
memorandum of association.
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Other Opportunities in Power |
A recent initiative of the Ministry of Power of the Government
of India offers private developers an opportunity to establish
super critical thermal
coal-based power plants
of 3,500 MW to 3,800 MW each, at six different
locations in India (each an UMPP). Private developers will be
selected on the basis of competitive bidding and under the
initiative will have the benefit of the assured purchase of
power generated and payment security mechanisms.
The Government of India has opened bidding with respect to two
of the UMPPs, both of which we have
pre-qualified for. We
are now eligible and intend to submit price bids for such UMPPs.
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Risks in Commercial Power Business |
There will be risks involved in entering into the commercial
power generation business. See Risk Factors
Risks Relating to Our Business We intend to develop
a commercial power generation business, a line of business in
which we have limited experience, a project from which we may
never recover our investment or realize a profit and which may
result in our managements focus being diverted from our
core copper, zinc and aluminum businesses and Risk
Factors Risks Relating to Our Business
If any power facilities we build and operate as part of our
future commercial power generation business do not meet
operating performance requirements and agreed norms as may be
set out in our agreements, or otherwise do not operate as
planned, we may incur increased costs and penalties and our
revenues may be adversely affected for more details.
Exploration and Development Activities
We are engaged in ongoing exploration activities to locate
additional ore bodies in India and Australia. We spent
approximately Rs. 126 million ($2.8 million) in
fiscal 2006 on exploration.
The focus of our exploration has been sediment hosted zinc
deposits in India. Bauxite exploration concentrates on
delineating and evaluating known deposits within economic
transport distance of our alumina refinery at Korba.
Options to Increase Interests in HZL and BALCO
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Call Options Over Shares in HZL |
On April 11, 2002, we acquired a 26.0% interest in HZL from
the Government of India through our subsidiary SOVL. At the time
of the acquisition, we owned 80.0% of SOVL and SOTL, owned the
remaining 20.0%. On February 2003, SOTL transferred its 20.0%
interest in SOVL to us and SOVL became our wholly-owned
subsidiary. SOVL subsequently acquired a further 20.0% interest
in HZL through an open market offer. The total cash
consideration paid by SOVL for the acquisition of the 46.0%
interest in HZL was Rs. 7,776 million.
Upon SOVLs acquisition of the 26.0% interest in HZL, the
Government of India and SOVL entered into a shareholders
agreement to regulate, among other things, the management of HZL
and dealings in HZLs shares. The shareholders
agreement provides that as long as SOVL holds at least 26.0% of
the share capital of HZL, SOVL is entitled to appoint one more
director to the board of HZL than the Government of India and is
entitled to appoint the managing director. In addition, as long
as the shareholders agreement remains in force, the
Government of India has the right to appoint at least one
director to the board of HZL.
There are also various other matters reserved for approval by
both the Government of India and SOVL, including amendments to
HZLs Articles of Association, the commencement of a new
business,
146
non-pre-emptive issues of shares or convertible debentures, a
discounted rights issue and the granting of loans or provision
of guarantees or security to other companies under the same
management as HZL.
Under the shareholders agreement, the Government of India
also granted SOVL two call options to acquire all the shares in
HZL held by the Government of India at the time of exercise.
SOVL exercised the first call option on August 29, 2003 and
acquired an additional 18.9% of HZLs issued share capital
at a cost of Rs. 3,239 million on November 12,
2003, taking our interest in HZL to 64.9%.
The shareholders agreement provides that prior to selling
shares in HZL to a third party, either party must first issue a
sale notice offering those shares to the other party at the
price it intends to sell them to the third party. However, a
transfer of shares, representing not more than 5.0% of the
equity share capital of HZL, by the Government of India to the
employees of HZL is not subject to such right of first refusal
by SOVL. As of March 31, 2006, the Government of India has
transferred shares representing 1.5% of HZLs share capital
to the employees of HZL. The shareholders agreement also
provides that if the Government of India proposes to make a sale
of its shares in HZL by a public offer prior to the exercise of
SOVLs second call option, then SOVL shall have no right of
first refusal.
The second call option provides SOVL a right, exercisable on or
after April 11, 2007, to acquire the Government of
Indias remaining 29.5% shareholding in HZL, subject to the
right of the Government of India to transfer up to 3.5% of the
issued share capital of HZL to employees of HZL, in which case
the number of shares that SOVL may purchase under the second
call option will be reduced accordingly. The second call option
is also subject to the right of the Government of India to sell
its shareholding in HZL through a public offer prior to the
exercise of our call option, which according to press reports it
is taking steps to carry out. Such a public offer would not be
subject to SOVLs right of first refusal and the second
call option would be exercisable only for shares, if any, held
by the Government of India on the date of exercise of the second
call option. Under the shareholders agreement, upon the
issuance of a notice of exercise of the second call option by us
to the Government of India, we shall be under an obligation to
complete the purchase of the shares, if any, then held by the
Government of India, within a period of 60 days from the
date of such notice. The exercise price for the second call
option will be equal to the fair market value of the shares as
determined by an independent appraiser. If the Government of
India sells its remaining ownership interest in HZL, we may look
into alternative means of increasing our ownership interest in
HZL, though there is no assurance that such alternative means
would be available and achievable on reasonable terms, or at all.
The validity of the divestment of the shares of HZL by the
Government of India to us is currently pending adjudication
before the Supreme Court of India. A public interest litigation
was filed by a private citizen before the High Court of
Rajasthan, Jodhpur, on November 5, 2003, against HZL, SOVL,
the Government of India and others challenging the Government of
Indias divestment of shares of HZL to us on the same
grounds as a September 2003 decision of the Supreme Court of
India relating to the proposed divestment of the shares of the
Government of India in the Hindustan Petroleum Corporation
Limited, or HPC, and Bharat Petroleum Corporation Limited, or
BPC. Such decision held that the Government of India could not
exercise its executive power to divest these shares as the
assets of HPC and BPC were vested in these companies pursuant to
Acts of Parliament, which only permitted ownership of the assets
by government-owned companies, and also held that these
divestments could not be undertaken without repealing or
appropriately amending the provisions of the Acts of Parliament.
The lawsuit regarding HZL asserts that the same reasoning that
applied in the decision regarding HPC and BPC should apply in
the case of HZL since the assets of the Metal Corporation of
India were vested in HZL pursuant to the Metal Corporation of
India (Acquisition of Undertaking) Act, 1966, which required the
ownership of the assets only to be vested in government-owned
companies. HZL continues to own and operate the assets and has
subsequently substantially expanded its smelting facilities and
mining operations. However, at the time SOVL acquired its 26.0%
interest in HZL and a further 20.0% through an open market
offer, this act had not been amended to permit the ownership of
the assets of the Metal Corporation of India by non
government-owned companies, and this is the matter at challenge
before the Supreme Court of India.
147
The Supreme Court of India has directed that all pending
challenges to divestment of government-owned companies shall be
heard together by a larger bench of the Supreme Court of India.
These matters, along with the HZL case, are currently pending
before the Chief Justice of India and the next date of hearing
is yet to be fixed. See Risk Factors Risks
Relating to Our Business The validity of the
Government of Indias divestment of 64.9% of HZL to us is
currently pending adjudication and our option to purchase the
Government of Indias remaining shares in HZL may be
challenged.
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Call Option Over Shares in BALCO |
On March 2, 2001, we acquired a 51.0% interest in BALCO
from the Government of India for a cash consideration of
Rs. 5,532 million. On the same day, we entered into a
shareholders agreement with the Government of India and
BALCO to regulate, among other things, the management of BALCO
and dealings in BALCOs shares. The shareholders
agreement provides that as long as we hold at least 51.0% of the
share capital of BALCO, we are entitled to appoint one more
director to the board of BALCO than the Government of India and
are entitled to appoint the managing director. There are various
other matters reserved for approval by both the Government of
India and us under the shareholders agreement, including
amendments to BALCOs Articles of Association, the
commencement of a new business, non-pre-emptive issues of shares
or convertible debentures and the provision of loans or
guarantees or security to other companies under the same
management as BALCO.
Under the shareholders agreement, if either the Government
of India or we wish to sell our shares in BALCO to a third
party, the selling party must first offer the shares to the
other party at the same price at which it is proposing to sell
the shares to a third party. The other party shall then have the
right to purchase all, but not less than all, of the shares so
offered. If a shareholder does not exercise its first right of
refusal it shall have a tag along right to participate in the
sale pro rata and on the same terms as the selling party, except
that if the sale is by the Government of India by way of public
offer the tag along right will not apply. However, a transfer of
shares representing not more than 5.0% of the equity share
capital of BALCO by the Government of India to the employees of
BALCO is not subject to such right of first refusal by Sterlite.
The Government of India also granted to us an option to acquire
the remaining shares in BALCO held by the Government of India at
the time of exercise. The exercise price is the higher of:
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the fair value of the shares on the exercise date, as determined
by an independent valuer; and |
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the original sale price (Rs. 49.01 per share) together
with interest at a rate of 14% per annum compounded half
yearly from March 2, 2001 through the exercise date, less
all dividends received by the Government of India since
March 2, 2001 through the exercise date. |
On March 19, 2004, we exercised our option to acquire the
remaining 49.0% of BALCOs issued share capital held by the
Government of India at that time. Thereafter, the Government of
India sought several extensions of the time to complete the sale
of the shares as well as interest during this additional time
period. On June 7, 2006, the Government of India contended
that the clauses of the shareholders agreement relating to our
option violate the provisions of Section 111A of the Indian
Companies Act by restricting the right of the Government of
India to transfer its shares and that as a result the
shareholders agreement is null and void. The Government of
India has also expressed an intention to exercise its right to
sell 5.0% of BALCO to BALCO employees.
We have instituted a petition before the High Court at Delhi
seeking that the High Court direct the Government of India to
deposit with it at least 44.0% of the equity shares in BALCO and
that the High Court further grant an injunction to restrain the
Government of India from selling, transferring, pledging or
mortgaging or in any other way disposing of or encumbering its
shareholding in BALCO in favor of any third party. The
Government of India retains the right to sell its shares
representing 5.0% of BALCO to BALCO employees.
Subsequently, the Government of India notified us that it would
require us to amicably negotiate or, if that fails, commence
informal mediation as provided for under the terms of the
shareholders agreement.
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The High Court of Delhi on August 7, 2006 directed that
negotiations between the parties take place expeditiously.
Negotiations are currently underway between us and the
Government of India. The next date of hearing before the High
Court of Delhi in this matter has been fixed for
January 10, 2007.
See Risk Factors Risks Relating to Our
Business The Government of India has disputed our
exercise of the call option to purchase its remaining 49.0%
ownership interest in BALCO.
Employees
As of September 30, 2006, we had approximately 12,513
employees as follows:
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Company |
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Location |
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Primary Company Function |
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Total Employees | |
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Copper
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Sterlite Industries (India) Limited
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India |
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Copper smelting and refining |
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1,098 |
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Copper Mines of Tasmania Pty Ltd
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Australia |
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Copper mining |
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95 |
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Zinc
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Hindustan Zinc Limited
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India |
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Zinc and lead production |
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6,095 |
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Aluminum
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Bharat Aluminium Company Limited
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India |
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Aluminum production |
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5,225 |
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The majority of our workforce is unionized. Employees of HZL and
BALCO are members of registered trade unions such as Bharat
Aluminum Mazdoor Sangh for BALCO and Hindustan Zinc Workers
Federation for HZL, and are affiliated with national trade
unions such as the Indian National Trade Union Congress. We
believe that relations with our employees and unions are good,
though we have in the past and may in the future experience
strikes and industrial actions or disputes. See Risk
Factors Risks Relating to Our Business
Our operations are subject to operating risks that could result
in decreased production, increased cost of production and
increased cost of or disruptions in transportation, which could
adversely affect our revenue, results of operations and
financial condition.
We have a strong ongoing institutional commitment to the health
and safety of our employees and achieving sustainable
development in harmony with the communities and environments in
which we operate. Proactively complying with and exceeding the
requirements of regulatory guidelines, utilizing environment
friendly technologies in our expansions and modernizations and
implementing programs to support communities around our
facilities are core to our business strategy. All of our mines,
refineries and smelters in India, except for our Bodai-Daldali
mine, have received both International Standards Organization
(ISO) 14001 and Occupational Health and Safety Assessment
Series (OHSAS 18001) certifications, which are internationally
recognized environmental and occupational health and safety
management systems certifications. We are in the process of
obtaining the ISO 14001 and OHSAS 18001 certifications
for our Bodai-Daldali mine. We are committed to providing a
healthy and safe working environment, to promoting empowerment,
commitment and accountability of our employees and to being an
equal opportunity employer. We actively initiate and participate
in a variety of programs to contribute to the health, education
and livelihood of the people in the local communities in which
we operate, including through support of schools, educational
programs and centers, women empowerment programs, hospitals and
health centers. We constantly seek out and invest in new
technologies and operational improvements to minimize the impact
of our operations on the environment, including through energy
conservation measures, reductions in sulphur dioxide gas and
other air emissions, water conservation and recycling measures,
reductions in wastewater discharges and proper waste management.
We also invest in programs to promote reforestation and better
agricultural practices.
Insurance
We maintain property insurance which protects against losses
relating to our assets arising from fire, earthquakes or
terrorism and freight insurance which protects against losses
relating to the transport of our equipment, product inventory
and concentrates. However, our insurance does not cover other
potential risks
149
associated with our operations. In particular, we do not have
insurance for business interruptions or certain types of
environmental hazards, such as pollution or other hazards
arising from our disposal of waste products and, for a
substantial part of our business, terrorist insurance. The
occurrence of a significant adverse event, the risks of which
are not fully covered by insurance, could have a material
adverse effect on our financial condition or results of
operations. Moreover, no assurance can be given that we will be
able to maintain existing levels of insurance in the future at
the same rates. See Risk Factors Risks
Relating to Our Business Our insurance coverage may
prove inadequate to satisfy future claims against us.
Following this offering we and our directors and officers will
be subject to US securities and other laws, and in order to
attract, and retain qualified board members and executive
officers, we may need to obtain directors and
officers liability insurance. There can be no assurance
that we will be able to obtain directors and
officers liability insurance at reasonable cost, or at all.
Litigation
Except as described below, there are no governmental, legal or
arbitration proceedings (including any such proceedings which
are pending or threatened, of which we are aware) which we
believe could reasonably be expected to have a material adverse
effect on our results of operations or financial position.
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We have commenced proceedings against the Government of
India which has disputed our exercise of the call option to
purchase its remaining 49.0% ownership interest in BALCO. |
Certain proceedings are ongoing before the High Court of Delhi
with respect to our exercise of our call option to acquire the
remaining shares of BALCO held by the Government of India. See
Options to Increase Interests in HZL and
BALCO.
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A public interest litigation proceeding has been filed to
challenge the validity of the divestment of HZLs shares by
the Government of India and is currently pending adjudication by
the Supreme Court of India. |
A public interest litigation has been filed before the High
Court of Rajasthan in Jodhpur against the Government of India,
HZL, SOVL and others, challenging the sale of shares in HZL by
the Government of India. See Options to
Increase Interests in HZL and BALCO.
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We are involved in certain litigation seeking cancellation
of permits and environmental approval for the alleged violation
of certain air, water and hazardous waste management regulations
at our Tuticorin plant. |
We are defendants in a number of writ petitions filed before the
High Court of Madras by the National Trust for Clean Environment
and certain private citizens in relation to the operations of
our smelter at Tuticorin in the State of Tamil Nadu, India.
These writ petitions allege that sulphur dioxide emissions from
our copper smelting operations at Tuticorin are causing air,
water and hazardous waste pollution resulting in damage to the
marine ecosystem and the lives of people living in and around
Tuticorin. The petitioners are seeking an order from the High
Court of Madras for discontinuation of our current operations at
Tuticorin and revocation of the environmental permits granted to
us by the Tamil Nadu Pollution Control Board, or TNPCB, and the
Ministry of Environment and Forests, or MoEF, in relation to our
Tuticorin smelter plant.
Further, following an inspection of our Tuticorin unit on
September 12, 2005, the TNPCB issued three show cause
notices alleging violations of air, water and hazardous waste
pollution standards at the Tuticorin plant. These notices
alleged that we have failed to meet the conditions set out in
the environmental consents granted for our operations, including
the failure to implement purifying and monitoring systems, limit
the size of certain disposal facilities and maintain sufficient
storage and waste disposal facilities. The show cause notices
require us to show cause as to why an order of closure of the
Tuticorin plant should not be passed against us and why penal
action under the relevant environmental legislations should not
be taken. We have responded to the notices by contesting these
allegations on the
150
grounds that all the necessary conditions of the consent letters
had been complied with. The TNPCB has to date not responded.
If the TNPCB rejects our responses, the TNPCB may initiate penal
action against us, which could lead to imposition of fines,
initiation of criminal proceedings against those directly in
charge of and responsible for the conduct of our business,
stoppage of water, electricity or other services to Tuticorin or
order closure of the plant. Further, if the orders of the TNPCB
are not complied with, the TNPCB is authorized to initiate
eviction processes.
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Petitions have been filed in the Supreme Court of India
and the High Court of Orissa to seek the cessation of
construction of Vedanta Aluminas refinery in Lanjigarh and
related mining operations in Niyamgiri Hills. |
In 2004, a writ petition was filed against us, Vedanta Alumina,
the State of Orissa, the Republic of India, OMC, the OIDC, and
others by a private individual before the High Court of Orissa.
The petition alleges that the proposed grant of the mining lease
by the OMC to Vedanta Alumina and us to mine bauxite in the
Niyamgiri Hills at Lanjigarh in the State of Orissa would
violate the provisions of the Forest (Conservation) Act, 1980,
or the Forest Act. The petition further alleges that the felling
of trees and construction of the alumina refinery by us and
Vedanta Alumina and the development of the mine is in violation
of the Forest Act and would have an adverse impact on the
environment. The petition sought, among other things, to
restrain the grant of the mining lease to mine bauxite in the
Niyamgiri Hills at Lanjigarh in the State of Orissa by the OMC
to Vedanta Alumina and us, to declare the memorandum of
understanding entered into between the OMC and Vedanta Alumina
void, a court direction for the immediate cessation of
construction of the alumina refinery by Vedanta Alumina and an
unspecified amount of compensation from us and Vedanta Alumina
for damage caused to the environment. The court has not yet
admitted this matter for hearing.
Certain non-governmental organizations and individuals filed
interlocutory applications in 2004 alleging violations of forest
conservation laws by Vedanta Aluminas refinery project at
Lanjigarh and the related mining operations in the Niyamgiri
Hills. These interlocutory applications were filed in an
environment-related public interest litigation brought before
the Supreme Court of India. A Central Empowered Committee, or
CEC, set up by the Supreme Court of India, issued a report dated
September 21, 2005 which expressed the view that the MoEF
should not have permitted the alumina refinery project to
commence construction before undertaking an in-depth study about
the ecological effects of the proposed bauxite mine on the
ecology surrounding the Niyamgiri Hills and that the project
would result in the displacement of indigenous tribals. The CEC
further stated that Vedanta Alumina was in violation of certain
environmental clearances granted by the MoEF to Vedanta Alumina
for the construction of the alumina refinery and recommended
that the Supreme Court of India revoke such clearances and
prohibit further work on the project. The Supreme Court of India
directed that an in-depth report be prepared on the matter by
the MoEF, which it has yet to file.
While the development of the mines has been the subject of these
disputes, Vedanta Alumina has continued construction of its
alumina refinery, which is expected to be commissioned in March
2007, subject to the receipt of mining approvals for the mines
in the Niyamgiri Hills. The alumina refinery is located adjacent
to the mines as it was contemplated that it would source bauxite
from the mines. The environmental clearance granted by the MoEF
in respect of the alumina refinery specifies that Vedanta
Alumina must obtain approval for the sourcing of bauxite from
the linked mines in the Niyamgiri Hills before commencing
commercial operations at the alumina refinery. As the alumina
refinery is nearing completion and bauxite remains unavailable
from the mines due to the ongoing legal proceedings, Vedanta
Alumina has sought and obtained the approval of the MoEF to
source up to one million tons of bauxite from third parties
for trial runs and other purposes. However, an adverse outcome
of the legal proceedings before the High Court of Orissa and the
Supreme Court of India or the failure to obtain regulatory
approvals may delay or prevent Vedanta Alumina from obtaining
additional bauxite for its alumina refinery, operating the mines
in a timely manner, or at all, or commencing commercial
operations at the refinery and source bauxite from third parties
in a timely manner, or at all. Any of these events may have
151
a material adverse effect on Vedanta Aluminas business,
results of operations, financial condition and prospects and, in
turn, on us as a result of our equity ownership interest in
Vedanta Alumina.
We and Vedanta Alumina have entered into three separate leases
with the OIDC which specify that we and Vedanta Alumina are
required to start construction at the three sites that are the
subject of the leases within a stipulated time period and to
subsequently install plant and machinery and begin commercial
production within a specified period from the date of taking
possession of the premises. As a result of the pending
litigation with respect to the Lanjigarh facility, Vedanta
Alumina has not been in compliance with the conditions of the
leases. We and Vedanta Alumina have not received any notice from
the OIDC with respect to such
non-compliance. Vedanta
Alumina has applied to the OIDC for an extension of the terms of
the leases.
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BALCO is involved in various litigations in relation to
the alleged encroachment of land on which the Korba facility is
situated and the State Government of Chhattisgarh has issued
notices to BALCO alleging that BALCO had encroached on
state-owned land. |
BALCO has occupied certain land on which the Korba facility is
situated since its establishment, which is the subject matter of
a dispute for alleged encroachment by BALCO on government-owned
land, among others.
BALCO petitioned the High Court of Chhattisgarh in 1996 to
direct the State Government of Chhattisgarh to execute a lease
deed in respect of this land in BALCOs favor. The High
Court of Chhattisgarh passed an interim order in 2004 directing
that the State Government of Chhattisgarh take no action against
BALCO.
In 2005, in response to several show cause notices issued
against BALCO alleging encroachment of government land, BALCO
filed an amendment petition with the High Court of Chhattisgarh
seeking to quash these show cause notices. The High Court of
Chhattisgarh directed that the status quo be maintained and that
BALCO should not engage in any deforestation activities on the
land until the next hearing date, which has not yet been
determined.
BALCO has no formal lease deed in relation to this land. If this
matter is decided in favor of the State Government of
Chhattisgarh, we may be evicted from the land on which our Korba
facility is situated, which would have a material adverse effect
on our aluminum business.
A writ petition has also been filed by an organization known as
Sarthak before the Supreme Court of India alleging
encroachment by BALCO over the land on which the Korba facility
is situated. It alleges that the land belongs to the State
Government of Chhattisgarh and that BALCO has engaged in illegal
felling of trees on that land. This petition has been admitted
by the Supreme Court of India, though the next hearing date has
not yet been determined.
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Appeal proceedings in the High Court of Bombay brought by
SEBI to overrule a decision by the Securities Appellate
Tribunal, or SAT, that we have not violated regulations
prohibiting fraudulent and unfair trading practices. |
In April 2001, SEBI ordered prosecution proceedings to be
brought against us, alleging that we have violated regulations
prohibiting fraudulent and unfair trading practices and also
passed an order prohibiting us from accessing the capital
markets for a period of two years. This order of SEBI was
overruled by the SAT on October 22, 2001 on the basis of
lack of sufficient material evidence to establish that we had
directly or indirectly engaged in market manipulation and that
SEBI had exercised its jurisdiction incorrectly in prohibiting
us from accessing the capital markets. On November 9, 2001,
SEBI appealed to the High Court of Bombay. A hearing date has
not been fixed.
SEBIs order was based on its finding that we had
manipulated the price of our shares in connection with our
proposed acquisition of shares in the Indian Aluminium Company
Limited, or INDAL, and our proposed open offer to the
shareholders of INDAL in 1998. SEBI also alleged that MALCO, our
152
associate company, provided funds to an entity we allegedly
controlled to enable its associate to purchase our shares, as
part of a connected price manipulation exercise.
In the event the High Court of Bombay decides the above matters
unfavorably against us, we may be prohibited from accessing the
capital markets for a period of two years and may become
liable to pay penalties. Further, certain of our key officers
and directors may be imprisoned, which would have an adverse
effect on our business and operations.
In addition to the civil proceedings, SEBI also initiated
criminal proceedings before the Court of the Metropolitan
Magistrate, Mumbai, against us, our Non-Executive Chairman,
Mr. Anil Agarwal, our Director, Mr Tarun Jain, and the
Chief Financial Officer of MALCO at the time of the alleged
price manipulation. When SEBIs order was overturned in
October 2001, we filed a petition before the High Court of
Bombay to quash those criminal proceedings on the grounds that
the SAT had overruled SEBIs order on price manipulation.
An order has been passed by the High Court of Bombay in our
favor, granting an interim stay of the criminal proceedings. The
matter is pending at the stage of final arguments. The next date
of hearing has not yet been notified.
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BALCO is contesting the decision of the CSEB to increase
electricity tariff. |
The Chhattisgarh State Electricity Regulatory Commission, or the
CSERC, by its order dated June 15, 2005, increased the
demand tariff to Rs. 380 per KVA, the minimum monthly
charges to 40% of the contract demand and imposed an additional
charge of Rs. 16 per KVA. BALCO filed a review
petition against the order of the CSERC. As an interim measure
of relief, the CSERC on July 21, 2005 directed payment of
50% of the minimum monthly charges by BALCO by way of a demand
draft and 50% by way of a bank guarantee.
Subsequently, the CSERC, by its order dated October 17,
2005, reduced the demand charge to Rs. 190 per KVA,
provided that the use of power from the CSEB was limited to 20%
of the total contract demand. Additionally, the minimum monthly
charges payable were reduced to 20% of the contract demand. CSEB
has filed an appeal before the Central Electricity Appellate
Tribunal challenging the order of CSERC. A hearing was held on
September 11, 2006 and we are awaiting a decision on the
matter by the CSERC. In the event this matter is decided in
favor of the CSEB, the additional annual impact on BALCO would
increase from Rs. 193 million as envisaged under the
revised tariff order of the CSERC to Rs. 1,057 million
as envisaged in the original tariff order of CSERC dated
June 15, 2005.
Further, the Captive Power Policy of the CSERC, effective
March 1, 2006, has removed the requirement of payment of
minimum charges on contract demand and has reduced the parallel
charges to Rs. 10 per KVA. However, the demand charges
have been restored to Rs. 380 per KVA. BALCO has filed
a revision before the CSERC praying for restoration of demand
charges to Rs. 190 per KVA. A hearing was held on
October 19, 2006 at which the CSERC clarified that the
order of October 17, 2005 would continue to be effective
for BALCO (i.e., the demand charges of BALCO would continue to
be Rs. 190 per KVA provided the total use of power
from the CSEB was limited to 20% of the total contract demand).
We are awaiting the CSERCs formal written order on the
matter.
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Demands against HZL by Department of Mines and
Geology |
The Department of Mines and Geology of the State of Rajasthan
has issued several show cause notices, aggregating Rs.
3,339 million ($75.1 million) in demand, to HZL in
relation to alleged unlawful occupation and unauthorized mining
of associated minerals other than zinc and lead at its Rampura
Agucha, Rajpura Dariba and Zawar mines in Rajasthan, during the
period from July 1968 to March 2006. In addition, the department
has also demanded an aggregate of Rs. 38 million
($0.9 million) by way of alleged arrears in royalty
payments at such mines on the grounds that the royalty payments
had been incorrectly computed by HZL during the period from
April 1971 to March 2000. HZL has filed writ petitions in the
High Court of Rajasthan in Jodhpur and in the months of October
and November 2006 obtained a stay in respect of these demands.
153
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Certain of our subsidiaries have been named in legal
actions by third party claimants and by Indian sales tax, excise
and related tax authorities for additional sales tax, excise and
indirect duties. |
Certain of our subsidiaries have been named as parties to legal
actions where the claims primarily relate to either the
assessable values of sales and purchases or to incomplete
documentation supporting our tax returns. We have ongoing
disputes with income tax authorities relating to the tax
treatment of certain items. The total claims on account of the
disputes with sales tax, excise and related tax authorities is
Rs. 2,186 million ($49.1 million), of which
Rs. 1,609 million ($36.2 million) has been
recorded as current liabilities as of March 31, 2006. The
approximate claims by third party claimants amounted to
Rs. 1,853 million ($41.7 million) as of
March 31, 2006, of which Rs. 73 million
($1.6 million) has been recorded as current liabilities.
Regulatory Matters
The Mines and Minerals (Development and Regulations) Act, 1957,
as amended, or the MMDR Act, the Mineral Concession Rules, 1960,
as amended, or the MC Rules, and the Mineral Conservation and
Development Rules, 1988, as amended, or the MCD Rules, govern
mining rights and the operations of mines in India. The MMDR Act
was enacted to provide for the development and regulation of
mines and minerals under the control of India and it lays down
the substantive law pertaining to the grant, renewal and
termination of reconnaissance, mining and prospecting licenses.
The MCD Rules outline the procedures for obtaining a prospecting
license or the mining lease, the terms and conditions of such
licenses and the model form in which they are to be issued. The
MCD Rules lay down guidelines for ensuring mining is carried out
in a scientific and environmentally friendly manner.
The Government of India announced the National Mineral Policy in
1993 to sustain and develop mineral resources so as to ensure
their adequate supply for the present needs and future
requirements of India in a manner which will minimize the
adverse effects of mineral development on the forest,
environment and ecology through appropriate protective measures.
At the same time, the Government of India also made various
amendments to Indias mining laws and regulations to
reflect the principles underlying the National Mineral Policy.
Only the government of the applicable state may grant a mining
lease. The mining lease agreement governs the terms on which the
lessee may use the land for the purpose of mining operations. If
the land on which the mines are located belongs to private
parties, the lessee must acquire the surface rights relating to
the land from such private parties. If a private party refuses
to grant the required surface rights to the lessee, the lessee
is entitled to inform the state government and deposit with the
state government compensation for the acquisition of the surface
rights. If the state government deems that such amount is fair
and reasonable, the state government has the power to order a
private party to permit the lessee to enter the land and carry
out such operations as may be necessary for the purpose of
mining. For determining what constitutes a fair amount of
compensation payable to the private party, state governments are
guided by the principles of the Land Acquisition Act, 1894, as
amended, which generally governs the acquisition of land by
governments from private individuals. In case of land owned by
the government, the surface right to operate in the lease area
is granted by the government upon application as per the norms
of that state government.
If the mining operations in respect of any mining lease results
in the displacement of any persons, the consent of such affected
persons, and their resettlement and rehabilitation as well as
payment of benefits in accordance with the guidelines of the
applicable state government, including payment for the acquired
land owned by those displaced persons, needs to be settled or
obtained before the commencement of the mining project. In
respect of minerals listed in the First Schedule of the MMDR
Act, prior approval of the Government of India is required to be
obtained by the state government for entering into the mining
lease. The approval of the Government of India is granted on the
basis of the recommendations of the state
154
governments, although the Government of India has the discretion
to overlook the recommendation of the state governments. On
receiving the clearance of the Government of India, the state
government grants the final mining lease and prospecting
license. The lease can be executed only after obtaining the mine
plan approval from the IBM, which is valid for a period of five
years. A mining lease for a mineral or prescribed group of
associated minerals cannot exceed a total area of 10 square
kilometers. Further, in a state (province), one person cannot
acquire mining leases covering a total area of more than
10 square kilometers. However, the Government of India may,
if necessary in the interest of development of any mineral,
relax this requirement.
The maximum term of a mining lease is 30 years. A mining
lease may be renewed for further periods of 20 years or
less at the option of the lessee. Renewals are subject to the
lessee not being in default of any applicable laws, including
environmental laws. The MMDR Act provides that if a lessee uses
the minerals for its own industry, then such lessee is generally
entitled to a renewal of its mining lease for a period of
20 years, unless it applies for a lesser period. The lessee
is required to apply to the relevant state government for the
renewal of the mining lease at least one year prior to the
expiry of the mining lease. Any delay in applying for a renewal
of the mining lease may be waived by the applicable state
government provided that the application for renewal is made
prior to expiry of the mining lease. In the event that the state
government does not make any orders relating to an application
for renewal prior to the expiration of the mining lease, the
mining lease is deemed to be extended until such time the state
government makes the order on the application for renewal.
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Protection of the Environment |
The MMDR Act also deals with the measures required to be taken
by the lessee for the protection and conservation of the
environment from the adverse effects of mining. The MCD Rules
require every lessee to take all possible precautions for the
protection of the environment and control of pollution while
conducting mining operations in any area. The required
environmental protection measures include, among others,
prevention of water pollution, measures in respect of surface
water, total suspended solids, ground water pH, chemicals and
suspended particulate matter in respect of air pollution, noise
levels, slope stability and impact on flora and fauna and the
local habitation. Pursuant to the Supreme Court judgment in M.C.
Mehta v. Republic of India, environmental impact assessment
clearance from the MoEF, Government of India is also required at
the time of renewal of a mining lease if the area under the
lease is in excess of 0.05 square kilometers and the mining
lease is in respect of a major mineral. However, such
environmental impact assessment clearance is not required to be
obtained in the event the MoEF has approved the mining project,
or the IBM has approved the mining plan with respect to the
mining project.
Working conditions of mine laborers are regulated by the Mines
Act, 1952, as amended from time to time, which sets forth
standards of work, including number of hours of work, leave
requirements, medical examination, weekly days of rest, night
shift requirements and other requirements to ensure the health
and safety of workers employed in mines.
Royalties on the minerals extracted or a dead rent component,
whichever is higher, are payable to the relevant state
government by the lessee in accordance with the MMDR Act. The
mineral royalty is payable in respect of an operating mine from
which minerals are removed or consumed and is computed in
accordance with a prescribed formula. The Government of India
has been granted broad powers to modify the royalty scheme under
the MMDR Act, but may not do so more than once every three years.
In addition, the lessee must pay the occupier of the surface
land over the mining lease an annual compensation determined by
the state government. The amount depends on whether the land is
agricultural or non-agricultural.
155
Our business is subject to environmental laws and regulations.
The applicability of these laws and regulations varies from
operation to operation and is also dependent on the jurisdiction
in which we operate. Compliance with relevant environmental laws
is the responsibility of the occupier or operator of the
facilities.
Our operations require various environmental and other permits
covering, among other things, water use and discharges, stream
diversions, solid waste disposal and air and other emissions.
Major environmental laws applicable to our operations include:
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The Environment (Protection) Act, 1986 (EPA) |
The EPA is an umbrella legislation in respect of the various
environmental protection laws in India. The EPA vests the
Government of India with the power to take any measure it deems
necessary or expedient for protecting and improving the quality
of the environment and preventing and controlling environmental
pollution. Penalties for violation of the EPA include fines up
to Rs. 100,000 million or imprisonment of up to five
years, or both.
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The Environment Impact Assessment Notification No: 60(E),
1994 (EIA Notification) |
The EIA Notification issued under the EPA and the Environment
(Protection) Rules, 1986 provides that the prior approval of the
MoEF is required in the event any new project in certain
specified areas is proposed to be undertaken. To obtain an
environmental clearance, we must first obtain a no-objection
certificate from the applicable State Pollution Control Board.
This is granted after a notified public hearing, submission and
approval of an environment impact assessment report that sets
out the operating parameters such as the permissible pollution
load and any mitigating measures for the mine or production
facility and an environmental management plan.
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Forest (Conservation) Act, 1980 (Forest Act) |
The Forest Act requires consent from the relevant authorities
prior to clearing forests by felling trees. The final clearance
in respect of both forests and the environment is given by the
Government of India, through the MoEF. However, all applications
have to be made through the respective state governments who
will recommend the application to the Government of India. The
penalties for non-compliance can include closure of the mine or
prohibition of mining activity, stoppage of the supply of
energy, water or other services and monetary penalties on and
imprisonment of the persons in charge of the conduct of the
business of the company.
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Hazardous Wastes (Management and Handling) Rules, 1989
(Hazardous Wastes Rules) |
The Hazardous Wastes Rules aim to regulate the proper
collection, reception, treatment, storage and disposal of
hazardous waste by imposing an obligation on every occupier and
operator of a facility generating hazardous waste to dispose
such waste without adverse effect on the environment, including
through the proper collection, treatment, storage and disposal
of such waste. Every occupier and operator of a facility
generating hazardous waste must obtain an approval from the
Pollution Control Board. The occupier is liable for damages
caused to the environment resulting from the improper handling
and disposal of hazardous waste and any fine that may be levied
by the respective State Pollution Control Boards.
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Water (Prevention and Control of Pollution) Act, 1974
(Water Act) |
The Water Act aims to prevent and control water pollution as
well as restore water quality by establishing and empowering
State Pollution Control Boards. Under the Water Act, any
individual, industry or institution discharging industrial or
domestic waste water must obtain the consent of the relevant
State Pollution Control Board, which is empowered to establish
standards and conditions that are
156
required to be complied with. If the required standards and
conditions are not complied with, the State Pollution Control
Board may serve a notice on the concerned person, cause the
local Magistrates to pass an injunction to restrain the
activities of such person and impose fines.
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Water (Prevention and Control of Pollution) Cess Act, 1977
(Water Cess Act) |
Under the Water Cess Act, a lessee engaged in mining is required
to pay a surcharge calculated based on the amount of water
consumed and the purpose for which the water is used. A rebate
of up to 25% on the surcharge payable is available to those
industries which install any plant for the treatment of sewage
or trade effluent, provided that they consume water within the
quantity prescribed for that category of industries and also
comply with the effluent standards prescribed under the Water
Act or the EPA. Penalties for non compliance include
imprisonment of any person in contravention of the provisions of
the Water Cess Act for a period up to six months or a fine of
Rs. 1,000, or both.
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Air (Prevention and Control of Pollution) Act, 1981(Air
Act) |
Pursuant to the provisions of the Air Act, any individual,
industry or institution responsible for emitting smoke or gases
by way of use of fuel or chemical reactions must obtain the
consent of the relevant State Pollution Control Board prior to
commencing any mining or manufacturing activity. The State
Pollution Control Board is required to grant consent within a
period of four months of receipt of an application, but may
impose conditions relating to pollution control equipment to be
installed at the facilities and the quantity of emissions
permitted. The penalties for the failure to comply with the
provisions of the Air Act include imprisonment of up to seven
years and the payment of a fine as may be deemed appropriate.
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Employment and Labor Laws |
We are subject to various labor, health and safety laws which
govern the terms of employment of the our laborers at our mining
and manufacturing facilities, their working conditions, the
benefits available to them and the general relationship between
our management and such laborers. These include:
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The Industrial Disputes Act, 1947 (IDA) |
The IDA seeks to preempt industrial tensions in an establishment
and, provide the mechanics of dispute resolution, collective
bargaining and the investigation and settlement of industrial
disputes between unions and companies. While the IDA provides
for the voluntary reference of industrial disputes to
arbitration, it also empowers the appropriate government agency
to refer industrial disputes for compulsory adjudication and
prohibit strikes and lock-outs during the pendency of
conciliation proceedings before a board of conciliation or
adjudication proceedings before a labor court.
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Contract Labor (Regulation and Abolition) Act, 1970
(CLRA) |
The CLRA has been enacted to regulate the employment of contract
labor. The CLRA applies to every establishment in which 20 or
more workmen are employed or were employed on any day of the
preceding 12 months as contract labor. The CLRA vests the
responsibility on the principal employer of an establishment to
register as an establishment that engages contract labor.
Likewise, every contractor to whom the CLRA applies must obtain
a license and may not undertake or execute any work through
contract laborers except in accordance with the license issued.
To ensure the welfare and health of contract labor, the CLRA
imposes certain obligations on the contractor in relation to
establishment of canteens, rest rooms, drinking water, washing
facilities, first aid and other facilities and payment of wages.
However, in the event the contractor fails to provide these
amenities, the principal employer is under an obligation to
provide these facilities within a prescribed time period.
157
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Employee State Insurance Act, 1948 (ESIA) |
The ESIA requires the provision of certain benefits to employees
or their beneficiaries in the event of sickness, maternity,
disability or employment injury. Every factory or establishment
to which the ESIA applies is required to be registered in the
manner prescribed under the ESIA. Every employee, including
casual and temporary employees, whether employed directly or
through a contractor, who is in receipt of wages up to
Rs. 6,500 per month, is entitled to be insured under
the ESIA. The ESIA contemplates the payment of a contribution by
the principal employer and each employee to the Employee State
Insurance Corporation.
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Payment of Wages Act, 1936 (PWA) |
The PWA regulates the payment of wages to certain classes of
employed persons and makes every employer responsible for the
payment of wages to persons employed by such employer. No
deductions are permitted from, nor is any fine permitted to be
levied on wages earned by a person employed except as provided
under the PWA.
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Minimum Wages Act, 1948 (MWA) |
The MWA provides for a minimum wage payable by employers to
employees. Under the MWA, every employer is required to pay the
minimum wage to all employees, whether for skilled, unskilled,
manual or clerical work, in accordance with the minimum rates of
wages that have been fixed and revised under the MWA. Workmen
are to be paid for overtime at overtime rates stipulated by the
appropriate government. Contravention of the provisions of this
legislation may result in imprisonment up to six months or a
fine up to Rs. 500 or both.
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Workmens Compensation Act, 1923 (WCA) |
The WCA makes every employer liable to pay compensation if
injury, disability or death is caused to a workman (including
those employed through a contractor) due to an accident arising
out of or in the course of his employment. If the employer fails
to pay the compensation due under the WCA within one month from
the date it falls due, the commissioner may direct the employer
to pay the compensation amount along with interest and impose a
penalty for non-payment.
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Payment of Gratuity Act, 1972 (PGA) |
Under the PGA, an employee who has been in continuous service
for a period of five years is eligible for gratuity upon
retirement or resignation. The entitlement to gratuity in the
event of superannuation or death or disablement due to accident
or disease, will not be contingent on an employee having
completed five years of continuous service. The maximum amount
of gratuity payable must not exceed Rs. 350,000.
An employee in a factory is said to be in continuous
service for a certain period notwithstanding that his
service has been interrupted during that period by sickness,
accident, leave, absence without leave, lay-off, strike,
lock-out or cessation of work not due to the fault to of the
employee. The employee is also deemed to be in continuous
service if the employee has worked (in an establishment that
works for at least six days in a week) for at least
240 days in a period of 12 months or 120 days in
a period of six months immediately preceding the date of
reckoning.
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Payment of Bonus Act, 1965 (PBA) |
The PBA provides for the payment of a minimum annual bonus to
all employees regardless of whether the employer has made a
profit or a loss in the accounting year in which the bonus is
payable. Under the PBA every employer is bound to pay to every
employee, in respect of the relevant accounting year, a minimum
bonus equal to 8.33% of the salary or wage earned by the
employee during the accounting year or Rs. 100, whichever
is higher. If the allocable surplus, as defined in the PBA,
available to an employer in any accounting year exceeds the
aggregate amount of minimum bonus payable to the employees, the
employer is bound to pay bonuses at a higher rate which is in
proportion to the salary or
158
wage earned by the employee and the allocable surplus during the
accounting year, subject to a maximum of 20% of such salary or
wage. Contravention of the provisions of the PBA by a company
will be punishable by imprisonment for up to six months or a
fine of up to Rs. 1,000, or both, against persons in charge
of, and responsible to the company for, the conduct of the
business of the company at the time of contravention.
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Employees Provident Funds and Miscellaneous Provisions
Act, 1952 (EPFA) |
The EPFA creates provident funds for the benefit of employees in
factories and other establishments. Contributions are required
to be made by employers and employees to a provident fund and
pension fund established and maintained by the Government of
India. The employer is responsible for deducting employees
contributions from the wages of employees and remitting the
employees as well as its own contributions to the relevant
fund. The EPFA empowers the Government of India to frame various
funds such as the Employees Provident
Fund Scheme, the Employees Deposit-linked
Insurance Scheme and the Employees Family Pension
Scheme.
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Land Acquisition Act, 1894 (Land Acquisition
Act) |
As per the provisions of the Land Acquisition Act, the central
government or appropriate state government is empowered to
acquire any land from private persons for public
purpose subject to payment of compensation to the persons
from whom the land is so acquired. The Land Acquisition Act
further prescribes the manner in which such acquisition may be
made by the central government or the appropriate state
government. Additionally, any person having an interest in such
land has the right to object to such proposed acquisition.
159
MANAGEMENT
Directors, Executive Officers and Other Significant
Employees
The following table sets forth certain information regarding our
directors, executive officers and other significant employees as
of September 30, 2006:
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Name |
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Age |
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Position |
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Directors
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Anil
Agarwal(1)
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53 |
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Non-Executive Chairman |
Navin Agarwal
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45 |
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Executive
Vice-Chairman(2) |
Kuldip Kumar Kaura
|
|
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59 |
|
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Managing Director and
CEO(2) |
Tarun
Jain(3)
|
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46 |
|
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Whole Time
Director(2) |
Dwarka Prasad Agarwal
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|
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74 |
|
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Non-Executive Director |
Berjis Minoo
Desai(1)(3)(4)(5)
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|
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50 |
|
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Non-Executive Director |
Gautam Bhailal
Doshi(4)(5)
|
|
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53 |
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Non-Executive Director |
Sandeep H.
Junnarkar(1)(3)(4)(5)
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55 |
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Non-Executive Director |
Ishwarlal Patwari
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74 |
|
|
Non-Executive Director |
Executive Officers
|
|
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Dindayal Jalan
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50 |
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Chief Financial Officer |
Dhanpal Arvind Jhaveri
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37 |
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Director of Corporate Strategy |
Dilip Golani
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40 |
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Senior Vice President and Group Head of Management Assurance |
S. Venkatesh
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42 |
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President of Group Human Resources |
Other Significant Employees
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Copper Business
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T. Venkatesan
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53 |
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|
Chief Executive Officer, Copper Division |
Zinc Business
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|
|
|
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Mahendra Singh Mehta
|
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50 |
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|
Chief Executive Officer, HZL and Whole Time Director,
HZL(2) |
Aluminum Business
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Chandra Prakash Baid
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53 |
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President, BALCO and Whole Time Director,
BALCO(2) |
Power Business
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C.V. Krishnan
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56 |
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Managing Director, Power |
Notes:
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(1) |
Member of the Remuneration Committee. |
(2) |
A Whole Time Director is a director who is employed
full-time in rendering services to the management of the company
with respect to which he is a director. An individual can be a
whole time director with respect to only one company, although
he or she may accept the position of non-whole time director in
other companies. In addition to Messrs. Tarun Jain and
Mahendra Singh Mehta, Messrs. Navin Agarwal and
Kuldip Kumar Kaura are also each considered to be a whole
time director. |
(3) |
Member of the Shareholders and Investors Grievance
Committee. |
(4) |
Member of the Audit Committee. |
(5) |
Independent director. |
Anil Agarwal, who founded the Vedanta group in 1976, is
our Chairman and was appointed to our board of directors in
1978. Mr. Agarwal is based in the United Kingdom. In
addition to his role as Chairman, Mr. Agarwal is also the
executive chairman of Vedanta and a director of BALCO, HZL,
SOVL, Vedanta Alumina and Sterlite Paper Limited.
Mr. Agarwal was previously our Chairman and
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Managing Director and CEO from 1980 until the expiration of his
term in October 2004. Mr. Agarwal was also the chief
executive officer of Vedanta from December 2003 to March 2005.
Mr. Agarwal has over 30 years of experience as an
industrialist and has been instrumental in our growth and
development since our inception. Mr. Agarwal is the son of
Mr. Dwarka Prasad Agarwal and the brother of Mr. Navin
Agarwal.
Navin Agarwal is our Executive Vice-Chairman and was
appointed to our board of directors in August 2003. His
responsibilities as Executive Vice-Chairman include executing
our business strategy and managing the overall performance and
growth of our organization. Mr. Agarwal joined our company
at its inception. In addition to his role as Executive
Vice-Chairman, Mr. Agarwal is also the chairman of KCM and
MALCO, the deputy executive chairman of Vedanta and a director
of BALCO, HZL, Vedanta Alumina, MALCO, SOTL, Sterlite Copper
Limited, Sterlite Paper Limited, Sterlite Iron & Steel
Company Limited, Sterlite Infrastructure Private Limited,
Sterlite Infrastructure Holdings Private Limited, Sterlite
Energy, Sterlite Telecables Limited, Sterlite Telecom Limited,
Sterlite Telelink Limited and Sterlite Shipping Ventures Private
Limited. As between these various positions, Mr. Agarwal is
principally employed by us and devotes most of his time to
matters relating to us, though under the shared services
agreement described in Certain Relationships and Related
Transactions Related Transactions he does from
time to time spend a small percentage of his time on matters
relating to Vedanta and its subsidiaries. Mr. Agarwal has
over 20 years of experience in general management and
commercial matters. Mr. Agarwal has completed the Owner/
President Management Program at Harvard University and has a
Bachelor of Commerce from Sydenham College, Mumbai, India.
Mr. Agarwal is the son of Mr. Dwarka Prasad Agarwal
and the brother of Mr. Anil Agarwal.
Kuldip Kumar Kaura is our Managing Director and CEO and
was appointed to our board of directors in October 2004. In
addition to his role as Managing Director and CEO,
Mr. Kaura is also the chief executive officer of Vedanta
and a director of HZL, Vedanta Alumina, CMT, TCM, Vedanta, KCM
and Sterlite Copper Limited. As between these various positions,
Mr. Kaura is principally employed by us and devotes most of
his time to matters relating to us, though under the shared
services agreement described in Certain Relationships and
Related Transactions Related Transactions he
does from time to time spend a small percentage of his time on
matters relating to Vedanta and its subsidiaries. Mr. Kaura
was the managing director of HZL from April 2002 to March 2004
and the chief operating officer of Vedanta from December 2003 to
March 2005 and the chief executive officer of Vedanta from March
2005 to date. Prior to that, Mr. Kaura served at ABB India
as managing director and country manager from 1998 to 2002.
Mr. Kaura has a Bachelor of Engineering from the Birla
Institute of Technology & Science in Pilani, India.
Tarun Jain is our Whole Time Director and was appointed
to our board of directors in November 2004. Mr. Jain joined
our company in 1984 and has over 20 years of experience in
corporate finance, accounts, audit, taxation and secretarial
practice. He is responsible for our strategic financial matters
including finance and accounting, legal and regulatory
compliance and risk management. Mr. Jain is a graduate of
the Institute of Cost and Works Accountants of India and a
Fellow Member of the Institute of Chartered Accountants of India
and the Institute of Company Secretaries of India. Mr. Jain
is also a director of BALCO, HZL, Vedanta Alumina, SOVL, Twin
Star, MALCO, Sterlite Copper Limited, Sterlite Gold Limited, or
Sterlite Gold, and Sterlite Shipping Ventures Private Limited.
Dwarka Prasad Agarwal is our Non-Executive Director and
was appointed to our board of directors in 1981.
Mr. Agarwal is a trustee of the Sterlite Foundation, which
is a social and charitable organization and a director of
Vedanta Foundation, a non-profit organization. He has
contributed significantly to our development since our
inception. Mr. Agarwal is also a director of Volcan, Twin
Star Investments Limited, Twin Star Infrastructure Limited, Twin
Star Overseas Limited, Twin Star International Limited, Vedanta
Foundation, Sterlite Paper Limited, Sterlite Iron &
Steel Company Limited, Sterlite Energy, Sterlite Telecables
Limited, Sterlite Telecom Limited, Sterlite Telelink Limited,
Duratube Limited and Nagreeka Exports Limited. Mr. Agarwal
is the father of Mr. Anil Agarwal and Mr. Navin
Agarwal.
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Berjis Minoo Desai is our Non-Executive Director and was
appointed to our board of directors in January 2003.
Mr. Desai is a solicitor and has been the managing partner
of Messrs J. Sagar Associates since 2003 specializing
in mergers and acquisitions, securities, financial and
international business laws and international commercial
arbitration. Prior to that, Mr. Desai was a partner at
Messrs Udwadia, Udeshi & Desai from 1997 to 2003.
Mr. Desai has a Bachelor of Arts and a Bachelor of Law from
the University of Mumbai and a Master of Law from the University
of Cambridge. The business address of Mr. Desai is
Vakils House, 18 Sprott Road, Ballard Estate, Mumbai,
Maharashtra 400 001. Mr. Desai is also a director of
several companies including Praj Industries Limited, Onward
Technologies Limited, Adlabs Films Limited, Emcure
Pharmaceuticals Limited, Centrum Finance Limited and Vadhavan
Port Private Limited.
Gautam Bhailal Doshi is our Non-Executive Director and
was appointed to our board of directors in December 2001.
Mr. Doshi is a chartered accountant. Since August 2005, he
has been the group managing director of the Reliance ADA Group
Limited. Prior to that, he was a partner of RSM & Co.
in India from September 1997 to July 2005. Mr. Doshi has
24 years of experience in the areas of audit, finance and
accounting. Mr. Doshi has a Bachelor of Commerce from the
University of Mumbai and a Master of Commerce from the
University of Mumbai and is a Fellow Member of the Institute of
Chartered Accountants of India and a member of the Central
Council and the Western India Regional Council of the Institute
of Chartered Accountants of India. Mr. Doshi is also a
director of Reliance Communications Limited, Reliance ADA Group
Limited, Reliance Life Insurance Company Limited, Reliance Asset
Construction Company Limited, Adlabs Films Limited, Garware
Polyester Limited, Kojam Fininvest Limited, Sonata Investments
Limited, Doshi Consultancy Private Limited and MediAssist India
Private Limited. The business address of Mr. Doshi is
Reliance Centre, 3rd Floor, 19 Walchand Hirachand
Marg, Ballard Estate, Mumbai, Maharashtra 400 038.
Sandeep H. Junnarkar is our Non-Executive Director and
was appointed to our board of directors in June 2001.
Mr. Junnarkar is a solicitor and a partner of Messrs
Junnarkar & Associates. Prior to that, he was a partner
at Messrs Kanga & Co. from 1981 until 2002.
Mr. Junnarkar specializes in banking and corporate law and
regularly advises on all aspects of the Exchange Control and
FEMA and Securities Contracts (Regulation) Act, 1956.
Mr. Junnarkar has a Bachelor of Law from the University of
Mumbai and is a member of the Bombay Incorporated Law Society.
Mr. Junnarkar is also a director of Ambuja Cement Eastern
Limited, Everest Industries Limited, Excel Crop Care Limited,
Indian Petrochemicals Corporation Limited, Jai Corp Limited,
Sunshield Chemicals Limited, Tilaknagar Industries Limited,
Reliance Industrial Infrastructure Limited, Reliance Industrial
Investments & Holdings Limited, Reliance Ports and
Terminals Limited and IL&FS Infrastructure Development
Corporation Limited. The business address of Mr. Junnarkar
is 311/312 Embassy Centre, Nariman Point, Mumbai, Maharashtra
400 021.
Ishwarlal Patwari is our Non-Executive Director and was
appointed to our board of directors in November 1976. He has
over 45 years of experience as an industrialist and is a
Fellow Member of the Institute of Chartered Accountants of
India. Mr. Patwari has been the chairman of Nagreeka
Exports Limited for the last five years and is also a director
of Nagreeka Exports Limited. The business address of
Mr. Patwari is 20-22 Kala Bhawan, Mathew Road, Mumbai,
Maharashtra 400 004.
Dindayal Jalan is our Chief Financial Officer.
Mr. Jalan joined our company as the president of our
Australian operations and was responsible for the business and
operations of CMT and TCM from January 2001 to February 2002
before becoming our chief financial officer (metals). He was
appointed as our Chief Financial Officer in March 2003.
Mr. Jalan was also appointed as the chief financial officer
of Vedanta in October 2005. As between these positions,
Mr. Jalan is principally employed by us and devotes most of
his time to matters relating to us, though under the shared
services agreement described in Certain Relationships and
Related Transactions Related Transactions he
does from time to time spend a small percentage of his time on
matters relating to Vedanta and its subsidiaries. Mr. Jalan
has over 27 years of experience working in various
companies in the engineering, mining and non-ferrous
162
metals industries. Mr. Jalan received a Bachelor of
Commerce from Gorakhpur University, India and is a member of the
Institute of Chartered Accountants of India.
Dhanpal Arvind Jhaveri is our Director of Corporate
Strategy and is responsible for our strategic development.
Mr. Jhaveri joined our company in June 2004. Prior to
joining our company, Mr. Jhaveri was at ICICI Securities
Limited where he headed the Investment Banking,
M&A Advisory division from April 2002 to June 2004.
Between November 1997 to April 2002, Mr. Jhaveri was a
partner with KPMG India in the corporate finance department.
Mr. Jhaveri has a Bachelor of Commerce from the University
of Mumbai and a Masters of Business Administration from Babson
College, Graduate School of Business in the United States.
Dilip Golani is the Senior Vice President of our
Management Assurance Department and the Group Head of Management
Assurance. Mr. Golani joined our company in 2000 as the
head of our management assurance department before becoming the
head of our performance improvement department from August 2004
to August 2005. Between September to December 2005,
Mr. Golani was also appointed as the head of marketing for
HZL and subsequently, in December 2005, he took up the position
as head of management assurance for HZL. Mr. Golani has a
Bachelor of Engineering from Motilal National Institute of
Technology, Allahabad and a Post-Graduate Diploma in Industrial
Engineering from the National Institute of Industrial
Engineering.
S. Venkatesh is our President of Group Human Resources.
Mr. Venkatesh is responsible for strategic and operational
aspects of our human resources. Mr. Venkatesh joined our company
in August 2002. Prior to that, Mr. Venkatesh has held
various human resources positions with several Indian and
multinational companies. He was the executive vice president of
the BPL Innovision Business Group from September 2000 to July
2002. Mr. Venkatesh has a Bachelor of Science from Madras
University and a Masters degree in Personnel Management
and Industrial Relations from the Tata Institute of Social
Sciences, Mumbai.
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Other Significant Employees |
T. Venkatesan is the Chief Executive Officer of our
copper business and has been responsible for the overall
management of our copper business since September 2004. Prior to
that, Mr. Venkatesan was the chief financial officer of
MALCO from 1999 to 2001, the chief financial officer of our
copper business from 2001 to 2002, vice president for our copper
operations at Silvassa from 2002 to 2003 and our director of
corporate affairs from 2003 to 2004. Mr. Venkatesan has a
Bachelor of Economics from Madras University and is an associate
member of the Institute of Chartered Accountants of India.
Mahendra Singh Mehta is the Chief Executive Officer and
Whole Time Director of HZL and has been responsible for our zinc
business since August 2005. Mr. Mehta joined our company in
2000 and was appointed the senior vice president of our copper
business between October 2001 and November 2002. From
November 2002, he was responsible for the marketing of base
metals (copper, aluminum, lead and zinc), copper concentrate
procurement, zinc concentrate export and tolling and coal
procurement as the commercial-director-base metals before
joining HZL as its Whole Time Director. Prior to joining our
company, Mr. Mehta held various positions in the marketing,
finance and commercial departments of various companies in the
steel industry, including Lloyds Steel Limited where he was in
charge of marketing steel products, working capital finance and
the cold rolled coils and galvanized steel projects.
Mr. Mehta has a Bachelor of Engineering from the MBM
Engineering College, University of Jodhpur and a Masters
degree in Business Management from the Indian Institute of
Management, Ahmedabad.
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Chandra Prakash Baid is the President and Whole Time
Director of BALCO and has been responsible for the aluminum
business at BALCO and a director of BALCO since November 2004.
Mr. Baid was the President (Operations) and Location Head
at the Korba plant of BALCO from September 2003 to November
2004. Prior to that, from January 2001 to August 2003,
Mr. Baid was the President (Business Head Unit) of MALCO.
Prior to joining MALCO, Mr. Baid had been an Executive
Director at Southern Iron & Steel Company Limited and
Vice President (SBU-head) at Atul Products Limited and held
managerial positions in various functions or units at Hindustan
Lever Limited. Mr. Baid has a Bachelor of Mechanical
Engineering from the Birla Institute of Technology &
Science, Pilani and a Post-Graduate Diploma in Project
Management from the Project Management Association, New Delhi.
Power Business
C.V. Krishnan is the Managing Director of our power
business and has been responsible for the overall management and
development of our commercial power generation business since
October 2006. Prior to that, Mr. Krishnan was the Chief
Executive Officer and Managing Director of KCM.
Mr. Krishnan was responsible for KCMs copper business
in Zambia from February 2005 to October 2006. From October 2003
to January 2005, Mr Krishnan was Chief Executive Officer for
Shankar Netralaya Medical Resarch Foundation, Chennai, a
non-governmental organization and non-profit trust hospital.
Prior to that, he was our Chief Executive Officer, Metals from
October 2001 to October 2003. Mr. Krishnan was a director
of our company and of HZL from October 2001 to February 2005.
Mr. Krishnan has been a director of KCM since February
2005. Prior to joining our company in May 1999, he was the Chief
Executive Officer and Managing Director of Essar Power Limited.
Mr. Krishnan has over 30 years of work experience and
has held senior positions in Larsen & Toubro Limited, A.F.
Ferguson & Co., Shriram Fertilizers & Chemicals Limited
and E.I.D Parry Limited. Mr. Krishnan has a Bachelor of
Technology from the Indian Institute of Technology, Channai and
a Masters of Business Administration from the Indian Institute
of Management, Ahmedabad.
Board Structure and Compensation
Our board of directors currently consists of nine directors.
Three of our nine directors are independent directors, namely,
Mr. Berjis Minoo Desai, Mr. Gautam Bhailal Doshi and
Mr. Sandeep H. Junnarkar.
Under the Indian Companies Act, our shareholders must approve
the salary, bonus and benefits of all directors at an annual
general meeting of the shareholders. Mr. Navin Agarwal,
Mr. Kuldip Kumar Kaura and Mr. Tarun Jain have entered
into service contracts with us which will expire on
July 31, 2008, March 31, 2008 and November 23,
2009, respectively. However either we or the director may
terminate the respective service contract upon
90 days notice to the other party or payment in lieu
of. None of their service contracts provide for benefits upon
termination of their employment.
The rest of our directors have no fixed term of office and they
serve as directors on our board of directors until their
resignation or removal from office by a resolution of our
shareholders, until they cease to be directors by virtue of the
provision of law or they are disqualified by law or our articles
of association from being directors.
Our equity shares are currently listed and traded on the NSE and
BSE. We maintain our corporate governance arrangements in
accordance with Indian regulations for companies listed on the
NSE and BSE. In particular, we have established an audit
committee and a remuneration committee in accordance with Indian
corporate governance requirements.
164
Our board of directors currently has an audit committee, a
remuneration committee and a shareholders and
investors grievance committee, which have the composition
and general responsibilities described below.
The audit committee consists of three directors: Mr. Gautam
Bhailal Doshi (Chairman), Mr. Berjis Minoo Desai and
Mr. Sandeep H. Junnarkar. Each of Messrs. Desai,
Doshi and Junnarkar satisfies the independence
requirements of
Rule 10A-3 of the
Exchange Act. The principal duties and responsibilities of our
audit committee are as follows:
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to serve as an independent and objective party to monitor our
financial reporting process and internal control systems; |
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to review and appraise the audit efforts of our independent
accountants and exercise ultimate authority over the
relationship between us and our independent accountants; and |
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to provide an open avenue of communication among the independent
accountants, financial and senior management and the board of
directors. |
The audit committee has the power to investigate any matter
brought to its attention within the scope of its duties. It also
has the authority to retain counsel and advisors to fulfill its
responsibilities and duties. Mr. Gautam Doshi will serve as
our audit committee financial expert, within the requirements of
the rules promulgated by the Commission relating to
listed-company audit committees.
The remuneration committee consists of three directors:
Mr. Berjis Minoo Desai (Chairman), Mr. Sandeep
H. Junnarkar and Mr. Anil Agarwal. Two of the three
directors on our remuneration committee are independent
directors, namely, Messrs. Desai and Doshi. The scope of
this committees duties include determining the
compensation and commission to be paid to and the terms of
appointment of each of our executive directors, taking into
account our profits and performance, external competitive
environment and our growth plans.
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Shareholders and Investors Grievance Committee |
The shareholders and investors grievance committee
consists of three directors: Mr. Sandeep H. Junnarkar
(Chairman), Mr. Berjis Minoo Desai and Mr. Tarun Jain.
Two of three directors on our shareholders and
investors grievance committee are independent directors,
namely, Mr. Sandeep Junnarkar and Mr. Berjis Desai.
The principal duties and responsibilities of this committee are
to oversee the reports received from the registrar and transfer
agent and to facilitate the prompt and effective resolution of
complaints from our shareholders and investors.
Directors and Executive Officers Compensation
The aggregate compensation we paid our executive directors and
executive officers for fiscal 2006 was Rs. 96 million
($2.2 million), which includes Rs. 80 million
($1.8 million) paid towards salary, bonuses and allowances,
Rs. 10 million ($0.2 million) paid towards
benefits such as contributions to the provident fund and
superannuation fund and Rs. 2 million
($0.1 million) in non-cash payments. The total compensation
paid to our most highly compensated executive during fiscal 2006
was Rs. 30 million ($0.7 million) (of which
Rs. 23 million ($0.5 million) comprised salary,
bonuses and allowances, Rs. 5 million
($0.1 million) comprised benefits such as contribution to
the provident fund and superannuation fund and
Rs. 2 million ($0.1 million) comprised non-cash
payments).
The aggregate compensation we paid our non-executive directors
for fiscal 2006 was Rs. 3.1 million
($0.1 million), which comprises Rs. 142,500 in sitting
fees and Rs. 3.0 million in commissions.
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We have adopted the Vedanta LTIP in February 2004. Under the
Vedanta LTIP, our directors and executive officers will be
granted share awards which will entitle them to acquire the
ordinary shares of Vedanta based on the performance of
Vedantas total shareholder return against a peer group of
companies comprising the FTSE Worldwide Mining Index (excluding
precious metals) measured over a three-year performance period
and Vedantas financial performance.
Outstanding Awards or Options
As of September 30, 2006, our directors and executive
officers as a group held awards vested under the Vedanta LTIP to
acquire an aggregate of 683,400 ordinary shares of Vedanta
representing approximately 0.2% of Vedantas share capital.
The awards are exercisable at the end of the three-year
performance period commencing from the date of each grant at an
exercise price of $0.10 per ordinary share. The awards
expire ten years after their date of grant. For more
information, see Vedanta Long-Term Incentive
Plan.
Employee Benefit Plans
We maintain employee benefit plans in the form of certain
statutory and welfare schemes covering substantially all of our
employees.
In accordance with Indian law, all of our employees in India are
entitled to receive benefits under the Provident Fund, a defined
contribution plan to which both we and the employee contribute
monthly at a pre-determined rate (currently 12.0% of the
employees base salary). These contributions are made to
the Government Provident Fund and we have no further obligation
under this fund apart from our monthly contributions. We
contributed an aggregate Rs. 206 million,
Rs. 203 million and Rs. 222 million
($5.0 million) in fiscal 2004, 2005 and 2006, respectively.
In accordance with Indian law, we provide for gratuity pursuant
to a defined benefit retirement plan covering all of our
employees in India. Our gratuity plan provides for a lump sum
payment to vested employees on retirement or on termination of
employment in an amount based on the employees salary and
length of service with us. The gratuity plan provides a lump sum
payment to vested employees at retirement, disability or
termination of employment, in an amount based on the
employees last drawn salary and the number of years of
employment with us. The assets of the plan, to the extent the
plan is funded, are held in separate funds managed by the Life
Insurance Corporation of India and a full actuarial valuation of
the plan is performed on an annual basis. Our liability for the
gratuity plan was Rs. 431 million, Rs. 409
million and Rs. 480 million ($10.8 million) in
fiscal 2004, 2005 and 2006, respectively.
It is our current policy for all of our non-unionized employees
in a managerial position and above to pay into a superannuation
fund a sum equal to 15.0% of their annual base salary which is
payable to the employee in a lump sum upon his retirement or
termination of employment. We contributed an aggregate of
Rs. 8 million, Rs. 20 million and
Rs. 13 million ($0.3 million) in fiscal 2004,
2005 and 2006, respectively.
Our liability for compensated absences is determined on an
actual basis for the entire unused vacation balance standing to
the credit of each employee at each calendar
year-end. Contributions
to such liability are charged to income in the year in which
they accrue. Liability for the compensated absences was
166
Rs. 167 million, Rs. 246 million and
Rs. 224 million ($5.0 million) in fiscal 2004,
2005 and 2006, respectively.
Vedanta Reward Plan
The Reward Plan was adopted for the purpose of rewarding a
limited number of employees who had contributed to our and
Vedantas development and growth over the period leading up
to Vedantas listing on the LSE in December 2003. It was
used solely to provide awards on listing and no further awards
will be granted under the plan.
Vedanta Long-Term
Incentive Plan
We are a participating company in the Vedanta LTIP which
was adopted by Vedanta to grant share options to its employees
or employees of its subsidiaries. Awards under the plan may be
granted to any employee of Vedanta or any of its subsidiaries
who is not within six months of such employees normal
retirement date.
The Vedanta LTIP is consistent with our reward philosophy,
which aims to provide superior rewards for outstanding
performance, and to provide a high proportion of
at risk remuneration for executive directors
and senior employees. The maximum value of Vedanta ordinary
shares which may be conditionally awarded in any financial year
to a participant in the Vedanta LTIP who is an executive
director is restricted to 100% of that executive directors
annual base salary.
The performance target which currently applies to vesting of
awards is our performance as measured against comparative total
shareholder return against a peer group of companies comprising
the FTSE Worldwide Mining Index (excluding precious metals).
During fiscal 2006, options to acquire 1,582,281 Vedanta
ordinary shares were granted under the Vedanta LTIP to our
directors and management. All of the options were granted on
February 1, 2006 and have an exercise price of $0.10 per
ordinary share. The options vest as to all of the Vedanta
ordinary shares underlying the options on February 1, 2009,
and expire on August 1, 2009.
Limitations on Liability and Indemnification Matters
Section 201 of the Indian Companies Act provides that a
company may indemnify any director, officer or auditor against
any liability incurred by such director, officer or auditor in
defending any civil or criminal proceedings, in which a judgment
is given in favor of such director, officer or auditor or in
which he or she is acquitted or discharged or in connection with
application made by a director or an officer to the High Court
of the relevant state for relief, because he or she has reason
to apprehend that any proceeding will or might be brought
against him in respect of any negligence, default, breach of
duty, misfeasance or breach of trust, in which relief has been
granted by the High Court of the relevant state.
Section 201 also provides that, except for such indemnity
described above, any provision, whether contained in the
articles of association of a company or in an agreement with the
company or in any other instrument, for exempting any director,
officer or auditor of the company from, or indemnifying him or
her against, any liability which, by any rule of law, would
otherwise attach to such director, officer or auditor in respect
of any negligence, default, misfeasance, breach of duty or
breach of trust of which he or she may be guilty in relation to
the company, shall be void.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following is a summary of material transactions we have
engaged in with our controlling shareholder, Vedanta, and its
subsidiaries and other related parties, including those in which
we or our management have a significant equity interest. In
addition, the following contains a discussion of how we intend
to handle conflicts of interest and allocations of business
opportunities between us and our affiliates, directors and
executive officers. For further discussion of related party
transactions, see note 24 to our consolidated financial
statements.
Related Parties
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Volcan and the Agarwal Family |
Volcan owns 53.8% of Vedanta. Volcan is owned and controlled by
members of the Agarwal family, specifically Mr. Anil
Agarwal, the Executive Chairman of Vedanta and our Non-Executive
Chairman, his father, Mr. Dwarka Prasad Agarwal, and his
son, Mr. Agnivesh Agarwal, the Non-Executive Chairman of
HZL. As part of Vedantas listing on the LSE, Volcan and
Messrs. Anil Agarwal, Dwarka Prasad Agarwal and Agnivesh
Agarwal entered into an agreement with Vedanta that regulates
the ongoing relationship between them to ensure that Vedanta is
able to carry on its business independently of Volcan and the
Agarwal family. See Related
Transactions. The Agarwal family also has controlling
interests in SOTL and Sterlite Gold, which are publicly listed
companies in India and Canada, respectively, and which were
spun-off from the Vedanta group in December 2003, except for
nominal interests in SOTL held by MALCO and us.
As of September 30, 2006, Vedanta has beneficial ownership
of 429,329,150 of our equity shares, including
403,715,750 equity shares (72.3%) held by Twin Star and
25,613,400 equity shares (4.6%) held by MALCO. Twin Star is
the owner of 80.0% of the outstanding shares of MALCO and is a
controlling shareholder of MALCO. Therefore, the shares
beneficially owned by MALCO are also beneficially owned by Twin
Star. Twin Star is a wholly-owned subsidiary of VRHL, and VRHL
is in turn a
wholly-owned subsidiary
of Vedanta. As a result, Vedanta is the beneficial owner of
76.9% of our equity shares prior to this offering, and will be
the beneficial owner
of %
of our equity shares after this offering,
or %
of our equity shares if the over-allotment option is exercised
in full by the underwriters.
Vedanta entered into a relationship agreement dated
December 5, 2003 with Volcan, the Volcan shareholders and
Mr. Anil Agarwal as part of Vedantas listing on the
LSE in December 2003. The principal purpose of the relationship
agreement is to enable Vedanta to carry on its business
independently of Volcan and of the Agarwal family and of any of
their associates as required by the listing rules of the
Financial Services Authority of the United Kingdom and to ensure
that transactions and relationships, including all matters that
are the subject of the shared services agreement (as described
below) among Volcan and with members of the Agarwal family and
their associates are at arms length and on a normal
commercial basis. The relationship agreement will terminate in
respect of Volcan at such time as each of the Volcan
shareholders, Volcan and its subsidiaries and affiliates, acting
individually or jointly by agreement, cease to be a controlling
shareholder of Vedanta for the purposes of the listing rules of
the Financial Services Authority of the United Kingdom or if
Vedanta is de-listed from the LSE. In addition, the relationship
agreement will terminate in respect of Mr. Anil Agarwal,
Mr. Dwarka Prasad Agarwal or Mr. Agnivesh Agarwal if
any of them individually or acting jointly ceases to be a
controlling shareholder of Vedanta or Volcan. Currently, a
controlling shareholder of a company for the purposes of the
listing rules of the Financial Services Authority of the United
Kingdom is any person (or persons acting jointly by agreement
whether formal or otherwise) who is entitled to exercise, or to
control the exercise of, 30% or more of the rights to vote at
general meetings of such company or is able to control the
appointment of directors who are able to exercise a majority of
the votes at board meetings of such company.
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Under the relationship agreement:
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The parties agree to ensure that Vedanta is capable, at all
times, of carrying on its business independently of Volcan and
the Agarwal family and their associates as required by the
listing rules of the Financial Services Authority of the United
Kingdom; |
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Vedantas board of directors and nominations committee and
any other committee of Vedantas board of directors (other
than the audit committee or the remuneration committee or any
committee which may be established by the board of directors in
connection with a specific transaction, the constitution of
which is approved by the board of directors) to which
significant powers, authorities or discretions are delegated
shall at all times comprise a majority of directors who are
independent of Volcan and the Agarwal family and their
associates and who are free from any business or other
relationship with any member of the Agarwal family, Volcan or
any of their associates which could materially interfere with
the exercise of the directors judgment concerning Vedanta; |
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Vedantas remuneration committee and audit committee shall
at all times consist only of non-executive directors; |
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Volcan is entitled to nominate for appointment to the board of
directors of Vedanta such number of persons as is one less than
the number of directors who are independent of Volcan, the
Agarwal family and their associates and who are free from any
business or other relationship with any member of the Agarwal
family, Volcan or any of their associates which could materially
interfere with the exercise of the directors judgment
concerning Vedanta; |
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Neither Mr. Anil Agarwal nor any non-independent directors
shall be permitted, unless the independent directors agree
otherwise, to vote on any resolutions of Vedantas board of
directors or of a committee of the board to approve the entry
into, variation, amendment, novation or abrogation or
enforcement of any contract, arrangement or transaction with
Volcan or any member of the Agarwal family or any of their
associates; |
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Volcan shall not exercise voting rights attaching to its shares
in Vedanta or any resolution to approve the entry into,
variation, amendment, novation or abrogation of any transactions
or arrangements between Vedanta and Volcan or the Agarwal family
or any of their associates; |
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Volcan, the Volcan shareholders and Mr. Anil Agarwal
represented and warranted to Vedanta that at the time of the
execution of the Relationship Agreement they did not own
directly or indirectly any interests in the smelting, refining,
mining or sale of any base metals or mineral otherwise than
through Vedanta or any member of the Vedanta group, except for
the interest of Sterlite Gold, in certain exploration blocks in
Myanmar which contain gold and copper. Sterlite Gold has not
announced any intention to develop these exploration blocks.
These copper deposits were not considered by Vedantas
directors to be sufficiently large to give rise to a conflict of
interest with Vedantas copper business, which is operated
by us; |
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Volcan, the Volcan shareholders and Mr. Anil Agarwal agreed
to, and agreed to cause each member of the Volcan group, the
Agarwal family and their respective associates to, directly or
indirectly, acquire or otherwise invest in any company,
business, business operation or other enterprise which engages
in the smelting, refining or mining of base metals or minerals
only |
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through Vedanta or other member of the Vedanta group. However,
this agreement does not prevent, restrict or limit: |
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the acquisition or ownership by Volcan, the Volcan shareholders,
Mr. Anil Agarwal or their respective associates of: |
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any securities of Sterlite Gold; or |
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not more than 5% in aggregate of any class of shares, debentures
or other securities in issue from time to time of any company
which engages in the smelting, refining or mining of base metals
or minerals which is for the time being listed on any stock
exchange; or |
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the acquisition or ownership, directly or indirectly, by Volcan,
the Volcan shareholders, Mr. Anil Agarwal or their
respective associates, each an interested party, of, or of any
interest in, a base metal or mineral property or asset (together
with any associated property, plant and equipment), which is not
adjacent or geographically proximate to an existing property or
operation of Vedanta group so as to give them operational
synergies, where the acquisition cost (including assumed
indebtedness), including any related capital expenditures
committed at the date of acquisition for the following
12 months, is equal to $50 million or less, for which
purpose any acquisitions of two or more related or adjacent base
metal or mineral properties or assets shall be aggregated when
calculating the acquisition cost, provided that the relevant
interested party (i) is not an officer or director of a
Vedanta group company; and (ii) before acquiring such
property or asset, first made the opportunity to acquire such
property or asset available to the Vedanta group, with a
reasonable period for the independent directors of Vedanta to
consider the opportunity, on terms no less favorable than those
on which they are proposed to be acquired by the interested
party and a majority of the independent directors has determined
that the Vedanta group should not make the acquisition; and |
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Transactions and relationships between Vedanta, Volcan and
members of the Agarwal family and their respective associates
must be conducted at arms length and on a normal
commercial basis, including those to be provided under the
shared services agreement. |
Our copper refinery produces anode slimes, which contain gold,
as a by-product of the refining process. These anode slimes are
sold to precious metal producers who extract and refine the
gold. Sterlite Gold, which is a
majority-owned
subsidiary of Vedanta, produces gold dore bars. The quantities
of gold within the anode slimes produced by us are small and
therefore we do not believe this gives rise to a conflict of
interest with Sterlite Golds business.
Related Transactions
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Shared Services Agreement SOTL, Sterlite Gold,
Vedanta and Sterlite |
We entered into a shared services agreement dated
December 5, 2003 with SOTL, Sterlite Gold and Vedanta as
part of Vedantas listing on the LSE in December 2003.
Under this agreement, we and Vedanta agreed to continue to
provide SOTL and Sterlite Gold with certain advisory services on
an ongoing basis consisting primarily of access to certain of
the directors, officers and employees of the Vedanta group. In
fiscal 2004, 2005 and 2006, we received Rs. 139,817,
Rs. 317,979 and Rs. 361,390 ($8,125) from SOTL and
Rs. 253,866, Rs. 452,522 and Rs. 379,127 ($8,524)
from Sterlite Gold, respectively, under the shared services
agreement.
Under the shared services agreement:
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a party may terminate the shared services agreement or a
particular service which is provided pursuant to the shared
services agreement if another party commits a material breach of
the shared services agreement, upon another party becoming
subject to or entering into arrangements in the context of
insolvency or following a change of control in another party on
or before December 31, 2006. A party may also terminate a
particular service on three months notice; |
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the services under the shared services agreement will be
provided by us or Vedanta, as the case may be, to SOTL and
Sterlite Gold and the transactions between the parties will be
on an arms length basis; |
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the cost of access to certain of the directors, officers and
employees of such member of the Vedanta group shall be paid by
SOTL or Sterlite Gold, as the case may be, to us or Vedanta, as
appropriate; and |
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the cost of the services provided pursuant to the shared
services agreement is calculated by apportioning the total
salary cost to us or the Vedanta group of the employment of the
relevant director, officer or employee to SOTL or Sterlite Gold,
as appropriate based on the time spent for each such member of
the Vedanta group. |
On April 13, 2006, a letter agreement was executed by
Vedanta, Sterlite Gold, SOTL and us, to:
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amend the list of employees of Vedanta who may be hired under
the shared services agreement to reflect those individuals who
actually performed the services; |
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amend the amount to be paid to Vedanta based on estimated cost
plus 20%; and |
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allow only 25% of Mr. Anil Agarwals salary costs to
be taken into account when determining the charge to SOTL and
Sterlite Gold, to reflect the limited services provided to SOTL
and Sterlite Gold since the listing of Vedanta. |
Sterlite Gold is listed on the Toronto Stock Exchange and has
interests in gold mines and production facilities. As a result
of Vedantas recently completed acquisition of a majority
interest in Sterlite Gold, Sterlite Gold has become our
affiliated company and we expect that the shared services
agreement will be replaced by another arrangement.
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Representative Office Agreement Vedanta and
Sterlite |
We entered into a representative office agreement with Vedanta
on March 29, 2005 under which Vedanta agreed to provide
technical and commercial materials to us to enable us to promote
our business or raise funds overseas, and to be our
non-exclusive overseas representative, for which we have agreed
to pay an amount of $2.0 million
(Rs. 89.0 million) per year to Vedanta. This agreement
is effective until March 31, 2009.
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Consultancy Agreement Vedanta and
Sterlite |
We entered into a consultancy agreement with Vedanta on
March 29, 2005 under which Vedanta agreed to provide
strategic planning and consultancy services to us and our
subsidiaries in various areas of business such that we are able
to finalize and implement our plans for growth and are able to
raise the necessary finances. The terms of this agreement were
negotiated by us and Vedanta and we believe them to be fair and
reasonable, though this agreement was not negotiated on an
arms length basis. Under this agreement Vedanta has agreed
to make certain of its employees available to us and we have
agreed to pay a service fee to Vedanta on the basis of, among
other things, the amount of time spent in providing the services
and associated costs, with a mark-up of 40%. The anticipated fee
used for reference in the agreement, which is based on a
relevant proportion of the expected annual budgeted costs for
fiscal 2005 plus the mark-up of 40%, is $3.0 million
(Rs. 133.0 million) per year. This agreement is
effective from April 1, 2004 until March 1, 2009.
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Sale of Aluminum Conductor Business SOTL and
Sterlite |
On August 30, 2006, we entered into an agreement to sell
our aluminum conductor business to SOTL for
Rs. 1,485 million ($33.4 million). The terms of
this transaction were negotiated between us and SOTL on an
arms length basis, with an independent appraiser hired to
establish the sale price. The sale of this non-core business was
approved by our shareholders on September 30, 2006 and
remains subject to approval by statutory and regulatory
authorities.
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Issuance by Vedanta Alumina Twin Star and
Vedanta Alumina |
Prior to March 2005, Vedanta Alumina was a wholly-owned
subsidiary of ours that was part of our consolidated group of
companies. In March 2005, Vedanta Alumina issued equity shares
to Twin Star in exchange for consideration of
Rs. 4,421 million from Twin Star. As a result of this
sale of equity shares by Vedanta Alumina, Twin Star acquired a
70.5% ownership interest in Vedanta Alumina and we ceased to
consolidate Vedanta Alumina in our consolidated financial
statements. The terms of this sale were negotiated between
Vedanta Alumina and Twin Star on an arms length basis,
with an independent appraiser hired to establish the sale price.
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Rights Offer Twin Star and Sterlite |
During fiscal 2005, we issued 35,860,049 equity shares of par
value Rs. 5 per equity share for cash at a price of
Rs. 550 per equity share on a rights basis to our existing
equity shareholders as of the record date of July 23, 2004,
in the ratio of one equity share for every two equity shares
held. Twin Star subscribed for its pro-rata portion of the
rights offer and also for the unsubscribed portion of the rights
offer. We received total consideration of
Rs 19,644 million from Twin Star. The equity shares
were issued to Twin Star on September 23, 2004, which
resulted in Twin Stars direct ownership interest in us
increasing to 72.3% of our outstanding equity shares.
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Sales of Sterlite Shares Twin Star, SEWT and
Sterlite |
In August 2001, we formed SEWT for the benefit of our employees
by contributing to the initial corpus of the trust, with the
objective to provide incentives, motivation, benefits, and
amenities to our employees and their families as defined in SEWT
trust deed, including in the form of share options or share
awards to employees. We loaned an amount of
Rs. 383 million to enable SEWT to purchase our equity
shares. During fiscal 2003, SEWT purchased 4,168,907 of our
equity shares in the open market and issued 26,325 of our equity
shares to our employees as compensation for past services.
In January 2004, SEWT sold 1.8 million of our equity
shares, which approximated 50% of our shares that it owned, to
Twin Star at fair market value and recorded a gain of
Rs. 2,475 million. SEWT used the cash from the sales
proceeds to repay the loan together with interest and invest in
mutual funds. SEWT also used the cash to purchase 1% cumulative
mandatorily redeemable preference shares of ours on
March 4, 2004 in the amount of Rs. 1,750 million
and these preference shares are redeemable on March 4, 2007
at specified redemption premium. With the sale of our shares by
SEWT to Twin Star, we concluded it was no longer appropriate to
account for SEWT analogous to employee stock ownership plans. As
such, we analyzed SEWT in accordance with the provisions of
FIN 46R and determined SEWT qualified as a variable
interest entity. We also determined that it does not hold a
variable interest in SEWT. Accordingly, in January 2004 we
deconsolidated SEWT.
In April 2004, SEWT further sold 1.7 million of our equity
shares it owned to Twin Star at fair market value and recorded a
gain of Rs. 776 million.
As of March 31, 2006, SEWT held 3,551,155 of our equity
shares with a voting interest equal to 3.2% of our outstanding
equity shares. In the event SEWT distributes any of our shares
it owns, we will record compensation expense for the fair value
of the shares granted to our employees over the vesting period.
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Loan to Relative of a Director Sterlite and
Mrs. Rajni Jain |
In fiscal 2003, we made a loan of Rs. 15 million to
Mrs. Rajni Jain, the wife of Mr. Tarun Jain. This loan
was repaid in March 2006. The largest amount outstanding under
the loan during its term was Rs. 15 million. The loan
was an interest-free housing loan. Such housing loans are made
available to members of our senior management on terms
consistent with local market practice.
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Guarantees Sterlite, IFL, MALCO and Vedanta
Alumina |
We have provided guarantees on behalf of IFL, MALCO and Vedanta
Alumina. See Managements Discussion and Analysis of
Financial Condition and Results of Operations
Guarantees and Put Options.
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Acquisition of Sterlite Energy Twin Star
Infrastructure Limited, Mr. Anil Agarwal, Mr. Dwarka
Prasad Agarwal and Sterlite |
We acquired 100% of the outstanding shares of Sterlite Energy on
October 3, 2006 from Twin Star Infrastructure Limited,
Mr. Anil Agarwal and Mr. Dwarka Prasad Agarwal for a
total consideration of Rs. 4.9 million
($0.1 million).
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Payable to Monte Cello NV Monte Cello NV and
CMT |
Under the terms of the acquisition of CMT by Monte Cello in
1999, a loan in principal amount of AUD105.9 million
payable to Citibank, N.A. was assigned to Monte Cello NV, or
MCNV. We acquired Monte Cello from Twin Star in 2000, and with
it CMT and its loan payable to MCNV, a
wholly-owned subsidiary
of Twin Star. The terms of the loan were renegotiated by CMT and
Citibank, N.A. immediately before it was assigned to MCNV. The
loan is interest free and is subordinated to all other of
CMTs secured creditors. Repayments under the loan are made
only if CMT has surplus cash, defined as residual cash following
the payment of secured creditors. As of March 31, 2006, the
total amount payable by CMT to MCNV under this loan was
Rs. 2,839 million ($63.8 million).
Conflicts of Interest and Allocations of Business
Opportunities
From time to time, conflicts of interest have in the past and
will in the future arise between us and our affiliates,
including our controlling shareholder, Vedanta, and other
companies controlled by Vedanta, our directors and our executive
officers. See Risk Factors Risks Relating to
Our Relationship with Vedanta. With respect to
transactions between us and our affiliates, directors and
executive officers that involve conflicts of interests, we have
in the past undertaken and will continue in the future to
undertake such transactions in compliance with the rules for
interested or related party transactions of the LSE on which
Vedanta is listed, the NYSE on which we intend to list our ADSs
and the Indian Stock Exchanges. We also have used and will
continue to use independent appraisers in appropriate
circumstances to help determine the terms of related party
transactions. We have had and will continue to have an audit
committee comprised entirely of independent directors which is
responsible for reviewing any related-party transaction by us or
any of our subsidiaries or affiliates.
We are continually seeking to identify and pursue business
opportunities. However, Vedanta, as our controlling shareholder,
has and after this offering will continue to have the power to
determine in its sole discretion what corporate opportunities we
may pursue and whether to pursue a corporate opportunity itself
or through one of its other subsidiaries, which may benefit such
companies instead of us and which could be detrimental to our
interests. See Risk Factors Risks Relating to
Our Relationship with Vedanta Vedanta may decide to
allocate business opportunities to other members of the Vedanta
group instead of to us, which may have a material adverse effect
on our business, results of operations, financial condition and
prospects. Vedanta has in the past allocated and expects
in the future to allocate corporate opportunities among itself
and its various subsidiaries based on a number of factors,
including the nature of the opportunity, the availability of
funds at the relevant subsidiary to pursue the opportunity and
which subsidiary it believes can most successfully take
advantage of the opportunity.
173
MATERIAL CONTRACTS
The following is a summary of each of our material contracts,
other than contracts entered into in the ordinary course of
business, entered into in the preceding two years to which we
are a party. The full version of each of these material
contracts has been filed with the Commission as an exhibit to
our registration statement on
Form F-1. See
Where You Can Find More Information.
Consultancy Agreement dated March 29, 2005 between
Vedanta and Sterlite
See Certain Relationships and Related
Transactions Related Transactions.
Representative Office Agreement dated March 29, 2005
between Vedanta and Sterlite
See Certain Relationships and Related
Transactions Related Transactions.
$92.6 million Term Facility Agreement dated
March 22, 2006 between Sterlite as borrower and CALYON,
Standard Chartered Bank and ICICI Bank Limited as lenders
On March 22, 2006, we entered into a $92.6 million
term facility agreement with ICICI Bank Limited, Singapore
Branch, Calyon and Standard Chartered Bank as the mandated lead
arrangers, Standard Chartered Bank as agent and Calyon, Standard
Chartered Bank, ICICI Bank Limited, Singapore Branch, ICICI Bank
Limited, Bahrain Branch, ICICI Bank Limited, Hong Kong Branch,
as lenders, pursuant to which the lenders agreed to lend us an
aggregate amount equivalent to $92.6 million under:
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a $67.6 million Japanese Yen term loan facility repayable
in full on June 5, 2007 for the purpose of repaying all
amounts outstanding under a $67.6 million facility
agreement dated June 3, 2004; and |
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a $25 million Japanese Yen term loan facility repayable in
full on September 24, 2008 for the purpose of repaying all
amounts outstanding under a $25 million facility agreement
dated September 1, 2003. |
The rate of interest payable is LIBOR plus 0.435% per annum
and any applicable mandatory costs, which are in addition to the
interest rate to compensate the lenders for the cost of
compliance with the requirements of the Financial Services
Authority or any replacement authority and the requirements of
the European Central Bank, to be calculated based on an agreed
upon formula.
Japanese Yen 3,570 million and $19.65 million Term
Loan Facilities Agreement dated September 19, 2006
between Sterlite as borrower and ICICI Bank Limited and Sumitomo
Mitsui Banking Corporation and DBS Bank Ltd as lenders
On September 19, 2005, we entered into a term loan
facilities agreement with DBS Bank Ltd, ICICI Bank Limited,
Singapore Branch and Sumitomo Mitsui Banking Corporation as
mandated lead arrangers, DBS Bank Ltd as agent, Sumitomo Mitsui
Banking Corporation, Singapore Branch, DBS Bank Ltd, ICICI Bank
Limited, Singapore Branch, ICICI Bank Limited, Offshore Banking
Unit, Manama, Bahrain, and ICICI Bank Limited, Offshore Banking
Unit, SEEPZ, Mumbai, as lenders, pursuant to which the lenders
agreed to lend us Japanese Yen 3,570 million under a
Japanese Yen term loan facility and $19.65 million under a
US dollars term loan facility for the purpose of refinancing the
principal amount outstanding under a term loan facilities
agreement dated August 7, 2002. The outstanding loan is
repayable in five equal semi-annual installments with one
installment falling due on each of August 19, 2006,
February 19, 2007, August 19, 2007, February 19,
2008 and August 19, 2008. The rate of interest payable on
the Japanese Yen facility is JPY LIBOR plus 42 basis points
and the rate of interest payable on the US dollar facility
is LIBOR plus 42 basis points.
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$125 million syndicated Term Loan Facility Agreement
dated July 29, 2005 between HZL as borrower and ABN AMRO
Bank N.V., CALYON, Standard Chartered Bank, DBS Bank Ltd, Mizuho
Corporate Bank, Ltd., Sumitomo Mitsui Banking Corporation, The
Sumitomo Trust and Banking Co., Ltd., Cathay United Bank, Hua
Nan Commercial Bank, National Bank of Kuwait S.A.K., Bank of
Taiwan, The Export-Import Bank of the Republic of China, Chang
Hwa Commercial Bank Ltd., Chiao Tung Bank Co., Ltd., The
International Commercial Bank of China, Co. Ltd., Mascareignes
International Bank Ltd., Syndicate Bank, Canara Bank and The
Shanghai Commercial and Savings Bank, Ltd. as lenders
On July 29, 2005, HZL entered into a $125 million term
facility agreement with ABN AMRO Bank N.V., Calyon and Standard
Chartered Bank as lead arrangers, ABN AMRO Bank N.V. as agent
and a syndicate of 19 banks as lenders, pursuant to which the
lenders agreed to lend HZL an aggregate of $125 million
under a $30 million term loan tranche A facility
repayable on November 24, 2006, a $65 million term
loan tranche B facility repayable on November 24, 2008
and a $30 million term loan tranche C facility
repayable on November 24, 2010 for the purpose of
refinancing the principal amount outstanding under two facility
agreements dated March 31, 2003 and June 25, 2003. The
rates of interest payable under the tranche A facility,
tranche B facility and tranche C facility are LIBOR
plus 0.40%, 0.60% and 0.85% per annum, respectively, and
any applicable mandatory costs, which are in addition to the
interest rate to compensate the lenders for the cost of
compliance with the requirements of the Financial Services
Authority or any replacement authority and the requirements of
the European Central Bank, to be calculated based on an agreed
upon formula. HZL has given notice under the loan that it
intends to repay the full amount of $125 million on
November 24, 2006.
$50 million Facility Agreement dated November 8,
2004 between BALCO as borrower and ICICI Bank Limited, Singapore
Branch, ICICI Bank Limited, Bahrain Branch and ICICI Bank
Limited, Offshore Banking Unit as lenders
On November 8, 2004, BALCO entered into a $50 million
facility agreement with ICICI Bank Limited, Singapore Branch as
agent and ICICI Bank Limited, Singapore Branch, ICICI Bank
Limited, Bahrain Branch, and ICICI Bank Limited, Offshore
Banking Unit as lenders, pursuant to which the lenders agreed to
make available to BALCO a US dollar trade credit facility up to
an aggregate of $50 million repayable 35 months after
the date of the first drawdown, for the purpose of payment for
the import of capital goods by BALCO. The rate of interest
payable is LIBOR plus 1.00%.
$50 million Facility Agreement dated November 10,
2004 between BALCO as borrower and ICICI Bank Limited, ICICI
Bank Limited, Bahrain Branch and ICICI Bank Limited, Offshore
Banking Unit as lenders
On November 10, 2004, BALCO entered into a $50 million
facility agreement with ICICI Bank Limited, Singapore Branch as
agent and ICICI Bank Limited, Singapore Branch, ICICI Bank
Limited, Bahrain Branch, and ICICI Bank Limited, Offshore
Banking Unit as lenders, pursuant to which the lenders agreed to
make available to BALCO a US dollar trade credit facility up to
an aggregate of $50 million repayable on March 31,
2007, for the purpose of payment for the import of capital goods
by BALCO. The rate of interest payable is LIBOR plus 1.00%.
Option Agreement dated February 18, 2005 between
Sterlite, IFL and ICICI Bank Limited
On February 18, 2005, we entered into an option agreement
with IFL and ICICI Bank Limited pursuant to which, in
consideration of the payment of an option fee of
Rs. 2 million by ICICI Bank Limited, we granted to
ICICI Bank Limited a put option to require us to purchase from
ICICI Bank Limited all amounts outstanding, due and payable by
IFL to ICICI Bank Limited under a Rs. 1,020 million
term loan agreement dated February 8, 2005, as amended, or
Rupee Term Loan Agreement, between IFL and ICICI Bank Limited.
The option price is an amount equivalent to the amount
outstanding under the Rupee Term Loan Agreement on the date of
exercise of the put option. ICICI Bank Limited is entitled to
exercise the put option upon the occurrence of certain put option
175
events, including any delay or default in the repayment of any
amounts or the occurrence of an event of default under the Rupee
Term Loan Agreement.
Corporate Guarantee dated February 8, 2005 by Sterlite
to ICICI Bank Limited on behalf of IFL
On February 8, 2005, we granted a guarantee in favor of
ICICI Bank Limited and agreed to pay on demand all amounts
payable by IFL under the Rupee Term Loan Agreement in the event
of any default on the part of IFL to comply with or perform any
of the terms, conditions and covenants in the Rupee Term Loan
Agreement.
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PRINCIPAL SHAREHOLDERS
The following table sets forth information regarding beneficial
ownership of our equity shares as of September 30, 2006,
and as adjusted to reflect the sale of ADSs in this offering
held by:
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each person who is known to us to have more than 5% beneficial
share ownership; |
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each of our directors and executive officers having more than 1%
beneficial share ownership; and |
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all of our directors and executive officers as a group. |
Each of our equity shares is entitled to one vote on all matters
that require a vote of shareholders, and none of our
shareholders has any contractual or other special voting rights.
As used in this table, beneficial ownership means the sole or
shared power to vote or direct the voting or to dispose of or
direct the sale of any security. A person is deemed to be the
beneficial owner of securities that can be acquired within
60 days upon the exercise of any option, warrant or right.
Equity shares subject to options, warrants or rights that are
currently exercisable or exercisable within 60 days are
deemed outstanding for computing the ownership percentage of the
person holding the options, warrants or rights, but are not
deemed outstanding for computing the ownership percentage of any
other person. The amounts and percentages as of
September 30, 2006 are based upon our equity shares
outstanding as of that date. The amounts and percentages after
this offering are based on the amounts and percentages as of
September 30, 2006 plus
the equity
shares to be issued in this offering, assuming no exercise and
full exercise of the underwriters over-allotment option to
purchase an additional ADSs.
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Shareholdings of our Equity Shares | |
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after the Offering | |
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Shareholdings of | |
|
|
|
|
|
|
Sterlite Industries | |
|
Excluding Exercise of | |
|
Assuming Exercise in | |
|
|
(India) Limited | |
|
the Over-Allotment | |
|
full of the Over- | |
|
|
as of September 30, 2006 | |
|
Option | |
|
Allotment Option | |
|
|
| |
|
| |
|
| |
Shareholders Name |
|
Shares | |
|
Percentage | |
|
Shares | |
|
Percentage | |
|
Shares | |
|
Percentage | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
5% Shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vedanta Resources plc and
affiliates(1)
|
|
|
429,329,150 |
|
|
|
76.9 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
Hill House, 1 Little New Street, London EC4A 3TR
United Kingdom |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Volcan Investments Limited and
affiliates(2)
|
|
|
429,329,150 |
|
|
|
76.9 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
|
Loyalist Plaza,
Don Mackay Boulevard
P O Box AB-20377
Marsh Harbour
Abaco
Bahamas |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anil
Agarwal(2)
|
|
|
429,329,150 |
|
|
|
76.9 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Navin Agarwal
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Kuldip Kumar Kaura
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Tarun Jain
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Dwarka Prasad
Agarwal(2)
|
|
|
429,329,150 |
|
|
|
76.9 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Berjis Minoo Desai
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Gautam Bhailal Doshi
|
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Sandeep H. Junnarkar
|
|
|
17,500 |
|
|
|
|
* |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Ishwarlal Patwari
|
|
|
1,372,830 |
|
|
|
|
* |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholdings of our Equity Shares | |
|
|
|
|
|
|
after the Offering | |
|
|
|
|
| |
|
|
Shareholdings of | |
|
|
|
|
|
|
Sterlite Industries | |
|
Excluding Exercise of | |
|
Assuming Exercise in | |
|
|
(India) Limited | |
|
the Over-Allotment | |
|
full of the Over- | |
|
|
as of September 30, 2006 | |
|
Option | |
|
Allotment Option | |
|
|
| |
|
| |
|
| |
Shareholders Name |
|
Shares | |
|
Percentage | |
|
Shares | |
|
Percentage | |
|
Shares | |
|
Percentage | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Dindayal Jalan
|
|
|
1,250 |
|
|
|
|
* |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Dhanpal Arvind
Jhaveri(3)
|
|
|
1,500 |
|
|
|
|
* |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Dilip Golani
|
|
|
250 |
|
|
|
|
* |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
S. Venkatesh
|
|
|
250 |
|
|
|
|
* |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
All our directors and executive officers as a group
(13 persons)
|
|
|
430,721,730 |
|
|
|
77.1 |
% |
|
|
|
|
|
|
|
% |
|
|
|
|
|
|
|
% |
Notes:
|
|
|
|
* |
Represents beneficial ownership of less than 1%. |
|
|
(1) |
Consists of 403,715,750 equity shares held by Twin Star and
25,613,400 equity shares held by MALCO. Twin Star is the
owner of 80.0% of the outstanding shares of MALCO and is a
controlling shareholder of MALCO. Therefore, the shares
beneficially owned by MALCO are also beneficially owned by Twin
Star. Twin Star is a
wholly-owned subsidiary
of VRHL, and VRHL is in turn a
wholly-owned subsidiary
of Vedanta. |
(2) |
Consists of 429,329,150 equity shares beneficially owned by
Vedanta. Volcan, owns 53.8% of the outstanding shares of
Vedanta. Volcan is owned and controlled by members of the
Agarwal family, specifically Mr. Anil Agarwal, his father,
Mr. Dwarka Prasad Agarwal, and his son, Mr. Agnivesh
Agarwal. Mr. Dwarka Prasad Agarwal and Mr. Agnivesh
Agarwal, the Non-Executive Chairman of HZL, own all of the
shares of Volcan, and as a result each may be deemed to
beneficially own all shares that may be owned or deemed to be
beneficially owned by Volcan. Mr. Anil Agarwal, the
Executive Chairman of Vedanta and our Non-Executive Chairman,
may also be deemed to beneficially own all shares that may be
owned or deemed to be beneficially owned by Volcan. As part of
Vedantas listing on the LSE, Volcan and Messrs. Anil
Agarwal, Dwarka Prasad Agarwal and Agnivesh Agarwal entered into
a Relationship Agreement with Vedanta that seeks to regulate the
ongoing relationship between them so that Vedanta is able to
carry on its business independently of Volcan and Messrs. Anil
Agarwal, Dwarka Prasad Agarwal and Agnivesh Agarwal. See
Certain Relationships and Related Transactions. As a
result of this agreement, Volcan and its shareholders disclaim
beneficial ownership of the shares beneficially owned by Vedanta. |
(3) |
Consists of 1,000 equity shares held by Mrs. Neeru
Jhaveri, the wife of Mr. Jhaveri, and 500 equity
shares held by Mr. Arvind Jhaveri, the father of
Mr. Jhaveri. |
As of September 30, 2006, there were approximately 67,739
holders of our equity shares of which 34 have registered
addresses in the United States.
178
DESCRIPTION OF SHARE CAPITAL
Set forth below is certain information relating to our share
capital, including brief summaries of certain provisions of our
Memorandum and Articles of Association, the Indian Companies
Act, the Securities Contracts (Regulation) Act, 1956, as
amended, or the SCRA, and certain related legislation of India,
all as currently in effect.
The following description of share capital is subject in its
entirety to our Memorandum and Articles of Association, the
provisions of the Indian Companies Act and other applicable
provisions of Indian law.
The rights of shareholders described in this section are
available only to our shareholders. For the purposes of this
prospectus, a shareholder means a person who holds
our certificated shares or is recorded as a beneficial owner of
our shares with a depository pursuant to the Depository Act,
1996, as amended from time to time. Investors who purchase the
ADSs will not be our shareholders and therefore will not be
directly entitled to the rights conferred on our shareholders by
our Articles of Association or the rights conferred on
shareholders of an Indian company by Indian law. Our equity
shares are in registered physical form as well as non physical
or book-entry form.
Investors are entitled to receive dividends and to exercise the
right to vote in accordance with the deposit agreement. For
additional information on the ADS, see Description of
American Depositary Shares.
INVESTORS WHO PURCHASE THE ADSs IN THE OFFERING MUST LOOK
SOLELY TO THE DEPOSITORY BANK FOR THE PAYMENT OF DIVIDENDS, FOR
THE EXERCISE OF VOTING RIGHTS ATTACHING TO THE EQUITY SHARES
REPRESENTED BY THEIR ADSs AND FOR ALL OTHER RIGHTS ARISING IN
RESPECT OF THE EQUITY SHARES.
The Company
We were incorporated in Kolkata, the State of West Bengal,
India, as a public company on September 8, 1975 as
Rainbow Investments Limited. Our name was
subsequently changed to Sterlite Cables Limited on
October 19, 1976 and finally to Sterlite Industries
(India) Limited on February 28, 1986. Our
registration number is 21833/TA. Our registered office is
presently situated in the State of Maharashtra at
B-10/4, Waluj, M.I.D.C.
Industrial Area, Waluj, District Aurangabad 431 133, India.
Pursuant to a special resolution passed by our shareholders on
January 16, 2006, we have been authorized to shift our
registered office to SIPCOT Complex in Tuticorin in the State of
Tamil Nadu, India. We are presently seeking regulatory and court
approvals to shift our registered office to the State of Tamil
Nadu.
Our register of members is maintained at our registered office.
Share Capital
Our authorized share capital is Rs. 1,500 million,
divided into 600 million equity shares of par value
Rs. 2 per equity share and 30 million preference
shares of par value Rs. 10 per preference share. As of
September 30, 2006, our issued share capital was
Rs. 1,117.0 million, divided into
558,494,411 equity shares of par value Rs. 2 per
equity share. We have sought shareholder approval to reclassify
and increase our authorized share capital. Our proposed
authorized share capital will be Rs. 1,850 million,
divided into 925 million equity shares of par value
Rs. 2 per equity share. There will be no authorized
preference shares. The shareholder meeting is scheduled to occur
on December 11, 2006.
Memorandum and Articles of Association
Our activities are regulated by our Memorandum and Articles of
Association. Our current Memorandum and Articles of Association
were recently amended by a special resolution of our
shareholders passed in August 2006. In addition to our
Memorandum and Articles of Association, our activities are
regulated by certain legislation, including the Indian Companies
Act, the SCRA and the Securities Contracts (Regulation) Rules,
1957, as amended, or the SCR Rules. See The Indian
Securities Market.
179
Our Memorandum of Association permits us to engage in a wide
variety of activities, including all of the activities that we
are currently engaged in or intend to be engaged in, as well as
other activities that we currently have no intention of engaging
in.
Changes in Capital or our Memorandum of Association and
Articles of Association
Subject to the Indian Companies Act and our Articles of
Association, we may, by passing an ordinary resolution or a
special resolution, as applicable, at a general meeting:
|
|
|
|
|
increase our authorized or paid up share capital; |
|
|
|
consolidate all or any part of our shares into a smaller number
of shares each with a larger par value; |
|
|
|
split all or any part of our shares into a larger number of
shares each with a smaller par value; |
|
|
|
convert any of our
paid-up shares into
stock, and reconvert any stock into any number of
paid-up shares of any
denomination; |
|
|
|
cancel shares which, at the date of passing of the resolution,
have not been taken or agreed to be taken by any person, and
diminish the amount of the authorized share capital by the
amount of the shares so cancelled; |
|
|
|
reduce our issued share capital; or |
|
|
|
alter our Memorandum of Association or Articles of Association. |
General Meetings of Shareholders
There are two types of general meetings of shareholders, an
annual general meeting and an extraordinary general meeting. We
must convene our annual general meeting within six months of the
end of each financial year and must ensure that the intervening
period between two annual general meetings does not exceed
15 months. The Registrar of Companies may extend this
period in special circumstances at our request. Extraordinary
general meetings may be convened at any time by our directors at
their discretion or at the request of our shareholders holding
in the aggregate not less than 10% of our
paid-up capital. A
notice in writing to convene a general meeting must set out the
date, time, place and agenda of the meeting and must be provided
to shareholders at least 21 days prior to the date of the
proposed meeting. The requirement of the 21 days
notice in writing may be waived if consent to shorter notice is
received from all shareholders entitled to vote at the annual
general meeting or, in the case of an extraordinary general
meeting, from shareholders holding not less than 95% of our
paid-up capital.
General meetings are generally held at our registered office.
Our business may be transacted at a general meeting only when a
quorum of shareholders is present. Five persons entitled to
attend and to vote on the business to be transacted, each being
a member or a proxy for a member or a duly authorized
representative of a corporation which is a member, will
constitute a quorum.
The annual general meetings deal with and dispose of all matters
prescribed by our Articles of Association and by the Indian
Companies Act, including the following:
|
|
|
|
|
the consideration of our annual financial statements and report
of our directors and auditors; |
|
|
|
the election of directors; |
|
|
|
the appointment of auditors and the fixing of their remuneration; |
|
|
|
the authorization of dividends; and |
|
|
|
the transaction of any other business of which notice has been
given. |
Under the provisions of the Indian Companies Act and the
guidelines issued thereunder, certain resolutions such as those
relating to, inter alia, amendments to the objects clause of our
Memorandum of Association, issuance of shares with differential
voting rights, sale of the whole or substantially the whole
180
of the undertaking, buy-back of shares and to approve the giving
of loans or guarantee in excess of the limits prescribed under
the Indian Companies Act and the guidelines issued thereunder
are required to be voted on only pursuant to a postal ballot. A
postal ballot consists of a notice sent to shareholders along
with a draft resolution explaining the reasons therefore,
requesting them to vote for or against the proposed resolution
through postal or electronic means rather than a physical
meeting of shareholders and send their vote within a period of
30 days from the date of posting.
Division of Shares
The Indian Companies Act provides that a company may sub-divide
its share capital if its Articles of Association authorize the
company to do so by adopting an ordinary resolution in its
general meeting.
Our Articles of Association allow us in a general meeting to
alter our Memorandum of Association and subdivide all or any of
our equity shares into a larger number of shares with a smaller
par value than originally fixed by the Memorandum of Association.
Voting Rights
Subject to any special terms as to voting on which any shares
may have been issued, every shareholder entitled to vote who is
present in person (including any corporation present by its duly
authorized representative) shall on a show of hands have one
vote and every shareholder present in person or by proxy shall
on a poll have one vote for each share of which he is the
holder. In the case of joint holders, only one of them may vote
and in the absence of election as to who is to vote, the vote of
the senior of the joint holders who tenders a vote, whether in
person or by proxy, shall be accepted to the exclusion of the
votes of the other joint holders. Seniority is determined by the
order in which the names appear in the register of members.
Voting is by show of hands unless a poll is ordered by the
chairman of the meeting, who is generally the chairman of our
board of directors but may be another director or other person
selected by our board or the shareholders present at the meeting
in the absence of the chairman, or demanded by a shareholder or
shareholders holding at least 10% of the voting rights or
holding paid-up capital
of at least Rs. 50,000 (i.e. 25,000 shares of
Rs. 2 each). Upon a poll, the voting rights of each
shareholder entitled to vote and present in person or by proxy
shall be proportionate to the capital
paid-up on each share
against our total
paid-up capital. In the
case of a tie vote, the chairman of the meeting, who is
generally the chairman of our board of directors, has the right
to cast a tie-breaking vote. The voting rights of holders of
ADSs are subject to the terms of the deposit agreement. See
Description of American Depositary Shares.
A shareholder may appoint any person (whether or not a
shareholder) to act as his proxy at any meeting of shareholders
(or of any class of shareholders) in respect of all or a
particular number of the shares held by him. A shareholder may
appoint more than one person to act as his proxy and each such
person shall act as proxy for the shareholder for the number of
shares specified in the instrument appointing the person a
proxy. The instrument appointing a proxy must be delivered to
our registered office at least 48 hours prior to the
meeting or in case of a poll, not less than 24 hours before
the time appointed for taking of the poll. Our Articles of
Association permit a proxy to vote both on a show of hands as
well as a poll. If a shareholder appoints more than one person
to act as his proxy, each instrument appointing a proxy shall
specify the number of shares held by the shareholder for which
the relevant person is appointed as his proxy. A proxy does not
have a right to speak at meetings. A corporate shareholder is
also entitled to nominate a representative to attend and vote on
its behalf at general meetings. Such a representative is not
considered a proxy and he has the same rights as the shareholder
by which he was appointed to speak at a meeting and vote at a
meeting in respect of the number of shares held by the
shareholder, including on a show of hands and a poll.
Subject to the Articles of Association and the Companies (Issue
of Share Capital with Differential Voting Rights) Rules, 2001,
as amended, the Indian Companies Act allows a public company to
issue shares with different rights as to dividend, voting or
otherwise, provided that it has distributable profits as
181
specified under the Indian Companies Act for a period of three
financial years and has filed its annual accounts and annual
returns for the immediately preceding three years.
Quorum
Our Articles of Association provide that a quorum for a general
meeting is at least five shareholders entitled to vote and
present in person.
Shareholder Resolutions
An ordinary resolution requires the affirmative vote of a
majority of our shareholders entitled to vote in person or by
proxy at a general meeting.
A special resolution requires the affirmative vote of not less
than three-fourths of our shareholders entitled to vote in
person or by proxy at a general meeting. The Indian Companies
Act provides that to amend the Articles of Association, a
special resolution approving such an amendment must be passed in
a general meeting. Certain amendments, including a change in the
name of the company, reduction of share capital, approval of
variation of rights of special classes of shares and dissolution
of the company require a special resolution.
Dividends
Under the Indian Companies Act, unless the board of directors
recommends the payment of a dividend, the shareholders at a
general meeting have no power to declare any dividend. The board
of directors may also declare interim dividends that do not need
to be approved by the shareholders. A company pays dividends
recommended by the board of directors and approved by a majority
of the shareholders at the annual general meeting of
shareholders held within six months of the end of each fiscal
year. The shareholders have the right to decrease but not
increase the dividend amount recommended by the board of
directors. Dividends are generally declared as a percentage of
par value and distributed and paid to shareholders in proportion
to the paid up value of their equity shares. The Indian
Companies Act provides that shares of a company of the same
class must receive equal dividend treatment.
These distributions and payments are required to be paid to
shareholders within 30 days of the annual general meeting
where the resolution for declaration of dividends is approved.
The dividend so declared is required to be deposited in a
separate bank account within a period of five days from the date
of declaration of such dividend. All dividends unpaid or
unclaimed within a period of 30 days from the date of
declaration of such dividend must be transferred within seven
days of the end of such period to a special unpaid dividend
account held at a scheduled bank. Any dividend which remains
unpaid or unclaimed for a period of seven years from the date of
the transfer to a scheduled bank must be transferred to the
Investor Education and Protection Fund established by the
Government of India and following such transfer, no claim shall
lie against the Company or the Investor Education and Protection
Fund. Under the Indian Companies Act, dividends in respect of a
fiscal year may be paid out of the profits of a company in that
fiscal year or out of the undistributed profits of previous
fiscal years, after providing for depreciation in a manner
provided for in the Indian Companies Act.
Under the Indian Companies Act, we are only allowed to pay
dividends in excess of 10% of our
paid-up capital in
respect of any fiscal year from our profits for that year after
we have transferred to our reserves a percentage of our profits
for that year ranging between 2.5% to 10% depending on the rate
of dividend proposed to be declared in that year in accordance
with the Companies (Transfer of Profits to Reserves) Rules,
1975. The Indian Companies Act and the Companies (Declaration of
Dividend out of Reserves) Rules, 1975 provide that if profits
for that year are insufficient to declare dividends, the
182
dividends for that year may be declared and paid out from our
accumulated profits transferred by us to our reserves, subject
to the following conditions:
|
|
|
|
|
the rate of dividend to be declared shall not exceed the lesser
of 10% of our paid-up
capital or the average of the rates at which dividends were
declared in the five years immediately preceding that year; |
|
|
|
the total amount to be drawn from the accumulated profits may
not exceed 10% of the sum of our
paid-up capital and
free reserves and any amount so drawn shall first be used to set
off any losses incurred in that financial year; and |
|
|
|
the balance of our reserves following such withdrawal shall not
fall below 15% of our
paid-up capital. |
Distribution of Assets on a Winding-up
In accordance with the Indian Companies Act, all surplus assets
remaining after payments are made to employees, statutory
creditors, tax and revenue authorities, secured and unsecured
creditors and the holders of any preference shares (though not
in that order), shall be distributed among our equity
shareholders in proportion to the amount paid up or credited as
paid-up on such shares
at the commencement of the winding-up.
Transfer of Shares
Under the Indian Companies Act, the shares of a public company
are freely transferable, unless such a transfer contravenes the
regulations issued by SEBI or the Sick Industrial Companies
(Special Provisions) Act, 1985, as amended, or the SICA. The
transferor is deemed to remain the holder until the
transferees name is entered in the register of members.
In the case of shares held in physical form, we will register
any transfers of equity shares in the register of members upon
lodgment of the duly completed share transfer form, the relevant
share certificate, or if there is no certificate, the letter of
allotment, in respect of shares to be transferred together with
duly stamped share transfer forms. In respect of electronic
transfers, the depository transfers shares by entering the name
of the purchaser in its register as the beneficial owner of the
shares. In turn, we then enter the name of the depository in its
records as the registered owner of the shares. The beneficial
owner is entitled to all the rights and benefits and is subject
to the liabilities attached to the shares held by the depository
on his or her or its behalf.
Equity shares held through depositories are transferred in the
form of book entries or in electronic form in accordance with
the regulations laid down by SEBI. These regulations provide the
regime for the functioning of the depositories and the
participants and set out the manner in which the records are to
be kept and maintained and the safeguards to be followed in this
system.
SEBI requires that our equity shares for trading and settlement
purposes be in book-entry form for all investors, except for
transactions that are not made on a stock exchange and
transactions that are not required to be reported to the stock
exchange. Transfers of equity shares in book-entry form require
both the seller and the purchaser of the equity shares to
establish accounts with depositary participants appointed by
depositories established under the Depositories Act, 1996.
Charges for opening an account with a depositary participant,
transaction charges for each trade and custodian charges for
securities held in each account vary depending upon the practice
of each depositary participant.
The depository transfers equity shares by entering the name of
the purchaser in its books as the beneficial owner of the equity
shares. In turn, we will enter the name of the depository in our
records as the registered owner of the equity shares. The
beneficial owner is entitled to all the rights and benefits as
well as the liabilities with respect to the equity shares that
are held by the depository. The register and index of beneficial
owners maintained by our depository is deemed to be a register
and index of our members and debenture holders under the
Depositories Act, 1996. Transfers of beneficial ownership held
183
through a depository are exempt from stamp duty. For this
purpose, we have entered into an agreement for depository
services with the National Securities Depository Limited and the
Central Depository Services India Limited.
The requirement to hold the equity shares in book-entry form
will apply to the ADS holders when the equity shares are
withdrawn from the depositary facility upon surrender of the
ADSs. In order to trade the equity shares in the Indian market,
the withdrawing ADS holder will be required to comply with the
procedures described above.
Our Articles of Association provide for certain restrictions on
the transfer of equity shares, including granting power to the
board of directors in certain circumstances, to refuse to
register or acknowledge a transfer of equity shares or other
securities issued by us. Under the listing agreements with the
NSE and BSE on which our equity shares are listed, in the event
we have not effected the transfer of shares within one month or
where we have failed to communicate to the transferee any valid
objection to the transfer within the stipulated time period of
one month, we are required to compensate the aggrieved party for
the opportunity loss caused during the period of delay.
If a company without sufficient cause refuses to register a
transfer of equity shares within two months from the date on
which the instrument of transfer is delivered to the company,
the transferee may appeal to the Company Law Board, or the
Tribunal, seeking to register the transfer of equity shares. The
Tribunal may, in its discretion, issue an interim order
suspending the voting rights attached to the relevant equity
shares before completing its investigation of the alleged
contravention.
In addition, the Indian Companies Act provides that the Tribunal
may direct a rectification of the register of members for a
transfer of equity shares which is in contravention of SEBI
regulations or the SICA or any similar law, upon an application
by the company, a participant, a depository incorporated in
India, an investor or SEBI.
Disclosure of Ownership Interest
Section 187C of the Indian Companies Act requires that
beneficial owners of shares of companies who are not registered
as holders of those shares must make a declaration to the
company specifying the nature of his or her or its interest,
particulars of the registered holder of such shares and such
other particulars as may be prescribed. Any lien, promissory
note or other collateral agreement created, executed or entered
into with respect to any equity share by its registered owner,
or any hypothecation by the registered owner of any equity
share, shall not be enforceable by the beneficial owner or any
person claiming through the beneficial owner if such declaration
is not made. Failure by a person to comply with
Section 187C will not affect the companys obligation
to register a transfer of shares or to pay any dividends to the
registered holder of any shares in respect of which the
declaration has not been made.
Any investor who fails to comply with these requirements may be
liable for a fine of up to Rs. 1,000 for each day such
failure continues. Additionally, if the company fails to comply
with the provisions of Section 187C, then the company and
every defaulting officer may be liable for a fine of up to
Rs. 100 for each day the default continues.
Alteration of Shareholder Rights
Under the Indian Companies Act, and subject to the provisions of
the articles of association of a company and the relevant rules
as issued by the Department of Company Affairs, where the share
capital of a company is divided into different classes of
shares, the rights of any class of shareholders can only be
altered or varied with the consent in writing of the holders of
not less than three-fourths of the issued shares of that class
by a special resolution passed at a general meeting of the
holders of the issued shares of that class, or pursuant to a
judicial order sanctioning a compromise or arrangement between
the company and such class of shareholders.
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Share Register and Record Dates
We maintain our register of members at our registered office and
all transfers of shares should be notified to us at such
address. Our register of members is open to inspection during
business hours by shareholders without charge and by other
persons upon payment of a fee not exceeding Rs. 150.
The register and index of beneficial owners maintained by a
depository under the Depositories Act, 1996 is deemed to be an
index of members and register and index of debenture holders. We
recognize as shareholders only those persons who appear on our
register of members and we do not recognize any person holding
any equity share or part thereof on trust, whether express,
implied or constructive, except as permitted by law.
To determine which shareholders are entitled to specified
shareholder rights, we may close the register of members. For
the purpose of determining who our shareholders are, our
register of members may be closed for periods not exceeding
45 days in any one year or 30 days at any one time. In
order to determine our shareholders entitlement to
dividends, it is our general practice to close the register of
members for approximately ten to 20 days before the annual
general meeting. The date on which this period begins is the
record date. Under the listing agreements with each of the stock
exchanges on which our equity shares are listed, we may, upon
giving at least 15 days advance notice to the stock
exchange, set a record date and/or close the register of
members. The trading of our equity shares and the delivery of
shares certificates may continue while the register of members
is closed.
Annual Report
At least 21 days before an annual general meeting, we must
circulate our annual report, which comprises of either a
detailed or abridged version of our audited financial accounts,
our directors report, our corporate governance report, and
our auditors report, to the shareholders along with a
notice convening the annual general meeting. In addition, we
must furnish to the exchanges quarterly and semi-annual
unaudited results within 30 days after the end of each
accounting quarter. In respect of results for the fourth quarter
of that financial year, we can opt to publish audited results
for the entire year within three months, and thus will not be
required to publish unaudited results for the last quarter
within 30 days. We are also required to send copies of our
annual report to the NSE and BSE and to publish our financial
results in at least one English language daily newspaper
circulating in the whole or substantially the whole of India and
also in a newspaper published in the language of the region
where our registered office is situated. We are also required
under the Indian Companies Act to make available upon the
request of any shareholder our complete balance sheet and profit
and loss account.
Under the Indian Companies Act, we must file with the Registrar
of Companies our balance sheet and profit and loss account
within 30 days of the date on which the balance sheet and
profit and loss account were laid before the annual general
meeting and our annual return within 60 days of the
conclusion of that meeting.
Borrowing Powers
Our directors may raise, borrow or secure the payment of any
sums of money for our purposes as they deem appropriate without
the consent of a majority of the shareholders in a general
meeting, provided that, the aggregate of the monies to be
borrowed and the principal amount outstanding in respect of
monies raised, borrowed or secured by us does not exceed the
aggregate of our paid up share capital plus free reserves.
Issue of Equity Shares and Pre-emptive Rights
Subject to the provisions of the Indian Companies Act and our
Articles of Association and to any special rights attaching to
any of our equity shares, we may increase our share capital by
the allotment or issue of new equity shares with preferred,
deferred or other special rights or restrictions regarding
dividends, voting, return of capital or other matters as we may
from time to time determine by special
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resolution. We may issue equity shares that are redeemable or
are liable to be redeemed at our option or the option of the
holder in accordance with our Articles of Association. We cannot
issue equity shares at a discount.
Under the Indian Companies Act, new equity shares shall first be
offered to existing shareholders in proportion to the amount
they have paid up on their equity shares on the record date. The
offer shall be made by written notice specifying:
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the right, exercisable by the shareholders of record, to
renounce the equity shares offered in favor of any other person; |
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the number of equity shares offered; and |
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the period of the offer, which may not be less than 15 days
from the date of the offer. If the offer is not accepted, it is
deemed to have been declined. |
The offer is deemed to include a right exercisable by the person
concerned to renounce the shares offered to him in favor of any
other person. Our board of directors is permitted to distribute
equity shares not accepted by existing shareholders in the
manner it deems beneficial for us in accordance with our
Articles of Association. Holders of ADSs may not be able to
participate in any such offer. See Description of American
Depositary Shares Dividends and Distributions.
However, under the provisions of the Indian Companies Act, new
equity shares may be offered to non-shareholders, if this has
been approved by a special resolution or by an ordinary
resolution with the Governments permission.
Immediately after the issue of our equity shares and ADSs as
contemplated by this prospectus, assuming that the
underwriters over-allotment option is exercised in
full, equity
shares from our authorized share capital described above will be
available for allotment and issue.
Capitalization of Profits and Reserves
Our Articles of Association allow our directors, with the
approval of our shareholders by an ordinary resolution, to
capitalize any part of the amount standing to the credit of our
reserve accounts or to the credit of our profit and loss account
or otherwise available for distribution. Any sum which is
capitalized shall be appropriated among our shareholders in the
same proportion as if such sum had been distributed by way of
dividend. This sum shall not be paid out in cash and shall be
applied in the following manner:
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paying up any amount remaining unpaid on the shares held by our
shareholders; or |
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issuing to our shareholders, fully paid bonus equity shares
(issued either at par or a premium). |
Any issue of bonus equity shares would be subject to the SEBI
(Disclosure and Investor Protection) Guidelines, 2000, as
amended, or SEBI Guidelines, which provide that:
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no company shall, pending the conversion of convertible
securities, issue any bonus equity shares unless a similar
benefit is extended to the holders of such convertible
securities through a reservation of equity shares in proportion
to such conversion; |
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the bonus issue shall be made out of free reserves built out of
genuine profits or share premium collected in cash only; |
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bonus equity shares cannot be issued unless all the partly paid
up equity shares have been fully paid-up; |
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the company has not defaulted in the payment of interest or
principal in respect of fixed deposits and interest on existing
debentures or principal on redemption of such debentures; |
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a declaration of bonus equity shares in lieu of dividend cannot
be made; |
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the company shall have sufficient reason to believe that it has
not defaulted in the payment of statutory dues of the employees
such as contribution to provident fund, gratuity and bonus; and |
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the bonus issue must be implemented within six months from the
date of approval by the board of directors. |
Purchase of Own Equity Shares
A company may reduce its capital in accordance with the Indian
Companies Act and the regulations issued by SEBI by way of a
share buy-back out of its free reserves or securities premium
account or the proceeds of any shares or other specified
securities (other than the kind of shares or other specified
securities proposed to be bought back) subject to certain
conditions, including:
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the buy-back must be authorized by the companys Articles
of Association; |
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a special resolution authorizing the buy-back must be passed in
a general meeting; |
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the buy-back is limited to 25% of the companys total paid
up capital and free reserves; |
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the ratio of debt owed is not more than twice the capital and
free reserves after such buy-back; and |
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the buy-back is in accordance with the Securities and Exchange
Board of India (Buy-Back of Securities) Regulation, 1998. |
The first two conditions mentioned above would not be applicable
if the number of equity shares bought back is less than 10% of
our total paid up equity capital and free reserves and if such
buy back is authorized by the board of directors, provided that
no buy-back shall be made within 365 days from the date of
any previous buy-back. If such buy-back constitutes more than
10% of the total
paid-up equity capital
and free reserves of the company, it must be authorized by a
special resolution of the company in general meeting. Our
Articles of Association permit us to buy back our equity shares.
Any equity shares which have been bought back by us must be
extinguished within seven days. Further, we will not be
permitted to buy back any securities for a period of one year or
to issue new securities for six months except by way of a bonus
issue or in discharge of our existing obligations such as
conversion of warrants, stock option schemes, sweat equity or
conversion of preference shares or debentures into equity. A
company is also prohibited from purchasing its own shares or
specified securities through any subsidiary company including
its own subsidiary companies or in the event of non-compliance
with certain other provisions of the Indian Companies Act.
ADS holders will be eligible to participate in a share buy-back
in certain cases. An ADS holder may acquire equity shares by
withdrawing them from the depositary facility and then selling
those equity shares back to us in accordance with the provisions
of applicable law as discussed above. ADS holders should note
that equity shares withdrawn from the depositary facility may
only be redeposited into the depositary facility under certain
circumstances. See Description of American Depositary
Shares.
There can be no assurance that the equity shares offered by an
ADS investor in any buy-back of equity shares by us will be
accepted by us. The position regarding regulatory approvals
required for ADS holders to participate in a buy-back is not
clear. ADS investors are advised to consult their Indian legal
advisers prior to participating in any buy-back by us, including
in relation to any regulatory approvals and tax issues relating
to the share buy-back.
Rights of Minority Shareholders
The Indian Companies Act provides mechanisms for the protection
of the rights of the minority shareholder. Where the share
capital of a company is divided into different classes of shares
and there has been variation in the rights attached to the
shares of any class, the holders of not less than 10% of the
issued shares of that class, who did not vote in favor of a
resolution for the variation, have the right to apply to the
Tribunal to have the variation cancelled and such variation
shall not have any effect unless confirmed by the Tribunal.
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Further, under the Indian Companies Act, shareholders holding
not less than 10% of the issued share capital or shareholders
representing not less than 10% of the total number of members or
100 members, whichever is lesser, provided that they have paid
all calls and other sums due on their shares, have the right to
apply to the Tribunal for an order to bring an end to the matter
complained of, on the following grounds of oppression or
mismanagement:
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that the companys affairs are being conducted in a manner
prejudicial to public interest or in a manner oppressive to any
member or members or in a manner prejudicial to the interests of
the company; or |
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that a material change has taken place in the management or
control of the company, whether by a change in its board of
directors or management or in the ownership of the
companys shares and by reason of such change, it is likely
that the affairs of the company will be conducted in a manner
prejudicial to public interest or in a manner prejudicial to the
interests of the company. |
Provisions on Squeeze Out of Minority Shareholders
Under the Indian Companies Act, where an arrangement or contract
involving a transfer of shares or any class of shares of a
company to another company has been approved by holders holding
not less than 90% in value of such class of shares, the
transferee company has the right to give notice to any
dissenting shareholder, within a specified time and in a
prescribed manner, that it desires to acquire its shares.
Unless the Tribunal, upon an application made by a dissenting
shareholder within a month of the aforementioned notice, orders
otherwise, the transferee company has the right to acquire the
shares of the dissenting shareholder on the same terms as those
offered to the other shares to be transferred under the
arrangement or contract.
Where, in pursuance of any such arrangement or contract, shares
in a company are transferred to another company, and those
shares, together with any other shares held by the transferee
company (or its nominee or subsidiary company) in the transferor
company, constitute not less than 90% in value of the shares,
the transferee company is required to give notice of such fact
to any remaining shareholders within a month of such transfer.
Any such remaining shareholder may within three months of the
notice from the transferee company, require the transferee
company to acquire its shares. Where such notice is given by
such remaining shareholder, the transferee company is bound to
acquire those shares on the same terms as provided for under the
arrangement or contract for the transfer of the other shares of
the transferor company or on such terms as may be agreed or on
terms that the Tribunal (upon an application of either the
transferee company or the shareholder) thinks fit to order.
Book-Entry Shares and Liquidity
Our equity shares are compulsorily traded in book-entry form and
are available for trading under both depository systems in
India, namely, the National Securities Depository Limited and
Central Depository Services (India) Limited. As of June 30,
2006, approximately 158,958,325 equity shares representing 28.5%
of our total equity capital are held in book-entry form with the
depository systems. The International Securities Identification
Number (ISIN) for our equity shares is INE 268A01031.
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COMPARISON OF SHAREHOLDERS RIGHTS
We are incorporated under the laws of India. The following
discussion summarizes certain material differences between the
rights of holders of our equity shares and the rights of holders
of the common stock of a typical corporation incorporated under
the laws of the State of Delaware which result from differences
in governing documents and the laws of India and Delaware. As a
holder of our ADSs, your rights differ in certain respects from
those of holders of our equity shares. See Description of
American Depositary Shares.
This discussion does not purport to be a complete statement of
the rights of holders of our equity shares under applicable law
in India and our amended and restated Memorandum and Articles of
Association or the rights of holders of the common stock of a
typical corporation under applicable Delaware law and a typical
certificate of incorporation and bylaws.
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Delaware Law |
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Indian Law |
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Annual and Special Meetings of Shareholders |
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Shareholders of a Delaware corporation generally do not have the
right to call meetings of shareholders unless that right is
granted in the certificate of incorporation or bylaws. However,
if a corporation fails to hold its annual meeting within a
period of 30 days after the date designated for the annual
meeting, or if no date has been designated for a period of
13 months after its last annual meeting, the Delaware Court
of Chancery may order a meeting to be held upon the application
of a shareholder. |
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While shareholders of a company do not have any right to call
for an annual general meeting, shareholders holding one tenth of
the voting share capital of the company have a right to request
an extraordinary general meeting. However, in the event the
company defaults in holding an annual general meeting within
15 months from the date of its last annual general meeting,
the Government of India may order a meeting to be held upon the
application of any shareholder. |
Quorum Requirements for Meetings of Shareholders |
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A Delaware corporations certificate of incorporation or
bylaws can specify the number of shares which constitute the
quorum required to conduct business at a meeting, provided that
in no event shall a quorum consist of less than one-third of the
shares entitled to vote at a meeting. |
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Our Articles of Association specify that five members personally
present constitute the quorum required to conduct business at a
general meeting, which is consistent with Indian law
requirements. |
Board of Directors |
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A typical certificate of incorporation and bylaws would provide
that the number of directors on the board of directors will be
fixed from time to time by a vote of the majority of the
authorized directors. Under Delaware law, a board of directors
can be divided into classes and cumulative voting in the
election of directors is only permitted if expressly authorized
in a corporations certificate of incorporation. |
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Our Articles of Association provide that unless otherwise
determined by the shareholders at a general meeting, the number
of directors shall not be less than three or more than 12.
Under Indian law, the appointment and removal of directors
(other than additional directors) is required to be approved by
the shareholders.
There is no concept under Indian law as to division of the board
of directors into different classes or cumulative voting. |
Removal of Directors |
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A typical certificate of incorporation and bylaws provide that,
subject to the rights of holders of any |
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Under Indian law, a director of a company, other than a director
appointed by the Government of |
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Delaware Law |
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Indian Law |
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preferred stock, directors may be removed at any time by the
affirmative vote of the holders of at least a majority, or in
some instances a supermajority, of the voting power of all of
the then outstanding shares entitled to vote generally in the
election of directors, voting together as a single class. A
certificate of incorporation could also provide that such a
right is only exercisable when a director is being removed for
cause (removal of a director only for cause is the default rule
in the case of a classified board).
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India, may be removed by the affirmative vote of shareholders
holding a majority of the voting share capital, provided that a
special notice of the resolution to remove the director is given
in accordance with the provisions of the Indian Companies Act.
Under our Articles of Association, any director who has been
appointed by any persons pursuant to the provisions of an
agreement with us may be removed at any time by such person. |
Filling Vacancies on the Board of Directors |
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A typical certificate of incorporation and bylaws provide that,
subject to the rights of the holders of any preferred stock, any
vacancy, whether arising through death, resignation, retirement,
disqualification, removal, an increase in the number of
directors or any other reason, may be filled by a majority vote
of the remaining directors, even if such directors remaining in
office constitute less than a quorum, or by the sole remaining
director. Any newly elected director usually holds office for
the remainder of the full term expiring at the annual meeting of
stockholders at which the term of the class of directors to
which the newly elected director has been elected expires. |
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The board of directors has the power to fill a vacancy on the
board and any director so appointed shall hold office only so
long as the vacating director would have held such office if no
vacancy had occurred. |
Interested Director Transactions |
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Under Delaware law, some contracts or transactions in which one
or more of a Delaware corporations directors has an
interest are not void or voidable because of such interest
provided that some conditions, such as obtaining the required
approval and fulfilling the requirements of good faith and full
disclosure, are met. For an interested director transaction not
to be voided, either the stockholders or the board of directors
must approve in good faith any such contract or transaction
after full disclosure of the material facts or the contract or
transaction must have been fair as to the
corporation at the time it was approved. If board approval is
sought, the contract or transaction must be approved in good
faith by a majority of disinterested directors after full
disclosure of material facts, even though less than a majority
of a quorum. |
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Under Indian law, contracts or arrangements in which one or more
directors of an Indian company has an interest are not void or
voidable because of such interest, provided that certain
conditions, such as obtaining the required approval of the board
of directors and disclosing the nature of the interest to the
board of directors, are satisfied. Subject to a few exceptions,
for an interested director transaction not to be voided,
(a) the interested director is required to disclose the
nature of his concern or interest at a meeting of the board of
directors; (b) the board of directors is required to grant
its consent to the contract or arrangement; (c) the
interested director is not permitted to take part in the
discussion of, or vote on, the contract or arrangement; and
(d) the approval of the Government of India is required to
be obtained in the event the paid up share capital of the
company is more than Rs. 10 million. An interested
director is not to be counted for the purposes of quorum at the
time of any such discussion or vote and if the interested
director does vote, the vote shall be void. The contravention of
relevant provisions is punishable with fine. |
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Delaware Law |
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Indian Law |
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Cumulative Voting |
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Delaware law does not require that a Delaware corporation
provide for cumulative voting. However, the certificate of
incorporation of a Delaware corporation may provide that
shareholders of any class or classes or of any series may vote
cumulatively either at all elections or at elections under
specified circumstances. |
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There is no concept of cumulative voting under Indian law. |
Shareholder Action Without a Meeting |
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Unless otherwise specified in a Delaware corporations
certificate of incorporation, any action required or permitted
to be taken by shareholders at an annual or special meeting may
be taken by shareholders without a meeting, without notice and
without a vote, if consents, in writing, setting forth the
action, are signed by shareholders with not less than the
minimum number of votes that would be necessary to authorize the
action at a meeting. All consents must be dated. No consent is
effective unless, within 60 days of the earliest dated
consent delivered to the corporation, written consents signed by
a sufficient number of holders to take the action are delivered
to the corporation. |
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There is no concept of shareholder action without a meeting
under Indian law. |
Business Combinations |
With certain exceptions, a merger, consolidation or sale of all
or substantially all the assets of a Delaware corporation must
be approved by the board of directors and a majority (unless the
certificate of incorporation requires a higher percentage) of
the outstanding shares entitled to vote thereon.
Delaware law also requires a special vote of stockholders in
connection with a business combination with an interested
stockholder as defined in Section 203 of the Delaware
General Corporation Law. See Interested
Stockholders below. |
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The sale, lease or disposal of all or substantially all of the
assets of an Indian company must be approved by the board of
directors and shareholders holding a majority of the voting
share capital of the company.
Under the Indian Companies Act, the merger of two companies is
required to be approved by a court of competent jurisdiction and
by a three- fourths majority of each class of shareholders and
creditors of the company present and voting at the meetings held
to approve the merger. |
Interested Stockholders |
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Section 203 of the Delaware General Corporation Law
generally prohibits a Delaware corporation from engaging in
specified corporate transactions (such as mergers, stock
and asset sales, and loans) with an interested
stockholder for three years following the time that the
stockholder becomes an interested stockholder. Subject to
specified exceptions, an interested stockholder is a
person or group that owns 15% or more of the corporations
outstanding voting stock (including any rights to acquire stock
pursuant to an option, warrant, agreement, arrangement or
understanding, |
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Indian law does not prohibit corporate transactions but does
require disclosure of related party transactions in the
financial statements of the company.
During the time that a related party transaction exists, a
company is required to disclose the name of the related parties,
describe the relationship between the parties, describe the
nature of the transactions and disclose the volume of the
transactions either as an amount or as an appropriate
proportion, the amounts or appropriate |
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Delaware Law |
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Indian Law |
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or upon the exercise of conversion or exchange rights, and stock
with respect to which the person has voting rights only), or is
an affiliate or associate of the corporation and was the owner
of 15% or more of the voting stock at any time within the
previous three years.
A Delaware corporation may elect to opt out of, and
not be governed by, Section 203 through a provision in
either its original certificate of incorporation or its bylaws,
or an amendment to its original certificate or bylaws that was
approved by majority stockholder vote. With a limited exception,
this amendment would not become effective until 12 months
following its adoption.
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proportions of outstanding items pertaining to related parties
at the balance sheet date and provisions for doubtful debts due
from such parties at that date and the amounts written off or
written back in the period in respect of debts due from or to
related parties.
Transactions undertaken between a company and a person having a
substantial interest in the company would qualify as a related
party transaction and would be required to be disclosed under
applicable accounting standards. A party is considered to have a
substantial interest in a company if that party owns, directly
or indirectly, 20% or more of the voting power in the company. |
Limitations on Personal Liability of Directors |
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A Delaware corporation may include in its certificate of
incorporation provisions limiting the personal liability of its
directors to the corporation or its shareholders for monetary
damages for many types of breach of fiduciary duty. However,
these provisions may not limit liability for any breach of the
duty of loyalty, acts or omissions not in good faith or that
involve intentional misconduct or a knowing violation of law,
the authorization of unlawful dividends, shares repurchases or
shares barring redemptions, or any transaction from which a
director derived an improper personal benefit. A typical
certificate of incorporation would also provide that if Delaware
law is amended so as to allow further elimination of, or
limitations on, director liability, then the liability of
directors will be eliminated or limited to the fullest extent
permitted by Delaware law as so amended. However, these
provisions would not be likely to bar claims arising under US
federal securities laws. |
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Generally, Indian law provides that directors are not personally
liable in respect of contracts of the company. However, where a
director acts without the approval or ratification of the
company, such director may be personally liable. Directors are
also personally liable for breach of trust or misfeasance, both
civilly and in some cases criminally. The Indian Companies Act
contains certain provisions making directors personally liable
to discharge certain monetary obligations in their capacity as
directors, such as the non-refund of share application monies or
excess application monies within the time limit stipulated by
the Indian Companies Act. Similarly, the Indian Companies Act
provides for civil liability of directors for misstatements in a
prospectus issued by the company that has been signed by the
directors, including the obligation to pay compensation to any
persons subscribing to the shares of the company on the faith of
statements made in the prospectus.
Directors and officers liability insurance policies
are available in India. However, the permissible coverage under
such policies is subject to the same limitations as on the
ability of the company to indemnify its directors as described
under Indemnification of Directors and
Officers. |
Indemnification of Directors and Officers |
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Under Delaware law, subject to specified limitations in the case
of derivative suits brought by a corporations stockholders
in its name, a corporation may indemnify any person who is made
a party to any third party action, suit or proceeding on account
of being a director, officer, employee or agent of the
corporation (or was serving at the request of the corporation in
such capacity for another corporation, partnership, joint
venture, trust |
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Under Indian law, subject to specified exceptions, any
provision, whether contained in the Articles of Association of a
company or in any agreement, exempting or indemnifying any
director, officer or auditor of the company against any
liability in respect of any negligence, default, breach of duty
or breach of trust which would by law otherwise attach to such
director, officer or auditor, shall be void, unless it is proved
that such person had acted |
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or other enterprise) against expenses, including attorneys
fees, judgments, fines and amounts paid in settlement actually
and reasonably incurred by him or her in connection with the
action, suit or proceeding through, among other things, a
majority vote of a quorum consisting of directors who were not
parties to the suit or proceeding, if the person:
acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best
interests of the corporation or, in some circumstances, at least
not opposed to its best interests; and
in a criminal proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
Delaware law permits indemnification by a corporation under
similar circumstances for expenses (including attorneys
fees) actually and reasonably incurred by such persons in
connection with the defense or settlement of a derivative action
or suit, except that no indemnification may be made in respect
of any claim, issue or matter as to which the person is adjudged
to be liable to the corporation unless the Delaware Court of
Chancery or the court in which the action or suit was brought
determines upon application that the person is fairly and
reasonably entitled to indemnity for the expenses which the
court deems to be proper.
To the extent a director, officer, employee or agent is
successful in the defense of such an action, suit or proceeding,
the corporation is required by Delaware law to indemnify such
person for reasonable expenses incurred thereby. Expenses
(including attorneys fees) incurred by such persons in
defending any action, suit or proceeding may be paid in advance
of the final disposition of such action, suit or proceeding upon
receipt of an undertaking by or on behalf of that person to
repay the amount if it is ultimately determined that that person
is not entitled to be so indemnified.
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honestly and reasonably. However, pursuant to the exceptions
permitted under Indian law, our Articles of Association provide
for indemnification of any officer or agent against any
liability incurred by such person in successfully defending any
proceeding, whether civil or criminal, in which such person is
acquitted in whole or in part on the grounds that such person
had acted honestly and reasonably, or in connection with an
application made by an officer or agent to the High Court of the
relevant state for relief for reason that he or she has a reason
to apprehend that any proceeding may be brought against him in
respect of any negligence, default, breach of duty, misfeasance
or breach of trust in which relief has been granted by such High
Court. |
Appraisal Rights |
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A shareholder of a Delaware corporation participating in certain
major corporate transactions may, under certain circumstances,
be entitled to appraisal rights pursuant to which the
shareholder may receive cash in the amount of the fair value of
the shares held by that shareholder (as determined by a court)
in lieu of the consideration the shareholder would otherwise
receive in the transaction. |
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There is no concept of appraisal rights under Indian law. |
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Shareholder Suits |
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Under Delaware law, a stockholder may bring a derivative action
on behalf of the corporation to enforce the rights of the
corporation, including for, among other things, breach of
fiduciary duty, corporate waste and actions not taken in
accordance with applicable law. An individual also may commence
a class action suit on behalf of himself or herself and other
similarly situated stockholders where the requirements for
maintaining a class action under Delaware law have been met. A
person may institute and maintain such a suit only if such
person was a stockholder at the time of the transaction which is
the subject of the suit or his or her shares thereafter devolved
upon him or her by operation of law. Additionally, under
established Delaware case law, the plaintiff generally must be a
stockholder not only at the time of the transaction which is the
subject of the suit, but also through the duration of the
derivative suit. Delaware law also requires that the derivative
plaintiff make a demand on the directors of the corporation to
assert the corporate claim before the suit may be prosecuted by
the derivative plaintiff, unless such demand would be futile. In
such derivative and class actions, the court has discretion to
permit the winning party to recover attorneys fees
incurred in connection with such action. |
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Under the Indian Companies Act, shareholders holding not less
than one tenth of the issued share capital, shareholders
representing not less than one tenth of the total number of
members or one hundred members, provided that they have paid all
calls and other sums due on their shares, have the right to
request the National Company Law Tribunal, a statutory body, for
an order or injunction as to the taking or not taking of an
action by the company on the following grounds of oppression or
mismanagement: (a) that the companys affairs are
being conducted in a manner prejudicial to public interest, in a
manner oppressive to any member or members or in a manner
prejudicial to the interests of the company; and (b) that a
material change has taken place in the management or control of
the company, whether by a change in the board of directors or
management or in the ownership of the companys shares, and
by reason of such change it is likely that the affairs of the
company will be conducted in a manner prejudicial to public
interest or in a manner prejudicial to the interests of the
company. |
Inspection of Books and Records |
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All shareholders of a Delaware corporation have the right, upon
written demand, to inspect or obtain copies of the
corporations shares ledger and its other books and records
for any purpose reasonably related to such persons
interest as a shareholder. |
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Pursuant to our Articles of Association, our board of directors
has the authority to determine whether and to what extent and at
what times and places and under what conditions or regulations
our books are open to the inspection of the shareholders.
Further, no shareholder of the company has the right to inspect
any record of the company except as conferred under law or
authorized by the board of directors or by the shareholders in a
general meeting. The books containing the minutes of the
proceedings of any general meetings of the shareholders are
required to be kept at the registered office of the company and
such materials are to be opened for inspection by any
shareholder, without charge, subject to reasonable restrictions
which may be imposed by a companys articles or the general
meeting of the shareholders. If an inspection is refused, the
company and every officer of the company in default will be
punishable with a fine. |
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Under Indian law, the audited financial statements for the
relevant financial year, the directors report and the
auditors report are required to be provided to the
shareholders before the annual general |
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meeting. In addition, a corporate governance section and a
managements discussion and analysis section are required
to be made available for inspection at the companys
registered offices during normal business hours for the
21 days prior to the annual general meeting. |
Amendment of Governing Documents |
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Under Delaware law, amendments to a corporations
certificate of incorporation require the approval of
stockholders holding a majority of the outstanding shares
entitled to vote on the amendment. If a class vote on the
amendment is required by Delaware law, a majority of the
outstanding stock of the class is required, unless a greater
proportion is specified in the certificate of incorporation or
by other provisions of Delaware law. Under Delaware law, the
board of directors may amend bylaws if so authorized in the
charter. The stockholders of a Delaware corporation also have
the power to amend bylaws. |
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Under Indian Law, subject to certain specified amendments that
require the additional approval of the central government, a
company may make amendments to its articles with the approval of
shareholders holding a super majority of the shares of the
company. |
Distributions and Dividends; Repurchases and Redemptions |
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Delaware law permits a corporation to declare and pay dividends
out of statutory surplus or, if there is no surplus, out of net
profits for the fiscal year in which the dividend is declared
and/or for the preceding fiscal year as long as the amount of
capital of the corporation following the declaration and payment
of the dividend is not less than the aggregate amount of the
capital represented by the issued and outstanding stock of all
classes having a preference upon the distribution of assets.
Under Delaware law, any corporation may purchase or redeem its
own shares, except that generally it may not purchase or redeem
those shares if the capital of the corporation is impaired at
the time or would become impaired as a result of the redemption.
A corporation may, however, purchase or redeem capital shares
that are entitled upon any distribution of its assets to a
preference over another class or series of its shares if the
shares are to be retired and the capital reduced. |
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Under Indian law, a company may only pay a dividend in an amount
in excess of 10% of its paid up capital out of the profits of
that year after it has transferred to the reserves of the
company a percentage of its profits for that year ranging
between 2.5% to 10% depending on the rate of dividend proposed
to be declared in that year. If the profits for a year are
insufficient, the dividend for that year may be declared out of
the accumulated profits earned in previous years and transferred
to reserves, subject to the following conditions: (i) the
rate of dividend to be declared may not exceed the lesser of the
average of the rates at which dividends were declared in the
five years immediately preceding the year, or 10% of paid-up
capital; (ii) the total amount to be drawn from the
accumulated profits from previous years and transferred to the
reserves may not exceed an amount equivalent to one tenth of the
paid-up capital and free reserves and the amount so drawn is
first to be used to set off the losses incurred in the financial
year before any dividends in respect of preference or equity
shares; and (iii) the balance of reserves after withdrawals
must not be below 15% of paid-up capital. Shareholders have a
right to claim a dividend, after such dividend has been declared
by the company at a general meeting. Shareholders also have a
right to claim the interim dividends, which may be declared only
pursuant to a resolution of the companys board of
directors. Dividends may be paid only in cash. Where a dividend
has been declared by a company but has |
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not been paid within 30 days from the date of declaration
to any shareholder entitled to the payment of such dividend, a
penalty can be imposed on a director who is knowingly a party to
such default. |
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A company is prohibited from acquiring its own shares unless the
consequent reduction of capital is effected and sanctioned by a
High Court. However, pursuant to certain amendments to the
Indian Companies Act, a company has been empowered to purchase
its own shares or other specified securities out of its free
reserves, or the securities premium account or the proceeds of
any shares or other specified securities (other than the kind of
shares or other specified securities proposed to be bought
back), subject to certain conditions including: (a) the buy-back
must be authorized by the articles of association of the
company; (b) a resolution must be passed by a super
majority of the outstanding shares in the general meeting of the
company authorizing the buy-back; (c) the buy-back is
limited to 25% of the total paid up capital and free reserves;
(d) the ratio of debt owed by the company must not be more
than twice the capital and free reserves after such buy-back;
and (e) the buy-back must be in accordance with the
Securities and Exchange Board of India (Buy-Back of Securities)
Regulations, 1998. |
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Conditions (a) and (b) mentioned above would not be
applicable if the buy-back is for less than 10% of the total
paid-up equity capital and free reserves of the company and such
buy-back has been authorized by the board of directors of the
company. Further, a company buying back its securities is not
permitted to buy-back any additional securities for a period of
one year after the buy-back or to issue any securities for a
period of six months.
A company is also prohibited from purchasing its own shares or
specified securities directly or indirectly. |
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COMPARISON OF CORPORATE GOVERNANCE STANDARDS
The listing of our ADSs on the NYSE and our equity shares on the
Indian Stock Exchanges will cause us to be subject to NYSE
listing standards and Indian corporate governance requirements
set out in the listing agreements that we have entered into with
the Indian Stock Exchanges.
The NYSE listing standards applicable to us, as a foreign
private issuer, are considerably different from those applicable
to companies incorporated in the United States. Under the NYSE
rules, we need only (i) establish an independent audit
committee that has specified responsibilities as described in
the following table; (ii) provide prompt certification by
our chief executive officer of any material non-compliance with
any corporate governance rules of the NYSE; (iii) provide
periodic (annual and interim) written affirmations to the NYSE
with respect to our corporate governance practices; and
(iv) provide a brief description of significant differences
between our corporate governance practices and those followed by
US companies.
The corporate governance requirements which apply to us as a
listed company on the Indian Stock Exchanges are contained in
Clause 49 of the listing agreements that we have entered
into with the Indian Stock Exchanges. Clause 49 has been
amended from time to time.
The following table summarizes certain material differences in
the corporate governance standards applicable to us under our
listing agreements with the Indian Stock Exchanges and the
corporate governance standards for a NYSE-listed company, both
to a typical US domestic issuer and the requirements that would
be different for us as a foreign private issuer.
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Requirements under our Listing Agreements |
Standard for NYSE-Listed Companies |
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with the Indian Stock Exchanges |
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Director Independence |
A majority of the board must consist of independent directors.
Independence is defined by various criteria including the
absence of a material relationship between the director and the
listed company. For example, directors who are employees, are
immediate family of an executive officer of the company or
receive over $100,000 per year in direct compensation from
the listed company are not independent. Directors who are
employees of or otherwise affiliated through immediate family
with the listed companys independent auditor are also not
independent. Determinations of independence were made by the
board. |
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If the Chairman of the board of directors is an executive
director, at least 50% of the board of directors should comprise
of independent directors. If the Chairman of the board of
directors is a non- executive director, then at least one third
of the board should comprise of independent directors.
Clause 49 of the listing agreements define an
independent director to mean a non-executive
director who (i) is receiving directors remuneration
and does not have any other material pecuniary relationship or
transaction with the company, its promoters, its directors, its
senior management or its holding company or its subsidiaries or
its associates, which may affect the independence of the
director; (ii) is not related to promoters or management at
the board level or at one level below the board; (iii) has
not been an executive of the company in the immediately
preceding three financial years; (iv) is not a partner or
an executive and has not been a partner or executive during the
preceding three financial years, of the statutory audit firm or
the internal audit firm or the legal firm and consulting firm of
the company; (v) is not a material supplier, service
provider, customer, lessee, or lessor of the company and
(vi) is not a shareholder, owning 2% or more of the voting
shares of the company. |
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Requirements under our Listing Agreements |
Standard for NYSE-Listed Companies |
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with the Indian Stock Exchanges |
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The non-management directors must meet at regularly scheduled
executive sessions without management. |
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There is no comparable requirement under Indian law. |
(The NYSE requirements for a board consisting of independent
directors and non-management directors meeting at regularly
scheduled executive sessions do not apply to us as a foreign
private issuer.) |
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Audit Committee |
The audit committee must (i) be comprised entirely of
independent directors; (ii) be directly responsible for the
appointment, compensation, retention and oversight of any
registered public accounting firm engaged (including resolution
of disagreements between management and the auditor regarding
financial reporting) for the purpose of preparing or issuing an
audit report or performing other audit, review or attest
services for the listed issuer, and each such registered public
accounting firm must report directly to the audit committee;
(iii) establish procedures for the receipt, retention and
treatment of complaints with respect to accounting and auditing
issues; (iv) establish procedures for the confidential,
anonymous submission by employees of the listed issuer of
concerns regarding questionable accounting or auditing matters;
(v) be authorized to engage independent counsel and other
advisers it deems necessary to perform its duties; and
(vi) be given sufficient funding by the board of directors
to compensate the independent auditors and other advisors as
well as for the payment of ordinary administrative expenses
incurred by the committee that are necessary or appropriate in
carrying out its duties. |
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The listing agreements require that the role of the audit
committee should include the following:
1. To oversee the companys financial
reporting process and the disclosure of its financial
information to ensure that the financial statement is correct,
sufficient and credible.
2. To recommend to the board of directors the
appointment and removal of the external auditor, fix the audit
fee and also approve of payment to such auditor for any other
services rendered by him.
3. To review with management the annual financial
statements before submission to the board of directors, focusing
primarily on matters required to be included in the
Directors Responsibility Statement, any changes in
accounting policies and practices, any major accounting entries
based on exercise of judgment by management, any qualifications
in the draft audit report, any significant adjustments arising
out of the audit, the going concern assumption, compliance with
accounting standards, compliance with stock exchange and legal
requirements concerning financial statements and any related
party transactions.
4. To review with management, the performance of
external and internal auditors, and the adequacy of internal
control systems.
5. To review the adequacy of the internal audit
function, including the structure of the internal audit
department, staffing and seniority of the official heading the
department, reporting structure coverage and frequency of
internal audit.
6. To discuss with internal auditors any
significant findings and follow-up thereon.
7. To review the findings of any internal
investigations by the internal auditors into matters where there
is suspected fraud or irregularity or a failure of internal
control |
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Requirements under our Listing Agreements |
Standard for NYSE-Listed Companies |
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with the Indian Stock Exchanges |
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systems of a material nature and report the matter to the
board.
8. To discuss with external auditors before the
audit commences, the nature and scope of the audit as well as to
conduct post-audit discussions to ascertain any area of
concern.
9. To review the companys quarterly
financial statements and management policies.
10. To examine the reasons for substantial defaults in
payment to depositors, debenture holders, shareholders (in case
of non-payment of declared dividends) and creditors.
11. To renew the functioning of whistle blower
mechanism.
12. To review the managements discussion and analysis
of financial condition and results of operation.
13. To review the statement of significant related party
transactions submitted by the management.
14. To review the management letters/letters of internal
control weaknesses issued by the statutory auditors.
15. To review the internal audit reports relating to
internal control weaknesses.
16. To review the appointment, removal and terms of
remuneration of the chief internal auditor. |
The audit committee must consist of at least three members, and
each member must be independent within the meaning established
by the NYSE and Rule 10A-3 under the Exchange Act.
The audit committee members must be financially literate or
become financially literate within a reasonable period of their
appointment to the audit committee.
Each listed company must have disclosed whether its board of
directors has identified an audit committee financial expert (as
defined under applicable rules of the Commission) and if not,
the reasons why the board has not done so.
The audit committee must have a written charter that addresses
the committees purpose and responsibilities.
At a minimum, the committees purpose must be to assist the
board in the oversight of the integrity of the companys
financial statements, the companys compliance with legal
and regulatory requirements, the independent auditors
qualifications and independence and the performance of the
companys internal audit |
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Clause 49 of the listing agreements require that a
qualified and independent audit committee should be set up,
which has a minimum of three members. Two-thirds of its members
should be independent directors and the chairman of the audit
committee should be an independent director.
The listing agreements also require that all members of the
audit committee should be financially literate and at least one
member should have financial management and accounting
expertise.
In addition to the role of the audit committee described above,
the audit committee is required to have powers that include the
ability to investigate any activity within their terms of
reference, seek information from any employee, obtain outside
legal or other professional advice and secure attendance of
outsiders with relevant expertise if this is considered
necessary. |
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Requirements under our Listing Agreements |
Standard for NYSE-Listed Companies |
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function and independent auditors.
The duties and responsibilities of the audit committee include
conducting a review of the independent auditing firms
annual report describing the firms internal quality
control procedures, any material issues raised by the most
recent internal quality control review or peer review of the
firm and any steps taken to address such issues.
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The audit committee is also to assess the auditors
independence by reviewing all relationships between the company
and its auditor. It must establish the companys hiring
guidelines for employees and former employees of the independent
auditor. |
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The committee must also discuss the companys annual
audited financial statements and quarterly financial statements
with management and the independent auditors, the companys
earnings press releases, as well as financial information and
earnings guidance provided to analysts and rating agencies, and
policies with respect to risk assessment and risk management. |
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Each listed company must have an internal audit function. |
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The listing agreements require an Indian listed company to have
an internal audit function. |
The committee must also meet separately, periodically, with
management, with internal auditors (or other personnel
responsible for the internal audit function) and with
independent auditors and review with the independent auditor any
audit problems or difficulties and managements
response.
The committee must report regularly to the board. |
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Clause 49 of the listing agreements also require that the
audit committee should meet at least four times in a year and
not more than four months should lapse between two meetings. |
(The NYSE audit committee requirements apply to us as foreign
private issuers are not exempt from this requirement.) |
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Compensation Committee |
Listed companies must have a compensation committee composed
entirely of independent board members as defined by the NYSE
listing standards. |
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The listing agreements state that a company may set up a
remuneration committee, which should be comprised of at least
three directors, all of whom shall be non-executive directors
and the chairman of the remuneration committee shall be an
independent director. |
The committee must have a written charter that addresses its
purpose and responsibilities. |
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These responsibilities include (i) reviewing and approving
corporate goals and objectives relevant to CEO compensation;
(ii) evaluating CEO |
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Requirements under our Listing Agreements |
Standard for NYSE-Listed Companies |
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with the Indian Stock Exchanges |
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performance and compensation in light of such goals and
objectives for the CEO; (iii) based on such evaluation,
reviewing and approving CEO compensation levels;
(iv) recommending to the board non-CEO compensation,
incentive compensation plans and equity-based plans; and
(v) producing a report on executive compensation as
required by the Commission to be included in the companys
annual proxy statement or annual report. The committee must also
conduct an annual performance self-evaluation.
(The NYSE compensation committee requirements do not apply to us
as a foreign private issuer.)
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Nominating/ Corporate Governance Committee |
Listed companies must have a nominating/corporate governance
committee composed entirely of independent board members. |
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There is no comparable provision under Indian law. |
The committee must have a written charter that addresses its
purpose and responsibilities, which include (i) identifying
individuals qualified to become board members;
(ii) selecting, or recommending that the board select, the
director nominees for the next annual meeting of shareholders;
(iii) developing and recommending to the board a set of
corporate governance principles applicable to the company;
(iv) overseeing the evaluation of the board and management;
and (v) conducting an annual performance evaluation of the
committee.
(The NYSE nominating/corporate governance committee requirements
do not apply to us as a foreign private issuer.) |
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Equity-Compensation Plans |
Shareholders must be given the opportunity to vote on all
equity-compensation plans and material revisions thereto, with
limited exceptions.
(The NYSE requirement for shareholder approval of
equity-compensation plans does not apply to us as a foreign
private issuer.) |
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Section 79A of the Indian Companies Act requires that a
company may issue equity shares at a discount of a class of
shares already issued if such issue is authorized by a special
resolution passed by the company in a general meeting.
The Securities and Exchange Board of India (Employee Stock
Option Scheme and Employee Stock Purchase Scheme) Guidelines,
1999, as amended, also require that a special resolution be
passed by the shareholders of a company in a general meeting to
approve an employee stock option or stock purchase scheme. |
Corporate Governance Guidelines |
Listed companies must adopt and disclose corporate governance
guidelines. |
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Corporate governance requirements for listed companies in India
are included in Clause 49 of |
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Requirements under our Listing Agreements |
Standard for NYSE-Listed Companies |
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with the Indian Stock Exchanges |
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(The NYSE requirement that corporate governance guidelines be
adopted does not apply to us as a foreign private issuer.
However, we must disclose differences between the corporate
governance standards to which we are subject and those of the
NYSE.)
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the listing agreements required to be entered into with the
Indian Stock Exchanges. |
Code of Business Conduct and Ethics |
All listed companies, United States and foreign, must adopt and
disclose a code of business conduct and ethics for directors,
officers and employees, and promptly disclose any waivers of the
code for directors or executive officers.
(The NYSE requirement for a code of business conduct and ethics
does not apply to us as a foreign private issuer.) |
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Clause 49 of the listing agreements require that the board
of directors shall lay down a code of conduct for all board
members and senior management of a listed company. This code of
conduct is required to be posted on the website of the company.
Further, all board members and senior management personnel are
required to affirm compliance with the code on an annual basis
and the companys annual report must contain a declaration
to this effect signed by its chief executive officer. |
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DESCRIPTION OF AMERICAN DEPOSITARY SHARES
Citibank, N.A. has agreed to act as the depositary bank for the
American Depositary Shares. Citibanks depositary offices
are located at 388 Greenwich Street, New York, New
York 10013, USA. American Depositary Shares are frequently
referred to as ADSs and represent ownership
interests in securities that are on deposit with the depositary
bank. ADSs may be represented by certificates that are commonly
known as American Depositary Receipts, or ADRs. The depositary
bank typically appoints a custodian to safekeep the securities
on deposit. In this case, the custodian is Citibank, N.A.,
Mumbai Branch, located at Ramnord House, 77 Dr. Annie
Besant Road, Worli, Mumbai, India 400 018.
We have appointed Citibank, N.A. as depositary bank pursuant to
a deposit agreement. A copy of the deposit agreement is on file
with the Commission under cover of a registration statement on
Form F-6
(Registration
No. 333- ).
You may obtain a copy of the deposit agreement from the
Commissions Public Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549 and under our name through the
Commissions website, www.sec.gov.
We are providing you with a summary description of the ADSs and
your rights as an owner of ADSs. Please remember that summaries
by their nature lack the precision of the information summarized
and that a holders rights and obligations as an owner of
ADSs will be determined by the deposit agreement and not by this
summary. We urge you to review the deposit agreement in its
entirety as well as the form of ADR attached to the deposit
agreement.
Each ADS represents one equity share on deposit with the
custodian bank. An ADS will also represent any other property
received by the depositary bank or the custodian on behalf of
the owner of the ADS but that has not been distributed to the
owners of ADSs because of legal restrictions or practical
considerations.
If you become an owner of ADSs, you will become a party to the
deposit agreement and therefore will be bound to its terms and
to the terms of the ADR that represents your ADSs. The deposit
agreement and the ADR specify our rights and obligations as well
as your rights and obligations as owner of ADSs and those of the
depositary bank. As an ADS holder you appoint the depositary
bank to act on your behalf in certain circumstances. The deposit
agreement is governed by New York law. However, our obligations
to the holders of equity shares will continue to be governed by
the laws of India, which may be different from the laws in the
US.
As an owner of ADSs, you may hold your ADSs by means of an ADR
registered in your name, through a brokerage or safekeeping
account or through an account established by the depositary bank
in your name reflecting the registration of uncertificated ADSs
directly on the books of the depositary bank (commonly referred
to as the direct registration system or
DRS). The direct registration system reflects the
uncertificated (book-entry) registration of ownership of ADSs by
the depositary bank. Under the direct registration system,
ownership of ADSs is evidenced by periodic statements issued by
the depositary bank to the holders of the ADSs. The direct
registration system includes automated transfers between the
depositary bank and The Depository Trust Company, or DTC, the
central book-entry clearing and settlement system for equity
securities in the United States. If you decide to hold your ADSs
through your brokerage or safekeeping account, you must rely on
the procedures of your broker or bank to assert your rights as
an ADS owner. Please consult with your broker or bank to
determine what those procedures are. This summary description
assumes you have opted to own the ADSs directly by means of an
ADR registered in your name and, as such, we will refer to you
as the holder. When we refer to you, we
assume the reader owns new ADSs and will own ADSs at the
relevant time.
Dividends and Distributions
As an ADS holder, you generally have the right to receive the
distributions we make on the securities deposited with the
custodian bank. Your receipt of these distributions may be
limited, however, by practical considerations and legal
limitations. ADS holders will receive such distributions under
the terms of the deposit agreement in proportion to the number
of ADSs held as of a specified record date.
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Distributions of Cash
Whenever we make a cash distribution for the securities on
deposit with the custodian, we will notify the depositary bank.
Upon receipt of such notice the depositary bank will arrange for
the funds to be converted into dollars and for the distribution
of the dollars to the ADS holders.
The conversion into dollars will take place only if practicable
and if the dollars are transferable to the United States. The
amounts distributed to holders will be net of the fees,
expenses, taxes and governmental charges payable by holders
under the terms of the deposit agreement. The depositary will
apply the same method for distributing the proceeds of the sale
of any property (such as undistributed rights) held by the
custodian in respect of securities on deposit.
Distributions of Equity Shares
Whenever we make a free distribution of equity shares for the
securities on deposit with the custodian, we will notify the
depositary bank and deposit the applicable number of equity
shares with the custodian. Upon receipt of such notice, the
depositary bank will either distribute to holders new ADSs
representing the equity shares deposited or modify the
ADS-to-equity shares
ratio, in which case each ADS you hold will represent rights and
interests in the additional equity shares so deposited. Only
whole new ADSs will be distributed. Fractional entitlements will
be sold and the proceeds of such sale will be distributed as in
the case of a cash distribution.
The distribution of new ADSs or the modification of the
ADS-to-equity shares
ratio upon a distribution of equity shares will be made net of
the fees, expenses, taxes and governmental charges payable by
holders under the terms of the deposit agreement. In order to
pay such taxes or governmental charges, the depositary bank may
sell all or a portion of the new equity shares so distributed.
No such distribution of new ADSs will be made if it would
violate a law (for example, the US securities laws) or if it is
not operationally practicable. If the depositary bank does not
distribute new ADSs as described above, it will use its best
efforts to sell the equity shares received and will distribute
the proceeds of the sale as in the case of a distribution of
cash.
Elective Distributions
Whenever we intend to distribute a dividend payable at the
election of shareholders either in cash or in additional equity
shares, we will give prior notice thereof to the depositary bank
and will indicate whether we wish the elective distribution to
be made available to you. In such case, we will assist the
depositary bank in determining whether such distribution is
lawful and reasonably practicable.
The depositary bank will make the election available to you only
if it is reasonably practicable and if we have provided all of
the documentation contemplated in the deposit agreement. In such
case, the depositary bank will establish procedures to enable
you to elect to receive either cash or additional ADSs, in each
case as described in the deposit agreement.
If the election is not made available to you, you will receive
either cash or additional ADSs, depending on what a shareholder
in India would receive upon failing to make an election, as more
fully described in the deposit agreement.
Distributions of Rights
Whenever we intend to distribute rights to purchase additional
equity shares, we will give prior notice to the depositary bank
and we will assist the depositary bank in determining whether it
is lawful and reasonably practicable to distribute rights to
purchase additional ADSs to holders.
The depositary bank will establish procedures to distribute
rights to purchase additional ADSs to holders and to enable such
holders to exercise such rights if it is lawful and reasonably
practicable to make the rights available to holders of ADSs, and
if we provide all of the documentation contemplated in the
deposit agreement (such as opinions to address the lawfulness of
the transaction). You may have to pay
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fees, expenses, taxes and other governmental charges to
subscribe for the new ADSs upon the exercise of your rights. The
depositary bank is not obligated to establish procedures to
facilitate the distribution and exercise by holders of rights to
purchase new equity shares directly rather than new ADSs.
The depositary bank will not distribute the rights to you if:
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we do not timely request that the rights be distributed to you
or we request that the rights not be distributed to you; |
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we fail to deliver satisfactory documents to the depositary
bank; or |
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it is not reasonably practicable to distribute the rights. |
The depositary bank will sell the rights that are not exercised
or not distributed if such sale is lawful and reasonably
practicable. The proceeds of such sale will be distributed to
holders as in the case of a cash distribution.
If the depositary bank is unable to sell the rights, it will
allow the rights to lapse.
Other Distributions
Whenever we intend to distribute property other than cash,
equity shares or rights to purchase additional equity shares, we
will notify the depositary bank in advance and will indicate
whether we wish such distribution to be made to you. If so, we
will assist the depositary bank in determining whether such
distribution to holders is lawful and reasonably practicable.
If it is reasonably practicable to distribute such property to
you and if we provide all of the documentation contemplated in
the deposit agreement, the depositary bank will distribute the
property to the holders in a manner it deems practicable.
The distribution will be made net of fees, expenses, taxes and
governmental charges payable by holders under the terms of the
deposit agreement. In order to pay such taxes and governmental
charges, the depositary bank may sell all or a portion of the
property received.
The depositary bank will not distribute the property to you and
will sell the property if:
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we do not request that the property be distributed to you or if
we ask that the property not be distributed to you; |
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we do not deliver satisfactory documents to the depositary
bank; or |
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the depositary bank determines that all or a portion of the
distribution to you is not reasonably practicable. |
The proceeds of such a sale will be distributed to holders as in
the case of a cash distribution.
Redemption
Whenever we decide to redeem any of the equity shares on deposit
with the custodian, we will notify the depositary bank. If it is
reasonably practicable and if we provide all of the
documentation contemplated in the deposit agreement, the
depositary bank will mail notice of the redemption to the
holders.
The custodian will be instructed to surrender the shares being
redeemed against payment of the applicable redemption price. The
depositary bank will convert the redemption funds received into
dollars upon the terms of the deposit agreement and will
establish procedures to enable holders to receive the net
proceeds from the redemption upon surrender of their ADSs to the
depositary bank. You may have to pay fees, expenses, taxes and
other governmental charges upon the redemption of your ADSs. If
less than all ADSs are being redeemed, the ADSs to be retired
will be selected by lot or on a pro rata basis, as the
depositary bank may determine.
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Changes Affecting Equity Shares
The equity shares held on deposit for your ADSs may change from
time to time. For example, there may be a change in nominal or
par value, a split-up, cancellation, consolidation or
classification of such equity shares or a recapitalization,
reorganization, merger, consolidation or sale of assets.
If any such change were to occur, your ADSs would, to the extent
permitted by law, represent the right to receive the property
received or exchanged in respect of the equity shares held on
deposit. The depositary bank may in such circumstances deliver
new ADSs to you or call for the exchange of your existing ADSs
for new ADSs. If the depositary bank may not lawfully distribute
such property to you, the depositary bank may sell such property
and distribute the net proceeds to you as in the case of a cash
distribution.
Issuance of ADSs Upon Deposit of Equity Shares
If permitted under applicable law, the depositary bank may
create ADSs on your behalf if you or your broker deposit equity
shares with the custodian. The depositary bank will deliver
these ADSs to the person you indicate only after you obtain all
necessary government approvals and pay any applicable issuance
fees and any charges and taxes payable for the transfer of the
equity shares to the custodian. Your ability to deposit equity
shares and receive ADSs may be limited by US and Indian legal
considerations applicable at the time of deposit. In particular,
in accordance with applicable regulations of the RBI and the
Ministry of Finance, the depository bank will only be able to
accept additional equity shares for deposit into the ADS
facility to the extent that there have previously been no
withdrawals of equity shares.
The issuance of ADSs may be delayed until the depositary bank or
the custodian receives confirmation that all required approvals
have been given and that the equity shares have been duly
transferred to the custodian. The depositary bank will only
issue ADSs in whole numbers.
If you are permitted to make a deposit of equity shares, you
will be responsible for transferring good and valid title to the
depositary bank. As such, you will be deemed to represent and
warrant that:
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the equity shares are duly authorized, validly issued, fully
paid, non-assessable and legally obtained; |
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all preemptive (and similar) rights, if any, with respect to
such equity shares have been validly waived or exercised; |
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you are duly authorized to deposit the equity shares; |
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the equity shares presented for deposit are free and clear of
any lien, encumbrance, security interest, charge, mortgage or
adverse claim, and are not, and the ADSs issuable upon such
deposit will not be, restricted securities (as
defined in the deposit agreement); and |
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the equity shares presented for deposit have not been stripped
of any rights or entitlements. |
If any of the representations or warranties are incorrect in any
way, we and the depositary bank may, at your cost and expense,
take any and all actions necessary to correct the consequences
of the misrepresentations.
Transfer, Combination and Split Up of ADRs
As an ADR holder, you will be entitled to transfer, combine or
split up your ADRs and the ADSs evidenced thereby. For transfers
of ADRs, you will have to surrender the ADRs to be transferred
to the depositary bank and also must:
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ensure that the surrendered ADR is properly endorsed or
otherwise in proper form for transfer; |
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provide such proof of identity and genuineness of signatures as
the depositary bank deems appropriate; |
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provide any transfer stamps required by the State of New York or
the United States; and |
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pay all applicable fees, charges, expenses, taxes and other
government charges payable by ADR holders pursuant to the terms
of the deposit agreement, upon the transfer of ADRs. |
To have your ADRs either combined or split up, you must
surrender the ADRs in question to the depositary bank with your
request to have them combined or split up, and you must pay all
applicable fees, taxes, charges and expenses payable by ADR
holders, pursuant to the terms of the deposit agreement, upon a
combination or split up of ADRs.
Withdrawal of Equity Shares Upon Cancellation of ADSs
As a holder, you will be entitled to present your ADSs to the
depositary bank for cancellation and then the depositary bank
will have the obligation to transfer to you the corresponding
number of underlying equity shares at the custodians
offices, subject to the laws of India. In order to withdraw the
equity shares represented by your ADSs, you will be required to
pay to the depositary the fees for cancellation of ADSs and any
charges and taxes payable upon the transfer of the equity shares
being withdrawn. You assume the risk for delivery of all funds
and securities upon withdrawal. Once canceled, the ADSs will not
have any rights under the deposit agreement.
If you hold an ADR registered in your name, the depositary bank
may ask you to provide proof of identity and genuineness of any
signature and certain other documents as the depositary bank may
deem appropriate before it will cancel your ADSs. The withdrawal
of the equity shares represented by your ADSs may be delayed
until the depositary bank receives satisfactory evidence of
compliance with all applicable laws and regulations. Please keep
in mind that the depositary bank will only accept ADSs for
cancellation that represent a whole number of securities on
deposit.
You will have the right to withdraw the securities represented
by your ADSs at any time except for:
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Temporary delays that may arise because (i) the transfer
books for the equity shares or ADSs are closed, or
(ii) equity shares are immobilized on account of a
shareholders meeting or a payment of dividends. |
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Obligations to pay fees, taxes and similar charges. |
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Restrictions imposed because of laws or regulations applicable
to ADSs or the withdrawal of securities on deposit. |
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Any other circumstances specifically contemplated in the
regulations promulgated by the Commissions staff from time
to time. |
The depositary bank will only deliver equity shares upon
surrender of ADSs to the extent the number of equity shares at
that time deposited with the custodian have been listed for
trading on the Indian Stock Exchanges and dematerialized. The
depositary bank will process requests for withdrawal of the
equity shares represented by ADSs surrendered to it on a first
come, first served basis.
We expect the equity shares to be represented by the ADSs
offered hereby to be (i) listed for trading on the Indian
Stock Exchanges 45 days after the closing of this offering
and (ii) dematerialized in the account of the Custodian
10 days following receipt by the depositary bank of
confirmation of listing on the Indian Stock Exchanges. We expect
the equity shares to be represented by the ADSs issuable upon
exercise of the underwriters over-allotment option to be
(i) listed for trading on the Indian Stock Exchange
45 days after the closing of the over-allotment option and
(ii) dematerialized in the account of the Custodian
10 days following receipt by the depositary bank of
confirmation of listing on the Indian Stock Exchanges.
The deposit agreement may not be modified to impair your right
to withdraw the securities represented by your ADSs except to
comply with mandatory provisions of law.
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Voting Rights
As an ADS holder, you generally have the right under the deposit
agreement to instruct the depositary bank to exercise the voting
rights for the equity shares represented by your ADSs. You will
have no right to attend our general meetings in person. A holder
of ADSs may withdraw the underlying equity shares from the ADS
facility and vote as a direct shareholder, but there may not be
sufficient time to do so after the announcement of an upcoming
shareholders meeting. The voting rights of holders of
equity shares are described in Description of Share
Capital.
At our request, the depositary bank will mail to you any notice
of shareholders meeting received from us together with
information explaining how to instruct the depositary bank to
exercise the voting rights of the securities represented by ADSs.
If the depositary bank timely receives voting instructions from
a holder of ADSs, it will endeavor to vote the shares
represented by the holders ADSs in accordance with such
voting instructions. [In the event that voting takes place by a
show of hands, the depositary bank will cause the custodian to
vote all deposited securities in accordance with the
instructions received by holders of a majority of the ADSs for
which the depositary bank receives voting instructions.]
Please note that the ability of the depositary bank to carry out
voting instructions may be limited by practical and legal
limitations and the terms of the securities on deposit. We
cannot assure you that you will receive voting materials in time
to enable you to return voting instructions to the depositary
bank in a timely manner. Securities for which no voting
instructions have been received will not be voted.
Fees and Charges
As an ADS holder, you will be required to pay the following
service fees to the depositary bank:
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Fees |
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Issuance of ADSs upon deposit of equity shares
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Up to 5¢ per ADS issued |
Surrender of ADSs for withdrawal of equity shares
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Up to 5¢ per ADS surrendered |
Distribution of cash dividends or other cash distribution
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Up to 5¢ per ADS held |
Exercise of rights to purchase additional ADSs
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Up to 5¢ per ADS issued |
Distribution of ADSs pursuant to stock dividend or other free
stock distributions
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Up to 5¢ per ADS issued |
Distributions of cash proceeds (i.e., upon sale of rights or
other entitlements)
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Up to 5¢ per ADS held |
Distribution of securities other than ADSs or rights to purchase
additional ADSs
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Up to 5¢ per ADS held |
Depositary Services Fee
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Up to 5¢ per ADS held |
Transfer of ADRs
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Up to $1.50 per certificate presented for transfer |
As an ADS holder you will also be responsible to pay certain
fees and expenses incurred by the depositary bank and certain
taxes and governmental charges such as:
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fees for the transfer and registration of equity shares (i.e.,
upon deposit and withdrawal of equity shares); |
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expenses incurred for converting foreign currency into dollars; |
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expenses for cable, telex and fax transmissions and for delivery
of securities; |
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fees and expenses incurred in connection with the delivery or
servicing of equity shares on deposit; and |
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taxes and duties upon the transfer of securities (i.e., when
equity shares are deposited or withdrawn from deposit). |
Depositary fees payable upon the issuance and cancellation of
ADSs are typically paid to the depositary bank by the brokers
(on behalf of their clients) receiving the newly issued ADSs
from the depositary bank and by the brokers (on behalf of their
clients) delivering the ADSs to the depositary bank for
cancellation. The brokers in turn charge these fees to their
clients. Depositary fees payable in connection with
distributions of cash or securities to ADS holders and the
depositary services fee are charged by the depositary bank to
the holders of record of ADSs as of the applicable ADS record
date.
The depositary fees payable for cash distributions are generally
deducted from the cash being distributed. In the case of
distributions other than cash (i.e., stock dividends, rights),
the depositary bank charges the applicable fee to the ADS record
date holders concurrent with the distribution. In the case of
ADSs registered in the name of the investor (whether
certificated or uncertificated in direct registration), the
depositary bank sends invoices to the applicable record date ADS
holders. In the case of ADSs held in brokerage and custodian
account (via DTC), the depositary bank generally collects its
fees through the systems provided by DTC (whose nominee is the
registered holder of the ADSs held in DTC) from the brokers and
custodians holdings ADSs in their DTC accounts. The brokers and
custodians who hold their clients ADSs in DTC accounts in
turn charge their clients accounts the amount of the fees
paid to the depositary banks.
In the event of refusal to pay the depositary fees, the
depositary bank may, under the terms of the deposit agreement,
refuse the requested service until payment is received or may
set off the amount of the depositary fees from any distribution
to be made to the ADS holder.
Note that the fees and charges you may be required to pay may
vary over time and may be changed by us and by the depositary
bank. You will receive prior notice of such changes.
The depositary bank has separately agreed to make available to
us a portion of the net fees (after deduction of custody fees
for the shares on deposit) it collects from ADS holders. These
amounts will be available to cover certain expenses related to
the establishment and maintenance of the ADR program, including:
legal fees and expenses;
ADS listing fees;
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investor relations fees and expenses; |
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mailing and printing fees (i.e., for annual reports
and proxy materials); and
website and web casting expenses.
Neither the depositary bank nor we can determine the exact
amount of reimbursements the depositary bank will make available
to us because the number of ADSs that will be issued and
outstanding, the level of fees to be charged to holders of ADSs
and our reimburseable expenses related to the ADR program are
not known at this time.
Note that the fees and charges you may be required to pay may
vary over time and may be changed by us and by the depositary
bank. You will receive prior notice of such changes.
Amendments and Termination
We may agree with the depositary bank to modify the deposit
agreement at any time without your consent. We undertake to give
holders not less than 30 days prior notice of any
modifications that would prejudice any of their substantial
rights under the deposit agreement (except in very limited
circumstances enumerated in the deposit agreement).
You will be bound by the modifications to the deposit agreement
if you continue to hold your ADSs after the modifications to the
deposit agreement become effective. The deposit agreement cannot
be
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amended to prevent you from withdrawing the equity shares
represented by your ADSs (except as permitted by law).
We have the right to direct the depositary bank to terminate the
deposit agreement. Similarly, the depositary bank may in certain
circumstances on its own initiative terminate the deposit
agreement. In either case, the depositary bank must give notice
to the holders at least 30 days before termination.
Upon termination, the following will occur under the deposit
agreement:
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For a period of six months after termination, you will be able
to request the cancellation of your ADSs and the withdrawal of
the equity shares represented by your ADSs and the delivery of
all other property held by the depositary bank in respect of
those equity shares on the same terms as prior to the
termination. During such six months period the depositary
bank will continue to collect all distributions received on the
equity shares on deposit (i.e., dividends) but will not
distribute any such property to you until you request the
cancellation of your ADSs. |
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After the expiration of such six months period, the
depositary bank may sell the securities held on deposit. The
depositary bank will hold the proceeds from such sale and any
other funds then held for the holders of ADSs in a non-interest
bearing account. At that point, the depositary bank will have no
further obligations to holders other than to account for the
funds then held for the holders of ADSs still outstanding. |
Books of Depositary
The depositary bank will maintain ADS holder records at its
depositary office. You may inspect such records at such office
during regular business hours but solely for the purpose of
communicating with other holders in the interest of business
matters relating to the ADSs and the deposit agreement.
The depositary bank will maintain facilities in New York to
record and process the issuance, cancellation, combination,
split-up and transfer
of ADRs.
These facilities may be closed from time to time, to the extent
not prohibited by law.
Limitations on Obligations and Liabilities
The deposit agreement limits our obligations and the depositary
banks obligations to you. Please note the following:
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We and the depositary bank are obligated only to take the
actions specifically stated in the depositary agreement without
negligence or bad faith. |
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The depositary bank disclaims any liability for any failure to
carry out voting instructions, for any manner in which a vote is
cast or for the effect of any vote, provided it acts in good
faith and in accordance with the terms of the deposit agreement. |
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The depositary bank disclaims any liability for any failure to
determine the lawfulness or practicality of any action, for the
content of any document forwarded to you on our behalf or for
the accuracy of any translation of such a document, for the
investment risks associated with investing in equity shares, for
the validity or worth of the equity shares, for any tax
consequences that result from the ownership of ADSs, for the
credit worthiness of any third party, for allowing any rights to
lapse under the terms of the deposit agreement, for the
timeliness of any of our notices or for our failure to give
notice. |
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We and the depositary bank will not be obligated to perform any
act that is inconsistent with the terms of the deposit agreement. |
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We and the depositary bank disclaim any liability if we are
prevented or forbidden from acting on account of any law or
regulation, any provision of our Articles of Association or
Memorandum of |
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Association, any provision of any securities on deposit or by
reason of any act of God or war or terrorism or other
circumstances beyond our control. |
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We and the depositary bank disclaim any liability by reason of
any exercise of, or failure to exercise, any discretion provided
for the deposit agreement or in our Articles of Association or
Memorandum of Association or in any provisions of securities on
deposit. |
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We and the depositary bank further disclaim any liability for
any action or inaction in reliance on the advice or information
received from legal counsel, accountants, any person presenting
equity shares for deposit, any holder of ADSs or authorized
representative thereof, or any other person believed by either
of us in good faith to be competent to give such advice or
information. |
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We and the depositary bank also disclaim liability for the
inability by a holder to benefit from any distribution,
offering, right or other benefit which is made available to
holders of equity shares but is not, under the terms of the
deposit agreement, made available to you. |
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We and the depositary bank may rely without any liability upon
any written notice, request or other document believed to be
genuine and to have been signed or presented by the proper
parties. |
Pre-Release Transactions
The depositary bank may, in certain circumstances, issue ADSs
before receiving a deposit of equity shares or release equity
shares before receiving ADSs. These transactions are commonly
referred to as pre-release transactions. The deposit
agreement limits the aggregate size of pre-release transactions
and imposes a number of conditions on such transactions (i.e.,
the need to receive collateral, the type of collateral required,
the representations required from brokers, etc.). The depositary
bank may retain the compensation received from the pre-release
transactions.
Taxes
You will be responsible for the taxes and other governmental
charges payable on the ADSs and the securities represented by
the ADSs. We, the depositary bank and the custodian may deduct
from any distribution the taxes and governmental charges payable
by holders and may sell any and all property on deposit to pay
the taxes and governmental charges payable by holders. You will
be liable for any deficiency if the sale proceeds do not cover
the taxes that are due.
The depositary bank may refuse to issue ADSs, to deliver
transfer, split and combine ADRs or to release securities on
deposit until all taxes and charges are paid by the applicable
holder. The depositary bank and the custodian may take
reasonable administrative actions to obtain tax refunds and
reduced tax withholding for any distributions on your behalf.
However, you may be required to provide to the depositary bank
and to the custodian proof of taxpayer status and residence and
such other information as the depositary bank and the custodian
may require to fulfill legal obligations. You are required to
indemnify us, the depositary bank and the custodian for any
claims with respect to taxes based on any tax benefit obtained
for you.
Foreign Currency Conversion
The depositary bank will arrange for the conversion of all
foreign currency received into dollars if such conversion is
practicable, and it will distribute the dollars in accordance
with the terms of the deposit agreement. You may have to pay
fees and expenses incurred in converting foreign currency, such
as fees and expenses incurred in complying with currency
exchange controls and other governmental requirements.
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If the conversion of foreign currency is not practicable or
lawful, or if any required approvals are denied or not
obtainable at a reasonable cost or within a reasonable period,
the depositary bank may take the following actions in its
discretion:
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convert the foreign currency to the extent practicable and
lawful and distribute the dollars to the holders for whom the
conversion and distribution is lawful and practicable; |
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distribute the foreign currency to holders for whom the
distribution is lawful and practicable; and |
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hold the foreign currency (without liability for interest) for
the applicable holders. |
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THE INDIAN SECURITIES MARKET
The information in this section has been extracted from
publicly available documents from various sources, including
officially prepared materials from the SEBI, the BSE and the NSE
and has not been prepared or independently verified by us or the
underwriters or any of their respective affiliates or
advisors.
The Indian Securities Market and Stock Exchange
Regulations
India has a long history of organized securities trading. In
1875, the first stock exchange was established in Mumbai.
Indias stock exchanges are regulated primarily by SEBI, as
well as by the Government of India acting through the Ministry
of Finance, Capital Markets Division, under the SCRA, and the
SCR Rules. The SCR Rules, along with the rules, bylaws and
regulations of the respective stock exchanges, regulate the
recognition of stock exchanges, the qualifications for
membership thereof and the manner in which contracts are entered
into and enforced between members.
The Securities and Exchange Board of India Act 1992, as amended,
or the SEBI Act, provided for the establishment of SEBI to
protect the interests of investors in securities and to promote
the development of, and to regulate, the securities market and
for matters connected therewith or incidental hereto. The SEBI
Act granted powers to SEBI to, among other things, regulate the
Indian securities market, including stock exchanges and other
intermediaries in the capital markets, to promote and monitor
self-regulatory organizations, to prohibit fraudulent and unfair
trade practices and insider trading, to regulate substantial
acquisitions of shares and takeovers of companies, to call for
information, to undertake inspections and to conduct inquiries
and audits of stock exchanges, self regulatory organizations,
intermediaries and other persons associated with the securities
market.
SEBI also issued guidelines concerning minimum disclosure
requirements for public companies, rules and regulations
concerning investor protection, insider trading, substantial
acquisition of shares and takeovers of companies, buy-backs of
securities, delisting of securities, employees stock option
plans, stock brokers, merchant bankers, underwriters, mutual
funds, foreign institutional investors, credit rating agencies
and other capital market participants.
The Central Listing Authority, or the CLA, has been set up by
SEBI to address the issue of multiple listing of the same
security at various stock exchange and to bring about uniformity
in the due diligence exercise in scrutinizing all listing
applications on any stock exchange. The functions of the CLA as
enumerated in the Securities and Exchange Board of India
(Central Listing Authority) Regulations 2003 are, inter
alia, to receive and process applications for listing and
issue, if it deems fit, a letter precedent to listing to any
such applicant, to make recommendations to SEBI on issues
pertaining to the protection of the interest of the investors in
securities and development and regulation of the securities
market, including the listing agreements, listing conditions and
disclosures to be made in the offer documents and to undertake
any other functions as may be delegated to it by SEBI from time
to time.
Listing
The listing of securities on a recognized Indian stock exchange
is regulated by the Indian Companies Act, the SCRA, the SCR
Rules, 1957 and the listing agreements of the respective stock
exchanges. Under the SCR Rules, the governing body of each stock
exchange is empowered to suspend trading of or dealing in a
listed security for breach by a listed company of its
obligations under such agreement subject to such company
receiving prior notice of the intent of the stock exchange and
upon being granted a hearing in the matter. SEBI has power to
amend the terms of the listing agreements and direct the stock
exchanges to amend their bylaws.
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We have entered into listing agreements with the Indian Stock
Exchanges for the continuous listing of our equity shares. Each
of these agreements and/or the Takeover Code requires that:
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we adhere to certain corporate governance requirements including
ensuring the minimum number of independent directors on the
board, and composition of various committees such as audit
committees and remuneration committees; |
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we are subject to continuing disclosure requirements and must
publish unaudited financial statements on a quarterly basis and
immediately inform the stock exchanges of any unpublished price
sensitive information; |
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we maintain a minimum level of shares held by the public as
required under these agreements; |
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if any person acquires more than 5% of our equity shares or
voting rights we and the acquiror shall comply with the
provisions of the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997, as amended, or the Takeover Code; |
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no person shall acquire, or agree to acquire, 15% or more of our
equity shares or voting rights, unless the provisions of the
Takeover Code are complied with; and |
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if any takeover offer is made or if there is any change in
management control, then we and the persons securing management
control of us need to comply with the Takeover Code. |
Any non-compliance with the terms and conditions of the listing
agreements with the Indian Stock Exchanges may entail our
delisting of our equity shares from such stock exchanges, which
will affect future trading of those equity shares.
A listed company can be delisted under the provisions of the
SEBI (Delisting of Securities) Guidelines 2003, as amended, or
Delisting Guidelines, which govern voluntary and compulsory
delisting of shares of Indian companies from the stock
exchanges. A company may be delisted through a voluntary
delisting sought by the shareholders of the company with a
minimum of 75% majority of the shares of the company or a
compulsory delisting by the stock exchange due to any
acquisition of shares of the company or other arrangement or
consolidation of holdings which results in the public
shareholding of the company falling below the minimum level
specified in the listing conditions or in the listing
agreements. A company may voluntarily delist from a stock
exchange provided that an exit opportunity has been given to the
investors at an exit price determined in accordance with a
specified formula. The procedure for compulsory delisting also
requires the company to make an exit offer to the shareholders.
The Delisting Guidelines were recently amended on
January 31, 2006 to permit stock exchanges to delist the
securities of companies that have been suspended for a minimum
period of six months for non-compliance with the listing
agreement of the applicable Indian stock exchange after
considering representations received from aggrieved persons. The
amendment also provides that in the event that the securities of
a company are delisted by a stock exchange, the fair value of
securities shall be determined by persons appointed by the stock
exchange out of a panel of experts, which shall also be selected
by the stock exchange. If a listed company is delisted by the
stock exchange, the listed company may file an appeal before the
Securities Appellate Tribunal against the stock exchanges
decision.
Disclosures under the Indian Companies Act and Securities
Regulations
All companies, including public limited companies, are required
under the Indian Companies Act to prepare and file with the
Registrar of Companies and circulate to their shareholders
audited annual accounts that comply with the disclosure
requirements under the Indian Companies Act. In addition, a
listed company is subject to continuing disclosure requirements
pursuant to the terms of its listing agreement with the relevant
stock exchange and SEBI regulatory requirements. Companies are
also required to publish unaudited financial statements (though
subject to a limited review by the companys auditors), on
a quarterly basis and are required to inform the stock exchanges
immediately regarding any sensitive information that would be
likely to affect the stock price.
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Indian Stock Exchanges
There are currently 22 recognized stock exchanges in India,
most of which have their governing board for self-regulation. A
number of these exchanges have been directed by SEBI to file
schemes for demutualization as part of the move towards greater
investor protection. The BSE and the NSE hold prominent
positions among the stock exchanges in terms of the number of
listed companies, market capitalization and trading activity.
With effect from April 1, 2003, the stock exchanges in
India operate on a trading day plus two, or T+2, rolling
settlement system. At the end of the T+2 period, obligations are
settled with buyers of securities paying for and receiving
securities, while sellers transfer and receive payment for
securities. For example, trades executed on a Monday would
typically be settled on a Wednesday. SEBI proposes to
subsequently move to a T+1 settlement system. In order to
contain the risk arising out of the transactions entered into by
the members of various stock exchanges either on their own
account or on behalf of their clients, the stock exchanges have
designed risk management procedures, which include compulsory
prescribed margins on the individual broker members, based on
their outstanding exposure in the market, as well as
stock-specific margins from the members.
To restrict abnormal price volatility, SEBI has instructed stock
exchanges to apply the following price bands calculated at the
previous days closing price (there are no restrictions on
price movements of index stocks):
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Market Wide Circuit Breakers. In order to restrict
abnormal price volatility in any particular stock, SEBI has
instructed stock exchanges to apply daily circuit breakers,
which do not allow transactions beyond certain price volatility.
An index based market-wide (equity and equity derivatives)
circuit breaker system has been implemented and the circuit
breakers are applied to the market for movement by 10%, 15% and
20% for two prescribed market indices: the BSE Sensex for the
BSE and the Nifty for the NSE, or the NSE Nifty, whichever is
breached earlier. If any of these circuit breaker thresholds are
reached, trading in all equity and equity derivatives markets
nationwide is halted. |
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Price Bands. Price bands are circuit filters of 20%
movements either up or down, and are applied to most securities
traded in the markets, excluding securities included in the BSE
Sensex and the NSE Nifty and derivatives products. In addition
to the market-wide index based circuit breakers, there are
currently in place varying individual scrip wise bands (except
for scrips on which derivative products are available or scrips
included in indices on which derivative products are available)
of 20% either ways for all other scrips. |
The BSE is one of the stock exchanges in India on which our
equity shares are listed. Established in 1875, it is the first
stock exchange in India to have obtained permanent recognition
in 1956 from the Government of India under the SCRA and has
evolved over the years into its present status as the largest
stock exchange of India. Recently, pursuant to the BSE
(Corporatization and Demutualization) Scheme 2005 of SEBI, with
effect from August 20, 2005, the BSE has been incorporated
and is now a company under the Indian Companies Act.
The BSE has switched over to an on-line trading network since
May 1995 and has expanded this network to over 400 cities
in India. As of July 31, 2006, there were 4,793 listed
companies whose securities were trading on the BSE, the daily
turnover of the BSE was Rs. 2,560 million, and the
market capitalization of the BSE was approximately
Rs. 27,121,000 million.
Our equity shares are also listed in India on the NSE. The NSE
was established by financial institutions and banks to provide
nationwide on-line satellite-linked screen-based trading
facilities with market makers and electronic clearing and
settlement for securities including government securities,
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debentures, public sector notes and units. Deliveries for trades
executed on-market are exchanged through the
National Securities Clearing Corporation Limited. After
recognition as a stock exchange under the SCRA in April 1993,
the NSE commenced operations in the wholesale debt market
segment in June 1994 and operations in the derivatives segment
in June 2000.
As of July 31, 2006, there were 1,095 companies listed
on the NSE, the daily turnover of the NSE was
Rs. 4,614 million and the market capitalization of the
NSE was approximately Rs. 25,143,000 million.
Trading Hours
Trading on both the BSE and the NSE normally occurs Monday
through Friday, between 9:55 a.m. and 3:30 p.m. The
BSE and the NSE are closed on public holidays.
Trading Procedure
In order to facilitate smooth transactions, in 1995 BSE replaced
its open outcry system with BSE
On-line Trading, or
BOLT, facility in 1995. This totally automated screen based
trading in securities was put into practice nation-wide. This
has enhanced transparency in dealings and has assisted
considerably in smoothing settlement cycles and improving
efficiency in back-office work.
Stock Market Indices
The following two indices are generally used in tracking the
aggregate price movements on the BSE. The BSE Sensitive Index,
or Sensex, consists of listed shares of 30 large market
capitalization companies. The companies are selected on the
basis of market capitalization, liquidity and industry
representation. Sensex was first compiled in 1986 with the
fiscal year ended March 31, 1979 as its base year. The
BSE 100 Index (formerly the BSE National Index)
contains listed shares of 100 companies including the 30 in
Sensex with fiscal 1984 as the base year. The
BSE 100 Index was introduced in January 1989.
Internet-Based Securities Trading and Services
SEBI approved internet trading in January 2000. Internet trading
takes place through order routing systems, which route client
orders to exchange trading systems for execution. This permits
clients throughout the country to trade using brokers
Internet trading systems. Stock brokers interested in providing
this service are required to apply for permission to the
relevant stock exchange and also have to comply with certain
minimum conditions stipulated by SEBI.
Takeover Code
The Takeover Code, as last amended on May 26, 2006
prescribes certain thresholds of securities ownership or trigger
points that give rise to certain obligations thereunder. The
Takeover Code requires disclosures of the aggregate shareholding
or voting rights in a company by any acquiror who acquires
shares or voting rights which (taken together with shares or
voting rights, if any, already held by such acquiror) entitle
him to more than 5%, 10%, 14%, 54% or 74% of the shares or
voting rights in that company. The Takeover Code also requires
(unless specifically exempted) the making of an open offer to
acquire an additional 20% of the voting capital of another
company in the following circumstances:
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(a) any acquiror, who together with persons acting in
concert with such acquiror, acquires or agrees to acquire 15% or
more of the equity shares or voting rights in the company; |
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(b) any acquiror who, together with persons acting in
concert with such acquiror, has acquired 15% or more, but less
than 55%, of the equity shares or voting rights in the shares of
the company and who acquires additional shares or voting rights
entitling such acquiror to exercise more than 5% of the voting
rights in any financial year ending March 31; |
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(c) any acquiror who, together with persons acting in
concert with such acquiror, has acquired 55% or more, but less
than 75%, of the shares or voting rights in the shares of the
company (or, |
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where the company concerned had obtained the initial listing of
its shares by making an offer of at least 10% of the issue size
to the public pursuant to Rule 19(2)(b) of the SCR Rules,
less than 90% of the shares or voting rights in the company) and
who acquires any additional share or voting right; |
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(d) any acquiror who, together with persons acting in
concert with such acquiror, holds 55% or more, but less than
75%, of the shares or voting rights of the company (or, where
the company concerned had obtained the initial listing of its
shares by making an offer of at least 10% of the issue size to
the public pursuant to Rule 19(2)(b) of the SCR Rules, less
than 90% of the shares or voting rights in the company), intends
to consolidate its holdings while ensuring that the public
shareholding in the target company does not fall below the
minimum level permitted by the listing agreement with the stock
exchanges; or |
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(e) any acquiror who acquires control over the company
(directly or indirectly), irrespective of whether there has been
any acquisition of shares or voting rights in the company. |
However, in the event a public offer is made pursuant to
paragraph (d) above, the minimum size of the public
offer to acquire the voting capital of the target company is
required to be the lesser of (i) 20% of the voting capital
of the company; or (ii) such other lesser percentage of the
voting capital of the company as would, assuming full
subscription of the offer, enable the acquiror, together with
persons acting in concert with him, to increase his holding to
the maximum level possible, which is consistent with the target
company meeting the requirements of minimum public shareholding
laid down in the listing agreement.
Further, if the acquisition of voting capital of a target
company made by an acquiror pursuant to a public offer results
in the public shareholding in the target company being reduced
below the minimum level required in the listing agreement with
the stock exchange(s) for the purpose of continuous listing, the
acquiror is required to take necessary steps to facilitate
compliance of the target company with the relevant provisions of
the listing agreement within the time period mentioned in the
listing agreement.
The Takeover Code sets out the contents of the required public
announcements as well as the minimum offer price. The minimum
offer price depends on whether the shares of the company are
frequently or infrequently traded (as
defined in the Takeover Code). In case the shares of the company
are frequently traded, the offer price shall be the higher of:
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the negotiated price under the agreement for the acquisition of
shares in the company; |
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the highest price paid by the acquiror or persons acting in
concert with him for any acquisitions, including through an
allotment in a public, preferential or rights issue, during the
26-week period prior to
the date of public announcement; |
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the average of the weekly high and low of the closing prices of
the shares of the company quoted on the stock exchange where the
shares of the company are most frequently traded during the
26-week period prior to
the date of public announcement, or the average of the daily
high and low of the prices of the shares as quoted on the stock
exchange where the shares of the company are most frequently
traded during the two weeks preceding the date of public
announcement, whichever is higher. |
Specific obligations of the acquiror and the board of directors
of the target company in the offer process have also been
specified. Acquirers making a public offer also must deposit in
an escrow account a percentage of the total consideration which
will be forfeited in the event that the acquiror does not
fulfill its obligations.
The general requirements to make such a public announcement do
not, however, apply entirely to bailout takeovers when a
promoter is taking over a financially weak company but not a
sick industrial company pursuant to a rehabilitation
scheme approved by a public financial institution or a scheduled
bank. A financially weak company is a company which
has at the end of the previous financial year accumulated losses
which have resulted in the erosion of more than 50% but less
than 100% of the total sum of its paid up capital and free
reserves as at the beginning of the previous financial year. A
sick
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industrial company is a company registered for more than
five years which has at the end of any financial year
accumulated losses equal to or exceeding its entire net worth.
The Takeover Code, subject to certain conditions specified in
the Takeover Code, exempts certain specified acquisitions from
the requirement of making a public offer, including, among
others, the acquisition of shares (1) by allotment in a
public issue or a rights issue; (2) pursuant to an
underwriting agreement; (3) by registered stockbrokers in
the ordinary course of business on behalf of clients;
(4) in unlisted companies; (5) pursuant to a scheme of
reconstruction or amalgamation; (6) pursuant to a scheme
under Section 18 of the SICA; (7) resulting from
transfers between companies belonging to the same group of
companies or between qualifying promoters of a publicly listed
company and relatives; (8) by way of transmission through
inheritance or succession, (9) resulting from transfers by
Indian venture capital funds or foreign venture capital
investors registered with SEBI, to promoters of a venture
capital undertaking or venture capital undertaking pursuant to
an agreement between such venture capital funds or foreign
venture capital investors with such promoters or venture capital
undertaking; (10) by the Government of India controlled
companies, unless such acquisition is made pursuant to a
disinvestment process undertaken by the Government of India or a
state government; (11) change in control by
takeover/restoration of the management of the borrower company
by the secured creditor in terms of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002; (12) acquisition of shares by a person
in exchange of equity shares received under a public offer made
under the Takeover Code; and (13) in terms of guidelines
and regulations relating to delisting of securities as specified
by SEBI. The Takeover Code does not apply to acquisitions in the
ordinary course of business by public financial institutions
either on their own account or as a pledgee. An application may
also be filed with the takeover panel seeking exception from the
open offer requirements of the Takeover Code.
In addition, the provisions of the Takeover Code relating to
making of an open offer do not apply to the acquisition of ADRs
so long as they are not converted into equity shares carrying
voting rights.
Insider Trading Regulations
The SEBI (Prohibition of Insider Trading) Regulations 1992, as
amended, or the Insider Trading Regulations, have been notified
by SEBI to prohibit and penalize insider trading in India. The
Insider Trading Regulations prohibit an insider from
dealing, either on his/her own behalf or on behalf of any other
person, in the securities of a company listed on any stock
exchange when in possession of unpublished price sensitive
information. The terms unpublished and
price sensitive information are defined by the
Insider Trading Regulations. The Insider Trading Regulations
define an insider to mean any person who is or was connected
with the company or is deemed to have been connected with the
company and who is reasonably expected to have access to
unpublished price sensitive information in respect of securities
of a company or who has received or has had access to such
unpublished price sensitive information.
Price sensitive information means any information which relates
directly or indirectly to a company and which if published is
likely to materially affect the price of securities of the
company, such as the periodical financial results of the
company, intended declaration of dividends (both interim and
final), issue of securities or buy-back of securities. The
insider is also prohibited from communicating, counseling or
procuring, directly or indirectly, any unpublished price
sensitive information to any other person who while in
possession of such unpublished price sensitive information shall
not deal in securities.
Further, the Insider Trading Regulations prohibit a company from
dealing in the securities of another company or the associate of
that other company, while in the possession of unpublished price
sensitive information. The Insider Trading Regulations provide
for certain defenses which can be raised by an insider (as
defined under the Insider Trading Regulations) in possession of
unpublished price sensitive information and dealing in
securities.
The Insider Trading Regulations require any person who holds
more than 5% of the outstanding shares or voting rights in any
listed company to disclose to the company the number of shares
or voting
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rights held by such person and any change in such shareholding
or voting rights within four business days of:
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the receipt of intimation of allotment of shares; or |
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the acquisition of the shares or voting rights, as the case may
be. |
On a continuing basis, any person who holds more than 5% of the
outstanding shares or voting rights of any listed company is
required to disclose to the company the number of shares or
voting rights held by such person and change in such
shareholding or voting rights, even if such change results in
such persons shareholding falling below 5%, if there has
been change in such holdings from the last disclosure made,
subject to de minimis exceptions for changes that do not in the
aggregate exceed 2% of total outstanding shares or voting rights
of the company. Such disclosure is required to be made within
four business days of:
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the receipt of intimation of allotment of shares; or |
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the acquisition or sale of shares or voting rights, as the case
may be. |
The Insider Trading Regulations make it compulsory for listed
companies and certain other entities associated with the
securities market to establish an internal code of conduct to
prevent insider trading and also to regulate disclosure of
unpublished price-sensitive information within such entities so
as to minimize misuse thereof. The Insider Trading Regulations
specify a model code of conduct and a model code of corporate
disclosure practices to prevent insider trading, which is to be
implemented by all listed companies. All directors, officers and
substantial shareholders in a listed company are required to
make periodic disclosures of their shareholding as specified in
the Insider Trading Regulations.
Depositories
In August 1996, the Indian Parliament enacted the Depositories
Act 1996 which provides a legal framework for the establishment
of depositories to record ownership details and effectuate
transfers in book-entry form. SEBI framed the Securities and
Exchange Board of India (Depositories and Participants)
Regulations 1996, as amended, which provide for, among other
things, the registration of depositories and participants, the
rights and obligations of the depositories, participants, the
issuer companies and the beneficial owners, pledge of securities
held in book-entry form, and procedure for the conversion to
book-entry form of shares held in physical form.
Trading of securities in book-entry form commenced in December
1996. In January 1998, SEBI notified scrips of various companies
for compulsory book-entry trading by certain categories of
investors. Subsequently, SEBI has significantly increased the
number of scrips in which book-entry form trading is mandatory
for all investors. The SEBI (Disclosure and Investor Protection)
Guidelines, 2000, as amended, provide that no company may make a
public or rights issue or an offer for sale of securities unless
the company enters into an agreement with a depository for
book-entry of securities already issued or proposed to be issued
to the public or existing shareholders and the company gives an
option to subscribers, shareholders or investors to receive the
security certificates or hold securities in book-entry form with
a depository.
SEBI has also provided that the issue and allotment of shares in
initial public offerings and/or the trading of shares shall only
be in electronic form, and the company gives an option to
subscribers, shareholders or investors either to receive the
security certificates or to hold the securities in book-entry
form with a depository.
Under the Depositories Act, 1996, every person subscribing to
securities offered by an issuer has an option to either receive
the security certificates or hold the securities with a
depository. The Indian Companies Act provides that Indian
companies making any initial public offerings of securities for
or in excess of Rs. 100 million ($2.2 million)
should issue the securities in book-entry form.
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However, even in case of scrips notified for compulsory
dematerialized trading, investors, other than institutional
investors, are permitted to trade in physical shares on
transactions outside the stock exchange where there are no
requirements of reporting such transactions to the stock
exchange, and on transactions on the stock exchange involving
lots of less than 500 securities.
Transfers of shares in book-entry form require both the seller
and the purchaser of the equity shares to establish accounts
with depositary participants registered with the depositaries
established under the Depositories Act, 1996. Charges for
opening an account with a depositary participant, transaction
charges for each trade and custodian charges for securities held
in each account vary depending upon the practice of each
depositary participant and have to be borne by the account
holder. Upon delivery, the shares shall be registered in the
name of the relevant depositary on the companys books and
this depositary shall enter the name of the investor in its
records as the beneficial owner. The transfer of beneficial
ownership shall be effected through the records of the
depositary. The beneficial owner shall be entitled to all rights
and benefits and subject to all liabilities in respect of his
securities held by a depositary.
Derivatives (Futures and Options)
Trading in derivatives is governed by the SCRA and the SEBI Act.
Trading in derivatives in India takes place either on separate
and independent derivatives exchanges or on a separate segment
of an existing stock exchange. The derivative exchange or a
derivative segment of a stock exchange functions as a
self-regulatory organization under the supervision of SEBI.
Derivatives products have been introduced in a phased manner in
India, starting with future contracts in June 2000 and index
options, stock options and stock futures in June 2000, July 2001
and November 2001, respectively.
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GOVERNMENT OF INDIA APPROVALS
Legal Regime
The issue of ADSs by an Indian company is primarily regulated by
the Issue of Foreign Currency Convertible Bonds and Ordinary
Shares (Through Depository Receipt Mechanism) Scheme, 1993, as
amended, or the ADR Scheme, and the Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident Outside
India) Regulations, 2000, as amended, or the Regulations, read
with Circular F. No. 15/ 7/
1999-NRI dated
January 19, 2000, or the Circular, issued by the Ministry
of Finance, Department of Economic Affairs, Government of India,
which permit Indian companies to issue ADSs in accordance with
the procedure laid down thereunder without obtaining any
regulatory approvals.
Automatic Route
Foreign direct investment in our company is permitted under the
automatic route and
non-resident investors
are permitted to hold up to 100% of our equity share capital.
For the purposes of an ADS issue, current Indian regulations do
not require an Indian company issuing ADSs to obtain any
approval or permission from any regulatory authorities in India.
See Legal Regime above. However, in the
event that the issue related expenses (including fixed expenses
such as underwriting commissions, lead managers charges,
legal expenses and other reimbursable expenses) exceed the
prescribed ceiling of 7% of the issue, we would be required to
obtain the approval of the RBI. See Regulations and
Restrictions on Foreign Ownership of Indian Securities.
Pricing of an ADS Issue
Pursuant to a recent amendment of the ADR Scheme set out in a
circular dated August 31, 2005, the Ministry of Finance has
prescribed pricing norms for ADR issues by Indian companies. As
per the Circular, the pricing of ADR issues must be at a price
not less than the higher of the following two averages:
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the average of the weekly high and low of the closing prices of
the related equity shares quoted on the stock exchange during
the six months preceding the relevant date; or |
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the average of the weekly high and low of the closing prices of
the related equity shares quoted on a stock exchange during the
two weeks preceding the relevant date. |
The relevant date in this regard has been defined to
mean the date thirty days prior to the date on which the general
meeting of the shareholders is held, in accordance with
Section 81 (IA) of the Companies Act to approve the
proposed issue of ADSs.
Regulatory Filings
We are required to make the following filings in connection with
the issue of ADSs:
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full details of the ADS issue including details of our equity
capital structure, the number of ADSs issued, the ratio of ADSs
to the underlying shares, amount raised by this issue and amount
repatriated with the Reserve Bank of India in the form specified
in Annexure C of the Regulations, within 30 days from the
date of closing of the ADS issue; |
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a quarterly return with the RBI in the form specified in
Annexure D of the Regulations within 15 days of the close
of the calendar quarter; and |
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a return of allotment with the Registrar of Companies, at the
time of issuance of the new equity shares. |
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Declaration for Equity Shares Beneficially Owned
Section 187C of the Indian Companies Act requires the
holder of record of an equity share to declare details of the
beneficial owner and vice versa. Any person who defaults in
making the said declaration is liable to pay a fine of up to
Rs. 1,000 for each day of such continuing default. However,
the failure to comply with Section 187C would not affect
the obligation of the company to register a transfer of shares
or pay any dividends to the registered holder of any shares, in
respect of which such a declaration has not been made.
Approvals Received by the Company
We have applied for in-principle approvals for the listing of
the equity shares underlying the ADSs from the following Indian
stock exchanges:
The NSE, pursuant to letter
dated ,
2006.
The BSE, pursuant to letter
dated ,
2006.
We are also required to apply for and obtain the final approval
for listing of the equity shares underlying the ADSs on the
completion of the allotment of the equity shares.
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REGULATIONS AND RESTRICTIONS ON FOREIGN OWNERSHIP OF INDIAN
SECURITIES
General
The Government of India regulates ownership of Indian companies
by foreigners. Foreign investment in securities issued by Indian
companies is generally regulated by the Foreign Exchange
Management Act 1999, as amended from time to time, or FEMA, read
with the rules, regulations and notifications issued under FEMA.
A person resident outside India can transfer any security of an
Indian company or any other security to an Indian resident only
in accordance with the terms and conditions specified in FEMA
and the rules, regulations and notifications made thereunder or
as permitted by the RBI.
Foreign Direct Investment
The Government of India, pursuant to its liberalization policy,
set up the Foreign Investment Promotion Board, or FIPB, to
regulate all foreign direct investment. Foreign direct
investment, or FDI, means investment by way of subscription
and/or purchase of securities of an Indian company by a non
resident investor. FDI in India can be either through the
automatic route where no prior approval of any regulatory
authority is required or through the government approval route.
Over a period of time, the Government of India has relaxed the
restrictions on foreign investment. Subject to certain
conditions, under current regulations, FDI in most industry
sectors does not require prior approval of the FIPB, or the RBI,
if the percentage of equity holding by all foreign investors
does not exceed specified industry-specific thresholds. These
conditions include certain minimum pricing requirements,
compliance with the Takeover Code, and ownership restrictions
based on the nature of the foreign investor. FDI is prohibited
in certain sectors such as retail trading (except single brand
product retailing), atomic energy, lottery business and gambling
and betting. Also, the following investments require the prior
approval of the FIPB:
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investments in excess of specified sectoral caps or investments
in sectors in which FDI is not permitted or in sectors which
specifically require approval of the FIPB; |
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investments by any foreign investor who had on January 12,
2005, an existing joint venture or a technology transfer/ trade
mark agreement in the same field as the Indian company in which
the FDI is proposed. However, no prior approval is required if:
(a) the investor is a venture capital funds registered with
SEBI, or (b) the existing joint venture, investment by
either of the parties is less than 3%, or (c) the existing
joint venture or collaboration is now defunct or sick; |
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foreign investment of more than 24% in the equity capital of
units manufacturing items reserved for small scale industries; |
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all proposals for manufacturing activities requiring a license
under the Industries (Development and Regulation) Act, 1951 and
that are proposed to be located outside a radius of
25 kilometers of the standard urban area limits; and |
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all proposals relating to the acquisition of shares of an Indian
company by a foreign investor (including an individual of Indian
nationality or origin residing outside India and corporations
established and incorporated outside India) which are not under
the automatic route. |
A person residing outside India (other than a citizen of
Pakistan or Bangladesh) or any entity incorporated outside India
(other than an entity incorporated in Pakistan or Bangladesh)
has general permission to purchase shares, convertible
debentures or preference shares of an Indian company, subject to
certain terms and conditions.
Currently, subject to certain exceptions, FDI and investment by
Non-Resident Indians, or NRIs (as such term is defined in FEMA),
in Indian companies do not require the prior approval of the
FIPB or the RBI. The Government of India has indicated that in
all cases where FDI is allowed on an automatic basis without
FIPB approval, the RBI would continue to be the primary agency
for the purposes of monitoring and regulating foreign
investment. In cases where FIPB approval is obtained, generally
no approval of the RBI is required, subject to compliance with
the applicable pricing guidelines, although a declaration in the
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prescribed form, detailing the foreign investment, must be filed
with the RBI once the shares are issued to non-resident
investors. The foregoing description applies only to an issuance
of shares and not to a transfer of shares by Indian companies.
The Government of India has set up the Foreign Investment
Implementation Authority, or FIIA, under the Ministry of
Commerce and Industry. The FIIA has been mandated to translate
foreign direct investment approvals into implementation, provide
a pro-active one stop after care service to foreign investors by
helping them obtain necessary approvals, deal with operational
problems and meet with various Government of India agencies to
find solutions to foreign investment problems and maximize
opportunities through a partnership approach.
Under the current regulations, in the case of mining and
processing of aluminum, copper and zinc, FDI up to 100% is
permitted under the automatic route.
Issue of ADSs
The Ministry of Finance, pursuant to the ADR Scheme has
permitted Indian companies to issue ADSs. Certain relaxations in
the ADR Scheme have also been notified by the RBI. The ADR
Scheme provides that an Indian company may issue ADSs to a
person resident outside India through a depositary without
obtaining any prior approval of the Ministry of Finance or the
RBI, except in certain cases. An Indian company issuing ADSs
must comply with certain reporting requirements specified by the
RBI.
Investors do not need to seek specific approval from the
Government of India to purchase, hold or dispose of ADSs. We
intend to apply for approval in-principle from the relevant
Indian stock exchanges for listing of the equity shares
underlying the ADSs.
The proceeds of an ADS issue may not be used for investment in
stock markets and real estate. There are no other end-use
restrictions on the use of the proceeds of an ADS issue.
Further, issue-related expenses for a public issue of ADSs shall
be subject to a ceiling of 7% of the total issue size.
Issue-related expenses
beyond this ceiling would require the RBI approval.
Restrictions on Redemption of ADSs, Sale of the Equity Shares
Underlying the ADSs and the Repatriation of Sale Proceeds
Other than mutual funds that may purchase ADSs subject to terms
and conditions specified by the RBI, a person resident in India
is not permitted to hold ADSs of an Indian company. Under Indian
law, ADSs issued by Indian companies to non-residents have free
transferability outside of India. Under the ADR Scheme, a
non-resident holder of the ADSs may transfer such ADSs, or
request that the overseas depositary bank redeem such ADSs. In
the case of a redemption, the overseas depositary bank will
request the domestic custodian bank to release the corresponding
underlying shares in favor of the non-resident investor or
transfer in the books of account of the issuing company in the
name of the non-resident. Although ADS holders are entitled to
withdraw the equity shares underlying the ADSs from the
depositary at any time, under current Indian law, subject to
certain limited exceptions, equity shares so acquired may not be
redeposited with the depositary.
Notwithstanding this, if a foreign investor were to withdraw its
equity shares from the ADS program, its investment in the equity
shares would be subject to the general restrictions on foreign
ownership and may be subject to the portfolio investment
restrictions and limitations. See Foreign Direct
Investment above. Further, foreign investors who withdraw
their equity shares from the ADS program with the result that
their direct or indirect holding in the company is equal to or
exceeds 15% of the companys total equity, may be required
to make a public offer to the remaining shareholders of the
company under the Takeover Code.
Investors who seek to sell any equity shares in India withdrawn
from the depositary facility and to convert the Rupee proceeds
from the sale into foreign currency and repatriate the foreign
currency from India will also be subject to certain exchange
control restrictions on the conversion of Rupees into dollars.
However, since August 1994, the Government of India has
substantially complied with its obligations owed
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to the International Monetary Fund not to use exchange
restrictions on current international transactions as an
instrument in managing the balance of payments. Since 1999, the
Government of India has relaxed restrictions on capital account
transactions by resident Indians who are now permitted to remit
up to $25,000 per calendar year for any permissible capital
account transaction or a combination of capital account and
current account transaction other than remittances made directly
or indirectly to Bhutan, Nepal, Mauritius or Pakistan or to
countries identified by the Financial Action Task Force, or
FATF, as non co-operative countries and territories,
for example, the Cook Islands, Egypt, Guatemala, Indonesia,
Myanmar, Nauru, Nigeria, Philippines and Ukraine.
Fungibility of ADSs
As per the directions issued by the RBI on the two-way
fungibility of ADSs, a person resident outside India is
permitted to purchase, through a registered stock broker in
India, shares of an Indian company for the purposes of
converting the same into ADSs, subject, inter alia, to the
following conditions:
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the shares of the Indian company are purchased on a recognized
stock exchange in India; |
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the shares of the Indian company are purchased on a recognized
stock exchange with the permission of the domestic custodian for
the ADSs issued by the Indian company and such shares are
deposited with the custodian after purchase; |
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the Indian company has authorized the custodian to accept shares
from non-resident investors for re-issuance of ADSs; |
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the number of shares of the Indian company so purchased does not
exceed the ADSs converted into underlying shares; and |
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compliance with the provisions of the ADR Scheme and the
guidelines issued thereunder. |
Sponsored ADS Facilities
By notification dated November 23, 2002, the RBI has
permitted existing shareholders of Indian companies to sell
their shares through the issuance of ADSs against the block of
existing shares of an Indian company, subject to the following
conditions:
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the facility to sell the shares would be available pari passu
to all categories of shareholders; |
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the sponsoring company whose shareholders propose to divest
existing shares in the overseas market through the issue of ADSs
will give an option to all its shareholders indicating the
number of shares to be divested and the mechanism of determining
the price under the applicable ADS norms. If the shares offered
for divestment are more than the pre-specified number to be
divested, shares would be accepted from the existing
shareholders in proportion to their existing shareholdings; |
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the proposal for divestment of the shares would have to be
approved by a special resolution of the Indian company; |
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the proceeds of the ADS issue raised abroad shall be repatriated
to India within a period of one month from the closing of the
issue. However, the proceeds of the ADS offering can also be
retained abroad to meet the future foreign exchange requirements
of the company; and |
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the issue-related expenses in relation to the public issue of
ADSs under this scheme would be subject to a ceiling of 7% of
the issue size, in the case of public issues, and 2% of the
issue size, in the case of private placements.
Issue-related expenses
would include underwriting commissions and charges, legal
expenses and reimbursable expenses. Issue-related expenses shall
be passed on to shareholders participating in the sponsored
issue on a pro-rata basis.
Issue-related expenses
beyond the ceiling would require the approval of the RBI. |
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Investment by Foreign Institutional Investors
Pension funds, mutual funds, investment trusts, insurance or
reinsurance companies, international or multinational
organizations or agencies thereof, foreign governmental agencies
or central banks, endowment funds, university funds, foundation
or charitable trusts or charitable societies investing on their
own behalf and asset management companies, investment managers
or advisors, nominee companies, institutional portfolio
managers, trustees, power of attorney holders, banks investing
their proprietary funds or on behalf of broad based
funds or on behalf of foreign corporate entities and individuals
must register with SEBI as a foreign institutional investor, or
FII, and obtain the approval of the RBI unless they are
investing in securities of Indian companies through FDI.
FIIs who are registered with SEBI are required to comply with
the provisions of the Securities and Exchange Board of India
(Foreign Institutional Investors) Regulations, 1995, as amended,
or the Foreign Institutional Investor Regulations. A registered
FII may, subject to the pricing and ownership restrictions
discussed below, buy and freely sell securities issued by any
Indian company, realize capital gains on investments made
through the initial amount invested in India, subscribe to or
renounce rights offerings for shares, appoint a domestic
custodian for custody of investments made and repatriate the
capital, capital gains, dividends, income received by way of
interest and any compensation received towards sale or
renunciation of rights offerings of shares.
Subject to the terms and conditions set out in the Foreign
Institutional Investor Regulations, a registered FII or its
sub-account may buy or
sell equity shares, debentures and warrants of unlisted, listed
or to be listed Indian companies through stock exchanges in
India at ruling market price and also buy or sell shares or
debentures of listed or unlisted companies other than on a stock
exchange in compliance with the applicable SEBI/RBI pricing
norms. Under the portfolio investment scheme under
Schedule 2 to the Foreign Exchange Management (Transfer or
Issue of Security by a Person Resident outside India)
Regulations, 2000 and the SEBI (Foreign Institutional Investors)
Regulations, 1995, an FII or its sub-account, an FII is not
permitted to hold more than 10% of the total issued capital of
an Indian company in its own name; a foreign corporate or
individual sub-account of the FII is not permitted to hold more
than 5% of the total issued capital of an Indian company, and a
broad based sub-account is not permitted to hold more than 10%
of the total issued capital of an Indian company. The total
holding of all FIIs together with their
sub-accounts in an
Indian company is subject to a cap of 24% of the total issued
capital of the company, which may be increased up to the
percentage of sectoral cap on FDI in respect of the said company
pursuant to a resolution of the board of directors of the
company and the approval of the shareholders of the company by a
special resolution in a general meeting.
Pursuant to recent amendments to the Foreign Exchange Management
(Transfer or Issue of Security by a Person Resident outside
India) Regulations, 2000, FIIs are permitted to purchase
shares and convertible debentures, subject to certain limits, of
an Indian company either through:
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a public offer, where the price of the equity shares to be
issued is not less than the price at which the equity shares are
issued to Indian residents; or |
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a private placement, where the price of the equity shares to be
issued is not less than the price set out in the relevant
guidelines, including the SEBI Guidelines or the guidelines
issued by the former Controller of Capital Issues, as applicable. |
Regulation 15A of the Foreign Institutional Investor
Regulations provides that an FII or its sub-account may issue,
deal in or hold, offshore derivative instruments such as
participatory notes, equity linked notes or any other similar
instruments against underlying securities, listed or proposed to
be listed on any stock exchange in India, only in favor of those
entities which are regulated by any regulatory authority in the
countries of their incorporation or establishment, subject to
compliance with know your client requirements. SEBI
has pursuant to its circular dated February 19, 2004
clarified that certain categories of entities would be deemed to
be regulated entities for purposes of Regulation 15A of the
Foreign Institutional Investor Regulations. An FII or
sub-account is also
required to ensure that no further issue or transfer of any
off-shore derivative
instrument is made to any person other than a regulated entity.
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Portfolio Investment by Non-Resident Indians
A variety of methods for investing in shares of Indian companies
are available to NRIs. Under the portfolio investment scheme,
each NRI can purchase up to 5% of the
paid-up share capital
of an Indian company, subject to the condition that the
aggregate paid-up share
capital of an Indian company purchased by all NRIs through
portfolio investments cannot exceed 10%. The 10% limit may be
raised to 24% if a special resolution is adopted by the
shareholders of the company. In addition to portfolio
investments in Indian companies, NRIs may also make foreign
direct investments in Indian companies under the FDI route
discussed above. These methods allow NRIs to make portfolio
investments in shares and other securities of Indian companies
on a basis not generally available to other foreign investors.
Transfer of Shares
Until recently, the sale of shares of an Indian company from a
non-resident to a resident required RBI approval, unless the
sale was made on a stock exchange through a registered
stockbroker at the market price. The RBI has granted general
permission to persons resident outside India to transfer shares
and convertible debentures held by them to an Indian resident,
subject to compliance with certain terms and conditions and
reporting requirements. A resident who wishes to purchase shares
from a non-resident must, pursuant to the relevant notice
requirements, file a declaration with an authorized dealer in
the prescribed Form FC-TRS, together with the relevant
documents and file an acknowledgment thereof with the Indian
company to effect transfer of the shares. However, in certain
cases, the person to whom the shares are being transferred is
required to obtain the prior permission of the Government of
India to acquire the shares if he had on January 12, 2005,
an existing joint venture or technology transfer agreement or
trademark agreement in the same field other than in the
information technology field to that in which the Indian company
whose shares are being transferred is engaged, except:
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investments to be made by venture capital funds registered with
SEBI; |
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where the existing joint venture investment by either of the
parties is less than 3%; or |
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where the existing venture/ collaboration is defunct or sick. |
A non-resident may also
transfer any security to a person resident in India by way of
gift. Moreover, the transfer of shares between an Indian
resident and a non-resident does not require the prior approval
of the Government of India or the RBI if the activities of the
investee company are under the automatic route pursuant to the
FDI Policy, the investor does not have an existing joint venture
or technology transfer agreement or trademark agreement in the
same field, the non-resident shareholding is within sector
limits under the FDI policy and the pricing is in accordance
with the guidelines prescribed by SEBI and the RBI.
Pursuant to Press Note 4 (2006 Series) issued on
February 10, 2006, the Government of India has permitted
transfer of shares from residents to non-residents under the
automatic route in the financial services sector or where the
provisions of the Takeover Code are applicable, in cases where
approval from SEBI under the Takeover Code, the RBI or the
Insurance Regulatory & Development Authority is
required.
Transfer of Shares of an Indian Company by a Person Resident
Outside India
A non-resident of India is generally permitted to sell equity
shares underlying the ADSs held by him to any other non-resident
of India without the prior approval of the RBI. However,
approval by the FIPB is required if the person acquiring the
shares has a previous venture or tie up in India in the same
field in which the company whose shares are being transferred is
engaged. Further, the RBI has pursuant to A.P. (DIR Series)
Circular No. 16 dated October 4, 2004 granted general
permission for the transfer of shares by a person resident
outside India to a person resident in India, subject to
compliance with certain pricing norms and reporting requirements.
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Investment by Overseas Corporate Bodies
The overseas corporate bodies, or OCBs, being entities in which
at least 60% was owned by NRIs are no longer recognized as a
class of investors in India. This change was effective from
September 16, 2003. Accordingly OCBs will not be eligible
to subscribe to the ADRs.
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CERTAIN INCOME TAX CONSIDERATIONS
India
The following is a summary of the material Indian income tax,
stamp duty and estate duty consequences of the purchase,
ownership and disposal of the ADSs and the equity shares
underlying the ADSs for non-resident investors of the ADSs who
acquire the ADSs pursuant to this prospectus. The summary only
addresses the tax consequences for non-resident investors who
hold the ADSs or the equity shares underlying the ADSs as
capital assets and does not address the tax consequences which
may be relevant to other classes of non-resident investors,
including dealers. The summary proceeds on the basis that the
investor continues to remain a non-resident when the income by
way of dividends and capital gains are earned. The summary is
based on Indian tax laws and relevant interpretations thereof as
are in force as of the date of this prospectus, including the
Income Tax Act which provides for the taxation of persons
resident in India on their global income and persons not
resident in India on income received, accruing or arising in
India or deemed to have been received, accrued or arisen in
India, and is subject to change. This summary is not intended to
constitute a complete analysis of all the tax consequences for a
non-resident investor under Indian law in relation to the
acquisition, ownership and disposal of the ADSs or the equity
shares underlying the ADSs and does not deal with all possible
tax consequences relating to an investment in the equity shares
and ADSs, such as the tax consequences under state, local and
other (for example, non-Indian) tax laws. Potential investors
should therefore consult their own tax advisers on the tax
consequences of such acquisition, ownership and disposal of the
ADSs or the equity shares underlying the ADSs under Indian law
including specifically, the tax treaty between India and their
country of residence and the law of the jurisdiction of their
residence.
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Taxation of Income from ADSs |
Under the ADR Scheme, the transfer of ADSs outside India by a
non-resident holder to
another non-resident does not give rise to any capital gains tax
in India. However, Section 115AC of the Income Tax Act
provides that income by way of long-term capital gains arising
from the transfer of ADSs outside India by the non-resident
holder to another non-resident is subject to tax at the rate of
10%. In the circumstances, if at all, that capital gains arising
from a transfer of ADSs are taxable under the Income Tax Act,
the same would be subject to tax as long-term capital gains at
the rate of 10% plus surcharge at the applicable rate if such
ADSs have been held by the non-resident holder for more than
three years. Otherwise, the capital gains shall be subject to
tax as short-term capital gains at the normal income tax rates
applicable to non-residents under the provisions of the Income
Tax Act.
It is unclear whether capital gains derived from the sale by a
non-resident investor of rights in respect of ADSs will be
subject to tax liability in India. This will depend on the view
taken by Indian tax authorities on the position with respect to
the situs of the rights being offered in respect of the ADSs.
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Withdrawal of Equity Shares in Exchange for the
ADSs |
The withdrawal of equity shares in exchange for the ADSs, would
not give rise to any capital gains liable to income tax in India.
Dividends paid to non-resident holders of ADSs are not presently
subject to tax in the hands of the recipient. However, we are
liable to pay a dividend distribution tax currently
at an effective rate of 14.0% on the total amount distributed as
dividend.
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Taxation of Sale of the Equity Shares |
Sale of equity shares by any holder may occasion certain
incidence of tax in India, as is discussed below. Under
applicable law, an equity sale of shares may be subject to a
transaction tax and/ or tax on income by way of capital gains.
Capital gains accruing to a
non-resident investor
on the sale of the equity
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shares, whether to an Indian resident or to a person resident
outside India and whether in India or outside India, may be
subject to Indian capital gains tax in certain instances as
described below.
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Sale of the Equity Shares on a Recognized Stock
Exchange |
In accordance with applicable Indian tax laws, any income
arising from a sale of the equity shares of an Indian company
through a recognized stock exchange in India is subject to a
securities transaction tax. Such tax is payable by a person
irrespective of residential status and is collected by the
recognized stock exchange in India on which the sale of the
equity shares is effected. Capital gains realized in respect of
equity shares held by the non-resident investor for more than
12 months will be treated as long-term capital gains and
will not be subject to tax in the event such transaction is
chargeable to the securities transaction tax.
Capital gains realized in respect of shares held by the
non-resident investor for 12 months or less will be treated
as short-term capital
gains and will be subject to tax at the rate of 10% plus
surcharge at the rate of 2.5% in the event such transaction is
subject to the securities transaction tax. Withholding tax on
capital gains on sale of shares is required to be deducted under
Section 195 of the Income Tax Act at the prescribed rates.
For the purpose of computing the capital gain tax on the sale of
equity shares, the cost of acquisition of the equity shares
would be the market price of the equity shares on the NSE or the
BSE on the date on which the depositary notifies the Indian
custodian bank of the redemption of the ADSs into the underlying
shares. For the purpose of computing capital gains on the sale
of equity shares, the sale consideration received or accruing on
such sale shall be reduced by the cost of acquisition of such
equity shares and any expenditure incurred wholly and
exclusively in connection with such sale. However, there is no
corresponding provision in the Income Tax Act as to the cost of
acquisition of the equity shares being the price prevailing on
the date of sale.
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Sale of the Equity Shares otherwise than on a Recognized
Stock Exchange |
Capital gains realized in respect of equity shares held by a
non-resident investor for more than 12 months will be
treated as long-term
capital gains and will be subject to tax at the rate of 10% plus
surcharge at the rate of 2.5%. Capital gains realized in respect
of equity shares held by the non-resident investor for
12 months or less will be treated as short-term capital
gains and will be subject to tax at the normal income tax rates
applicable to non-residents under the provisions of the Income
Tax Act. Withholding tax on capital gains on sale of equity
shares is required to be deducted under Section 195 of the
Income Tax Act at the prescribed rates.
The losses arising from a transfer of a capital asset in India
can only be set off against capital gains and not against any
other income in accordance with the Income Tax Act. A long-term
capital loss may be set off only against a
long-term capital gain.
To the extent that the losses are not absorbed in the year of
transfer, they may be carried forward for a period of eight
years immediately succeeding the year for which the loss was
first computed and may be set off against the capital gains
assessable for such subsequent years. In order to get the
benefit of set-off of the capital losses in this manner, the
non-resident investor must file appropriate and timely tax
returns in India and undergo the usual assessment procedures.
The above mentioned tax rates and the consequent taxation are
subject to any benefits available to a non-resident investor
under the provisions of any agreement for the avoidance of
double taxation entered into by the Government of India with the
country of residence of such non-resident investor.
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Upon the issuance of the equity shares underlying the ADSs, we
are required to pay a stamp duty for each equity share equal to
0.1% of the issue price. Under Indian stamp law, no stamp duty
is payable on the acquisition or transfer of equity shares in
book-entry form. A transfer of ADSs is not subject to Indian
stamp duty.
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Wealth Tax, Gift Tax and Inheritance Tax |
The holding of ADSs by non-resident investors, the holding of
the equity underlying shares by the depositary in a fiduciary
capacity and the transfer of the ADSs between non-resident
investors and the depositary is exempt from payment of wealth
tax and gift tax. Further, there is no tax on inheritances which
applies to the ADSs, or the equity shares underlying the ADSs.
Brokerage or commission fees paid to stockbrokers in connection
with the sale or purchase of equity shares are subject to an
Indian service tax at a rate of 10% collected by the
stockbroker. Further, pursuant to section 65(101) of the
Finance Act, 2004 a sub-broker is also subject to this service
tax. The 2006 Finance Bill has proposed increasing the current
service tax to 12%.
A non-resident investor would be entitled to a tax credit with
respect to any withholding tax paid by us or any other person
for such non-resident investors account in accordance with
the laws of the applicable jurisdiction.
In all the above cases, the amount of income tax and surcharge
and service tax as stated above is increased by an education
cess of 2%.
United States Federal Income Taxation
The following discussion describes certain material United
States federal income tax consequences to US Holders
(defined below) under present law of an investment in the ADSs
or equity shares. This summary applies only to investors that
hold the ADSs or equity shares as capital assets and that have
the US dollar as their functional currency. This discussion is
based on the tax laws of the United States as in effect on the
date of this prospectus and on United States Treasury
regulations in effect or, in some cases, proposed, as of the
date of this prospectus, as well as judicial and administrative
interpretations thereof available on or before such date. All of
the foregoing authorities are subject to change, which change
could apply retroactively and could affect the tax consequences
described below.
The following discussion does not address the tax consequences
to any particular investor or to persons in special tax
situations such as:
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banks; |
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certain financial institutions; |
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insurance companies; |
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broker dealers; |
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United States expatriates; |
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traders that elect to
mark-to-market; |
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tax-exempt entities; |
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persons liable for the alternative minimum tax; |
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persons holding an ADS or equity share as part of a straddle,
hedging, conversion or integrated transaction; |
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persons that actually or constructively own 10.0% or more of our
voting stock; |
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persons who acquired ADSs or equity shares pursuant to the
exercise of any employee share option or otherwise as
compensation; or |
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persons holding ADSs or equity shares through partnerships or
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PROSPECTIVE PURCHASERS SHOULD CONSULT THEIR TAX ADVISORS
ABOUT THE APPLICATION OF THE UNITED STATES FEDERAL TAX
RULES TO THEIR PARTICULAR CIRCUMSTANCES AS WELL AS THE
STATE AND LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO THEM OF
THE PURCHASE, OWNERSHIP AND DISPOSITION OF ADSs OR EQUITY
SHARES.
The discussion below of the United States federal income tax
consequences to US Holders will apply to you if you
are a beneficial owner of ADSs or equity shares and you are, for
United States federal income tax purposes,
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an individual who is a citizen or resident of the United States; |
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a corporation (or other entity taxable as a corporation)
organized under the laws of the United States, any State thereof
or the District of Columbia; |
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an estate whose income is subject to United States federal
income taxation regardless of its source; or |
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a trust that (1) is subject to the primary supervision of a
court within the United States and the control of one or more
United States persons for all substantial decisions of the trust
or (2) was in existence on August 20, 1996, was
treated as a domestic trust on the previous day and has a valid
election in effect under the applicable United States Treasury
regulations to be treated as a domestic trust. |
If you are a partner in a partnership or other entity taxable as
a partnership that holds ADSs or equity shares, your tax
treatment generally will depend on your status and the
activities of the partnership.
The discussion below assumes that the representations contained
in the deposit agreement are true and that the obligations in
the deposit agreement and any related agreement will be complied
with in accordance with their terms. If you hold ADSs, you
should be treated as the holder of the underlying equity shares
represented by those ADSs for United States federal income tax
purposes.
The United States Treasury has expressed concerns that parties
to whom ADSs are pre-released may be taking actions that are
inconsistent with the claiming, by US Holders of ADSs, of
foreign tax credits for United States federal income tax
purposes. Such actions would also be inconsistent with the
claiming of the reduced rate of tax applicable to dividends
received by certain non-corporate US Holders, as described
below. Accordingly, the availability of the reduced tax rate for
dividends received by certain non-corporate US Holders
could be affected by future actions that may be taken by the
United States Treasury or parties to whom ADSs are pre-released.
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Taxation of Dividends and Other Distributions on the ADSs
or Equity Shares |
Subject to the PFIC rules discussed below, the gross amount of
all our distributions to you with respect to the ADSs or equity
shares generally will be included in your gross income as
foreign source ordinary dividend income on the date of receipt
by the depositary, in the case of ADSs, or by you, in the case
of equity shares, but only to the extent that the distribution
is paid out of our current or accumulated earnings and profits
(as determined under United States federal income tax
principles). To the extent that the amount of the distribution
exceeds our current and accumulated earnings and profits, it
will be treated
232
first as a tax-free return of your tax basis in your ADSs or
equity shares, and to the extent the amount of the distribution
exceeds your tax basis, the excess will be taxed as capital
gain. However, we do not intend to calculate our earnings and
profits under United States federal income tax principles.
Therefore, a US Holder should expect that a distribution will
generally be treated as a dividend even if that distribution
would otherwise be treated as a non-taxable return of capital or
as capital gain under the rules described above. The dividends
will not be eligible for the dividends-received deduction
allowed to corporations in respect of dividends received from
other United States corporations.
With respect to non-corporate US Holders (including individual
US Holders) for taxable years beginning before January 1,
2011, dividends may constitute qualified dividend
income that is taxed at the lower applicable capital gains
rate provided that (1) the ADSs or equity shares, as
applicable, are readily tradable on an established securities
market in the United States, (2) we are not a PFIC (as
discussed below) for either our taxable year in which the
dividend is paid or the preceding taxable year, and
(3) certain holding period requirements are met. Under
Internal Revenue Service authority, equity shares, or ADSs
representing such shares, are considered for the purpose of
clause (1) above to be readily tradable on an established
securities market in the United States if they are listed on the
NYSE, as our ADSs are expected to be. You should consult your
tax advisors regarding the availability of the lower rate for
dividends paid with respect to our ADSs or equity shares.
The amount of any distribution paid in Indian Rupees will be
equal to the US dollar value of such Indian Rupees on the date
such distribution is received by the depositary, in the case of
ADSs, or by the US Holder, in the case of equity shares,
regardless of whether the payment is in fact converted into
US dollars at that time. Gain or loss, if any, realized on
the sale or other disposition of such Indian Rupees will
generally be United States source ordinary income or loss. The
amount of any distribution of property other than cash will be
the fair market value of such property on the date of
distribution.
For foreign tax credit purposes, dividends distributed with
respect to ADSs or equity shares will generally constitute
passive income or, in the case of certain US
Holders, financial services income. For taxable
years beginning after December 31, 2006, the number of
classes of foreign source income will be reduced to two, and
dividends distributed with respect to the ADSs or equity shares
would generally constitute passive category income
but could, in the case of certain US Holders, constitute
general category income. If the dividends are
qualified dividend income (as discussed above), the amount of
the dividend taken into account for purposes of calculating the
foreign tax credit limitation will in general be limited to the
gross amount of the dividend, multiplied by the reduced rate
divided by the highest rate of tax normally applicable to
dividends. A US Holder will not be able to claim a foreign tax
credit for any Indian taxes imposed with respect to
distributions on ADSs or equity shares (as discussed under
India Taxation of Dividend).
The rules relating to the determination of the foreign tax
credit are complex and US Holders should consult their tax
advisors to determine whether and to what extent a credit would
be available in their particular circumstances.
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Taxation of a Disposition of ADSs or Equity Shares |
Subject to the PFIC rules discussed below, you will recognize
taxable gain or loss on any sale or other taxable disposition of
an ADS or equity share equal to the difference between the
amount realized for the ADS or equity share and your tax basis
in the ADS or equity share. Your tax basis in the ADS or equity
share will generally equal the cost of such ADS or equity share,
as applicable. The gain or loss generally will be capital gain
or loss. If you are a non-corporate US Holder (including an
individual US Holder) who has held the ADS or equity share for
more than one year, the gain on a disposition of the ADS or
equity share will be long-term capital gain eligible for reduced
tax rates. The deductibility of capital losses is subject to
limitations. Any such gain or loss that you recognize generally
will be treated as United States source income or loss for
foreign tax credit limitation purposes.
Because capital gains generally will be treated as United States
source gain, as a result of the United States foreign tax
credit limitation, any Indian income tax imposed upon capital
gains in respect of ADSs or equity shares (as discussed under
India Taxation of Income from
ADSs, India
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Sale of the Equity Shares on a Recognized Stock Exchange
and India Sale of the Equity
Shares otherwise than on a Recognized Stock Exchange) may
not be currently creditable unless a US Holder has other foreign
source income for the year in the appropriate US foreign tax
credit limitation basket. US Holders should consult their tax
advisors regarding the application of Indian taxes to a
disposition of an ADS or equity share and their ability to
credit an Indian tax against their United States federal income
tax liability.
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Passive Foreign Investment Company |
We do not expect to be a PFIC for United States federal income
tax purposes for our current taxable year ending March 31,
2007. Our expectation for our current taxable year is based in
part on our estimates of the value of our assets as determined
based on the price of the ADSs in this offering and the expected
price of the ADSs and our equity shares following the offering.
Our actual PFIC status for the current taxable year will not be
determinable until the close of such year, and, accordingly,
there is no guarantee that we will not be a PFIC for the current
taxable year or any subsequent year.
A non-United States
corporation is considered to be a PFIC for any taxable year if
either:
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at least 75% of its gross income is passive income, or |
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at least 50% of the value of its assets (based on an average of
the quarterly values of the assets during a taxable year) is
attributable to assets that produce or are held for the
production of passive income (the asset test). |
We will be treated as owning our proportionate share of the
assets and earning our proportionate share of the income of any
other corporation in which we own, directly or indirectly, 25%
or more (by value) of the stock.
We must make a separate determination each year as to whether we
are a PFIC. As a result, our PFIC status may change. In
particular, because the total value of our assets for purposes
of the asset test generally will be calculated using the market
price of our ADSs and equity shares, our PFIC status will depend
in large part on the market price of our ADSs and equity shares,
which may fluctuate considerably. Accordingly, fluctuations in
the market price of the ADSs and equity shares may result in our
being a PFIC for any year. In addition, there are uncertainties
in the application of the relevant rules and the composition of
our income and assets will be affected by how, and how quickly,
we spend the cash we raise in this offering.
If we are a PFIC for any taxable year during which you hold ADSs
or equity shares, you will be subject to special tax rules with
respect to any excess distribution that you receive
and any gain you realize from a sale or other disposition
(including a pledge) of the ADSs or equity shares, unless you
make a
mark-to-market
election as discussed below. Distributions you receive in a
taxable year that are greater than 125% of the average annual
distributions you received during the shorter of the three
preceding taxable years or your holding period for the ADSs or
equity shares will be treated as an excess distribution. Under
these special tax rules:
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the excess distribution or gain will be allocated ratably over
your holding period for the ADSs or equity shares; |
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the amount allocated to the current taxable year, and any
taxable year prior to the first taxable year in which we became
a PFIC, will be treated as ordinary income; and |
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the amount allocated to each other year will be subject to the
highest tax rate in effect for that year and the interest charge
generally applicable to underpayments of tax will be imposed on
the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the
year of disposition or excess distribution cannot be
offset by any net operating losses for such years, and gains
(but not losses) realized on the sale
234
of the ADSs or equity shares cannot be treated as capital, even
if you hold the ADSs or equity shares as capital assets.
If we are a PFIC for any year during which you hold ADSs or
equity shares, we generally will continue to be treated as a
PFIC for all succeeding years during which you hold ADSs or
equity shares. However, if we cease to be a PFIC you may avoid
some of the adverse effects of the PFIC regime by making a
deemed sale election with respect to the ADSs or equity shares,
as applicable. We do not intend to prepare or provide the
information that would enable you to make a qualified electing
fund election.
A US Holder of marketable stock (as defined below)
in a PFIC may make a
mark-to-market election
with respect to such stock to elect out of the tax treatment
discussed above. If you make a valid
mark-to-market election
for the ADSs or equity shares, you will include in income each
year an amount equal to the excess, if any, of the fair market
value of the ADSs or equity shares as of the close of your
taxable year over your adjusted basis in such ADSs or equity
shares. You are allowed a deduction for the excess, if any, of
the adjusted basis of the ADSs or equity shares over their fair
market value as of the close of the taxable year. However,
deductions are allowable only to the extent of any net
mark-to-market gains on
the ADSs or equity shares included in your income for prior
taxable years. Amounts included in your income under a
mark-to-market
election, as well as gain on the actual sale or other
disposition of the ADSs or equity shares, are treated as
ordinary income. Ordinary loss treatment also applies to the
deductible portion of any
mark-to-market loss on
the ADSs or equity shares, as well as to any loss realized on
the actual sale or disposition of the ADSs or equity shares, to
the extent that the amount of such loss does not exceed the net
mark-to-market gains
previously included for such ADSs or equity shares. Your basis
in the ADSs or equity shares will be adjusted to reflect any
such income or loss amounts. If you make such an election, the
tax rules that apply to distributions by corporations that are
not PFICs would apply to distributions by us, except that the
lower applicable capital gains rate with respect to qualified
dividend income (discussed above) would not apply.
The mark-to-market
election is available only for marketable stock,
which is stock that is traded in other than de minimis
quantities on at least 15 days during each calendar
quarter (regularly traded) on a qualified exchange
or other market, as defined in the applicable United States
Treasury regulations. The NYSE is a qualified exchange. We
expect that the ADSs will be listed on the NYSE and,
consequently, if you are a holder of ADSs and the ADSs are
regularly traded, the
mark-to-market election
would be available to you if we become a PFIC.
If you hold ADSs or equity shares in any year in which we are a
PFIC, you will be required to file Internal Revenue Service
Form 8621 regarding distributions received on the ADSs or
equity shares and any gain realized on the disposition of the
ADSs or equity shares. You are urged to consult your tax advisor
regarding the application of the PFIC rules to your investment
in ADSs or equity shares.
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Information Reporting and Backup Withholding |
Dividend payments with respect to ADSs or equity shares and
proceeds from the sale, exchange, redemption or other
disposition of ADSs or equity shares made within the United
States or through certain United States-related financial
intermediaries may be subject to information reporting to the
Internal Revenue Service and possible United States backup
withholding at a current rate of 28%. Backup withholding will
not apply, however, to a US Holder who furnishes a correct
taxpayer identification number and makes any other required
certification or who is otherwise exempt from backup
withholding. US Holders who are required to establish their
exempt status generally must provide such certification on
Internal Revenue Service
Form W-9.
US Holders should consult their tax advisors regarding the
application of the United States information reporting and
backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as
backup withholding may be credited against your United States
federal income tax liability, and you may obtain a refund of any
excess amounts withheld under the backup withholding rules by
timely filing the appropriate claim for refund with the Internal
Revenue Service and furnishing any required information.
235
SHARES AVAILABLE FOR FUTURE SALE
Prior to the ADS offering, there was no market for our ADSs in
the United States and we cannot assure you that a significant
public market for our ADSs will develop or be sustained after
the ADS offering. Future sales of substantial amounts of our
ADSs in the public market following the ADS offering could
adversely affect market prices for our ADSs prevailing from time
to time and could impair our ability to raise capital through
sale of our equity securities.
Upon the completion of this offering, we will have
outstanding equity
shares (including those represented by ADSs). Of these equity
shares, the equity shares represented by ADSs sold in this
offering will be freely tradable without restriction in the
United States, except for any equity shares purchased by our
affiliates as that term is defined in Rule 144
under the Securities Act. Our remaining equity shares may only
be sold in the US if registered or if they qualify for an
exemption from registration under US securities laws, including
Rule 144 or Regulation S under the Securities Act.
These equity shares may, under present law, be converted into
ADSs only against a deposit of equity shares that have been
purchased on the Indian stock exchanges, subject to a ceiling of
the maximum number of ADSs issued in the ADS offering, or if we
facilitate a secondary sale of equity shares on a pro-rata basis
for all our existing shareholders. Any conversion of the ADSs
that is not in accordance with the above would require the prior
approval of the Government of India. If converted into ADSs, all
equity shares issued in accordance with Regulation S and
not held by affiliates or underwriters or similar persons may
immediately be resold in the United States, subject to any
applicable lock-up
periods.
Rule 144
In general, under Rule 144 as currently in effect, a
person, or persons whose equity shares must be aggregated, who
has beneficially owned restricted equity shares for at least one
year, including persons who may be deemed an affiliate of us,
would be entitled to sell within any three-month period a number
of equity shares that does not exceed the greater of:
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one percent of the then outstanding equity shares, in the form
of ADSs or otherwise, which will equal
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shares immediately after this offering; or |
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the reported average weekly trading volume of our equity shares,
in the form of ADSs or otherwise, during the four calendar weeks
preceding the date on which notice of the sale is filed with the
Commission. |
Sales under Rule 144 must be made through unsolicited
brokers transactions. They are also subject to
manner-of-sale
provisions, notice requirements, and the availability of current
public information about us.
Rule 144(k)
Under Rule 144(k), a person who has beneficially held
restricted equity shares for a minimum of two years and who is
not at the time of sale, and for three months prior to the sale
of those equity shares has not been, one of our affiliates, is
free to sell those equity shares immediately following this
offering without complying with the volume,
manner-of-sale, public
notice and other limitations contained in Rule 144.
Lock-Up and Transfer Restrictions
We will not, without the prior written consent of the Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Morgan
Stanley & Co. International and Citigroup Global
Markets Inc., the representatives of the underwriters, or the
Representatives, for a period of 180 days after the date of
this prospectus, subject to the exceptions specified in
Underwriting:
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offer, pledge, announce the intention to sell, sell, contract to
sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant or exercise any option, right
or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, or file or cause to be filed a |
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registration statement, or exercise any registration right, in
respect of, any ADSs or equity shares or any securities
convertible into or exchangeable or exercisable for any ADSs or
equity shares, or any similar securities; or |
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enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences of ownership of
ADSs or equity shares. |
Our principal shareholders, Twin Star and MALCO, have agreed not
to, without the prior written consent of the Representatives,
for a period of 180 days after the date of this prospectus,
subject to the exceptions specified in Underwriting:
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offer, pledge, announce the intention to sell, sell, contract to
sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant or exercise any option, right
or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, or file or cause to be filed a
registration statement, or exercise any registration right, in
respect of, any ADSs or equity shares or any securities
convertible into or exchangeable or exercisable for any ADSs or
equity shares, or any similar securities; or |
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enter into any swap or other agreement that transfers, in whole
or in part, any of the economic consequences of ownership of
ADSs or equity shares. |
237
UNDERWRITING
We and the underwriters for the ADS offering named below, or the
Underwriters, have entered into an underwriting agreement dated
the date of this prospectus with respect to the ADSs being
offered. Subject to the conditions set forth in the underwriting
agreement, each Underwriter has severally agreed to purchase
from us the number of ADSs indicated in the following table.
Merrill Lynch, Pierce, Fenner & Smith Incorporated, or
Merrill Lynch, and Morgan Stanley & Co.
International Limited, or Morgan Stanley, and Citigroup Global
Markets Inc., or Citigroup, are the joint bookrunners and the
representatives of the Underwriters, or the Representatives.
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Underwriters |
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Number of ADSs | |
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Merrill Lynch, Pierce, Fenner & Smith Incorporated
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Morgan Stanley & Co. International Limited
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Citigroup Global Markets Inc.
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Total
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The Underwriters are, provided certain conditions are satisfied,
committed to take and pay for all of the ADSs being offered by
this prospectus, if any are taken, other than the ADSs and
equity shares covered by the option described below.
In addition, the Representatives have an option to buy up to an
additional ADSs
(representing up to an
additional equity
shares). They may exercise that option within 30 days of
the date of this prospectus. If any ADSs are purchased pursuant
to this option, the Representatives will severally, subject to
the conditions set forth in the underwriting agreement, purchase
additional ADSs in approximately the same proportion as set
forth in the table above.
The following table shows the per ADS and total underwriting
discounts and commissions to be paid by us to the Underwriters.
Such amounts are shown assuming both no exercise and full
exercise of the Underwriters option to
purchase additional
ADSs (representing up to an
additional equity
shares).
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No Exercise | |
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Full Exercise | |
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Per ADS
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$ |
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$ |
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Total
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$ |
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$ |
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The ADSs sold by the Underwriters to the public will initially
be offered at the initial price to the public set forth on the
cover of this prospectus. Any ADSs sold by the Underwriters to
securities dealers may be sold at a discount of up to
$ per
ADS from the initial price to public. Any such securities
dealers may resell any ADSs purchased from the Underwriters to
certain other brokers or dealers at a discount of up to
$ per
ADS from the initial price to public. If all the ADSs are not
sold at the initial price to public, the Representatives may
change the offering price and the other selling terms.
We intend to apply to have our ADSs listed on the NYSE under the
symbol SRL. Our issued equity shares are listed on
the NSE and BSE.
We estimate that the total expenses of the offering, excluding
underwriting discounts and commissions, will be approximately
$ ,
including registration fees of approximately
$ ,
estimated printing fees of approximately
$ ,
estimated legal fees and expenses of approximately
$ and
estimated accounting fees and expenses of approximately
$ .
We are paying all the expenses of the offering, including
underwriting discounts and commissions, except that the
Underwriters are paying for their own legal fees and expenses.
We have agreed with the Underwriters not to issue, and our
principal shareholders, Twin Star and MALCO, have agreed not to
dispose of or hedge, any of our equity shares, ADSs or
securities convertible into or exchangeable for equity shares or
ADSs or any similar securities during the period from the date of
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this prospectus continuing through the date 180 days after
the date of this prospectus, except with the prior written
consent of the Representatives, and subject to certain
exceptions.
The 180-day
lock-up period is
subject to adjustment under certain circumstances. If
(1) during the last 17 days of the
180-day
lock-up period, we
issue an earnings release or material news or a material new
event relating to us occurs; or (2) prior to the expiration
of the 180-day
lock-up period, we
announce that we will release earnings results during the
16-day period beginning
on the last day of the
180-day lock-up, the
lock-up will continue
to apply until the expiration of the
18-day period beginning
on the issuance of the earnings release or the occurrence of the
material news or material event; provided that in the case of
clause (2) above, if no earnings results are released
during the 16-day
period, the lock-up
will terminate on the last day of the
16-day period.
The Underwriters do not have any agreements or understandings,
tacit or explicit, or any present intent to release the lock-ups
early.
Offshore investors will not be permitted to deposit equity
shares into the ADR facility until 40 days after the
earlier of (i) the date the securities are first offered to
the public and (ii) the closing date for the offering.
Offshore investors would have to comply with the procedures
under Indian law for the deposit of equity shares into the ADR
facility.
A prospectus in electronic format may be made available on the
website maintained by one or more underwriters or securities
dealers. The Representatives may agree to allocate a number of
ADSs to the Underwriters for sale to their online brokerage
account holders. ADSs to be sold pursuant to an Internet
distribution will be allocated by the Representatives that may
make Internet distributions on the same basis as other
allocations. In addition, ADSs may be sold by the Underwriters
to securities dealers who resell ADSs to online brokerage
account holders.
The Underwriters reserve the right to withdraw, cancel or modify
the offering and to completely or partially reject any orders.
In order to facilitate the offering of ADSs, the Underwriters
may purchase and sell equity shares and/or ADSs in the open
market. These transactions may include short sales, stabilizing
transactions and purchases to cover positions created by short
sales. Short sales involve the sale by the Underwriters of a
greater number of ADSs than they are required to purchase in the
offering. Covered short sales are sales made in an amount not
greater than the Underwriters option to purchase
additional ADSs from us in the offering. The Underwriters may
close out any covered short position by either exercising their
option to purchase additional ADSs or purchasing additional ADSs
in the open market. In determining the source of ADSs to close
out the covered short position, the Underwriters will consider,
among other things, the price of ADSs available for purchase in
the open market as compared to the price at which they may
purchase ADSs through the over-allotment option. Naked short
sales are any sales in excess of such option. The Underwriters
must close out any naked short position by purchasing ADSs in
the open market. A naked short position is more likely to be
created if the Underwriters are concerned that there may be
downward pressure on the price of ADSs in the open market after
pricing that could adversely affect investors who purchase in
the offering. Stabilizing transactions consist of various bids
or purchases of ADSs made by the Underwriters in the open market
prior to the completion of the offering.
The Underwriters also may impose a penalty bid. This occurs when
a particular Underwriter repays to the Underwriters a portion of
the underwriting discount and/or commissions received by it
because the Representatives have repurchased ADSs sold by or for
the account of such Underwriter in stabilizing or short covering
transactions (which shall not include sales for the account of
clients of such Underwriter).
Any of these activities by the Underwriters may stabilize,
maintain or otherwise affect the market price of the ADSs. As a
result, the price of the ADSs may be higher than the price that
otherwise might exist in the open market. The Underwriters are
not required to engage in these activities. If these activities
are commenced, they may be discontinued by the Underwriters at
any time. These transactions may be effected on the NYSE, in the
over-the-counter market
or otherwise.
239
It is expected that delivery of the ADSs to the Underwriters
will be made against payment on a delayed basis. The time of
delivery is expected to occur
on ,
2006. Further data, if necessary, will be posted on our website
at .
Rule 15c6-1 under the Exchange Act generally requires
that securities trades in the secondary market settle in three
business days, unless the parties to the trade expressly agree
otherwise. Accordingly, purchasers who wish to trade ADSs on any
day prior to the third business day before the delivery of the
ADSs will be required, by virtue of the fact that the ADSs
initially will settle on a delayed basis, to specify an
alternate settlement cycle at the time of any such trade, or to
make any necessary arrangements to ensure that ADSs are
available on the third business day after trading for
settlement, to prevent a failed settlement. Purchasers of ADSs
who wish to make such trades should consult their own advisors.
Purchasers who are not able to borrow ADSs or make any other
necessary arrangements to prevent a failed settlement may not be
able to make any trades of ADSs prior to the third business day
before the delivery of the ADSs to the underwriters.
From time to time, the Underwriters and certain of their
affiliates have provided and continue to provide commercial and
investment banking services to us for which they have received,
and may in the future receive, customary compensation.
As of October 13, 2006, affiliates of Merrill Lynch, Morgan
Stanley and Citigroup owned approximately 2,178,898, 2,859,892
and 1,113,041 of our equity shares, respectively.
We have agreed to indemnify the several Underwriters against
certain liabilities, including liabilities under the Securities
Act.
We have been advised by the Underwriters that Merrill Lynch,
Morgan Stanley, through its registered broker-dealer affiliate,
Morgan Stanley & Co. Incorporated, and Citigroup expect
to make offers and sales in the United States.
The Representatives may be contacted at the following addresses:
Merrill Lynch, Pierce, Fenner & Smith Incorporated, 4 World
Financial Center, 250 Vesey Street, New York, New York 10080,
USA, Morgan Stanley & Co. International Limited,
25 Cabot Square, Canary Wharf, London E14 4QA,
United Kingdom and Citigroup Global Markets Inc.,
388 Greenwich Street, New York, New York 10013, USA.
Selling Restrictions for the ADSs
No action has been taken in any jurisdiction (except in the
United States) that would permit a public offering of the ADSs,
or the possession, circulation or distribution of this
prospectus or any other material relating to us or the ADSs in
any jurisdiction where action for that purpose is required.
Accordingly, the ADSs may not be offered or sold, directly or
indirectly, and neither this prospectus nor any other offering
material or advertisements in connection with the ADSs may be
distributed or published, in or from any country or jurisdiction
except in compliance with any applicable rules and regulations
of any such country or jurisdiction.
This prospectus is not a disclosure document under Part 6D
of the Corporations Act 2001, or the Australian
Corporations Act, will not be lodged with the Australian
Securities and Investments Commission and does not purport to
include the information required of a disclosure document under
the Australian Corporations Act.
Accordingly, (i) the offer of ADSs under this prospectus is
only made to persons to whom it is lawful to offer ADSs without
disclosure to investors under Chapter 6D of the Australian
Corporations Act under one or more exemptions set out in
Section 708 of the Australian Corporations Act,
(ii) this prospectus will be made available in Australia to
persons set forth in (i) above, and (iii) the
Underwriters must send the offeree a notice stating in substance
that by accepting the offer of ADSs, the offeree represents that
it is such a person as set forth in (i) above and agrees
not to sell or offer for sale in Australia any ADSs sold to the
offeree within 12 months after their transfer to the
offeree under this prospectus.
240
Each underwriter will be deemed to have represented and agreed
that (1) it has not ordered or sold, and will not order or
sell, any ADSs, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident
of any province or territory of Canada in contravention of the
securities laws thereof and has represented that any order or
sale of ADSs in Canada will be made only (a) in accordance
with an exemption from the requirement to file a prospectus in
the province or territory of Canada in which such order or sale
is made, and (b) by a dealer duly registered under the
applicable securities laws of that province or territory or in
circumstances where an exemption from the applicable registered
dealer requirements is available; and (2) it will send to
any dealer who purchases from it any of the ADSs a notice
stating in substance that, by purchasing such ADSs, such dealer
represents and agrees that it has not ordered or sold, and will
not order or sell, directly or indirectly, any of such ADSs in
any province or territory of Canada or to, or for the benefit
of, any resident of any province or territory of Canada in
contravention of the securities laws thereof and that any order
or sale of ADSs in Canada will be made only (a) in
accordance with an exemption from the requirement to file a
prospectus in the province or territory of Canada in which such
order or sale is made, and (b) by a dealer duly registered
under the applicable securities laws of that province or
territory or in circumstances where an exemption from the
applicable registered dealer requirements is available, and that
such dealer will deliver to any other dealer to whom it sells
any of such ADSs a notice containing substantially the same
statement as is contained in this sentence. Each underwriter has
also agreed to comply with all applicable laws and regulations,
and make or obtain all necessary filings, consents or approvals,
in each Canadian jurisdiction in which it purchases, orders,
sells or delivers ADSs (including, without limitation, any
applicable requirements relating to the delivery of this
prospectus), in each case, at its own expense. In connection
with sales of and orders to sell ADSs made by it, each
underwriter will either furnish to each Canadian Person to whom
any such sale or order is made a copy of the then current
prospectus, or inform such person that such prospectus will be
made available upon request, and will keep an accurate record of
the names and addresses of all persons to whom it gives copies
of this prospectus, or any amendment or supplement to this
prospectus; and when furnished with any subsequent amendment to
this prospectus, any subsequent prospectus or any medium
outlining changes in this prospectus, such underwriter will upon
request of the representative, promptly forward copies thereof
to such persons or inform such persons that such amendment,
subsequent prospectus or other medium will be made available
upon request.
A Canadian Person means any national or resident of
Canada (other than an individual resident in a Canadian province
or territory where such individual is prohibited from purchasing
securities under local provincial and territorial securities
laws), or any corporation, person, profit-sharing or other trust
or other entity organized under the laws of Canada or of any
political subdivision thereof (other than a branch located
outside Canada of any Canadian Person), and includes any
Canadian branch of a person who is otherwise not a Canadian
Person.
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a Relevant
Member State), each international underwriter has represented
and agreed that, with effect from and including the date on
which the Prospectus Directive is implemented in that Relevant
Member State (the Relevant Implementation Date), it has not made
and will not make an offer of ADSs to the public in that
Relevant Member State prior to the publication of a prospectus
in relation to the ADSs which has been approved by the competent
authority in that Relevant Member State or, where appropriate,
approved in another Relevant Member State and notified to the
competent authority in that Relevant Member State, all in
accordance with the Prospectus Directive, except that it may,
with effect from and including the Relevant Implementation Date,
make an offer of ADSs to the public in that Relevant Member
State at any time:
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(a) to legal entities which are authorized or regulated to
operate in the financial markets or, if not so authorized or
regulated, whose corporate purpose is solely to invest in
securities; |
241
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(b) to any legal entity which has two or more of
(i) an average of at least 250 employees during the last
financial year, (ii) a total balance sheet of more than
43,000,000 and
(iii) an annual net turnover of more than
50,000,000, as
shown in its last annual or consolidated accounts; or |
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(c) in any other circumstances which do not require the
publication by us of a prospectus pursuant to Article 3 of
the Prospectus Directive. |
For the purposes of this provision, the expression an offer of
equity shares to the public in relation to any of the ADSs in
any Relevant Member States means the communication in any form
and by any means, of sufficient information on the terms of the
offer and the ADSs to be offered so as to enable an investor to
decide to purchase or subscribe for the ADSs, as the same may be
varied in that Member State, by any measure implementing the
Prospectus Directive in that Member State, and the expression
Prospectus Directive means Directive 2003/71/ EC and includes
any relevant implementing measure in each Relevant Member State.
The ADSs will not be offered or sold, directly or indirectly, to
the public in France and only qualified investors
(Investisseurs Qualifiés) as defined in and in
accordance with Article L.411-2 of the French Code
Monétaire et Financier, as amended, and Decree
no. 98-880 dated October 1, 1998, as amended, acting
for their own account, are eligible to accept the offer and sale
of the ADSs. This prospectus or any other offering material
relating to the ADS offering has not been and shall not be
distributed to the public in France. This prospectus has not
been submitted to the clearance of the Autorité des
marchés financiers.
The underwriters and each of their affiliates have not (i)
offered or sold, and will not offer or sell, in Hong Kong,
by means of any document, the ADSs other than (a) to
professional investors as defined in the Securities
and Futures Ordinance (Cap. 571) of Hong Kong and
any rules made under that Ordinance or (b) in other
circumstances which do not result in the document being a
prospectus as defined in the Companies
Ordinance (Cap. 32) of Hong Kong or which do not
constitute an offer to the public within the meaning of that
Ordinance or (ii) issued or had in its possession for the
purposes of issue, and will not issue or have in its possession
for the purposes of issue, whether in Hong Kong or
elsewhere any advertisement, invitation or document relating to
the ADSs which is directed at, or the contents of which are
likely to be accessed or read by, the public in Hong Kong
(except if permitted to do so under the securities laws of
Hong Kong) other than with respect to the ADSs which are or
are intended to be disposed of only to persons outside
Hong Kong or only to professional investors as
defined in the Securities and Futures Ordinance or any rules
made under that Ordinance. The contents of this document have
not been reviewed by any regulatory authority in Hong Kong.
You are advised to exercise caution in relation to the offering
of the ADSs. If you are in any doubt about any of the contents
of this document, you should obtain independent professional
advice.
India
Other than to mutual funds in India in compliance with Indian
laws, no prospectus relating to the ADS offering may be
distributed directly or indirectly in India to the residents of
India and the underwriters may not offer or sell, directly or
indirectly, any ADSs in India to, or for the account or benefit
of, any resident in India.
The offering of the ADSs has not been registered with the
Commissione Nazionale per le Società e la Borsa, or CONSOB,
in accordance with Italian securities legislation. Accordingly,
(i) sales of the ADSs in the Republic of Italy shall be
effected in accordance with all Italian securities, tax and
other applicable laws and regulations; and (ii) the ADSs
have not been offered, sold or delivered, and will not be
offered, sold or delivered, and copies of this prospectus or any
other document relating to the ADSs have not been
242
distributed in the Republic of Italy unless such offer, sale or
delivery of the ADSs or distribution of copies of this
prospectus or other documents relating to the ADSs in the
Republic of Italy is to qualified investors (operatori
qualificati), as defined by Articles 25 and 31(2) of
CONSOB Regulation no. 11522 of 1 July 1998 as
subsequently modified (Regulation 11522), except for
individuals referred to in Article 31(2) of
Regulation 11522 who exercise administrative, managerial or
supervisory functions at a registered securities dealing firm (a
Società di Intermediazione Mobiliare or SIM),
management companies (società di gestione del
risparmio) authorized to manage individual portfolios on
behalf of third parties and fiduciary companies authorized to
manage individual portfolios pursuant to Article 60(4) of
Legislative Decree no. 415 of 23 July 1996, and copies
of this prospectus may not be reproduced or redistributed or
passed on, directly or indirectly, to any other person or
published in whole or in part. Any offer, sale or delivery of
the ADSs or distribution of copies of this prospectus in Italy
must be made solely by entities which are duly authorized to
conduct such activities in Italy and must be in full compliance
with the provisions contained in Legislative Decree no. 58
of 24 February 1998, Legislative Decree no. 385 of
1 September 1993 and any other applicable laws and
regulations and possible requirements or limitations which may
be imposed by the Italian competent authorities.
The underwriters will not offer or sell any of our ADSs directly
or indirectly in Japan or to, or for the benefit of, any
Japanese person, or to others, for re-offering or re-sale
directly or indirectly in Japan or to any Japanese person,
except in each case pursuant to an exemption from the
registration requirements of, and otherwise in compliance with,
the Securities and Exchange Law of Japan and any other
applicable laws and regulations of Japan. For purposes of this
paragraph, Japanese person means any person resident
in Japan, including any corporation or other entity organized
under the laws of Japan.
This prospectus is not a prospectus. It has not been prepared or
registered in accordance with the Securities Act 1978 of New
Zealand, or the New Zealand Securities Act. This prospectus is
being distributed in New Zealand only to persons whose principal
business is the investment of money or who, in the course of and
for the purposes of their business, habitually invest money,
within the meaning of section 3(2)(a)(ii) of the New
Zealand Securities Act, or Habitual Investors. By accepting this
prospectus, you represent and warrant that if you receive this
prospectus in New Zealand, you are a Habitual Investor and you
will not disclose this prospectus to any person who is not also
a Habitual Investor.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of our ADSs
may not be circulated or distributed, nor may our ADSs be
offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional
investor under Section 274 of the Securities and Futures
Act, Chapter 289 of Singapore, or the SFA, (ii) to a
relevant person, or any person pursuant to Section 275(1A),
and in accordance with the conditions, specified in
Section 275 of the SFA or (iii) otherwise pursuant to,
and in accordance with the conditions of, any other applicable
provision of the SFA. Where our ADSs are subscribed or purchased
under Section 275 by a relevant person which is:
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(a) a corporation (which is not an accredited investor (as
defined in Section 4A of the SFA)) the sole business of
which is to hold investments and the entire share capital of
which is owned by one or more individuals, each of whom is an
accredited investor; or |
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(b) a trust (where the trustee is not an accredited
investor whose sole purpose is to hold investments and each
beneficiary is an accredited investor, equity shares, debentures
and units of equity shares and debentures of that corporation or
the beneficiaries rights and interest in that trust shall
not be |
243
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transferable for six months after that corporation or that
trust has acquired our ADSs under Section 275 except: |
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(1) to an institutional investor, or to any person pursuant
to an offer that is made on terms that such rights or interest
are acquired at a consideration of not less than S$200,000 (or
its equivalent in a foreign currency) for each transaction,
whether such amount is to be paid for in cash or by exchange of
securities or other assets, and further for corporations, in
accordance with the conditions specified in Section 275 of
the SFA; |
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(2) where no consideration is given for the
transfer; or |
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(3) by operation of law. |
This prospectus is not intended to constitute an offer, sale or
delivery of equity shares or other securities under the laws of
the U.A.E. The ADSs have not been and will not be registered
under Federal Law No. 4 of 2000 Concerning the Emirates
Securities and Commodities Authority and the Emirates Security
and Commodity Exchange, or with the U.A.E. Central Bank, the
Dubai Financial Market, the Abu Dhabi Securities Market or with
any other U.A.E. exchange.
Each of the underwriters has represented and agreed that:
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(a) it has not made or will not make an offer of the ADSs
to the public in the United Kingdom within the meaning of
section 102B of the Financial Services and Markets
Act 2000 (as amended), or FSMA, except to legal entities
which are authorized or regulated to operate in the financial
markets or, if not so authorized or regulated, whose corporate
purpose is solely to invest in securities or otherwise in
circumstances which do not require the publication by the
company of a prospectus pursuant to the Prospectus Rules of the
Financial Services Authority, or FSA; |
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(b) it has only communicated or caused to be communicated
and will only communicate or cause to be communicated an
invitation or inducement to engage in investment activity
(within the meaning of section 21 of FSMA) to persons who
have professional experience in matters relating to investments
falling with Article 19(5) of the Financial Services and
Markets Act 2000 (Financial Promotion) Order 2005 or
in circumstances in which section 21 of FSMA does not apply
to the company; and |
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(c) it has complied with, and will comply with all
applicable provisions of FSMA with respect to anything done by
it in relation to the ADSs in, from or otherwise involving the
United Kingdom. |
244
LEGAL MATTERS
The validity of the equity shares represented by the ADSs
offered by this prospectus will be the subject of a legal
opinion by Amarchand & Mangaldas & Suresh A.
Shroff & Co., our Indian counsel. Certain matters
relating to US federal law in connection with this offering
will be passed upon by Latham & Watkins LLP, our
US counsel. Latham & Watkins LLP may rely upon
Amarchand & Mangaldas & Suresh A.
Shroff & Co. with respect to certain matters governed
by Indian law. Certain matters relating to US federal law
in connection with this offering will be passed upon on behalf
of the underwriters by Shearman & Sterling LLP,
US counsel for the underwriters and S&R Associates,
Indian counsel for the underwriters. Shearman &
Sterling LLP may rely upon S&R Associates with respect to
certain matters governed by Indian law.
EXPERTS
The consolidated financial statements of Sterlite Industries
(India) Limited as of March 31, 2006 and 2005 and for each
of the three years in the fiscal period ended March 31,
2005 included in this prospectus have been so included in
reliance on the report of Deloitte Haskins & Sells,
Mumbai, India, independent registered public accounting firm,
given on the authority of firm as experts in auditing and
accounting.
The information included in this prospectus regarding the
mineral reserves is based on estimates provided by SRK
Consulting (South Africa) Pty Ltd, SRK Consulting (UK) Limited
and Steffen Robertson and Kirsten (Australasia) Pty Ltd, which
are together referred to in this prospectus as SRK, in reliance
upon the authority of such firms as experts in geology, mine
planning, metallurgy, mineral evaluation and mineral reserve
estimation and the consent of such firms to its inclusion.
245
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on
Form F-1 with
respect to the ADSs and underlying equity shares being sold in
the ADS offering. This prospectus constitutes a part of that
registration statement. This prospectus does not contain all the
information set forth in the registration statement and the
exhibits and schedules to the registration statement, because
some parts have been omitted in accordance with the rules and
regulations of the Commission. A related registration statement
on Form F-6 has
also been filed to register our ADSs as represented by the ADRs.
For further information with respect to us and our ADSs being
sold in the ADS offering, you should refer to the registration
statement and the exhibits and schedules filed as part of the
registration statement. Statements contained in this prospectus
regarding the contents of any agreement, contract or other
document referred to are not necessarily complete; reference is
made in each instance to the copy of the contract or document
filed as an exhibit to the registration statement. You may
inspect a copy of the registration statement without charge at
the Commissions principal office in Washington, D.C.
Copies of all or any part of the registration statement may be
obtained after payment of fees prescribed by the Commission from
the Commissions Public Reference Room at the
Commissions principal office, 100 F Street, N.E.,
Washington, D.C. 20549. You may obtain information
regarding the operation of the Public Reference Room by calling
the Commission at
1-800-SEC-0330.
The Commission maintains a website at www.sec.gov that
contains reports, proxy and information statements and other
information regarding registrants that make electronic filings
through its Electronic Data Gathering, Analysis, and Retrieval,
or EDGAR, system. We have made all our filings with the
Commission using the EDGAR system.
Upon consummation of the ADS offering, we will be subject to the
information requirements of the Exchange Act applicable to
foreign private issuers. As a result, we will be required to
file reports, including annual reports on
Form 20-F, reports
on Form 6-K and
other information with the Commission. We intend to submit to
the Commission quarterly reports on
Form 6-K, which
will include unaudited quarterly financial information, for the
first three quarters of each fiscal year, in addition to our
annual report on
Form 20-F which
will include audited annual financial information. We also
intend to file these reports within the same time periods that
apply to the filing by domestic issuers of quarterly reports on
Form 10-Q and
annual reports on
Form 10-K.
As a foreign private issuer, we are exempt from the rules under
the Exchange Act governing the furnishing and content of proxy
statements, and our directors, senior management and principal
shareholders are exempt from the reporting and short-swing
profit recovery provisions contained in Section 16 of
the Exchange Act.
246
GLOSSARY OF TERMS/ ABBREVIATIONS
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AAI |
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Aluminium Association of India. |
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adit |
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Underground passage excavated nearly horizontally, with one end
open to the earths surface, used to service an underground
mine. |
|
ADR Scheme |
|
The Issue of Foreign Currency Convertible Bonds and Ordinary
Shares (Through Depository Receipt Merchanism) Scheme, 1993, as
amended, India. |
|
ADRs |
|
American Depository Receipts. |
|
ADSs |
|
American Depository Shares. |
|
Air Act |
|
Air (Prevention and Control of Pollution) Act, 1981. |
|
alloy |
|
A compound of two or more metals. |
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alumina |
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The calcined product from an alumina refinery containing at
least 98% aluminum oxide. |
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aluminum |
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A light, malleable metal that is a good conductor of electricity. |
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anode |
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The positive electrode at which oxidization occurs in an
electrolysis reaction. |
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anode furnace |
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A furnace in which blister copper is refined into anode copper. |
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anode slime |
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A deposit of insoluble residue formed from the dissolution of
the anode in commercial electrolysis. In copper refining, this
slime contains the precious metals that are recovered from it. |
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APB |
|
Accounting Principles Board. |
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BALCO |
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Bharat Aluminium Company Limited. |
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bauxite |
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A general term for a rock composed of a mixture of hydrated
aluminum oxides and hydroxides and generally contaminated with
compounds of iron. It is the main ore from which aluminum is
produced. |
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Bayer process |
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The process of removing pure alumina from bauxite ore by heating
it in a caustic soda solution, removing impurities from the
solution and precipitating the alumina which is washed to remove
any remaining caustic and then calcined to remove the chemically
combined water, leaving pure alumina. |
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beneficiation |
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A variety of processes whereby extracted ore is reduced to
particles that can be separated into mineral and waste. |
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Binani Zinc |
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Binani Zinc Limited. |
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blast hole open stoping |
|
A low cost bulk method of mining suitable for large, regularly
shaped and steeply dipping ore bodies. Blast holes are drilled
in a fan-like pattern into the ore body and are then loaded with
explosives and detonated. The broken ore is either removed by
load-haul-dump machines or by rail cars. |
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blasting |
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A technique to break ore in an underground or open-pit mine. |
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blister copper |
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A crude form of copper (assaying about 99%) produced in a
smelter that requires further refining before being used for |
247
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industrial purposes. The name is derived from the large blisters
that form on the cast surface as a result of sulphur dioxide and
other gases escaping from the copper during the smelting process. |
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Brook Hunt |
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Brook Hunt & Associates Ltd. |
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brownfield |
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Development project to upgrade, modify or further develop an
existing property. |
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BSE |
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Bombay Stock Exchange Limited. |
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calcined |
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To be heated to a high temperature, but below the melting or
fusing point, causing loss of moisture, reduction or oxidation
or thermal decomposition (a chemical reaction where a single
compound breaks up into two or more simpler compounds or
elements when heated). |
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casting |
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The act of pouring molten metal into a mold to produce an object
of desired shape. |
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cathode |
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The negative electrode in an electrolysis reaction. For copper
refining, the cathode is where the refined copper is deposited.
For aluminum smelting, the cathode is known as the pot lining. |
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caustic soda |
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A strong alkaline caustic used in manufacturing aluminum. |
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CEC |
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Central Empowered Committee. |
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CEE |
|
Central and Eastern Europe. |
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CERC |
|
Central Electricity Regulatory Commission of India. |
|
Circular |
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Circular F. No. 15/7/1999 NRI dated January 19,
2000 issued by the Ministry of Finance, Department of Economic
Affairs, Government of India. |
|
CIS |
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Commonwealth of Independent States. |
|
Citigroup |
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Citigroup Global Markets Inc. |
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Civil Code |
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The Indian Code of Civil Procedures, 1908, as amended. |
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CLA |
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The Central Listing Authority set up by SEBI. |
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CLRA |
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Contract Labor (Regulation and Abolition) Act, 1970, India. |
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CMT |
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Copper Mines of Tasmania Pty Ltd. |
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coal |
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A carbonaceous rock mined for use as a fuel. |
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Coal India |
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Coal India Limited, the government-owned coal monopoly in India. |
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coke |
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Fuel source comprised of bituminous coal from which the volatile
elements have been eliminated by heat in a coking plant. |
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Commission |
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US Securities and Exchange Commission. |
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concentrate |
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Material which has been processed to increase the percentage of
the valuable mineral to facilitate transportation and downstream
processing. |
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concentrator |
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The facility in which ore is processed to separate minerals from
the host rock. |
248
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contained zinc deposits |
|
Amount of zinc metal contained in a mineral deposit, calculated
by multiplying average grade by total tons. |
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converter |
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In copper smelting, a furnace used to separate copper metal from
copper matte. |
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copper |
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Very malleable and ductile red metal that is a good conductor of
electricity. |
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copper anode |
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In a copper smelter, the blister copper which has undergone
further refinement to remove impurities. In an anode furnace,
the blister copper is blown with air and natural gas to upgrade
its purity to approximately 99.0% for copper. It is then cast
into copper slabs that are shipped to an electrolytic refinery. |
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copper cathode |
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The 99.99% pure copper deposited on the cathode in a copper
refinery. |
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copper concentrate |
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Product of the flotation process, which is a process for
concentrating the metal-bearing mineral in an ore, with a copper
content typically ranging between 24% and 40%. |
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CPSU |
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The Central Power Sector Utilities of India. |
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CRIS INFAC |
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CRISIL Research & Information Services Ltd. |
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CRISIL |
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Credit Rating Information Services of India Limited. |
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crusher |
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A machine for crushing rock, ore or other material. |
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crushing |
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The process by which ore is broken into small pieces to prepare
it for further processing. |
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CSE |
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Calcutta Stock Exchange Association Limited. |
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CSEB |
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Chhattisgarh State Electricity Board. |
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CSERC |
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Chhattisgarh State Electricity Regulatory Commission. |
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Custodian |
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Citibank, N.A., Mumbai Branch |
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cut-off grade |
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The lowest grade of mineralized material considered economic to
mine. Cut-off grade is used in the calculation of the ore
reserves for a given deposit. |
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Delisting Guidelines |
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SEBI (Delisting of Securities) Guidelines 2003, as amended,
India. |
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deposit |
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A mineralized body which has been physically delineated by
sufficient drilling, trenching, and/ or underground work and
found to contain a sufficient average grade of metal or metals
to warrant further exploration and/ or development expenditures.
Such a deposit does not qualify as a commercially mineable ore
body, or as containing ore reserves, until final legal,
technical and economic factors have been resolved. |
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development |
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Activities related to a mineral deposit commencing at the point
economically recoverable reserves can reasonably be estimated to
exist and generally continuing until commercial production
begins. |
249
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die |
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A tool used to give a shape to material based on the shape of
the tool itself. |
|
dmt |
|
dry metric tons. |
|
DTC |
|
The Depository Trust Company, New York. |
|
EIA Notification |
|
The Enviroment Impact Assessment Notification No: 60(E), 1994,
India. |
|
EITF |
|
Emerging Issue Task Force. |
|
electrolysis |
|
A process of separating bonded elements and compounds by passing
an electric current through them. |
|
electrolytic plant |
|
A plant that processes purifying metal ingots that are suspended
as anodes in an electrolytic bath, alternated with refined
sheets of the same metal which act as starters or cathodes. |
|
environment impact assessment |
|
A formal process used to predict the environmental consequences
of any development project so as to ensure that the potential
problems are foreseen and addressed at an early stage in the
projects planning and design. |
|
EPA |
|
The Enviroment (Protection) Act, 1986, India. |
|
EPFA |
|
Employees Provident Funds and Miscellaneous Provisions
Act, 1952, India. |
|
ESIA |
|
Employee State Insurance Act, 1948, India. |
|
exploration |
|
Prospecting, sampling, mapping, drilling and other work involved
in searching for ore. |
|
FASB |
|
Financial Accounting Standards Board. |
|
FDI |
|
Foreign direct investment. |
|
FEMA |
|
The Foreign Exchange Management Act, 1999, India. |
|
FIIA |
|
Foreign Investment Implementation Authority, India. |
|
FIPB |
|
Foreign Investment Promotion Board, India. |
|
FOB |
|
Free on Board, which means that the seller fulfils his
obligation to deliver when the goods have passed over the
ships rail at the named port of shipment. This means that
the buyer has to bear all costs and risks of loss or damage to
the goods from that point. |
|
Foreign Institutional Investor Regulations |
|
Securities and Exchange Board of India (Foreign Institutional
Investors) Regulations 1995, as amended. |
|
Forest Act |
|
Forest (Conservation) Act, 1980, India. |
|
frame contract |
|
A non-legally binding agreement between two parties setting out
their intention to agree on the precise delivery schedule and
pricing terms in the future with respect to the supply and
delivery of specified goods. |
|
galvanizing |
|
The process of coating iron or steel with rust-resistant zinc. |
|
GAMI |
|
Guiyang Aluminum Magnesium Design & Research
Institute of China. |
250
|
|
|
grade |
|
The percentage of metal content in ore. |
|
greenfield |
|
New development project on previously undeveloped land that is
built from scratch. |
|
Hazardous Wastes Rules |
|
Hazardous Wastes (Management and Handling) Rules, 1989, India. |
|
high grade |
|
Rich ore. |
|
Hindalco |
|
Hindalco Industries Limited. |
|
Hindustan Copper |
|
Hindustan Copper Limited. |
|
hydrate |
|
A compound which contains water molecules that are either bound
to a metal center or crystallized with the metal complex. |
|
HZL |
|
Hindustan Zinc Limited. |
|
hydrometallurgical |
|
The treatment of metal or the separation of metal from ores and
ore concentrates by liquid processes, such as leaching,
extraction and precipitation to extract and recover metals from
their ores. |
|
IBM |
|
Indian Bureau of Mines. |
|
ICPCI |
|
International Copper Promotion Council, India. |
|
IDA |
|
The Industrial Disputes Act, 1947, India. |
|
IFL |
|
India Foils Limited. |
|
ILZDA |
|
India Lead Zinc Development Association. |
|
Income Tax Act |
|
The Income Tax Act 1961 of India. |
|
INDAL |
|
Indian Aluminium Company Limited. |
|
Indian GAAP |
|
Indian generally accepted accounting principles. |
|
Indian Stock Exchanges |
|
The NSE and the BSE, collectively. |
|
Insider Trading Regulations |
|
The SEBI (Prohibition of Insider Trading) Regulations 1992, as
amended, India. |
|
ingot |
|
A mass of metal, such as a bar or block, that is cast in a
standard shape, typically meeting international specifications
such as the LME futures contract specifications, to facilitate
handling, storage, shipping, trading or smelting and fabricating. |
|
ISDA |
|
International Swaps and Derivatives Association. |
|
ISO |
|
International Standards Organization. |
|
IsaSmelttm |
|
Technology for smelting
non-ferrous metals. |
|
ISF |
|
Imperial Smelting Furnace. |
|
ISO 14001 |
|
An international standard for environmental management systems
published by the International Standards Organisation in 1996. |
|
JORC Code |
|
The Australasian Code for Reporting of Identified Mineral
Resources and Ore Reserves which sets out minimum standards,
recommendations and guidelines for public reporting of
exploration results, Mineral Resources and Ore Reserves in
Australasia. It has been drawn up by the Joint Ore Reserves |
251
|
|
|
|
|
Committee of The Australian Institute of Mining and Metallurgy,
Australian Institute of Geoscientists and Minerals Council of
Australia. |
|
KCM |
|
Konkola Copper Mines plc. |
|
KVA. |
|
Kilovolt-Amperes. |
|
kWh |
|
Kilowatt-hours. |
|
Land Acquisition Act |
|
Land Acquisition Act, 1894, India. |
|
leaching |
|
A chemical process by which a soluble metallic compound is
extracted from ore by dissolving the metals in a solvent. |
|
lead |
|
A heavy, soft, malleable, ductile but inelastic
bluish-white metallic
element found mostly in combination with zinc and used in pipes,
cable sheaths, batteries, solder, type metal, and shields
against radioactivity. |
|
lead concentrate |
|
Product of the flotation process which separates the lead and
other minerals from the ore to form a concentrate with a lead
content typically ranging between 50% to 60%. |
|
LIBOR |
|
London Inter-Bank Offer Rate. |
|
life-of-mine |
|
The remaining life of a mine in years calculated by
deducting the scheduled production rates (that is, the rate at
which material will be removed from the mine) from the current
defined reserves. |
|
LME |
|
London Metal Exchange Limited. |
|
low sulphur heavy stock |
|
A residual fuel processed from indigenous crude used as a feed
stock for power utilities with a maximum sulphur content of 4.5%
by weight. The low sulphur content extends the life of the
equipment or machinery used by reducing the level of corrosion
and also reduces environmental pollution due to emission of a
lesser quantity of sulphur dioxide. |
|
LSE |
|
The London Stock Exchange Limited. |
|
MALCO |
|
The Madras Aluminium Company Limited. |
|
matte |
|
The product produced in smelting sulphide ores of copper and
lead or the smelting of copper bearing materials, usually in a
reverberatory. |
|
MC Rules |
|
The Mineral Concession Rules, 1960, as amended. |
|
MCD Rules |
|
The Mineral Conservation and Development Rules, 1988, as amended. |
|
Merrill Lynch |
|
Merrill Lynch, Pierce, Fenner & Smith Incorporated. |
|
metcoke |
|
Metallurgical coke which is produced by the carbonization of
coals or coal blends at temperatures up to 1400 K
(1127 degrees Celsius) to produce a macroporous carbon
material of high strength and relatively large lump size. |
|
MCNV |
|
Monte Cello NV |
252
|
|
|
mill |
|
A plant in which ore is treated and metals are recovered or
prepared for smelting; also a revolving drum used for the
grinding of ores in preparation for treatment. |
|
mineral deposits |
|
A mineralized underground body that has been intersected by a
sufficient number of
closely-spaced drill
holes and/ or underground sampling to support sufficient tonnage
and ore grade to warrant further exploration or development.
Mineral deposits or mineralized materials do not qualify as a
commercially mineable ore reserves (for example, probable
reserves or proven reserves), as prescribed under standards of
the Commission, until a final and comprehensive economic,
technical, and legal feasibility study based upon the test
results has been concluded. |
|
mineralization |
|
A deposit of rock containing one or more minerals for which the
economics of recovery have not yet been established. |
|
mm |
|
Millimeter. |
|
MMDR Act |
|
The Mines and Minerals (Development and Regulations) Act, 1957,
as amended. |
|
modified sub-level
caving |
|
A technique of mining whereby the ore is extracted via a system
of horizontal underground mine tunnels. It is normally used for
large, steeply dipping ore bodies. |
|
MoEF |
|
Ministry of Environment and Forests, India. |
|
Monte Cello |
|
Monte Cello BV. |
|
Morgan Stanley |
|
Morgan Stanley & Co. International Limited. |
|
MU |
|
Million units, a measure of energy equal to one million kWh. |
|
MW |
|
Megawatts of electrical power. |
|
MWA |
|
Minimum Wages Act, 1948, India. |
|
NALCO |
|
National Aluminium Company Limited, India. |
|
nickel |
|
A silvery-white metal
that is very resistant and stable at ambient temperatures. |
|
non-ferrous |
|
Any metal other than iron or metal alloy, whose principal
constituent is not iron. |
|
NRIs |
|
Non-Resident Indians. |
|
NSE |
|
The National Stock Exchange of India Limited. |
|
NTP |
|
National Tariff Policy of India. |
|
NTPC |
|
National Thermal Power Corporation Limited, India. |
|
NYSE |
|
New York Stock Exchange. |
|
OCRs |
|
Overseas corporate bodies. |
|
OIDC |
|
Orissa Infrastructure Development Corporation |
|
OHSAS |
|
Occupational Health and Safety Assessment Series. |
|
OMC |
|
Orissa Mining Corporation Limited. |
253
|
|
|
open-pit mine |
|
A mine that is entirely on the surface. Also referred to as an
open-cut or
open-cast mine. |
|
ore |
|
A mineral or aggregate of minerals containing precious or useful
minerals in such quantities, grade and chemical combination to
make extraction economic. |
|
ore body |
|
A natural concentration of valuable material that can be
extracted and sold at a profit. |
|
ore reserves |
|
The calculated tonnage and grade of mineralization that can be
extracted profitably; classified as proven and probable
according to the level of confidence that can be placed in the
data. |
|
overburden |
|
Waste material overlying ore in an
open-pit mine. |
|
oxide |
|
That portion of a mineral deposit within which sulphide minerals
have been oxidized, usually by surface weathering processes. |
|
PBA |
|
Payment of Bonus Act, 1965, India. |
|
PFIC |
|
Passive foreign investment company. |
|
PGA |
|
Payment of Gratuity Act, 1972, India. |
|
pillar |
|
A block of solid ore or other rock left in place to structurally
support the shaft, walls or roof of a mine. |
|
pitch |
|
A viscous liquid derived from plant or petroleum products used
as a binder for the production of carbon anodes, required in the
aluminum smelting process. |
|
pot |
|
A large carbon or graphite lined steel container. |
|
pre-baked |
|
A type of aluminum smelting technology using anodes composed of
blocks of solid carbon that are baked before use in the smelting
pot, as opposed to anodes that are being baked during the
reduction process. |
|
precious metals |
|
High value metals including gold, silver, platinum and palladium. |
|
probable reserves |
|
Reserves for which quantity and grade and are computed from
information similar to that used for proven reserves, but the
sites for inspection, sampling, and measurement are farther
apart or are otherwise less adequately spaced. The degree of
assurance, although lower than that for proven reserves, is high
enough to assume continuity between points of observation. |
|
Properzi CCR |
|
Properzi Continuously Cast and Rolled. A copper rod technology
from Continuous Properzi S.p.A. to produce copper
rods. |
|
prospect |
|
A prospect is the initial stage of a geological evaluation of a
possible project that requires drilling to evaluate. |
|
PTC |
|
PTC India Limited (formerly Power Trading Corporation of India
Limited). |
|
PWA |
|
Payment of Wages Act, 1936, India. |
|
proven reserves |
|
Reserves for which (a) quantities are computed from
dimensions revealed in outcrops, trenches, workings or drill
holes; (b) grade and/ or quality are computed from the
results of detailed |
254
|
|
|
|
|
sampling; and (c) sites for inspection, sampling and
measurement are spaced so closely and the geologic character is
sufficiently defined that the size, shape, depth and mineral
content of the reserves are well established. |
|
pyrometallurgical |
|
Pertaining to metallurgical operations that involve processing
temperatures above ambient conditions, generally involving
chemical reactions as distinct from metal casting substantially
which involves only a physical transformation, such as,
solidification. |
|
RBI |
|
Reserve Bank of India. |
|
reclamation |
|
The restoration of a site after mining or exploration activity
is completed. |
|
recovery |
|
The percentage of valuable metal in the ore that is recovered by
metallurgical treatment. |
|
refinery |
|
A metallurgical plant in which the refining of metals takes
place. |
|
refining |
|
Purifying the matte or impure metal undertaken to obtain a pure
metal or mixture with specific properties. |
|
refining charge |
|
The fees charged by a refinery for purifying crude metallic
products. |
|
Regulations |
|
The Foreign Exchange Management (Transfer or Issue of Security
by a Person Resident Outside India) Regulations 2000, as
amended, India. |
|
Representatives |
|
Merrill Lynch, Morgan Stanley and Citigroup as representatives
of the underwriters. |
|
reserves |
|
Those parts of mineral resources for which sufficient
information is available to enable detailed or conceptual mine
planning and for which such planning has been undertaken.
Reserves are classified as either proven or probable. |
|
RLE |
|
Roast-leach-electrowin. A process utilized in many
hydrometallurgical zinc smelters whereby zinc concentrate is
first roasted to remove the sulphur content, which comes out in
the form of sulphur dioxide gas, and then subjected to leaching
and electrolysis. |
|
royalty |
|
An amount of money paid at regular intervals by the lessee or
operator of an exploration or mining property to the owner of
the ground. Generally based on a certain amount per ton or a
percentage of the total production or profits. Also, the fee
paid for the right to use a patented process. |
|
SAD |
|
Special additional duty levied on imports by the Government of
India. |
|
sampling |
|
Selecting a fractional but representative part of a mineral
deposit for analysis. |
|
SAT |
|
Securities Appellate Tribunal, India. |
|
SCR Rules |
|
Securities Contracts (Regulation) Rules, 1957, as amended, India. |
255
|
|
|
SCRA |
|
Securities Contracts (Regulation) Act, 1956, as amended, India. |
|
SEBI |
|
Securities and Exchange Board of India. |
|
SEBI Act |
|
The Securities and Exchange Board of India Act 1992, as
amended. |
|
SEBs |
|
State electricity boards. |
|
SERCs |
|
State Electricity Regulatory Commissions of India. |
|
SEWT |
|
SIL Employees Welfare Trust. |
|
shaft |
|
A vertical or inclined excavation in rock for the purpose of
providing access to an ore body. Usually equipped with a hoist
at the top that lowers and raises a conveyance for handling
workers and materials. |
|
SICA |
|
The Sick Industrial Companies (Special Provisions) Act, 1985, as
amended, India. |
|
silver |
|
A very malleable metal found naturally in an uncombined state or
with other metals. |
|
slag |
|
The vitreous mass separated from the fused metals in the
smelting process. |
|
slimes |
|
Material discharged from a refinery after the primary valuable
minerals have been recovered. Slimes may contain quantities of
gold and silver. |
|
smelter |
|
A metallurgical plant in which the smelting of the concentrates
and ore takes place. |
|
smelting |
|
A thermal process whereby molten metal is obtained from a
concentrate, with impurities separated into a lighter slag. |
|
SNIF degasser |
|
A spinning nozzle inert floatation (SNIF)
in-line degassing/
filtration system for treatment of molten aluminum. |
|
SOTL |
|
Sterlite Optical Technologies Limited. |
|
SOVL |
|
Sterlite Opportunities and Ventures Limited. |
|
spot market |
|
A market in which commodities are bought and sold for cash and
delivered immediately. |
|
SRK |
|
The independent consulting firms of SRK Consulting (South
Africa) Pty Ltd, SRK Consulting (UK) Ltd and Steffen Robertson
and Kirsten (Australasia) Pty Ltd. |
|
Sterlite Energy |
|
Sterlite Energy Limited. |
|
Sterlite Gold |
|
Sterlite Gold Limited. |
|
strip casting |
|
A technology that involves molten steel being cast in between
two rotating rolls and then hardened into a hot rolled strip. |
|
strip ratio |
|
The number of units of waste material in a surface mine which
must be removed in order to extract one unit of ore. |
|
stripping |
|
The process of removing overburden to expose ore. |
|
T&D |
|
Transmission and distribution. |
|
tailings dam |
|
A low-lying depression
used to confine tailings, the prime function of which is to
allow enough time for heavy metals to |
256
|
|
|
|
|
settle out or for cyanide to be destroyed before water is
discharged into the local watershed. |
|
Takeover Code |
|
SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997, as amended. |
|
TC |
|
Treatment charge. |
|
TCM |
|
Thalanga Copper Mines Pty Ltd. |
|
TcRc |
|
Treatment charge and refining charge levied by smelters and
refineries for the smelting and refining of copper concentrate
from mines into copper metal. |
|
TNPCB |
|
The Tamil Nadu Pollution Control Board. |
|
ton (metric ton) |
|
A unit of mass equivalent to 1,000 kilograms or
2,204.6 pounds. |
|
tpa |
|
Tons per annum. |
|
treatment charge |
|
The charge paid by a mining company to have its concentrate
treated through smelting to produce saleable metal. |
|
Twin Star |
|
Twin Star Holdings Limited. |
|
UMPPs |
|
Ultra Mega Power Plants of India. |
|
US GAAP |
|
US generally accepted accounting principles. |
|
Vedanta |
|
Vedanta Resources plc. |
|
Vedanta Alumina |
|
Vedanta Alumina Limited. |
|
Vedanta LTIP |
|
Vedanta Long-Term Incentive Plan 2003. |
|
vertical crater retreat |
|
A comparatively new method of blast hole mining in which only
large diameter in-the-hole drills are used to blast down
horizontal slices of ore into an opening below the block of ore
being mined. |
|
Vertical Stud Soderberg technology |
|
A method of primary aluminum reduction using the Soderberg
process in which the electrical current is introduced to self
baking anodes by steel rods, or studs, inserted into the top of
a monolithic anode. |
|
Volcan |
|
Volcan Investments Limited. |
|
VRHL |
|
Vedanta Resources Holdings Limited. |
|
waste |
|
Rock lacking sufficient grade and/or other characteristics of
ore to be economically mined. |
|
Water Act |
|
Water (Prevention and Control of Pollution) Act, 1974, India. |
|
Water Cess Act |
|
Water (Prevention and Control of Pollution) Cess Act, 1977,
India. |
|
WCA |
|
Workmens Compensation Act, 1923, India. |
|
zinc |
|
Bluish-white hard
metal, occurring in various minerals, such as sphalerite (a zinc
sulphide mineral, the most common ore mineral of zinc). |
|
zinc concentrate |
|
Product of flotation process with a zinc content typically
ranging between 45% and 60%. |
|
Zinifex |
|
Zinifex Limited. |
257
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
Page | |
|
|
| |
|
|
|
F-2 |
|
|
|
|
F-3 |
|
|
|
|
F-4 |
|
|
|
|
F-5 |
|
|
|
|
F-6 |
|
|
|
|
F-8 |
|
|
|
|
F-54 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
Sterlite Industries (India) Limited and subsidiaries
Mumbai, Maharashtra, India:
We have audited the accompanying consolidated balance sheets of
Sterlite Industries (India) Limited and subsidiaries (the
Company) as of March 31, 2005 and 2006, and the
related consolidated statements of operations, cash flows and
changes in shareholders equity for each of the three years
in the period ended March 31, 2006, all expressed in Indian
Rupees. Our audits also included Schedule II
Valuation and Qualifying Accounts
(Schedule II). These consolidated financial
statements and Schedule II are the responsibility of the
Companys management. Our responsibility is to express an
opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances but not for the purpose of expressing an opinion
on the effectiveness of the Companys internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Sterlite Industries (India) Limited and subsidiaries as of
March 31, 2005 and 2006, and the results of their
operations and their cash flows for each of the three years in
the period ended March 31, 2006, in conformity with
accounting principles generally accepted in the
United States of America. Also, in our opinion, such
Schedule II, when considered in relation to the basic
consolidated financial statements taken as a whole present
fairly in all material respects the information set forth
therein.
As described in Note 2 to the consolidated financial
statements, these consolidated financial statements have been
prepared in accordance with accounting principles generally
accepted in the United States of America, which differ in
certain material respects from accounting principles generally
accepted in India, which form the basis of the Companys
general purpose financial statements.
Our audit for the year ended and as of March 31, 2006, also
comprehended the translation of the Indian Rupees amounts into
United States dollar amounts and, in our opinion, such
translation has been made in conformity with the basis stated in
Note 2. The translation of the consolidated financial
statement amounts into United States dollars have been made
solely for the convenience of the readers.
Deloitte Haskins & Sells
Mumbai, Maharashtra, India
September 9, 2006
November 15, 2006
As to Note 28(d), (e) and (f)
F-2
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31, |
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars in | |
|
|
|
|
|
|
|
|
millions | |
|
|
|
|
|
|
|
|
(Note 2) | |
|
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
External
|
|
|
62,134 |
|
|
|
76,061 |
|
|
|
138,335 |
|
|
|
3,110.0 |
|
|
Related parties
|
|
|
593 |
|
|
|
2,236 |
|
|
|
1,667 |
|
|
|
37.5 |
|
|
Less: Excise duty
|
|
|
(5,939 |
) |
|
|
(7,114 |
) |
|
|
(11,394 |
) |
|
|
(256.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
56,788 |
|
|
|
71,183 |
|
|
|
128,608 |
|
|
|
2,891.3 |
|
|
Other operating revenues
|
|
|
682 |
|
|
|
652 |
|
|
|
1,362 |
|
|
|
30.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
57,470 |
|
|
|
71,835 |
|
|
|
129,970 |
|
|
|
2,921.9 |
|
|
Cost of sales
|
|
|
(42,119 |
) |
|
|
(54,640 |
) |
|
|
(92,041 |
) |
|
|
(2,069.3 |
) |
|
Selling and distribution expenses
|
|
|
(1,544 |
) |
|
|
(1,620 |
) |
|
|
(2,330 |
) |
|
|
(52.4 |
) |
|
General and administration expenses
|
|
|
(2,452 |
) |
|
|
(2,402 |
) |
|
|
(2,605 |
) |
|
|
(58.6 |
) |
|
Other expenses (Note 24)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voluntary retirement scheme expenses
|
|
|
(611 |
) |
|
|
(186 |
) |
|
|
|
|
|
|
|
|
|
|
Impairment of assets
|
|
|
|
|
|
|
(1,276 |
) |
|
|
|
|
|
|
|
|
|
|
Guarantees, impairment of investments and loans
|
|
|
|
|
|
|
|
|
|
|
(1,300 |
) |
|
|
(29.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
10,744 |
|
|
|
11,711 |
|
|
|
31,694 |
|
|
|
712.4 |
|
|
Interest income
|
|
|
1,609 |
|
|
|
2,181 |
|
|
|
2,419 |
|
|
|
54.4 |
|
|
Interest expense
|
|
|
(1,997 |
) |
|
|
(2,007 |
) |
|
|
(3,331 |
) |
|
|
(74.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interests and equity in
net loss of associate
|
|
|
10,356 |
|
|
|
11,885 |
|
|
|
30,782 |
|
|
|
691.9 |
|
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(2,636 |
) |
|
|
(2,724 |
) |
|
|
(8,000 |
) |
|
|
(179.9 |
) |
|
Deferred
|
|
|
(350 |
) |
|
|
(831 |
) |
|
|
(1,111 |
) |
|
|
(25.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income after income taxes, before minority interests and
equity in net loss of associate
|
|
|
7,370 |
|
|
|
8,330 |
|
|
|
21,671 |
|
|
|
487.0 |
|
|
Minority interests
|
|
|
(2,349 |
) |
|
|
(2,764 |
) |
|
|
(6,073 |
) |
|
|
(136.5 |
) |
|
Equity in net loss of associate, net of taxes
|
|
|
|
|
|
|
|
|
|
|
(99 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
5,021 |
|
|
|
5,566 |
|
|
|
15,499 |
|
|
|
348.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
13.99 |
|
|
|
12.22 |
|
|
|
28.02 |
|
|
|
0.63 |
|
|
Diluted
|
|
|
13.68 |
|
|
|
12.05 |
|
|
|
28.02 |
|
|
|
0.63 |
|
Weighted average number of equity shares used in computing
earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
359,007,797 |
|
|
|
455,343,743 |
|
|
|
553,216,634 |
|
|
|
553,216,634 |
|
|
Diluted
|
|
|
367,697,507 |
|
|
|
465,108,143 |
|
|
|
553,216,634 |
|
|
|
553,216,634 |
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
|
|
|
|
|
|
(Note 2) | |
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
5,909 |
|
|
|
9,258 |
|
|
|
208.1 |
|
|
Restricted cash, deposits and investments
|
|
|
225 |
|
|
|
1,104 |
|
|
|
24.8 |
|
|
Short-term investments and deposits
|
|
|
18,233 |
|
|
|
24,454 |
|
|
|
549.8 |
|
|
Accounts receivable, net
|
|
|
6,865 |
|
|
|
12,782 |
|
|
|
287.4 |
|
|
Inventories
|
|
|
10,557 |
|
|
|
19,571 |
|
|
|
440.0 |
|
|
Deferred income taxes
|
|
|
1,012 |
|
|
|
974 |
|
|
|
21.9 |
|
|
Other current assets
|
|
|
5,746 |
|
|
|
7,741 |
|
|
|
174.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
48,547 |
|
|
|
75,884 |
|
|
|
1,706.0 |
|
|
|
|
|
|
|
|
|
|
|
Non-current assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
|
668 |
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
1,279 |
|
|
|
1,067 |
|
|
|
24.0 |
|
|
Equity investment in associate
|
|
|
1,792 |
|
|
|
1,693 |
|
|
|
38.1 |
|
|
Deferred income taxes
|
|
|
730 |
|
|
|
1,486 |
|
|
|
33.4 |
|
|
Property, plant and equipment, net
|
|
|
78,927 |
|
|
|
85,869 |
|
|
|
1,930.5 |
|
|
Other non-current assets
|
|
|
1,254 |
|
|
|
1,540 |
|
|
|
34.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current assets
|
|
|
84,650 |
|
|
|
91,655 |
|
|
|
2,060.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
133,197 |
|
|
|
167,539 |
|
|
|
3,766.6 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term and current portion of long-term debt
|
|
|
8,663 |
|
|
|
4,390 |
|
|
|
98.7 |
|
|
Accounts payable
|
|
|
19,413 |
|
|
|
30,239 |
|
|
|
679.8 |
|
|
Accrued expenses
|
|
|
2,058 |
|
|
|
2,607 |
|
|
|
58.7 |
|
|
Current income taxes payable
|
|
|
162 |
|
|
|
1,160 |
|
|
|
26.1 |
|
|
Deferred income taxes
|
|
|
230 |
|
|
|
271 |
|
|
|
6.1 |
|
|
1% cumulative mandatorily redeemable preference shares, par
value Rs. 10 per share (30,000,000 preference shares
authorized for both years, 21,875,000 preference shares
issued and outstanding for both the years)
|
|
|
|
|
|
|
1,947 |
|
|
|
43.8 |
|
|
Other current liabilities
|
|
|
5,231 |
|
|
|
6,362 |
|
|
|
143.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
35,757 |
|
|
|
46,976 |
|
|
|
1,056.2 |
|
|
|
|
|
|
|
|
|
|
|
Non-current liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
28,794 |
|
|
|
30,237 |
|
|
|
679.8 |
|
|
1% cumulative mandatorily redeemable preference shares, par
value Rs. 10 per share (30,000,000 preference shares
authorized for both years, 21,875,000 preference shares
issued and outstanding for both the years)
|
|
|
1,870 |
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
11,520 |
|
|
|
13,246 |
|
|
|
297.8 |
|
|
Other non-current liabilities
|
|
|
4,048 |
|
|
|
3,976 |
|
|
|
89.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current liabilities
|
|
|
46,232 |
|
|
|
47,459 |
|
|
|
1,067.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
81,989 |
|
|
|
94,435 |
|
|
|
2,123.2 |
|
|
|
|
|
|
|
|
|
|
|
Minority interests
|
|
|
13,820 |
|
|
|
19,606 |
|
|
|
440.8 |
|
Commitments and contingencies (Note 20)
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shares par value Rs. 2 per equity share
(600,000,000 equity shares authorized; 548,730,011 and
558,494,411 equity shares issued and outstanding as of
March 31, 2005 and 2006, respectively) (Note 18)
|
|
|
549 |
|
|
|
559 |
|
|
|
12.5 |
|
|
Additional paid-in-capital
|
|
|
25,819 |
|
|
|
26,883 |
|
|
|
604.4 |
|
|
Retained earnings
|
|
|
11,452 |
|
|
|
26,575 |
|
|
|
597.5 |
|
|
Accumulated other comprehensive losses
|
|
|
(432 |
) |
|
|
(519 |
) |
|
|
(11.8 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity
|
|
|
37,388 |
|
|
|
53,498 |
|
|
|
1,202.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity
|
|
|
133,197 |
|
|
|
167,539 |
|
|
|
3,766.6 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31, |
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
|
|
in millions | |
|
|
|
|
|
|
|
|
(Note 2) | |
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
5,021 |
|
|
|
5,566 |
|
|
|
15,499 |
|
|
|
348.3 |
|
Adjustments to reconcile net income to net cash provided by
operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization
|
|
|
3,052 |
|
|
|
3,257 |
|
|
|
4,547 |
|
|
|
102.2 |
|
|
Amortization of foreign currency redeemable convertible bonds
issuance expenses
|
|
|
6 |
|
|
|
32 |
|
|
|
19 |
|
|
|
0.4 |
|
|
Gain on sale of investments
|
|
|
(40 |
) |
|
|
(278 |
) |
|
|
(290 |
) |
|
|
(6.5 |
) |
|
(Gain)/loss on sale of property, plant and equipment
|
|
|
91 |
|
|
|
25 |
|
|
|
(32 |
) |
|
|
(0.7 |
) |
|
Equity in net loss of associate
|
|
|
|
|
|
|
|
|
|
|
99 |
|
|
|
2.2 |
|
|
Impairment of assets
|
|
|
|
|
|
|
1,276 |
|
|
|
|
|
|
|
|
|
|
Guarantees, impairment of investments and loans
|
|
|
|
|
|
|
|
|
|
|
1,300 |
|
|
|
29.2 |
|
|
Deferred income taxes
|
|
|
350 |
|
|
|
831 |
|
|
|
1,111 |
|
|
|
25.0 |
|
|
Minority interests
|
|
|
2,349 |
|
|
|
2,764 |
|
|
|
6,073 |
|
|
|
136.5 |
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(3,330 |
) |
|
|
(968 |
) |
|
|
(5,916 |
) |
|
|
(133.0 |
) |
|
Other current and non-current assets
|
|
|
(1,316 |
) |
|
|
345 |
|
|
|
(1,903 |
) |
|
|
(42.8 |
) |
|
Inventories
|
|
|
(1,065 |
) |
|
|
(1,811 |
) |
|
|
(9,017 |
) |
|
|
(202.7 |
) |
|
Accounts payable and accrued expenses
|
|
|
8,637 |
|
|
|
(363 |
) |
|
|
12,339 |
|
|
|
277.4 |
|
|
Other current and non-current liabilities
|
|
|
1,821 |
|
|
|
285 |
|
|
|
1,685 |
|
|
|
37.9 |
|
|
Short-term investments and deposits
|
|
|
(9,371 |
) |
|
|
(4,885 |
) |
|
|
(5,919 |
) |
|
|
(133.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
6,205 |
|
|
|
6,075 |
|
|
|
19,595 |
|
|
|
440.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property, plant and equipment
|
|
|
(14,374 |
) |
|
|
(22,225 |
) |
|
|
(15,919 |
) |
|
|
(357.9 |
) |
|
Proceeds from sale of property, plant and equipment
|
|
|
135 |
|
|
|
984 |
|
|
|
113 |
|
|
|
2.5 |
|
|
Purchase of other investment securities
|
|
|
(393 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net changes in restricted deposits and investments
|
|
|
|
|
|
|
(150 |
) |
|
|
(870 |
) |
|
|
(19.6 |
) |
|
Acquisition of minority interests
|
|
|
(3,724 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(18,356 |
) |
|
|
(21,391 |
) |
|
|
(16,676 |
) |
|
|
(375.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of equity shares
|
|
|
8 |
|
|
|
19,723 |
|
|
|
|
|
|
|
|
|
|
Net changes in restricted cash
|
|
|
95 |
|
|
|
7 |
|
|
|
(9 |
) |
|
|
(0.2 |
) |
|
Repayment of share application money for subsidiarys shares
|
|
|
(1,205 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from/(repayment of) short-term debt
|
|
|
453 |
|
|
|
(4,517 |
) |
|
|
(1,627 |
) |
|
|
(36.6 |
) |
|
Proceeds from long-term debt
|
|
|
21,071 |
|
|
|
8,162 |
|
|
|
5,275 |
|
|
|
118.6 |
|
|
Repayment of long-term debt
|
|
|
(6,875 |
) |
|
|
(5,515 |
) |
|
|
(2,592 |
) |
|
|
(58.3 |
) |
|
Foreign currency redeemable convertible bonds issuance expenses
|
|
|
(57 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment of dividends, including dividend tax
|
|
|
(406 |
) |
|
|
(539 |
) |
|
|
(672 |
) |
|
|
(15.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
13,084 |
|
|
|
17,321 |
|
|
|
375 |
|
|
|
8.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
(168 |
) |
|
|
(44 |
) |
|
|
55 |
|
|
|
1.5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
765 |
|
|
|
1,961 |
|
|
|
3,349 |
|
|
|
75.2 |
|
Cash and cash equivalents at the beginning of the year
|
|
|
3,183 |
|
|
|
3,948 |
|
|
|
5,909 |
|
|
|
132.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the end of the year
|
|
|
3,948 |
|
|
|
5,909 |
|
|
|
9,258 |
|
|
|
208.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplementary information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
|
1,526 |
|
|
|
1,439 |
|
|
|
2,591 |
|
|
|
58.3 |
|
|
Income taxes paid
|
|
|
2,419 |
|
|
|
2,412 |
|
|
|
7,105 |
|
|
|
159.7 |
|
Significant non-cash investing and financing activities for the
years ended March 31, are:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
|
|
in millions | |
|
|
|
|
|
|
|
|
(Note 2) | |
Conversion of foreign currency redeemable convertible bonds to
equity shares
|
|
|
23 |
|
|
|
1,170 |
|
|
|
1,074 |
|
|
|
24.1 |
|
Conversion of advances into equity investment
|
|
|
|
|
|
|
1,793 |
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shares | |
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
other | |
|
|
|
|
|
Total | |
|
|
No. of | |
|
Par | |
|
Additional | |
|
Retained | |
|
comprehensive | |
|
Treasury | |
|
Comprehensive | |
|
shareholders | |
|
|
shares | |
|
value | |
|
paid-in-capital | |
|
earnings | |
|
income/(loss) | |
|
Shares | |
|
income/(loss) | |
|
equity | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
Balance at April 1, 2003
|
|
|
179,424,821 |
|
|
|
180 |
|
|
|
5,264 |
|
|
|
1,180 |
|
|
|
(220 |
) |
|
|
(380 |
) |
|
|
|
|
|
|
6,024 |
|
Shares issued upon conversion of foreign currency redeemable
convertible bonds
|
|
|
103,000 |
|
|
|
|
|
|
|
23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23 |
|
Deconsolidation of SIL Employees Welfare Trust
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
380 |
|
|
|
|
|
|
|
380 |
|
Stock dividend
|
|
|
179,272,345 |
|
|
|
179 |
|
|
|
(179 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unpaid share premium
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
Acquisition of subsidiary
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,021 |
|
|
|
|
|
|
|
|
|
|
|
5,021 |
|
|
|
5,021 |
|
Dividend (including dividend tax) (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(223 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(223 |
) |
Unrealized gain on available-for-sale securities, net of tax of
Rs. 7 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
|
|
12 |
|
|
|
12 |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(186 |
) |
|
|
|
|
|
|
(186 |
) |
|
|
(186 |
) |
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2004
|
|
|
358,800,166 |
|
|
|
359 |
|
|
|
5,116 |
|
|
|
5,994 |
|
|
|
(394 |
) |
|
|
|
|
|
|
|
|
|
|
11,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 1, 2004
|
|
|
358,800,166 |
|
|
|
359 |
|
|
|
5,116 |
|
|
|
5,994 |
|
|
|
(394 |
) |
|
|
|
|
|
|
|
|
|
|
11,075 |
|
Shares issued upon conversion of foreign currency redeemable
convertible bonds
|
|
|
10,629,600 |
|
|
|
11 |
|
|
|
1,159 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,170 |
|
Shares issued
|
|
|
179,300,245 |
|
|
|
179 |
|
|
|
19,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,723 |
|
Proceeds from sale of treasury shares
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
51 |
|
Gain on dilution of interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
136 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,566 |
|
|
|
|
|
|
|
|
|
|
|
5,566 |
|
|
|
5,566 |
|
Dividend (including dividend tax) (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(244 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(244 |
) |
Unrealized gain on available-for-sale securities, net of tax of
Rs. 5 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
|
|
8 |
|
|
|
8 |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(46 |
) |
|
|
|
|
|
|
(46 |
) |
|
|
(46 |
) |
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,604 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2005
|
|
|
548,730,011 |
|
|
|
549 |
|
|
|
25,819 |
|
|
|
11,452 |
|
|
|
(432 |
) |
|
|
|
|
|
|
|
|
|
|
37,388 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS
EQUITY
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity shares | |
|
|
|
|
|
Accumulated | |
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
other | |
|
|
|
Total | |
|
|
|
|
No. of | |
|
Par | |
|
Additional | |
|
Retained | |
|
comprehensive | |
|
Comprehensive | |
|
shareholders | |
|
|
|
|
shares | |
|
value | |
|
paid-in-capital | |
|
earnings | |
|
income/(loss) | |
|
income/(loss) | |
|
equity | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US dollars | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
in millions | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Note 2) | |
Balance at April 1, 2005
|
|
|
548,730,011 |
|
|
|
549 |
|
|
|
25,819 |
|
|
|
11,452 |
|
|
|
(432 |
) |
|
|
|
|
|
|
37,388 |
|
|
|
840.5 |
|
Shares issued upon conversion of foreign currency redeemable
convertible bonds
|
|
|
9,764,400 |
|
|
|
10 |
|
|
|
1,064 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,074 |
|
|
|
24.1 |
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,499 |
|
|
|
|
|
|
|
15,499 |
|
|
|
15,499 |
|
|
|
348.4 |
|
Dividend (including dividend tax) (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(376 |
) |
|
|
|
|
|
|
|
|
|
|
(376 |
) |
|
|
(8.5 |
) |
Unrealized gain on available-for-sale securities, net of tax of
Rs. 9 million ($0.2 million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
|
19 |
|
|
|
19 |
|
|
|
0.4 |
|
Foreign currency translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34 |
|
|
|
34 |
|
|
|
34 |
|
|
|
0.8 |
|
Unrealized loss on cash flow hedges, net of tax of
Rs. (67) million ($(1.5) million)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(140 |
) |
|
|
(140 |
) |
|
|
(140 |
) |
|
|
(3.1 |
) |
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2006
|
|
|
558,494,411 |
|
|
|
559 |
|
|
|
26,883 |
|
|
|
26,575 |
|
|
|
(519 |
) |
|
|
|
|
|
|
53,498 |
|
|
|
1,202.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2006 in US dollar in millions
(Note 2)
|
|
|
|
|
|
|
12.5 |
|
|
|
604.4 |
|
|
|
597.5 |
|
|
|
(11.8 |
) |
|
|
|
|
|
|
1,202.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-7
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
1. |
Background and Operations |
Sterlite Industries (India) Limited and its consolidated
subsidiaries (the Company or Sterlite)
are engaged in non-ferrous mining and metals in India and
Australia. Sterlite Industries (India) Limited
(SIIL) was incorporated on September 8, 1975
under the laws of the Republic of India. SIIL is a
majority-owned subsidiary of Twin Star Holdings Limited
(Twin Star) in turn a wholly-owned subsidiary of
Vedanta Resources plc (Vedanta), a public limited
company incorporated in the United Kingdom and listed on the
London Stock Exchange. Twin Star held 72.3% of SIILs
equity as of March 31, 2006.
The Companys copper business is principally one of custom
smelting and includes a smelter, refinery, phosphoric acid
plant, sulphuric acid plant and copper rod plant at Tuticorin in
Southern India, and a refinery and two copper rod plants at
Silvassa in Western India. In addition, the Company owns and
operates the Mt. Lyell copper mine in Tasmania, Australia
through its subsidiary Copper Mines of Tasmania Pty Ltd
(CMT), which provides a small percentage of the
copper concentrate requirements for its smelter.
The Companys zinc business is owned and operated by
Hindustan Zinc Limited (HZL). The Company has a
64.9% ownership interest in HZL, with the remaining interests
owned by the Government of India (29.5%) and institutional and
public shareholders (5.6%). HZLs operations include three
lead-zinc mines in Northwest India, two zinc smelters, one
lead-zinc smelter and one lead smelter in Northwest India and
one zinc smelter in Southeast India.
The Companys aluminum business is owned and operated by
Bharat Aluminium Company Limited (BALCO), in which
the Company has a 51.0% ownership interest and the remaining
interest is owned by the Government of India. BALCOs
operations include bauxite mines, captive power plants and
refining, smelting and fabrication facilities in Central India.
The Company owns a 29.5% minority interest in Vedanta Alumina
Limited (Vedanta Alumina), a 70.5%-owned subsidiary
of Vedanta. Vedanta Alumina commenced construction of an alumina
refinery in the State of Orissa in Eastern India during fiscal
2004.
|
|
2. |
Significant Accounting Policies |
Basis of preparation
The consolidated financial statements of the Company are
prepared in accordance with accounting principles generally
accepted in the United States of America
(US GAAP) which include industry practices. The
consolidated financial statements are presented in Indian Rupee
(Rs.).
Basis of consolidation
The consolidated financial statements include the results of
SIIL and all its wholly-owned subsidiaries and other
subsidiaries in which a controlling interest is maintained.
The consolidated financial statements also include the financial
statements of the SIL Employees Welfare Trust
(SEWT), an employees stock ownership plan
(ESOP) up to January 2004. SEWT had transactions
with a subsidiary of Vedanta. The results of operations and cash
flows of SEWT were deconsolidated with effect from that date.
All significant inter-company balances and transactions,
including unrealized profits arising from transactions between
the subsidiaries, have been eliminated upon consolidation.
F-8
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Non-Indian subsidiaries have a functional currency (i.e., the
currency in which activities are primarily conducted) of the
country in which a subsidiary is domiciled. Foreign
subsidiaries assets and liabilities are translated to
Indian Rupee at year-end exchange rates, while revenues and
expenses are translated at average exchange rates during the
year. Adjustments that result from translating amounts in a
subsidiarys functional currency are reported in
shareholders equity as a component of accumulated other
comprehensive income. Minority interests in subsidiaries
represent the minority shareholders proportionate share.
Cash and cash
equivalents
Cash and cash equivalents are comprised of cash in hand and at
banks, short-term deposits with banks and short-term highly
liquid investments that are readily convertible into cash and
which have been purchased with an original maturity of three
months or less.
Time deposits are bank fixed deposits with original maturity of
more than three months from the date of purchase.
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Short-term investments and deposits |
Short-term investments include fixed deposits in banks with an
original maturity between three and twelve months, liquid
investments and investments in mutual funds which are intended
to be held for trading purposes.
Trading securities are recorded at fair value. Unrealized
holding gains and losses on trading securities are included in
the statement of operations.
Long-term investments include quoted investment securities which
are classified as available-for-sale securities and are
initially recorded at cost with subsequent changes in fair
values included in accumulated other comprehensive income, a
component of shareholders equity. Gains and losses
resulting from the sale of such securities are reclassified from
accumulated other comprehensive income to earnings in the year
they are sold by using the specific identification method.
A decline in the fair value of any available-for-sale securities
below their carrying value that is deemed to be other than
temporary results in a reduction in carrying amount to fair
value and a corresponding charge to the statement of operations.
Fair value is based on quoted market prices.
Securities for which there is no readily determinable fair value
are recorded at cost, subject to an impairment charge for any
other than temporary decline in value. The impairment is charged
to statement of operations.
Debt securities for which management has an intent and ability
to hold to maturity are classified as
held-to-maturity
securities and are reported at amortized cost.
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Allowances for doubtful accounts |
Accounts receivable are generally secured. The Company
establishes an allowance for doubtful accounts on all accounts
receivable based on the present financial condition of the
customer and aging of the accounts receivable after considering
historical experience and the current economic environment.
F-9
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Inventories include raw materials, ore, concentrate,
work-in-progress,
stores and spares and finished goods and are stated at the lower
of cost and net realizable value, less any provision for
obsolescence. Extraction of ore includes all indirect costs
associated with the mining operations including costs such as
manpower cost associated with the mining operations and repairs
and maintenance of assets used in the mining operations, and
also include depreciation, depletion and amortization associated
with mining operations. Cost is determined as follows:
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Purchased ore or concentrate is recorded at cost on a
first-in, first-out
basis; |
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All other materials including stores and spares are recorded on
a weighted average basis; |
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|
Finished products are valued at raw material cost plus costs of
conversion, comprising labor costs and an attributable
proportion of manufacturing overheads; and |
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|
By-products and scrap are valued at the lower of cost and net
realizable value. Net realizable value is determined based on an
estimated selling price, less further costs expected to be
incurred for completion and disposal. |
Capitalization of costs related to the mines and other property,
plant and equipment begins with the extraction of ore, which is
the output from the first stage of the mining activity.
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Equity investment in associate |
An associate is an entity with respect to which the Company is
in a position to exercise significant influence. Significant
influence generally exists when the Company owns between 20.0%
and 50.0% of the voting equity. Goodwill arising on the
acquisition of associate is included in the carrying value of
investments in associate.
The consolidated statement of operations includes the
Companys share of associates results. The investment
is initially recorded at the cost to the Company in the
consolidated balance sheet and then, in subsequent periods, the
carrying value of the investment is adjusted to reflect the
Companys share of the associates profits or losses,
any impairment of goodwill and any other changes to the
associates net assets.
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Property, plant and equipment |
Property, plant and equipment includes land, buildings, mine
properties, plant and machineries, assets under construction and
others.
Exploration and evaluation expenditures are written off in the
year in which they are incurred. The costs of mine properties,
which include the costs of acquiring and developing mine
properties and mineral rights, are capitalized and included in
property, plant and equipment under the heading Mine
properties in the year in which they are incurred.
When it is determined that a mining property has begun
production of saleable minerals extracted from an ore body, all
further pre-production primary development expenditures are
capitalized as part of the cost of the mining property until the
mining property begins production of saleable minerals. From the
time mining property is capable of producing saleable minerals
the capitalized mining property costs are amortized on a
unit-of-production
basis over the total estimated remaining commercial reserves of
each property or group of properties.
F-10
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Stripping costs or secondary development expenditures incurred
during the production stage of operations of an ore body are not
deferred and are charged to the statement of operations as
incurred. Secondary development costs refer to expenses incurred
after the mining property has begun production of saleable
minerals extracted from an ore body. Such costs include the
costs of removal of overburden and other mine waste materials to
access mineral deposits incurred during the production phase of
a mine. Prior to the adoption of Emerging Issue Task
Force (EITF) 04-06, the Company had
utilized the accounting policy of expensing stripping costs or
secondary development costs incurred during the production phase
of the mine. Hence, the issuance and adoption of EITF 04-06
did not have any impact on the Companys fiscal periods
prior to the required adoption date.
When mine property is abandoned, the cumulative capitalized
costs relating to the property are written off in the period of
abandonment.
Commercial reserves are proven and probable reserves. Changes in
the commercial reserves affecting unit of production
calculations are accounted for prospectively over the revised
remaining reserves. Proven and probable reserve quantities
attributable to stockpiled inventory are classified as inventory
and are not included in the total proven and probable reserve
quantities used in the units of production depreciation,
depletion and amortization calculations.
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Other property, plant and equipment |
The initial cost of property, plant and equipment consists of
its purchase price, including import duties and non-refundable
purchase taxes, and any directly attributable costs of bringing
an asset to working condition and location for its intended use.
Expenditures incurred after the property, plant and equipment
have been put into operation, such as repairs and maintenance,
are normally charged to the statements of operations in the
periods in which the costs are incurred. Major shut-down and
overhaul expenditure is expensed when incurred.
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Depreciation, depletion and amortization |
Mine properties and other assets in the course of development or
construction, and freehold land, are not depreciated.
Capitalized mining property costs are amortized once commercial
production commences, as described in Mine
properties. Assets under capital leases and leasehold
improvements are amortized on a straight-line method over their
estimated useful life or the lease term, as appropriate.
Other buildings, plant and equipment, office equipment and
fixtures and others are stated at cost less accumulated
depreciation and any provision for impairment. Depreciation
commences when the assets are ready for their intended use.
Depreciation is provided at rates calculated to write off the
cost, less estimated residual value, of each asset on a
straight-line basis over its expected useful life, as follows:
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Buildings:
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Operations
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30 years |
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Administration
|
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50 years |
|
Plant and machinery
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10-20 years |
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Office equipment and fixtures
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3-20 years |
|
The carrying amounts of property, plant and equipment are
reviewed for impairment if events or changes in circumstances
indicate that the carrying value of an asset may not be
recoverable. If there are indicators of impairment, an
assessment is made to determine whether the assets
carrying value exceeds
F-11
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
the future undiscounted cash flows expected from the asset. When
the carrying value of an asset exceeds its fair value, an
impairment loss is computed using a discounted cash flow
analysis to determine the fair value and is recorded in the
statements of operations.
For mine properties, the recoverable amount of an asset is
determined on the basis of its value in use. The value in use is
estimated by calculating the undiscounted cash flows expected to
arise from the continuing use of an asset and from its disposal
at the end of its useful life.
For other property, plant and equipment, the recoverable amount
of an asset is also considered on the basis of its net
realizable value, where it is possible to assess the amount that
could be obtained from the sale of an asset in an arms
length transaction, less the cost of disposal.
The Company reviews the residual value and useful life of an
asset at least annually or wherever events or changes in
circumstances indicate that its carrying amount may not be
recoverable. If expectations differ from previous estimates,
they are accounted for as a change in accounting estimate.
Recoverable amounts are estimated for individual assets or, if
this is not possible, for a group of assets and liabilities at
the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities.
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Assets under construction |
Assets under construction are capitalized in the capital
work-in-progress
account, which includes advances paid to vendors for supply of
equipment. Upon completion of construction, the cost of
construction is transferred to the appropriate category of
property, plant and equipment. Costs associated with the
commissioning of an asset are capitalized until the period of
commissioning has been completed and the asset is ready for its
intended use.
All business combinations are accounted for as acquisitions
using the purchase method. Purchase accounting involves
recording assets and liabilities of the acquired entities at
their fair value on the acquisition date. To the extent that any
excess purchase consideration relates to the acquisition of mine
properties, that amount is capitalized within property, plant
and equipment as Mine properties. Other excess
purchase consideration relating to the acquisition of entities
is capitalized as goodwill.
Where the fair values of the identifiable assets and liabilities
exceed the cost of acquisition, the surplus is first allocated
to identifiable assets and the residual value, if any, is
reflected in the statements of operations in the period of
acquisition as an extraordinary gain.
The results of entities acquired or sold during the year are
consolidated for the periods from, or to, the date on which
control is acquired or given up.
The company reports long-term debt at the outstanding principal
balance. Issuance costs of long-term debt are amortized over the
tenure of the debt using the effective interest method.
Interest costs, including premiums payable on settlement or
redemption and direct issuance costs, are accounted for on
accruals basis and charged to the statements of operations using
the effective interest method. Interest costs are added to the
carrying amount of the instrument to the extent that they are
not settled in the period in which they arise.
F-12
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
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Capitalization of interest |
Interest expense directly relating to the financing of a
qualifying capital project under construction are capitalized
and added to the project cost during construction until such
time as the related asset is substantially ready for its
intended use. For debt specific to finance a project, the amount
capitalized represents the actual borrowing costs incurred.
Funds borrowed to finance a specific project, if temporarily in
excess of capital needed are invested in short-term investments
and the resulting income is recognized in the statements of
operations. When the funds are used to finance a project from
general debt of the Company, the interest amount to be
capitalized is calculated using a weighted average rate
applicable to the relevant general debt during such period.
All other borrowing costs are recognized in the statements of
operations in the period in which they are incurred.
The Company participates in defined benefit and contribution
schemes, the assets of which are (where funded) held in
separately administered funds. The cost of providing benefits
under the plans is determined each year separately for each plan
using the projected unit credit actuarial method.
All actuarial gains and losses arising in the year are
recognized in the statement of operations for the year in which
they arise.
For defined contribution schemes of provident fund scheme,
superannuation scheme and Australian pension scheme, the amount
charged to the statements of operations is the contribution
payable for the year.
Basic earnings per share is computed by dividing earnings by the
weighted average number of equity shares outstanding during the
period.
Diluted earnings per share is computed by dividing net income by
the diluted weighted average number of equity shares outstanding
during the period. The dilutive effect of convertible securities
is reflected in diluted earnings per share by application of the
if-converted method,
except where the results will be anti-dilutive.
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Asset retirement obligations |
Legal obligations associated with the retirement of a tangible
long-lived asset that
result from its acquisition, construction, development or normal
operation are recorded as asset retirement obligations.
The Company recognizes liabilities, at fair value, for existing
legal asset retirement obligations in the periods in which they
are incurred if a reasonable estimate of the fair value of the
liabilities can be made. Such liabilities are adjusted for
accretion expenses and revisions in estimated cash flows. The
related asset retirement costs are capitalized as increases to
the carrying amount of the associated
long-lived assets and
accumulated depreciation on these capitalized costs is
recognized in the statements of operations.
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Environmental costs and liabilities |
Environmental costs that are not legal asset retirement
obligations are expensed or capitalized, as appropriate, on an
undiscounted basis. Expenditures relating to existing conditions
caused by past operations, which do not contribute to future
revenues, are expensed when probable and estimable and are
F-13
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
normally included in cost of sales and operating expenses.
Recoveries relating to environmental liabilities are recorded
when received.
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|
Derivative financial instruments |
To hedge its exposure to foreign exchange, interest rate and
commodity price risks, the Company enters into forwards,
options, swap contracts and other derivative financial
instruments. The Company does not hold nor enter into derivative
financial instrument contracts for speculative purposes.
Derivative financial instruments are initially recorded at their
fair value on the date of the derivative transaction and are
re-measured at their
fair value at subsequent balance sheet dates.
Changes in the fair value of derivatives that are designated and
qualify as fair value hedges are recorded in the statements of
operations for both, the effective and ineffective position. The
hedged item is recorded at fair value and any gain or loss is
recorded in the statements of operations and is offset by the
gain or loss from the change in the fair value of the derivative.
Changes in the fair value of derivatives that are designated and
qualify as cash flow hedges are recorded in equity. Amounts
deferred to equity are recognized in the statements of
operations in the periods when the hedged item is recognized in
the statements of operations. Ineffective portions of changes in
the fair value of cash flow hedges are recognized in statements
of operations.
Derivative financial instruments that do not qualify for hedge
accounting are marked to market at the balance sheet date and
gains or losses are recognized in the statements of operations
immediately. Hedge accounting is discontinued when the hedging
instrument expires or is sold, terminated or exercised, or no
longer qualifies for hedge accounting. Any cumulative gain or
loss on cash flow hedge instrument is recognized in other
comprehensive income (OCI) and in the consolidated
statements of operations when the hedged item affects earnings.
Derivatives embedded in other financial instruments or other
host contracts are treated as separate derivatives and
marked-to-market when their risks and characteristics are not
clearly and closely related to those of the host contracts and
the host contracts are not fair-valued.
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Foreign currency transactions |
Foreign currency transactions are translated into the functional
currency of each entity at the rates of exchange prevailing on
the date of the respective transactions. Monetary assets and
liabilities in foreign currencies are translated into the
functional currency of each entity at the exchange rate
prevailing on the balance sheet date. Gains and losses on
foreign currency transactions are included as (expense) income
in the consolidated statements of operations.
Revenues are recognized when title and risk of loss pass to the
customer and when collectibility is reasonably assured. The
passing of title and risk of loss to the customer is based on
terms of sale contract upon shipment or delivery of product.
Certain of our sales contracts provide for provisional pricing
based on the price on The London Metal Exchange Limited
(LME), as specified in the contract, when shipped.
Final settlement of the prices is
F-14
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
based on the applicable price for a specified future period. The
Companys provisionally priced sales contain an embedded
derivative that is unrelated to the commodity sale and is
accounted for separately from the contract. The embedded
derivative, which is the final settlement price based on the
future price, does not qualify for hedge accounting and
accordingly is marked to market. Proceeds from the sale of
material by-products
are included in revenue.
Dividend income is recognized when the right to receive payment
is announced and approved. Interest income is recognized on an
accrual basis.
Tax expense includes the current tax expense and deferred tax
expense.
Current taxes are determined based on amounts expected to be
paid (or recovered) using the tax rates and laws that have been
enacted by the balance sheet date.
Deferred taxes are determined using the balance sheet method on
all temporary differences at the balance sheet date between the
tax bases of assets and liabilities and their carrying amounts
for financial reporting purposes.
The Company does not record deferred taxes on unremitted
earnings of subsidiaries, associate and joint ventures where it
is probable that the temporary differences will not reverse in
the foreseeable future or management intends to reinvest such
unremitted earnings indefinitely.
Deferred tax assets and liabilities are measured at the tax
rates that are expected to apply to the year when the asset is
realized or the liability is settled, based on tax rates (and
tax laws) that have been enacted as of the balance sheet date.
Deferred taxes relating to temporary differences on items
recorded in other comprehensive income are recognized directly
in shareholders equity and not in the statements of
operations.
Deferred tax assets are reviewed for recoverability, and a
valuation allowance is recorded against deferred tax assets to
the extent that it is more likely than not that the deferred tax
asset will not be realized.
Deferred tax assets and liabilities are offset when they relate
to income taxes levied by the same taxation authority and the
relevant entity intends to settle its current tax assets and
liabilities on a net basis.
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Accumulated other comprehensive income |
The Company reports accumulated other comprehensive income as a
separate component of shareholders equity. The
Companys accumulated other comprehensive income is
comprised of cumulative foreign currency translation adjustments
arising on the consolidation of foreign subsidiaries, unrealized
gains and losses on
available-for-sale
securities and unrealized gains and losses on cash flow hedges.
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Shares issued by subsidiary/affiliate |
The issuance of shares by a subsidiary/affiliate to third
parties reduces the proportionate ownership interest in the
investee. A change in the carrying value of the investment in a
subsidiary/ affiliate due to direct issue of shares by the
investee is accounted for as a capital transaction, and the
resultant gain or loss is recognized in the shareholders
equity when the transaction occurs.
F-15
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
The accompanying consolidated financial statements have been
prepared in Indian Rupees, the functional currency of the
Company. Solely for the convenience of the readers, the
consolidated financial statements as of March 31, 2006 have
been translated into US dollars ($) at the noon
buying rates of $1.00 = Rs. 44.48 in the City of New York
for cable transfers of Indian rupees as certified for customs
purposes by the Federal Reserve Bank of New York on
March 31, 2006. No representation is made that the Indian
Rupee amounts represent US dollar amounts or have been, could
have been or could be converted into US dollars at such a
rate or any other rate.
The preparation of the consolidated financial statements in
conformity with US GAAP requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities, revenues and expenses and disclosure of contingent
assets and liabilities at the date of the financial statements
and the results of operations during the reporting period.
Significant items subject to such estimates and assumptions
include the carrying value of mine properties, useful economic
lives of assets, impairment, environmental cost and asset
retirement obligations, commitments contingencies and guarantees
and deferred taxes.
Management believes that the estimates used in the preparation
of the consolidated financial statements are prudent and
reasonable. Although these estimates are based upon
managements best knowledge of current events and actions,
actual results could differ from estimates.
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Recently issued accounting pronouncements |
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Financial Accounting Standards Board (FASB) Staff
Position (FSP) Nos.
FAS 115-1 and
FAS 124-1,
The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain Investments |
In March 2004, the EITF issued EITF Issue No.
03-1, The Meaning
of Other-Than-Temporary Impairment and Its Application to
Certain Investments. EITF Issue
No. 03-1 provides
guidance for evaluating whether an investment is
other-than-temporarily
impaired and requires disclosures about unrealized losses on
investments in debt and equity securities. In September 2004,
the FASB issued FSP on EITF
Issue 03-1-1,
Effective Date of
Paragraphs 10-20
of EITF
Issue No. 03-1,
which deferred the effective date of the recognition and
measurement provisions of the consensus until further guidance
is issued.
In November 2005, the FASB issued FSP
Nos. FAS 115-1
and FAS 124-1,
The Meaning of
Other-Than-Temporary
Impairment and Its Application to Certain Investments,
revising the recognition and measurement provisions of EITF
Issue No. 03-1.
This FSP clarified and reaffirmed existing guidance as to when
an investment is considered impaired, whether that impairment is
other than temporary, and the measurement of an impairment loss.
Certain disclosures about unrealized losses on
available-for-sale debt
and equity securities that have not been recognized as
other-than-temporary
impairments are required under the FSP. The FSP is effective for
fiscal years beginning after December 15, 2005. The
adoption of the FSP did not have a significant impact on the
Companys financial position, operating results or cash
flows.
F-16
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
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SFAS No. 154, Accounting Changes and Error
Corrections replacement of APB Opinion No. 20
and FASB Statement No. 3 |
In May 2005, the FASB issued SFAS No. 154,
Accounting Changes and Error Corrections a
replacement of Accounting Principles Boards
(APB) Opinion No. 20 and FASB Statement
No. 3. SFAS No. 154 generally requires
retrospective application to prior periods financial
statements of all voluntary changes in accounting principle and
changes required when a new pronouncement does not include
specific transition provisions. The statement applied to the
Company beginning January 1, 2006 and did not have a
material impact on the Companys financial position,
operating results or cash flows.
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EITF Issue
No. 05-6,
Determining the Amortization Period for Leasehold
Improvements Purchased after Lease Inception or Acquired in a
Business Combination |
In June 2005, the EITF reached a consensus on Issue
No. 05-6,
determining the amortization period for leasehold improvements
(EITF 05-6)
EITF 05-6 provides
guidance on determining the amortization period for leasehold
improvements acquired in a business combination or acquired
subsequent to lease inception. The guidance in
EITF 05-6 will be
applied prospectively and is effective for periods beginning
after June 29, 2005. The Company does not expect the
adoption of
EITF 05-6 to have
a material effect on its results of operations or financial
condition.
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Financial Accounting Interpretations 48, Accounting for
Uncertainty in Income Taxes an interpretation of
FASB Statement No. 109, Accounting for Income
Taxes (FIN 48) |
In June 2006, the FASB issued Interpretation No. 48,
Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109, Accounting
for Income Taxes (FIN 48), which clarifies the
accounting for uncertainty in income taxes. FIN 48
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. The
interpretation requires that the Company recognize in the
financial statements the impact of a tax position, if that
position is more likely than not of being sustained on audit,
based on the technical merits of the position. FIN 48 also
provides guidance on derecognition, classification, interest and
penalties, accounting in interim periods and disclosure. The
provisions of FIN 48 are effective for fiscal years
beginning after December 15, 2006 with the cumulative
effect of the change in accounting principle recorded as an
adjustment to opening retained earnings. The adoption of this
statement is not expected to have a material impact on the
Companys consolidated financial position or results of
operations.
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3. |
Cash and Cash Equivalents |
Cash and cash equivalents consist of the following as of
March 31:
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|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Cash in hand
|
|
|
4 |
|
|
|
8 |
|
|
|
0.2 |
|
Cash at bank
|
|
|
483 |
|
|
|
1,626 |
|
|
|
36.5 |
|
Short-term deposits
|
|
|
5,422 |
|
|
|
7,624 |
|
|
|
171.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
|
5,909 |
|
|
|
9,258 |
|
|
|
208.1 |
|
|
|
|
|
|
|
|
|
|
|
F-17
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
4. |
Restricted Cash, Deposits and Investments |
Restricted cash, deposits and investments consist of the
following as of March 31:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Dividend, debenture, debenture interest account
|
|
|
75 |
|
|
|
84 |
|
|
|
1.9 |
|
Short-term deposits with banks
|
|
|
150 |
|
|
|
20 |
|
|
|
0.4 |
|
Short-term investment securities
|
|
|
|
|
|
|
1,000 |
|
|
|
22.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Restricted cash, deposits and investments
|
|
|
225 |
|
|
|
1,104 |
|
|
|
24.8 |
|
|
|
|
|
|
|
|
|
|
|
Short-term deposits with banks and investment securities have
been pledged with banks for credit facilities.
In accordance with the Indian Companies Act, 1956 (the
Companies Act), dividends must be paid within thirty
days from the date of the declaration and dividends unpaid or
unclaimed after that period must be transferred within seven
days after the expiry of such thirty day period to a special
unpaid dividend account held at a designated banking
institution. Further any amount of dividend, matured debentures
or debentures interest which remains unpaid or unclaimed for
seven years from the date it becomes due shall be transferred to
the Investor Education and Protection Fund (Fund)
established by the Government of India. Until transferred to
such Fund, any such amount is treated as restricted cash under
the Companies Act.
|
|
5. |
Short-Term and Long-Term Investments |
Short-term and long-term investments consist of the following as
of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Short-term investments and deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
Trading securities and deposits
|
|
|
18,078 |
|
|
|
24,048 |
|
|
|
540.7 |
|
Unrealized holding gain
|
|
|
155 |
|
|
|
406 |
|
|
|
9.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
|
18,233 |
|
|
|
24,454 |
|
|
|
549.8 |
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments at cost
|
|
|
984 |
|
|
|
984 |
|
|
|
22.1 |
|
Available for sale (AFS) securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value
|
|
|
42 |
|
|
|
55 |
|
|
|
1.3 |
|
|
Unrealized holding gain
|
|
|
13 |
|
|
|
28 |
|
|
|
0.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value
|
|
|
55 |
|
|
|
83 |
|
|
|
1.9 |
|
|
|
|
|
|
|
|
|
|
|
Held-to-maturity
|
|
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
1,279 |
|
|
|
1,067 |
|
|
|
24.0 |
|
|
|
|
|
|
|
|
|
|
|
Investments at cost include the unquoted investment in equity
shares of Andhra Pradesh Gas Power Corporation Limited
(APGPC) in the amount of Rs. 984 million
($22.1 million).
F-18
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
AFS securities include quoted investments in equity securities
that present the Company with the opportunity for return through
dividend income and gains in value. AFS securities and the APGPC
investments are tested for impairment annually or at an earlier
date if there are indications of impairment. Impairment testing
has not indicated any impairment and hence no impairment charge
is recorded.
The Company invested in non-convertible cumulative redeemable
preference shares of India Foils Limited (IFL) in
the amount of Rs. 240 million in fiscal 2004, which
has been classified as
held-to-maturity under
long-term investments.
This investment is redeemable in fiscal 2009. This investment
was reviewed for impairment based on the financial position of
IFL and the management concluded that the decline in fair value
of the investment below its amortized cost is other than
temporary. As a result, based on impairment testing this
investment was fully impaired during the year ended
March 31, 2006.
|
|
6. |
Accounts Receivable, net |
Accounts receivable, net consist of the following as of
March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Accounts receivable
|
|
|
6,128 |
|
|
|
12,507 |
|
|
|
281.2 |
|
Related party receivable
|
|
|
752 |
|
|
|
290 |
|
|
|
6.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total receivables
|
|
|
6,880 |
|
|
|
12,797 |
|
|
|
287.7 |
|
Allowances for doubtful accounts
|
|
|
(15 |
) |
|
|
(15 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
6,865 |
|
|
|
12,782 |
|
|
|
287.4 |
|
|
|
|
|
|
|
|
|
|
|
Accounts payable consist of the following as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Accounts payable
|
|
|
7,059 |
|
|
|
16,171 |
|
|
|
363.6 |
|
Acceptances
|
|
|
12,123 |
|
|
|
13,553 |
|
|
|
304.7 |
|
Related party payable
|
|
|
231 |
|
|
|
515 |
|
|
|
11.5 |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
19,413 |
|
|
|
30,239 |
|
|
|
679.8 |
|
|
|
|
|
|
|
|
|
|
|
Acceptances represents bills of exchange drawn by suppliers of
raw material that the bank accepts to make payment on the bill
on its due date.
F-19
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Inventories consist of the following as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Finished goods
|
|
|
545 |
|
|
|
1,420 |
|
|
|
31.9 |
|
Work-in-progress
|
|
|
3,667 |
|
|
|
6,566 |
|
|
|
147.6 |
|
Raw materials
|
|
|
4,885 |
|
|
|
9,883 |
|
|
|
222.2 |
|
Stores and spares
|
|
|
1,460 |
|
|
|
1,702 |
|
|
|
38.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Inventories
|
|
|
10,557 |
|
|
|
19,571 |
|
|
|
440.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
9. |
Property, Plant and Equipment, net |
Property, plant and equipment, net consist of the following as
of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Land freehold
|
|
|
300 |
|
|
|
299 |
|
|
|
6.7 |
|
Land development
|
|
|
221 |
|
|
|
221 |
|
|
|
5.0 |
|
Buildings
|
|
|
4,349 |
|
|
|
9,550 |
|
|
|
214.7 |
|
Mine properties
|
|
|
16,904 |
|
|
|
16,740 |
|
|
|
376.3 |
|
Plant and machinery
|
|
|
58,517 |
|
|
|
84,783 |
|
|
|
1,906.1 |
|
Others
|
|
|
1,063 |
|
|
|
1,196 |
|
|
|
26.8 |
|
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
81,354 |
|
|
|
112,789 |
|
|
|
2,535.6 |
|
Accumulated depreciation, depletion and amortization
|
|
|
(31,161 |
) |
|
|
(34,431 |
) |
|
|
(774.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net of depreciation, depletion
and amortization before assets under construction
|
|
|
50,193 |
|
|
|
78,358 |
|
|
|
1,761.6 |
|
Assets under construction
|
|
|
28,734 |
|
|
|
7,511 |
|
|
|
168.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
78,927 |
|
|
|
85,869 |
|
|
|
1,930.5 |
|
|
|
|
|
|
|
|
|
|
|
Depreciation, depletion and amortization expense was
Rs. 3,052 million, Rs. 3,257 million and
Rs. 4,547 million ($102.2 million) for the years
ended March 31, 2004, 2005 and 2006, respectively.
Interest capitalized in property, plant and equipment was
Rs. 852 million and Rs. 966 million
($21.7 million) for the years ended March 31, 2005 and
2006, respectively.
F-20
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
10. |
Other Current and Non-Current Assets |
Other current and non current assets consist of the following as
of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Advances to suppliers
|
|
|
3,005 |
|
|
|
2,462 |
|
|
|
55.3 |
|
Advances to employees
|
|
|
494 |
|
|
|
469 |
|
|
|
10.5 |
|
Advances to related parties
|
|
|
393 |
|
|
|
6 |
|
|
|
0.1 |
|
Deposits
|
|
|
1,669 |
|
|
|
1,235 |
|
|
|
27.8 |
|
Prepaid lease rentals
|
|
|
335 |
|
|
|
339 |
|
|
|
7.6 |
|
Fair value of derivatives current
|
|
|
53 |
|
|
|
1,806 |
|
|
|
40.6 |
|
Others
|
|
|
1,051 |
|
|
|
2,964 |
|
|
|
66.7 |
|
|
|
|
|
|
|
|
|
|
|
|
Other current and non-current assets
|
|
|
7,000 |
|
|
|
9,281 |
|
|
|
208.6 |
|
|
|
|
|
|
|
|
|
|
|
Balance sheet classification of the above assets is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
5,746 |
|
|
|
7,741 |
|
|
|
174.0 |
|
|
Non-current
|
|
|
1,254 |
|
|
|
1,540 |
|
|
|
34.6 |
|
|
|
11. |
Other Current Liabilities |
Other current liabilities consist of the following as of
March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Unclaimed dividend
|
|
|
27 |
|
|
|
36 |
|
|
|
0.8 |
|
Advances received
|
|
|
491 |
|
|
|
908 |
|
|
|
20.4 |
|
Interest accrued
|
|
|
287 |
|
|
|
239 |
|
|
|
5.4 |
|
Security deposits received
|
|
|
1,726 |
|
|
|
664 |
|
|
|
14.9 |
|
Fair value of derivatives
|
|
|
1,078 |
|
|
|
2,022 |
|
|
|
45.5 |
|
Others
|
|
|
1,622 |
|
|
|
2,493 |
|
|
|
56.0 |
|
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
5,231 |
|
|
|
6,362 |
|
|
|
143.0 |
|
|
|
|
|
|
|
|
|
|
|
Security deposits refer to deposits received from material and
service suppliers as security against performance. These
deposits are refundable on satisfactory completion of the
contract.
F-21
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
12. |
Other Non-Current Liabilities |
Other non-current liabilities consist of the following as of
March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Payable to related parties
|
|
|
3,068 |
|
|
|
3,118 |
|
|
|
70.1 |
|
Security deposits
|
|
|
67 |
|
|
|
85 |
|
|
|
1.9 |
|
Retirement benefits
|
|
|
441 |
|
|
|
507 |
|
|
|
11.4 |
|
Provision for asset retirement obligations
|
|
|
454 |
|
|
|
247 |
|
|
|
5.6 |
|
Others
|
|
|
18 |
|
|
|
19 |
|
|
|
0.4 |
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current liabilities
|
|
|
4,048 |
|
|
|
3,976 |
|
|
|
89.4 |
|
|
|
|
|
|
|
|
|
|
|
Security deposits refer to deposits received from material and
service suppliers as security against performance. These
deposits are refundable on satisfactory completion of the
contract.
|
|
13. |
Asset Retirement Obligations |
Management estimated its gross aggregate obligations as of
March 31, 2006 to be approximately
Rs. 300 million ($6.7 million) for CMT, HZL and
BALCO. The estimated present value of these obligations was
Rs. 265 million ($6.0 million) as of
March 31, 2006. Asset retirement obligations
(AROs) represent the managements best estimate
of the costs which will be incurred in the future to meet the
Companys obligations under existing Indian and Australian
laws and the terms of the Companys mining and other
licenses and contractual arrangements.
The Company owns mining rights in Australia for copper and in
India for zinc and bauxite. In relation to these mining rights,
the Company has AROs because of existing Indian and Australian
laws and the terms of the Companys mining and other
licenses and contractual arrangements.
The agreement entered into between the Government Australia and
the Company, enabled by the Copper Mines of Tasmania (Agreement
Act), 1999, sets out the legal liabilities of the Company
and the rehabilitation requirements upon the eventual
relinquishment of the leases. The obligations primarily relate
to sealing of the mine and making it safe, removal of buildings,
decommissioning of tailing dam and associated equipments. The
estimated cost of such obligation on an discounted basis is
Rs. 245 million ($5.5 million) as of March 31,
2006. The Company utilizes the services of vendors to provide it
with estimates of such costs and considers such data points in
arriving at its best estimate of such obligations.
The relevant Indian law which governs AROs for mines in India is
the Mines and Minerals (Development and Regulation)
Act, 1957 and the Mineral Conservation and Development
Rules, 1988. Under the relevant legislation, a company which has
been granted a mining lease is expected to submit a mine closure
plan together with a financial assurance which is a surety
furnished by the leaseholder to the Government so as to
indemnify the Government against the reclamation and
rehabilitation cost. The amount of financial assurance is
specified in the act and is calculated on the basis of Rupees
per hectare of leased land, which varies with the categorization
of mines under the Act. The financial assurance for
A category mine is Rs. 25,000 per hectare
of area put to use for mining and allied activities. In case of
B category mine, the financial assurance is
Rs. 15,000 per hectare of area put to use for mining
and allied activities. Most of the Companys mines are
A category mines. This constitutes a legal
obligation on the part of the Company which has been recognized
as ARO.
F-22
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Asset retirement obligations consist of the following as of
March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Asset retirement obligations, beginning of year
|
|
|
426 |
|
|
|
454 |
|
|
|
10.2 |
|
Accretion expense
|
|
|
10 |
|
|
|
11 |
|
|
|
0.2 |
|
Revision for changes in estimate
|
|
|
12 |
|
|
|
29 |
|
|
|
0.7 |
|
Settlement and others
|
|
|
(2 |
) |
|
|
(213 |
) |
|
|
(4.8 |
) |
Foreign exchange (gain) loss
|
|
|
8 |
|
|
|
(16 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligations, end of year
|
|
|
454 |
|
|
|
265 |
|
|
|
6.0 |
|
|
|
|
|
|
|
|
|
|
|
Balance sheet classification of the above obligations is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
18 |
|
|
|
0.4 |
|
|
Non-current
|
|
|
454 |
|
|
|
247 |
|
|
|
5.6 |
|
In connection with the termination of mining activities in the
Australian mine, assets along with tenements, including
associated liabilities, have been sold in the year ended
March 31, 2006. The AROs as of the date of sale of
Rs. 198 million ($4.5 million) have been reduced from
our obligation as we are no longer legally or contractually
obligated for AROs related to the Australian mining activities.
The balance amount of Rs. 15 million relates to the
mining activities in BALCO. Thus, a total of
Rs. 213 million is shown as Settlement and others
above.
|
|
14. |
Short-Term and Long-Term Debt |
Short-term debt represents borrowings with an original maturity
of less than one year. Long-term debt represents borrowings with
an original maturity of greater than one year. Maturity
distribution is based on contractual maturities or earlier dates
at which debt is callable at the option of the holder or the
Company. A significant portion of the long-term debt bears a
fixed rate of interest. Interest rates on floating-rate debt are
generally linked to benchmark rates.
Working capital loans
The Company has credit facilities from various banks for meeting
its working capital requirements, generally in the form of
credit lines for establishing letters of credit, packing credit
in foreign currency (PCFC), cash credit and issuing
bank guarantees. Amounts due under working capital loans as of
March 31, 2005 and 2006 were Rs. 1,238 million
and Rs. 259 million ($5.8 million), respectively.
These loans bear a fixed interest rate of 7.5% per annum. These
are secured by a first lien on the Companys present and
future inventories and accounts receivable and are further
secured by a second lien on all the immovable properties of the
Company.
Floating rate notes
The Company issued US dollar denominated floating rate
notes of $81 million (Rs. 3,603 million) in June
1997 repayable at the end of ten years. In June 2004,
$67.6 million was repaid and the remainder is expected to
be repaid on the maturity of the notes in June 2007. Amounts
outstanding under this facility were Rs. 586 million
and Rs. 598 million ($13.4 million) as of
March 31, 2005 and 2006, respectively. Interest on this
facility is based on the London Inter-Bank Offer Rate
(LIBOR) plus 130 basis points. These are
unsecured debts.
F-23
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Foreign currency
loans
The Company has a US dollar denominated term loan facility
of which $92.6 million (Rs. 4,119 million) was
outstanding as of March 31, 2006, the purpose of which was
to refinance foreign currency loans with various banks. This
facility consists of a Tranche A of $67.6 million
(Rs. 3,007 million) repayable in June 2007 and a
Tranche B of $25.0 million
(Rs. 1,112 million) repayable in September 2008.
Amounts due under this facility as of March 31, 2005 and
2006 were Rs. 3,935 million and
Rs. 3,968 million ($89.2 million), respectively.
Interest on this facility is based on LIBOR plus 44 basis
points. These are unsecured debts.
The Company entered into a term loan facility of Japanese
Yen 3,570 million and $19.7 million in September 2005, the
purpose of which was to refinance foreign currency borrowings
made in August 2002. This loan is to be repaid between August
2006 and August 2008 in five tranches. The balances under this
facility as of March 31, 2005 and 2006 were
Rs. 2,162 million and Rs. 2,165 million
($48.7 million), respectively. Interest on the Japanese Yen
facility is based on JPY LIBOR plus 42 basis points and interest
on the US Dollar facility is based on LIBOR plus 42 basis
points. These are unsecured debts.
The Company had a US dollar denominated term loan of
$25.0 million (Rs. 1,112 million) entered into in
October 2002 and which was repaid in October 2005. The balance
under this loan as of March 31, 2005 was
Rs. 1,208 million and there were no amounts
outstanding under this loan as of March 31, 2006.
Foreign currency syndicated
loan
In September 2003, the Company secured a US dollar
denominated syndicated loan of $125.0 million
(Rs. 5,560 million). The interest rate on the loan is
based on LIBOR plus 61 basis points. Of the total
borrowings, $30.0 million of the balance is to be repaid in
November 2006, $65.0 million in November 2008 and
$30.0 million in November 2010. The balance under this
facility was Rs. 5,469 million and Rs. 5,576 million
($125.4 million) as of March 31, 2005 and 2006. As of
March 31, 2005, these were secured by a lien on the fixed
assets of the Chanderiya, Debari and Vizag smelters of HZL, the
movable assets, excluding inventories and accounts receivable of
HZL. These are unsecured debts as of March 31, 2006.
Term loans
As of March 31, 2006, the Company held syndicated Indian
Rupee fixed rate term loan facilities totaling
Rs. 15,904 million ($357.6 million) and bearing
an average interest rate of 7.3% per annum. The amount
outstanding was Rs. 12,000 million as of
March 31, 2005. These facilities are secured by a first
charge on the movable and immovable properties, present and
future tangible or intangible assets and other than current
assets of BALCO. The first loan, under which
Rs. 10,002 million ($224.9 million) is
outstanding, is repayable in 12 quarterly installments beginning
January 2007 and the second loan, under which
Rs. 5,902 million ($132.7 million) is
outstanding, is repayable in eight quarterly installments
beginning May 2009.
Buyers credit
As of March 31 2006, the Company had extended credit terms
relating to purchases of property, plant and equipment for its
projects. As of March 31, 2005 and 2006, the balances were
Rs. 3,112 million and Rs. 4,316 million
($97.0 million), respectively. These loans bear interest at
LIBOR plus 92 basis points. These are long term and secured
by all the fixed assets of BALCO, immovable or movable, present
and future, on a pari passu basis with other term lenders
and with priority to other creditors.
F-24
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
|
Non-convertible debentures |
In April 2003 the Company had issued Rs. 1,000 million
($22.5 million) Indian Rupee denominated
non-convertible
debentures to the Life Insurance Corporation of India
(LIC). The debentures were established in two
tranches. Tranche A, which is in the amount of
Rs. 400 million ($9.0 million), is due in April
2010 and Tranche B, which is in the amount of
Rs. 600 million ($13.5 million), is due in April
2013. Interest rates are linked to annualized Indian Government
Security rates. The applicable interest rates have varied from
7.9% to 8.0% per annum. These debentures are secured by certain
of SIILs immoveable properties.
|
|
|
Foreign currency redeemable convertible bonds |
In October 2003, the Company issued 50,000 1.0% $1,000
redeemable convertible bonds which are redeemable by the Company
at a premium of $180 per bond on October 27, 2008.
These bonds can be converted into equity shares of the Company,
at the option of the holder, at a conversion price of
Rs. 1,100 per equity share at a fixed exchange rate,
subject to adjustment on the occurrence of certain dilutive
effects, which equates to 41.2 equity shares of the Company
per bond. The Company has the option to redeem the bonds but the
bondholders do not have the redemption option except upon the
occurrence of a change of control of the Company or a delisting
of the Companys equity shares. The bonds became
convertible on December 4, 2003 and 500 of these bonds were
converted into equity shares during the year ended
March 31, 2004 and 25,800 bonds were converted into equity
shares during the year ended March 31, 2005 with the
remaining bonds converted into equity shares during the year
ended March 31, 2006.
Short-term and current portion of
long-term debt consist
of the following as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Bank and financial institutions
|
|
|
5,877 |
|
|
|
270 |
|
|
|
6.1 |
|
Others
|
|
|
350 |
|
|
|
291 |
|
|
|
6.5 |
|
|
|
|
|
|
|
|
|
|
|
Short-term debt
|
|
|
6,227 |
|
|
|
561 |
|
|
|
12.6 |
|
Current portion of long-term debt
|
|
|
2,436 |
|
|
|
3,829 |
|
|
|
86.1 |
|
|
|
|
|
|
|
|
|
|
|
|
Short-term and current portion of long-term debt
|
|
|
8,663 |
|
|
|
4,390 |
|
|
|
98.7 |
|
|
|
|
|
|
|
|
|
|
|
Weighted average interest rate on short-term debt
|
|
|
5.1 |
% |
|
|
8.1 |
% |
|
|
8.1 |
% |
Unused line of credit on short-term debts
|
|
|
6,900 |
|
|
|
23,656 |
|
|
|
531.8 |
|
F-25
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Long-term debt, net of
current portion consist of the following as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Bank and financial institutions
|
|
|
28,629 |
|
|
|
32,650 |
|
|
|
734.1 |
|
Non-convertible debentures
|
|
|
1,253 |
|
|
|
1,090 |
|
|
|
24.5 |
|
Bonds
|
|
|
1,085 |
|
|
|
|
|
|
|
|
|
Others
|
|
|
263 |
|
|
|
326 |
|
|
|
7.3 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
31,230 |
|
|
|
34,066 |
|
|
|
765.9 |
|
Less: Current portion of long-term debt
|
|
|
(2,436 |
) |
|
|
(3,829 |
) |
|
|
(86.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, net of current portion
|
|
|
28,794 |
|
|
|
30,237 |
|
|
|
679.8 |
|
|
|
|
|
|
|
|
|
|
|
The scheduled maturity of long-term debt is set out as below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US dollars | |
As of March 31, |
|
Rs. in millions | |
|
in millions | |
|
|
| |
|
| |
2007
|
|
|
3,829 |
|
|
|
86.1 |
|
2008
|
|
|
11,302 |
|
|
|
254.1 |
|
2009
|
|
|
7,854 |
|
|
|
176.6 |
|
2010
|
|
|
5,492 |
|
|
|
123.5 |
|
2011
|
|
|
4,707 |
|
|
|
105.8 |
|
Thereafter
|
|
|
882 |
|
|
|
19.8 |
|
|
|
|
|
|
|
|
|
Total
|
|
|
34,066 |
|
|
|
765.9 |
|
|
|
|
|
|
|
|
|
|
15. |
Cumulative Mandatorily Redeemable Preference Shares |
The Company raised Rs. 1,750 million by issuing
21,875,000, 1.0% cumulative mandatorily redeemable preference
shares with a par value of Rs. 10 per share for a
premium of Rs. 70 per share on March 4, 2004.
These preference shares were issued to the SIL Employees Welfare
Trust. These preference shares are redeemable on March 4,
2007 at a redemption premium of Rs. 12.75 per share
(redemption amount of Rs. 92.75 per share) along with
outstanding dividends payable on that date.
Since March 4, 2005, the Company has had a call option to
redeem the shares in full or in part before the redemption date.
If the Company had exercised its call option after March 4,
2005 but before March 4, 2006, the redemption price would
have been Rs. 84.25 per preference share. After
March 4, 2006 but before March 4, 2007, the redemption
price was Rs. 88.50 per preference share. After the
redemption date of March 4, 2007, the redemption price
would have been Rs. 92.75 per preference share.
Since these preference shares were subject to mandatory
redemption requirements, they were recorded as a liability in
the consolidated balance sheets. These preference shares were
not traded and hence the fair value approximated the carrying
value.
The amortization of premium on early redemption of preference
shares of Rs. 93 million and Rs. 93 million
($2.1 million) has been recognized in the statements of
operations for the years ended March 31, 2005 and 2006,
respectively.
The outstanding number of shares was 21,875,000 as of
March 31, 2005 and 2006. The accreted value of these
preference shares was Rs. 1,870 million and
Rs. 1,947 million ($43.8 million) as of
March 31,
F-26
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
2005 and 2006, respectively. The Company exercised in full its
call option on June 29, 2006 to redeem these preference
shares at a redemption price of Rs. 88.50 per preference
share. The aggregate redemption price paid was
Rs. 1,936 million.
|
|
16. |
Business Combinations and Divestures |
SIIL, through its wholly-owned subsidiary, Sterlite
Opportunities and Ventures Limited (SOVL), acquired
a controlling interest in HZL in various step acquisitions
commencing in fiscal 2003.
SOVL acquired interests of 26.0%, 20.0% and 18.9% in HZL on
April 11, 2002, June 25, 2002 and November 12,
2003, respectively. HZLs registered office is in Udaipur,
State of Rajasthan, India. HZLs shares are listed on the
Bombay Stock Exchange Limited.
The acquisition by SOVL on June 25, 2002 of an additional
20% interest in HZL increased its ownership interest to 46% and
was made in accordance with regulations of the Securities and
Exchange Board of India (SEBI) (Substantial
Acquisition of Shares and Takeover Regulations).
With this acquisition, the Company contractually acquired
management control of HZL through a shareholders
agreement. As a result, following the acquisition the Company
started consolidating HZLs operating results into its
consolidated financial statements.
Step acquisition accounting requires the allocation of the
excess purchase price to the fair value of net assets acquired.
The excess purchase price is determined as the difference
between the cash paid and the historical book value of the
interest in net assets acquired. The excess purchase
consideration arising on the acquisition of the 46.0% interest
was allocated to mine properties.
On November 12, 2003, SOVL completed the acquisition of an
additional 18.9% of the ordinary share capital of HZL by
exercising a call option available under the original share
purchase agreement. Following this transaction SOVLs
holding in HZL increased to 64.9%. Since the Company had started
consolidating on acquiring management control of HZL, this step
acquisition was treated as an incremental purchase of shares to
reduce the minority interests.
On or after April 11, 2007, SOVL has the right to purchase
all of the Government of Indias remaining shares in HZL at
fair market value. As of March 31, 2005 and 2006, the
Government of Indias holding in HZL was 29.5%. This call
option is subject to the right of the Government of India to
sell 3.5% of HZL to HZL employees. This call option is also
subject to the Government of Indias right, prior to the
exercise of this call option, to sell its shares in HZL.
SIIL purchased a 51.0% holding in BALCO from the Government of
India on March 2, 2001. Under the terms of the purchase
agreement for BALCO and the shareholders agreement by and
among BALCO, the Company and the Government of India, the
Company had a call option that allowed it to purchase any
remaining shares held by the Government of India in BALCO at any
time on or after March 2, 2004. The purchase price per
share under this option would be the higher of the fair market
value and Rs. 49.01 (plus 14.0% interest per annum
compounded semi-annually). During the year ended March 31,
2004, the Company exercised its call option pursuant to the
terms of the shareholders agreement. An independent valuer
was appointed by the Government of India in December 2005 to
determine the fair market value of the shares held by the
Government of India. The independent valuer
F-27
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
has submitted its valuation report in January 2006. On
March 30, 2006, the Company issued a check to the
Government of India for Rs. 10,980 million and
requested the transfer of shares. The Government of India is
contesting the purchase price and the validity of the call
option. At the date of the board of directors (the
Board) approval of the Companys primary
statutory financial statements, the Government of India had not
deposited the check for collection and therefore the issuance of
the check was reversed in the preparation of these consolidated
financial statements. Therefore, the Companys interest in
BALCO has been reflected at 51.0% as of March 31, 2006 and
has remained unchanged until the date of issue of these
financial statements. The Government of India also retains the
right and has expressed an intention to sell 5.0% of BALCO to
BALCO employees.
|
|
|
d. Vedanta Alumina Limited |
During fiscal 2004, the name of one of the Companys
wholly-owned subsidiaries, Sterlite Transmission Limited, was
changed to Vedanta Alumina. In March 2005, following the further
issue of share capital by Vedanta Alumina to Twin Star, the
shareholding of the Company was reduced to 29.5%, with the
balance held by Twin Star. The Company has invested
Rs. 1,656 million in the equity capital of Vedanta
Alumina and accounts for this investment under the equity method
of accounting. The issuance of additional equity by Vedanta
Alumina resulted in an increase in the Companys share of
net assets, thereby resulting in a net gain to the Company of
Rs. 136 million which was recognized directly in
retained earnings during the year ended March 31, 2005.
|
|
|
e. SIL Employees Welfare Trust |
In August 2001, the Company formed SEWT for the benefit of its
employees by contributing to the initial corpus of the trust,
with the objective to provide incentives, motivation, benefits,
and amenities to its employees and their families as defined in
SEWT trust deed, including in the form of share options or share
awards to employees. SIIL advanced an amount of Rs.
383 million to enable SEWT to purchase its equity shares.
During fiscal 2003, SEWT purchased 4,168,907 equity shares of
SIIL in the open market and issued 26,325 equity shares to the
Companys employees as compensation for past services.
In January 2004, SEWT sold 1.8 million shares which
approximated 50% of the shares it owned of SIIL to a controlling
shareholder of the Company at fair market value and recorded a
gain of Rs. 2,475 million. SEWT used the cash from the
sales proceeds to repay the loan together with interest and
invest in mutual funds. SEWT also used the cash to purchase 1%
cumulative mandatorily redeemable preference shares of SIIL on
March 4, 2004 in the amount of Rs. 1,750 million and
these preference shares are redeemable on March 4, 2007 at
a specified redemption premium. With the sale of SIILs
shares by SEWT to the controlling shareholder of the Company,
the Company concluded it was no longer appropriate to account
for SEWT by analogy to employee stock ownership plans. As such,
the Company analyzed SEWT in accordance with the provisions of
FIN 46R and determined SEWT qualified as a variable
interest entity. The Company has also determined that it does
not hold a variable interest in SEWT. Accordingly, in January
2004 the Company deconsolidated SEWT.
In April 2004, SEWT further sold 1.7 million shares it
owned of the Company to the same controlling shareholder of the
Company at fair market value and recorded a gain of Rs.
776 million.
As of March 31, 2006, SEWT held 3,551,155 equity shares
with a voting interest equal to 3.2% in SIIL. In the event SEWT
distributes any of the shares it owns of SIIL, the Company will
record compensation expense for the fair value of shares granted
to the Companys employees over the vesting period.
As of March 31, 2006, SEWT held 3,551,155 equity shares
with a voting interest equal to 3.2% in SIIL. In the event SEWT
distributes any of the shares it owns of SIIL, the Company will
record
F-28
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
compensation expense for the fair value of shares granted to the
Companys employees over the vesting period.
|
|
17. |
Accumulated Other Comprehensive Income/(Loss) |
The components of accumulated other comprehensive income/(loss)
consist of the following as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Unrealized gain on available-for-sale securities
|
|
|
1 |
|
|
|
20 |
|
|
|
0.4 |
|
Foreign currency translation adjustment
|
|
|
(433 |
) |
|
|
(399 |
) |
|
|
(9.0 |
) |
Unrealized loss on cash flow hedges
|
|
|
|
|
|
|
(140 |
) |
|
|
(3.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
|
(432 |
) |
|
|
(519 |
) |
|
|
(11.8 |
) |
|
|
|
|
|
|
|
|
|
|
SIILs issued equity share capital as of March 31,
2005 and 2006 was Rs. 549 million and
Rs. 559 million ($12.5 million), consisting of
109,785,589 shares and 111,738,469 shares,
respectively, of Rs. 5 each including 4,099,400 equity
shares allotted as fully paid upon conversion of 50,000 foreign
currency redeemable convertible bonds.
By a special resolution on March 29, 2006, the shareholders
of SIIL approved a stock split resulting in a reduction in the
par value of each equity share from Rs. 5 to
Rs. 2 per equity share effective as of May 12, 2006
(the Record Date). The number of issued and
subscribed equity shares increased to 279,346,173 shares of
par value Rs. 2 each. On this date, SIIL also issued one
additional equity share for each issued equity share, increasing
the issued equity share capital to Rs. 1,117 million
consisting of 558,494,411 equity shares of par value
Rs. 2 each. All share and per share data have been
retroactively restated to reflect the effect of stock split and
stock dividend.
In October 2003, SIIL issued 50,000 1.0% $1,000 redeemable
convertible bonds which are redeemable by SIIL at a premium of
$180 per bond on October 27, 2008. These bonds can be
converted into equity shares of SIIL at a conversion price of
Rs. 1,100 per equity share, subject to adjustment on
the occurrence of certain dilutive effects, and a fixed exchange
rate, which equated to 41.2 equity shares in SIIL per bond held.
The bonds became convertible on December 4, 2003 can be
converted at any time before September 27, 2008. Of these
500 bonds were converted into equity shares in fiscal 2004;
25,800 bonds were converted into equity shares in fiscal
2005; and the balance were converted into equity shares in
fiscal 2006.
Retained earning includes among others balances of general
reserve, debenture redemption reserve and preference share
redemption reserve.
Under the Companies Act, a general reserve is created through an
annual transfer of net income at a specified percentage in
accordance with applicable regulations. The purpose of these
transfers is to ensure that if a dividend distribution in a
given year is more than 10.0% of the paid-up capital of the
company for that year, then the total dividend distribution is
less than the total distributable results for that year. The
F-29
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
balances in the Companys general reserves as determined in
accordance with applicable regulations were
Rs. 6,923 million and Rs. 16,207 million
($364.4 million) as of March 31, 2005 and 2006,
respectively.
|
|
|
Debenture redemption reserve |
The Companies Act requires companies that issue debentures to
create a debenture redemption reserve from annual profits until
such debentures are redeemed. Companies are required to maintain
a minimum proportion of outstanding redeemable debentures as a
reserve. The amounts credited to the debenture redemption
reserve may not be utilized by the Company except to redeem
debentures. Retained earnings of the Company as of
March 31, 2005 and 2006 include Rs. 179 million
($4.0 million) of debenture redemption reserve for each
year.
|
|
|
Preference share redemption reserve |
The Companies Act provides that companies that issue preference
shares may redeem those shares from profits of the company which
otherwise would be available for dividends or from proceeds of a
new issue of shares made for the purpose of redemption of the
preference shares. If there is a premium payable on redemption,
the premium must be provided for, either by reducing the
additional paid in capital (shares premium account) or net
income, before the shares are redeemed.
If profits are used to redeem preference shares, the value of
the nominal amount of shares redeemed should be transferred from
profits (retained earnings) to the capital redemption reserve
account. This amount should then be utilized for the purpose of
redemption of redeemable preference shares. This reserve can be
used to issue fully paid-up bonus shares to the shareholders of
the Company. Retained earnings of the Company includes
Rs. 550 million ($12.4 million) of preference
share redemption reserve as of March 31, 2006.
Each equity share holder is entitled to dividends as and when
the Company declares and pays dividends after obtaining
shareholder approval. Dividends are paid in Indian Rupees.
Remittance of dividends outside India is governed by Indian law
on foreign exchange and is subject to applicable taxes. Equity
dividends paid were Rs. 198 million
(Rs. 5.50 per share), Rs. 215 million
(Rs. 3.00 per share) and Rs. 330 million
(Rs. 3.00 per share) ($7.4 million) for the years
ended March 31, 2004, 2005 and 2006, respectively. Dividend
distribution taxes on the equity dividends were
Rs. 25 million, Rs. 28 million and
Rs. 46 million ($1.0 million) for the years ended
March 31, 2004, 2005 and 2006, respectively, which were
paid by the Company.
Under Indian law, a company is allowed to pay dividends in
excess of 10.0% of its
paid-up capital in any
year from profits for that year only if it transfers a specified
percentage of the profits of that year to reserves. The Company
makes such transfers to general reserves.
If profits for that year are insufficient to declare dividends,
the dividends for that year may be declared and paid out from
accumulated profits on the following conditions:
|
|
|
|
|
the rate of dividend to be declared shall not exceed the average
of the rates at which dividends were declared in the five years
immediately preceding that year or 10.0% of the companys
paid-up share capital, whichever is less; |
F-30
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
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the total amount to be drawn from the accumulated profits earned
in previous years and transferred to the reserves shall not
exceed an amount equal to one-tenth of the sum of the
companys paid-up share capital and net reserves, and the
amount so drawn shall first be utilized to set off the losses
incurred in the financial year before any dividend in respect of
preference or equity share is declared; and |
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the balance of reserves after such withdrawal shall not fall
below 15.0% of the companys
paid-up share capital. |
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19. |
Financial Instruments |
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(a) Derivatives and hedges |
In order to hedge its exposure to foreign exchange, interest
rate and commodity price risks, the Company enters into forward,
option and swap contracts and other derivative financial
instruments. The Company does not hold or issue derivative
financial instruments for speculative purposes.
All derivative financial instruments are recognized as assets or
liabilities on the consolidated balance sheets and measured at
fair value, generally based on quoted market prices or
quotations obtained from financial institutions. The accounting
for changes in the fair value of a derivative instrument depends
on the intended use of the derivative and the resulting
designation.
Prior to April 1, 2005, the Company purchased derivative
contracts for hedging purposes. Since the Company did not meet
all the documentation requirements under US GAAP for
hedging designation, the Company has marked-to-market all such
contracts. These derivative contracts were effective as hedges
from an economic perspective.
The fair values of all derivatives are separately recorded on
the consolidated balance sheets within other current and
non-current assets and liabilities. Derivatives that are
designated as hedges are classified as current or non-current
depending on the maturity of the derivative.
The Company uses derivative instruments as part of its
management of exposures to fluctuations in foreign currency
exchange rates, interest rates and commodity prices. The use of
derivatives can give rise to credit and market risk. The Company
controls credit risk by only entering into contracts with
reputable banks and financial institutions. The use of
derivative instruments is subject to limits, authorities and
regular monitoring by appropriate levels of management. The
limits, authorities and monitoring systems are periodically
reviewed by management and the Board. The market risk on
derivatives is mitigated by changes in the valuation of the
underlying assets, liabilities or transactions, as derivatives
are used only for risk management purposes.
The Company uses forward exchange contracts, currency swaps,
options and other derivatives to hedge the effects of movements
in exchange rates on foreign currency denominated assets and
liabilities. The sources of foreign exchange risk are
outstanding amounts payable for imported raw materials, capital
goods and other supplies as well as financing transactions and
loans denominated in foreign currencies. The Company is also
exposed to foreign exchange risk on its exports. Most of these
transactions are denominated in US dollars. The policy of
the Company is to determine on a regular basis what portion of
the foreign exchange risk on financing transactions and loans
are to be hedged through forward exchange contracts and other
instruments. There are systems in place for the review of open
(i.e. unhedged) exposure limits and stop-loss levels by
management.
F-31
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
The short-term debt of the Company is principally denominated in
Indian Rupees with mix of fixed and floating rates of interest.
The long-term debt is principally denominated in Indian Rupees
and US dollars. The US dollar debt is split between fixed
and floating rates (linked to six-month US dollar LIBOR)
and the Indian Rupee debt is principally at fixed interest
rates. The Company has a policy of selectively using interest
rate swaps, option contracts and other derivative instruments to
manage its exposure to interest rate movements. These exposures
are reviewed by appropriate levels of management on a monthly
basis.
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Counterparty and concentration of credit risk |
The Company is exposed to credit risk for receivables, liquid
investments and derivative financial instruments. There is no
concentration of credit risk for the receivables of the Company
given the large number of customers and the business diversity.
Credit risk on receivables is very limited as almost all credit
sales are against letters of credit of banks of national
standing. For current asset investments, counterparty limits are
in place to limit the amount of credit exposure to any one
counterparty. For derivative and financial instruments, the
credit risk is limited as the Company only deals with reputable
banks and financial institutions. These exposures are further
reduced by having standard International Swaps and Derivatives
Association (ISDA) master agreements including set-off
provisions with each counterparty.
The Company has historically limited the use of derivatives for
commodity hedging. As much as possible, the Company tries to
mitigate price risk through favorable contractual terms.
Moreover, hedging is used purely as a risk management tool and,
in some cases, strategically to secure future cash flows in
cases of high volatility by entering into forward contracts or
similar instruments.
The raw material is mined in India with sales prices linked to
the LME prices. Currently, the Company does not undertake any
hedging activities in its aluminum business.
Copper smelting operations at Tuticorin benefit from a natural
hedge matching of quotational periods for concentrate purchases
with the timing of finished metal sales. The Company hedges
metal prices when entering into customer and supplier contracts
under an arrival/dispatch plan with corresponding future
contracts. These hedges provide an economic hedge of a
particular transaction risk but do not qualify as hedges for
accounting purposes. The difference between the actual metal in
concentrate recovered and the metal content in concentrate paid
for, or free metal, is sometimes hedged for through
forward contracts or options. For the mining assets in
Australia, we have hedged a part of the production to secure
cash flows on a selective basis.
Raw material for zinc and lead is mined in India with sales
prices linked to the LME prices. Currently a part of exports out
of India is hedged through forward contracts or other
instruments.
F-32
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Derivatives embedded in other financial instruments or other
contracts are treated as separate derivative contracts and
marked-to-market when their risks and characteristics are not
clearly and closely related to those of their host contracts and
the host contracts are not fair valued. The Company has
identified provisional pricing as an embedded derivative in the
host contract. The embedded derivative, which is the final
settlement price based on a future price, is marked-to-market
through the statement of operations for each period with
reference to appropriate forward commodity prices.
The fair value of the Companys open derivative positions
(excluding normal purchase and sale contracts), recorded within
other current assets and other current liabilities is as follows:
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2005 | |
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2006 | |
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2006 | |
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As of March 31, |
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Asset | |
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Liability | |
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Asset | |
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Liability | |
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Asset | |
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Liability | |
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| |
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| |
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| |
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Rs. in millions | |
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Rs. in millions | |
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Rs. in millions | |
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Rs. in millions | |
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US dollars | |
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US dollars | |
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in millions | |
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in millions | |
Cash flow hedges:
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Commodity contracts
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103 |
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325 |
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2.3 |
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7.3 |
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Forward foreign currency contracts
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18 |
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0.4 |
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Interest rate swap (floating to fixed)
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41 |
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0.9 |
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Fair value hedges:
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Commodity contracts
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434 |
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197 |
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9.7 |
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4.4 |
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Forward foreign currency contracts
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44 |
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13 |
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1.0 |
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0.3 |
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Other
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48 |
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1.1 |
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Non-qualifying hedges:
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Commodity contracts
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45 |
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268 |
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1,033 |
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997 |
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23.2 |
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22.4 |
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Forward foreign currency contracts
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2 |
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795 |
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103 |
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451 |
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2.3 |
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10.1 |
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Interest rate swap
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6 |
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Other
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15 |
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21 |
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0.5 |
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Fair value
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53 |
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1,078 |
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1,806 |
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2,022 |
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40.6 |
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45.5 |
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The Company purchases copper concentrate at the LME price for
copper metal for the relevant quotational period less a
treatment charge and refining charge (TcRc) which is
negotiated with suppliers based on the prevailing market rate.
TcRc has a variable component linked to LME. The Company is
exposed to differences in the LME prices between the quotational
periods of the purchase of copper concentrate and sale of the
finished copper products. The Company hedges this variability of
LME prices and tries to make the LME price a pass-through cost
between its purchases of copper concentrate and sales of
finished products, both of which are linked to the LME price.
The Company also benefits from the differences between amounts
paid for quantities of copper contents received and recovered in
the manufacturing process, also known as free copper.
F-33
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
The Company, primarily in its copper business, on selected basis
hedged its revenue from variable margins and free copper by
entering into future contracts. The main purpose of hedging is
to fix the prices at a desired level. These are highly probable
forecast transactions and accordingly have been accounted for as
cash flow hedges and stated at fair value. The Company has also
hedged part of its future sales in its aluminum conductor
business. The change in fair value on these derivative contracts
is recorded in OCI. These hedges have been effective for the
year ended March 31, 2006.
The Company uses foreign exchange contracts from time to time to
optimize currency risk exposure on its foreign currency
transactions. The Company hedged a part of its foreign currency
exposure on capital commitments during fiscal 2006. Fair value
changes on the open forward contracts are recognized in OCI.
The Company managed a small portion of its exposure of variable
interest rate debt by entering into floating to fixed interest
rate swaps. These hedges have been effective for the year ended
March 31, 2006. Fair value changes have been recognized in
OCI.
The Company has hedged future firm commitment sales contracts in
its copper business.
In its zinc business, some of the Companys sales are on a
quotational period basis, generally one month to three months
after the date of delivery at a customers facility. The
Company enters into forward contracts for the respective
quotational period based on average LME prices and thereby fixes
its future revenue amount on the date of sale. The fair value
adjustment resulted in losses due to rising metal prices for the
year ended March 31, 2006. Gains and losses on these hedge
transactions were substantially offset by the amount of gains or
losses on the underlying sales.
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Non-qualifying/ economic hedge |
The Company entered into derivative contracts which were not
designated as hedges for accounting purposes, but provide an
economic hedge of a particular transaction risk or a risk
component of a transaction. Hedging instruments include copper
and zinc future contracts on the LME and certain other
derivative instruments. The Company has accounted for fair value
adjustments on its open derivative contracts as
assets/liabilities in its consolidated balance sheets.
The Company has also entered into call-put options
(collars) for hedging the future price volatility on some
parts of its copper sales. The Company has fair valued the open
derivative contracts and the changes in fair value have been
recognized in operating income.
Reconciliation for changes in net loss from derivative
instruments reported in other comprehensive income is as follows:
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Accumulated other | |
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Share of | |
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comprehensive | |
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minority | |
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income | |
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interests | |
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Total | |
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Total | |
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Rs. in millions | |
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Rs. in millions | |
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Rs. in millions | |
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US dollars | |
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in millions | |
Unrealized derivative loss as of April 1, 2005
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Amount recognized in other comprehensive income, net of tax of
Rs. 67 million
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140 |
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(8 |
) |
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132 |
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3.0 |
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Unrealized derivative loss as of March 31, 2006
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140 |
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(8 |
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132 |
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3.0 |
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F-34
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Unrealized derivative losses that are reported in accumulated
other comprehensive income will be reclassified into earnings
when the underlying transactions such as imports or exports of
materials, repayment of debt and purchase of capital items
occur. The entire amount in the table above is expected to be
reclassified into earnings within the next 12 months.
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(b) Other financial instruments |
The carrying amounts of cash and cash equivalents, liquid and
short-term investments in mutual funds, accounts receivable,
prepaid expenses and other current assets, accounts payable,
acceptances, accrued expenses, other current liabilities and
short-term debt approximate their fair values due to the short
terms of these instruments.
The fair values of debt have been estimated by discounting
expected future cash flows using a discount rate equivalent to
the risk free rate of return adjusted for the market spread
required by the Companys lenders for instruments of the
given maturity.
The following table presents a comparison of the fair values and
carrying values of principal financial instruments of the
Company:
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|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
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| |
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| |
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| |
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Carrying | |
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Estimated | |
|
Carrying | |
|
Estimated | |
|
Carrying | |
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Estimated | |
As of March 31, |
|
value | |
|
fair value | |
|
value | |
|
fair value | |
|
value | |
|
fair value | |
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| |
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| |
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Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
US dollars | |
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in millions | |
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in millions | |
Assets:
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Long-term investments
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1,279 |
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1,279 |
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1,067 |
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1,067 |
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24.0 |
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24.0 |
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Liabilities:
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Long-term debt, net of current portion
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28,794 |
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28,657 |
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30,237 |
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29,669 |
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679.8 |
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667.0 |
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20. |
Commitments, Contingencies and Guarantees |
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(a) Commitments and contingencies |
The Company has a number of continuing operational and financial
commitments in the normal course of business including
completion of the construction and expansion of certain assets.
Capital commitments
Significant capital commitments of the Company as of
March 31, 2006 amounted to Rs. 6,304 million
($141.7 million) and these commitments are primarily
related to the capacity expansion projects.
Export obligations
The Company has export obligations of
Rs. 34,225 million ($769.5 million) over eight
years on account of concessional rates received on import duties
paid on capital goods under the Export Promotion Capital Goods
Scheme enacted by the Government of India. If the Company is
unable to meet these obligations, the Companys liability
would be Rs. 4,920 million ($110.6 million),
reduced in proportion to actual exports. Due to the remote
likelihood of the Company being unable to meet its export
obligations, no loss is anticipated with respect to these
obligations and hence no provision has been made in its
consolidated financial statements.
F-35
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
The Company is from time to time subject to litigation and other
legal proceedings. Certain operating subsidiaries of the Company
have been named as parties to legal actions by third party
claimants and by the Indian sales tax, excise and related tax
authorities for additional sales tax, excise and indirect
duties. These claims primarily relate either to the assessable
values of sales and purchases or to incomplete documentation
supporting the Companys tax returns. The Company has
ongoing disputes with income tax authorities relating to tax
treatment of certain items. These mainly include disallowed
expenses, tax treatment of certain expenses claimed by the
Company as deductions, and the computation of, or eligibility
of, certain tax incentives or allowances. Some of the disputes
relate to the year in which the tax consequences of financial
transactions were recognized and in the event these disputes are
not resolved in the Companys favor, the tax consequences
may be reflected in the tax year allowed by the income tax
authorities and are, therefore, timing differences. Most of
these disputes/disallowances, being repetitive in nature, have
been raised by the department consistently in most of the years.
The Company has a right of appeal to the High Court or Supreme
Court of India against adverse initial assessments by the
appellate authorities for matters involving questions of law.
The tax authorities have similar rights of appeal. The total
claims related to these tax liabilities is
Rs. 2,186 million ($49.1 million). Management has
evaluated these contingencies and has estimated it is reasonably
possible that some of these claims may result in loss
contingencies and hence has recorded Rs. 1,609 million
($36.2 million) as current liabilities as of March 31,
2006.
Claims by third parties amounted to Rs. 1,853 million
($41.7 million) as of March 31, 2006 of which
Rs. 73 million ($1.6 million) has been recorded
as current liabilities based on managements estimate that
some of these claims would become obligations of the Company.
The Company intends to vigorously defend these claims as
necessary. Although the results of legal actions cannot be
predicted with certainty, it is the opinion of management, after
taking appropriate legal advice, that the likelihood of these
claims becoming obligations of the Company is remote and hence
the resolution of these actions will not have a material adverse
effect, if any, on the Companys business, financial
condition or results of operations. Therefore, the Company has
not recorded any additional liability beyond what is stated
above in relation to litigation matters in the accompanying
consolidated financial statements.
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(b) Guarantees and Put Option |
The Company has given guarantees on the issuance of customs duty
bonds amounting to Rs. 1,153 million
($25.9 million) for import of capital equipment at
concessional rates of duty. The Company has fulfilled its
obligations under the bonds and procedural formalities are yet
to be completed by the authorities for releasing the bonds. The
Company does not anticipate any liability on these guarantees.
The Company has provided guarantees on behalf of IFL for its
loan obligations to the extent of Rs. 1,820 million
($40.9 million) and the outstanding amounts against these
guarantees as of March 31, 2006 was
Rs. 1,664 million ($37.4 million). For loan
obligations of Rs. 1,270 million of IFL guaranteed by
the Company, the Company has also granted a put option to a bank
under which the bank may require the Company to repurchase the
loan in lieu of looking to the Companys guarantee. The
Company would have a liability under the guarantees and the put
option in the event IFL fails to fulfill its loan obligations.
The maximum potential amount of future payments the Company
would be required to pay is Rs. 1,664 million
($37.4 million) as of March 31, 2006. The Company
reviewed its liabilities under the guarantees and the put option
taking into consideration the financial position of IFL and
estimated that the fair value of the guarantees as of
March 31, 2006 was Rs. 880 million
($19.8 million). As a result, the
F-36
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Company recognized a liability of Rs. 784 million
($17.6 million) for the guarantees and the put option in
fiscal 2006.
The Company has issued a corporate guarantee to MALCO for using
various credit facilities from different banks to the extent of
Rs. 1,100 million ($24.7 million). MALCO in turn
has issued a corporate guarantee with the Company as the
beneficiary in the event of any default by MALCO in fulfilling
its obligations to the banks. As of March 31, 2006, MALCO
had completed all its obligations under the guarantee and hence
the management of the Company has determined that no liability
would arise for the Company.
The Company has issued a corporate guarantee of
Rs. 3,000 million ($67.4 million) on behalf of
Vedanta Alumina for obtaining credit facilities. The Company has
also issued a corporate guarantee of Rs. 1,571 million
($35.3 million) for importing capital equipment at
concessional rates of duty under the Export Promotion Capital
Goods scheme enacted by the Government of India. Vedanta Alumina
is obligated to export goods worth eight times the value of
concessions enjoyed in a period of eight years following the
date of import, failing which the Company is liable to pay the
dues to the government. With respect to the corporate guarantee
of Rs. 1,571 million ($35.3 million), Vedanta
Alumina has issued a counter guarantee to the Company
indemnifying the Company for any liability on such guarantee.
Vedanta Alumina is still in its development stage and is
expected to commence its operational activities in fiscal 2007,
after which it is expected to start fulfilling its obligations
under this scheme. As of March 31, 2006, management
determined that the Company has no liability on either of these
corporate guarantees.
The Company has issued a corporate guarantee of Rs. 271
million ($6.1 million) on behalf of CMT for credit and banking
facilities or for entering into any other treasury-related
transaction as defined in and covered by an ISDA master
agreement. This guarantee was cancelled on August 17, 2006.
The Company has given a bank guarantee amounting to Australian
dollar 5.0 million (Rs. 159 million and $3.6 million) in
favor of the Ministry for Economic Development, Energy and
Resources as a security against rehabilitation liability on
behalf of CMT. The same guarantee is backed by the issuance of a
corporate guarantee of Rs. 320 million ($7.2 million).
These liabilities are fully recognized in the consolidated
financial statements of the Company. The management of the
Company does not anticipate any liability on these guarantees.
The Company has given bank indemnity guarantees amounting to
Australian dollar 6.8 million (Rs. 223 million
and $5.0 million) in favor of the State Government of
Queensland, Australia as a security against rehabilitation
liabilities that are expected to occur at the closure of the
mine. The environmental liability is fully recognized in the
financial statements of the Company. The management of the
Company does not anticipate any liability on these guarantees.
The Company has given performance bank guarantees amounting to
Rs. 2,268 million ($51.0 million) as of
March 31, 2006. These guarantees are issued in the normal
course of business while bidding for supply contracts or in lieu
of advances received from customers. The guarantees have varying
maturity dates normally ranging from six months to
three years. These are contractual guarantees and are
enforceable if the terms and conditions of the contracts are not
met and the maximum liability on these contracts is the amount
mentioned above. The management of the Company does not
anticipate any liability on these guarantees.
The Company has given bank guarantees for securing supplies of
materials and services in the normal course of business. The
value of these guarantees as of March 31, 2006 is
Rs. 525 million ($11.8 million). The Company has
also issued bank guarantees in the normal course of business for
an aggregate value of Rs. 334 million
($7.5 million) for litigations, against provisional
valuation and for other liabilities. The management of the
Company does not expect any liability on these guarantees.
F-37
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
The Companys outstanding guarantees and put option cover
obligations aggregating Rs. 11,422 million
($256.8 million) as of March 31, 2006. The Company
estimates that the likelihood of these claims becoming
obligations of the Company is remote and as such no provision
has been made in the financial statements for these guarantees
and put option.
|
|
|
Overview of the Indian direct tax regime |
Indian companies are subject to Indian income tax on a stand
alone basis and not on a consolidated basis. Each entity is
assessed for tax on taxable profits determined for each fiscal
year beginning on April 1 and ending on March 31. For
each fiscal year, a companys profit or loss is subject to
the higher of the regular income tax payable or the minimum
alternative tax (MAT).
Regular income taxes are assessed based on book profits prepared
under accounting principles generally accepted in India
(Indian GAAP) adjusted in accordance with the
provisions of the Indian Income Tax Act, 1961. Such adjustments
generally relate to depreciation of fixed assets, disallowances
of certain provisions and accruals, the use of tax losses
carried forward and gratuity costs.
MAT is assessed on book profits adjusted for certain limited
items as compared to the adjustments allowed for assessing
regular income tax. MAT is assessed at 7.5% plus a surcharge.
MAT will be assessed at 10.0% (plus a surcharge) effective
April 1, 2006. MAT paid during a year can be set off
against regular income taxes within a period of seven years
succeeding the assessment year in which MAT credit arises.
Income tax returns submitted by companies are regularly
subjected to a comprehensive review and challenges by the tax
authorities. There are appeals procedures available to both the
tax authorities and taxpayers and it is not uncommon for
significant or complex matters in dispute to remain outstanding
for several years before they are finally resolved in the High
Court or the Supreme Court.
There are various tax exemptions or tax holidays available to
companies in India. The most important to the Company are:
|
|
|
|
|
The industrial undertakings exemption
Profits of newly constructed industrial undertakings located in
designated areas of India can benefit from a tax holiday. A
typical tax holiday would exempt 100.0% of the profits from the
undertaking for five years, and 30.0% for five years thereafter. |
|
|
|
The power plants exemption Profits on
newly constructed power plants can benefit from a tax holiday. A
typical holiday would exempt 100.0% of profits for ten
consecutive years within the first 15 years of the power
plants operation. The start of the exemption period is at
the discretion of a company. |
The effect of such tax holidays were Rs. 774 million
(impact on basic EPS Rs. 2.15),
Rs. 692 million (impact on basic EPS
Rs. 1.52) and Rs. 540 million
($12.1 million) (impact on basic EPS
Rs. 0.98 ($0.02)) for the years ended March 31, 2004,
2005 and 2006, respectively.
Business losses can be carried forward for a maximum period of
eight assessment years immediately succeeding the assessment
year for which the loss was first computed. Unabsorbed
depreciation can be carried forward for an indefinite period.
F-38
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Details of tax expense charged to statements of operations for
the years ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
|
|
in millions | |
Current tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indian income tax
|
|
|
2,636 |
|
|
|
2,721 |
|
|
|
7,706 |
|
|
|
173.3 |
|
Foreign income tax
|
|
|
|
|
|
|
3 |
|
|
|
294 |
|
|
|
6.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current tax
|
|
|
2,636 |
|
|
|
2,724 |
|
|
|
8,000 |
|
|
|
179.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indian income tax
|
|
|
381 |
|
|
|
937 |
|
|
|
1,464 |
|
|
|
32.9 |
|
Foreign income tax
|
|
|
(31 |
) |
|
|
(106 |
) |
|
|
(353 |
) |
|
|
(7.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax
|
|
|
350 |
|
|
|
831 |
|
|
|
1,111 |
|
|
|
25.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes for the year
|
|
|
2,986 |
|
|
|
3,555 |
|
|
|
9,111 |
|
|
|
204.9 |
|
Effective income tax rate
|
|
|
28.8% |
|
|
|
29.9% |
|
|
|
29.6% |
|
|
|
29.6% |
|
A reconciliation of income tax expense applicable to accounting
profit before income tax at the statutory income tax rate to
income tax expense at the Companys effective income tax
rate for the year ended March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
|
|
in millions | |
Income before income taxes, minority interests and equity in
net loss of associate
|
|
|
10,356 |
|
|
|
11,885 |
|
|
|
30,782 |
|
|
|
691.9 |
|
Indian statutory income tax rate
|
|
|
35.9% |
|
|
|
36.6% |
|
|
|
33.7% |
|
|
|
33.7% |
|
Expected income tax (benefit) expense at statutory tax rate
|
|
|
3,715 |
|
|
|
4,349 |
|
|
|
10,361 |
|
|
|
232.9 |
|
Disallowable expenses
|
|
|
467 |
|
|
|
654 |
|
|
|
528 |
|
|
|
11.9 |
|
Non-taxable income
|
|
|
(27 |
) |
|
|
(189 |
) |
|
|
(211 |
) |
|
|
(4.7 |
) |
Impact of tax rate differences
|
|
|
(195 |
) |
|
|
145 |
|
|
|
(831 |
) |
|
|
(18.7 |
) |
Tax holiday and similar exemptions
|
|
|
(774 |
) |
|
|
(692 |
) |
|
|
(540 |
) |
|
|
(12.1 |
) |
Minimum alternative tax/wealth tax
|
|
|
20 |
|
|
|
58 |
|
|
|
69 |
|
|
|
1.6 |
|
Other permanent differences
|
|
|
(69 |
) |
|
|
(586 |
) |
|
|
73 |
|
|
|
1.6 |
|
Valuation allowance (reversal)/provision
|
|
|
69 |
|
|
|
(190 |
) |
|
|
(268 |
) |
|
|
(6.0 |
) |
Adjustments to income tax provisions based on tax assessments
|
|
|
(222 |
) |
|
|
6 |
|
|
|
(70 |
) |
|
|
(1.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes recognized in the statement of operations
|
|
|
2,986 |
|
|
|
3,555 |
|
|
|
9,111 |
|
|
|
204.9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowances created in the past have been
reversed/utilized on account of the generation of taxable
profits in a subsidiary.
F-39
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Components of activities gave rise to deferred tax assets and
liabilities as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Deferred tax asset:
|
|
|
|
|
|
|
|
|
|
|
|
|
Business loss carry forwards
|
|
|
310 |
|
|
|
867 |
|
|
|
19.5 |
|
Voluntary retirement scheme
|
|
|
610 |
|
|
|
272 |
|
|
|
6.1 |
|
Property, plant and equipment
|
|
|
99 |
|
|
|
44 |
|
|
|
1.0 |
|
Accounts receivable, net
|
|
|
181 |
|
|
|
241 |
|
|
|
5.4 |
|
Employee benefits
|
|
|
229 |
|
|
|
255 |
|
|
|
5.7 |
|
Others
|
|
|
623 |
|
|
|
795 |
|
|
|
17.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax asset
|
|
|
2,052 |
|
|
|
2,474 |
|
|
|
55.6 |
|
Less: Valuation allowance
|
|
|
(310 |
) |
|
|
(14 |
) |
|
|
(0.3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
|
1,742 |
|
|
|
2,460 |
|
|
|
55.3 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair valuation of loan
|
|
|
(219 |
) |
|
|
(157 |
) |
|
|
(3.5 |
) |
Property, plant and equipment
|
|
|
(10,962 |
) |
|
|
(12,833 |
) |
|
|
(288.5 |
) |
Others
|
|
|
(569 |
) |
|
|
(528 |
) |
|
|
(11.9 |
) |
|
Total deferred tax liabilities
|
|
|
(11,750 |
) |
|
|
(13,517 |
) |
|
|
(303.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
|
(10,008 |
) |
|
|
(11,056 |
) |
|
|
(248.6 |
) |
|
|
|
|
|
|
|
|
|
|
The following are the details of the deferred tax assets and
liabilities as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Deferred tax assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
1,012 |
|
|
|
974 |
|
|
|
21.9 |
|
|
Non-current
|
|
|
730 |
|
|
|
1,486 |
|
|
|
33.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,742 |
|
|
|
2,460 |
|
|
|
55.3 |
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
230 |
|
|
|
271 |
|
|
|
6.1 |
|
|
Non-current
|
|
|
11,520 |
|
|
|
13,246 |
|
|
|
297.8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
11,750 |
|
|
|
13,517 |
|
|
|
303.9 |
|
|
|
|
|
|
|
|
|
|
|
The Company participates in defined benefits and contribution
pension schemes, the assets of which are held (where funded) in
separately administered funds. The cost of providing benefits
under the plans is determined each year separately for each plan
using the actuarial projected unit credit method.
Actuarial gains and losses arising in the year are recognized in
full in the statement of operations of that year.
F-40
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
For defined contribution schemes, the central provident fund
scheme, the superannuation scheme and the Australian pension
scheme, the amount charged to the statements of operations is
the contributions payable in the year.
|
|
|
Defined contribution plans |
The Company contributed an aggregate of
Rs. 214 million, Rs. 223 million and
Rs. 235 million ($5.3 million) for the years
ended March 31, 2004, 2005 and 2006, respectively, to the
following defined contribution plans:
In accordance with Indian Provident Fund Act, employees are
entitled to receive benefits under the Provident Fund. Both the
employee and the employer make monthly contributions to the plan
at a predetermined rate (12.0% for 2006) of an employees
basic salary. The Company has no further obligations under the
plan beyond its monthly contributions which are charged to
income in the period they are incurred. These contributions are
made to the fund administered and managed by the Government of
India. The benefits are paid to employees on their retirement or
resignation from the Company.
Superannuation, another pension scheme applicable in India, is
applicable only to senior executives. Each relevant company
holds a policy with the Life Insurance Corporation of India (the
LIC), to which each company contributes a fixed
amount relating to superannuation, and the pension annuity is
met by the LIC as required, taking into consideration the number
of years of service of the executive and the contributions made.
Accordingly, this scheme has been accounted for as a defined
contribution plan and contributions are charged directly to the
statements of operations.
|
|
|
Australian pension scheme |
The Company also participates in defined contribution pension
schemes in Australia. The contribution of a proportion of an
employees salary in a superannuation fund is a legal
requirement in Australia. The employer contributes, into the
employees fund of choice, 9.0% of the employees
gross remuneration where the employee is covered by the
industrial agreement and 12.0% of the basic remuneration for all
other employees. All employees have the option to make
additional voluntary contributions.
The Companys contribution to the above defined
contribution plans aggregated Rs. 26 million,
Rs. 28 million and Rs. 29 million
($0.6 million) for years ended March 31, 2004, 2005
and 2006 respectively.
In accordance with Payment of Gratuity Act of 1972, SIIL and its
Indian subsidiaries provide a defined benefit plan (the
Gratuity Plan(s)) covering certain categories of
employees. The Gratuity Plan provides a lump sum payment to
vested employees, at retirement, disability or termination of
employment, an amount based on the respective employees
last drawn salary and the years of employment with the Company.
F-41
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
In fiscal 2004, a voluntary retirement scheme offer was
announced and a number of employees accepted such offer. Hence,
these expenses in the amount of Rs. 611 million were
recorded as termination benefits in the income statement during
the year ended March 31, 2004. The effect of the separation
resulted in an increase in the projected benefit obligation of
the Gratuity Plan for the remaining employees. Such a
curtailment loss has been disclosed in the tables below under
the heading settlement expense.
Full actuarial valuations of the assets of the schemes are
performed on an annual basis where such assets are held in
separate funds managed by the LIC of India.
The following table sets out the funded status and the amount
recognized in the financial statements for the gratuity plans as
of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
|
|
in millions | |
Change in projected benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, beginning of year
|
|
|
1,059 |
|
|
|
1,011 |
|
|
|
1,106 |
|
|
|
24.8 |
|
Service cost
|
|
|
60 |
|
|
|
59 |
|
|
|
62 |
|
|
|
1.4 |
|
Interest cost
|
|
|
66 |
|
|
|
73 |
|
|
|
82 |
|
|
|
1.8 |
|
Actuarial (gain) loss
|
|
|
178 |
|
|
|
80 |
|
|
|
(22 |
) |
|
|
(0.5 |
) |
Settlement expense
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits paid
|
|
|
(453 |
) |
|
|
(117 |
) |
|
|
(28 |
) |
|
|
(0.6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Projected benefit obligation, end of the year
|
|
|
1,011 |
|
|
|
1,106 |
|
|
|
1,200 |
|
|
|
27.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, beginning of year
|
|
|
313 |
|
|
|
580 |
|
|
|
697 |
|
|
|
15.7 |
|
Actual return on plan assets
|
|
|
39 |
|
|
|
50 |
|
|
|
47 |
|
|
|
1.1 |
|
Company contributions
|
|
|
681 |
|
|
|
180 |
|
|
|
9 |
|
|
|
0.2 |
|
Benefits paid
|
|
|
(453 |
) |
|
|
(113 |
) |
|
|
(33 |
) |
|
|
(0.7 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets, end of the year
|
|
|
580 |
|
|
|
697 |
|
|
|
720 |
|
|
|
16.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shortfall of plan assets, over benefit obligation
|
|
|
(431 |
) |
|
|
(409 |
) |
|
|
(480 |
) |
|
|
(10.8 |
) |
Accrued pension cost
|
|
|
(431 |
) |
|
|
(409 |
) |
|
|
(480 |
) |
|
|
(10.8 |
) |
Accumulated benefit obligation
|
|
|
550 |
|
|
|
613 |
|
|
|
756 |
|
|
|
17.0 |
|
Liability for the post retirement medical benefits was
Rs. 30 million, Rs. 32 million and
Rs. 27 million ($0.6 million) as of
March 31, 2004, 2005 and 2006 respectively.
The unfunded liability for gratuity plans was Rs. 361
million, Rs. 391 million and Rs. 420 million
($9.4 million) as of March 31, 2004, 2005 and 2006
respectively.
F-42
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Net gratuity cost for the years ended March 31 consist of
the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
|
|
in millions | |
Service cost
|
|
|
60 |
|
|
|
59 |
|
|
|
62 |
|
|
|
1.4 |
|
Interest cost
|
|
|
66 |
|
|
|
73 |
|
|
|
82 |
|
|
|
1.9 |
|
Expected return on plan assets
|
|
|
(24 |
) |
|
|
(46 |
) |
|
|
(47 |
) |
|
|
(1.1 |
) |
Recognized net actuarial (gain) loss
|
|
|
163 |
|
|
|
76 |
|
|
|
(21 |
) |
|
|
(0.5 |
) |
Settlement expense
|
|
|
101 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
|
366 |
|
|
|
162 |
|
|
|
76 |
|
|
|
1.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The assumptions used in accounting for the gratuity plan for the
years ended March 31 are set out below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
2006 | |
|
|
| |
|
| |
|
| |
Discount rate
|
|
|
7.5% |
|
|
|
7.5 |
% |
|
|
7.5 |
% |
Rate of increase in compensation level of covered employees
|
|
|
4.5%-5.0% |
|
|
|
5.0 |
% |
|
|
5.0 |
% |
Expected return on assets
|
|
|
8.0%-8.4% |
|
|
|
8.0 |
% |
|
|
8.0 |
% |
The following table presents estimated future benefit payments
relating to the Gratuity Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
US dollars | |
Year Ended March 31, |
|
Rs. in millions | |
|
in millions | |
|
|
| |
|
| |
2007
|
|
|
31 |
|
|
|
0.7 |
|
2008
|
|
|
57 |
|
|
|
1.3 |
|
2009
|
|
|
96 |
|
|
|
2.2 |
|
2010
|
|
|
124 |
|
|
|
2.8 |
|
2011
|
|
|
175 |
|
|
|
3.9 |
|
Thereafter for five years
|
|
|
1,111 |
|
|
|
25.0 |
|
|
|
23. |
Share-Based Compensation Plans |
The Company offers equity-based award plans to its employees,
officers and directors through its parent Vedanta Resources plc.
|
|
|
The Vedanta Resources Reward Plan (the Reward
Plan) |
The Reward Plan was adopted for the purpose of rewarding a
limited number of employees who had contributed to the
Companys development and growth over the period leading up
to Vedantas listing on the London Stock Exchange in
December 2003. It was used solely to provide awards on listing
and no further awards will be granted under the Reward Plan.
Vedanta has allocated a proportionate cost to the Company on the
basis of the number of shares allotted to the Company employees
that resulted in charges of Rs. 99 million and
Rs. 81 million which are reflected in the statements
of operations for the years ended March 31, 2004 and 2005,
respectively.
|
|
|
The Vedanta Resources Long-Term Incentive Plan (the
LTIP) |
The LTIP is the primary arrangement under which share-based
incentives are provided to the defined management group. The
maximum value of shares that can be awarded to members of the
defined
F-43
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
management group is calculated by reference to the balance of
basic salary and share-based remuneration consistent with local
market practice. The performance condition attaching to
outstanding awards under the LTIP is that of Vedantas
performance, measured in terms of Total Shareholder Return
(TSR) compared over a three year period with the
performance of the companies as defined in the scheme from the
date of grant. Under this scheme, initial awards under the LTIP
were granted in February 2004 with further awards being made in
June 2004, November 2004 and February 2006. The exercise price
of the awards is 10 US cents per share and the performance
period of each award is three years.
The fair value of these awards has been determined at the date
of the grant of the award allowing for the effect of any
market-based performance conditions. This fair value, adjusted
by the Companys estimate of the number of awards that will
eventually vest as a result of non-market conditions, is
expensed on a straight-line basis over the vesting period. The
fair values were calculated using the Monte Carlo simulation
with suitable modifications to allow for specific performance
conditions of the LTIP.
The parent Vedanta on the basis of number of shares allotted to
the Company employees charged a proportionate cost to the
Company in the amount of Rs. 4 million,
Rs. 44 million and Rs. 52 million
($1.2 million) which is recorded in the statements of
operations for the years ended March 31, 2004, 2005 and
2006 respectively.
The Company offered a voluntary separation package in its zinc
and aluminum operations for which Rs. 611 million and
Rs. 186 million were recognized in the statements of
operations in the years ended March 31, 2004 and 2005,
respectively.
The Company impaired certain plant and machinery and buildings
at some of its plants as part of its impairment review and
recognized an expense of Rs. 1,276 million in the year
ended March 31, 2005. These assets are long-lived assets
and include assets which ceased to be in use and also assets
which were never put to their intended use. During the year
ended March 31, 2005 the management reviewed its plans for
the future of these assets and decided not to pursue the
operation of these assets. The fair value of these assets was
determined by the management of the Company taking into
consideration third party valuation and the assets were written
down to their recoverable amounts. The fair value of these
assets was Rs. 331 million as of March 31, 2005
and represent their recoverable value by sale of these assets
less any costs of selling.
The Company had given corporate guarantees to certain banks in
relation to debt of IFL. The Company has also invested in
preference shares of and provided loans to IFL. In the year
ended March 31, 2006, the Company reviewed these
guarantees, investments and loans taking into consideration
IFLs financial position which indicated a need for an
impairment review. The Company estimates that the value of the
investments and loans stand fully impaired as of March 31,
2006 and that the fair value of the guarantees is
Rs. 880 million ($19.8 million). It has therefore
recognized a liability of Rs. 784 million
($17.6 million), taking the total impairment charge to
Rs. 1,300 million ($29.2 million) in fiscal 2006.
F-44
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
25. |
Earnings per Share (EPS) |
The following basic and diluted EPS is adjusted retroactively
for all the periods presented to reflect the impact of stock
dividend, rights issue and stock split effective as of
May 12, 2006 in the tables below for the years ended
March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
|
|
in millions | |
Net income
|
|
|
5,021 |
|
|
|
5,566 |
|
|
|
15,499 |
|
|
|
348.3 |
|
Weighted average number of equity shares for basic earnings per
share
|
|
|
359,007,797 |
|
|
|
455,343,743 |
|
|
|
553,216,634 |
|
|
|
553,216,634 |
|
Basic EPS
|
|
|
Rs.13.99 |
|
|
|
Rs.12.22 |
|
|
|
Rs.28.02 |
|
|
$ |
0.63 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
|
|
in millions | |
Net income
|
|
|
5,021 |
|
|
|
5,566 |
|
|
|
15,499 |
|
|
|
348.3 |
|
Add: Interest expense on foreign currency redeemable convertible
bonds, net of tax*
|
|
|
10 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income for computing diluted EPS
|
|
|
5,031 |
|
|
|
5,603 |
|
|
|
15,499 |
|
|
|
348.3 |
|
Weighted average number of equity shares for basic earnings per
share
|
|
|
359,007,797 |
|
|
|
455,343,743 |
|
|
|
553,216,634 |
|
|
|
553,216,634 |
|
Add: Effect of foreign currency redeemable convertible bonds
|
|
|
8,689,710 |
|
|
|
9,764,400 |
|
|
|
|
|
|
|
|
|
Weighted average number of equity shares for diluted earnings
per share
|
|
|
367,697,507 |
|
|
|
465,108,143 |
|
|
|
553,216,634 |
|
|
|
553,216,634 |
|
Diluted EPS
|
|
|
Rs.13.68 |
|
|
|
Rs.12.05 |
|
|
|
Rs.28.02 |
|
|
$ |
0.63 |
|
|
|
* |
Tax was Rs. 6 million and Rs. 22 million in
fiscal 2004 and 2005, respectively. |
By a special resolution on March 29, 2006, the shareholders
of the Company approved a stock split resulting in a reduction
in the par value of each equity share from Rs. 5 to
Rs. 2 per equity share effective as of May 12,
2006 (the Record Date). The number of issued and
subscribed equity shares increased to 279,346,173 equity shares
of par value Rs. 2 each. On the Record Date, the Company
also issued one additional equity share for each issued equity
share, increasing the issued equity capital to
Rs. 1,117 million consisting of
558,494,411 equity shares of par value Rs. 2 each. All
share and per share data reflect the effect of the stock split
and stock dividend retroactively.
As of March 31, 2006, the Company does not have any
potentially dilutive outstanding equity shares.
F-45
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
26. |
Related Party Transactions |
The Company enters into transactions in the normal course of
business with its related parties, including its parent,
Vedanta, and its subsidiaries and companies over which it has
significant influence. The significant transactions relate to
normal sale and purchase of goods, reimbursement of expenses
incurred, issuance of guarantees and investments. Transactions
include a loan advanced by the Company in fiscal 2004 to a
relative of a director which was repaid in fiscal 2006. Related
party transactions also include legal fees paid to a firm in
which a director of a wholly-owned subsidiary is a partner, on
normal commercial terms and conditions. All inter-company
transactions and balances are eliminated in consolidation. A
summary of significant related party transactions for the years
ended 2004, 2005 and 2006 is noted below:
|
|
|
Enterprises where principal shareholders have control or
significant influence |
|
|
|
|
|
Vedanta Resources plc (Vedanta) |
|
|
|
Twin Star Holdings Limited (Twin Star) |
|
|
|
The Madras Aluminium Company Limited (MALCO) |
|
|
|
Sterlite Optical Technologies Limited (SOTL) |
|
|
|
Sterlite Gold Limited/ Ararat Gold Recovery Company Limited
(SGL) |
|
|
|
Konkola Copper Mines Plc (KCM) |
|
|
|
Monte Cello NV (MCNV) |
|
|
|
Sterlite Foundation |
|
|
|
Vedanta Foundation |
|
|
|
Political and Public awareness trust |
|
|
|
Volcan Investments Limited (Volcan) |
|
|
|
Duratube |
|
|
|
Brockway Inc. |
|
|
|
Twin Star International Limited |
Vedanta Alumina Limited (Vedanta Alumina)
|
|
|
Associate of Vedanta Resources plc |
India Foils Limited (IFL)
F-46
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
Summary of significant related party transactions are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended March 31, |
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
|
|
in millions | |
Sales
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOTL
|
|
|
|
|
|
|
1,127 |
|
|
|
154 |
|
|
|
3.5 |
|
IFL
|
|
|
590 |
|
|
|
1,097 |
|
|
|
1,510 |
|
|
|
33.9 |
|
Purchases
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MALCO
|
|
|
696 |
|
|
|
902 |
|
|
|
364 |
|
|
|
8.2 |
|
Interest and dividend income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vedanta
|
|
|
(109 |
) |
|
|
(135 |
) |
|
|
(242 |
) |
|
|
(5.4 |
) |
MALCO
|
|
|
(85 |
) |
|
|
(15 |
) |
|
|
(15 |
) |
|
|
(0.3 |
) |
IFL
|
|
|
5 |
|
|
|
13 |
|
|
|
21 |
|
|
|
0.5 |
|
Other (payments)/ receipts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vedanta
|
|
|
(316 |
) |
|
|
(349 |
) |
|
|
(275 |
) |
|
|
(6.2 |
) |
Sterlite Foundation and Vedanta Foundation
|
|
|
(15 |
) |
|
|
(37 |
) |
|
|
(32 |
) |
|
|
(0.7 |
) |
Political & charitable trusts
|
|
|
(55 |
) |
|
|
(59 |
) |
|
|
(3 |
) |
|
|
|
|
MALCO
|
|
|
21 |
|
|
|
24 |
|
|
|
54 |
|
|
|
1.2 |
|
Equity related transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
SOTL (refund of share application money)
|
|
|
(1,205 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
SOTL (deferred consideration for acquisition)
|
|
|
(485 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
Twin Star (subscription to rights issue)
|
|
|
|
|
|
|
19,644 |
|
|
|
|
|
|
|
|
|
Guarantees given*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MALCO
|
|
|
2,100 |
|
|
|
1,100 |
|
|
|
1,100 |
|
|
|
24.7 |
|
Vedanta Alumina
|
|
|
|
|
|
|
278 |
|
|
|
4,571 |
|
|
|
102.8 |
|
IFL
|
|
|
755 |
|
|
|
1,820 |
|
|
|
1,820 |
|
|
|
40.9 |
|
|
|
* |
Maximum guarantee amount and does not represent actual liability. |
The significant receivable from and payable to related parties
as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
Vedanta Alumina
|
|
|
1,792 |
|
|
|
1,693 |
|
|
|
38.1 |
|
IFL
|
|
|
240 |
|
|
|
|
|
|
|
|
|
Receivable from/(payable to)
|
|
|
|
|
|
|
|
|
|
|
|
|
IFL
|
|
|
402 |
|
|
|
28 |
|
|
|
0.6 |
|
SOTL
|
|
|
729 |
|
|
|
254 |
|
|
|
5.7 |
|
MCNV
|
|
|
(2,841 |
) |
|
|
(2,839 |
) |
|
|
(63.8 |
) |
Vedanta
|
|
|
(458 |
) |
|
|
(709 |
) |
|
|
(15.9 |
) |
MALCO
|
|
|
|
|
|
|
(86 |
) |
|
|
(1.9 |
) |
F-47
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
The Company is in the business of non-ferrous mining and metals
in India and Australia. The Company has four reportable
segments: copper, zinc, aluminum and corporate and others. The
management of the Company is organized by its main products:
copper, zinc and aluminum. Each of the reported segments derives
its revenues from these main products and hence these have been
identified as reportable segments by the Companys Chief
Operating Decision Maker. Segment profit amounts are evaluated
regularly by the Companys Managing Director and CEO who
has been identified as its Chief Operating Decision Maker (CODM)
in deciding how to allocate resources and in assessing
performance.
The copper business is principally one of custom smelting and
includes a smelter, refinery, phosphoric acid plant, sulphuric
acid plant and copper rod plant at Tuticorin in Southern India
and a refinery and two copper rod plants at Silvassa in Western
India. The Company obtains a small quantity of copper
concentrate from the Mt. Lyell copper mine in Tasmania,
Australia, owned by CMT.
The zinc business is owned and operated by HZL, Indias
leading zinc producer in the Indian zinc market. The Company has
a 64.9% ownership interest in HZL, with the remainder owned by
the Government of India (29.5%) and institutional and public
shareholders (5.6%). HZLs operations include two zinc
smelters, one lead-zinc smelter and one lead smelter in
Northwest India, one zinc smelter in Southeast India and three
lead-zinc mines in Northwest India.
The aluminum business is owned and operated by BALCO, in which
the Company has a 51.0% ownership interest. The remainder of
BALCO is owned by the Government of India. BALCOs
operations include bauxite mines, captive power plants, and
refining, smelting and fabrication facilities in Central India.
The operating segment Corporate and others includes
primarily aluminum conductor business and other corporate
activities.
F-48
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
The operating segments reported are the segments of the Company
for which separate financial information is available. Segment
profit amounts are evaluated regularly by the Companys
managing director and CEO who has been identified as its chief
operating decision maker in deciding how to allocate resources
and in assessing performance.
The following table presents revenue and profit information and
certain asset and liability information regarding the
Companys business segments for the years ended
March 31, 2004, 2005 and 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate | |
|
|
|
|
For the Year Ended March 31, 2004 |
|
Copper | |
|
Zinc | |
|
Aluminum | |
|
and others | |
|
Elimination | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
Net sales
|
|
|
27,046 |
|
|
|
18,213 |
|
|
|
8,217 |
|
|
|
3,312 |
|
|
|
|
|
|
|
56,788 |
|
Inter-segment sales
|
|
|
|
|
|
|
|
|
|
|
446 |
|
|
|
|
|
|
|
(446 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment sales
|
|
|
27,046 |
|
|
|
18,213 |
|
|
|
8,663 |
|
|
|
3,312 |
|
|
|
(446 |
) |
|
|
56,788 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
4,114 |
|
|
|
8,237 |
|
|
|
1,818 |
|
|
|
238 |
|
|
|
|
|
|
|
14,407 |
|
Depreciation, depletion and amortization
|
|
|
(1,261 |
) |
|
|
(1,112 |
) |
|
|
(644 |
) |
|
|
(35 |
) |
|
|
|
|
|
|
(3,052 |
) |
Voluntary retirement scheme expenses
|
|
|
|
|
|
|
(28 |
) |
|
|
(583 |
) |
|
|
|
|
|
|
|
|
|
|
(611 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,853 |
|
|
|
7,097 |
|
|
|
591 |
|
|
|
203 |
|
|
|
|
|
|
|
10,744 |
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,609 |
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,997 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interests and equity in net
loss of associate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,356 |
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,986 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income after income taxes, before minority interests and equity
in net loss of associate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,370 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,349 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-49
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate | |
|
|
|
|
For the Year Ended March 31, 2005 |
|
Copper | |
|
Zinc | |
|
Aluminum | |
|
and others | |
|
Elimination | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
Net sales
|
|
|
34,508 |
|
|
|
21,967 |
|
|
|
10,168 |
|
|
|
4,540 |
|
|
|
|
|
|
|
71,183 |
|
Inter-segment sales
|
|
|
|
|
|
|
|
|
|
|
285 |
|
|
|
|
|
|
|
(285 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment sales
|
|
|
34,508 |
|
|
|
21,967 |
|
|
|
10,453 |
|
|
|
4,540 |
|
|
|
(285 |
) |
|
|
71,183 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
3,899 |
|
|
|
9,785 |
|
|
|
2,504 |
|
|
|
242 |
|
|
|
|
|
|
|
16,430 |
|
Depreciation, depletion and amortization
|
|
|
(1,239 |
) |
|
|
(1,290 |
) |
|
|
(680 |
) |
|
|
(48 |
) |
|
|
|
|
|
|
(3,257 |
) |
Voluntary retirement scheme expenses
|
|
|
|
|
|
|
(186 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(186 |
) |
Impairment of assets
|
|
|
(220 |
) |
|
|
|
|
|
|
|
|
|
|
(1,056 |
) |
|
|
|
|
|
|
(1,276 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
2,440 |
|
|
|
8,309 |
|
|
|
1,824 |
|
|
|
(862 |
) |
|
|
|
|
|
|
11,711 |
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,181 |
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,007 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interests and equity in net
loss of associate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,885 |
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,555 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income after income taxes, before minority interests and equity
in net loss of associate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,330 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,764 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
48,057 |
|
|
|
40,844 |
|
|
|
39,374 |
|
|
|
3,130 |
|
|
|
|
|
|
|
131,405 |
|
Equity investment in associate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,792 |
|
|
|
|
|
|
|
1,792 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
48,057 |
|
|
|
40,844 |
|
|
|
39,374 |
|
|
|
4,922 |
|
|
|
|
|
|
|
133,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
1,129 |
|
|
|
11,099 |
|
|
|
19,576 |
|
|
|
114 |
|
|
|
|
|
|
|
31,918 |
|
F-50
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate | |
|
|
|
|
|
|
For the Year Ended March 31, 2006 |
|
Copper | |
|
Zinc | |
|
Aluminum | |
|
and others | |
|
Elimination | |
|
Total | |
|
Total | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
in millions | |
Net sales
|
|
|
67,921 |
|
|
|
38,573 |
|
|
|
16,297 |
|
|
|
5,817 |
|
|
|
|
|
|
|
128,608 |
|
|
|
2,891.3 |
|
Inter-segment sales
|
|
|
|
|
|
|
|
|
|
|
1,424 |
|
|
|
|
|
|
|
(1,424 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment sales
|
|
|
67,921 |
|
|
|
38,573 |
|
|
|
17,721 |
|
|
|
5,817 |
|
|
|
(1,424 |
) |
|
|
128,608 |
|
|
|
2,891.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment profit
|
|
|
8,982 |
|
|
|
23,216 |
|
|
|
4,752 |
|
|
|
591 |
|
|
|
|
|
|
|
37,541 |
|
|
|
843.8 |
|
Depreciation, depletion and amortization
|
|
|
(1,323 |
) |
|
|
(1,929 |
) |
|
|
(1,256 |
) |
|
|
(39 |
) |
|
|
|
|
|
|
(4,547 |
) |
|
|
(102.2 |
) |
Guarantees, impairment of investment and loan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,300 |
) |
|
|
|
|
|
|
(1,300 |
) |
|
|
(29.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
7,659 |
|
|
|
21,287 |
|
|
|
3,496 |
|
|
|
(748 |
) |
|
|
|
|
|
|
31,694 |
|
|
|
712.4 |
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,419 |
|
|
|
54.4 |
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,331 |
) |
|
|
(74.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes, minority interests and equity in net
loss of associate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,782 |
|
|
|
691.9 |
|
Income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,111 |
) |
|
|
(204.9 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income after income taxes, before minority interests and equity
in net loss of associate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,671 |
|
|
|
487.0 |
|
Minority interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,073 |
) |
|
|
(136.5 |
) |
Equity in net loss of associate, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(99 |
) |
|
|
|
|
|
|
(99 |
) |
|
|
(2.2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,499 |
|
|
|
348.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment assets
|
|
|
54,052 |
|
|
|
55,677 |
|
|
|
51,873 |
|
|
|
4,244 |
|
|
|
|
|
|
|
165,846 |
|
|
|
3,728.6 |
|
Equity investment in associate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,693 |
|
|
|
|
|
|
|
1,693 |
|
|
|
38.1 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
54,052 |
|
|
|
55,677 |
|
|
|
51,873 |
|
|
|
5,937 |
|
|
|
|
|
|
|
167,539 |
|
|
|
3,766.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additions to property, plant and equipment
|
|
|
1,232 |
|
|
|
2,160 |
|
|
|
8,684 |
|
|
|
213 |
|
|
|
|
|
|
|
12,289 |
|
|
|
276.3 |
|
No single customer accounted for 10% or more of the
Companys net sales on a consolidated basis or for any of
the Companys primary businesses in any of the periods
indicated, except that JSW Limited accounted for 11% of the net
sales of the Companys zinc business in fiscal 2004.
F-51
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
|
|
|
(b) Geographical segmental analysis |
The Companys operations are located in India and
Australia. The following table provides an analysis of the
Companys sales by geographical market, irrespective of the
origin of the goods as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004 | |
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
|
|
in millions | |
India
|
|
|
42,648 |
|
|
|
48,334 |
|
|
|
73,847 |
|
|
|
1,660.2 |
|
Far
East(1)
|
|
|
9,168 |
|
|
|
14,269 |
|
|
|
22,660 |
|
|
|
509.4 |
|
Other(2)
|
|
|
4,972 |
|
|
|
8,580 |
|
|
|
32,101 |
|
|
|
721.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
|
56,788 |
|
|
|
71,183 |
|
|
|
128,608 |
|
|
|
2,891.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Far East includes a number of countries, including China, Korea,
Singapore and Thailand. |
(2) |
Other includes Kenya, Nigeria, Ethiopia, Algeria, Sudan,
Morocco, Namibia, Egypt, Oman, UAE, Turkey, Jeddah, Qatar, Saudi
Arabia, Syria, Dubai, Israel, Bangladesh, Sri Lanka, Pakistan,
Belgium, France, Germany, Italy, Jordan, UK, The Netherlands,
Luxembourg, Rotterdam, Spain, Sweden, Switzerland and Australia. |
The following is an analysis of the carrying amount of long
lived assets analyzed by the geographical area in which the
assets are located as of March 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 | |
|
2006 | |
|
2006 | |
|
|
| |
|
| |
|
| |
|
|
Rs. in millions | |
|
Rs. in millions | |
|
US dollars | |
|
|
|
|
|
|
in millions | |
India
|
|
|
78,119 |
|
|
|
85,029 |
|
|
|
1,911.6 |
|
Australia
|
|
|
808 |
|
|
|
840 |
|
|
|
18.9 |
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets
|
|
|
78,927 |
|
|
|
85,869 |
|
|
|
1,930.5 |
|
|
|
|
|
|
|
|
|
|
|
(a) By a special resolution on March 29, 2006, the
shareholders of the Company approved a stock split which reduced
the par value of each equity share from Rs. 5 to Rs. 2
per share effective as of May 12, 2006. Consequently, the
number of equity shares issued increased to
279,346,173 shares of Rs. 2 each. On the Record Date,
the Company also issued a stock dividend of one additional share
for each issued share increasing the issued equity capital to
Rs. 1,117 million consisting of
558,494,411 equity shares of Rs. 2 each. Share and per
share information in the consolidated financial statements
reflect the effect of these events retroactively.
(b) Subsequent to the May 12, 2006 stock split and
stock dividend, the SIIL Board recommended a dividend of
Rs. 1.25 per share on May 30, 2006, which was
approved by the shareholders in the general meeting held on
September 20, 2006.
(c) Amounts from Indian GAAP consolidated financial
statements (unaudited): SIIL passed a resolution on August 21,
2006 to divest the Companys aluminum conductor division
(this is a reporting unit classified in the Corporate and
others segment of the Company). The Company has entered
into an agreement to sell its aluminum conductor business to
SOTL, a company owned and controlled by Volcan, for
Rs. 1,485 million ($33.4 million). The sale of this
non-core business has been approved by SIILs shareholders
and remains subject to approval by statutory and regulatory
authorities. Based on a June 30,
F-52
STERLITE INDUSTRIES (INDIA) LIMITED AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Indian Rupees in millions except share or per share amounts
unless otherwise stated)
2006 valuation, the estimated loss on account of this sale will
be Rs. 52 million ($1.2 million). The carrying value of the
assets and liabilities of this division as of June 30, 2006
is as follows:
|
|
|
|
|
|
|
|
Rs. in millions | |
|
|
| |
Fixed assets
|
|
|
854 |
|
Current assets
|
|
|
3,753 |
|
|
|
|
|
|
Total assets
|
|
|
4,607 |
|
|
|
|
|
Debt
|
|
|
2,424 |
|
Current liabilities
|
|
|
646 |
|
|
|
|
|
|
Total liabilities
|
|
|
3,070 |
|
|
|
|
|
(d) HZL has given notice under its US dollar denominated
syndicated loan of $125 million
(Rs. 5,560 million) referred to in Note 14 that
it intends to repay the full amount of $125 million on
November 24, 2006.
(e) The Department of Mines and Geology of the State of
Rajasthan has issued several show cause notices, aggregating
Rs. 3,339 million ($75.1 million) in demand, to
HZL in relation to alleged unlawful occupation and unauthorized
mining of associated minerals other than zinc and lead at its
Rampura Agucha, Rajpura Dariba and Zawar mines in Rajasthan,
during the period from July 1968 to March 2006. In addition, the
department has also demanded an aggregate of
Rs. 38 million ($0.9 million) by way of alleged
arrears in royalty payments at such mines on the grounds that
the royalty payments had been incorrectly computed by HZL during
the period from April 1971 to March 2000. HZL has filed writ
petitions in the High Court of Rajasthan in Jodhpur and in the
month of October and November 2006 obtained a stay in respect of
these demands. The Company does not anticipate any material
liability in this matter.
(f) Sterlite acquired 100% of the outstanding shares of
Sterlite Energy Limited on October 3, 2006 from Twin Star
Infrastructure Limited, Mr. Anil Agarwal and
Mr. Dwarka Prasad Agarwal for a total consideration of
Rs. 4.9 million ($0.1 million).
F-53
SCHEDULE II Valuation and Qualifying
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at | |
|
Charged to | |
|
|
|
|
|
|
|
|
beginning of | |
|
revenue, costs | |
|
Other | |
|
|
|
Balance at | |
|
|
period | |
|
or expenses | |
|
additions | |
|
Deductions | |
|
end of period | |
|
|
| |
|
| |
|
| |
|
| |
|
| |
As of March 31, 2005 (in
Rs. in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
569 |
|
|
|
|
|
|
|
8 |
|
|
|
(267 |
) |
|
|
310 |
|
Allowances for doubtful accounts receivables
|
|
|
4 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
15 |
|
As of March 31, 2006 (in
Rs. in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
310 |
|
|
|
|
|
|
|
19 |
|
|
|
(315 |
) |
|
|
14 |
|
Allowances for doubtful accounts receivables
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15 |
|
As of March 31, 2006 (in US dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance
|
|
|
7.0 |
|
|
|
|
|
|
|
0.4 |
|
|
|
(7.1 |
) |
|
|
0.3 |
|
Allowances for doubtful accounts receivables
|
|
|
0.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
0.3 |
|
F-54
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
|
|
ITEM 6. |
Indemnification of Directors and Officers. |
Section 201 of the Indian Companies Act states that, subject to
specified exceptions, any provision, whether contained in the
Articles of Association of a company or in any agreement,
exempting or indemnifying any director, officer or agent of the
company against any liability in respect of any negligence,
default, breach of duty or breach of trust which would by law
otherwise attach to such director, officer or auditor, shall be
void, unless it is proved that such person had acted honestly
and reasonably.
However, pursuant to the exceptions permitted under Indian law,
our Articles of Association provide for indemnification of any
director, officer or agent against any liability incurred by
such person in successfully defending any proceeding, whether
civil or criminal, in which such person is acquitted in whole or
in part on the grounds that such person had acted honestly and
reasonably, or in connection with an application made by a
director, officer or accountant to the High Court of the
relevant state for relief for reason that he or she has a reason
to apprehend that any proceeding may be brought against him in
respect of any negligence, default, breach of duty, malfeasance
or breach of trust in which relief has been granted by such High
Court.
We do not maintain directors and officers liability
insurance to protect our directors and officers from specified
liabilities that may arise in the course of their service to us
in those capacities.
However, we intend to enter into indemnification agreements with
our directors and officers, pursuant to which our company will
agree to indemnify them against a number of liabilities and
expenses incurred by such persons in connection with claims made
by reason of their being such a director or officer. A form of
the indemnification agreement is to be filed as
Exhibit 10.28.
The form of underwriting agreement to be filed as
Exhibit 1.1 to this registration statement will also
provide for indemnification of our company and our officers and
directors.
|
|
ITEM 7. |
Recent Sales of Unregistered Securities. |
During the past three years, we have issued the securities set
forth in the table below. We believe that each of the following
issuances of equity shares was exempt from registration under
the Securities Act pursuant to Regulation S,
Section 4(2) or Rule 701 of the Securities Act
regarding transactions not involving a public offering:
|
|
|
Foreign Currency Redeemable Convertible Bonds |
In October 2003, we issued 50,000 1% $1,000 redeemable
convertible bonds which were redeemable by us at a premium of
$180 per bond on October 27, 2008. The bonds were
convertible into our equity shares at a conversion price of Rs.
1,100 per equity share at a fixed exchange rate, subject to
adjustment on the occurrence of certain dilutive effects. The
bonds became convertible on December 4, 2003. As of
March 31, 2006, all the bonds were fully converted and
4,099,400 equity shares were issued and granted as fully paid to
the following persons upon the conversion:
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Number | |
Purchaser |
|
Date of Sale or Issuance | |
|
of Equity Shares | |
|
|
| |
|
| |
Jardine Fleming Securities Ltd
|
|
|
January 30, 2004 |
|
|
|
20,600 |
|
|
|
|
November 14, 2005 |
|
|
|
41,200 |
|
Deutsche Bank AG London
|
|
|
January 28, 2005 |
|
|
|
20,600 |
|
Swiss Finance Corp Mauritius Limited
|
|
|
March 14, 2005 |
|
|
|
123,600 |
|
Deutsche Bank AG London
|
|
|
March 14, 2005 |
|
|
|
803,400 |
|
II-1
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Number | |
Purchaser |
|
Date of Sale or Issuance | |
|
of Equity Shares | |
|
|
| |
|
| |
Merrill Lynch Capital Markets Espania S.A.S.V.
|
|
|
March 14, 2005 |
|
|
|
41,200 |
|
|
|
|
March 28, 2005 |
|
|
|
164,800 |
|
|
|
|
April 11, 2005 |
|
|
|
123,600 |
|
|
|
|
June 16, 2005 |
|
|
|
41,200 |
|
|
|
|
September 5, 2005 |
|
|
|
123,600 |
|
|
|
|
September 20, 2005 |
|
|
|
247,200 |
|
|
|
|
September 29, 2005 |
|
|
|
82,400 |
|
|
|
|
December 14, 2005 |
|
|
|
41,200 |
|
|
|
|
December 14, 2005 |
|
|
|
82,400 |
|
|
|
|
February 15, 2006 |
|
|
|
387,280 |
|
CMIL FCCB Safekeeping A/c
|
|
|
March 28, 2005 |
|
|
|
972,320 |
|
|
|
|
September 5, 2005 |
|
|
|
247,200 |
|
|
|
|
September 20, 2005 |
|
|
|
41,200 |
|
|
|
|
December 14, 2005 |
|
|
|
41,200 |
|
Euro Asia Opportunities Fund
|
|
|
September 20, 2005 |
|
|
|
164,800 |
|
Kuvera Fund Limited
|
|
|
September 20, 2005 |
|
|
|
123,600 |
|
|
|
|
September 29, 2005 |
|
|
|
164,800 |
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
4,099,400 |
|
|
|
|
|
|
|
|
The underwriters were JP Morgan Securities Limited. The
underwriting commission was 2.5% of the amount raised.
|
|
|
One-For-One Bonus Issue of Equity Shares |
On March 1, 2004, we issued one bonus equity share credited
as fully paid-up for each existing equity share held by our
shareholders as of February 9, 2004. Pursuant to the bonus
issue, 35,854,469 equity shares were issued and a sum of
approximately Rs. 179.6 million in our share premium
account was capitalized and distributed to our shareholders.
No underwriting discount was provided and no commission was paid
in any of these issuances.
|
|
|
Cumulative Mandatorily Redeemable Preference Shares |
On March 4, 2004, we issued 21,875,000 1% cumulative
mandatorily redeemable preference shares at an issue price of
Rs. 80 per preference share. As of March 31, 2006, the
accreted value of these preference shares was
Rs. 1,947 million. We exercised our call option in
full on June 29, 2006 to redeem the preference shares at a
redemption price of Rs. 88.50 per preference share. The
aggregate redemption price paid was Rs. 1,936 million.
No underwriting discount was provided and no commission was paid
in any of these issuances.
|
|
|
Rights Issue of Equity Shares |
On September 23, 2004, we issued 35,860,049 equity shares
of par value Rs. 5 per equity share for cash at a price of
Rs. 550 per equity share on a rights basis to our existing
equity shareholders as of the record date of July 23, 2004,
in the ratio of one equity share for every two equity shares
held.
No underwriting discount was provided and no commission was paid
in any of these issuances.
II-2
|
|
|
Stock Split and Bonus Issue |
On May 12, 2006, we sub-divided our 111,738,469 equity
shares from par value Rs. 5 per equity share to par
value Rs. 2 per equity share, increasing the number of
issued, subscribed and paid up equity shares to
279,346,173 equity shares of par value Rs. 2 each.
On the same day, we issued one additional bonus equity share for
each issued, outstanding and paid up equity share, increasing
the issued, subscribed and paid up capital to
Rs. 1,117 million comprising 558,494,411 equity
shares of par value Rs. 2 each.
No underwriting discount was provided and no commission was paid
in any of these issuances.
|
|
ITEM 8. |
Exhibits and Financial Statement Schedules |
|
|
|
Incorporated by reference to the Exhibit Index following
the signature pages hereof. |
|
|
|
|
(b) |
Financial Statement Schedules: |
|
|
|
Schedules have been omitted because the information required to
be set forth therein is not applicable or is shown in the
Financial Statements or the Notes thereto. |
The undersigned registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting
agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Commission such
indemnification by it is against public policy as expressed in
the Securities Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
|
|
|
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this registration statement as
of the time it was declared effective. |
|
|
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof. |
II-3
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant certifies that it has reasonable grounds
to believe that it meets all of the requirements for filing on
Form F-1 and has
duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the
city of London, England on November 15, 2006.
|
|
|
Sterlite Industries (India) Limited |
|
|
|
|
|
Name: Dindayal Jalan |
|
Title: Chief Financial Officer |
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by
the following persons in the capacities indicated on
November 15, 2006.
KNOW ALL MEN BY THESE PRESENT that each person whose signature
appears below constitutes and appoints Mr. Tarun Jain,
Mr. Dindayal Jalan and Mr. Dhanpal Arvind Jhaveri,
severally, such persons true and lawful
attorney-in-fact and
agent, with full power of substitution and revocation, for such
person and in such persons name, place and stead, in any
and all capacities to sign any and all amendments (including
post-effective amendments) to this registration statement and
any registration statements filed pursuant to Rule 462
promulgated under the Securities Act of 1933 and to file the
same with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange
Commission, granting unto said
attorney-in-fact and
agent full power and authority to do and perform each and every
act and thing requisite and necessary to be done, provided two
of the above listed
attorneys-in-fact act
together on behalf of such person, as fully to all intents and
purposes as such person might or could do in person, hereby
ratifying and confirming all that said
attorney-in-fact and
agent or his substitute or substitutes, may lawfully do or cause
to be done by virtue thereof.
|
|
|
|
|
Signature |
|
Title |
|
|
|
|
/s/ Anil Agarwal
Anil
Agarwal |
|
Non-Executive Chairman |
|
/s/ Navin Agarwal
Navin
Agarwal |
|
Executive Vice-Chairman
(principal executive officer) |
|
/s/ Dindayal Jalan
Dindayal
Jalan |
|
Chief Financial Officer
(principal financial officer and
principal accounting officer) |
|
/s/ Kuldip Kumar Kaura
Kuldip
Kumar Kaura |
|
Managing Director and CEO |
|
/s/ Tarun Jain
Tarun
Jain |
|
Whole Time Director |
|
/s/ Dwarka Prasad Agarwal
Dwarka
Prasad Agarwal |
|
Non-Executive Director |
II-4
|
|
|
|
|
Signature |
|
Title |
|
|
|
|
/s/ Berjis Minoo Desai
Berjis
Minoo Desai |
|
Non-Executive Director |
|
/s/ Gautam Bhailal Doshi
Gautam
Bhailal Doshi |
|
Non-Executive Director |
|
/s/ Sandeep H. Junnarkar
Sandeep
H. Junnarkar |
|
Non-Executive Director |
|
/s/ Ishwarlal Patwari
Ishwarlal
Patwari |
|
Non-Executive Director |
|
|
|
|
By: /s/ Donald J. Puglisi
Donald
J. Puglisi
Managing Director
Puglisi & Associates |
|
Authorized Representative in the United States |
II-5
EXHIBIT INDEX
|
|
|
|
|
No. |
|
Description |
|
|
|
|
1 |
.1 |
|
Form of underwriting agreement.* |
|
3 |
.1 |
|
Certificate of Incorporation of Sterlite Industries (India)
Limited, as amended.** |
|
3 |
.2 |
|
Memorandum of Association of Sterlite Industries (India)
Limited, as amended.** |
|
3 |
.3 |
|
Articles of Association of Sterlite Industries (India) Limited,
as amended.** |
|
4 |
.1 |
|
Form of Deposit Agreement among Sterlite Industries (India)
Limited, Citibank, N.A., as Depositary, and owners and holders
from time to time of American Depositary Shares evidenced by
American Depositary Receipts issued thereunder.* |
|
4 |
.2 |
|
Form of American Depositary Receipt (included in
Exhibit 4.1).* |
|
5 |
.1 |
|
Opinion of Amarchand & Mangaldas & Suresh A. Shroff
& Co.** |
|
8 |
.1 |
|
Opinion of Amarchand & Mangaldas & Suresh A. Shroff
& Co. as to certain Indian tax matters (see
Exhibit 5.1).** |
|
8 |
.2 |
|
Opinion of Latham & Watkins LLP as to certain US tax
matters.** |
|
10 |
.1 |
|
Vedanta Resources plc Long-Term Incentive Plan.** |
|
10 |
.2 |
|
Relationship Agreement dated December 5, 2003 among Vedanta
Resources plc, Volcan Investments Limited, Dwarka Prasad
Agarwal, Agnivesh Agarwal and Anil Agarwal.** |
|
10 |
.3 |
|
Shared Services Agreement dated December 5, 2003 among
Vedanta Resources plc, Sterlite Optical Technologies Limited,
Sterlite Gold Limited and Sterlite Industries (India) Limited,
including the letter agreement dated April 13, 2006
amending the Shared Services Agreement.** |
|
10 |
.4 |
|
Consultancy Agreement dated March 29, 2005 between Vedanta
Resources plc and Sterlite Industries (India) Limited.** |
|
10 |
.5 |
|
Representative Office Agreement dated March 29, 2005
between Vedanta Resources plc and Sterlite Industries (India)
Limited.** |
|
10 |
.6 |
|
Shareholders Agreement between the President of India and
Sterlite Opportunities and Ventures Limited dated April 4,
2002.** |
|
10 |
.7 |
|
Shareholders Agreement between Sterlite Industries (India)
Limited, Government of India and Bharat Aluminium Company
Limited dated March 2, 2001.** |
|
10 |
.8 |
|
Guarantee Agreement between the President of India, Sterlite
Industries (India) Limited, Sterlite Optical Technologies
Limited and Sterlite Opportunities and Ventures Limited dated
April 4, 2002.** |
|
10 |
.9 |
|
Agreement between Vedanta Alumina Limited and Orissa Mining
Corporation Limited dated October 5, 2004.** |
|
10 |
.10 |
|
Mining lease between the Government of Rajasthan and Hindustan
Zinc Limited dated March 13, 1980 renewed on
September 15, 2000 pursuant to an order of the Government
of Rajasthan dated May 1, 2000 and an indenture dated
September 15, 2000.** |
|
10 |
.11 |
|
$92.6 million Term Facility Agreement between Sterlite
Industries (India) Limited as borrower and CALYON, Standard
Chartered Bank and ICICI Bank Limited as lenders dated
March 22, 2006.** |
|
10 |
.12 |
|
Japanese Yen 3,570 million and $19.65 million Term
Loan Facilities Agreement between Sterlite Industries (India)
Limited as borrower and ICICI Bank Limited, Sumitomo Mitsui
Banking Corporation and DBS Bank Ltd as lenders dated
September 19, 2005.** |
|
10 |
.13 |
|
$125 million Term Facility Agreement between Hindustan Zinc
Limited as borrower and ABN AMRO Bank N.V., CALYON, Standard
Chartered Bank, DBS Bank Ltd, Mizuho Corporate Bank, Ltd.,
Sumitomo Mitsui Banking Corporation, The Sumitomo Trust and
Banking Co., Ltd., Cathay United Bank, Hua Nan Commercial Bank,
National Bank of Kuwait S.A.K., Bank of Taiwan, The
Export-Import Bank of the Republic of China, Chang Hwa
Commercial Bank Ltd., Chiao Tung Bank Co., Ltd., The
International Commercial Bank of China, Co. Ltd., Mascareignes
International Bank Ltd., Syndicate Bank, Canara Bank and The
Shanghai Commercial and Savings Bank, Ltd. as lenders dated
July 29, 2005.** |
II-6
|
|
|
|
|
No. |
|
Description |
|
|
|
|
10 |
.14 |
|
Rs. 7,000 million Rupee Term Facility Agreement between
Bharat Aluminium Company Limited as the borrower and Union Bank
of India, Export Import Bank of India, Uco Bank, State Bank
of Travancore, State Bank of Saurashtra, State Bank of
Hyderabad, State Bank of Patiala and State Bank of Indore as
lenders dated August 18, 2004.** |
|
10 |
.15 |
|
$50 million Facility Agreement between Bharat Aluminium
Company Limited as borrower and ICICI Bank Limited, Singapore
Branch, ICICI Bank Limited, Bahrain Branch and ICICI Bank
Limited, Offshore Banking Unit as lenders dated November 8,
2004.** |
|
10 |
.16 |
|
$50 million Facility Agreement between Bharat Aluminium
Company Limited as borrower and ICICI Bank Limited, ICICI Bank
Limited, Bahrain Branch and ICICI Bank Limited, Offshore Banking
Unit as lenders dated November 10, 2004.** |
|
10 |
.17 |
|
Rs. 10,000 million Facility Agreement between Bharat
Aluminium Company Limited as borrower and Oriental Bank of
Commerce, Syndicate Bank, The Jammu & Kashmir Bank Limited,
Corporation Bank, Housing Development Finance Corporation
Limited, State Bank of Bikaner & Jaipur, State Bank of
Hyderabad, State Bank of Indore, State Bank of Mysore, State
Bank of Patiala, State Bank of Saurashtra, The Federal Bank
Limited, The Karnataka Bank Limited, The Karur Vysya Bank
Limited, UCO Bank, Vijaya Bank, ABN AMRO Bank N.V., The Laxmi
Vilas Bank Limited as lenders dated September 16, 2003.** |
|
10 |
.18 |
|
Subscription Agreement between Sterlite Industries (India)
Limited and the Life Insurance Corporation of India dated
April 9, 2003.** |
|
10 |
.19 |
|
Option Agreement between Sterlite Industries (India) Limited,
India Foils Limited and ICICI Bank Limited dated
February 18, 2005.** |
|
10 |
.20 |
|
Corporate Guarantee by Sterlite Industries (India) Limited to
ICICI Bank Limited on behalf of India Foils Limited dated
February 8, 2005.** |
|
10 |
.21 |
|
Corporate Guarantee by Sterlite Industries (India) Limited to
ICICI Bank Limited dated December 4, 2004.** |
|
10 |
.22 |
|
Frame Contract between Sterlite Industries (India) Limited and
the Copper Mines of Tasmania Pty Ltd dated July 1, 2004, as
amended on July 1, 2004.** |
|
10 |
.23 |
|
Copper Concentrate Purchase Contract between Sterlite Industries
(India) Limited and the Copper Mines of Tasmania Pty Ltd dated
July 1, 2005.** |
|
10 |
.24 |
|
Agreement for Sale and Purchase of the Power Transmission Line
Division between Sterlite Industries (India) Limited and
Sterlite Optical Technologies Limited dated August 30,
2006.** |
|
10 |
.25 |
|
Agreement between Sterlite Industries (India) Limited and
Navin Agarwal dated October 8, 2003.** |
|
10 |
.26 |
|
Agreement between Sterlite Industries (India) Limited and
Kuldip Kumar Kaura dated September 12, 2006.** |
|
10 |
.27 |
|
Agreement between Sterlite Industries (India) Limited and
Tarun Jain dated December 6, 2004.** |
|
10 |
.28 |
|
Form of director and executive officer indemnification
agreement.* |
|
21 |
.1 |
|
List of subsidiaries of Sterlite Industries (India) Limited.** |
|
23 |
.1 |
|
Consent of Deloitte Haskins & Sells, Mumbai, India,
independent registered public accounting firm with respect to
Sterlite Industries (India) Limited.** |
|
23 |
.2 |
|
Consent of Latham & Watkins LLP (see
Exhibit 8.2).** |
|
23 |
.3 |
|
Consent of Amarchand & Mangaldas & Suresh A. Shroff
& Co. (see Exhibit 5.1)** |
|
23 |
.4 |
|
Consent of SRK Consulting (South Africa) Pty Ltd.** |
|
23 |
.5 |
|
Consent of SRK Consulting (UK) Limited.** |
|
23 |
.6 |
|
Consent of Steffen Robertson and Kirsten (Australasia) Pty Ltd.** |
|
24 |
.1 |
|
Power of Attorney (contained on signature page).** |
|
|
|
|
* |
To be filed by amendment. |
II-7