Performance in a challenging
global economy
India – a new world of opportunity
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David Carthy
Chairman
Ireland India Business Association
(IIBA)
September 2009
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Welcome & Thank you
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Irish Business Success in India
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HIGH GROWTH MARKETS
Indian Opportunity Update
SEPTEMBER 2009
KPMG
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3
India in the current global context
Global impact
Impact on India
Financial
Institutions
 Collapse of leading investment banks,
institutions and insurance companies
 Surviving entities converted into
commercial banks or nationalized
 No major impact on Indian banks. Most
had limited/no exposure to sub-prime
debt
Liquidity Crunch
 Money market crisis leading to severe
credit crunch in US and Europe
 Substantial liquidity injections by US
Federal Bank/European Central Bank
 Crisis of confidence seen in the Indian
markets
 Large liquidity injections into the
system by the Central Bank
Capital Markets
 Capital markets in developed world
slump from Dec 2007 levels e.g. US (31%), UK (-33%)
 Emerging markets fall steeply, Russia
(-52%),China ( -51% ), Brazil (-31%)
 Outflow of FII money strongly impact
Indian markets, losing over 50% in 2008
 Markets surged by over 20% with reelection of a Congress Coalition with
Left support
Economic
growth
 Clear recession signs in US & Europe
 Most developed countries moving
around the zero/negative zones
 India too affected by recession
 Growth revised from 9% to 6%
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presentation. Please use the Update Copyright button in the Advisory Toolbar.
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registered trademarks of KPMG International, a Swiss cooperative.
4
Government’s Priority Agenda
List of Priorities
Scorecard
I
Expeditious Economic Revival
A
Inclusive/Rural Growth Agenda
Good intent ‘but’ bordering on Populism
B
Fiscal Responsibility and Budget
Management
Precarious deficit threatens to derail
economy
II
Fast-track Reforms
A
Disinvestment
Weak announcement
B
Infrastructure
Save for roads, no statement on other
segments
C
HRD Skills/Education
Disappointing, post build-up of reform
climate
D
Agriculture Logistics
Continues to lag
E
Governance
Thrust on improving Delivery Mechanism
clearly initiated for first time
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registered trademarks of KPMG International, a Swiss cooperative.
5
Why India now?
 Businesses in Ireland have been affected by recession that seems likely to continue
 India offers itself as a solution on two counts:
 Sourcing Hub
 Indian and Regional Markets
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presentation. Please use the Update Copyright button in the Advisory Toolbar.
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registered trademarks of KPMG International, a Swiss cooperative.
6
Promising sectors on the Ireland-India bridge
Infrastructure
Construction
Food Technology
Telecoms & IT
Education
Clean Technology
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presentation. Please use the Update Copyright button in the Advisory Toolbar.
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registered trademarks of KPMG International, a Swiss cooperative.
7
Foraying into India
Investors will have to bear some important things in mind …
Market
Dynamics
Infrastructure
Deficiency
Bureaucratic
Tangles
Difficulty in
Enforcement
Regulatory
Constraints
Operating
Environment
Business
Culture
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presentation. Please use the Update Copyright button in the Advisory Toolbar.
© [year] KPMG [member firm name if applicable], the [jurisdiction] member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are
registered trademarks of KPMG International, a Swiss cooperative.
8
Navigating in India
Understand Operating
Environment
Clear Strategy
is the Key
 Regional model
 Global best practices
 Expatriate-local
management
 Localize product
 Value for Money
 Locations
Ensure conduct of
Background Checks
 Project diligence
 Engage best
advisor/counsel
 Local partner’s
diligence
Negotiate
Aggressively
 Protective clauses
 Conditions precedent
 Exit mechanisms
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presentation. Please use the Update Copyright button in the Advisory Toolbar.
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registered trademarks of KPMG International, a Swiss cooperative.
9
Way forward
 Detailed study of Indian landscape particularly from standpoint of your business
 Go with local partner unless there are other considerations
 Structure investment holdings efficiently from a tax perspective
 Organize business/management per ‘best practices’/specific needs of the case
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presentation. Please use the Update Copyright button in the Advisory Toolbar.
© [year] KPMG [member firm name if applicable], the [jurisdiction] member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are
registered trademarks of KPMG International, a Swiss cooperative.
10
Presenter Contacts
Ian Gomes
Chairman
High Growth Markets Practice
KPMG LLP
+44 (0) 20 73114211
ian.gomes@kpmg.co.uk
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presentation. Please use the Update Copyright button in the Advisory Toolbar.
© [year] KPMG [member firm name if applicable], the [jurisdiction] member firm of KPMG International, a Swiss cooperative. All rights reserved. KPMG and the KPMG logo are
registered trademarks of KPMG International, a Swiss cooperative.
11
Performance in a challenging global economy – India, A
New World of Opportunity
Speaker : Ananth Krishnan
Head of Trade & Supply Chain
22nd September 2009
CONTENTS

Brief Introduction to India

Key trading indicators – India & Ireland

Overview of India’s banking Environment

Overview of HSBC
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Brief Introduction to India
India – Some Key Metrics
 6th Largest country in the world; World’s largest democracy
 Number of cell phone users by 2010 : 500 M
Demographics
 Population : 1.12 Bn
 Number of Languages spoken : 18 official, 1600 dialects
 Number of movies released in 1 year : Around 1000
 GDP : $ 1.2 Trillion
Economy
 Largest producer of milk, tea, sugarcane, cashew nuts
 Second Largest producer of rice, fruit, wheat, sugar
 Number of banks : 88
Banking
 Number of bank branches : > 50000
 Number of ATMs : 17000
15
Key Trading Indicators – India & Ireland
India Trade in the past six years
Export CAGR 21%
Import CAGR 28%
Total Exports
Total Imports
USD M
300,000
250,000
200,000
150,000
100,000
50,000
0
2003-04
2004-05
2005-06
2006-07
2007-08
2008-09
Total Exports
63,843
83,536
103,091
126,263
162,904
162,255
Total Imports
78,149
111,517
149,166
185,604
251,439
272,031
Source: Ministry of Commerce website
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India Top 5
Imports
Top 5 Trading partners
Top 5 Commodities
Exports
Petroleum products
Petroleum products
Gems & Jewellery
Gems, Jewellery & precious metals
Chemicals & Related products
Heavy Machinery
Textiles & Textile related products
Electronic Goods
Engineering goods
Chemicals & Fertilisers
China
USA
USA
UAE
Saudi Arabia
China
UAE
Singapore
Iran
Hong Kong
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Ireland Trade Statistics – A Snapshot
Key Trading Partners for Merchandise ( EUR€ M)
15847
[18%]
19151
[34%]
Great Britain &
Northern Ireland
37874
[44%]
16656
[19%]
17284
[30%]
6676
[12%]
Other EU
Countries
USA
15917
[18%]
13995
[24%]
Rest of World
Top 5 Commodities exported from Ireland

Organic Chemicals

Medical & Pharmaceutical products

Computers

Essential oils, perfume materials & toilet cleansing paper

Electrical Machinery and apparatus
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Exports
Imports
Irish-India Trade – Few pointers
 Ireland-India Trade flows currently around €
500 M.
India imports telecom,
sound equipment, automatic
data processing machines
from Ireland.
― Grew by 13% in 2008 and expected to grow by
25% in 2009
 Ireland’s English Speaking population and
access to EU markets can be leveraged
 India’s upsurge as a global economy could
present immense opportunities
 Irish companies are keen to invest in the
following sectors in India
― Cement
― Publishing
Ireland imports products
like yarn, garment and
pharmaceuticals from
India
― Medical Technology
― IT
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Overview of India’s Banking
Environment
Commercial Banking Landscape
Private Sector Banks
State Owned Banks


27 State owned banks
Pan-India coverage
(including rural areas).
Major players

31 Private sector banks.

The two major players
ICICI Bank and HDFC
Bank have branches in
over 200 cities / towns
Foreign Banks
 The 30 Foreign Banks
have branches in
metropolitan cities and
other big towns.
 Major players include -

E-banking is gaining momentum in the big cities but rural areas still prefer branch
banking

Banks and financial institutions are strictly regulated by the Reserve Bank of India

Detailed guidelines and notifications exist for investments and international trade
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Overview of HSBC
About HSBC
Our Aim
To leverage HSBC’s global platform to serve our Irish
clients.
 Largest European Bank by market capitalisation
 International bank of choice, with locations in 83 countries, 10,000
offices, and 125m customers
Our Strengths
 Unparalleled franchise in Middle-East and Far-East
 HSBC London has the largest Treasury and Capital Markets business
in Europe.
 Access to banking services in 83 countries through one central
Our Benefits
internet banking platform, HSBCnet, centralising payments and cash
management.
 Access to local relationship teams in 83 countries and a dedicated
relationship management team in Dublin to manage the relationship
globally.
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HSBC Group Global Distribution – International network
 330,000 employees
HSBC Group
 10,000 offices
 83 countries and territories
Manchester
Stockholm
Edinburgh Leeds
Birmingham
Isle of
Moscow
London
Man
Belfast
Brussels
Saskatoon
Dublin
Amsterdam
Winnipeg
Montréal
Calgary
Düsseldorf Warsaw
Cardiff
Prague
St
John’s
Vancouver
Ottawa
Channel Islands
Québec
Portland
Frankfurt
Zurich
Luxembourg
Seattle
Budapest
Fredericton
Sioux Falls Toronto
Geneva
Almaty
Paris
Lugano
Tigard Prospect Heights
Boston
Sofia
Chicago
Barcelona Monaco Milan
Izmir
Glastonbury
Beijing
San Francisco Kansas City
Buffalo
Baku
Istanbul
Madrid
Dalian
Rome
New
York
City
Ankara
Salinas Las Vegas
Seoul
Yerevan
Valencia
Chesapeake
Bridgewater
Athens Adana
Tianjin
Tokyo
Lewisville
Beverly Hills
Philadelphia
Tehran
Nicosia Beirut
Qingdao
Chandigarh
Virginia Beach
Pusan
Los Angeles
Algiers Valletta
Dallas
New Castle
Osaka
Tel Aviv Ramallah Manama
Wuhan
Bermuda
Houston
San Diego
Casablanca
Washington
Shanghai
New Delhi
Tripoli
Amman
Doha
Chengdu
Brandon
Atlanta
Shenzhen
Tijuana
Cairo Dammam
Abu Dhabi
Chongqing
Torreó
Miami
Xiamen
Jacksonville
Monterrey
Alexandria
Ahmedabad
Dubai
Riyadh
Dhaka Guangzhou
Taipei
Nassau
n
Guadalajara
Mérida Cancún
Muttrah Karachi
Hong Kong
Kolkata
Mexico City
Muscat
Hanoi Macau
Jeddah
Mumbai Visakhapatnam
Puebla
Ho Chi Minh City
Cayman
Tortola (British Virgin Islands)
Pune
Salalah
Hyderabad
Acapulco
Islands
Manila
Bangalore
Bangkok
Veracruz Colón
Chennai
Cebu City
Caracas
Trivandrum
Accra
Panama City
Colombo Kuala Lumpur Kota Kinabalu
Medan
Abidjan
Labuan
Bandar Seri Begawan
Kampala
Singapore
Malé (Maldives)
Kuching
Belém
Manaus
Jakarta
Semarang
Fortaleza
Bandung
Luanda
Recife
Surabaya
Salvador
Brasília
Cook Islands
Ribeirão Preto
Campo Grande
Belo Horizonte
Corrientes
Rio de Janeiro
Posadas
Salta
São Paulo
Tucumán
Curitiba
Resistencia
Porto Alegre
San Juan
Santa Fé
Paraná
Santiago
Punta del Este
Mendoza
Montevideo
Córdoba
Buenos
Aires
Neuquén
La Plata
Bahía Blanca
Mar del Plata
Pergamino
Port Louis (Mauritius)
Johannesburg
Brisbane
Durban
Cape Town
Perth
Adelaide
Sydney
Auckland
Melbourne
Wellington
Christchurch
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HSBC - Ireland
HSBC has been operating in Ireland since 1979.
Position
Location
Location
Position
We have over 500 people in our Dublin office,
and in excess of 650 people on the island of
Ireland.
We have recently grown our corporate banking
team in Dublin to serve our Irish clients.
The Dublin team is staffed with corporate
banking specialists with experience in both Irish
and global banking.
We have specialist teams dedicated to Trade,
Treasury, and Payments/Cash Management.
Corporate Banking Dublin
Financing
Transaction Banking
Treasury & Risk Management
 FX
 Structured Finance
 Global Payments &
Cash Management
 Trade Finance
 Supply Chain
 Investments
 Syndicated Finance
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 Derivatives
HSBC Ireland - Our Successes
Commitment to Balance Sheet growth in Ireland
Expansion of our Irish based Team
Access to our International Banking platform
Access to Asian & US capital markets
 A leading participant in Irish Corporate Debt Syndications
Corporate Banking
 Global and International mandates for Irish based PLC’s
 Providing counterparty strength on International Trade
 Safe haven for deposits.
Money Markets
 Dublin Treasury desk active across all tradable currencies.
 Joint Lead arrangers for Bord Gais Bond
Capital Markets
 Prime Broker for Irish Government Debt
 Banking Advisers to NAMA
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HSBC in India
 In 1959 HSBC acquired the Mercantile Bank of
India, which was established in Bombay in 1853.
 47 branches across 26 commercial cities
 A full service bank
–
Working capital finance
–
Foreign exchange
–
Treasury operations
–
Cash management
–
Investment banking
–
Asset management
–
Insurance
–
Private equity and personal banking
 Well established long term relationships with top
multinational and domestic corporate, public sector
companies and financial institutions
 First bank to introduce ATM in India
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Thank You
Speaker : Ananth Krishnan
Head of Trade & Supply Chain
Ph: 353 1 635 6683
http://www.hsbc.ie
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1
DOING BUSINESS IN INDIA
Financial Perspective
Dalip Puri
Head of Multicultural Commercial Banking UK
HSBC Holdings Plc
2
Contents
• Section 1
INDIA OVERVIEW
• Section 2
INVESTING IN INDIA
• Section 3
AVAILABILITY OF CREDIT
• Section 4
HSBC IN INDIA
Disclaimer: This presentation pertains to investment issues, financial markets and other related areas and is for information
purpose only. Investors and interested parties should seek to get relevant business related information from a qualified
3
Section 1
INDIA OVERVIEW
India Overview – Snapshot
• Population: 1.123 billion (Est. 2007)
• Average literacy rate is 65%
• Land area: 1.27 million square miles (1/3 of US)
• Languages: 18 Languages (English widely used)
• New Government: Strong Mandate & Reform Driven Agenda
• Executive system : Constitutional head – President; real executive power vests in the
Council of Ministers with the Prime Minister as its head.
4
India Overview – Economic Indicators
India GDP (US$ Bn)
• Average GDP growth of 7.5% from 2001-2008.
1,800
1,600
1,400
1,200
1,000
800
600
400
200
0
1,210
1,102
1,285
1,387
• GDP growth expected to slow down to 6.2% in
2009
2008
2007
2009*
2010*
Sour ce: *IMF est imat es, WEO Apr il 2009
• GDP growth is forecast to accelerate to 8.0% in
Per capita Incom e (US$)
940
1,000
800
1,016
982
2010
757
• Per Capital Income increased 30% over
600
400
200
the last 3 years.
0
2006
Sour ce: *IMF est imat es, WEO Apr il 2009
2007
2008
2009*
5
India Overview – Financial Landscape
6
RESERVE BANK OF INDIA
Central bank and supreme monetary
authority
Commercial Banks
Co-operative Banks
Foreign Banks
Regional Banks
Urban
State
Public Sector
Banks
Private Sector
Banks
Public Sector
Private Sector
7
Section 2
INVESTING IN INDIA
Investing in India
• Foreign Equity Ownership Limits - Automatic Route
– Insurance (26%)
– Airlines (Domestic/ cargo)/ Telecom services/ Private sector banks (74%)
– Pharmaceuticals, Non banking financial companies, Food processing (100%)
• Foreign Equity Ownership Limits – With Permission (Foreign Investment
Promotion Board)
– News & current affairs (26%)
– Broadcasting - Cable, DTH (49%)
– Trading (100%)
– Development of airports (100%)
• Foreign Institutional Investors: Investment in primary and secondary markets
– Registration with Securities and Exchange Board of India
– Own upto10% of the paid-up capital of an Indian company
– Foreign Institutional Investors can cumulatively hold up to 24% of paid-up capital of a
company
8
Investing in India – Business Presence
INDIAN INCORPORATED COMPANIES
Joint Venture
• Strategic alliances with Indian partners where sectoral caps do not allow foreign companies to set up
business on its own
• Advantages:
– established distribution / marketing set up of the Indian partner
– available financial resource & contacts of the Indian partners
Wholly Owned Subsidiary
• Is treated as a domestic company (limited liability) for tax purposes
• Advantages:
– provides flexibility of operations
9
Investing in India – Business Presence
FOREIGN CONCERN
Liaison Offices, Representative Offices
• No commercial or industrial activity may be undertaken
Branch Offices
• Manufacturing and Trading companies may open branch offices
• Specific Reserve Bank of India approval required; registration with Registrar of Companies required,
• Advantages:
– Can acquire immovable property
– Post-tax profits freely repatriable
Project Offices
• For those that have been awarded an Indian project
• Treated as a branch office for tax purposes
• No prior permission required from RBI
10
Investing in India – Taxation
11
• Corporate tax for companies incorporated in India:
33.9%
• Foreign Companies operating in India:
41.2%
• Tax on dividends:
15%
• Withholding Tax - Royalties and Fees for Technical Services
15%-20%
• Income tax holiday for new units exporting goods or services from a Special Economic
Zone (SEZ) – 100% for the first 5 years and 50% for another 5 years
• 10 year income tax holiday for infrastructure/housing projects
• Currency transfer methods: SWIFT, Multiple Currency Accounts
Investing in India – A case study
12
Company profile:
A real estate company, started in 2007 dedicated to promoting Indian property investment
opportunities.
• Business established
Business Evolves
• Growth opportunity
identified in India
• Conducted research on Indian real
estate industry.
• Sources used (economic data,
government report and consultants)
• Legal & accounting advice taken
• Indian employees hired
• Limited company setup in India (Pvt
Ltd)
• Business starts trading
•2007
•2008
Best three business decisions made
Worst three business decisions made
1) Conduct detailed research and seek appropriate
advice.
1) Having a rigid itinerary.
2) Treating Indian companies as partners rather than just
suppliers.
3) Hiring talented Indian staff.
2) Not fully understanding Indian hierarchical system.
3) Starting business before a global slowdown.
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Section 3
AVAILABILITY OF CREDIT
Raising Debt Finance
Types of Debt Products
• Working Capital
– Overdrafts / On Demand Loans
– Letters of Credit, Buyers Credit, Suppliers Credit
– Receivable Financing, Factoring, Purchase order finance
• Vanilla Long Term Loans
– INR term loans for Capex
– FCY term loans for Capex under RBI ECB norms (limited appetite)
• Structured Finance (limited appetite)
– Bridge Loans
– Acquisition Financing
– Highly Leveraged transactions
14
Debt Finance - Typical Credit Requirements
Working Capital
Business plan of the company with projections for one year
MPBF (Max. permissible bank finance) assessed in India by banks in
line with company’s trade cycle
Usually banks finance 75% of the working capital and the balance is
promoter’s contribution
Security - function of the company credit standing, however basic terms
are:
• First charge over current assets
• First / Second charge over fixed assets
• Personal guarantees (subject to negotiation)
15
Debt Finance - Typical Credit Requirements
Term Loans
Business plan of the company with projections up to the tenor of the loan.
Such loans are usually for a defined capital expenditure for which a
separate project report is expected. Typical Debt / Equity – 2:1
Green field projects / non core diversifications are discouraged in this
environment. Higher equity contributions expected.
Hedging solutions are a important for FCY Loans
Some basic terms for security are as follows:
• First charge over fixed assets -1.3x asset cover at least
• First / Second charge over current assets
• Personal guarantees (subject to negotiation)
16
17
Section 4
HSBC IN INDIA
HSBC in India
The Leading International Bank in India
• Presence in India since 1853
• Coverage with 47 branches
• Presence in 26 cities
• Arrangements with 10 Public &
Private sector correspondence Banks.
• Correspondence Bank Network
reaches out to 3000 cities.
18