1.

Fund Raising An Introduction

1.1 Domestic Financing of Projects Every year before finalization of Annual Plan, Planning Commission conducts an exercise for assessing the requirement of Internal Extra Budgetary Resources (IEBR) for finalizing the Annual Plan of the Organization. It has to be ensured that such projections do not vary with what is being finalized by Ministry of Finance (Plan Finance Division) and thus exercise of projections of Internal and Extra Budgetary Resources influence the overall plan size. With the above in view, detailed exercise is done to determine the Internal Resources which mainly comprise of depreciation and retained profits. Thus, the gap in resources in financing the annual plan is met through domestic funding i.e. by raising term loans from Banks/Financial Institutions or through issue of power bonds in the domestic market. Thus, the role of financing the annual plan from domestic sources in the organization cannot be over-emphasized. Ministry of Power in consultation with Ministry of Finance authorizes the organizations to raise domestic funds through bonds/loans for specified amounts every year.

1.2 Role of Domestic Financing in Powergrid Powergrid is engaged in the construction of the National Grid at the end of the 12th Plan i.e. by 2012. An estimated expenditure of approx. Rs. 50000 crores is required to be spent by Powergrid directly and another Rs. 20000 crores is to be spent through Independent Power Transmission Companies (IPTC) and Joint Venture route. Out of Rs. 50000 crores, approximately Rs. 21000 crores are to be mobilized by Powergrid through Internal Resources and domestic borrowing (Rs. 8000 crores and Rs. 13000 crores respectively). Thus approx. 26% of the total funding has to be mobilized by Powergrid from domestic sources which is a huge task ahead and entail upon the Finance department a big role and responsibility.

1.3 Various Sources of Domestic Borrowings

There are various sources of raising domestic resources: Issue of Bonds Term Loans Bridge loan/ Short Term loan Commercial papers (CP) Page 1 of 28

 Cash credit While the former two are for the purpose of long term utilization of funds, the last three are mainly used to meet the short term or temporary needs of Powergrid.

2. Procedure of Fund Raising

A project may be broken down into 4 types of tasks for the purpose of arranging money from the market. These are: 1. Preliminary Studies The preliminary consulting and feasibility study takes place at the outset of proposed project financing. The purpose is to determine whether the proposal has sufficient merit to warrant further expenditure of time and effort to bring it about. 2. Planning The planning phase covers everything from the initial consulting & review of the preliminary feasibility study to arranging the finances. Plans are made regarding the best way to arrange the finances of the project, taking into consideration the currencies, the project will generate, the location of the project and the capital needed. 3. Arranging the Finances Having gone through the planning part and preparation of feasibility report, now the Information Memorandum is prepared. Information Memorandum- It is a document for preparing and presenting the following information to the prospective lenders: Page 2 of 28

(A) Promoters (B) Other Interested Parties- Guarantors, other sponsors, and parties other than these who will make vital contribution to the project. A description of each of the interested parties and their pertinent qualifications and expected contributions to the project are also mentioned. (C) Location- Special problem which may arise because of the location is discussed here. (D) Estimated Construction Cost- Construction Schedule and expected cost of interest on loan are explained. (E) The Financial Plan- It reviews cash flow projections and expected use of those funds including principal and interest payment of the debt. It explains the assumptions used, working capital needs, equity contributions, supplier loan etc. (F) Proposed term of financing- This is the heart of memorandum & outlines the amount, priorities, maturities & timing of the financing. 4. Monitoring & Administering of the finances This phase is functional in three stages viz. Construction, Start- up, Operations. In all these stages a constant vigil is maintained to be acquainted with the manner in which funds are being used. 5. Selection of Outside Investor In case the project is vast and involves huge funds, an outside investor may be appointed to get better results and outcome.

3. Fund Raising through Bonds

3.1 What are bonds? Bonds are debt and are issued for a period of more than one year. When an investor buys bonds, he or she is lending money. The seller of the bond agrees Page 3 of 28

to repay the principal amount of the loan at a specified time. Interest-bearing bonds pay interest periodically. Only government organizations can issue bonds. Issue of bonds can be made: Either issue bonds to the public at large i.e. public issue To go through private placements i.e. Bonds are issued to a limited no. of investors. 3.2 What are PSU Bonds? Public Sector Undertaking Bonds (PSU Bonds): These are Medium or long term debt instruments issued by Public Sector Undertakings (PSUs). The term usually denotes bonds issued by the central PSUs (i.e. PSUs funded by and under the administrative control of the Government of India). PSU issues bonds through public issue or on private placement basis to the targeted investors at market determined rates.

3.3 What is a difference between a bond and a debenture? a) Long-term debt securities issued by the Government of India or any of the State Governments or undertakings owned by them or by development financial institutions are called as bonds. Instruments issued by other entities are called debentures. b) The difference between the two is actually a function of where they are registered and pay stamp duty and how they trade.. c) A debenture transfer has to be effected through a transfer form prescribed for under Companies Act. Issuance of stamp duty on bonds is under Indian Stamp Act 1899 (Central Act). A bond is transferable by endorsement and delivery without payment of any transfer stamp duty.

3.4 What are the common terms used in association with bonds? The following characteristics and terms are always associated with bonds and we need to understand what they mean in order to understand bonds. Nominal value: The nominal value of a bond is the par or face value and sometimes, also referred to as the principal value of the bond. This is the amount the issuer of the bond has agreed to pay the bondholder at the maturity date. In view of this, the principal is also called the redemption or maturity value. This terminology is applicable for bonds issued & redeemed at par. However, the bonds can be issued on premium or at discount. Page 4 of 28

 Coupon rate: The coupon rate is the amount of interest the bondholder will receive periodically. Term-to-maturity: This is the number of years over which the issuer of the bond has promised to meet the conditions and obligations of the bond issue. During this time, the bondholder is paid the promised coupon payments and it also indicates the time period remaining before the bondholder is paid back the principal. The term-to-maturity also affects the bond yield and the bond price. Trust deed: A trust deed is the legal agreement executed by the body corporate in favour of the trustees named therein for the benefit of debenture holders. It details the issuers obligations related to the bond issue. It contains the terms of the bond issue and any restrictive provisions placed on the company, such as a requirement for the company to set up a sinking fund, or the inclusion of a call provision. An independent trustee administers the trust deed. Trustee: Debenture trustee means a trustee of a trust deed for securing any issue of debenture of a body corporate. He is the third party with whom the trust deed is made. The job of the trustee is to see that the terms and conditions of the trust deed are carried out. As the trust deed also contains provisions in the event of default, the trustee would undertake action to protect the interests of the bondholders in the event of a default. Yield: There is often confusion between the yield and the coupon rate of a bond. While the coupon rate is fixed at issue, and does not change till maturity, the yield is the discount rate or interest rate that an investor wants from investing in a bond. Price bonds are quoted in relation to their yields. As the required yield increases, the price of the bond decreases. The reverse is also true. Call provision: A call provision entitles the issuer to repurchase or call the bond form their holders at a stated price within a predetermined period. Put Option: A put option entitles the investor to sell the bonds at a stated price within a predetermined period. It is opposite of Call Option. Sinking fund: In a sinking fund bond, the issuer periodically puts aside money for the eventual repayment of the debt. This provision may be included in the bond trust deed to protect investors. DRR: Similarly as per SEBI guidelines, Companies issuing debentures are supposed to set aside a portion of their profits for the final redemption purposes. The account where this money is transferred is called Debenture Redemption Reserve.

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3.5 Who Regulates Indian G-Secs and Debt Market? a) RBI The Reserve Bank of India is the main regulator for the Money Market. Reserve Bank of India also controls and regulates the GSecs Market. It also regulates the manner in which various scheduled banks raise money from depositors. Further, it controls the deployment of money through its policies on CRR, SLR, priority sector lending, export refinancing, guidelines on investment assets etc. Another major area under the control of the RBI is the interest rate policy. Earlier, it used to strictly control interest rates through a directed system of interest rates. Each type of lending activity was supposed to be carried out at a pre-specified interest rate. Over the years RBI has moved slowly towards a regime of market determined controls. b) SEBI Regulator for the Indian Corporate Debt Market is the Securities and Exchange Board of India (SEBI). SEBI controls bond market and corporate debt market in cases where entities raise money from public through public issues or private placement. It regulates the manner in which such moneys are raised and tries to ensure a fair play for the retail investor. It forces the issuer to make the retail investor aware, of the risks inherent in the investment, by way and its disclosure norms. SEBI is also a regulator for the Mutual Funds, SEBI regulates the entry of new mutual funds in the industry. It also regulates the instruments in which these mutual funds can invest. SEBI also regulates the investments of debt FIIs.

3.6 Costs in issuing Bonds The process of Issuance of Bonds includes certain expenses that are incurred by the issuer, and are better known as the Costs of Issuance. The Costs of Issuance that is covered by the issuers during the sales of bonds includes all of the following expenditures: Fees paid to the consultants/arrangers Fees and charges towards legal expenses Trustee's fees Printing costs

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Discounts on bonds or notes Costs of credit ratings The execution and safekeeping fees and charges of bonds or notes, and Fees for admitting the bonds in Stock Exchange and depositories.

Bond Issuance can be considered to be a vast procedure for it includes a lot of smaller processes as stated above. Bond Issuing by organizations are done on the floors of the Primary Bond Markets where those who are interested in providing loans to the organizations Issuing Bonds, buy the Bonds that are issued. In other words, bonds are purchased directly from the issuer. Later, when these Bonds that were issued earlier are traded amongst the Bond owners at the Secondary Bond markets.

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4. Fund Raising Through Bonds in Powergrid

Powergrid has been raising domestic finance through issue of bonds under private placement since its inception. It has so far raised 29 series of bonds. The bonds were raised for financing its annual capital outlay. Issue of bonds has always remained a major source of domestic financing for Powergrid. In future also it is expected to remain so.

Up to 1996-97, Powergrid bonds used to be in bullet repayment structure. However, from 1997-98 onwards (both VI th issue) bonds are being issued in the form of staggered repayment basis usually with a moratorium of 3-4 years. This is mainly to suit the long gestation period of transmission line projects. Because of the staggered repayment structure of the bonds there is no pressure on cash flow due to redemption even though each issue size is approx. Rs.750-1000 crore.

4.1 Features of bonds issued by Power Grid: Secured A secured loan is a loan in which the borrower pledges some asset (e.g. a car or property) as collateral for the loan, which then becomes a secured debt owed to the creditor who gives the loan. There are two purposes for a loan secured by debt. In the first purpose, by extending the loan through securing the debt, the creditor is relieved of most of the financial risks involved because it allows the creditor to take the property in the event that the debt is not properly repaid. Accordingly charge is to be created on the assets of the company to secure interest as well as the interest on the bonds. The security is to be created in favour of the trustees for the bonds Various bonds are secured through different means: a) Equitable mortgage of Properties b) By floating charge over the fixed assets of the Corporation c) By way of Debenture Trust Deed ranking Pari Passu on immovable properties of Powergrid. d) Hypothecation of assets of various projects i.e. Transmission Lines and Sub-stations set up by Power Grid for transmission of electricity. Page 8 of 28

 Separately transferrable, redeemable Principal Parts (STRPPS) Each bond is divided into separately tradable and transferrable parts which are called STRPPS. Presently PowerGrid issue bonds in 12 STRPPs of 12.5 lakhs each. Earlier it was mandatory to have each STRPPs of Rs.10 lakhs but this norm is no more a compulsion. As the name suggest. Each part is separately tradable in the market. Such division helps in trading of bonds easily in the secondary market. Bonds can be sold/purchased in one STRPP or more.

D-Mat (Electronic Mode) At present all the bonds are issued through D-Mat A/C (electronic mode), while earlier bonds were also issued in physical form. Though many of them have with time converted to electric mode and the remaining ones still traded in their own format.

Green shoe option This option is a feature attached to Power Grid Bonds where issuer can retain over subscription over and above the issue size.

WDM (Wholesale Debt Market) This term is used to define the debt component of NSE where the fixed interest earning bonds are listed in the stock exchange.

Depositories - NSDL, CDSL Depositories are companies registered under the Companies Act and registered with SEBI as depository. Depositories provide facilities to keep securities in electronic form (in Demat Account) through its participants. There are two depositories: NSDL, CDSL. All the information of the trade is supplied to the beneficiary i.e. Account Holder from time to time. Page 9 of 28

 Line of Credit A line of credit is any credit facility extended to a business by a bank or financial institution. A line of credit may take several forms such as cash credit, overdraft, demand loan, export packing credit, term loan, discounting or purchase of commercial bills etc. It is like an account that can readily be tapped into if the need arises or not touched at all and saved for emergencies. Interest is only paid on the money actually taken out. Lines of credit are often extended by banks and financial institutions to credit worthy customers to overcome liquidity problems.

Non- convertible The feature defines that the interest is paid periodically as per the terms of the issue.

Non- cumulative This feature defines that the bonds issued will not have a feature of annuity and the interest would be paid annually and would not accumulate and compound to be paid as lump sum at the time of maturity.

Redeemable It says that the bonds have a maturity and would have to be repaid when the maturity period ends.

Taxable The term defines that the person earning on the investment in the bonds i.e. the investor who will earn by way of interest will have to pay interest on it.

Arrangers Merchant bankers are the institutions who put in to arrange funds for the co. in case it is not confident of doing so on its own. Page 10 of 28

Powergrid appoints arrangers from time to time depending upon market conditions.

Private placement The company doesnt raise money through inviting public at large for it. It can just ask for investment privately and there also the people or organizations invited should not exceed 50.

Book building Process Though no such procedure has been prescribed in law but money market has evolved a process over time. It means a process undertaken by which a demand for the securities proposed to be issued by a body corporate is elicited and built up and price for such securitites is assessed for the determination of the quantum of such securities. It is practically a price discovery process which tries to optimize issue size at the most competitive rate. This will lead to decision about one cut-off rate for the entire issue after considering the rates quoted by the investors.

Debenture Trust Deed There is a deed made between the trustee and the investor which caters to the interest of the investor. This deed is basically for setting the terms of bonds. The deed is executed at the time of the issue of bonds.

Borrowing Cost All the borrowing cost are earmarked to specific projects. The costs so allocated are capitalized or charged to revenue, based on whether the project is under construction or in operation.

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5. Guidelines to issue Bonds for A PSU

5.1 External Guidelines Definition: These guidelines apply to all PSUs wholly or partially owned by the Central Bank to whom specific allocations for Bond issues are made by Central Govt. The guidelines are: 6. Amount of issue should be approved by GOI. Each PSU should preferably raise the amount in two or more trenches, each trench being linked to the loan requirement for the subsequent few months. 7. Choice of issue The choice of raising the amount as a public issue or by private placement will be left to the issuer. 8. SEBI Guidelines All the PSUs are to abide by the SEBI guidelines set for the same, where ever public issues is made. 9. Maturity & Tax Tax free bonds should have minimum maturity of 5 yrs but taxable ones have no criteria. Page 12 of 28

10.Private Placement Company may go for private placement provided the terms of such placements including any front-end fees payable on the bond, are in conformity with the guidelines internally drawn up by the PSU and every private placement proposal is approved by its board. 11.Buy-back arrangement The organization issuing bonds can make use of buy-back but all the information about it should be mentioned and given beforehand. However, the bonds which the company is issuing here dont allow for buy-back arrangement. 12.Arrangers PSUs are free to appoint arrangers/ merchant bankers to manage the issue if the market conditions do not support raising of bonds itself by the company. The company is using this facility after 4 years because of liquidity crunch and other market based difficulties. 13.Stock exchange. All bonds to be raised should be listed on stock exchange with all the documents required to be filed with them. Bonds have been listed with NSE for the present issue.

5.2 Internal Guidelines Definition: These guidelines are framed as per the rules of GOI, Ministry of finance, Investment Division of Bonds during the year 1993-94 vide press release dated 13-10-1993 prescribes that every Public Sector Undertaking should frame internal guidelines to ensure transparency in transactions relating to issue of Page 13 of 28

Bonds on Private Placement Basis specifying inter-alia, the manner in which the organizations for placement of bonds, the manner in which the organizations for placement of bonds are to be selected, the ceilings of the size of individual placement, and the payment of any front-end fee. 1. Applicability The guidelines shall be applicable to all private placements of taxable/tax-free bonds made by the company and will be subject to the guidelines issued by GOI. They will remain applicable till there are any modifications made by GOI or any fresh guidelines are issued for the same. 2. Institutions eligible for Private Placement Keeping in view the size of requirement of funds for the Company, the potential investors who could subscribe funds to the extent required are large institutions/bodies. As such individual investors are outside the scope of private placement. Who all can apply for the bonds, if specifically approached? a) Companies Undertakings and bodies corporate including Public Sector

b) Scheduled commercial banks. c) Regional rural banks d) Co- operative Banks e) Subsidiaries of Nationalized Banks f) Financial Institutions g) Insurance Companies h) Mutual Funds i) Provident, Pension, Superannuation, & Gratuity Funds j) Port Trust

k) Any other investor authorized to invest in these bonds, subject to confirmation of the issuer

3. The size of private placement The amount of bonds to be issued on private placement basis will be determined with reference to the funds required for next two quarters. The total amount of Bonds to be raised by Power Grid from the capital Page 14 of 28

market during the year will be approved by Board of Directors and President of India in terms of Articles of Association of the Company. Terms & Conditions: a) All the terms & conditions like Maturity Date, Coupon Rate, Call & Put features should be approved by the Board of Directors. b) Offers for PP will be invited directly from banks/institutions/Bodies and no broker or intermediary will be appointed for the same. c) Bonds will be fully paid and allotments will be made only after receipt of full application money. Front End Fee: The company should make efforts not to indulge with brokers/commission agents etc. However, in case the payment of front end fee/ brokerage/ commission becomes inevitable then: It should not exceed 2.5% of the total amount subscribed and allotted under Private Placement. It would be made directly to the subscribers of the bonds and not to any intermediary.

4. Minimum & Maximum Limits The minimum & maximum limits as to value of bonds to be allotted to a single institution shall be Rs. 10 lakhs and Rs. 20 crores respectively. 5. Selection Criteria There are various criterions through which Private Placement of Bonds can be made: a) Direct dialogue with the funding institutions like LIC, GIC, UTI etc. b) Direct invitation for bonds under PP from the institutions. c) There are companies who dont respond to the invitations even if they have considerable amount of money, for such organizations arrangers are appointed after approval from Board of Director for the same. 6. Method of Evaluation & Approval The offers will be evaluated by the committee for bonds with the CMD as the incharge.

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6. Hierarchy of Functioning

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It works in the form of a hierarchy. The board of directors forms a committee for bonds which consist of: I. II. III. IV. CMD- Chairman Director (Finance)- Member Director (Operation)- Member Director (Projects)- Member

Functioning This committee has all the powers of decision making and permits the execution of the work. It further delegates the tasks as per each department. For e.g. finance department has a bonds section which looks into tasks related to the procedural aspects and the cost part of the securities to be issued. This section is headed by Director Finance who is a member of the committee. Since the members have the required authority so their subordinates work in their name and responsibility. All the departments function on these bases.

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7. Strategy of the Bond Issue

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Bond Issuance can be considered to be a vast procedure for it includes a number of processess as stated above. Bond Issuing by organizations are done on the floors of the Primary Bond Markets where those who are interested in providing loans to the organizations Issuing Bonds, buy the Bonds that are issued. The issuer agrees and undertakes: a) To designate the co. sec. as the compliance officer who shall be responsible for monitoring the process of registering transfer of securities and report the same at the meeting of Board of Directors subsequently. b) To conduct due diligence survey to ascertain whether the Registrar & Transfer Agent (RTA) is sufficiently equipped with the infrastructure facilities.

1. Decision to raise Bonds- Initial Approval In the beginning of the financial year, board is supposed to approve the funds requirement which is supposed to arise during the year. On April9, 08, the board approved raising of funds amounting to Rs. 4235 crores in the form of bonds or any other form of security in one or more tranches during the current financial year under private placement.

2. Role of Board of Director On the same date the following decisions were made in the board meeting: i. CMD/ED/GM/AGM/DGM are jointly or severally authorized to negotiate the terms and conditions of the loans and do all such acts and deeds and take all actions as may be necessary for raising of such loans under the common seal wherever required as per the rules of articles of association. ii. The board also approves raising of bonds either through arrangers or otherwise through the process of book building or otherwise, having denomination of Rs. 1250000 each or such other denomination deemed fit. iii. It also gives committee of directors for bonds, the authority to finalize the terms and conditions of shelf information Memorandum for private placement/ public issue of bonds, including finalization of interest, redemption/maturity period, issue, allotment, creation of charge etc. and any other deeds thereby required. iv. CMD/Director /ED are authorized to appoint arrangers for the issue.

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v. Authorization is also given for the bonds to be listed in one or more stock exchanges of the country. vi. It is also resolved that copies of the bonds trust deed/ loan agreement, deed of hypothecation/ trustee agreement or any other document executed by the company for creation of security for the said bonds/term loans be placed before the board for information. vii. It allows CMD/Director (Finance), to raise short term loans to meet any contractual requirements at the best available rate. These loans will be repaid out of the fresh borrowings made in form of bonds. In short, all the authority required by the committee to fulfill the responsibilities is provided with, in addition to making the finance department known about their areas of performance.

3. Private Placement PowerGrid raises funds through private placement where it cannot invite more than 49 people or organizations to invest their money. Basically the amount involved in such transactions are huge and so the institutions invited should be carefully considered so that the risk of default is least and the operation of raising funds is low. 4. Rating of the Company Company has to get itself valued by the credit rating agencies as per the norms so that the investors have some confidence in its strength and ability to pay back the investment. Three agencies viz. ICRA, CRISIL, Care rate the company taking into account the new bond issue. a) ICRA It relied back on November27 and assigned a rating LAAA to POWERGRID and also announced the instrument to be totally risk free. This is the highest credit-quality rating given by ICRA. It means the instrument has lowest credit risk. However, it was as per the information about the terms and conditions supplied to them about the issue, therefore any changes in them would affect the rating. Also if so happens, it should be duly informed. Also it was suggested that the recommendation to buy the security. b) CRISIL rating is in no means any

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After due consideration the rating was affirmed as AAA/Stable rating which indicates highest degree of safety with regard to timely payment of interest and principal on the instrument by CRISIL. c) Care Care assigned a rating of AAA i.e. best credit quality, offering highest safety for timely servicing of debt obligations. Companies should co-operate with the Credit Rating Agencies in giving correct and adequate information for potential review of the securities during lifetime of the rated securities. All the agencies provided with a good rating thus making the task of arrangement a bit easier.

5. Arrangers i. Decision about arrangers At this stage i.e. when the actual demand arises, the decision regarding the use of merchant bankers is to be decided. Looking at the market conditions and its own capabilities, company either opts for getting the funds themselves or through the merchant bankers. In this bonds issue the company went for the services of merchant banker because of the tough market which is not very supportive for the borrowers. ii. Board Approval The board approved that the committee of directors for bonds may engage Merchant bankers/Arrangers including the three merchant bankers who were associated with the IPO of POWERGRID, for raising of bonds. iii. Invitation to Arrangers Looking at the Prime League Table (Dated November1,07 October31,08), company selects first 12 companies (excluding the above mentioned names), for the task. They are asked to send their bids for the fees they wish to charge, also specifying the reasons therein for the same. The two arrangers who were associated with the IPO were already there in the table consulted and so the third one was separately called. HOWEVER this invitation is in no way to be construed as any indication for appointment as arrangers for the proposed band issue. In case date is extended or changed then the arrangers should be informed about it within stipulated time as here date had to be extended Page 21 of 28

because of the incident of 26/11 in Mumbai and the work coming to a halt for some time, So the due date was extended to dec1,08. iv. Bid opening They sent in their bids within the stipulated time and these bids are opened on the due date in the presence of all the applicants. A committee comprising of one representative each of finance, company secretariat, and contract services is constituted to open and evaluate the quotation received from arrangers and submit their recommendations. Following people will evaluate the quotations received as a committee: i. ii. iii. Shri Mrinal Srivastava Manager (Co. Sectt.) Shri K.C. Pant (Fin.) Shri Tapan Das (CS)

If any company applies without an invitation then his bid is not considered received and is sent back without opening it. v. Reasoning for the quote The applicants are asked to justify their quotes as many of them have proposed to charge 0% fees. They rationalize in these ways: a. The unique structure of the bonds. No other similar rated PSU is offering this structure in the market. b. The AAA ranking under the book building category.

c. Also book building would provide the company with liberty to invest as per their comfort. The association with such organization will improve their own status in PRIME LEAGUE TABLE which is widely accepted for studying the ranking of the organizations. vi. Selection The criteria for shortlisting the arrangers is given below 1. Period of Consideration : 01.11.2007 to 31.10.2008 2. Issue type : Debt Private Placement 3. Issuer type/ Industry :All 4. Other Conditions :

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a) All issues : Distributed, Structured, On-Tap & Mobilization b) Issue amount in Indian Rupees c) Excluding Capital Gain & Infrastructure Bonds d) Full credit of issue to Arranger e) Issue with tenure and Put/Call option of 1 yr and above The arrangers are selected on the basis of their quotes and the above criteria. Here, the arrangers who applied for 0% bid were selected and appointed as official arrangers for the company. The following were selected: a) Axis Bank b) I- SECPD c) AK Capital d) ICICI Bank e) Stan Chart f) HSBC g) Kotak Bank h) Citi Bank i) IDFC- SSKI j) Almondz They are informed about the same. 6. Disclosure Document The document has been prepared to facilitate investors to take a well informed decision for making investment in the proposed issue. It should be clearly understood that the Company is primarily responsible for the correctness, adequacy and disclosure of all relevant information in this document. The Bonds will be issued solely and sold on a private placement basis. This Disclosure Document cannot be acted upon by any person other than to whom it has been specifically addressed. Multiple copies hereof given to the same entity shall be deemed to be given to the same person and shall be treated as such. This Disclosure Document has been prepared by the Company solely for use in connection with the issue and sale of the Bonds. Each prospective purchaser, by accepting delivery of this Disclosure Document, agrees to the foregoing and to make no copies of this Disclosure Document. Page 23 of 28

A disclosure document is to be approved by the committee for bonds.The Company believes that the information contained in this Disclosure Document is accurate in all respects as of the date hereof.

Some of the components of the document are given below: a) Authority to the issue It states the resolution passed under the Companies Act, 1956 by which company is allowed to raise money in this form. b) Description of the bond c) WDM Segment d) Trustee for the bond holders and registrar to the issue and their addresses. e) Arrangers to the issue f) Names and addresses of the directors g) Summary of business of issuer and its line of business h) Brief history of issuer since incorporation including amalgamation, change in capital structure and borrowings etc. It talks about all the details related to details of the companys incorporation i) Information regarding registrar, bankers to issue, reg. compliance officer j) Credit rating and rationale thereof k) Debt equity prior and post the issue l) Servicing behavior in other securities and borrowings m) Undertaking regarding common form of transfer n) Material event, Development or change at the time of issue o) Permission/Consent from existing creditors p) Statement containing particulars of the dates and parties to all material contract agreements involving financial obligation of the issuer.

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q) Name of recognized stock exchange where securities are expected to be listed r) Terms of offer and all details from features to redemption

7. Discussing work with Arrangers The selected arrangers are then called for a meeting to discuss about Issue Structure, Programme and Timing of the proposed raising of bonds. The outcome of this meeting is further approved by the committee of directors for Bonds.

a) Meeting with the arrangers The meeting is conducted for detailed discussion regarding timing, size, coupon rate etc. b) Arrangers inform that: a. There are expectations in the market that RBI may cut the interest rates. b. Other PSUs with good ranking have coupon rates like 11%, 11.25%, 10.70% etc. These rates are quoted to give an idea of the prevailing market rates and thereby helping in decision making. c) Other details decided about the bond: a. Size of the issue b. Timing of the issue- opening and closing date, intimation date, pay-in date, deemed date of allotment. c. Coupon band- cap @ 10.20%, floor kept open The upper band was at 10.20% bearing in mind the AAA ranking of POWERGRID and the market volatility. The lower rate is kept open to take advantage of the expected interest rate cut.

8. Listing on a Stock Exchnage As per stipulation of the guidelines issued by the GOI Ministry of finance for issue of PSU Bonds, all bonds are to be listed in Stock Exchanges. As per the guidelines, listing of the securities issued under private placement is compulsorily to be listed on Stock Exchange. An application for listing of bonds Page 25 of 28

at the WDM market in the prescribed format is furnished to the National Stock Exchange along with prescribed annexure and certified true copies of relevant documents. On satisfactory compliance of all the required formalities, demand for listing fees is raised by the Stock Exchange. Listing is done by the exchange on release of the requisite lisitng fee.

9. Market Study The factors which govern the interest rates are mostly economy related and are commonly referred to as macroeconomic. Some of these factors are:

a) b) c) d) e)

Demand for money Government borrowings Supply of money Inflation rate The Reserve Bank of India and the Government policies which determine some of the variables mentioned above.

Based on these factors various outputs can be:

a) Prevailing financial crisis at global level, economic slowdown, increasing liquidity crunch in money market and rising interest rate scenario forces to set a rate at which investors come to provide with the money required. b) There are expectations in the market that RBI may cut the interest rates. c) The upper band was at 10.20% bearing in mind the AAA ranking of POWERGRID and the market volatility. d) The lower rate is kept open to take advantage of the expected interest rate cut.

10.Final Details 1. The duration and redemption is discussed with comparison to the already floated government securities. Then the time is specified to use the G-Sec for comparison. In this issue there is no other government security till now with such features. And since the duration is 9.5 yrs but G-Sec with 9 yrs is not traded actively so the comparable G-sec would be the one with 10 yrs duration. Page 26 of 28

2. The upper band was at 10.20% bearing in mind the AAA ranking of POWERGRID and the market volatility. The lower rate is kept open to take advantage of the expected interest rate cut. 3. Some details are decided like: a. Size of the issue b. Timing of the issue- opening and closing date, intimation date, pay-in date, deemed date of allotment. c. Coupon band- cap @ 10.20%, floor kept open. 4. The face value is decided upon with the number of STRPPS. The moratorium and maturity is also specified. Use of application forms and their allocation is given. 5. Trustee to the issue is appointed and their consent is obtained. 6. Citibank N.A. requested that Citigroup Global Market India Pvt. Ltd., their 100% subsidiary who was a merchant banker for the IPO be permitted to act as arranger and committee is requested to approve the same, which is further approved.

11.Application forms a) Arrangers apply for the application forms to be filled in and sent by investors for allotment of bonds, also specifying the name of concerned investors. Though they are provided with 4 application forms each to give to the investors . b) Investors, arranged by arrangers confirm their investment through written communication. c) Letters sent to the organization applying for the bonds (specifying the name of concerned arranger) for the amount they are supposed to pay for the bonds allotted to them. The number of bonds and the cut-off rate is specified in the letter itself. d) Company sending the offer document containing the terms and conditions of the proposed issue and other instructions along with the letter of commitment and the application form. 12.Issue of bonds Amount is received by bank and transferred to current A/C. the amount for which the bonds are raised.

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