M&A Study

INDIAN INSTI ITUTE OF M MANAGEM MENT CAL LCUTTA
WORKING PAPER SE W ERIES
010 WPS No. 659/ July 20
Specia Situation Arbitrage: 5 Caselets al
by P. Srik kant Ayyar Doctor student, In ral ndian Institu of Manag ute gement Calcutta, Joka, D Diamond Har rbour Road, Kolka 700104 ata Vibh Gupta hor UBS Securities Ram Seth ma Prof fessor, IIM C Calcutta, Dia amond Harb bour Road, Joka P.O., Ko olkata 700 104 India
& Prerak Vohra ey ng McKinse Consultin
Special Situation Arbitrage: 5 Caselets
P. Srikant Ayyar1 Vibhor Gupta2 Rama Seth3 Prerak Vohra4
Indian Institute of Management Calcutta July 2010
IIMC, srikantp09@iimcal.ac.in UBS Securities, vibhorgupta@gmail.com 3 Corresponding Author, IIMC, rama_seth@iimcal.ac.in 4 McKinsey Consulting, prerak33@gmail.com
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Contents
Preface........................................................................................................................................ 7 Motivation .............................................................................................................................. 7 Case Selection ........................................................................................................................ 7 Introduction ................................................................................................................................ 8 Definition of Merger Arbitrage .............................................................................................. 8 How does Merger Arbitrage Work? ...................................................................................... 9 Empirical Findings on Merger Arbitrage Strategies ............................................................ 10 Are Profits Guaranteed? ....................................................................................................... 12 Methodology ............................................................................................................................ 12 Data Collection .................................................................................................................... 12 Analysis................................................................................................................................ 13 ICICIs Partly Paid Securities .................................................................................................. 14 Introduction .......................................................................................................................... 14 Motivation for the Issuance ................................................................................................. 14 Offering and Subscription Details ....................................................................................... 15 Motivations for Issuing Partly Paid Securities..................................................................... 16 Tata Motors Differential Voting Rights ................................................................................... 28 Introduction .......................................................................................................................... 28 Funding of the Acquisition .................................................................................................. 28 Details of the Rights Offering .............................................................................................. 30 Post- Issue Performance ....................................................................................................... 30 Ranbaxy Acquisition by Daiichi Sankyo ................................................................................. 42 Introduction .......................................................................................................................... 42 Execution of Arbitrage ......................................................................................................... 42 Understanding Futures Movement....................................................................................... 43 RIL RPL Merger Deal ............................................................................................................. 50 Introduction .......................................................................................................................... 50 Calculating Market Implied Probability .............................................................................. 50 Inaccuracy of Market Implied Probability ........................................................................... 50 Novelis Acquisition by Hindalco ............................................................................................. 57 Introduction .......................................................................................................................... 57 Strategic Rationale for the Deal ........................................................................................... 57 Deal Structure ...................................................................................................................... 58
Arbitrage Opportunity .......................................................................................................... 59 Corus Steel Acquisition by Tata Steel ..................................................................................... 63 Introduction .......................................................................................................................... 63 Strategic Rationale for the Deal ........................................................................................... 63 Deal Structure ...................................................................................................................... 65 Arbitrage Opportunity .......................................................................................................... 65 Teaching Notes ........................................................................................................................ 72 ICICI Bank Partly Paid Issue ............................................................................................... 72 Suggested Questions ........................................................................................................ 72 Hypothetical Evolution of the ICICI Bank Case ............................................................. 73 Simplified profit/loss calculations ................................................................................... 77 Tata Motors DVR Issue ....................................................................................................... 79 Suggested Questions ........................................................................................................ 79 How the case unfolded ..................................................................................................... 79 Theoretical background as per behavioral finance: ......................................................... 81 Ranbaxy-Daiichi Sankyo Deal............................................................................................. 84 Suggested Questions ........................................................................................................ 84 Discussion Material ......................................................................................................... 84 Novelis-Hindalco Deal......................................................................................................... 86 Suggested Questions ........................................................................................................ 86 Discussion Material ......................................................................................................... 86 Tata-Corus Deal ................................................................................................................... 87 Suggested Questions ........................................................................................................ 87 Discussion Material ......................................................................................................... 88 Bibliography ............................................................................................................................ 90 Data Sources ............................................................................................................................ 90
Exhibits
EXHIBIT A: ICICI .................................................................................................................. 18 Exhibit A1: Economic trends .................................................................................................... 18 Exhibit A2: Balance Sheet for ICICI Bank Limited ................................................................... 19 Exhibit A3: Income Statement for ICICI Bank Limited ............................................................ 20 Exhibit A4: Bond Issuance activity of ICICI Bank .................................................................... 20 Exhibit A5: Equity Issuance activity of ICICI Bank .................................................................. 23 Exhibit A6: Issue Prospectus..................................................................................................... 24 Exhibit A7: ASX Press Release on Partly Paid Securities ........................................................... 25 Exhibit A8: Historical Data ....................................................................................................... 26 EXHIBIT B: TATA MOTORS ................................................................................................ 31 Exhibit B1: Balance Sheet ......................................................................................................... 31 Exhibit B2: Income Statement .................................................................................................. 32 Exhibit B3: Cash Flow Statement .............................................................................................. 33 Exhibit B4: Terms of bridge loan (summarized) ........................................................................ 34 Exhibit B5: Shareholding Pattern at the time of issue ................................................................ 36 Exhibit B6: Offer Document .................................................................................................... 37 Exhibit B7: Daily Share Prices ................................................................................................... 38 Exhibit B8: Pricing Rights ......................................................................................................... 39 Exhibit B9: Differential Voting Rights Price History ................................................................. 40 EXHIBIT C: RANBAXY ......................................................................................................... 45 Exhibit C1: Key developments during the deal period ............................................................... 46 Exhibit C2: Evolution of Ranbaxy Shareholding Structure ........................................................ 48 EXHIBIT D: RIL-RPL ............................................................................................................. 52 Exhibit D1: RIL Press Release .................................................................................................. 52 Exhibit D2: JM Financial Deal Memo ....................................................................................... 54 EXHIBIT E: NOVELIS ........................................................................................................... 60 Exhibit E1: Market data trends.................................................................................................. 60 Exhibit E2: Key developments during deal period .................................................................... 62 EXHIBIT F: CORUS STEEL .................................................................................................. 67 Exhibit F1: Acquisition Financing ............................................................................................. 67 Exhibit F2: Timeline of events during the deal .......................................................................... 70 Exhibit F3: Stock Price Movement............................................................................................ 71
Figures
Figure 1: Risk Return Characteristics in Merger Arbitrage ..................................................... 11 Figure 2: ICICI Partly-Paid Securities - Spread and Volume .................................................. 17 Figure 3: Historical Stock Price Movement of Ranbaxy ......................................................... 44 Figure 4: Difference between 1 and 2 month Futures Prices for Ranbaxy .............................. 45 Figure 5: Stock Price Movement - Rabaxy and Daiichi Sankyo ............................................. 45 Figure 6: 1 Month Futures Price Movement and Key Develpments for Ranbaxy .................. 46 Figure 7: Evolution of Trading Positions in RIL-RPL Deal .................................................... 50 Figure 8: RIL RPL Swap Ratio ................................................................................................ 51 Figure 9: RIL and RPL Stock Price Movement ....................................................................... 52 Figure 10: Regions of Integration and Segregation of Two Different Outcomes by an Investor .................................................................................................................................................. 83 Figure 11: Ranabaxy Profit/Loss Evolution on a Per Share Basis........................................... 84 Figure 12: Profit/Loss Evolution from a Hedged Ranbaxy Position ....................................... 85 Figure 13: Profit/Loss Evolution on a Per Share Basis of Novelis .......................................... 86 Figure 14: Novelis Trading Volumes in the US and Canadian Markets ................................. 87 Figure 15: Profit/Loss Evolution on a Per Share Basis Corus .............................................. 88
Tables
Table 1: ICICI Bank's Equity Issuance .................................................................................... 15 Table 2: ICICI Subscription Details ........................................................................................ 16 Table 3: Tata Motors Shares Outstanding if Rights Issue Fully Subscribed ........................... 30
Preface
Motivation
Building a successful arbitrage position requires a trader to know the details of the deal such as the parties involved, their incentives and motives, and where possible, their commitment to the deal. It also requires an ability to collate existing information, understand the data and ascertain likely outcomes. The cases in this compendium have been developed by our team to explain how typical arbitrage situations would evolve and what kind of input and analysis would be required to make trading in them profitable. The idea is that the readers of the cases view the situations described from the point of view of an arbitrage trader.
The idea of many caselets rather than one case is that it would expose students to a range of special situations, and let them develop a stylized understanding of a class of situations and the ability to analyse unseen variations as presented in the real world. The information gathered and the theories explained here provide the requisite tools to allow students to understand and appreciate the nuances involved in merger arbitrage.
CaseSelection
We selected cases in risk arbitrage that were recent, interesting (in the sense that there was a unique learning in each of the situations) and that were novel and hitherto unpublished. This selection was partially enabled by drawing on the knowledge of some of the team members. We confirmed the selection after discussions with various market participants active in equity research, brokerage trading and principal trading. We discuss six situations, each of which give insights into the behavior of market participants. We present these caselets in a structured way, analyzing how publicly available information may be used to implement trades and manage positions. We present below a brief introduction highlighting the uniqueness of each case. 1. ICICI bank issue: This issue was a fund raising event rather than an M&A situation. The opportunity for arbitrage was present due to the issue having a clause for part payment for select investors.
2. Tata Motors issue: This issue was an unprecedented financing situation in India, where the company created a shareholding structure with differential voting rights. The markets pricing of control vs. cash flows was different between the two classes of stocks 3. Ranbaxy-Daiichi Sankyo deal: This deal involved a less than 100% open offer for the public shareholders and hence carried significant uncertainties regarding the acceptance ratio. There were also uncertainties about the deal closure date due to regulatory hold ups. These uncertainties created arbitrage opportunities. 4. RIL-RPL deal: As opposed to other M&A situations discussed here, this deal entailed a pure share swap where the expected profitability depended on the movement of the price ratio of the two stocks. 5. Hindalco-Novelis deal: This deal was a straight cash bid. What made it unusual was the differential price movement in two markets. Novelis was listed in both US and Canada and the trading volumes in Novelis stock reacted very differently to deal announcement in the two markets. We conclude that this behavior reflected the presence of arbitrageurs in one market but not the other. 6. Tata-Corus deal: The announcement of this deal led to a bidding war between various suitors. The market had certain expectations about the possibility of a bidding war but the unfolding of the situation led to a revision of these expectations amongst market participants. The result was a series of interesting price movements that arbitrageurs could use to their advantage.
Introduction
DefinitionofMergerArbitrage
Merger arbitrage involves trading the stocks of companies engaged in mergers and takeovers. The arbitrage does not denote the practice of trading on speculation about a possible announcement of an M&A transaction; rather the trades are executed only after a definitive agreement is reached. If all goes as planned, the target company's stock price should eventually rise to reflect the agreed per-share acquisition price, and the acquirer's price should fall to reflect what it is paying for the deal. The opportunity for arbitrage arises before the consummation of the merger and once the terms of the potential merger become public. It is then that an arbitrageur will go long, or buy shares
of the target company, which in most cases trade below the acquisition price. At the same time, the arbitrageur will short sell the acquiring company (in case of full or partial share swap) by borrowing shares with the hope of repaying them later with lower cost shares. The wider the gap, or spread, between the current trading prices and their prices valued by the acquisition terms, the better the arbitrageur's potential returns.
HowdoesMergerArbitrageWork?
A merger arbitrage opportunity is created when a probable event occurring in the future, i.e. the consummation of a merger, renders the pricing of the shares of two companies in proportion to each other. However, after the announcement of a merger, the shares do not trade exactly at prices as per the relationship implied by the terms of the deal; they trade disparately. This disparity exists because the consummation of a merger is not a certain event and the disparity is proportional to the probability that the merger falls through. Thus, the arbitrage is a risky one where the arbitrageur is holding the event risk of deal failure. There are also other components of risk which exist in this strategy, which we shall relegate to a later discussion. To elaborate this supposition, let us consider an example of a hypothetical merger deal: Company X announces its intention to buy company Y in a share swap of 2:1 (i.e. 2 shares of X per share of Y). Assume that X traded at 50 and Y at 75 before the announcement and that immediately after the announcement Xs price goes down to 45 and Ys prices rises to 85. The example illustrates that the shares do not trade as per the relationship implied in the share swap, that is: Price(Y) = 2* Price(X). This is because the market is cautious about the completion of the deal. The degree of skepticism will be reflected in the relative gap in pricing. We discuss this aspect next. If the merger were to go through, 2 shares of X would be equivalent to 1 share of Y. Hence, a merger arbitrageur who is essentially betting on the deal being consummated exploits this mispricing by buying one share of Y for 85 and shorting 2 shares of X for a cash inflow of 90. Upon the completion of the deal, one Y share will be exchanged for two X shares which will be used to cover the short sale. This strategy provides a net profit of 5 (ignoring the net interest earned on short sales for now) for a holding period beginning at the announcement of a deal and ending at its closure.
However, if the merger fails, then, assuming no externalities, X should again trade around 50 and Y around 75. In this case, the loss on the arbitrageurs position would be 20 (-85 + 90 + 75 100) when he unwinds his position. We can find the market determined probability of completion of the merger as indicated by the pricing of shares by the market. If we assumed that arbitrage profits are on an average zero (i.e. expected profits are zero), then: p*5 (1-p)*20 = 0 => p = 80% In practice, expected arbitrage profits are not zero because the market prices in a lower probability to successful deal closure in mergers than is experienced in reality.
EmpiricalFindingsonMergerArbitrageStrategies
Prevailing research suggests that financial markets exhibit systematic inefficiency in the pricing of firms involved in mergers and acquisitions. It documents excess returns in cases of successful deal closures for arbitrage positions taken following the announcement of the deal.5 The following figure displays a representative picture of the losses and gains from risk arbitrage. This figure tracks the median arbitrage spread (the percentage difference between the target's stock price and the offer price) over time, measured from the deal resolution date. For unsuccessful deals, the spread remains relatively wide during the life of the merger. When a merger deal fails, the median spread widens dramatically, increasing from 15 percent to more than 30 percent on the termination announcement day. A much different pattern exists for risk arbitrage investments in successful merger transactions. In successful deals, the arbitrage spread decreases continuously as the deal resolution date approaches. Upon successful consummation of the merger, the spread collapses to zero. The fact that spreads are much wider for unsuccessful transactions suggests that the probability of deal failure is incorporated into the stock prices of target firms.
5 Mark Mitchell, Todd Pulvino, Characteristics of Risk and Return in Risk Arbitrage. The Journal of Finance, Vol. 56, No. 6 (Dec., 2001), pp. 2135-2175
Figure 1: Risk Return Characteristics in Merger Arbitrage
There have also been empirical studies6 of the actions of risk arbitrageurs in takeovers. Their hypothesis is that merger arbitrageurs are better informed than the market about the takeover probability of success. Findings suggest that takeovers in which arbitrageurs bought shares have an actual success rate higher than the average probability of success implied by market prices. As a result, they can generate substantial positive returns on their portfolio positions. Other researchers have argued that this result is indistinguishable from one where merger arbitrageurs do not know ex-ante which takeover attempts are more likely to be successful, but their presence increases the probability of success, since they are more likely to tender. In practice, carefully structured risk arbitrage positions are executed by large institutional investors who often have knowledge of probable actions of a subset of other arbitrageurs. Hence, the size of positions taken by merger arbitrageurs is endogenously determined and the resulting impact on the probability of successful merger follows from the discussion above. The market will continue to under-estimate this probability of success as long as the arbitrageurs manage to not fully reveal their presence in the share-holding structure of the involved parties. Similar studies also establish a positive relationship between trading volume and the probability that the takeover is successful. This is consistent with the widely observed phenomenon that, after the takeover announcement, both the stock price and the transaction volume of the target rise tremendously relative to their preannouncement levels.
Cornelli and Li, 2002, show that since arbitrageurs are more likely to tender, their presence in the market endogenises the value of the target shares.
AreProfitsGuaranteed?
This arbitrage would be risk-less only if the merger is certain to be completed, since the pricing disparity can be locked in now and unwound later for profit. If all mergers in all situations were priced correctly, then profits from disparities in pending mergers that are eventually completed should balance losses from those in mergers that are eventually busted. However, as discussed above, the mis-pricing exists systematically and hence, such trades are profitable. It can also be seen from the preceding discussion and from Figure-1 that the profits are not guaranteed. In situations where the merger falls through, the losses can be far larger than the possible gains accruing from successful consummation of the deal. For this reason, merger arbitrageurs build a portfolio of such positions which are aimed to exploit the statistically profitable nature of the trades without depending fully on one or a small number of deals. Such portfolios can be churned based on managers discretion or through a strictly rule based (automated) system of trading with minimal subjective intervention.
Methodology
DataCollection
The building of each case required extensive qualitative and quantitative data collection and hence we referred to multiple sources for gathering data. We collected data from primary sources (i.e. market participants) and various secondary sources, which we note below: 1. Bloomberg: used for prices, volumes and corporate action details regarding various instruments and companies 2. Reuters: used for market news about the companies as each of the situations progressed 3. Company annual reports 4. Company websites 5. Academic articles on risk arbitrage 6. Corporate investor relation departments of the companies involved 7. Traders, merchant bankers & brokers for the deals 8. Various other news and media article sources including Hindu business line and Wall Street journal (Livemint)
Analysis
The data gathered was structured to present a logical story of developments and to emphasize the diverse and widespread nature of sources from which information needs to be gleaned by an arbitrageur when he/she decides to setup a trade. The simulated profit and loss charts from hypothetical arbitrage positions are included in the exhibits of the cases. From the data gathered, we also calculated the market implied probabilities of deal consummation which is an important parameter to monitor in special situations risk arbitrage.
ICICIsPartlyPaidSecurities
Introduction
On May 2 2007, ICICI Bank, a leading private sector bank in India, detailed plans to raise an additional USD 5 bn ( 20,000 cr7 INR8 ) by selling additional shares to the public. The plans came in the wake of a disappointing earnings release on April 30, along with which it announced that it would seek around $5bn in equity capital. Markets reacted negatively to this news, and the stock dropped over 7% amid concerns on dilution. The Industrial Credit and Investment Corporation of India Limited (ICICI Limited) was incorporated in 1955 with the backing of the Government of India, the World Bank, and Indian industry to promote Indias economic development by providing medium to long term project financing to Indian business. In 1994, ICICI Limited established a banking subsidiary (ICICI Banking Corporation, later ICICI Bank Limited) to engage in banking operations including taking deposits. Years of rapid growth saw the ICICI group becoming Indias largest private bank, and venturing into the securities business. In 2002, the group integrated its financing banking operations through a reverse merger, in which ICICI Bank took over ICICI Limited and other group companies. ICICI Bank continued to grow as Indias economy, after decades of modest growth, grew rapidly at 8-9% in real terms each year between 2003 and 2007. By March 31 2007, ICICI was Indias second largest bank, with total assets of Rs 3950 bn (USD 99 bn) and profits of Rs 26.3 bn (USD 660 mn).
MotivationfortheIssuance
In order to fuel the burgeoning growth of assets in its book, ICICI Bank had repeatedly accessed both domestic and international debt markets in the 5 years preceding the issue. ICICI Bank diversified its borrowing into in foreign currencies and experimented with innovative financing schemes. A summary of ICICI Banks capital raising activities for the preceding five years is presented in Exhibit 4. Nonetheless, from a regulatory perspective, the core measure of a banks financial strength is its equity capital. The Basel-II capital adequacy norms adopted in 2004 follow this philosophy, and focus on a banks Tier-I capital ratio, which is defined as the ratio of a banks core equity capital (
A crore is a unit equivalent to 10 million. On March 31 2007, the USD/INR exchange rate was Rs. 43. For convenience, Rs. 40 has been used throughout the case for currency conversions. The actual exchange rates are presented in Exhibit I.
8
common stock + reserves ) to its total risk weighted assets. Therefore, in parallel with bond issues, ICICI had also sought to shore up its equity (Exhibit 5 ) by raising approximately USD 565 mn ( 2,260 cr INR ) and USD 2.5 bn ( 10,000 cr INR ) in 2005. To diversify its share holding structure and encourage participation, domestic retail shareholders received a 5% discount to the issue price of the 2005 offering.
Table 1: ICICI Bank's Equity Issuance
Year 2004 2005 2007
Approx shares in millions (incl. ADS equivalents) 166.37 153.53 195.76
Issue size in ADS relative to US issue size 33% 38% 92%
Approx USD Notional 1.3 bn 2.0 bn 4.9 bn
As can be seen from Table I (last column), the proposed 2007 issue was larger than the previous issues made by the bank, both in terms of the number of shares and in value; the latter remarkably so since the share price had appreciated considerably. This was also a consolidated capital raising exercise while ADRs were around 35% of the past 2 issues, the 2007 issue sought equal amounts from domestic and international capital markets. The stated purpose of the issue according to the offer documents was to augment the banks capital base to meet future capital adequacy requirements arising out of growth in its businesses and for other general corporate purposes. Specifically, ICICI Bank intended to use the funds to meet its i. ii. capital adequacy requirements ahead of switching to Basel-II norms in March 2008 asset growth needs spurred by an economy that has grown 9.4% in the fiscal year ended March 31, 20079
OfferingandSubscriptionDetails
The 2007 Follow-on Public Offering (FPO) had several interesting features. ICICI hired four leading investment banks - Goldman Sachs (India), DSP Merrill Lynch, Enam and JM Financial to book-build the domestic leg, and Goldman Sachs and Merrill Lynch to underwrite the ADS issue. DSP Merrill Lynch was to act as a price-stabilizing agent for the issue post the listing. Like in the 2005 issue, ICICI reserved a portion of the issue for retail investors, and offered them a discount to encourage participation while institutions had to pay Rs. 940 a share, retail investors could purchase a share for Rs. 890. Interestingly, retail investors could elect to pay this amount in installments: Rs. 250 on application, another Rs 250 on allotment, and the remaining
9
Offer document
amount (Rs. 390) when the company called for the balance funds, which would occur within the next six months. Between the time of allotment and the call, these partly-paid securities would trade in secondary markets to allow investors an exit route in the event that they were unable to pay the balance amount on call. Once the balance amount was called, the partly paid securities would cease trading and be replaced by fully paid securities. The issue was strongly subscribed by institutions10. In particular, agencies controlled by the Singapore government, Temasek and Government of Singapore Investment Corporation (GIC), doubled their investment in the company to 20%, shelling out about $1.8 billion to buy this additional stake.
Table 2: ICICI Subscription Details
QIB Bucket of Rs. 4803.2 crs was subscribed 17.7 times HNI Bucket of Rs. 1,893.8 crs. was subscribed 3.86 times Retail Bucket of Rs. 2,909.3 crs. was subscribed 0.95 times Overall issue of Rs. 10,044 crs. was subscribed 9.36x
MotivationsforIssuingPartlyPaidSecurities
ICICI Banks primary motivation for issuing partly paid securities was to diversify its shareholding pattern by building up a strong retail shareholding base. Concentrated shareholdings mean that a group of large shareholders can effectively combine to control the firm, whereas shareholders are primarily interested in owning shares for economic reasons. To make its offering attractive to domestic retail shareholders, ICICI firstly offered its shares at a 50 INR (5.32%) discount to the institutional offer price. However, recognizing that retail investors may face difficulties in arranging funds, it threw in a further sweetener by allowing them to pay in installments. Theoretically, the law of one price dictates that Partly Paid = Fully Paid Present Value (Balance Amount) Retail investors are thereby able to acquire an instrument that would track the fully-paid share at a lower investment. In this sense, partly-paid securities can offer leverage to an investor who intends to sell such securities before the balance amount is called. Also, if we consider a scenario where the price of the underlying share drops below the balance amount, the investor can choose to walk away from paying the call amount. Therefore, a partly paid security contains an embedded put, since the loss is limited to ones investment.
10
Based on information received from JM Financial, one of the book running lead managers
Profit 800 600 400 200 0 290 370 450 530 610 690 770 850 930 1010 1090 1170 1250 1330 1410 -200 -400 -600 1490
350000 300000 440 430 420 200000 volume 150000 390 380 370 50000 360 350
07 07 07 20 07 20 07 20 07 20 07 20 07 20 07 20 07 20 07 00 7 /2 0 /2 0 /2 0 20 07 9/ 4/ 2 /2 0 07
However, investing in partly paid securities also has risks, since they incorporate future obligations to contribute additional capital. The most obvious risk is that the investor is unable to arrange the funds to pay the balance amount on call. Even if partly paid securities are listed, the secondary market may not always provide a satisfactory exit since such shares can trade at a steep liquidity discount to their theoretical prices. The inability to pay the balance amount on call leads the investor forfeiting the shares.11
460 450
250000
spread
410 400
100000
8/ 28 /
8/ 14 /
9/ 25 /
10 /2 /
9/ 11 /
8/ 21 /
9/ 18 /
10 /9 /
11 /6 /
/1 6
/2 3
/3 0
10
10
10
date
Figure 2: ICICI Partly-Paid Securities - Spread and Volume

11
In markets like Australia which have several partly paid securities, regulators require market participants and retail clients to enter into a partly paid security agreement where the risks of such investments are explained. For more details, see Exhibit 7
11
/1 3
Figure 2 (data in Exhibit A8) plots the difference between the fully paid common share and the partly paid security, and the volumes of the partly paid security. The partly paid securities were listed on 14 Aug 2007 and traded upto 15 Nov 2007, when the balance amount was called and the securities delisted.
EXHIBIT A: ICICI Exhibit A1: Economic trends Indian economic growth12

12.0 10.0 8.0 6.0 4.0 2.0 0.0
12 13
Source: RBI Database on Indian Economy Source: Google finance
19 50 19 5 1 53 19 5 4 56 19 5 7 59 19 6 0 62 19 6 3 65 19 6 6 68 19 6 9 71 19 -7 2 74 19 7 5 77 19 7 8 80 19 -8 1 83 19 8 4 86 19 8 7 89 19 9 0 92 19 -9 3 95 19 9 6 98 20 9 9 01 20 -0 2 04 20 0 5 07 -0 8
-4.0 -6.0 GDP growth rate 10yr avg
-2.0
USD/INR Exchange rates13
Exhibit A2: Balance Sheet for ICICI Bank Limited14

In Millions of Rupee (except per share items) Cash & Due from Banks Other Earning Assets, Total Net Loans Property/Plant/Equipment, Total - Gross Accumulated Depreciation, Total Property/Plant/Equipment, Total - Net Other Long Term Assets Other Assets, Total Total Assets Accounts Payable Total Deposits Other Bearing Liabilities, Total Long Term Debt Capital Lease Obligations Total Long Term Debt Total Debt Deferred Income Tax Minority Interest Other Liabilities, Total Total Liabilities Redeemable Preferred Stock, Total Common Stock, Total Additional Paid-In Capital Retained Earnings (Accumulated Deficit) Unrealized Gain (Loss) Other Equity, Total Total Equity Total Liabilities & Shareholders' Equity Total Common Shares Outstanding 2008 2008-03-31 298,008.0 1,755,750.0 2,514,020.0 79,376.0 (32,592.5) 46,783.5 23,595.5 224,331.0 4,862,480.0 121,525.0 2,769,830.0 -845,660.0 -845,660.0 845,660.0 6,315.0 7,311.9 661,113.0 4,411,760.0 3,500.0 11,126.8 320,914.0 116,441.0 979.3 (2,238.1) 450,722.0 4,862,480.0 1,112.69 2007 2007-03-31 192,410.0 1,410,650.0 2,113,990.0 69,541.9 (26,140.4) 43,401.5 14,234.0 175,234.0 3,949,920.0 105,832.0 2,486,140.0 -616,595.0 -616,595.0 616,595.0 6,574.9 5,095.6 486,538.0 3,706,770.0 3,500.0 8,993.4 127,189.0 99,117.5 4,867.7 (516.8) 243,150.0 3,949,920.0 899.27 2006 2006-03-31 89,859.4 932,830.0 1,562,600.0 62,844.5 (21,415.8) 41,428.7 -145,574.0 2,772,300.0 -1,724,510.0 -449,999.0 -449,999.0 449,999.0 -2,749.4 369,119.0 2,546,380.0 -12,398.3 -213,519.0 --225,918.0 2,772,300.0 889.82 2005 2005-03-31 63,701.4 619,092.0 964,100.0 57,817.7 (16,035.8) 41,781.9 -95,661.9 1,784,340.0 -1,011,090.0 -383,690.0 -383,690.0 383,690.0 -1,524.8 261,793.0 1,658,090.0 -10,867.8 -115,374.0 --126,242.0 1,784,340.0 616.39
14
Source: Reuters
Exhibit A3: Income Statement for ICICI Bank Limited15

In Millions of Rupee (except per share items) Interest Income, Bank Total Interest Expense Net Interest Income Loan Loss Provision Net Interest Inc. After Loan Loss Prov. Non-Interest Income Non-Interest Expense Net Income Before Taxes Provision for Income Taxes Net Income After Taxes Minority Interest Net Income Before Extra. Items Net Income Basic Weighted Average Shares Basic EPS Diluted Weighted Average Shares Diluted EPS DPS - Common Stock Primary Issue Gross Dividends - Common Stock Total Special Items Normalized Income Before Taxes Effect of Special Items on Income Taxes Inc Tax Ex Impact of Sp Items Normalized Income After Taxes Normalized Inc. Avail to Com. Basic Normalized EPS 2008 2008-03-31 340,950.0 257,670.0 83,279.8 27,723.9 55,555.9 257,858.0 (271,164.0) 42,249.5 11,096.8 31,152.6 2,829.7 33,982.3 33,982.3 1,055.59 32.193 1,062.10 31.995 11.000 12,239.6 1,071.5 43,321.0 281.4 11,378.3 31,942.7 34,772.3 32.941 2007 2007-03-31 240,025.0 176,757.0 63,268.3 22,082.2 41,186.0 173,305.0 (180,516.0) 33,974.8 7,640.8 26,334.0 1,272.3 27,606.3 27,606.3 892.82 30.920 897.74 30.751 10.000 9,085.4 603.4 34,578.2 135.7 7,776.5 26,801.7 28,074.0 31.444 2006 2006-03-31 151,358.0 101,015.0 50,343.5 8,117.2 42,226.3 94,796.9 (106,035.0) 30,988.2 6,998.0 23,990.2 210.7 24,200.9 24,200.9 781.69 30.960 789.96 30.635 8.500 7,563.3 298.8 31,287.0 67.5 7,065.5 24,221.6 24,432.3 31.256 2005 2005-03-31 98,337.6 68,043.8 30,293.8 (889.9) 31,183.6 70,976.3 (78,375.7) 23,784.2 5,683.8 18,100.4 422.9 18,523.3 18,523.3 727.73 25.454 733.72 25.246 8.500 6,329.6 338.8 24,123.0 81.0 5,764.8 18,358.3 18,781.1 25.808 16
Exhibit A4: Bond Issuance activity of ICICI Bank

Dates of
15 16
Description
Amount
Date of
Rating at the
Source: Reuters. Earnings for 2005, 2006 and 2007 have been restated by the company. Company filings over the 5 years preceding the issue; summarized in offering prospectus
closure, Deemed Allotment, despatch Jan 2003 Jan27,2003; Feb 26, 2003; Ap 1, 2003 Feb 2003 Mar 4, 2003; Apr 3, 2003; May 5, 2003
Allotted
Redemption
time of Issue
Public Issue of Unsecured Redeemable Bonds in the nature of Debentures aggregating Rs. 4.00 billion with a right to retain oversubscription upto Rs. 4.00 billion Public Issue of Unsecured Redeemable Bonds in the nature of Debentures aggregating Rs. 4.00 billion with a right to retain oversubscription upto Rs. 4.00 billion
11,220 mn (INR)
7,400 mn (INR)
Mar 2003 Mar 31, 2003; Apr 30, 2003; May 22, 2003
Public Issue of Unsecured Redeemable Bonds in the nature of Debentures aggregating Rs. 4.00 billion with a right to retain oversubscription upto Rs. 4.00 billion
4,810 mn (INR)
Aug 2003 Sep 9, 2003; Oct 9, 2003; Nov 3, 2003
3,430 mn (INR)
Oct 2003; Oct 22, 2003; NA Oct 2003 Nov 15, 2003; Dec 15, 2003; Jan 14, 2004
4.75% Fixed Rate Notes
300 mn (USD) 4,860 mn (INR)
Tax Saving I. Feb 26, 2006 II Jun 26, 2006 III Feb 26, 2008 IV Jun 26, 2008 Tax Saving I Apr 3, 2006 II Aug 3, 2006 III Apr 3, 2008 IV Aug 3, 2008 Regular Income Apr 3, 2010 Tax Saving I Apr 30, 2006 II Aug 30, 2006 III Apr 30, 2008 IV Aug 30, 2008 Regular Income Apr 30, 2010 Tax Saving I Oct 9, 2006 II Feb 9, 2007 III Oct 9, 2008 IV Feb 9, 2009 Regular Income Oct 9, 2010 Oct 22, 2008
ICRA LAAA CARE AAA
ICRA LAAA CARE AAA
ICRA LAAA CARE AAA
ICRA LAAA CARE AAA
Moodys Baa3 S&P BB ICRA LAAA CARE AAA
Dec 2003 Jan 6, 2004; Feb 5, 2004; Mar 13, 2004 Aug 2004; Aug 18, 2004; NA Jan 2005 Feb 9, 2005; Mar 11, 2005; Apr 7, 2005
Public Issue of Unsecured Redeemable Bonds in the nature of Debentures aggregating Rs. 1.00 billion with a right to retain oversubscription upto Rs. 1.00 billion 5.00% Fixed Rate Notes
5,230 mn (INR)
300 mn (USD) 7,750 mn (INR)
Tax Saving I Dec 15, 2006 II Jun 15, 2007 III Dec 15, 2008 IV Jun 15, 2009 Regular Income Dec 15, 2010 Tax Saving I Feb 5, 2007 II Aug 5, 2007 III Feb 5, 2009 IV Aug 5, 2009 Aug 18, 2009
ICRA LAAA CARE AAA
Moodys Baa3 S&P BB+ ICRA LAAA CARE AAA
Feb 2005 Mar 9, 2005; Apr 8, 2005; May 10, 2005
5,290 mn (INR)
Tax Saving I Mar 11, 2010 II Mar 11, 2012 Regular Income I Mar 11, 2010 II Mar 11, 2012 III Mar 11, 2015 Childrens Growth I Mar 11, 2010 II Mar 11, 2012 Tax Saving I Apr 8, 2010 II Apr 8, 2012 Regular Income I Apr 8, 2010 II Apr 8, 2012 III Apr 8, 2015 Childrens Growth I Apr 8, 2010
ICRA LAAA CARE AAA
Mar 2005 Mar 31, 2005; Apr 30, 2005; May 27, 2005
3,240 mn (INR)
Nov 2005; Nov 16, 2004; NA Aug 2006; Aug 17, 2006; NA Oct 2006; Oct 20, 2006; NA Nov 2006; Nov 22, 2006; NA Jan 2007; Jan 12, 2007; NA Jan 2007; Jan 12, 2007; NA Jan 2007; Jan 12, 2007; NA Mar 2007; Mar 29, 2007; NA Apr 2007; Apr 29, 2007; NA May 2007; May 4, 2007; NA
500 mn (USD) 340 mn (USD)
II Apr 8, 2012 Tax Saving I Apr 30, 2010 II Apr 30, 2012 Regular Income I Apr 30, 2010 II Apr 30, 2012 III Apr 30, 2015 Childrens Growth I Apr 30, 2010 II Apr 30, 2012 Nov 16, 2010
ICRA LAAA CARE AAA
Moodys Baa3 S&P BB+ Moodys Baa2 S&P BB+
7.25 perpetual non-cumulative subordinated debt securities
400 mn (USD) 100 mn (USD) 750 mn (USD)
Perpetual; first call 31 Oct 2016, coupon dates thereafter Oct 20, 2011
Moodys Baa2 S&P BB+ Moodys Baa2 S&P BB+ Moodys Baa2 S&P BB-
Oct 20, 2011
750 mn (USD) 500 mn (USD) 500 mn (EUR) 50 mn (EUR) 50 mn (EUR)
15 years call, first call 30 Apr 2017, coupon dates thereafter Jan 12, 2012
Moodys Baa2 S&P BB+ Moodys Baa2 S&P BB+ Moodys Baa2 S&P BBBMoodys Baa2 S&P BBBMoodys Baa2 S&P BBB-
Floating Rate Notes
Jan 12, 2012
Floating Rate Notes
Mar 29, 2009
Floating Rate Notes
Mar 29, 2009
Floating Rate Notes
Mar 29, 2009
Exhibit A5: Equity Issuance activity of ICICI Bank17

Public Issue of Equity Shares (2005) Public Issue of 97,155,388 Equity Shares of Rs. 10/- each at a price of Rs. 525/- per share for cash aggregating Rs. 50,000 million (the Issue) with a green shoe option of 14,285,714 Equity Shares of Rs.10/- each at a price of Rs. 525/- per share for cash aggregating Rs. 7,500 million closing 6 Dec 2005. No. of shares allotted 66,275,828 to Qualified Institutional Bidders and Non-Institutional Bidders 1,511,494 to Qualified Institutional Bidders and Non-Institutional Bidders 12,988,820 to Existing Retail Shareholders and Retail Bidders 15,905,240 to Existing Retail Shareholders and Retail Bidders 14,285,714 (Green Shoe option) Nature of payment Fully paid-up Issue Price per share 525 Date of allotment December 16, 2005
Fully paid-up
525
December 20, 2005
Fully paid-up
498.75 (After discount of 5% on the issue price ) 498.75 (After discount of 5% on the issue price ) 525
December 16, 2005
Partly paid-up (Rs.150 on application, 348.75 on allotment) Fully paid-up
December 16, 2005
December 16, 2005
American Depositary Shares Issue (2005) 18,618,730 American Depositary Shares (ADSs), each representing two Equity Shares issued at US$ 26.75 per ADS aggregating US$ 433,087,850 with an over allotment option of 2,428,530 ADSs, each representing two 18 Equity Shares issued at US$ 26.75 per ADS aggregating US$ 64,963,178 closing 6 Dec 2005.
Public Issue of Equity Shares (2004) Public Issue of 108,928,571 Equity Shares of Rs.10/- each at a price of Rs.280/- for cash aggregating Rs. 30.50 bn with a green shoe option of 16,071,429 Equity Shares of Rs. 10/- each at a price of Rs. 280/- for cash aggregating Rs. 4.50 bn. Closing Date : April 7, 2004 Date of Allotment : April 21, 2004 Exercise of Green Shoe Option Date of Allotment : May 24, 2004 We had sponsored an American Depositary Shares (ADS) which opened for participation on March 7, 2005 and closed on March 11, 2005. In terms of the Offering, 20,685,750 ADSs representing 41,371,500 Equity Shares had been sold at a price of US$ 21.1 per ADS. The gross proceeds from the ADS Offering were approximately US$ 436.7 million (Rs.19.10 billion). The net consideration per share (after deduction of expenses in connection with the offering) was Rs. 453.16.
Company filings over the 5 years preceding the issue; summarized in offering prospectus ADSs are securities that trade in US markets but represent a share in a company listed overseas. The NYSE / SEC impose requirements for firms seeking to list on US exchanges. For no arbitrage, local shares would have to trade at 26.75*exchange rate /2 = 535 at an exchange rate of 40; the actual exchange rate may have been different. ADS typically trade at a premium to local shares, due to institutional restrictions on conversion.
18
17
Exhibit A6: Issue Prospectus
Exhibit A7: ASX Press Release on Partly Paid Securities

AD09-57 ASIC and ASX act to protect retail investors of partly paid securities19
Monday 6 April 2009
ASIC and the Australian Securities Exchange (ASX) have agreed that ASX will implement changes to its market rules relating to partly paid securities and installment receipts Partly Paid Securities. The proposed amendments are aimed at improving disclosure for retail investors to ensure they are adequately aware of potential liabilities when making investment decisions. ASIC is aware that a number of securities quoted on the ASX are partly paid securities with future obligations to contribute further capital. Therefore ASIC believes that the enhanced investor protection embodied in this new measure helps address current market concerns. The specific operating rule changes agreed to are:
1. A new definition of Partly Paid Security is to be included in the Definitions section of the
market rules.
2. A new requirement for market participants and retail clients to enter into a Partly Paid Security
Client Agreement prior to the retail client buying Partly Paid Securities for the first time.
The new market rules do not apply to no liability (NL) companies, as NL companies do not have a contractual right to recover calls on the unpaid issue price of their shares; the shareholder has the option of paying the call or forfeiting the shares. ASIC and ASX have been in direct contact with several market participants to ensure that they have contacted their clients with current orders to buy Partly Paid Securities and communicated their potential obligations to them. Changes to the ASX market rules are subject to Ministerial approval and that approval was received today. The new rules are effective from 1 May 2009.
Source:http://www.asic.gov.au/asic/asic.nsf/byheadline/AD0957+ASIC+and+ASX+act+to+protect+retail+inv estors+of+partly+paid+securities?openDocument
19
Exhibit A8: Historical Data

Date Partly Paid Fully Paid C Total Trade Approx USD turnov 14-Aug-07 484.5 878.65 398400 3,895,077 16-Aug-07 436.7 832.15 175506 1,533,958 17-Aug-07 433.2 824.7 60574 524,086 20-Aug-07 478.05 872.35 68729 650,108 21-Aug-07 435.1 829.05 32648 292,866 22-Aug-07 454.05 846.1 44339 393,810 23-Aug-07 435.3 824.95 39137 353,031 24-Aug-07 440.8 833.8 15285 134,266 27-Aug-07 484.2 883.55 48821 461,456 28-Aug-07 467.15 862.9 20174 189,458 29-Aug-07 464.45 857.1 13692 125,654 30-Aug-07 470.35 873.05 14590 136,700 31-Aug-07 484.65 888.4 43261 418,715 3-Sep-07 502.6 907.9 48244 481,861 4-Sep-07 503.45 908.6 36338 367,174 5-Sep-07 507.5 915.4 56534 573,990 6-Sep-07 511.55 920.9 31849 323,898 7-Sep-07 510.9 920.05 57704 593,128 10-Sep-07 503.05 910.9 27517 277,190 11-Sep-07 495.75 901.55 24669 246,478 12-Sep-07 483.5 885.35 22602 220,962 13-Sep-07 485.15 884.05 32002 313,312 14-Sep-07 499.2 906.3 76195 769,249 17-Sep-07 491.6 895.15 17098 170,385 18-Sep-07 512.4 924.55 66075 672,168 19-Sep-07 551.35 973.55 248741 2,692,472 20-Sep-07 543.1 967.1 42387 462,349 21-Sep-07 548.35 966.05 78193 854,806 24-Sep-07 563.1 996.3 90857 1,017,780 25-Sep-07 570.3 993.05 131617 1,492,642 26-Sep-07 596.6 1020 178969 2,113,803 27-Sep-07 598.6 1028.25 124177 1,489,776 28-Sep-07 629.3 1062.4 171578 2,121,802 1-Oct-07 622.6 1057.8 66540 824,763 3-Oct-07 645.5 1086.55 177527 2,288,465 4-Oct-07 624.2 1068 96372 1,190,329 5-Oct-07 606.5 1036.4 163681 2,026,534 8-Oct-07 588.35 1021.2 52914 618,374 9-Oct-07 616.6 1045.65 52354 630,468 10-Oct-07 634.15 1070.55 94525 1,188,709 11-Oct-07 653.7 1091.25 55901 721,693 12-Oct-07 620.65 1055 51390 646,116 15-Oct-07 658.25 1097.45 72916 945,443 16-Oct-07 716.1 1159.65 211141 2,963,617 17-Oct-07 670.35 1117.1 136672 1,799,697 18-Oct-07 597 1036.5 155690 1,991,151 19-Oct-07 586.6 1022.8 123504 1,448,677 22-Oct-07 625.1 1061.35 70293 866,080 23-Oct-07 666 1102 57670 758,095 24-Oct-07 663 1099.9 44752 596,884 25-Oct-07 701.85 1144.65 126214 1,747,509 26-Oct-07 743 1187.5 133003 1,932,640 29-Oct-07 795.15 1240.65 96104 1,521,538 30-Oct-07 801.3 1240.2 143971 2,326,543 31-Oct-07 820.55 1254.05 128504 2,099,421 1-Nov -07 846.95 1298.3 195920 3,301,761 2-Nov -07 891.65 1333.4 217453 3,681,740 5-Nov -07 842.7 1269.85 50004 854,788 6-Nov -07 822.15 1241.8 48955 816,736 7-Nov -07 793.85 1200.8 71712 1,151,078 8-Nov -07 754.2 1169.05 34175 517,300 9-Nov -07 731.25 1144.45 5511 81,510 12-Nov -07 730.15 1145.35 56421 788,122 13-Nov -07 750.95 1173.7 36116 530,248 14-Nov -07 838.4 1278.55 101745 1,652,074 15-Nov -07 822.55 1241.65 32248 530,976
TataMotorsDifferentialVotingRights
Introduction
In 2008, Tata Motors, Indias largest automobile manufacturer, sought to raise additional capital through a rights offering. Tata Motors was part of one of Indias largest business groups, the Tata Group of companies, which held a one-third stake in Tata Motors at the time the case was written. Tata Sons, the promoter of Tata group companies, is a closely held company, two thirds of which is held by philanthropic trusts endowed by members of the Tata family. Established in 1945, Tata Motors was Indias leading manufacturer of commercial vehicles and had steadily expanded its share in the passenger vehicles segment. Throughout its history, the company emphasized the use of pioneering technologies, a strong R&D focus, a commitment to safety and environmental standards, and its Indian roots. Indias strong economic growth through the first decade of the 21st century had led to a strong demand for commercial vehicles, and made passenger cars affordable to a broader section of society. Along with its dominant stature in the domestic market, Tata Motors also sought to obtain an international footprint in commercial vehicles. In 2004, it acquired South Koreas second largest truck manufacturer, Daewoo Commercial Vehicles Company, which became a major South Korean exporter of commercial vehicles. It also acquired a 21% stake in a Spanish bus manufacturer, Hispano Carrocera, and formed joint ventures with Marcopolo, a Brazilian coach manufacturer to sell buses; and with Thonburi Automotive, an assembly plant in Thailand to produce its Xenon line of pickup trucks. Over the past two decades, Tata Motors had also grown its presence in the passenger car segment to become Indias third largest passenger car manufacturer. Starting with cars which were essentially modifications of its commercial vehicle designs, Tata Motors developed Indias first fully indigenous car, the Tata Indica. On 18 Dec 2007, Tata Motors bid USD 2.05 billion to acquire the iconic Jaguar and Land Rover brands from Ford Motors. And on 10 Jan 2008, Mr. Ratan Tata, the Tata Motors chairman, unveiled the Tata Nano, a widely anticipated Peoples Car that would set new standards of affordability by retailing for INR 100,000 (USD 2,500).20
FundingoftheAcquisition
After negotiations between Ford and Tata, the deal for the acquisition of Jaguar and Land Rover (JLR) was struck on 26 Mar 2008 for approximately USD 2.3 billion ( INR 9,200 crore )21 all of which was in cash. As part of the deal, Ford committed to continue supplying automotive components and engineering support after the transaction, as well as customer financing for a
20 21
Throughout this case, an exchange rate of 40 Indian rupees to the US dollar has been assumed. A crore is a unit equivalent to 10 million
transitional period of 12 months. To fund this acquisition, Tata Motors took a 15 month USD 3 billion bridge loan from a syndicate of banks led by Citigroup and J P Morgan. This excess amount over the agreed acquisition price was meant to cover engine and component supplies, working capital requirements, and unforeseen contingencies. The bridge loan was an expensive way to fund the acquisition, but Tata Motors regarded the acquisition as strategic they did not want to risk the possibility that the deal would not go through while they were lining up cheaper sources of financing. Tata Motors intended the bridge loan to be a short term affair, and retire this by raising longer term debt, stake sales in subsidiaries, and through a global rights issue. Also, at the time of acquisition, Tata Motors was of the view that JLR would be able to generate its working capital internally, as Land Rover was recording high sales, and Jaguar sales were also improving. The deal was viewed neutrally by the market. Since the bridge loan for only short term, it would need to be substituted with another long term source of financing later. One of the options for raising long term funds for a conglomerate holding company like Tata Sons would be to sell some of its stake in a subsidiary company. In early April 2008, Tata Motors was reported to be making plans to sell stakes in some of its to gather funds to purchase JLR, and to raise over JPY 100 billion (USD 983 million at then rates) by listing depositary receipts on the Tokyo Stock Exchange. On 29 May 2008, Tata Motors announced plans to raise INR72 billion ($1.68 billion) through three separate rights issues, which would expand the company's equity capital by about 30%35%. On completion of the three rights issues, the Company also planned to raise $500 million$600 million through an issue of securities in the overseas markets. Shares of Tata Motors Limited surged down on concerns over equity dilution. Along with a falling share price, Tata Motors was also faced protests that suspended work in the state of West Bengal, where farmers in Singur were unwilling to give up their land to create a space to build a factory for producing the widely awaited Nano cars. Tata Motors was eventually forced to pull out of the Singur project in October 2008. On 20 Aug 2008, Tata Motors announced that it had scrapped its planned INR 30 billion ($686 million) convertible preference share issue due to weak stock markets and would instead raise funds by selling some investments, but that its sale of rights shares worth INR 42 billion would proceed as planned.
DetailsoftheRightsOffering
On 2 Sep 2008, Tata Motors Limited announced a fast track rights issue, which it intended to complete by the end of September.22 Under the terms of the rights offer document dated 18 Sep 2008, existing shareholders as on the record date ( 16 Sep 2008 ) would, for every six ordinary shares held, be able to subscribe for: 1. One ordinary share at a price of Rs 340. This represented a 20% discount to the closing share price of 429.80. 2. One A ordinary share at a price of Rs 305 The A ordinary share would pay a higher dividend but have a lower voting share than the ordinary shares A shareholders would be entitled to an extra dividend of INR 0.50 per share, and to one vote for every 10 shares held. Such instruments would likely appeal to retail investors who held stocks for purely economic reasons and would therefore value the 5% higher dividend23, but were generally not concerned about control rights. For the company, it would allow Tata Motors to widen its equity capital base with a much lower dilution of the control enjoyed by Tata Sons. While different classes of shares were quite common in some markets like Europe, this was the first time shares with differential voting rights were issued in India. If fully subscribed, the rights issue24 would have represented a 33.33% increase in the equity capital of the form, and an 18.33% increase in voting shares.
Table 3: Tata Motors Shares Outstanding if Rights Issue Fully Subscribed
Shares outstanding Ordinary shares A shares
Before the issue

385,656,979
After the issue

449,933,143 64,276,164
Sales proceeds
21.85 bn INR 19.60 bn INR
This issue would open on 29 Sep, 2008 and close on Oct 20, 2008. Tata Motors also entered into an underwriting agreement with JM Financial, a bookrunner, to underwrite the A share issue for a maximum amount of INR 13.27 billion (43.5 million A shares). Under the terms of this agreement, JM Financial would be responsible for fulfilling any shortfall in demand at a price of Rs 305 per ordinary share.
PostIssuePerformance
As events unfolded during the global financial crisis, share prices fell sharply through September 2008. Lehman Brothers, a bulge-bracket American investment bank, filed for bankruptcy on 15
Business Line, 2008. On a par value of Rs 10 per ordinary share 24 Rights will be only exercised by investors if the market price is higher than the subscription price (they are in the money ). A modification of the Black Scholes formula can be used to price rights. ( Exhibit 8 )
23 22
September 2008, and share prices crashed globally as panic gripped global markets. Tata Motors lost 40% of its value to hit a 52 week low, and the public shareholders did not exercise their rights. Nonetheless, the promoter group invested more than INR 30 billion to pick up the unsubscribed portion of the rights issue, raising their stake from 33% to 42%. The underwriter, JM Financial Consultants, which was also the lead manager, subscribed to A shares worth INR 3 billion.25 Tata Motors raised INR 10 billion of debt from Life Insurance Corp. of India in November at an 11% interest rate, to refinance loans that funded its purchase of Jaguar and Land Rover brands. In January 2009, it raised 4 billion INR through commercial paper issuance. In May 2009, it successfully raised INR 4.2 billion by issuing secured non-convertible debt, as it continued discussions with the U K Government on financing plans for JLR. It also renegotiated the terms of its bridge loan to extend this by 18 months. And in Oct 2009, Tata Motors Limited raised USD 750 million through issuing global depositary shares (GDSs) and convertible notes. The A shares listed on 5 Nov 2008, and its subsequent trading pattern in presented in Exhibit 9.
25
http://www.blonnet.com/2008/11/01/stories/2008110151670300.htm
EXHIBIT B: TATA MOTORS Exhibit B1: Balance Sheet
Exhibit B2: Income Statement
Exhibit B3: Cash Flow Statement
Exhibit B4: Terms of bridge loan (summarized)

Arrangers: including the Bank of Tokyo-Mitsubishi UFJ Limited, Citigroup Global Markets Asia Limited, ING Bank N.V., Singapore Branch, J.P. Morgan Securities (Asia Pacific) Limited, Mizuho Corporate Bank Limited, Standard Chartered Bank, State Bank of India and BNP Paribas, Singapore Branch. 1) Borrower: JaguarLandRover Limited, a limited liability company incorporated in England, which is 100% directly owned by TML Holdings Pte Limited, a Singaporean limited liability company, which is, in turn, 100% directly owned by TML. 2) Support: Guarantee from TML. 3) Facility Agent: Citicorp International Limited. 4) Obligors: JaguarLandRover Limited, TML Holdings Pte Limited and TML. 5) Amount: US$ 3,000 million. 6) Purpose: JaguarLandRover Limited has agreed to apply all amounts borrowed by it under the facility only towards: - partially financing the acquisition; - to the extent stipulated, the on-loan to Jaguar Land Rover to be applied towards Jaguar Land Rovers working capital needs and/or the capitalisation of the Jaguar Land Rover; - acquisition costs; and - any other costs incurred by the JaguarLandRover Limited in relation to the acquisition including any contingency requirement of Jaguar Land Rover. 7) Rate of Interest: The rate of interest for loan for each interest period is the percentage rate per annum which is the aggregate of the applicable margin, LIBOR and mandatory cost, if any. The applicable margin is 0.85% for the first 6 months, 1.2% for next 3 months, and 1.5% thereafter until the maturity date. 8) Maturity Date: The date falling, 364 days from and including the first drawdown date, i.e., June 2, 2008. 9) Repayment: The aggregate loans are to be repaid in full on the maturity date. 10) Voluntary Prepayment: JaguarLandRover Limited may prepay the whole or any part of the loans (if in part, being an amount that reduces the amount of the loan by a minimum amount of US$ 25,000,000 and an integral multiple of US$ 10,000,000 or the remaining amount of the loan), if it gives the Facility Agent not less than 5 business days prior notice in the case of a prepayment on the last day of an interest period or 8 business days prior notice, otherwise. 11) Mandatory Prepayment: From June 2, 2008 until the maturity date, the loans shall immediately be prepaid from an amount equal to the mandatory prepayment proceeds. - Prior to submission of a refinancing plan to the Facility Agent, mandatory prepayment proceeds include proceeds from disposals of certain property, plant and equipment, issuance of shares, termination proceeds in excess of US$ 10 million in aggregate in relation to hedging agreements, permitted facility refinancing financial indebtedness and certain types of insurance claims received. In relation to the aforementioned mandatory prepayments, US$ 32.4 million has been contributed by JaguarLandRover Limited towards a mandatory prepayment account with the Facility Agent to be applied towards the prepayment of the Short Term Bridge Loan. - Subsequent to submission of a refinancing plan to the Facility Agent, such mandatory prepayment proceeds include (a) proceeds of any refinancing option under the Companys refinancing plan, (b) any issuance of shares including by way of a rights issue and (c) any permitted facility refinancing financial indebtedness. For details on the Companys plans to refinance the Short Term Bridge Loan see Managements Discussion and Analysis of Financial Condition and Results of Operations Financing of the Jaguar Land Rover Acquisition on page 135 of this Letter of Offer. 12) Guarantees/charges or security: TML irrevocably and unconditionally: - guarantees to each financing party punctual performance by the other obligors of all the other obligors obligations under the finance documents; - undertakes with each lender that whenever either of the obligors do not pay any amount when due under or in connection with any finance document, TML shall immediately on demand pay that amount as if it was the principal obligor; - TMLs maximum liability shall be limited to a total aggregate amount of US$ 3,000 million. 13) Negative pledge: No obligor shall create or permit to subsist any security over any of its assets. No obligor shall: - sell transfer or otherwise dispose of any of its assets on terms whereby they are or may be leased
to or re-acquired by an obligor or any other obligor; - sell transfer or otherwise dispose of any of its receivables on recourse terms; - enter into or permit to subsist any title retention agreement; - enter into or permit to subsist any arrangement under which money or the benefit of a bank or other account may be applied set off or made subject to a combination of accounts; - enter into or permit to subsist any other preferential arrangement having a similar effect. in circumstances where the arrangement or transaction is entered into primarily as a method of raising Financial Indebtedness or of financing the acquisition of an asset. 14) Other covenants/ conditions: Compliance of the following to be ensured: - No obligor may incur or permit to be outstanding any financial indebtedness other than permitted financial indebtedness. - TML shall at all times own 100% of the total issued share capital in TML Holdings Pte Limited and shall control each of TML Holdings Pte Limited, JaguarLandRover Limited and companies and subsidiaries forming part of Jaguar Land Rover. - TML Holdings Pte Limited shall at all times own 100% of JaguarLandRover Limited and JaguarLandRover Limited shall at all times after the acquisition, own directly or indirectly not less than 76% of the total issued share capital of each of the companies and subsidiaries forming part of Jaguar Land Rover. 15) Default events and interest: Events of default include: - obligor does not pay on the date any amount payable pursuant to the finance document; - an obligor does not comply with the terms in relation to negative pledge; - any representation made by an obligor in the finance documents or any other documents delivered by or on behalf of any obligor under or in connection with the finance documents, is misleading and if capable of remedy not remedied within 20 days of the earlier of the facility agent giving 28 notice to the borrower or any obligor becoming aware of the failure to comply; - any financial indebtedness of any obligor or material subsidiary is not paid when due or within any original grace period; - the value of the assets of any obligor or material subsidiary is less than its liabilities; - the initiation of any legal proceeding for winding up, dissolution, administration, judicial management of any obligor or any material subsidiary; - all or any material part of the share capital of any obligor or material subsidiary is seized, nationalized, expropriated or compulsorily purchased by any governmental agency or state owned corporations, (or an order is made to that effect); - Tata Sons Limited ceases to own and control a minimum shareholding of not less than 26 % of TMLs total issues share capital; - it is or becomes unlawful for an obligor to perform any of its obligations under any transaction document; - any obligor or material subsidiary suspends or ceases to carry on all or a material part of its business or of the business of the obligors and material subsidiaries taken as a whole; - any event or circumstance occurs which has a material adverse effect.
Exhibit B5: Shareholding Pattern at the time of issue
Exhibit B6: Offer Document
Exhibit B7: Daily Share Prices

10/1/2009
800
600
400
1200
1000
200
Open Price
High Price
Low Price
Close Price
10/1/2008
10/1/2007
10/1/2006
10/1/2005
6/1/2009
2/1/2009
6/1/2008
2/1/2008
6/1/2007
2/1/2007
6/1/2006
2/1/2006
6/1/2005
Date 16-Sep-08 17-Sep-08 18-Sep-08 19-Sep-08 22-Sep-08 23-Sep-08 24-Sep-08 25-Sep-08 26-Sep-08 29-Sep-08 30-Sep-08 1-Oct-08 3-Oct-08 6-Oct-08 7-Oct-08 8-Oct-08 10-Oct-08 13-Oct-08 14-Oct-08 15-Oct-08 16-Oct-08 17-Oct-08 20-Oct-08 21-Oct-08
Close Price 398.85 417.8 416.05 423.3 415.3 393.7 387.5 384 374.55 354.6 343.9 339.65 330.5 314 316.6 299.95 292.35 299.3 299.45 282.5 251 243.45 244 247.75
2/1/2010 2/1/2005
Exhibit B8: Pricing Rights26
26
Lauterbach and Schultz, 1990.
1000
6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 0

11/5/2008 12/5/2008 1/5/2009 2/5/2009 3/5/2009 4/5/2009 5/5/2009 6/5/2009 7/5/2009 8/5/2009 9/5/2009 10/5/2009 11/5/2009 12/5/2009 1/5/2010 -400 200 400 600 800 0 -200
11/5/2008 12/5/2008
A share
1/5/2009 2/5/2009 Volumes
Ordinary Share
Exhibit B9: Differential Voting Rights Price History (INR)
4/5/2009 5/5/2009 6/5/2009 7/5/2009 8/5/2009 9/5/2009 10/5/2009 11/5/2009 12/5/2009 1/5/2010
relative spread absolute spread -60%
3/5/2009
0%
20%
40%
60%
80%
-40%
-20%
100%
RanbaxyAcquisitionbyDaiichiSankyo
Introduction
In 2008, Ranbaxy was Indias largest pharmaceutical company. The company operated mainly as a generic drug manufacturer and marketer. Ranbaxy markets its products in more than 125 countries, with offices in 49 countries and manufacturing locations in 11 countries. Ranbaxy was started in 1937 as a pharmaceutical drugs distributor. It was incorporated in 1967 and has since been a closely held company under the control of the founding family. The Singh family owned 34.8% of the company and Dr. Malvinder Singh held the position of Chairman and CEO of Ranbaxy. Established in 2005 as a result of merger between two century old Japanese pharmaceutical companies - Sankyo Co. Ltd. and Daiichi Pharmaceutical Co. Ltd. - Daiichi Sankyo is Japans third largest pharmaceutical company. The company manufactures and markets its branded drugs in Japan, US and Europe. On June 11, 2008; Ranbaxy and Daiichi Sankyo announced an agreement whereby Daiichi Sankyo would acquire majority control of Ranbaxy and the Singh family would be fully divested from its ownership in Ranbaxy. The agreed transaction comprised of the sale of its entire holding in Ranbaxy by the Singh family to Daiichi Sankyo at a price of INR 737 per share (the all cash offer was made in local currency INR, which thus removed the exchange rate risk between the deal announcement and consummation). As per the Indian takeover code, Daiichi Sakyo would have to make a public offer to the public shareholders for 20% of the total equity base at a price equal to or greater than INR 737 per share. The offer represented 31.4% premium over Ranbaxys closing price prior to announcement and a 39.7% premium over the one week average stock price prior to the deal announcement. Post announcement, the deal faced significant uncertainty owing to adverse developments in Ranbaxys business and the resulting price decline. Exhibit C1 shows the timeline of events starting from deal announcement and Figure 3 the share price movement of the target and the bidder.
ExecutionofArbitrage
As discussed previously, the stock price of the target does not jump instantly to the offer price due mainly to a non-zero probability of deal falling through. However, in this case, the structure of the deal introduces a new complication in setting up an arbitrage position. Since the public participation in the deal is limited to only 20% of total shares in Ranbaxy, hence the arbitrageurs
ex-ante expected price at which the position can be exited upon deal consummation will depend on the expected tender ratio and expected stock price after the open offer closes. Looking at Ranbaxys stock price movement, we can see a run up in prices prior to deal announcement on June 11, 2008, which suggests insider purchases in anticipation of announcement. For this reason when analyzing the stock price impact of material news such as M&A, we take the pre-announcement price as average of last one week prices. In this case, in order to start the analysis the arbitrageur can make the initial assumption that the stock price after the open offer will revert back to the lowest price in the last 5 trading days prior to announcement (which in this case is INR 506.9). In this case, if we make the worst case assumption that all the public shareholders will want t tender in the open offer: Expected weighted average exit price = 737*(20%/65.18%) + 506.9*(45.18%/65.18%) = 577.5 Since this is below the closing price of INR 561 on announcement date, based on the above assumptions, there is a potential to set up a profitable arbitrage trade by going long the stock in spot market. However, as a result of the global credit and liquidity crisis, the Indian stock market too has been into a bear phase during 2008, adding to that Ranbaxy stock was trading near its 3 year high price during this time. Hence, there is a very real chance that if the deal falls through, Ranbaxy stock could fall much below INR 506.9 in absence of the possibility of the transaction supporting the high prices. For this reason, we can also do a stress testing of our hypothesis to see at what post deal market price will an arbitrage position set up on deal announcement will become unprofitable, for this: 561 = 737*(20%/65.18%) + x*(45.18%/65.18%) => x = 483.09 Hence, as long as the arbitrageur can infer from available information that the post deal stock price will not go below INR 483.09, he can set up a long position in stock which can provide positive returns even if all the public shareholders decide to tender their holding. The arbitrageur needs to see the price history of the stock (Figure 5) and make conjectures using available information as to the possibility of stock price going below this.
UnderstandingFuturesMovement
Monitoring futures market data can be quite useful in understanding markets assessment of the deal. Theoretically speaking, futures pricing incorporates the present value of corporate actions such as dividend payments. Ft = [S PV(CACt)] * ert Where,
Ft = Current price of futures maturing at time t S = Current stock price R = risk free rate of interest CACt = Corporate action between present and time t When there is uncertainty about the corporate action, as in case of closing of open offer, the appropriate variable is the expected corporate action between present and time t. Hence, Ft = [S PV{E(CACt)}] * ert Hence, if we look at differences in futures prices for two different expiries (e.g. 1-month and 2month futures), the trend in this difference can give valuable insights into the markets expectations. D = Ft2 F = S*ert2 S*ert1 + [E(CACt2)] - [E(CACt1)] The expected trend in D in the absence of any corporate action would be an almost stable small positive value. However (as shown in Figure 4) keeping t1 and t2 constant and looking at movement of D, we can see that the expected trend is deviated from in August 2008, where it becomes a large negative difference. This gives a clear indication where average market is placing the bets. The market expectation as revealed here is for the deal closure to occur in August and hence the futures prices for August end expiry are lower than for the previous month futures.
700 600 500 400 300 200 100 0 01/01/2007 01/01/2008 Ranbaxy 01/01/2009 NIFTY
7000 6000 5000 4000 3000 2000 1000 0 01/01/2010
Figure 3: Historical Stock Price Movement of Ranbaxy
20 0 27Dec07 27Feb08 27Aug08 27Sep08 27Oct08 27May08 27Mar08 27Nov08 27Dec08 27Apr08 27Jun08 27Jan08 27Jul08 20 40 60 80 100 120 140 160 FuturesPriceDifference RelativetoSpot 27Jan09
5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%
Figure 4: Difference between 1 and 2 month Futures Prices for Ranbaxy
700 600 500 400 300 200 100 0
4000 3500 3000 2500 2000 1500 1000 500 0
Ranbaxy
Daiichi
Figure 5: Stock Price Movement - Rabaxy and Daiichi Sankyo
700 600 500 400 300 200 100 0
70000 60000 50000 40000 30000 20000 10000 0
OpenInterest
Price
Volumes
Figure 6: 1 Month Futures Price Movement and Key Develpments for Ranbaxy
700 600 500 400 300 200 100 0
18000 16000 14000 12000 10000 8000 6000 4000 2000 0
OpenInterest
Price
Volumes
EXHIBIT C: RANBAXY
Exhibit C1: Key developments during the deal period

Announcement Date 11-06-2008 12-06-2008 13-06-2008 16-06-2008 18-06-2008 25-06-2008 01-07-2008 04-07-2008 Development Newspaper reports about Daiichi making a bid for Ranbaxy News reports claiming Glaxo also looked at Ranbaxy earlier News reports claiming Pfizer may make counter offer for Ranbaxy Announcement for Daiichi's open offer for Ranbaxy shares to start on August 8, 2008 Ranbaxy settles with Pfizer, delays generic lipitor in US markets Ranbaxy Laboratories Limited Receives USFDA Approval For Valganciclovir Hydrochloride Tablets FDA Refuses Approval For Ranbaxy Laboratories Limited's Manufacturing Unit Newspaper reports state that Pfizer is Likely To Top Daiichi Offer For Ranbaxy Laboratories Ltd By 20% News regarding long standing US probe to investigate if Ranbaxy has violated federal laws that have resulted in its introduction of adulterated and misbranded drugs in the United States Daiichi Sankyo Signs Agreement regarding Acquisition of Voting Right in Ranbaxy Laboratories Limited (agreement on June 11, 2008 to acquire more than 50.1% voting right in Ranbaxy through issues of new shares and share warrants conditional on agreement during the extraordinary meeting of shareholders scheduled for July 15, 2008) Dr. Reddy Quarterly results worse than expected UK court rejects fraud case against Ranbaxy Ranbaxy Launches generic ulcer drug in US Ranbaxy suffers quarterly loss due to currency impact Open offer delayed pending Indian regulatory approval Announcement for Open offer to start from Aug 16, to close on Sept 4 Indian Government approves Ranbaxy Daiichi deal
14-07-2008
17-07-2008
21-07-2008 22-07-2008 28-07-2008 29-07-2008 31-07-2008 05-08-2008 06-08-2008
26-08-2008 29-08-2008 02-09-2008 04-09-2008 16-09-2008 25-09-2008 03-10-2008 08-10-2008 17-10-2008 20-10-2008 31-10-2008 07-11-2008
FIPB Clears the deal, further clearance required from Finance Ministry and Cabinet Committee on Economic Affairs Denmark courts upholds Pfizer patents, delays generic lipitor by Ranbaxy till Nov. 2011 Ranbaxy stock drops ahead of open offer closing Open offer closes US FDA bans 30 Ranbaxy drugs US decided to not source AIDS drugs from Ranbaxy Cabinet approval of deal in India Ranbaxy shares advance on news that US drops motion in probe LIC sells off 6.91% in Ranbaxy Daiichi makes Ranbaxy subsidiary (acquired total of 52.5% through direct sell, open offer, private placement and warrants) Ranbaxy posts quarterly loss Deal closure, Daiichi owns 63.92% of Ranbaxy
Exhibit C2: Evolution of Ranbaxy Shareholding Structure
RILRPLMergerDeal
Introduction
An example of a stock swap deal is the RIL-RPL merger announced Feb. 27th, 2009. The swap ratio for the deal was 1:16 and was announced on the following Monday on Mar. 2nd, 2009. RIL press release (Exhibit 1) highlights the strategic synergies of the deal in detail. JM financial, one of the leading investment banks in India acted as a transaction advisor to this deal. Their deal memorandum (Exhibit 2) outlines details about RIL and RPL, transaction information and deal rationale.
CalculatingMarketImpliedProbability
If an arbitrage position is executed by end of trading on March 2nd, whereby we buy one RPL share at the closing price of INR75.3, simultaneously short 1/16th of RIL share at the closing price of INR1225.65 and hold the position till deal closure (which occurred on Sept. 29th, 2009); then, per share calculations are as follows: Per share calculations and profit / loss evolution on the trading position (Figure 7) are as follows: Profit upon deal closure: INR 1.30 Loss upon deal fall-out: INR 2.32 Market implied probability of success: 64.1% [ p*(1.30) (1-p)*(2.32) = 0 ]
8 6 4 2 0 03/03/2009 31/03/2009 28/04/2009 26/05/2009 23/06/2009 21/07/2009 18/08/2009 15/09/2009 -2 -4 -6 -8 Position PnL profit
Figure 7: Evolution of Trading Positions in RIL-RPL Deal
InaccuracyofMarketImpliedProbability
As per the market implied probability, the deal closure seems highly suspect. However, this is where analysis of the individual characteristics of the transaction comes in. It is important for an arbitrageur to analyze the deal in context of other market information available. In this particular
case, for the markets, the merger of RIL-RPL was long anticipated and was almost a non-event. Some of the points to consider in the analysis of the deal are as follows: RIL has historically followed the practice of floating new projects to the investors and later merging it with the parent company, thus using its market reputation to avoid project risk and still gain the upside benefits, for e.g. In 1999, RIL floated a subsidiary with the same name (RPL) which had set up Reliance Groups first refinery at Jamnagar. This first RPL subsidiary was merged into the parent in 2002. The merger of the previous RPL was done after the project risk was over. The current RPL had set up the groups new refinery at Jamnagar. Moreover, the previous merger was timed to take advantage of a falling market condition, in falling markets blue chip stocks like RIL fare better than younger and smaller companies like RPL and hence this greater gap in valuation of the two entities allows pricing at a swap ratio favorable to RIL. Very similar market conditions have also existed since the start of 2009. As can be seen in Figure 8, the swap ratio of 1:16 was the same as the average relative trading prices of the two stocks during the current year. Figure 9 shows that the stocks have always moved in tandem since the announcement. This pattern was similar for more than a month prior to the merger announcement. Figure 9 also shows that both the stocks have kept appreciating after the merger announcement without any significant departure from the pattern which again gives the indication that the merger was anticipated by the market
Figure 8: RIL RPL Swap Ratio
Figure 9: RIL and RPL Stock Price Movement
EXHIBIT D: RIL-RPL Exhibit D1: RIL Press Release
Exhibit D2: JM Financial Deal Memo
NovelisAcquisitionbyHindalco
Introduction
Hindalco, one of the biggest producers of primary aluminum in Asia, made Indian outbound Mergers and Acquisition sore when it acquired, Atlanta based Novelis, a spin-off from aluminum producer Alcan Inc. Hindalco became the largest integrated Aluminum producing and rolling companies in India. The merger created one of the top 5 global integrated aluminum producers with low-cost alumina and aluminum production capabilities combined with the high end aluminum rolled production facilities. Hindalco Industries Limited, the metals flagship company of the Aditya Birla Group, a $28 billion multinational conglomerate. Hindalco was one of the worlds leading producers of aluminum and copper. Their aluminum units across the globe encompassed the entire gamut of operations, from bauxite mining, alumina refining and aluminum smelting to downstream rolling, extrusions, foils, along with captive power plants and coal mines. Hindalco was structured into two strategic businesses aluminum and copper with annual revenue of US $2.6 billion. Novelis was split from its parent company, Alcan Inc. (Alcan), the Canada-based aluminum giant and set up as its subsidiary in January 2005. Novelis was the world leader in aluminum rolling, producing an estimated 19 per cent of the world's flat-rolled aluminum products. Its customers included major brands such as Agfa-Gevaert, Anheuser-Busch, Coca-Cola, Crown Cork & Seal, Ford, General Motors. It was globally positioned, operating in 11 countries. The company reported revenue of around $10 billion. The company recycled more than 35 billion used beverage cans annually. The company was No. 1 rolled products producer in Europe, South America and Asia, and the No. 2 producer in North America.
StrategicRationalefortheDeal
This acquisition would be an excellent strategic move from Hindalco and A.V. Birla group. Hindalco would be able to produce the low cost aluminum from its plants in India and export it to plants of Novelis where it could be converted to Value-added products. The combination of Hindalco and Novelis would establish an integrated producer with low-cost alumina and aluminum facilities combined with high-end rolling capabilities close to customers27. The complementary expertise of both these companies would create a strong platform for sustainable growth and on-going success. Hindalcos rationale for the acquisition was to move up the value chain and start producing value-added products and hence leverage the low cost advantage it had in aluminum production.
27
Source: Hindalco Industries Ltd. Annual Report Fiscal Year 2006-07
Further in a single deal Hindalco would become a global powerhouse from just a small Asian player. Novelis was the global leader (in terms of volumes) in rolled products and provides sheets and foils to automotive and transportation, beverage and food packaging, construction and industrial, and printing markets. Acquiring Novelis would provide Aditya Birla Group's Hindalco customers which are some of the biggest brands in the world. It would increase the production capacity of Hindalco in the rolled aluminum and would make it a global major. Further, Novelis deal would give Hindalco access not only to high-end products but also to superior technology, Hindalco planned to triple aluminum output to 1.5 million metric ton by 2012 to become one of the world's five largest producers28. After full integration, the joint entity would become insulated from the fluctuation of LME aluminum prices. The deal would give Hindalco a strong presence in recycling of aluminum business. As per aluminum characteristic, aluminum is infinitely recyclable and recycling it requires only 5% of the energy needed to produce primary aluminum29. The revenue of Hindalco was very much dependent on the aluminum prices and when the prices were high they would make a larger margin, this was not the case with rolled aluminum business which usually had a constant margin. Novelis was a forced spin-off from Alcan when it succeeded in hostile takeover of Pechiney. Novelis ended up inheriting a debt mountain of almost $2.9 billion on a capital base of less than $500 million. After 2 years of operation and losses due to downturn, Novelis was sitting on a huge debt and almost negligible equity with a debt to equity ratio of 7.23:1. Further, it had entered into long term contracts with its customers to sell the rolled aluminum at a constant price irrespective of the aluminum prices worldwide. This led to huge losses when the aluminum and global commodity prices shot up around 2006-07. Hence it wanted a partner that can provide low cost aluminum as well as equity support in coming years of losses due to fixed price contracts till 2010.
DealStructure
The deal would be an all cash transaction on 10th February, 2007 wherein Hindalco would pay Novelis shareholders $44.93 in cash for each outstanding common share. The whole deal would come to USD 6 Billion which includes the $ 2.4 Billion of debt on the balance sheet of Novelis that would be assumed by Hindalco.
28 Source: Livemint Lounge, Wall Street Journal, http://livemint.com/2009/02/18233951/Hindalco-turns-tosubsidiaries.html 29 Source: Novelis Inc. Form 10-K, Filed on March 01, 2007
The financing arrangement will be made with around USD 3.1 billion with recourse to Hindalco and secured by Hindalcos corporate guarantee for paying off the shareholders of Novelis as well as non recourse financing of USD 2.4 billion to be used to repay their existing lenders . Ultimately, three banks viz. ABN-Amro Bank, Bank of America and UBS would back-stop the funding requirement at the recourse leg for USD 3.1 billion while UBS and ABN-Amro Bank would provide back-stop facilities of USD 2.4 billion that was to be used to pay off the existing lenders. The balance of USD 450 million will be financed by the Company by way of infusing equity / preferred stock / other securities in its wholly owned subsidiaries.
ArbitrageOpportunity
As soon as the intensions of Hindalco became clear about all cash Novelis buyout, Arbitrageurs grabbed this opportunity raising the price of the Novelis shares. Trading activity picked up even before the announcement of the actual deal as traders started to speculate. The expected price of the deal was around $45 and hence the prices jumped from $30 - $35 levels to $40 - $42 range30. The buyout offer represented a 17% premium to the previous trading day's closing price and almost a 50% premium to the share price on January 25, 2007 the day before Novelis made a public announcement that it was in advanced stages of negotiation with potential buyers. By the end of the day of the announcement i.e. 10th February, 2007, the stock price closed up 13.3% to $43.67 and continued to trade in this vicinity till the consummation of deal. Of course, if the deal did not go through due to problems in getting shareholder approval or regulators permit, the stock price would probably have returned to 2006 levels. However, if the deal went through as proposed the arbitrageurs would have made a 3.05% return in the few months time between deal announcement and consummation. This gap in case of Hindalco-Novelis was February 10 to May 16 i.e. 11.84% annual. Novelis was publicly traded in both US and Canadian markets. Prior to announcement of the deal, the trading volumes remained roughly similar in both markets. But once the deal was announced, the US trading volumes jumped significantly due to entry of arbitrageurs. The disproportionate increase in the trading volumes of US indicates to presence of large arbitrage positions being set up by US traders.
30
Source: Seeking Alpha, Indian Conglomerate buys Novelis, Andrew Corn
10 100 150 200 250 50 0 05/09/2005 14/12/2005 24/03/2006 02/07/2006 10/10/2006 18/01/2007 28/04/2007 06/08/2007 14/11/2007 22/02/2008
20
30
40
50
60
0 14Dec05 24Mar06 02Jul06 10Oct06
Hindalco stock price movement
EXHIBIT E: NOVELIS Exhibit E1: Market data trends
HindalcoShareprice
NovelisSharePrice
Novelis stock price movement 18Jan07 28Apr07 06Aug07 01/06/2008
Novelis US and Canada trading volumes N
Exhibit E2: Key developments during deal period

Announcement Development Date Hindalco announces it is acquiring US-based Novelis in $6 Billion allJan 2, 2007 cash deal. Jan 8, 2007 Jan 29, 2007 Jan 31, 2007 Feb 11, 2007 Feb 12, 2007 Feb 14, 2007 Russias Rusal shows interest in Novelis Mar 1, 2007 Mar 30, 2007 EU sets May 8 as deadline for Hindalco- Novelis deal Apr 12, 2007 May 8, 2007 EU passes Hindalco Novelis Deal May 9, 2007 LIC increases its stake in Hindalco to 9% May 10, 2007 Novelis shareholders approve the Hindalco deal Hindalco announces allotment of shares/ warrants to raise equity for Novelis purchase Novelis reports $ 275 million loss in its 2006 full year results Hindalco and Novelis announce an agreement on price of acquisition Analysts raise target on Novelis in expectation of deal between Hindalco and Novelis Aleris declared as a leader in the race to acquire Novelis Hindalco announces the price for acquisition as $6 Billion including $2.4 Billion debt of Novelis Hindalco shares down 14.5% after announcement of the deal size with Novelis
CorusSteelAcquisitionbyTataSteel
Introduction
Tata Steel, an Indian integrated steel producer, created global headlines when it acquired the Anglo-Dutch steel major, Corus Group Ltd. for $ 12.1 Billion, on January 30, 2007. Corus was four times the size of Tata Steel and the largest steel producer of UK. The deal was roughly the same size as the total outbound acquisitions by all Indian companies in the past five years combined. The deal created fifth largest steelmaker of the world31. The deal took place months after another Indian led Steel major Mittal Steel acquired Arcelor Steel for $ 33.1 Billion, creating the worlds largest steel making company. Tata Steel was 56th largest steel producer in the world with an annual crude steel production capacity of 6.8 Million Ton Per Annum (MTPA) with revenue of around $ 5 Billion in 2006-0732. Tata Steel`s Jamshedpur (India) Works had a crude steel production capacity of 6.8 MTPA which was slated to increase to 10 MTPA by 2010. The Company also had proposed three Greenfield steel projects in the states of Jharkhand, Orissa and Chhattisgarh in India with additional capacity of 23 MTPA and a Greenfield project in Vietnam. Corus was Europe's second largest steel producer with annual revenues of around 12 billion ($ 21.3 Billion) and a crude steel production of 18 MTPA, primarily in the UK and the Netherlands33. Corus was a leading supplier to many of the most demanding markets around the world including construction, automotive, packaging, and mechanical & electrical engineering, metal goods, and oil & gas.
StrategicRationalefortheDeal
Corus had steel production capacity of 18 million ton per annum. Combined with the existing production capacity of Tata, it came to around 23.5 mtpa which would make the combined entity fifth largest producer of steel in the world from Tatas previous 56th position. This increase in scale would give Tata immense increase in bargaining power with both suppliers and customers. Tata Steel was a very profitable entity but extremely small in size. To expand organically by 18 mtpa, would take at least 5-8 years and would entail immense execution risk. The cost of establishing a production facility of size of Corus would be 65-70% more than the cost of
31 32
Source: World Steel Organization (http://www.worldsteel.org/pictures/programfiles/top_producers.pdf) Source: Tata Steel Annual Report, Fiscal Year 2007 33 Source: Corus Group Plc. Website, http://www.corusgroup.com/en/company/about_corus/
acquisition34. The brand value that Corus had would be even harder to replicate in such a small time interval. This means that the replacement value of Corus was very high. Tata Steel was extremely localized in its market and would have to fight hard to get a place in the European markets that were already competitive. Corus in one shot would make Tata Steel capable of competing in the profitable European steel market. Corus had an extremely wide distribution system already put in place in entire Europe. Most of the clients of Corus were dedicated giving higher flexibility in pricing. The technology needed for low end steel production is very different than what is necessary to produce high end value added products. Tata Steel was not technologically advanced and needed to get the advanced technology for value added products to increase the margins. Corus on the other hand was equipped with highly sophisticated technology, had many patents and a research facility and was already in to production of the value added products. The deal would allow Tata Steel to get the technical knowhow and improve the steel production in its existing facilities and the future Greenfield project that would come up. In the third quarter ended September 2006, Corus had clocked an operating margin of 9.2 per cent compared with 32 per cent by Tata Steel for the third quarter ended December 200635. In effect Tata Steel was taking over a business with much lower operating margin which provided a lot of scope for improvement in short term. Tata Steel had high Tobins Q and it was taking over a company with low Tobins Q and hence would create a higher value than the reverse takeover. In the long run, there would be considerable scope to restructure Corus' high-cost plants at Port Talbot, Scunthorpe and the slab-making unit at Teesside. The employee costs of Corus were also much higher than Tata Steel; this too could be an area of restructuring in long run36. From Coruss point of view, the deal was essential to reduce its billion pound debt load. This would give it flexibility to counter the dynamic scenarios and future slowdowns. Further, Tata Steel also had access to cheaper Iron ore which would be an added advantage to Corus. Tata Steel had a well-developed distribution network in developing countries. Corus would get a market for its value added products through this distribution system. Further all production facilities of Corus were old and had high cost of production and employees.
Source: Tata - Corus: Visionary deal or costly blunder? - http://www.domainb.com/companies/companies_t/tata_steel/20070201_tata_corus.htm 35 Source: Financial results of Corus Group Plc. and Tata Steel, Fiscal year 2006-07 36 Source: Hindu Business Line
34
DealStructure
Tata Steel proposed to infuse USD 4.1 billion as equity to part finance the transaction37. The equity would comprise of USD 700 million from internally generated cash, USD 500 million of external commercial borrowings, USD 640 million from the preferential issues of equity shares to Tata Sons Ltd. in 2006-07 and 2007-08, USD 862 million from a rights issue of equity shares to the shareholders, USD 1000 million from a rights issue of convertible preference shares and about USD 500 million from a foreign issue of equity-related instrument (Exhibit 3).
Issuer Tata Steel UK Tata Steel Asia (Singapore SPV) Tata Steel Limited Tata Steel Limited Tata Steel Limited Tata Steel Limited Tata Steel Limited Tata Steel Limited
Instrument Non-Recourse Debt Debt (Quasi equity) Internal cash accruals External Commercial Borrowing Preferential Issue to Tata Sons Ltd. Rights issue of Equity Rights Issue of Convertible Preference Share Equity related instrument
Contribution (in $ Billions) 6.14 2.66 0.7 0.5 0.64 0.862 1 0.5
At the Board Meeting held on 17th April, 2007, Tata Steels Board approved the long term funding arrangement for the acquisition of Corus as per details given above.
ArbitrageOpportunity
As soon as the intensions of Tata Steel became clear about all cash leveraged buyout of Corus Group Plc., Arbitrageurs pounced at this opportunity raising the price of the anticipated buyout. Trading activity picked up even before the announcement as speculation of such a takeover permeated the securities markets. The expected price of the deal was around 455 pence on October 17, 2006. The buyout offer represented an 11% premium to the three month average and almost a 25% premium to the share price on September 25, 2006, the day before Corus made it public that it was in advanced stages of negotiation with potential buyers. On November 19, 2006, Brazilian steel company CSN launched a counter offer for Corus at 475 pence per share valuing the company at $ 8.4 Billion. This made it clear to the arbitrageurs that a bid war is expected and they raised the price of shares to 495.5 pence (higher than the actual bid) (Refer Exhibit 5 for Corus Group Plc Share price). The counter bid by CSN lead to increase in
37
Source: Tata Steel Annual Report, Fiscal Year 2007
bids sequentially by Tata and CSN to 500 pence and 515 pence subsequently on December 11, 2006 (For a detailed timeline refer to Exhibit 6). By the end of the day of the announcement of final deal at 608 pence i.e. January 31, 2007, the stock price closed at 607 pence and continued to trade in this vicinity till the consummation of deal. Of course, if the deal did not go through due to problems in getting shareholder approval or regulators permit, the stock price would probably have returned to September 2006 levels. However, if the deal went through as proposed the arbitrageurs would have made a 67.03% return in the few months time between deal announcement and consummation. This gap in case of Tata Corus deal was October 20, 2006 to January 31, 2007 i.e. 241.3% annual (Refer Exhibit 7 for the actual profit and loss in case an arbitrage position was set up).
EXHIBIT F: CORUS STEE S EL Exhib F1: Acquisiti Fina bit A ion ancing ( (Tata St AR FY08) teel
Financin Structure ng e The finan ncing structu of the Co ure orus transact tion has been reorganized to achieve fiscal unity i n d in the Nethe erlands and c consequent t efficiencie tax es. The finan ncing structure of the Cor transactio as on date is given bel rus on e low:
Funding Structure g The bulk of the finan k ncing for the Corus acqui isition has no been com ow mpleted with all the bridg h ge funding h having been paid off thr rough a mix of debt, equ and inter accruals. The fundin uity rnal ng structure as on 31st March, 2008 is as follows: M i
The sourc of the co ces ontribution to owards equity capital incl y luded the foll lowing: Tata T Steel Asi Holdings Pte. Ltd. and Tulip UK Holdings (N 1) Limite drew dow ia d No. ed wn GBP G 2.21 bill lion of bridg loans. The loans wer repaid usin monies in ge ese re ng nfused by Ta ata St Limited out of equit issues, CA and loan as describ below an also out o teel ty ARS ns bed nd of in nternal gener ration The T Company had allotte to Tata S ed Sons, on a p preferential b basis, 27,000 0,000 ordinar ry sh hares (at a pr of Rs. 516 per share) and 28,500 rice ) 0,000 warrant to subscrib to an equ ts be ual am mount of ord dinary shares s
Tata Sons fully exercised the warrants and 28,500,000 ordinary shares were issued to Tata Sons at a price of Rs. 484.27 per share, for total proceeds to the Company of Rs. 1,380 crores
The Company issued USD 0.875 billion of 1% Foreign Currency Convertible Alternative Reference Securities (CARS). The CARS accrue interest on the outstanding principal amount at a rate equal to 1% per annum and are classified as unsecured debt on the balance sheet of the Company. Between 4th September, 2011 and 6th August, 2012, each security is convertible at the option of holder of the security, at a conversion price of Rs. 758.10 per share into a Qualifying Security issued by the Company. The Company must redeem all outstanding CARS principal amount together with accrued and unpaid interest no later than 5th September, 2012
The Company entered into a loan agreement with the State Bank of India and other banks for Rs. 9,500 crores. In January 2008 Rs. 9,000 crores was repaid with proceeds from the Companys Rights Issue and Rs. 500 crores was repaid on 28th February, 2008
In November 2007, the Company made a rights issue offering to shareholders in India, (i) 1 ordinary share for every five ordinary shares at a price of Rs. 300 per share and (ii) 9 cumulative compulsorily convertible preference shares (CCPS) for every 10 ordinary shares at a price of Rs. 100 each. A total of 121,611,464 ordinary shares and 547,251,605 were allotted pursuant to the rights issue. Every six CCPS issued will be automatically converted into one ordinary share of the Company on 1st September, 2009. Total proceeds from the rights issue aggregated Rs. 9,121 crores. In January 2008, the Company used the proceeds from the rights issue to repay the loan from the State Bank of India described above
In addition, the non-recourse long term debt (at Tata Steel UK) was syndicated. GBP 3.12 billion of Bridge Funding was drawn in full into Tata Steel Netherlands as borrower. Based on its assessment of the appropriate quantum of debt that could be serviced by Corus, the Company restructured the initial higher cost inflexible leveraged debt financing consisting of loans and bonds. This even involved a change in the financing banks. The replacement financing package consisting solely of lower cost pre-payable corporate term loans offered substantial savings and benefits to the company. This was a GBP 3.670 billion senior facility consisting of multiple tranches of term loans and a GBP 0.5 billion five year revolving credit facility. These facilities are secured by the assets of Corus.
EquityCapitalfromTataSteelLtd. QuasiEquity/longtermfunding TotalEquityandQuasiEquitycontribution(a) NonrecourselongtermdebtatCorus(b) Total(a+b)
Rs.crores 17,850 11,570 29,420 26,730 56,150
USDbillion 4.10 2.66 6.76 6.14 12.90
Exhibit F2: Timeline of events during the deal

Announcement Date 25-9-2006 Development Corus announces that it is in advanced stage of negotiations with potential buyers Tata Steel announced that it had agreed to buy 100% of Corus at 455 pence per share in an all cash deal, cumulatively valued at GBP 4.3 billion (USD 8.04 billion) CSN, a Brazilian steel company, launched a counter offer for Corus at 475 pence per share, valuing it at $8.4 billion Tata increased its offer to 500 pence, which was within hours trumped by CSN's offer of 515 pence per share, valuing the deal at $ 9.6 Billion. The CSN offer would be implemented by way of a scheme of arrangement and was subject to a pre-condition that Corus Shareholders reject the Tata Scheme or the Tata Scheme is otherwise withdrawn by Corus or lapses. The Corus board promptly recommended both the revised offers to its shareholders Standard and Poors puts Tata Steels debt rating at BBB negative watch UK Panel on Takeovers and Mergers announced that the last date for each of Tata and CSN to announce revised offers for the company, should they wish to do so, is 30 January 2007. They also warned that it would begin an auction procedure if the two remained in competition Tata Steel won their bid for Corus after offering 608 pence per share, valuing Corus at $11.3bn
17-10-2006
19-11-2006
11-12-2006
12-12-2006
10-12-2006
31-12-2006
Exhibit F3: Stock Price Movement

600 560 520 480 440 400
Tata Steel Stock price movement
700 600 500 400 300 200 100 0 21/Aug/06 24/Mar/06 29/Nov/06 13/May/06 09/Mar/07 10/Oct/06 14/Dec/05 18/Jan/07 02/Feb/06 100 28/Apr/07 02/Jul/06 SharePrice
OfferPrice
Corus Group stock price movement
TeachingNotes
The theory described in the beginning of this document explains all that the student needs to know about merger arbitrage and risk arbitrage in general to assimilate and appreciate the material presented after that. The data and exhibits presented as part of the case material provides all the information required for decision making in such a situation and to answer other questions posed in the discussion material.
We have written the studies as caselets rather than full cases. The approach is similar to other caselets on applications of financial futures.38 This approach enables an illustration of a variety of special situations. We consequently have about 20 minutes of discussion for each caselet. The instructor can either pick a subset of cases, or allow the exposition to span two sessions. One of the cases, RIL-RPL merger is structured as case discussion material for class room discussion and students perusal, while the other cases have all been structured as case study material which tries to bring forth several different nuances in risk arbitrage situations. In addition to the conventional teaching notes, we have also written, the evolution of a typical arbitrage situation on the arbitrage trading desk of an Investment Bank for the ICICI bank case. The discussions between various parties are hypothetical but lay out the various internal and external parties which co-ordinate to execute a trade, as well as the jargon used on the trading floor in such situations. We have also shown a sample calculation from building such a position.
ICICIBankPartlyPaidIssue
SuggestedQuestions i. Explain clearly the mechanics of the arbitrage by which prices of the partly paid securities should converge to their theoretical value. Calculate these values assuming money market rates of 6% and borrow fees of 3.5%. ( There were no interim dividends between the listing and call dates )
38
Scott and Durdan, 1986.
ii.
Assume transaction costs at 10 bps of notional value. Compute bands on the prices of partly paid securities in the presence of transaction costs. Were the observed prices for the partly paid securities within these bands?
iii.
Discuss why partly-paid prices were initially close to the theoretical values and then diverged steadily. Calculate the holding period return for an investor holding the partly paid shares till 31 Oct 07.
iv.
Institutions were not allowed to buy partly paid securities in the primary offering, but were allowed to purchase these in the secondary market. What advantages might this confer?
v.
At this time, ICICIs Foreign Institutional Investor (FII) ownership was close to the Reserve Bank of Indias mandated holding limits. What additional risks might this introduce?
HypotheticalEvolutionoftheICICIBankCase Lets look at how this special situation would evolve on a typical large investment banks trading floor after a hypothetical trader having the information which has been presented till now would take a trading call. Remember, there are no 'right' or 'wrong' answers - hindsight's 20/20, and mistakes are the school fees a rookie trader pays.
Morning of 3 Sep
Broker: "Morning mate - how was expiry?" Trader: "Not too bad - managed to hang in there. What's kicking?" Broker: "Well we have this special situation on ICICI Bank - the partly paids .. Trader: "Oh yes - was tied up with my rolls so took my eye off that one. Where's the spread?" Broker: "Fifteen rupees cheap - something I can do for you there?" Trader: "Nothing for now, but will get back to you" The trader opens up his Reuters 3000xtra workstation, and sets up a spreadsheet to monitor live feeds of the prices of the ICICI common stock and partly paid security, and calculate the spread in realtime. He walks over to the security lending desk.
Afternoon 3 Sep, after trading hours

Trader: "Mate got some icky bank?" Stock loan: (checks) "say 200,000 - want me to hold it for you?"
Trader: "Stable? Can we term it (means whether the stock can be borrowed for a fixed prespecified term)?" Stock loan: "Yeah, but terming it will cost you. Can source more at 250" Trader: "Thanks - I'll get back to you" The trader Walks back to his desk, and calls compliance Trader: "Hi - you know this ICICI FPO - Just checking it is all right for FIIs to buy the PP Compliance: "I imagine so - I'll check. But as you aware from the restricted list, you need to monitor the FII capacity" Trader: "So if I buy the partly paid, will there be any regulatory restrictions to conversion?" Compliance: "Very much doubt it. I'll get back to you." Some minutes later: Compliance: "Ok you are good to go - are you buying today?" Trader: "No, just looking" Compliance: "Ah. In that case, please recheck the restricted list on the date you enter, and call if you have any questions."
19 Sep.
Trader sees the spread at 422 - 37 INR cheap. Calls out to the stock loan desk Trader: "Hey HW, what do you have on ICICI? Stock loan: "Have loads at 200 bps. How much do you want?" Trader: "Lets pull down two hundred thousand shares today" Stock loan: "Ok done" Trader checks restricted list and calls his broker. Trader: "Sell 200k ICICI bank shares while buying ICBK_p.NS (ticker for ICICI partly paid issue) at 420 Rs under" Broker: "That will be tough to work - the spread on screen is 410, would you like to get done there?" Trader: "No just keep trying at -420" Broker: "Ok"
19 Sep, close of day

Broker: "Ok we sold 70,000 shares of icici at 962.1 and bought 69,990 shares of icbk_p.ns at 542.05 - shall we take the extra 10 shares in our book?" Trader: "No let it be - I expected more to get done"
Broker: "It was very tough - best dealer on it, we were 1/3rd volumes. Can we continue to work this tomorrow?" Trader: "Possibly - I'll get back to you tomorrow"
20 Sep morning
Broker: "Shall we continue to work the order? I think we should be more aggressive - this won't be around forever" Trader: "Do 130k at -420 over the day" On the phone to IDB Trader: "Mate seen anything on Dec 07 TRS on ICBK.NS?" Interdealer broker: "Nothing recently - you want to show something" Trader: "No I'm good" Back to stock loan Trader: "How much icky can you get us ?" Stock loan: "Lemme check - indicative size?" Trader: "300k shares?" Stock loan: "so 500k in all? lemme check " (Later) Stock loan: "Ok can get it to you at 200 - discount for size" Trader: "Thanks - can we term it to Dec 1?" Stock loan: "Yeah no problem" Trader: "Swell. You guys are amazing"
(Close of business)
Broker: "We got another 4k done at your levels" Trader: "only?" Broker: "Market only traded 40k shares Sir - we were 10% of volumes" Trader: "Ok"
21 Sep
Trader instructs "Go up to 1/4 volume - finish at -420" ; gets nothing done on 21st (spread not really there)
24 Sep
Spread blows out to -430 (40INR cheap) : the rest of the 200k shares get done. Then another broker calls Broker2: "I have a client wanting to sell 50k icbk partly paids - you a buyer?" Trader: "At the right price" Broker2: "Client willing to sell at 530" Trader: "Mine" Broker2: "Thanks -I'll report the cross" Calls broker: "Sell 50k icbk.ns at 990 - get done quickly" Broker: "Righto" Few minutes later: All done at 990 In this manner the trader builds up a position of 500,000 shares (10 mn USD) at discounts between 30 and 45 INR to fair value over the next few weeks, at an average discount of 38 INR. He has a meeting with his desk head to discuss the trade. Trader: "Yeah, the msci recomp went off smoothly. And as we talked earlier, there's this ICBK partly paid spread I've been building up, selling the common against the partly paid. Guess well make half a buck on it." Desk head: "Yes saw your note - why do you reckon it's trading that cheap? Is there something you didn't pick up?" Trader: "Well, I'm pretty sure on this one. Don't really have an answer, but the sellers of the partly paid are unsophisticated retail guys. I guess we need to look for some behavioral explanations. Some prospect theory model where retail guys evaluate joint outcomes - making money on their position makes them happier to fork out the liquidity discount. " Desk head: <grins> "Maybe - sounds like psycho mumbo-jumbo to me, but guess you know what you are doing - are you not putting on more because of liquidity, stock loan, or the risk management guys?" Trader: "I think this is what I'm happy with - the partly paid is trading some 100k shares a day and the common stock some 3 million shares a day - mainly worried about recall risk" Desk head: "Fine."
15 Nov.
The trader uses part of the net proceeds to pay the call amount. A few days later, he receives fully paid shares, which he returns to the stock loan desk to settle his outstanding borrow.
Simplifiedprofit/losscalculations
A. B. C. D. E. F. G. H. I. Number of shares Call amount per share Total call amount (AxB) Gross spread Proceeds (AxD) Average Price of ICBK.NS during trade Average Borrow fee (in basis points) Number of months Lending fee [(AxFxGx2)/(10000x12)] 500000 390 19,50,00,000 428 21,40,00,000 1124.6 220 2 20,61,767
(We assume for simplicity that the short position on ICBK.NS is collateralised with ICBK_p.NS and the net proceeds; and that the interest nets out) J. K. L. M. Average discount (D-B) Profit (AxJ) Commissions [(2xF-D)xAx10/10000] Net profit/loss (K-I-L) 38 1,90,00,000 910600 1,60,27,633
The reason for price convergence between partly paid and fully paid shares is the essence of arbitrage itself. With two different instruments of similar economic value trading at disparate prices, the market participants would sell (or short) the more expensive instrument and buy the cheaper instrument. This practice by a large group of investors would change the demand-supply equilibriums of both securities by increasing the supply of the expensive security (thus reducing its price) and the demand of the cheaper security (thus increasing its price). This would continue till the prices of both securities reflect their true economic values. The mechanism of executing arbitrage is described in the text and calculations above. Theoretical price for partly paid shares can be calculated as the difference between spot price of fully paid trading stock and the present value of INR390 due at maturity. Ppp= Pfp PV(390) The upper and lower price bands based on a transaction cost of 10 basis points (0.1%) would then be calculated as Ppp*(1+0.1%) and Ppp*(1-0.1%). The calculations are plotted in the graph below assuming a continuously compounded market risk free interest rate of 6% for calculating the present value of future payments.
1000 900 800 700 600 500 400 14/Aug/07 21/Aug/07 28/Aug/07 06/Nov/07 13/Nov/07 02/Oct/07 09/Oct/07 16/Oct/07 23/Oct/07 04/Sep/07 11/Sep/07 18/Sep/07 25/Sep/07 30/Oct/07
ClosePrice
Lowerband
UpperBand
As we can see here, the band size is quite narrow because of low transaction costs, and the partly paid shares continuously trade below the theoretical price band except in the beginning of the period immediately after the issue. The reason for this is the investors willingness to pay the liquidity discount to the liquidity provider (arbitrageur) after they have made initial profits. The primary market offering of partly paid shares for targeted at the retail investors and these investors offloaded the shares to the arbitrageur after making some profits from holding the stock. Its the participation of institutional investors in the secondary market which provides constant liquidity in the instruments due to the market making activities of FI. The liquidity in the secondary markets makes the primary markets more efficient by increasing the attractiveness of primary offerings to investors since they can be confident of an exit route through the secondary markets. Like many other countries, India has regulatory limits on FII share holding in any financial institution (and for some other industries as well, the full list of companies and FII shareholding limits keep changing and is continuously updated by RBI39). The risk in partly paid securities arises from the regulators interpretation of the voting rights in the partly paid stock for the purposes of calculating the cumulative FII holding. Hence, if the FII investment ceiling is calculated only on the basis of fully paid shares, then if the FI holding the partly paid shares tries to convert them to fully paid shares at some date, the regulator might deny that due if the ceiling is getting breached. Hence, the trader needs to ensure that such a event will not occur before entering the trade. For this, the FI trader would clarify the issues regulatory interpretation from
39
http://www.rbi.org.in/scripts/BS_FiiUSer.aspx
the company itself, from the regulator if possible and would have to get the clearance of FIs own internal control and compliance officials.
TataMotorsDVRIssue
SuggestedQuestions 1. Why do you think the A shares traded the way they did? 2. Underwriters should have deep pockets. Discuss this statement in the light of JM Financials actions in this case. 3. What mechanisms do family owned business groups employ to ensure the survival of group companies?
Howthecaseunfolded A long holder of the stock on the ex-date, would be entitled to subscribe to the rights. His subsequent actions would depend on who he is. A right is a call option, which could either finish in the money or out of the money. An option is worth money, so after the ex-date, the stock price would decrease by the value of the rights offering. An investor averse to risk would delta-hedge his rights, and seeks to capture the gamma over the life of the option (till the subscription date). On the other hand, if a trader holds a passive position on Tata Motors as part of a well-diversified MSCI index basket hedging an ETF, his concern is how the index would be adjusted for the rights. Typically, the index is smoothed using a price adjustment factor, and his natural course of action would be to not delta-hedge the option. At the time of the offering, MSCI computed its PAF (price adjustment factor) using the following logic: New PAF = Theo-Cum price / Ex price Where the Ex-price is the market price on the ex-date and the Theo-Cum price is defined as [(Ex price x (shares before + shares issued) - subscription price x shares issued)/ shares before] On 16 Nov 2009, after a consultative process, MSCI changed its PAF formula to:
If subscription price is greater or equal to Cum price then PAF=1 else [(Ex price x (shares before + shares issued) - subscription price x shares issued)/ shares before] / [Ex price]40 On Oct 20 2008, the closing date of the rights issue, the share price of Tata motors was 244 way below the subscription price of 340 INR for the common share and 305 INR for the DVR share. Consequently, the subscription rights were not exercised by the average investor and the promoter group stepped in as the buyer of last resort. Indian family groups typically engage in such behavior and the implicit expectation of bailouts that help companies survive acts as a reassurance to investors in group companies. The DVR issue was underwritten, and a portion of the issue was picked up by the investment bank. The stock price continued to decline, and reached a low of INR 131.1 on 5 Feb 09. Assuming the DVR was worth the same as the common stock and neglecting any underwriting discounts, the underwriter was looking at a MTM loss of INR 1.71 bn (42.7 mn USD) against its purchase price of INR 305. But, being the principal (essentially the sole) holder of the DVR shares, it needed favorable market conditions to sell its position without further depressing prices. It could possibly have tried to hedge its risk by short selling the common stock or hedging with futures, but the futures were not very liquid and the borrow was difficult to find. It is therefore possible the underwriter chose not to hedge its position. Markets recovered, and the losses were reversed. By 27th August 09, DVR prices had recovered to INR 345, and 200,000 shares were traded, most likely by the underwriter selling to a fund. 1.75 million shares were traded the next week, at DVR prices of 400 ( a discount of 100 INR). The underwriter was happy to pay the liquidity discount to reduce its risk. As to why it waited for prices to rise before reducing its holding, a fringe discipline called behavioral finance suggests that investors are reluctant to book losses; and also that they are more willing to pay a liquidity discount when they are making a profit since they focus at the joint rather than individual outcomes (i.e., they add up the profit on the trade and the liquidity discount and treat them together). The top 10 trading days are listed below They suggest that the size of the liquidity discount, in absolute as well as proportional terms, increases with profits:
Symbol TATAMTRDVR TATAMTRDVR TATAMTRDVR
40
Close Price 365.1 437.3 428.75
Total Traded Quantity 1,176,416 997,919 601,454
Turnover in Lacs 4275.039847 4384.135123 2579.267617
close
INR spread -124.6 -170.65 -129.25
pct spread -25% -28% -23%
489.7 607.95 558
http://www.mscibarra.com/news/pressreleases/archive/20091109_pr.pdf
TATAMTRDVR TATAMTRDVR TATAMTRDVR TATAMTRDVR TATAMTRDVR TATAMTRDVR TATAMTRDVR
446.45 467.85 480.55 492.1 507.25 505.3 511.35
3,471,455 4,778,589 1,335,669 931,257 496,344 595,441 538,636
15479.22588 21465.22837 6380.603035 4557.193672 2510.844405 3003.133994 2733.278881
621.6 619.15 634.85 646.45 703 826.45 813.3
-175.15 -151.3 -154.3 -154.35 -195.75 -321.15 -301.95
-28% -24% -24% -24% -28% -39% -37%
Theoreticalbackgroundasperbehavioralfinance: Following discussion presents one way to look at the situation. We can look at the development of the situation as a dynamic matching game of demand and supply. More formally, the supplier in this case is a sole investment bank (IB), whose utility can be described by the following formulation: Uib = f(theoretical profit, liquidity discount) Where ftheoretical profit(.) > 0 and fliquidity(.) < 0; these constraints just underscore the idea that utility increases with profits and decreases with increasing liquidity discount. Where, Liquidity discount = g(theoretical profit), Theoretical profit = Implied price of DVR Entry price, Implied price of the DVR is the fair economic value of the DVR in relation to the trading price of the common stock. This essentially means that since the DVR and the common stock derive their value from the same asset base hence their equilibrium prices would be related to each other and deviation from this equilibrium pricing would provide arbitrage opportunities which would bring the prices of the two instruments back to equilibrium prices. Implied price of DVR = Trading price of Tata Motors common stock + price value of additional 0.5% dividend value of additional control rights available to common stockholder The relationship between realized (actual) and theoretical profits from holding and selling the DVR is: Theoretical profit = Realized profit + Liquidity discount On the demand side, demand can be by long term investors or short term arbitrage traders. Demand functions for both could be formulated as follows: Dlong-term = g(fundamental value, size of discount) Darbitrageur = h(size of discount, funding or hedging cost) Total demand in the market will be the sum of demand by both investor groups.
200 150 100 50 0 profit -250 -200 -150 -100 -50 -50 0 -100 -150 -200 -250 -300 -350 spread 50 100 150 200 250
100% 80% 60% pct profit 40% 20% 0% -80% -60% -40% -20% -20% -40% -60% pct spread 0% 20% 40% 60% 80%
Usually underwriters are responsible for price stabilization post offering, for this reason underwriters need to have the balance sheet strength which is needed in order to continuously buy/sell shares of the offer or keep them on their own books for some time if needed. As described in this case, JM financial had to keep the stock on its books for about a year and sustained large mark-to-market losses in this process. JMs actions were not driven by contractually set market stabilization commitments in this case but because of lack of buyers in the market at that time. Family owned conglomerates in India use their controlling holding in group companies to finance some of their business whenever the need arises. One way to do this is to sell some of the holding in one group company (say Tata Steel) to finance a large cash need of some other group company (say Tata Motors) by routing the cash from holding company into the needy
subsidiary. Another way to achieve the same result is by using the controlling power in subsidiary companies to invest in each other as and when there is a business requirement. Partly due to this reason investors are more comfortable to invest in the conglomerates individual business because they know that if the business gets into trouble, it will be bailed out by the other businesses of the group even though all these business are essentially public companies with separate shareholders. One way to understand the trading behavior of A shares is to look at it from the prospect theory point of view. Because the investors holding the A shares have made profits from continuing price convergence of the two share classes, they would be willing to sell of the shares before full convergence (essential idea being after making profits, investors are willing to pay the liquidity discount to the arbitrageur in exchange for his services as a liquidity provider in special situations in the market). The two graphs presented above show the observed relationship from the market data between realized profits (X-axis) and liquidity discount (Y-axis) in absolute and percentage terms. The data supports the results from another study41 which proposes behavioral finance concepts to understand the issue of under pricing in IPOs. This study puts forth the idea that when faced with two related outcomes people have a tendency to look at them separately or as one depending on which view makes them feel better. Hence two gains are viewed as segregated outcomes; two related losses will be viewed as one integrated outcome and for a gain and a loss, whether an investor feels better by integrating or segregating depends on upon their magnitudes.
Figure 10: Regions of Integration and Segregation of Two Different Outcomes by an Investor
41
Why dont issuers get upset about leaving money on the table in IPOs?; Tim Loughran and Jay R.Ritter
RanbaxyDaiichiSankyoDeal
SuggestedQuestions Given the information available at the time of announcement, will you enter into an arbitrage position, what trade would you need to make and how will it be profitable? DiscussionMaterial On June11, 2008, given the information available, we can expect the deal to complete in August and even if all shareholders participate in the open offer, we can expect to exit the position at INR577.5. Since the current stock price is INR561, we can ex-ante expect a profitable trade and hence build an arbitrage position by going long Ranbaxy stock. Since this is an all cash deal, hence, there is not short selling possible in this trade, however, to protect against market movement, a trader might want to short sell the broad market index, if he anticipates a negative market move which could lead to falling prices across the market. The hypothetical profit/loss evolution till deal closure as a result of building the position as described above is shown in Figure 11.
800 600 400 200 0 11/06/2008 200 400 600 RanbaxyStockPrice BuyPrice Profit/(Loss) 11/07/2008 11/08/2008 11/09/2008 11/10/2008
Figure 11: Ranabaxy Profit/Loss Evolution on a Per Share Basis
Hence, as it turns out that the trade becomes significantly unprofitable. This occurred because Ranbaxy stock price kept going down post deal announcement. This happened due to 2 reasons. Adverse news coming to the market about Ranbaxy (Exhibit 1) General market conditions during the crisis leading to a fall in broad market index
A trader can hedge against market movement in building an arbitrage position by delta hedging using the market index (NIFTY) as a proxy for broad market conditions. Given Ranbaxys beta of 1.18, a trader can insulate the position against market conditions through the following trade. If amount invested in long position in Ranbaxy is X, then short sell the index for the same amount X after adjusting for the stock beta. Hence, short sell index to the amount of X*beta. In this case, since the acceptance ratio is 30.68% (=20%/65.18%), so the actual amount at risk is 69.32% of the total and hence the hedging amount will be 69.32% of X*beta. The profit/loss evolution from executing this hedged trade is shown in 12.
300 200 100 0 11/06/2008 100 200 300 400 500 ProiftonLongRanbaxy ProfitonshortNifty TotalProfit/Loss 11/07/2008 11/08/2008 11/09/2008 11/10/2008
Figure 12: Profit/Loss Evolution from a Hedged Ranbaxy Position
Hence, we can see that this trade is still unprofitable. This is because the stock specific negative news events have made Ranbaxy prices drop significantly more than the market. The arbitrage is thus not entirely risk-less (hence the name - risk-arbitrage). A profitable opportunity at the time of setting up the position can become loss making as events unfold in the market which cannot be expected up front.
NovelisHindalcoDeal
SuggestedQuestions Given the information available at the time of announcement, will you enter into an arbitrage position, what trade would you need to make and how will it be profitable?
DiscussionMaterial On February 10, 2007, Hindalco announced their agreement to buy Novelis in an all-cash deal at $44.93 per share. Hindalco has made its intensions clear of finishing the transaction within the first quarter of fiscal year 2007-08. This would mean an investment horizon of about 3 to 4 months if the negotiations fructified and all regulatory approvals could be obtained. Since Novelis had already announced on January 25, 2007 that it was in advanced talks with potential buyers, the markets had already factored in an increase in share price from $30 - $35 to $40 $42. The Novelis shares on February 10 traded in vicinity of $43.67. Since the current stock price is lower than the bid price, we can a-priori expect to profit from the trade. The position to be assumed here is to go long Novelis shares and wait for the deal to consummate and get the cash from the acquirer. The hypothetical profit/loss evolution till deal closure as a result of building the position as described above is shown in 13.
20
15
10
0 09/12/2006 29/12/2006 18/01/2007 07/02/2007 27/02/2007 19/03/2007 08/04/2007 28/04/2007 18/05/2007 07/06/2007
AccPnL
TargetPnL
Gain
Loss
Figure 13: Profit/Loss Evolution on a Per Share Basis of Novelis
Hence, as it turns out post-facto t the trade becomes pr s t that e rofitable. On interesting thing to note ne g in the de was that Novelis was publicly tra eal s aded in both US and Canadian mar h rkets. Prior t to announce ement of the deal, the tr e rading volum remained roughly sim mes d milar in both markets. Bu h ut once the deal was an nnounced, th US tradin volumes i he ng increased sig gnificantly du to entry o ue of urs. proportionate increase in the trading volumes of U indicates t presence o e v US to of arbitrageu The disp large arbi itrage positio being set up by US tra ons aders.
Figur 14: Novelis Trading Volu re umes in the US and Canadia Markets S an
As the deal went thr rough as pro oposed the a arbitrageurs (assuming th above pos ( he sition) made a return of 3.05% in th few month time betw f he hs ween deal an nnouncement and consum t mmation. Th his gap in cas of Hindalc se co-Novelis w February 10 to May 16 i.e. 11.84% annual. was y %
TataCo orusDeal
SuggestedQuestio ons Given th informatio available a the time o announce he on at of ement, will y enter into an arbitrag you o ge position, what trade w would you ne to make a how will it be profita eed and l able?
DiscussionMaterial On October 17, 2006, Tata announced their agreement to buy Corus in an all-cash deal at 455 pence per share. Tata Steel has made its intensions clear of finishing the transaction in the current fiscal i.e. before February 2007. This would mean an investment horizon of about 3 to 4 months if the negotiations fructified. Corus had already announced on September 25, 2006 that it was in advanced talks with potential buyers, the markets had already factored in an increase in share price. The shares on October 17 traded in vicinity of 480 pence. Since the current stock price is higher than the bid price of Tata Steel, we cannot ex-ante expect a profitable trade from an arbitrage position by going long Corus stock. But, the market predicts a bidding war between Tata Steel and CSN of Brazil since CSN is one of the major shareholders of Corus Group Plc and has already expressed an interest in submitting a counter bid. In case a bidding war takes place, the stock price of Corus can be expected to appreciate substantially. Hence we can expect to profit from the trade. The position to be assumed here is to go long Corus shares and wait for the deal to consummate and get the cash from the acquirer. The hypothetical profit/loss evolution till deal closure as a result of building the position as described above is shown in Figure 15
200 150 100 50 0 19/Nov/06 10/Oct/06 30/Oct/06 09/Dec/06 29/Dec/06 18/Jan/07 07/Feb/07 50 100 150 27/Feb/07
AccPnL
TargetPnL
Gain
Loss
Figure 15: Profit/Loss Evolution on a Per Share Basis Corus
Hence, as it turns out post-facto that the trade becomes significantly profitable. This occurred because the bidding war did take place and the stock price of Corus kept going up post the deal announcement as both Tata Steel and CSN increased their bids multiple times. The Corus share closed at 607 pence on January 31, 2007, the day of final deal announcement and continued to trade in this vicinity till the consummation of deal.
The arbitrageurs (assuming the above position) would have made a 67.03% return in a few months time between deal announcement and consummation. This gap in case of Tata Corus deal was October 17, 2006 to January 31, 2007 i.e. 241.3% annual.
Bibliography
Business Line. Tata Motors A rights priced Rs 305 a share. E-paper, Wednesday, Sep 03, 2008. http://www.thehindubusinessline.com/2008/09/03/stories/2008090352370200.htm Business Line. Promoters stake in Tata Motors rises to 42%. E-paper, Saturday, Nov 01, 2008. http://www.blonnet.com/2008/11/01/stories/2008110151670300.htm Cornelli, Francesca and David D. Li Risk Arbitrage in Takeovers. The Review of Financial Studies, Vol. 15, no. 3, pp. 837-868, Summer, 2002. Lauterbach, Beni and Paul Schultz. Pricing Warrants: An empirical study of the BlackScholes Model and Its Alternatives. Journal of Finance, Volume 45, Issue 4 (Sept., 1990), 1181-1209 Loughran, Tim & Jay R. Ritter, 2002. "Why Don't Issuers Get Upset About Leaving Money on the Table in IPOs?," Review of Financial Studies, Oxford University Press for Society for Financial Studies, vol. 15(2), pages 413-444, March. Mason, Scott P. and Sally E. Durdan. Applications for Financial Futures. March 28, 1986. http://cb.hbsp.harvard.edu/cb/web/product_detail.seam?R=286109-PDFENG&conversationId=309614&E=12784 Mitchell Mark and Todd Pulvino. Characteristics of Risk and Return in Risk Arbitrage. The Journal of Finance, Vol. 56, No. 6 (Dec., 2001), pp. 2135-2175
DataSources
Various Offer books RBI Database on Indian Economy Google finance Reuters Company filings summarized in offering prospectus www.asic.gov.au

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INDIAN INSTI ITUTE OF M MANAGEM MENT CAL LCUTTA

WORKING PAPER SE W ERIES

010 WPS No. 659/ July 20

Specia Situation Arbitrage: 5 Caselets al

& Prerak Vohra ey ng McKinse Consultin

Special Situation Arbitrage: 5 Caselets

P. Srikant Ayyar1 Vibhor Gupta2 Rama Seth3 Prerak Vohra4

Indian Institute of Management Calcutta July 2010

Figure 1: Risk Return Characteristics in Merger Arbitrage

Year 2004 2005 2007

Approx shares in millions (incl. ADS equivalents) 166.37 153.53 195.76

Issue size in ADS relative to US issue size 33% 38% 92%

Approx USD Notional 1.3 bn 2.0 bn 4.9 bn

Figure 2: ICICI Partly-Paid Securities - Spread and Volume

EXHIBIT A: ICICI Exhibit A1: Economic trends Indian economic growth12

Source: RBI Database on Indian Economy Source: Google finance

USD/INR Exchange rates13

Exhibit A2: Balance Sheet for ICICI Bank Limited14

Exhibit A3: Income Statement for ICICI Bank Limited15

Exhibit A4: Bond Issuance activity of ICICI Bank

Aug 2003 Sep 9, 2003; Oct 9, 2003; Nov 3, 2003

4.75% Fixed Rate Notes

300 mn (USD) 4,860 mn (INR)

ICRA LAAA CARE AAA

ICRA LAAA CARE AAA

ICRA LAAA CARE AAA

ICRA LAAA CARE AAA

Moodys Baa3 S&P BB ICRA LAAA CARE AAA

300 mn (USD) 7,750 mn (INR)

ICRA LAAA CARE AAA

Moodys Baa3 S&P BB+ ICRA LAAA CARE AAA

Feb 2005 Mar 9, 2005; Apr 8, 2005; May 10, 2005

ICRA LAAA CARE AAA

5.75% Fixed Rate Notes

500 mn (USD) 340 mn (USD)

ICRA LAAA CARE AAA

Moodys Baa3 S&P BB+ Moodys Baa2 S&P BB+

7.25 perpetual non-cumulative subordinated debt securities

5.875% Fixed Rate Notes

400 mn (USD) 100 mn (USD) 750 mn (USD)

5.875% Fixed Rate Notes

Oct 20, 2011

6.375% Fixed Rate Notes

5.75% Fixed Rate Notes

750 mn (USD) 500 mn (USD) 500 mn (EUR) 50 mn (EUR) 50 mn (EUR)

Floating Rate Notes

Jan 12, 2012

Floating Rate Notes

Mar 29, 2009

Floating Rate Notes

Mar 29, 2009

Floating Rate Notes

Mar 29, 2009

Exhibit A5: Equity Issuance activity of ICICI Bank17

December 20, 2005

December 16, 2005

Partly paid-up (Rs.150 on application, 348.75 on allotment) Fully paid-up

December 16, 2005

December 16, 2005

Exhibit A6: Issue Prospectus

Exhibit A7: ASX Press Release on Partly Paid Securities

Exhibit A8: Historical Data

Shares outstanding Ordinary shares A shares

Before the issue

M&A Study

M&A Study