Power Finance Corporation Limited,

(A Govt. of India Undertaking)

Urjanidhi, 1, Barakhamba Lane,

Connaught Place,

New Delhi-110001. 1

1.Power Finance Corporation Limited (PFC) is a Company registered under erstwhile CompaniesAct, 1956 and is a public financial institution under section 2(72) of the Companies Act, 2013.

2.PFC is a registered non-banking finance company (NBFC-ND-IFC) with Reserve Bank of India,which significantly enhances its ability to raise funds on cost-competitive basis

3.PFC has been awarded foreign currency borrowing rating of „BBB –„ by the internationalrating agency Standard & Poor‟s and Fitch and Baaa3 by Moody‟s. These credit ratings are atpar with the sovereign rating .Hence, PFC is in a better position to borrow in foreign currencyfrom international financial markets that the state and private power sector utilities andchannelize the funds to power sector.

4.PFC is the nodal agency for the implementation of various Government of India programmesuch as Ultra Mega Power Projects (UMPP), Independent Transmission Projects (ITP),Restructured Accelerated Power Development Reforms Programme (R-APDRP) and IntegratedPower Development Scheme (IPDS).

5.PFC raises funds for its operations by borrowing from the domestic as well as frominternational financial markets.

6.PFC is one of the Indian Public Sector undertakings to have been granted the “Navratna”status

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7.PFC provides comprehensive range of financial products and related advisory and otherservices across power generation, transmission and distribution;-

Fund based-Project finance, short term loans, buyer line of credit and debt refinancingschemes etc.

Non-Fund based- default payment guarantees and letters of comfort among others.

Fee based services-technical advisory and consultancy through its 100% subsidiarycompany.

8.The borrowings in the domestic market are in the form of short term and long term loansfrom banks, Commercial paper, tax free bonds, and taxable bonds/debentures etc.

External Commercial Borrowings (ECBs) are in the form of Syndicated loans fromInternational banks and/or multilateral organisations , Indian Rupee denominated bonds,USPP Notes etc. in case of international markets

9.PFC has also set up a Medium Term Note (MTN) program under which it can raise funds up toUSD 1 billion by issue of notes denominated in foreign currency as well as in INR to overseasinvestors for which RBI has given approval.

The notes shall be listed in Singapore Stock Exchange.

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Prior to RBI Circular No 32 dated 30-Nov-2015 notifying the revised ECB framework, PFC wasallowed to raise an amount up to USD 750 Million per financial year under automatic route.The main steps/stages involved in raising of ECB under automatic are as under;

Market considerations

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Invitation of offer from merchant bankers

Evaluation of bids received and ranking of bidders

Approval of Board of Directors for awarding mandate

Issue of mandate to selected Lead arranger (s)

Appointment of intermediaries like legal counsel (s), process agent, authorised dealer

Finalization of Syndication Materials (Including Information Memorandum and Presentation Slides)

Roadshows in target market (s)

Launch of general syndication

Negotiation , finalisation and execution of facility documentation and main clause of facility documentation are as under ;

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Tax Indemnity.

o This clause requires issuer/borrower to bear income tax, capital gain tax (arising) onaccount of transfer / sale of note by the note-holders etc.

o Based on protracted discussions, PFC‟s liability in loan is restricted to withholding tax only.

Negative Pledges

o This clause restricts PFC and its subsidiaries to raise any borrowings outside India onsecured basis(ECB / Bonds / Notes),unless similar security is provided to the MTN note-holders

FATCA

o The issuer/borrower is required to ensure that each of the lender and intermediaries isFATCA exempt or has obtained Global Intermediary Identification Number (GIIN).

o In absence thereof the issuer/borrower may be required to bear withholding tax and FATCAunless there is a clause providing indemnity to the borrower.

o PFC has been successful in passing on FATCA withholding tax after payment to lenders andother intermediaries.

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Non-Exclusive Jurisdiction

o This clause permits the lender and other intermediaries to bring dispute not only in thecourt of England but also in any other court.

o PFC has been successful in getting clause amended to restrict it to exclusive jurisdiction.

Fulfilment of conditions precedent like obtaining LRN from RBI, providing constitutionaldocuments, KYC documents of authorised signatories etc.

Drawdown of the syndicated loan

PFC is allowed to raise ECB only for the purpose of on-lending to Infrastructure sector.

Accordingly, PFC has been raising funds through ECB strictly for the purpose ofdisbursement to the Company‟s borrower in power sector for electricity generation,transmission and distribution.

The experience so far has been good and there has been effective and smooth utilization ofECBs. PFC has been able to utilize the funds raised through ECB generally within 2-3months.

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PFC has successfully tapped the international financial market and raised total of US$ 2,280 million , JPY 97.19 Billion and Euro 58.71 Million in the past with a total of 19 different deals.

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S.No. Issue Type Period Issue Size

1 Loan from Credit National June 90-June 95 Euro 47.40 Million

2 Loan from KFW December 1995 Euro 11.31 Million

3 Syndicated Loan January 1997 US$ 75 Million

4 Fixed-rate Euro Note July 1997 US$ 100 Million

5 Syndicated Loan July 1998 US$ 100 Million

6 Floating Rate Note July 1999 US$ 100 Million

7 Term Loan Facility July 2000 US$ 100 Million

8 New ADB Loan Apr 2004-Sep 2008 US$ 25 Million

9 Syndicated Loan Year 2006 JPY 11.92 Billion

10 Syndicated Loan (refinancing) Year 2006 US$ 100 Million

11 Fixed-rate Senior Notes (USPP) September 2007 US$ 180 Million

12 Syndicated Loan March 2010 US$ 300 Million

13 Syndicated Loan September 2010 JPY 20.30 Billion

14 Syndicated Loan February, 2011 JPY 21.30 Billion

15 Syndicated Loan August, 2012 US$ 250 Million

16 Syndicated Loan March, 2013 US$ 250 Million

17 Syndicated Loan December, 2014 US$ 250 Million

18 Syndicated Loan March, 2015 US$ 450 Million

19 Syndicated Loan November, 2015 JPY 43.67 Billion

Outstanding Borrowings as on 31-Dec-2015

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Sl. No Issue Type Outstanding Balance in Foreign Currency

Outstanding Balancein INR

1 Loan from Credit National Euro 9.74 Million ` 71.44 crore

2 Loan from KFW Euro 7.32 Million ` 53.66 crore

3 New ADB Loan US$ 16.27 Million ` 108.72 crore

4 Fixed-rate Senior Notes (USPP) US$ 180 Million ` 1,202.94 crore

5 Syndicated Loan JPY 6774.40 Million ` 399.13 crore

6 Syndicated Loan JPY 10660.00 Million ` 789.90 crore

7 Syndicated Loan US$ 125 Million ` 835.67 crore

8 Syndicated Loan US$ 250 Million ` 1,670.75 crore

9 Syndicated Loan US$ 450 Million ` 3,007.35 crore

10 Syndicated Loan JPY 43668.00 Million ` 2,431.87 crore

PFC‟s experience in raising ECB so far has been good and it did notface any major problem in raising the funds through ECB except fewchallenges which have been discussed later in the slides.

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Structure:

PFC has a board approved CRM policy to manage exchange & interest rate risks on FCLs

As per CRM policy, Risk Management Committee (RMC) is constituted to monitor the FCLportfolio which meets twice a month or on a need to basis.

RMC reviews the exposure position and recommends hedging proposals for approval byCompetent authority. (taking into consideration the recommendations of the forexconsultant appointed to advise on hedging decisions)

On a quarterly basis, open position, benchmarks breach, FCL costing are placed before thesenior officials of board for information.

PFC follows a policy of transaction specific benchmarks (separately for interest rate andexchange rate components) fixed on the date of drawl and are monitored and reviewedregularly by RMC.

Exposure Limits:

Net open exposure position shall not be more than 30% of PFC‟s net-worth at any point oftime for exchange rate risk and not more than of 20% of PFC‟s net worth for interest raterisk. (limits can be increased to 40% for exchange rate risk and 30% for interest rate risk inexceptional circumstances including market volatility, etc.)

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Types of derivatives & Accounting treatment:

Derivative transactions include forwards, options, IRS, CRS done to hedge on balancesheet assets / liabilities.

All transactions are done for hedging purposes, and not for trading or speculativepurpose and are held till maturity. Theses are accounted for on accrual basis as perAccounting Standard – 11 and are not marked to market.

Hedging @ time of drawl:

35% of new drawl amount may be hedged in one or more tranches w.r.t exchange raterisk within the next seven working days from the date of drawl. (different maturities inloans may be considered as separate loan for hedging purposes)

FCL payments due in next 12m:

In respect of the foreign currency liabilities (principal + interest) due in the next 12months, not less than 50% of the liabilities (principal + interest) may be hedged within 6months.

Hedging of longer tenor loans:

Hedging for FCLs having a tenor 5 years or more may not be possible on drawal due tovarious reasons viz. high cost of hedging(high PoS rates), PoS/forward markets for >5years are not very active, exchange rate cycle may change in a span of 5 years

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Hedging limits:

At various levels of appreciation and depreciation from benchmarks fixed, hedging limits areprescribed in CRM policy. RMC can permit to hedge upto 100% depending on the marketconditions, volatility, etc.

Empanelment of Banks & ISDA:

PFC has empanelled a set of scheduled & private sector banks for the purpose of enteringvarious derivative transactions. All these banks have signed ISDA with PFC. Maximumexposure-hedging limit with each of the pvt./foreign bank should not be more than 35% oftotal foreign currency exposure of PFC. There is no such limit for state owned banks.

Inviting quotes for derivatives:

Letters/fax inviting quotes will be sent to all the empanelled banks for performing anyderivative transaction.

Quotes can be sent through phone or fax by the bidders. All the bidders will be given a 15minute window to revise their quotes based on real time ever changing market rates.

Successful lowest bidder will be awarded the proposed deal on-line over phone. Dealconfirmed online will be followed up with written confirmation and counter confirmation fromsuccessful bidder and by PFC respectively. Forex desk will execute the necessary documentsrelevant to the deal with the successful bidder.

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1.Determination of Market Condition

Determination of the time to hit the market is the first and foremost challenge in raisingfunds through ECB.

An ECB issue shall be successful only when there is a sufficient appetite in the investors andfunds can be raised at the competitive rates.

2. Applicability of Withholding Tax.

Withholding Tax is also another challenge in raising funds through ECB.

Withholding Tax rates are different for Indian banks and other banks, which need to befactored in while evaluating the bids.

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3. Compliance with the provision of the Companies Act.

Raising of ECB through Indian Rupee bonds overseas requires compliance with theprovisions of Companies Act, 2013. which includes the stipulation of manner of issue ofsecurities, restrictions on advertisement, filing of return of allotment with RoC, disclosurerequirements, format of trust deed, creation of DRR etc.

PFC has already taken up the matter with Ministry of Corporate Affairs, Government of Indiato provide exemption from the applicability of aforesaid provision and Rules of CompaniesAct in line with exemption provided in case of Foreign Currency Convertible Bonds andForeign Currency Bonds.

4. Events of defaults resulting in immediate repayment of loan/bonds

Such Events of defaults do not provide any exception for events or circumstances which occurs due to change in law, direction/policy of Government of India, or regulatory authority such as RBI, SEBI etc.

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5. Increased cost

The issuer/borrower is required to indemnify the lenders agent for any increased costincurred by them due to introduction of or change in the regulatory environment in theircountry resulting in reduction in rate of return.

6. Market Disruption

Market disruption is an event when screen rate for determination of LIBOR is not available.

In such a situation the cost of lenders in obtaining matching deposits in London Interbankmarket substitutes LIBOR.

Such event creates uncertainty about interest rate to the borrower.

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7. Financial Covenants

These require issuer/borrower to maintain their ratios like ratio of EBITDA to its Gross Interestexpense, NPA, CRAR etc. at particular level

8. Raising of only Indian rupee denominated ECB.

Consequent upon revised ECB guidelines issued by RBI vide Circular No. 32 dated 30th November,2015, NBFC‟s like PFC are allowed to raise only Indian rupee denominated ECB. Indian Rupee hasgot less appetite in International financial market

9. Restriction on overseas branches/subsidiaries of Indian Banks

Under the revised ECB guidelines issued by RBI vide Circular No. 32 dated 30th November, 2015,overseas branches/subsidiaries of Indian will not be permitted as lenders under Track-II andTrack-III.

Indian Banks will not have access to Indian Rupee denominated bonds overseas (Masala Bonds) inany manner whatsoever.

Indian Banks, however, can act as arranger or underwriter in case of Masala Bonds.

Incase of underwriting, holding of Indian Banks cannot be more than 5 percent of the issue sizeafter 6 months of issue subject to applicable prudential norms.

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Thank you

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Thank you