96-32719. The Industrial Credit and Investment Corporation of India Limited  

  • [Federal Register Volume 61, Number 249 (Thursday, December 26, 1996)]
    [Notices]
    [Pages 68073-68075]
    From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
    [FR Doc No: 96-32719]
    
    
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    SECURITIES AND EXCHANGE COMMISSION
    [Rel. No. IC-22406; International Series Release No. 1038; 812-9582]
    
    
    The Industrial Credit and Investment Corporation of India Limited
    
    December 18, 1996.
    AGENCY: Securities and Exchange Commission (``SEC'').
    
    ACTION: Notice of Application for Exemption under the Investment 
    Company Act of 1940 (the ``Act'').
    
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    APPLICANT: The Industrial Credit and Investment Corporation of India 
    Limited (``ICICI'').
    
    RELEVANT ACT SECTIONS: Order requested under section 6(c) of the Act 
    that would exempt applicant from all provisions of the Act.
    
    Summary of Application: Applicant, an industrial finance company, 
    requests an order exempting it from all provisions of the Act in 
    connection with the offer and sale of its securities in the United 
    States.
    
    FILING DATE: The application was filed on May 2, 1995, and amended on 
    January 30, 1996, July 22, 1996, and on December 17, 1996.
    
    HEARING OR NOTIFICATION OF HEARING: An order granting the application 
    will be issued unless the SEC orders a hearing. Interested persons may 
    request a
    
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    hearing by writing to the SEC's Secretary and serving applicant with a 
    copy of the request, personally or by mail. Hearing requests should be 
    received by the SEC by 5:30 p.m. on January 13, 1997 and should be 
    accompanied by proof of service on applicant, in the form of an 
    affidavit or, for lawyers, a certificate of service. Hearing requests 
    should state the nature of the writers's interest, the reason for the 
    request, and the issues contested. Persons may request notification of 
    a hearing by writing to the SEC's Secretary.
    
    ADDRESSES: Secretary, SEC, 450 5th Street N.W., Washington, D.C. 20549. 
    Applicant, c/o Pierre de Saint Phalle, Davis Polk & Wardwell, 450 
    Lexington Avenue, New York, New York 10017.
    
    FOR FURTHER INFORMATION CONTACT:
    Sarah A. Buescher, Staff Attorney, at (202) 942-0573, or Elizabeth G. 
    Osterman, Assistant Director, at (202) 942-0564 (Division of Investment 
    Management, Office of Investment Company Regulation).
    
    SUPPLEMENTARY INFORMATION: The following is a summary of the 
    application. The complete application may be obtained for a fee at the 
    SEC's Public Reference Branch.
    
    Applicant's Representations
    
        1. Applicant, a limited liability company under the Indian 
    Companies Act, 1913, was established in 1955 as a result of an 
    initiative of the Government of India (the ``Government''), the 
    International Bank for Reconstruction and Development, and 
    representatives of Indian industry. Applicant states that it is one of 
    India's largest publicly traded industrial finance companies and, 
    together with two other finance institutions owned or controlled by the 
    Government, is a key source of long-term financing of private sector 
    industry in India.
        2. Historically, ICICI has been owned by Government owned or 
    controlled institutions. As of March 31, 1996, 50.04% of applicant's 
    outstanding equity shares were owned by financial institutions owned 
    partly or wholly by the Government. An additional 6.4% of applicant's 
    outstanding equity shares were owned by Government companies, 
    nationalized banks, and their mutual funds. One of applicant's 16 
    directors is nominated by the Government and another director is a 
    representative of India's Ministry of Industry.
        3. Applicant has been designated a Development Financial 
    Institution (a ``DFI'') by the Securities and Exchange Board of India 
    (the ``SEBI''). In its role as a DFI, applicant's financing objectives 
    are largely influenced by Government policies. Applicant is also one of 
    the largest of the All-India Financial Institutions in India, which are 
    Public Financial Institutions that provide medium-term and long-term 
    financial assistance to all sectors of the Indian economy for setting 
    up new projects and for expansion and modernization of existing 
    facilities. As a Public Financial Institution under the Indian 
    Companies Act of 1956, applicant has the same status as other 
    Government owned financial institutions and is entitled to various 
    exemptions, including exemptions from certain provisions of the tax 
    code and other laws.
        4. Applicant typically provides assistance of medium-term duration 
    to industrial companies to finance the cost of the establishment, 
    modernization, or expansion of manufacturing and processing facilities. 
    Applicant represents that the greatest use of the proceeds of its term 
    loans is for the purchase of specified equipment and related services. 
    As of March 31, 1996, approximately 80.1% of applicant's total loan 
    portfolio (including leased assets ) represented loans to finance the 
    purchase price of specified machinery and equipment. Substantially all 
    project loans are secured either by all assets of the borrower and/or 
    by guarantees of commercial banks, state governments or the Government, 
    and provide full recourse to the borrower. As security, applicant 
    normally requires a borrower to create a mortgage over all its assets. 
    Applicant does not normally make working capital loans. For the year 
    ending March 31, 1996, 72.9% of applicant's total income from 
    operations was from project loans (including debentures).
        5. Applicant also offers financing assistance through underwriting 
    or direct subscription of equity shares. This assistance is usually 
    offered in conjunction with project finance loans. ICICI does not 
    purchase any equity or preference shares in the secondary market. 
    Applicant also provides financing assistance through deferred credits, 
    leasing, installment sale, and asset credits. In addition, due to 
    deregulation of the Indian economy, applicant recently has expanded 
    into related financial activities such as custodian and debenture 
    trusteeship activities, transfer agent services and investment advisory 
    services (to be provided by separate subsidiaries), a merchant banking 
    joint venture, a commercial bank subsidiary, and a trust company for 
    sponsoring mutual funds.
        6. Applicant provides project and equipment loans and other 
    services to the Indian private sector, principally to industries such 
    as textiles, chemicals, fertilizers, cement, metal, machinery, and 
    transport equipment. ICICI restricts its credit exposure to specific 
    industries by imposing a per-industry lending limitation of 15% of 
    applicant's total asset portfolio. In addition, applicant's credit 
    exposure to individual companies or business groups is kept below 
    ceilings mandated by the Reserve Bank of India (the ``RBI'') for Public 
    Financial Institutions (such as ICICI) and for commercial banks.
        7. Generally, applicant does not bear any exchange rate risk with 
    respect to its foreign currency loans because it typically shifts 
    foreign exchange risk to its borrowers. All of applicant's loans and, 
    with a few exceptions, all debentures, are held by applicant to 
    maturity. Applicant does not purchase or sell loans or debentures in 
    the secondary market.
        8. The administration of ICICI is governed by the general 
    provisions of the Indian Companies Act and other statutes applicable to 
    public limited companies in India. Applicant is subject to extensive 
    regulation by both the RBI and the SEBI. ICICI is regulated by the RBI 
    as a non-bank financial institution and not as a banking institution or 
    trust company. The RBI regulates ICICI's commercial lending, issuing 
    certificates of deposit, issuing finance letters of credit, and 
    engaging in foreign currency trading. In 1994, the RBI adopted capital 
    adequacy guidelines for other types of financial institutions, which 
    are adhered to by applicant. Capital adequacy guidelines are designed 
    to protect the solvency of financial institutions by establishing 
    limits on the amount of leverage they may incur. ICICI's accounting 
    policies comply with guidelines established by the RBI. ICICI is also 
    subject to specific practice guidelines established by the RBI relating 
    to eligible clients, periodic reports, income recognition and asset 
    allocation, and rates payable on certificates of deposit (generally 
    discount instruments) and ``fixed'' deposits (generally interest 
    bearing instruments).
        9. The SEBI regulates applicant's underwriting, merchant banking, 
    asset management, custodial, and debenture trusteeship activities. The 
    SEBI prescribes conditions for the registration of these activities and 
    establishes standards of obligations and responsibilities. SEBI 
    regulations also establish requirements for underwriters and 
    underwriting agreements, require the adoption of codes of ethics, and 
    prohibit conflicts of interest and insider trading.
    
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        10. Applicant proposes to offer and sell equity and debt securities 
    in the United States. Applicant will not offer or sell any such 
    securities unless (a) they are registered under the Securities Act of 
    1933 (the ``Securities Act''), or (b) in the opinion of United States 
    counsel for applicant there is an exemption from registration under the 
    Securities Act available with respect to such offer and sale, or (c) 
    the staff of the SEC states that they would not recommend that the SEC 
    take any action under the Securities Act if the securities are not 
    registered. In February 1996, applicant sold bonds in a Euro-offering 
    in reliance on Regulation S under the Securities Act, including a 
    private placement in reliance on rule 144A under the Securities Act.
        11. Although applicant does not expect that the Government will 
    guarantee payments on the notes that applicant proposes to sell in the 
    United States, applicant states that investors would have the 
    protection afforded by both the Indian regulation of ICICI's operations 
    and the requirements of the Securities Act and the anti-fraud 
    provisions of the Securities Exchange Act of 1934.
    
    Applicant's Legal Analysis
    
        1. Section 3(a)(3) of the Act defines an investment company to 
    include any issuer engaged in the business of investing, reinvesting, 
    owning, holding, or trading in securities, and that owns or proposes to 
    acquire investment securities, having a value exceeding 40% of the 
    issuer's total assets. As of March 31, 1996, 63.4% of applicant's 
    assets consisted of obligations of industrial concerns pursuant to 
    loans made to them by applicant. Such obligations could be deemed to be 
    ``investment securities'' within the meaning of section 3(a)(3). As a 
    result, applicant may be deemed to be an ``investment company'' under 
    the Act. Applicant states that its financing activities currently fit 
    within the literal language of sections (3(c)(5)(A) and (B) of the 
    Act.\1\ However, because ICICI's activities are expanding, it may not 
    meet the requirements of section 3(c)(5) in the future. To prevent 
    uncertainty as to its status under the Act, applicant requests an order 
    pursuant to section 6(c) of the Act for an exemption from all 
    provisions of the Act.
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        \1\ Sections 3(c)(5)(A) and (B) except from the definition of 
    ``investment company'' any person who is not engaged in the business 
    of issuing certain specified securities and who is primarily engaged 
    in (A) ``purchasing or otherwise acquiring notes, drafts, 
    acceptances, open accounts receivable, and other obligations 
    representing part of all of the sales price of merchandise, 
    insurance, and services'' and (B) ``making loans to manufacturers, 
    wholesalers, and retailers of, and to prospective purchasers of, 
    specified merchandise, insurance, and services.''
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        2. Section 6(c) of the Act provides that the SEC may exempt any 
    person or transaction from any provision of the Act or any rule 
    thereunder to the extent that such exemption is necessary or 
    appropriate in the public interest and consistent with the protection 
    of investors and the purposes fairly intended by the policy and 
    provisions of the Act. Applicant requests an order under section 6(c) 
    exempting it from all provisions of the Act.
        3. Rule 3a-6 under the Act excludes foreign banks from the 
    definition of investment company for all purposes under the Act. A 
    ``foreign bank'' is defined to include a banking institution ``engaged 
    substantially in commercial banking activity'' which, in turn, is 
    defined to include ``extending commercial and other types of credit, 
    and accepting demand and other types of deposits.'' Applicant believes 
    that it is functionally equivalent to a foreign bank because it offers 
    financial services and issues financial products similar to those 
    offered and issued by traditional foreign banks, and it is subject to 
    oversight, supervision, and regulation. Because applicant presently 
    does not accept demand deposits, it may not be eligible for the 
    exemption provided by rule 3a-6.
        4. Applicant represents that RBI regulations governing its 
    activities are similar to those governing commercial banks. The 
    principal differences between RBI's regulation of non-bank financial 
    institutions and banks are the non-banks' exemption from RBI 
    regulations to minimum cash reserve ratios and statutory liquidity 
    ratios and in the RBIs authority over the appointment of directors of 
    bank boards only.
        5. Applicant argues that, as a development financial institution 
    designed to promote and provide a source of finance for industry in 
    India, it is not within the intent of the Act and its characteristics 
    different from the types of investment companies at which the Act was 
    generally directed.
    
    Applicant's Conditions
    
        Applicant agrees that the order granting the requested relief will 
    be subject to the following conditions:
        1. In connection with any offering by the applicant of its 
    securities in the United States, the applicant will appoint an agent to 
    accept service of process in any suit, action or proceeding brought on 
    the securities and instituted in any state or federal court in the City 
    or State of New York by the holder of any such securities. The 
    applicant will expressly submit to the jurisdiction of the New York 
    State and United States Federal courts sitting in the City of New York 
    with respect to any such suit, action or proceeding. Applicant will 
    also waive the defense of an inconvenient forum to the maintenance of 
    any such action or proceeding. Such appointment of an agent to accept 
    service of process and such consent to jurisdiction shall be 
    irrevocable until all amounts due and to become due in respect of debt 
    securities have been paid and until any equity securities offered in 
    the United States are no longer outstanding. No such submission to 
    jurisdiction or appointment of agent for service of process will affect 
    the right of a holder of any such security to bring suit in any court 
    which shall have jurisdiction over the applicant by virture of the 
    offer and sale of such securities or otherwise.
        2. Applicant will rely on this order only so long as (a) its 
    activities conform to the activities described in the application and 
    (b) applicant continues to be regulated by the Government as a 
    financial institution, as described in the application.
    
        For the Commission, by the Division of Investment Management, 
    pursuant to delegated authority.
    Margaret H. McFarland,
    Deputy Secretary.
    [FR Doc. 96-32719 Filed 12-24-96; 8:45 am]
    BILLING CODE 8010-01-M
    
    
    

Document Information

Published:
12/26/1996
Department:
Securities and Exchange Commission
Entry Type:
Notice
Action:
Notice of Application for Exemption under the Investment Company Act of 1940 (the ``Act'').
Document Number:
96-32719
Dates:
The application was filed on May 2, 1995, and amended on January 30, 1996, July 22, 1996, and on December 17, 1996.
Pages:
68073-68075 (3 pages)
Docket Numbers:
Rel. No. IC-22406, International Series Release No. 1038, 812-9582
PDF File:
96-32719.pdf