[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]
-----------------------------------------------------------------------
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'').
-----------------------------------------------------------------------
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
[[Page 68074]]
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.
[[Page 68075]]
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.
---------------------------------------------------------------------------
\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.''
---------------------------------------------------------------------------
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
