GOVERNMENT OF INDIA MINISTRY OF FINANCE DEPARTMENT OF DISINVESTMENT ENGAGEMENT OF BOOK RUNNERS-CUM-LEAD MANAGERS (BRLMs) FOR DISINVESTMENT IN BHARAT HEAVY

ELECTRICALS LIMITED (BHEL) THROUGH DOMESTIC OFFERING 1. Introduction 1.1 Bharat Heavy Electricals Limited (BHEL) is a public sector undertaking under the administrative control of the Ministry of Heavy Industries and Public Enterprises, Department of Heavy Industry. BHEL is a manufacturing company engaged in the energy-related/infrastructure sector. The main products manufactured by the company cater to the power generation & transmission industry, transportation, telecommunication etc. The paid-up capital of the company as on 31.03.2005 is Rs.244.76 crore. The Government of India holds 67.72% equity of the company and the public/institutions/FIIs hold the balance. The shares of the company are listed on the stock exchanges in India. 2. Government decision 2.1 The Government of India (GOI) intends to disinvest out of its 67.72% equity shareholding in Bharat Heavy Electricals Limited (BHEL), equity shares to the extent of 10% of BHELs equity through book building process in the domestic market. Upto 15% of the offered shares would be reserved for the employees of BHEL. Expressions of Interest are invited, by 17.30 Hrs. (IST) 11th July 2005, from reputed merchant bankers/investment bankers,either singly or as a consortium, with specific expertise in disinvestment through capital market offerings to act as Book Runners-Cum-Lead Managers (BRLMs), to assist and advise the Government in this process. 3. Responsibilities of the Book Runners-Cum-Lead Managers (BRLMs)

3.1 The Book Runners-Cum-Lead Manager (BRLMs) would be required, inter alia, to undertake tasks related to all aspects of the offering, including but not restricted to: (i) (ii) (iii) Advising the Government on the timings and the modalities of the capital market offer Ensuring best returns to the Government. To advise and assist the Government in identification and selection of legal advisors, accountants, other intermediaries and coordinate their work under the guidance of the Government, complete due-diligence, draft offering documents, red herring prospectus, etc. for the issue. Pre-market survey, road shows, book building and generation of interest amongst prospective investors. Undertaking market research along with pricing and allocation of shares and after sale support. Guide and facilitate in obtaining necessary approvals, completion of regulatory requirements. Performing all other responsibilities connected with such offerings. Underwriting connected with the offering.

(iv) (v) (vi) (vii) (viii)

(ix)

Undertaking the task of printing and distribution of stationery as per details given in Annexure I and to ensure that the stationery is printed in sufficient quantity and delivered to the centres well in advance.

3.2 Since it is desirable for Government to have two BRLMs, having adequate experience in similar offerings, Government would select two parties who together would form a team and will be called BRLMs. The BRLMs selected may have to form a syndicate including co-managers in consultation with the Government. 4. Submission of Expression of Interest 4.1 Reputed merchant bankers/investment bankers with adequate and specific expertise in disinvestment through capital market offering are invited to submit Expressions of Interest either singly or as a consortium for selection as Book Runners-Cum-Lead Managers (BRLMs) to Shri V.P. Gupta, Under Secretary, Department of Disinvestment, Room No.209, II Floor, Block No.11, CGO Complex, New Delhi-110 003. The bidders would be required to deposit along with the Expression of Interest, a non-refundable earnest fee of INR 40,000 by way of a demand draft drawn in favour of Pay and Accounts Officer, Ministry of Finance, Department of Disinvestment, New Delhi payable at Delhi. GOI reserves the sole right to accept or reject any or all Expressions of Interest without assigning any reasons therefor. Together with the Expression of Interest, the following details are to be sent: (A) Background of the firm:(i) Full particulars of the constitution, ownership and main business activities of the prospective Book Runners-Cum-Lead Managers (BRLMs). In case of consortium bids, the particulars of the coordinating firm having the principal responsibility for the mandate as well as those of other partners may be furnished. Unabridged Annual Reports or audited financial accounts for the last three years of all the partners. Details of the pending litigation and contingent liabilities, if any, that could affect the performance of the bidder under the mandate, as also details of any past conviction and pending litigation against sponsors/partners, Directors etc., and any areas of possible conflicts of interest. Details of Domestic issues managed as Lead Manager/Book Runner or Co-Lead Manager/Co-Book Runner, in respect of issue size of more than Rs.100 crore are to be furnished in the format given in Annexure-I. Understanding of the Company Details of understanding and SWOT analysis of BHEL may be furnished. (C) Experience and presence in India A brief note evidencing the prospective Book Runners-Cum-Lead Managers (BRLMs) strength in India indicating the number and addresses of offices, manpower and investment, if any, in the Indian capital market as follows: (a) (b) Commitment to India, indicating net investment in Indian capital market The quality and quantity of presence in India with specific reference to research team

(ii) (iii)

(iv)

(B)

(c) (D)

Number and places of offices with address, manpower with the investment banking team.

Broad Scheme for the issue a) b) c) d) e) Optimal syndicate structure suggested to maximize quality and quantity of demand. Proposal on syndicate incentivisation. Strategy for pre-marketing. Proposed Road Show venues and reasons for suggesting the same. Commitment(s) which may act either as a constraint or as a conflicting interest to your involvement in the proposed issue Manpower commitment

(E)

Details of team who will be handling the proposed issue, their status in the organization, their background, qualification, experience and present addresses. An undertaking may also be given that if during the process, any of the team members is not available by way of resignation, etc. another person of the same qualification and experience would be made available after informing the Department of Disinvestment. (F) Marketing and Demand Analysis Details of the following should be furnished: a) b) c) d) (G) Equity sales and distribution capacity with demonstrated capability of selling Indian issues in particular, Asian equity and global equity along with distribution network. Demand analysis as projected and details of sectors influencing demand. Strategy for marketing shares and identification of target investor groups. Identification of key selling points. Valuation Methodology

Details of the valuation methodology to be followed in determining the final pricing of the issue, indicating clearly the pricing level proposed to be underwritten. (H) Quality of Research Research strength in the country, sector, region, world based on rating as established by independent global surveys. Details should be given relating to research capabilities and experience and background of the research team. (I) After-market support Strength in lending after market support, with specific reference to Indian issues managed in the past. Underwriting capabilities

(J)

Underwriting capabilities including details of capital base of the Investment Bank available to support such underwriting, record of past underwriting commitments and experience. Also, the details of any of the underwriting commitments (including hard underwriting), which could not be met, may also be furnished. (K) Time Schedule

A realistic time schedule for launching the proposed Domestic issue with complete break up of activities to be undertaken by various agencies involved in the issue. 4.2 All the information sought above, and any other additional information considered necessary by the bidder, should be sent, in 3 copies, maximum of 10 pages (font size 12) to the officer mentioned in para 4.1 as a part of the Expression of Interest (EOI).

5.

Eligibility

5.1 Bidders should have had handled domestic equity issues in respect of issue size of more than Rs.100 crore in Book Building process. 5.2 Government of India has issued guidelines prescribing certain qualifications for Advisors for disinvestment process. A copy of the guidelines (OM No. 6/4/2001-DD-II dated 13th July, 2001) is enclosed (Annexure-II). The interested parties are requested to carefully go through the guidelines and after satisfying that they are qualified to act as BRLMs, furnish the following certificate as a part of the proposal/EOI. We certify that there has been no conviction by a Court of Law or indictment/adverse order by a regulatory authority for a grave offence against us or any of our sister concern. It is further certified that there is no investigation pending against us or our sister concern or the CEO, Directors/Managers / Employees of our concern or of our sister concern. It is certified that no conflict of interest exists as on date and if in future such a conflict of interest arises we will intimate the Government of India of the same. 6. Presentation

6.1 Qualified interested parties would be required to make a presentation of their credentials and the proposed transaction, before an Inter-Ministerial Group (IMG) at New Delhi in the Committee Room of Department of Disinvestment, Room No.515, Block No.14, CGO Complex, New Delhi-110003. The exact date and time of the presentation will be intimated separately. The parties will be assessed broadly on the following criteria: a) b) c) d) e) f) g) h) Experience and capabilities in handling similar transactions as Book Runners-cum-Lead Managers. Sector expertise and experience. Understanding of BHEL. Deal team qualification and manpower commitment to the deal. Marketing strategy and after market support. Local presence and level of commitment to India. Global presence and distribution capabilities. Research capabilities.

6.2 Immediately after their presentation is over, the parties are required to hand over a sealed envelope containing the fee quotes mentioned in para 7 below to the Convener of the Inter-MinisterialGroup. The fee quoted should be unconditional and gross of all taxes. 7. Fee

7.1 The Book Runners-Cum-Lead Managers (BRLMs) will need to quote a fee for the domestic issue as a percentage of disinvestment proceeds through domestic offering in a sealed envelope. The fees should also include the expenses for the printing and distribution of the stationery as defined in para 3.1 (ix) above. The fee quoted should be unconditional and gross of all taxes. A drop dead fee if any, payable in case Government abandons the offering at any stage after the process has been started by the Advisors, may also be indicated separately. 7.2 The bid should be unconditional. Expenditure on account of fees to legal/accounting or any other consultant appointed by GOI, should not be included in the financial bid. Expenses of Road Shows, conferences and travel, boarding and lodging, only of Government/BHEL officials will be borne by the Government. The Book Runners-Cum-Lead Managers (BRLMs) will, however, pay the travel related expenses and all the other expenses including those related to their due diligence, their road show expenses and pre-marketing expenses in connection with the offerings, expenses of legal counsels, accountants and other experts appointed by them for communication and for preparation of offering circular and prospectus, etc. The Book Runners-Cum-Lead Managers (BRLMs) will be liable to pay taxes for their professional services as per laws of the land. 7.3 Government would select two parties and both of them would work as a team. Both the selected parties would be called Book Runners-Cum-Lead Managers. The Book Runners-Cum-Lead Managers (BRLMs) selected will also have to form a syndicate including co-managers in consultation with Government. The fee quoted by the BRLM shall include provisions for the other BRLM and syndicate members who would be included, in consultation with Government. For removal of any doubt it is further clarified that the fee quoted by the selected BRLM would be shared equally between the two Book Runners-Cum-Lead Managers so appointed by Government. 8. Procedure for Selection of the Book Runners-Cum-Lead Managers (BRLMs) 8.1 Based on the Expression of Interest received from the interested parties, Government would request them to make a presentation before an Inter-Ministerial Group (IMG) constituted by Government. 8.2 The IMG would evaluate the parties based on their presentation and shortlist them for the purpose of opening their financial bids. The L1 party would be selected for the transaction and the L2 party would be required to match the fees quoted by L1. In case L2 does not accept the offer, Government will make the offer to L3 and the process will continue till Government appoints two Book Runners-Cum-Lead Managers. 8.3 The two Book Runners-Cum-Lead Managers (BRLMs) selected by Government would work as a team and both the selected Book Runners-Cum-Lead Managers (BRLMs) would be called Book RunnersCum-Lead Managers. The two Book Runners-Cum-Lead Managers would share the aforesaid fees equally. 9. Further Clarifications, if any

9.1 If any further clarification is needed about the assignment, the under-mentioned officer may be contacted. Shri V.P. Gupta

Under Secretary Ministry of Finance Department of Disinvestment II Floor, Block No.11 CGO Complex, Lodi Road New Delhi - 110 003 Tel. 011-2436 8036 Fax 011-2436 6524 e-mail: vp_gupta@hub.nic.in

Annexure I STATIONERY FOR THE ISSUE OF BHEL Sr. 1 2 3 4 5 Description DRAFT PRELEMINARY SALE DOCUMENT PRELEMINARY SALE DOCUMENT (ORDINARY & SPECIAL) FINAL SALE DOCUMENT BID CUM APPLICATION FORM with Memorandum in Book form (RESIDENT/NRI/EMPLOYEES) POSTERS/BANNERS

Annexure-II Details of Domestic Issues Parameters 2001 No. of Mandates and Value 2002 No. of Mandates and Value 2003 No. of Mandates and Value 2004 No. of Mandates and Value (Value Rs. in Crore) 2005 Total No. of Mandates and value

INDIAN ISSUES (a) (b) Equity Debt Issues

Issues pulled out/withdrawn pre or post road shows Note: Please indicate if you are engaged in any ongoing market transaction in the power sector.

Annexure-III No. 6/4/2001-DD-II GOVERNMENT OF INDIA DEPARTMENT OF DISINVESTMENT

Block 14, CGO Complex, New Delhi Dated 13th July 2001. OFFICE MEMORANDUM Subject: Guidelines for qualification of Advisors for disinvestment process Government has examined the issue of framing comprehensive and transparent guidelines defining the criteria for selection of Advisors, so that the parties selected through competitive bidding inspire public confidence. Earlier, a set of criteria like sector experience, knowledge, commitment etc. used to be prescribed. Based on experience and in consultation with concerned departments, Government has decided to prescribe the following additional criteria for the qualification/disqualification of the parties to act as Advisors to the Government for the disinvestment transactions: (a) Any conviction by a Court of Law or indictment / adverse order by a regulatory authority for a grave offence against the Advising concern or its sister concern would constitute a disqualification. Grave offence would be defined to be of such a nature that it outrages the moral sense of the community. The decision in regard to the nature of offence would be taken on a case-to-case basis after considering the facts of the case and relevant legal principles by the Government. Similarly, the decision in regard to the relationship between the sister concerns would be taken, based on relevant facts and after examining whether the two concerns are substantially controlled by the same person/persons. (b) In case such a disqualification takes place, after the entity has already been appointed as Advisor, the party would be under an obligation to withdraw voluntarily from the disinvestment process, failing which the Government would have the liberty to terminate the appointment / contract. (c) Disqualification shall continue for a period that Government deems appropriate.

(d) Any entity, which is disqualified from participating in the disinvestment process, would not be allowed to remain associated with it or get associated merely because it has preferred an appeal against the order based on which it has been disqualified. The mere pendency of appeal will have no effect on the disqualification. (e) The disqualification criteria would come into effect immediately and would apply to all the Advisors already appointed by the Government for various disinvestment transactions, which have not yet been completed. (f) Before disqualifying a concern, a Show Cause Notice why it should not disqualified would be issued to it and it would be given an opportunity to explain its position.

(g) Henceforth, these criteria will be prescribed in the advertisements seeking Expressions of Interest (EOI) from the interested parties to act as Advisor. Further, the interested parties shall be required to provide with their EOI an undertaking to the effect that no investigation by a regulatory authority is pending against them. In case any investigation is pending against the concern or its sister concern or against the CEO or any of its Directors/Managers/Employees, full details of such investigation including the name of the investigating agency, the charge/offence for which the investigation has been launched, name and designation of persons against whom the investigation has been launched and other relevant information should be disclosed, to the satisfaction of the Government. For other criteria also, similar undertaking will be obtained along with EOI. They would also have to give an undertaking that if they are disqualified as per the prescribed criteria, at any time before the transaction is completed, they would be required to inform the Government of the same and voluntarily withdraw from the assignment. (h) The interested parties would also be required to give an undertaking that there exists no conflict of interest as on the date of their appointment as Advisors in handling of the transaction and that, in future, if such a conflict of interest arises, the Advisor would immediately intimate the Government of the same. For disinvestment proposes, conflict of interest is defined to include engaging in any activity or business by the Advisor in association with any third Party, during the engagement, which would or may be reasonably expected to, directly or indirectly, materially adversely affect the interest of Government of India or the Company (being disinvested) in relation to the transaction, and in respect of which the Advisor has or may obtain any proprietary or confidential information during the engagement, that, if known to any other client of the Advisor, could be used in any manner by such client to the material disadvantage of Government of India or the Company (being disinvested) in the transaction. The conflict of interest would be deemed to have arisen if any Advisor firm/concern, has any professional or commercial relationship with any bidding firm / concern for the same disinvestment transaction during the pendency of such transaction. In this context, both Advisor firm and bidding firm would mean the distinct and separate legal entities and would not include their sister concern, group concern or affiliates etc. The professional or commercial relationship is defined to include acting on behalf of the bidder or undertaking any assignment for the bidder of any nature, whether or not directly related to disinvestment transaction. (i) On receiving information on conflict of interest, the Government would give the option to the Advisor to either eliminate the conflict of interest within a stipulated time or withdraw from the transaction and the Advisor would be required to act accordingly, failing which Government would have the liberty to terminate the appointment/contract. Sd/(A.K. Tewari) Under Secretary to the Government of India