REVIEW & ANALYSIS OF A PROSPECTUS_POWER FINANCE CORPORATION LIMITED

Submitted byAndrea Henriques Roll No. 505 MMS II

Prospectus is a legal document that institutions and businesses use to describe the securities they are offering for participants and buyers. A prospectus commonly

provides investors with material information about mutual funds, stocks, bonds and other investments, such as a description of the company's business, financial statements, biographies of officers and directors, detailed information about their compensation, any litigation that is taking place, a list of material properties and any other material information. In the context of an individual securities offering, such as an initial public offering, a prospectus is distributed by underwriters or brokerages to potential investors. A well designed prospectus ideally would be similar to a well crafted brochure, providing readable information, but WITHOUT ANY HYPE. Prospectus can also be called an Offer Document in case of a public issue or offer for sale and Letter of Offer in case of a rights issue which is filed Registrar of companies (ROC) and Stock Exchanges. Obtaining a prospectus is relatively easy; however deciphering it is even harder. Hence for the convenience of the investor the various guidelines have been laid down in order to safeguard the right of the investor & to ensure transparency. Thus the key information in the Prospectus are as followsInvestment Objectives, Shareholder Information -- The prospectus provides information relating to the purchase and redemption of fund shares. Minimum account balances and tax consequences of buying, selling, holding, or exchanging shares of the fund are listed in this section of the prospectus. Risks -- include any lack of business operating history, any past problems with the company or members of its management, any adverse economic conditions in the companys particular industry, the companys competitive disadvantages, the regulatory structure and dangers in the event of non-compliance, any lack of a market for the securities offered, and the lack of assurance that there will be a market, the "dilution" between the price the new shareholders are paying and the low price the insiders bought their shares at, and dependence upon key personnel. Performance Information of the company; Fees and Expenses -- The prospectus lists the shareholder fees and the annual operating expenses of the fund. Financial Highlights -- The financial highlights section need to be included which has been audited by an independent certified public accountant. TYPES OF PROSPECTUS Draft Offer document: Draft Offer document means the offer document in draft stage. The draft offer documents are filed with SEBI, at least 21 days prior to the filing of the Offer Document with ROC/SEs. SEBI may specifies changes, if any, in the draft Offer Document and the issuer or the Lead Merchant banker shall carry out such changes in the draft offer document before filing the Offer Document with ROC/SEs. Red Herring Prospectus Red Herring Prospectus is a prospectus which does not have details of either price or number of shares being offered or the amount of issue. This means that in case price is not disclosed, the number of shares and the upper and lower price bands are disclosed. On the other hand, an issuer can state the issue size and the number of shares are determined later. An RHP for an FPO can be filed with the RoC without the price band and the issuer, in such a case will notify the floor price or a price band by way of an advertisement one day prior to the opening of the issue. In the case of book-built issues, it is a process of price discovery and the price cannot be

determined until the bidding process is completed. Hence, such details are not shown in the Red Herring prospectus filed with ROC in terms of the provisions of the Companies Act. Only on completion of the bidding process, the details of the final price are included in the offer document. The offer document filed thereafter with ROC is called a prospectus. Abridged Prospectus Every set of two applications should accompany the memorandum containing salient features of Abridged Prospectus (Form No. 2A). This memorandum is required to be signed by all the directors who have signed the main prospectus and is not required to be filed with Registrar of Companies. SEBI (Disclosure and Investor Protection) Guidelines, 2000 prescribes the guidelines for Abridged Prospectus. The accountability and responsibility of the Abridged Prospectus is with the SEBI Registered Category I Merchant Banker. Letter of offer Letter of offer means the offer document prepared by company for its rights issue and which is filed with the Stock Exchanges. The letter of offer contains all the disclosures as required in term of SEBI (DIP) guidelines and enable shareholder in making an informed decision.

VARIOUS GUIDELINES FOR A PROSPECTUS Companies Act 1956 SEBI Guidelines 2000 Cover Pages Front Outer Cover Page - The name and address of the registered office of the company, telephone, fax number and E. mail address. - The nature, number, price and amount of the instruments offered. - The Risks in relation to the first issue - Issuers Absolute Responsibility - The name and address of the Registrar to the issue - Issue Opening Date - Credit Rating, if applicable - Name/s of stock exchanges where listing of the securities is proposed and the details of inprinciple approval for listing obtained from these stock exchanges Front Inside Cover Page - Index of the contents Inner Cover Pages - The other risk factors Back Cover Pages

Cover page No provision

PART I General Information General Information - Disclaimer Clause (from SEBI, Merchant Banker) No provision - Filing of offer document with the Board and Disclaimer/Compliance Officer RoC - Intermediaries and auditors - Compliance Officer Capital Structure of the company Capital structure of the - Notes to Capital Structure company - Promoters contribution and lock-in period Terms of the present issue - Details regarding major shareholders No provision re: Promoters` Terms of payments Project Cost Contribution/lock in period - Means of financing - Appraisal History and main objects and present business of the company Promoters and their Background - Key Managerial Personnel - Names, address, occupation of manager, Company management and directors (their directorships in other project companies) No provision re Key personnel Location of the Project - Collaboration, any performance guarantee or assistance in marketing by the collaborators - Schedule of implementation of the project and progress made so far Future prospects Stock Market Data Management Discussion and Analysis of the Financial Condition and Results of the Operations as Reflected in the Financial Statements. Financial of Group Companies Management perception of risk Promise vis--vis Performance - Issuer factors Company - Listed Ventures of Promoters Basis for Issue Price Outstanding litigations or Defaults Risk factors and management perception Disclosure on Investor Grievances and Redressal System PART II General Information PART II - Consent of directors, auditors, solicitors/ General information advocates etc - Consent of directors, auditors, - Financial Information solicitors/advocates etc - A report by the auditors - Financial information Statutory and other information Statutory and other information Revaluation of assets, if any (during last five Material contracts and years) inspection of documents Material contracts and inspection of documents

ANALYSIS OF POWER FINANCE CORPORATION LIMITED Cover Page Basic Information The cover page of the prospectus clearly mentions that the prospectus is currently governed by the following rules and regulations: - Companies Act 1965; - Listing Rules of the stock exchanges; and - Securities Commission's "Policies and Guidelines on Issue/Offer of Securities The PROMOTER information has been provided followed by the OFFER DETAILS. It mentions the securities being sold, in this case equity share of Face value Rs. 10/-. The number of equity shares 229,553,340 at a price of Rs. 203/- per share & at a premium of Rs. 193/-. Further information is provided regarding reservation of a certain number of shares, in this case the company has reserved 275,464 for eligible employees. A small paragraph has been provided on the GENERAL RISKS were the company urges Bidders to read the Risk Factors carefully before making an investment decision in this Issue. Listing information has been provided that the company has been listed on the NSE and the BSE, followed by the date of listing, that being, April 4, 2011 and March 31, 2011 respectively. The prospectus clearly discloses the BOOK RUNNING LEAD MANAGERS, the company had selected 4 lead managers to overlook the issue namely, DSP Merrill Lynch Limited, Goldman Sachs (India) Securities Private Limited, ICICI Securities Limited & JM Financial Consultants Private Limited. BID/ISSUE PROGRAMME mentions the open & close dates for various types of investors. The company has mentioned to different close dates for QIB Bidders & for Non QIB Bidders.

Key Information Summary Key information includes the following: General description of the IPO company, its business activities, promoters and substantial shareholders, and key management; Summary of the IPO company's financial information, including its prospects and outlook; Summary of risk factors affecting or which may affect the business and financial performance of the IPO company; and Summary of share capital, issue or offer statistics, indebtedness and proceeds to be raised from the public

Business Information The key to determining how successful the IPO Company is going to be is by finding out about what it does and who its competitors are. You might also ask whether the IPO Company has patented products or niche products, as this would give it an edge

over its rivals. These and other questions should be answered in the Business Information section. This is a heavy read as preparers of an IPO prospectus would assume the reader is finding out about the company for the first time and may just pour out all the facts about the company's history, corporate structure, activities and operations so as to give a big picture of what the company is all about. The information provided in this section would include the following: background of the industry or sector(s) including the characteristics of the industry or sector(s) in which the IPO company operates; Prospects of the industry or sector(s) concerned; Type of products/services sold; Customers and suppliers of the IPO company; Technology, production methods and distribution channels adopted; and Commercial aspects such as retail network, agencies, distributorship, brand names, franchises, licenses, patents and research and development capabilities. Financial Information The Financial Information section is a key part of the prospectus and is generally divided into: Historical financial information; and Future financial information. Historical financial information usually comprises a summary of the audited Profit and Loss Account, Cash Flow Statement and Balance Sheet of the company (on a consolidated basis), as extracted from the Accountant's Report in the appendices of the prospectus. The information is provided with explanatory text (Note to Accounts) and analysis of past financial performance. Future financial information has been covered by forecasts on the following: Turnover; Pre-tax profit before minority interest; Pre-tax profit after minority interest; After-tax profit; and Gross and net dividend rates/amount. From the forecast profit, and the offer price of the shares of the IPO company, has been computed by the prospective price-earnings multiple of the IPO company. There is also a segment on analysis of turnover and profits by subsidiary/associated companies, products/services and markets/geographical locations in both the historical and forecast financial information. Shareholders, Directors and Management The prospectus provides adequate information on the following groups: Substantial shareholders and promoters of the IPO company, including the names and shareholdings of individuals behind the IPO company; Board of directors including their representation and details of each director's qualification, experience and area of responsibility, and whether they are executive or non-executive directors; and Key management staff below the level of directors, detailing their

qualification, experience, and areas of responsibility. Risk Considerations Risk factors relevant to the business, industry and financial performance of the IPO Company can be of a general nature or specific to the company. General risks include in this section are: The fall and rise in prices of securities depending on stock market conditions Changes in government policies; Foreign exchange risks; Climatic conditions; and Volatility in interest rates. Materialization of contingent liabilities. Increase in competition On account of economic slowdown Inability to raise foreign currency borrowings Terrorist attacks, civil unrest and other acts of violence or war involving India and other countries Outbreak of an infectious disease or any other serious public health concerns in Asia or elsewhere Risk considerations which are specific to the company are mentioned as follows: Dependency on key personnel; Emergence of new competitors or players in the industry; and Specific litigation that has started or brought before the court. Performance of Non performing assets Inability to maintain a low effective cost of funds Inability to develop or implement effective risk management policies and procedures which could expose them unidentified risks or unanticipated levels of risk Risk of non-recovery of loans Unable to recover costs incurred on the Ultra Mega Power Projects ("UMPPs") and Independent Transmission Projects ("ITPs"). Inability to attract and retain management team and skilled personnel Above are few of the risks mentioned in the prospectus. It has also been mentioned how the directors of the company propose to deal with or reduce the impact of the risk factors identified. CONCLUSION An IPO prospectus may be a lengthy document to read. As for any document that is contractual in nature, we should not forget to read all the fine prints. This means the footnotes, small print and "Notes to the Accounts" in the prospectus. However, it can help you to better understand the company in which you may decide to put your money.

BIBLIOGRAPHY

Prospectus for the Public Offering of Securities in Europe by Dirk Van Gerven Power finance Corporation Ltd Prospectus www.bseindia.com www.sebi.gov.in ipo.nasdaq.com