India - Industrial Credit And Investment Project : Loan 0109 - Press Release - Conformed

FRESS RELEASE NO. 387 SUBJECT: Bank enters Formal Agreement to lend March 14, 1955 $10 million to Indian Corporation. The World Bank today entered into a formal agreement to lead $10 million to the Industrial Credit and Investment Corporation of India, Limitedp a corporation newly famed by private investors of India, the United Kingdom and the United States to assist the growth of private industry in India. The new Corporation will make long and medium term loans to industrial enterprisesi purchase shares of industrial enterprises; undcrwrite nwi issues of securities; guarantee loans by other investors; and help industry to obtain managerial, technical and administrative advice and assistance. A5 rapidly as is prudent, the Corporation will sell its loans and share holdings to other investors, thereby expanding the capital market aRnd recovering its own capital for further investment. The Corporation is the outgrowth of discussions conducted in India last year by Mr. George D. Woods, Chairman of The First Boston Corporation, and Mr. Robert H. Craft, Executive Vice President of the American Securities Corporation, at the instance of the World Bank. Mr. Woods and Mr. Craft, accompanied by a member of the Bank's staff, visited India in February 1954 to explore with Indian industrial leaders and with the Government the possibility of establishing such an institution. During their visit, the main outlines of the Corporation were agreed upon and a steering comittee of prominent Indian industrialists was established to draw up detailed plans. Subsequently, British and American investors became interested in joining with Indian investors to provide equity capital for the new institution. In December 1954 the Bank announced that it would make a loan of $1C million as soon as the Corporation had come into being. The Corporation was established under -2- Indian law on January 5, 1955, and was given Euthority to commence business on March 2 of this year. The Cornoration's initial share capital amounts to 50 million rupees (equivalent to $10.5 million), of which Indian investors hold 35 million. Of the Indian subscription, rupees 20 million was privately placed; the remainder was sold in the first half of February through a public offering which was oversubscribed. British investors -- some of the Eastern Exchange Banks, the Commonwealth Development Finace Com7any, Ltd., several insurance companies and industrial firms- have rubscribed 10 million rupees ($2.1 million) of the Corporation's share capital. Ame.lcan investors -- the Bank of America, the Rockefeller brothers, Olin Nathieson Chemical Corp. and Westinghouse Electric International Corporation, have subscribed 5 million rupees (41,050P000). In addition, the Government of India has made a long-term, interest-free advance of 75 million rupees ($15,750,000) to the Corporation. The Corporation's offices have been established in Bombay; and P. S. Beale, formerly Chief Cashier of the Bank of England, has taken up his duties as General Manager of the Corporation. The Board of Directors is zs follo-s: Sir Ramaswami Nudaliar of Madras, Chairman; A. D. Shroff of Bombay; G. D. Birla of Calcutta; Kasturbhai Lalbhai of Bombay; Sir Biren Mookerjee of Calcutta; J. G. Beevor of the Comonealth Development Finance Company, Ltd.; Sir William Cockburn of the Chartered Bank of India, Australia and China; Russell Smith of the Bank of America; Dharamsey Khatau of Bombay; Sir Badridas Goenka of Calcutta; and S. Bhootalingam of the Government of India. The Bank's loan iE cuaranteed by the Government of India. it is for a term of 15 years and bears interest of 4-5/8f per annum. The proceeds will be used for purchases -of imported equipment, materials and services needed to carry out projects financed by the Corporation. The loan documents were signed for the Bank by Eugene R. Black, President, and His Excellency G. L. Mlehta, Ambassador of India in the United States, signed the Guarantee Agreement for the Government of India. Officers of the Industrial Credit and Investment Corporation of India, Ltd., had already Figned the Loan Agreement and forwarded it to Washinyton. 1) WOR L D 8SAN k 1818 H STREET, N.W., WASHINGTON 25, D. C. TELEPHONE EXECUTIVE 3-6360 PRESS RELEASE NO. 382 FOR RELEASE SUBJECT: Bank approves $10 million loan A.M. Newspapers to Industrial Credit and Invest- Thursday, December 23, 1954 ment Colp. of India, Ltd. The World Bank has approved a loan of $10 million which will be made to the Industrial Credit and Investment Corporation of India, Limited, a corporation being formed by private investors for the purpose of assisting the growth of pri- vate industry in India. It is expected that the Corporation will be established in January 1955, at which time the Bank will enter into a formal loan agreement. Private investors from India, the United Kingdom and the United States will subscribe the initial share capital of the Corporation, which will be 50 million rupees ($10,500,000). A group of five prominent Indian industrialists and finan- ciers are arranging for the sale of 35 million rupees ($7,350,000) of share capi- tal in India, partly through private placement and partly by public offering. The British investors - some of the Eastern Exchange Banks, the Commonwealth Development Finance Company, Ltd. and several insurance companies and industrial firms - will subscribe 10 million rupees ($2,100,000) of capital. American in- vestors are the Bank of America, the Rockefeller brothers, Olin Mathieson Chemical Corp. and Westinghouse Electric International Corporation; they will subscribe 5 million rupees ($1,050,000) of share capital. In addition, the Government of India will make an interest-free advance of 75 million rupees ($15,750,000) to the Corporation. The new corporation will make long and medium term loans to industrial enter- prises; purchase shares of industrial enterprises; underwrite new issues of secu- rities; guarantee loans from other investment sources; and help industry to obtain managerial, technical and administrative advice and assistance. As rapidly as is prudent, the Corporation will sell its loans and share holdingsts other investors, thereby expanding the capital market and recovering its own capital for further investment. Lack of risk capital has always been an impediment to the growth of industry in India. While substantial investments were possible during World War II and the period immediately following, since 1948 it has been difficult for even the largest and best established cc-cerns to raise new capital in the Indian markets, and even these ccrcerns have had to rely mainly on issues of fixed-interest secu- rities rather than of equity capital. The First Five-Year Plan (1951-1956) relied to a great extent upon private enterprise to bring about the industrial expansion thought necessary. Both new investment and investment envisaged for modernization and renewal of plant and equipment, however, have been below the level hoped for. -2- The nature of the new corporation and its sponsorship by leading financial institutions in India and abroad, should enable it to tap funds in India not at present being made available to industry, and in due course to increase the flow of foreign investment into India. Furthermore, its powers to underwrite new issues will fill a gap in the Indian capital market. The corporation will bene- fit the Indian economy not only by the direct financing of industry, but also in other ways of equal importance. Through its connections abroad it will be in a position to help Indian industry to meet its needs for technical knowledge and managerial experience, which are almost as pressing as the need for finance. The possibilities of establishing a privately-owned corporation which would encourage the growth of industry in India, were first discussed at the end of 1953. In February 1954 a mission organized by the World Bank visited India to explore the matter further with Government officials and leading businessmen; the mission included George Woods of the First Boston Corporation and Robert Craft of the American Securities Corporation. The main outlines of the Corpora- tion were agreed upon during that visit, and a Steering Committee of five promi- nent Indian businessmen was set up to formulate definite plans for its organiza- tion. Meanwhile, the World Bank explored the possibility of obtaining private British and American participation in the corporation's equity capital. Repre- sentatives of the Steering Committee, the Government of India and of the British and American investors met with World Bank officials in Washington in October 1954 and reached agreement on all points of substance and on drafts of all docu- ments. It is expected that the initial Board of Directors of the Corporation will include Sir Ramaswami Mudaliar (prominent public figure and businessman of Madras), Sir Biren Mookerjee (Martin Burn, Ltd. of Calcutta), Kasturbhai Lalbhai (Bombay textile mill owner), A. D. Shroff (Tata & Sons Ltd. of Bombay), G. D. Birla (Birla Bros., Ltd. of Calcutta), W. R. Cockburn (Chartered Bank of India, Australia & China), J. G. Beevor (Legal and General Assurance Society, Ltd. and Commonwealth Development Finance Company, Ltd.) and Russell Smith (Bank of America). The Government of India will also appoint a Director. The General Manager of the Corporation will be P. S. Beale, who is resigning his position as Chief Cashier of the Bank of England to accept this appointment. The authorized capital of the Corporation will be 250 million rupees ($52.5 million) divided into 500,000 Ordinary shares (common stock) and 2,000,000 unclassified shares, all with a par value of 100 rupees each. Initially, the Corporation will issue only the Ordinary shares of 50 million rupees ($10.5 million) which will be offered for subscription in cash at par. Investors in the United Kingdom will subscribe to 100,000 shares, and investors in the United States, to 50,000 shares. The remaining 350,000 shares will be sold in India; it is expected that 150,000 will be sold by private placement and 200,000 will be offered for public subscription. The Government of India will make a 30-year advance of 75 million rupees ($15,750,000) to the Corporation, free of interest and repayable in fifteen equal annual instalments, beginning in the sixteenth year. This advance will be provided out of funds derived from the proceeds of the sale of steel supplied by the Foreign Operations Administration of the United States, and will be made to the Corporation when the share capital has been subscribed. The proceeds of the $10 million World Bank loan will be used for the pur- chase of imported material, equipment and services needed to carry out private industrial projects financed by the Corporation. The loan will be for a term of 15 years and bear interest of 4-5/8% per annum, including the statutory 1% commission charged by the Bank. Amortization will begin January 1, 1960. The Government of India will guarantee the loan. -3- This will be the seventh loan made by the Bank for development projects in India, and will bring the total lent to $126.7 million. The other loans were for the development of electric power, agriculture, railways and iron and steel production. Supplement to Press Release on World Bank Loan to Industrial Credit and Investment Corporation of India, Limited The British group subscribing to the equity capital of the Industrial Credit and Investment Corporation of India, Limited includes: 1. Eastern Exchange Banks Chartered Bank of India, Australia & China Hongkong & Shanghai Banking Corporation Mercantile Bank of India National Bank of India The Eastern Bank The British Bank for the Middle East Lloyds Bank (Eastern Department) Grindlays Bank 2. British Insurance Companies Alliance Assurance Company Limited Atlas Assurance Company Limited Caledonian Insurance Company Century Insurance Company Limited Commercial Union Assurance Company Limited Eagle Star Insurance Company Limited Employers' Liability Assurance Corporation Limited Gresham Life Assurance Society Limited Guardian Assurance Company Limited Legal & General Assurance Society Limited London Assurance London & Lancashire Insurance Company Limited National Employers' Mutual General Insurance Association Limited New Zealand Insurance Company Limited North British & Mercantile Insurance Company Ltd. Northern Assurance Company Limited Norwich Union Fire Insurance Society Limited Norwich Union Life Insurance Society Pearl Assurance Ccmpany Limited Phoenix Assurance Company Limited Prudential Assurance Company Limited Royal Insurance Company Limited Royal Exchange Assurance Scottish Union & National Insurance Company South British Insurance Company Limited Sun Insurance Office Limited Sun Life Assurance Company of Canada Union Insurance Society of Canton Limited Western Assurance Company Yorkshire Insurance Company Limited 3. The Commonwealth Development Finance Company Limited (Cont'd) h . 1-ther industrizl il 1:anie: in the U . Asocia ted e::1trical IIndutricu Ltd. Inglis3h 1xletric '1a:pany L td. ienerLI Zle tri c :01llany Ltd. Guet, Keen & Iettlef->d Ltd. Graiy .fawee & C lA.pany