Registered Office: HMT Bhavan, 59, Bellary Road, Bangalore-560 032, INDIA

INFORMATION MEMORANDUM

HMT LIMITED

Registered Office: HMT Bhavan, 59, Bellary Road, Bangalore-560 032, INDIA

(Incorporated on 7th February, 1953 as Private Limited Company under the Indian Companies Act, 1913 and converted as a Public Limited Company under the Companies Act, 1956)

Tel.: (080) 23330333 Fax.: 91-80-23339111

Website: E-Mail:

Private Placement of Government of India Guaranteed Redeemable Non-Convertible Bonds

in the nature of Debentures of Rs. 10,00,000/- each for cash at par

aggregating Rs. 40.40 crores

GENERAL RISK: Investors are advised to read the Risk Factors carefully before taking an investment decision in this offering. For taking an investment decision, the investors must rely on their own examination of the Issuer and the Offer/ Issue including the risks involved. The Offer/ Issue being made on private placement basis, this Information Memorandum has not been filed with Securities & Exchange Board of India (SEBI). The Securities have not been recommended or approved by SEBI nor does SEBI guarantee the accuracy or adequacy of this document. Specific attention of the investors is invited to the summarized and detailed Risk Factors mentioned elsewhere in this Information Memorandum.

ISSUER’S ABSOLUTE RESPONSIBILITY: The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Information Memorandum contains all information with regard to the Issuer and the Issue, which is material in the context of the Issue, that the information contained in this Information Memorandum is true and correct in all material respects and is not misleading in any material respect, that the opinions and intentions expressed herein are honestly held and that there are no other facts, the omission of which makes this document as a whole or any of such information or the expression of any such opinions or intentions misleading in any material respect.

CREDIT RATING:“CARE AAA(SO)” by CARE:Instruments carrying this rating are considered to be of the best quality, carrying negligible investment risk. Debt service payments are protected by stable cash flows with good margins. While the underlying assumptions may change, such changes as can be visualized are most unlikely to impair the strong position of such instrument.

The rating is not a recommendation to buy, sell or hold securities and investors should take their own decision. The rating may be subject to revision or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating. The ratings obtained are subject to revision at any point of time in the future. The Rating agency has the right to suspend, withdraw the rating at any time on the basis of new information etc. For details, please refer to para on ‘Credit Rating’ mentioned elsewhere in this Information Memorandum.

LISTING: The Government of India Guaranteed Redeemable Non-Convertible Bonds in the nature of Debentures are proposed to be listed on The Stock Exchange, Mumbai (BSE).

TRUSTEE FOR THE BONDHOLDERSREGISTRAR TO THE ISSUE

The Western India Trustee & Executor Company LimitedKarvy Consultants Limited

161/C, 16th Floor, Mittal Court,51/2, T. K. N. Complex,

Nariman Point,Vanivlis Road, Basavanagudi,

Mumbai – 400 021.Bangalore – 560 004.

Tel No. (022) 22880986, 22880988.Tel No. (080) 26613400,26621192.

Fax No. (022) 22816477.Fax No. 91-80-26621169.

E-mail: -mail:

TABLE OF CONTENTS

INDEX

TITLE

/ PAGE NO.
DEFINITIONS/ ABBREVIATIONS / 03
RISK FACTORS AND MANAGEMENT PROPOSALS THEREOF / 04 – 06
HIGHLIGHTS OF THE COMPANY / 06

PART I

I. / GENERAL INFORMATION / 07 – 10
II. / CAPITAL STRUCTURE / 11 – 12
III. / TERMS & PARTICULARS OF THE PRESENT ISSUE / 13 – 19
IV. / COMPANY & MANAGEMENT / 20 –33
V. / ORGNAISATION STRUCTURE & MANAGEMENT / 34 – 37
VI. / STOCK MARKET DATA OF THE EQUITY SHARES OF THE COMPANY / 37 – 38
VII. / MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL PERFORMANCE / 38 – 39
VIII. / BASIS FOR ISSUE PRICE / 39
IX. / OUTSTANDING LITIGATIONS, DEFAULTS AND MATERIAL DEVELOPMENTS / 39 – 41
X. / INVESTOR GRIEVANCES & REDRESSAL SYSTEM / 41 – 42

PART II

I. / GENERAL INFORMATION / 43 – 46
II. / FINANCIAL INFORMATION / 47 – 62
III. / STATUTORY AND OTHER INFORMATION / 63 – 64
IV. / MAIN PROVISIONS OF THE ARTICLES OF ASSOCIATION / 64 – 67
V. / MATERIAL CONTRACTS AND DOCUMENTS FOR INSPECTION / 68

PART III

DECLARATION

/ 69

DEFINITIONS/ ABBREVATIONS

Term / Meaning/ Definition/ Complete Term
Act / The Companies Act, 1956 as amended from time to time till date
Articles / Articles of Association of the Company
Application Form / The form in terms of which, the investors shall apply for the Government of India Guaranteed Redeemable Non-Convertible Bonds in the nature of Debentures of the Company
the Company/ the Issuer Company/ the Issuer/ HMT / HMT Limited, a company incorporated under section 617 of the Companies Act, 1956 and having its Registered Office at HMT Bhavan, No. 59, Bellary Road, Bangalore-560 032, INDIA
Board/ BoD/ BOD / Board of Directors of the Company or a Committee constituted thereof
Bond(s)/ NCD(s)/ Debenture(s) / Government of India Guaranteed Redeemable Non Convertible Bonds in the nature of Debentures of Rs. 10,00,000/- each offered through private placement route under the terms of this Information Memorandum
Bondholder(s) / The HHHHHHolder(s) of the Bond(s) in dematerialised form
Beneficial Owner(s) / Bondholder(s) holding Bond(s) in dematerialized form (Beneficial Owner of the Bond(s) as defined in clause (a) of sub-section of Section 2 of the Depositories Act, 1996)
BSE/ the concerned Stock Exchange / The Stock Exchange, Mumbai
CARE/ Rating Agency / Credit Analysis & Research Limited
CDSL / Central Depository Services (India) Limited
DDA / Deemed Date of Allotment for the Bonds
DP / Depository Participant
Depository(ies) / National Securities Depository Limited (NSDL) and,
Central Depository Services (India) Limited (CDSL)
DIP / Disclosure and Investor Protection Guidelines of SEBI
DRR / Debenture/ Bond Redemption Reserve
FY/ F.Y. / Financial Year
FIs / Financial Institutions
GOI/ GoI / Government of India
HMT Machine Tools/ HMTMTL / HMT Machine Tools Limited, a subsidiary of HMT Limited and having its Registered Office at ‘HMT Bhavan’, 59, Bellary Road, Bangalore – 560 032 (Karnataka)
HMT Watches/ HMT WL / HMT Watches Limited, a subsidiary of HMT Limited and having its Registered Office at ‘HMT Bhavan’, 59, Bellary Road, Bangalore – 560 032 (Karnataka)
HMT Chinar Watches/ HMTCWL / HMT Chinar Watches Limited, a subsidiary of HMT Limited and having its Registered Office at Lane-2, Phase II, SIDCO Industrial Complex, Bari Brahimana, Jammu – 181 133 (Jammu & Kashmir)
HMT Bearing/ HMTBL / HMT Bearing Limited, a subsidiary of HMT Limited and having its Registered Office at Moula Ali, Hyderabad – 500 040 (Andhra Pradesh)
HMT International/ HMT(I) L / HMT (International) Limited, a subsidiary of HMT Limited and having its Registered Office at ‘HMT Bhavan’, 59, Bellary Road, Bangalore – 560 032 (Karnataka)
Issue/ Offer/ Offering / Private Placement of Government of India Guaranteed Redeemable Non-Convertible Bonds in the nature of Debentures of Rs. 10,00,000/- each for cash at par aggregating Rs.40.40 crores
Information Memorandum/ Offer Document / Memorandum of Information dated March 15, 2004 for Private Placement of Government of India Guaranteed Redeemable Non-Convertible Bonds in the nature of Debentures of Rs. 10,00,000/- each for cash at par aggregating Rs 40.40 crores to be issued by HMT Limited
IT / Income Tax
IT Act / The Income Tax Act, 1961 (as amended from time to time)
IS / Information Systems
Lead Arrangers
(in alphabetic order) / 1. A. K. Capital Services Limited
2. Allianz Securities Limited
3. Centrum Finance Limited
4. RR Financial Consultants Limited
5. UTI Bank Limited
Memorandum / Memorandum of Association of the Company
NSDL / National Securities Depository Limited
NSE / National Stock Exchange of India Limited
OTS / One Time Settlement
OCS / Out-of-court Settlement
PAN / Permanent Account Number
Praga Tools/ PTL / Praga Tools Limited, a subsidiary of HMT Limited and having its Registered Office at 6-6-8/32, Kavadiguda Road, Secunderabad – 500 080 (Andhra Pradesh)
Registrars to the Issue/ Registrars/ Registrar & Transfer Agents / Karvy Consultants Limited, 51/2, T.K.N Complex, Vanivilas Road, Basavanagudi, Bangalore-560 027
ROC/ RoC / Registrar of Companies, Karnataka at Bangalore
RBI / The Reserve Bank of India
Regional Stock Exchange / Stock Exchange, Bangalore
SEBI / Securities and Exchange Board of India constituted under the Securities and Exchange Board of India Act, 1992 (as amended from time to time)
SEBI Guidelines / SEBI (Disclosure and Investor Protection Guidelines 2000 (as amended from time to time)
Trustees/ Trustees to the Bondholder(s)/ WITECO / The Western India Trustee & Executor Company Limited
TDS / Tax Deducted at Source

RISK ENVISAGED BY MANAGEMENT AND MANAGEMENT PROPOSALS (MP) TO ADDRESS THE RISKS

Following are certain issues for the investors to consider before taking an investment decision in the offer. In some of the risk factors and management proposals thereof, reference has been invited for detailed para mentioned elsewhere in this Information Memorandum, which can be used to obtain more details about the said risk.

INTERNAL RISKS

1.Debenture Redemption Reserve

Company proposes to create Debenture Redemption Reserve for the present issue of Bonds only to the extent of 25% of the value of Bonds issued.

MP: As per extant circular no. 6/3/2001-CL.V dated 18.04.2002 issued by the Government of India with respect to creation of Debenture Redemption Reserve, for manufacturing and infrastructure companies, the adequacy of DRR is defined at 25% of the value of debentures issued through private placement route. In terms of extant provisions of Companies Act, 1956, the Company is required to create Debenture Redemption Reserve out of profits, if any, earned by the company. In case of the current issue of Bonds, to ensure the timely payment of principal amount of Bonds and the interest thereon, the Government of India has provided an unconditional and irrevocable guarantee, text of which is reproduced elsewhere in this Information Memorandum. The Company has also appointed a Trustee to protect the interest of the investors.

2.Project Cost not being appraised

The project cost has not been appraised by any institution/ agency and are based on the Company’s own estimates.

MP: The funds to be mobilized under these Bonds are for the purpose of repayment of the existing Bonds (2002) Series-E/ Bridge Loan and therefore there is no specific project cost to be incurred out of the amount to be raised through this Bonds issue.

3.Credit Rating

HMT has obtained credit rating of ‘CARE AAA(SO)’ from Credit Analysis & Research Limited (CARE) for an amount of Rs. 40.40 crores for its current issue. Instruments carrying this rating are considered to be of the best quality, carrying negligible investment risk. Debt service payments are protected by stable cash flows with good margins. While the underlying assumptions may change, such changes as can be visualized are most unlikely to impair the strong position of such instrument.

MP: Investors may please note that, the rating is not a recommendation to buy, sell or hold securities and investors should take their own decision. The rating may be subject to revision, suspension or withdrawal at any time by the assigning rating agency and each rating should be evaluated independently of any other rating. The ratings obtained are subject to revision at any point of time in the future. The Rating agency has the right to suspend, withdraw or revise the rating at any time on the basis of new information etc. Credit Rating of all listed and/ or unlisted taxable bonds/ debentures/ commercial paper issued by the Company for the last 3 years have been disclosed under the head ‘Credit Rating’ mentioned elsewhere in this Information Memorandum.

4. Contingent Liabilities of the Company

As on March 31, 2003 and September 30, 2003, the contingent liabilities of the Company stood at Rs. 94.48 crores and Rs. 91.60 crores respectively. For details refer to para on ‘Contingent Liabilities’ mentioned elsewhere in this Information Memorandum.

MP: The contingent liabilities have arisen in the normal course of business of the Company.

5.Pending Grievances

As on September 30, 2003, no shareholders’ complaint was pending. Total complaints received from shareholders and disposed of during the period 01.04.2003 to 30.09.2003 were 7 out of which, there were no cases for non-receipt of dividend.

MP: The Company has set up a Shareholders Committee, which was last reconstituted on November 17, 2000 comprising of the Chairman and Managing Director as a single member of the Committee to look after transfer/ transmission of shares issued by the Company, issue of duplicate certificates and certificates after split/ consolidation/ renewal apart from confirmation of demateralisation of shares on transfer to a depository. The Committee also looks after the grievances of the Shareholders/ Investors. Share transfers, dividend payment and all other investor related activities are attended to and processed at the office of the Registrar & Transfer Agent, Karvy Consultants Limited. The Company has also put in place the Investor Relations Cell at its Registered Office to look after the services needed by the shareholders. No shareholders’ complaint has been pending against the Company for more than 60 days. With respect to the current issue of bonds, the Company has designated a Compliance Officer, who can be contacted by the investors in case of any pre-issue/ post-issue related problems such as non-credit of letter(s) of allotment/ bond certificate(s) in the demat account, non-receipt of refund order(s), interest warrant(s)/ cheque(s) etc.

6.Income Tax Proceedings

As on September 30, 2003, there is no disputed demand of income tax and interest tax.

7.Outstanding Litigations against the Company

As on September 30, 2003, there are outstanding Litigations amounting to Rs.56.56 crores excluding interest (a total of 13 cases) for “Claims not acknowledged as debts”. For details, please refer to the para on ‘Outstanding Litigations’ mentioned elsewhere in this Information Memorandum.

MP: These claims are not likely to affect the operations and finances of the Company.

8.Outstanding Litigations against the Promoter & Companies/ firms/ ventures promoted by the Promoter of the Company

Since the Government of India is the promoter of the Company, it is not possible to give details of pending litigations against the Government or the companies/ firms/ ventures promoted by the Government because of large number of such undertakings.

9.Non-Accomplishment of Targeted Demand Levels

The Company is mainly engaged in manufacturing of Tractors. The demand for the products of the company is largely dependent upon the overall monsoon conditions in the country. The Company has also indigenously developed and introduced two new Tractor brands namely “Chandi” and “CROP KING”. Any major fluctuation in demand for products of the company could adversely affect its financial performance. Financing problems of the Company’s growth plans may also adversely affect its operational as well as financial performance.

MP: In addition to manufacturing and sale of Tractors, the Sale of Engines are aggressively marketed. Recently, HMT has launched Tractors for Earth Moving applications with suitable attachments, which have found good demand in the markets.

10.Delays in Servicing of Past Loans and/ or Bonds of the Company

There have been instances where the Company has delayed on repayment/ debt servicing obligations to its lenders and/ or investors on its earlier loans and/ or bonds.

MP: There are no defaults on debt/ interest servicing obligations on all Government of India Guaranteed borrowings. The defaults/ delays in servicing of earlier loans/ bonds not guaranteed by Government of India were due to continuous cash losses incurred by the Company which adversely affected its cash-flow position and the same is being addressed by the Company under the Turnaround Plan.

11.Accumulated Losses of the Company

Although the Company showed operating profits in the Financial years 2000-2001 & 2001-2002, as on September 30, 2003, there are accumulated losses in the books of the Company amounting to Rs. 429.77 crores.

MP: As a part of scheme of arrangement, the accumulated losses of Rs.436.51 crores of the Company prior to re-structuring on March 31, 2000, have been retained in the books of HMT Limited (Holding) Co.

12.State of Financial Performance of the Company

Given the Company’s weak financial position, the Ministry of Heavy Industries, Government of India, has been regularly infusing funds to enable the Company to service its debt obligations. In addition, the GoI has provided guarantees to support the Company’s borrowings from the markets. This support from the GoI is a key ingredient in maintaining the present credit rating of the bonds of the Company.

MP: Government of India has committed for providing the need-based support to the Company.

13.Industry Concentration

The business of the Company is concentrated on manufacturing of Tractors. Any adverse impact in the demand of Tractors could materially affect the operations of the Company.

14.Contingent Liabilities of Company’sSubsidiaries

As on March 31, 2003, the contingent liabilities of the subsidiaries of the Company (i.e. HMT Machine Tools Limited, HMT Watches Limited, HMT Chinar Watches Limited, HMT Bearing Limited, HMT (International) Limited and Praga Tools Limited) stood at Rs. 168.45 crores. For details refer to para on ‘Subsidiaries of the Company’ mentioned elsewhere in this Information Memorandum.

MP: These contingent liabilities of the Subsidiary Companies are not likely to affect the operations and finances of the Company.

15.Utilization of Funds

The utilization of the funds proposed to be raised through this private placement is entirely at the discretion of the Company and no monitoring agency has been appointed to monitor the deployment of funds.

MP: The funds raised through this private placement are not meant for any specific project and hence a monitoring agency may not be required. The Company is managed by professionals under the supervision of its Board of Directors. Further, the Company is subject to a number of regulatory checks and balances as stipulated in its regulatory environment. Therefore, the management believes that the funds raised via this private placement would be utilised only towards satisfactory fulfillment of the ‘Objects of the Issue’ mentioned elsewhere in this Information Memorandum.

EXTERNAL RISKS

1. Natural calamities like floods, droughts and earthquakes could hamper the project of the Company & its implementation.