(Private and confidential) For Equity shareholders of the Company only

(LOGO)

SREI INTERNATIONAL FINANCE LIMITED

Registered Office: 86 C Topsia Road (South), Calcutta 700046

Telephone Nos.: 2870112 / 2870124 : Fax: (91)-(033) 2807542

website: www.srei.com

e-mail : rightsissue@srei.com

Issue of 5,400,000 Subordinated Bonds (Bonds) of Rs.100/- each for cash at par with four detachable tradable warrants attached thereto aggregating Rs.54,00,00,000 to the Equity Shareholders of the Company on Rights basis in the ratio of one Bond for every ten equity shares held as on the record date i.e. _________.

GENERAL RISKS

Investments in equity and equity related securities involve a degree of risk and investors should not invest any funds in this Offer unless they can afford to take the risk of losing their investment. Investors are advised to read the Risk Factors on pages _____ to ____ carefully before taking an investment decision in this Offering. For taking an investment decision investors must rely on their own examination of the Issuer and the Offer including the risks involved. The securities have not been recommended or approved by Securities and Exchange Board of India nor does Securities and Exchange Board of India guarantee the accuracy or adequacy of this Letter of Offer.

ISSUER’S ABSOLUTE RESPONSIBILITY

The Issuer, having made all reasonable inquiries, accepts responsibility for, and confirms that this Letter of Offer 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 Letter of Offer is true and correct in all material aspects 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

Rating of the above instrument has been done by CARE which is . The rating indicates that

LISTING

The existing equity shares of the Company are listed on the the National Stock Exchange of India , the Stock Exchange of Calcutta (the Regional Stock Exchange), and the Stock Exchanges of Mumbai , Delhi and Ahmedabad. Applications will be made to the Calcutta Stock Exchange and National Stock Exchange for permission to enlist and deal in the Subordinated Bonds and warrants.

RISK FACTORS AND MANAGEMENT PERCEPTION

1. The company is engaged in the business of finance and is exposed to credit risks. The company’s performance is subject to inherent risk of defaults / overdues and is also dependent on the performance of its clients / industries , as prompt recovery and recycling of funds is essential to maintain its profitability.

Management Perception : The company has an effective Risk Management System to ensure diversification of risk while ensuring a favourable risk return ratio. The company has a broad based clientele and a strong project appraisal and monitoring mechanism to ensure prompt recovery.

2. One subsidiary of the company has incurred losses in FY 1998-99 of £ 54347, and has an accumulated loss of £ 240573 .

Management perception: The Company has applied to the Reserve Bank of India for permission of winding up of the subsidiary.

3. Eight number of suits (including matters referred to arbitration) have been filed by different parties including customers of the Company. For details refer to pg . of the LoF.

Management Perception: All the suits are in respect of normal business operations of the Company and are being defended. The outcome of the suits are not expected to have any material impact on the financial position or operations of the Company.

EXTERNAL TO THE COMPANY

1. Interest risk and liquidity risk

Management perception: The Company has been raising funds from Financial Institutions, Banks, Mutual Funds, Corporates and by way of Fixed Deposits with appropriate maturities at competitive rates to minimise the impact of interest risk and liquidity risk.

2. Credit risk

Management perception: The Company has an adequate credit appraisal and monitoring system to contain the credit risk. It also has in place a strong recovery and legal process to ensure collections from delinquent clients.

4. Risk of competition

Management perception: The company is in the business of extending financial assistance for infrastructure related equipments and projects whose demand and potential presently far exceeds the supply that can be made available by the existing players. Hence the company does not foresee much risk of competition in its business in the near future.

5. Risk on account of policy and regulatory changes

Management perception: The business of the Company is highly regulated. The regulations are subject to constant change and review. The company has a team of experienced professionals who can adapt to and exploit the opportunities arising out of policy changes.

1. Consistent track record of profit making and dividend paying for over a decade.
2. The company has been ranked 3^rd among NBFCs in India on the basis of performance parameters in a survey conducted by "The Economic Times". (Source : The ET 500, October 1999 : An ET Research Bureau Special)
3. The Company, along with its subsidiaries, is well diversified and is an established player in the financial services sector in financing infrastructure and construction equipments , leasing & hire purchase, corporate lending, auto financing ,satellite dealership of government securities, full fledged money changing activities and merchant banking
4. Equity Participation by IFC Washington, FMO Netherlands , DEG Germany, UTI , Banks and mutual funds , NRIs and OCBs.
5. Lines of credit from IFC Washington, FMO Netherlands, DEG Germany and Indian Financial Institutions like IFCI, ICICI etc.
6. Capital Adequacy Ratio of 22.65 % as on 31st March, 1999, as against 12% stipulated by RBI.
7. The Company has made stand by arrangements with its Foreign Institutional shareholders for this issue.

NOTES

2. The Company accepts no responsibility for statements made otherwise than in this Letter of Offer or in any advertisement or other material Issued by the Company or by any other persons at the instance of the Company and anyone placing reliance on any other source of information would be doing so at his own risk.

PART I GENERAL INFORMATION

SREI INTERNATIONAL FINANCE LIMITED

Registered Office: 86 C Topsia Road (South), Calcutta 700046

Telephone Nos.: 2870112 / 2870124 : Fax: (91)-(033) 2807542

website: www.srei.com

e-mail : rightsissue@srei.com

The company is having a valid certificate of registration (No. 05.02773) dated 1^st August, 1998 issued by the Reserve Bank of India under section 45IA of the Reserve Bank of India Act, 1934, to carry on the business of non-banking financial institution. However, the Reserve Bank of India does not accept any responsibility or guarantee about the present position as to the financial soundness of the company or for the correctness of any of the statements or representations made or opinions expressed by the company and for repayment of deposits/discharge of liabilities by the company.

No letter of Intent/Industrial Licence is required for the business carried on by the company.

DISCLAIMER CLAUSE

AS REQUIRED, A COPY OF THIS LETTER OF OFFER HAS BEEN SUBMITTED TO SEBI. IT IS TO BE DISTINCTLY UNDERSTOOD THAT THE SUBMISSION OF DRAFT LETTER OF OFFER TO THE SECURITIES & EXCHANGE BOARD OF INDIA (SEBI) SHOULD NOT, IN ANY WAY BE DEEMED/ CONSTRUED THAT THE SAME HAS BEEN CLEARED OR APPROVED BY SEBI. SEBI DOES NOT TAKE ANY RESPOSIBILITY EITHER FOR THE FINANCIAL SOUNDNESS OF ANY SCHEME OR FOR WHICH THE ISSUE IS PROPOSED TO BE MADE, OR FOR THE CORRECTNESS OF THE STATEMENTS MADE OR OPINIONS EXPRESSED IN THE LETTER OF OFFER. THE LEAD MANAGER UTI BANK LTD. HAS CERTIFIED THAT THE DISCLOSURES MADE IN THE LETTER OF OFFER ARE GENERALLY ADEQUATE AND ARE IN CONFORMITY WITH SEBI GUIDELINES FOR DISCLOSURE AND INVESTOR PROTECTION IN FORCE FOR THE TIME BEING. THIS REQUIREMENT IS TO FACILITATE INVESTORS TO TAKE AN INFORMED DECISION FOR MAKING INVESTMENT IN THE PROPOSED ISSUE. IT SHOULD ALSO BE CLEARLY UNDERSTOOD THAT WHILE THE ISSUER COMPANY IS PRIMARILY RESPONSIBLE FOR THE CORRECTNESS, ADEQUACY AND DISCLOSURE OF ALL RELEVANT INFORMATION IN THE OFFER DOCUMENT, THE LEAD MANAGER IS EXPECTED TO EXERCISE DUE DILIGENCE TO ENSURE THAT THE COMPANY DISCHARGES ITS RESPONSIBILITY ADEQUATELY IN THIS BEHALF AND TOWARDS THIS PURPOSE THE LEAD MANAGER UTI BANK LTD. HAS FURNISHED TO SEBI A DUE DILIGENCE CERTIFICATE DATED _________________ WHICH READS AS FOLLOWS:

1. We have examined various documents including those relating to litigation like commercial disputes, disputes with constituents of the Company other material in connection with the finalisation of the draft Letter of Offer pertaining to the said Issue;

2. On the basis of such examination and the discussions with the Company, its Directors and other officers, other agencies, independent verification of the statements concerning the objects of the Issue, projected profitability, price justification and the contents of the documents mentioned in the Annexure and other papers furnished by the Company,

WE CONFIRM THAT:

a) the draft Letter of Offer forwarded to SEBI is in conformity with the documents, materials and papers relevant to the Issue;

b) all the legal requirements connected with the said Issue as also the guidelines, instruction etc., issued by SEBI, the Government and any other competent authority in this behalf have been duly complied with; and

c) the disclosures made in the draft Letter of Offer are true, fair and adequate to enable the investors to make a well informed decision as to investment in the proposed Issue.

3. We confirm that besides ourselves, all the intermediaries named in the draft Letter of Offer are registered with SEBI and till date such registration is valid.

4. If underwritten, we shall satisfy ourselves about the worth of the underwriters to fulfil their underwriting commitments"

The filing of the Letter of Offer does not however absolve the Company from any liabilities under section 63 of the Companies Act, 1956 or from the requirement of obtaining such statutory or other clearance as may be required for the purpose of the proposed Issue. SEBI further reserves the right to take up, at any point of time, with the lead manager(s) (merchant bankers) any irregularities or lapses in Letter of Offer.

The Stock Exchange, Calcutta (‘CSE’) has given, vide its letter dated ________, permission to the Company to use the name of the Exchange in this Letter of Offer as one of the stock exchanges on which this Company’s securities are proposed to be listed. CSE has scrutinised this Letter of Offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to the Company. CSE does not in any manner–

· warrant, certify or endorse the correctness or completeness of any of the contents of this Letter of Offer;

· warrant that this Company’s securities will be listed or will continue to be listed on CSE; or

· take any responsibility for the financial or other soundness of this Company, Promoters, management or any scheme or project of this Company;

And it should not be, for any reason be deemed or construed that this Letter of Offer has been cleared or approved by CSE. Every person who desires to apply for or otherwise acquires any securities of this Company may do so pursuant to independent inquiry, investigation and analysis and shall not have any claim against CSE, whatsoever, by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/ acquisition whether by reason of anything stated or omitted to be stated in the Letter of Offer or any other reason whatsoever.

"As required, a copy of this Letter of Offer has been submitted to National Stock Exchange of India Limited (hereinafter referred to as NSE). NSE has given vide its letter dated ________ permission to the Issuer to use the Exchange's name in this Letter of Offer as one of the stock exchanges on which this Issuer's securities are proposed to be listed. The Exchange has scrutinised this Letter of Offer for its limited internal purpose of deciding on the matter of granting the aforesaid permission to this Issuer. It is to be distinctly understood that the aforesaid permission given by NSE should not in any way be deemed or construed that the Letter of Offer has been cleared or approved by NSE; nor does it in any manner warrant, certify or endorse the correctness or completeness of any of the contents of this Letter of Offer, nor does it warrant that this Issuer's securities will be listed or will continue to be listed on the Exchange; nor does it take any responsibility for the financial or other soundness of this Issuer, its Promoters, its Management or any scheme or project of this Issuer.

DISCLAIMER STATEMENT OF THE COMPANY

The issuer accepts no responsibility for statements made otherwise than in the offer document or in the advertisement or any other material issued by or at the instance of the issuer and that anyone placing reliance on any other source of information would be doing so at his own risk.

FILING

The Letter of Offer has been filed with the Securities and Exchange Board of India, Mittal Court, Nariman Point, Mumbai 400 021 and also with the Stock Exchange, Calcutta (the Regional Stock Exchange).

LISTING

The existing equity shares of the Company are listed on the the National Stock Exchange of India , the Stock Exchange of Calcutta (the Regional Stock Exchange), and the Stock Exchanges of Mumbai , Delhi and Ahmedabad. Applications will be made to the Calcutta Stock Exchange Association and National Stock Exchange for permission to enlist and deal in the Subordinated Bonds and warrants.

FICTITIOUS APPLICATION

Attention of the applicants is specifically drawn to the provisions of subsection (1) of section 68A of the Companies Act, 1956 which is reproduced below:

"Any person who-

a) Makes in a fictitious name an application to a Company for acquiring or subscribing for any shares therein,

or

b) Otherwise induces a Company to allot, or register any transfer of shares therein to him, or any other person in a fictitious name,

shall be punishable with imprisonment for a term which may extend to five years."

MINIMUM SUBSCRIPTION CLAUSE

1. If the company does not receive the minimum subscription of 90% of the issue amount, the entire subscripion shall be refunded to the applicants within 42 days from the date of closure of the issue.
2. If there is a delay in the refund of subscription by more than 8 days after the company becomes liable to pay the subscription amount (i.e. 42 days afetr the closure of the issue) the company will pay interest for the delayed period at rates prescribed under subsections (2) and (2A) of Section 73 of the companies act 1956.

DESPATCH OF ALLOTMENT LETTERS/ BOND CERTIFICATES/ REGRET LETTERS/ REFUND ORDERS

The Company will Issue and despatch Letter of Allotment/ Bond Certificates/ and/ or Letter of Regret along with refund orders, if any, within a period of seven weeks from the date of closure of the subscription list. If such money is not repaid, within 8 days from the day the Company become liable to pay it, the Company shall, as stipulated under Section 73 (2 A) of the Act, pay that money with interest @ 15% p.a. Letter of Allotment/ Bond Certificates/ Refund Orders above the value of Rs. 1500, will be despatched by Registered Post to the sole/ first applicant’s registered address. However, Refund Orders for value not exceeding Rs. 1500 shall be sent to the applicants under Certificate of Posting. Such cheques or pay orders will be payable at par at all the centres where the applications were originally accepted and will be marked "A/C Payee" and would be drawn in the name of a sole/ first applicant. Adequate funds would be made available to the Registrars to the Issue for this purpose.

As regards allotment/ refund to NRIs / OCBs, the following further conditions shall apply:

In case of NRIs, who remit their application monies from funds held in NRE/ FCNR accounts, refunds and/or payment of dividend and other disbursement, if any, shall be credited to such accounts, details of which should be furnished in the CAF. Subject to the approval of the RBI, in case of NRIs, who remit their application monies through Indian Rupee draft purchased from abroad, refund and/or payment of dividend and any other disbursement, shall be credited to such accounts, details of which should be furnished in the CAF. Subject to the approval of RBI, in case of NRIs, who remit their application monies through Indian Rupee draft purchased from abroad or funds remitted from abroad, refund and/or payment of dividend and any other disbursements will be made net of bank charges/commission in U.S Dollars, at the rate of exchange prevailing at such time. The Company will not be responsible for any loss on account of exchange fluctuations for converting the Indian Rupee amount into U.S Dollars. The certificates for the Bonds & Warrants will be sent by registered post at the address of the NRI / OCB applicant, after compliance of requisite formalities with regards to Foreign Exchange Regulation Act.

Interest in Case of delay on Allotment/ Despatch

1. As far as possible, allotment of securities offered to the investors shall be made within 42 days of the closure of the rights Issue ;

2. the Company shall pay interest @ 15% per annum if the allotment has not been made and/or the allotment letters/refund orders have not been despatched to the investors within 42 days from the date of the closure of the Issue.

ISSUE SCHEDULE

The company may , at its discretion , extend the issue closing date beyond the date prescribed above , subject to the subscription list remaining open for not more than 60 days from the issue opening date.

ISSUE MANAGEMENT TEAM

UTI Bank Ltd.

Maker Tower, Block F

Cuffe Parade, Colaba

Mumbai 400005

Telephone Nos : (022) 2188185 / 218 9106

Fax : (022) 2186944 / 2181429

SREI Capital Markets Ltd.

86 C Topsia Road (South )

Calcutta 700046

Telephone Nos.: (033) 2870112 / 2870124

Fax: (033) 2807542

AMI Computers (India) Ltd.

60 A & B Chowringhee Road

Calcutta 700001

Phone nos : (033) 2800900 / 2800812

Fax : (033) 2406585

Deloitte Haskins & Sells

2/2A, Ho Chi Minh Sarani

Calcutta – 700071

Phone : (033) 2821293 / 2826961

Fax : (033) 2825620

Khaitan & Co.

9, Old Post Office Street

Calcutta 700001

Phone : (033) 2481249 / 1388 / 1872

Fax : (033) 2487656 / 2207857

Srei International Finance Limited

86 C Topsia Road (South )

Calcutta 700046

Telephone Nos.: (033) 2870112 / 2870124

Fax: (033) 2807542

Note :

The investors should contact the compliance officers in case of any pre-issue / post-issue related problems such as non-receipt of letters of allotment / bond certificates / refund orders / cancelled stockinvests etc.

CREDIT RATING

1. The Bond instrument has been rated by CARE as ------------- (pronounced ----------------), which signifies -------------------.

STAND BY ARRANGEMENTS

Foreign Institutional shareholders have consented to extend standby support to the issue upto the Indian Rupees equivalent of US$ million inclusive of their respective entitlements

CAPITAL STRUCTURE OF THE COMPANY

NOTES TO THE CAPITAL STRUCTURE:

1. Each Bond shall have attached thereto four detachable and independently tradable warrants. Each warrant shall entitle the holder to apply for and be allotted one equity share of the company, after the end of the 5^th year and before the end of the 7^th year at an issue price which shall be worked out at 40% less than the average of the daily high and low of the price of the existing equity shares quoted at the NSE during the six calendar months subject to a floor of par value and cap of Rs. 500/-. ( for details refer to ‘Principal Terms of the Issue’)

10. Face value of all Issued equity shares of the Company is Rs. 10/- each.

11. Forfeiture – The company has on -------------- forfeited no. of equity shares on account of non-receipt of call money.

13. TOP 10 SHAREHOLDERS:

• Top ten shareholders as on ______________ (as on date of SE filing)

• Top ten shareholders as on _________________ (10 days prior to SE filing)

• Top ten shareholders as on ____________________ (2 years prior to SE filing)

14. As per records available with the company / registrar & share transfer agents, there have been no transactions in shares of the company by the Directors and Promoters group of the Company in the last six months.

15. The company has received in-principle approval from RBI vide letter no. dated for subscription to the issue by NRIs / OCBs and Non-residents.

PRINCIPAL TERMS OF THE ISSUE

The present offer comprises of Issue of 5,400,000 Subordinated Bonds (Bonds) of Rs100/- each for cash at par with four detachable tradable warrants attached thereto aggregating Rs.54,00,00,000 to the Equity Shareholders of the Company on Rights basis in the ratio of one Bond for every ten shares held as on the record date i.e. _________.

AUTHORITY FOR THE ISSUE

The Bonds and the warrants attached thereto now being issued, are pursuant to the special resolution passed by the shareholders of the company in the Annual General Meeting of the company held on 31^st July , 1999 , the resolution passed by the Board of Directors at its meeting held on January 29^th , 2000 and also subject to terms of this Letter of Offer, the enclosed Composite Application Form, the Memorandum & Articles of Association of the Company, the approvals from RBI if applicable and the provisions of the Companies Act, 1956 or any other legislative enactments and rules as may be applicable and introduced from time to time.

Nature of the Bond instrument :

The bonds will be non-convertible in nature with an overall tenure of 12 years and shall remain subordinated to all other secured and unsecured debts of the Company, present and future, during the currency of the Bonds. The bonds will be redeemed at a premium of 20% over face value. The redemption and premium amount will be paid as per the schedule described herein below. Each Bond will be attached with four detachable tradable warrants entitling the holder thereof an option to subscribe to one equity share per warrant on the terms and conditions described elsewhere in this document.

The Bonds will be of Face value Rs. 100/- each .

Coupon Rate :

Redemption :

Each Bond shall have an overall tenure of 12 years, reckoned from the date of allotment. The face value of the Bonds shall be redeemed in 7 instalments in the following manner :

The face value of the Bond shall automatically stand reduced at the end of each of the abovesaid years by the amount redeemed. Interest on the portion of the face value due for redemption shall cease to accrue from the scheduled date of redemption.

The Bonds will be redeemed at a overall premium of 20% of the original face value and the premium shall be paid to the bondholders in specified instalments proportionately alongwith the redemption of face value as under :-

The above premium amount will be paid alongwith the redemption money of respective year.

The Bonds shall be tradable in lots of 100 and multiples thereof.

Terms of Payment :

The allotment money shall be payable within the time limit as may be prescribed by the Board of Directors of the Company. In case the allotment money remains unpaid on or before the last date prescribed by the Board for the purpose, the allottee shall be liable to pay interest at the rate of 21% per annum from the last date prescribed by the Board for such payment until receipt of actual payment of such allotment money by the Company. Further, the Bonds shall be liable to be forfeited by the Company in case the allotment money remains unpaid beyond the last date prescribed by the Board for the purpose. The concrened Bond holders will not be entitled to receive interest on the Bond from the Company until and unless the Bonds allotted to them are made fully paid up. The partly paid up bonds shall not also be eligible for transfer after the last date prescribed for the payment of allotment money unlesss payment of allotment money is effected on or before the prescribed last date.

The Company reserves the right to reject any application without assigning any reason. The Company shall also have the right to allot lesser number of Bonds than applied for. In case of rejection of any application ,the entire application money or in case of allotment of lesser number of Bonds than applied for the balance amount payable , if any, after adjustment of the Allotment Money, the excess application money shall be refunded to the sole applicant or in the case of joint application to the first applicant within 42 days from the date of closure of the subscription list without payment of any interest. Payment of such refund money to the first applicant in case of joint applicant will discharge Company’s full liabilities and obligations towards all the joint applicants. Similarly, in the event of allotment of less number of bonds than applied for, thw balance amount of allotment money if remains due for payment to the Company after adjustment of the excess application money, the allottee shall be required to make payment of such balance amount of allotment money within the prescribed date as aforesaid, failing which the Bonds allotted shall be liable for forfeiture.

Status and Ranking :

The bond until redemption shall rank pari passu interse and shall remain subordinated to all other secured and unsecured debts of the Company for payment of both principal and interest. The Company shall be free to raise any secured and/or unsecured debts or capital funds of any nature, including share capital, during the currency of the Bonds.

The Bonds shall be transferrable and transmittable in the same manner and extent and be subject to the same restrictions and limitations as in case of equity shares of the Company The provisions realting to transfer and transmission of equity shares of the Company as prescribed in the Article s of Association of the Company, so also the related provisions of the Companies Act, 1956 as may be applicable for the time being in force for transfer and transmission of debentures shall apply mutatis mutandis for the Bonds now being issued.

The bond holder shall be entitled to receive interest and redemption amount on due dates. Their claims shall be subordinate to the claims of secured and unsecured creditors. In the event of winding up, their claims will be entertained after the claims of the persons falling in the category of claimants as per the provisions of the Companies Act, 1956, with relation to winding up.

a) Basis

The Warrants will be issued along with the Bonds and each such Bond will be attached with 4 Detachable Warrants These warrants shall be independently and separately tradable.

Thre warrants shall be issued free along with the Bonds and as an integral part of the Bonds at the time of issuance of the Bonds. However, the Warrants shall be detachable and seperately tradeable after issuance.

The Warrant holder can exercise options during the specific exercise periods as described hereinafter on making an application in the prescribed format to the Company together with payment of exercise price in full as will be effective during the specific period of exercise.

Excercise Price for being allotted equity shares of the Company on exercise of option against the warrants will be worked out at 40% less than the average of the daily high and low of the prices of the existing equity shares of the Company quoted on at National Stock Exchange during the six calendar months preceding the respective Determination dates, rounded off to the nearest rupee subject to a floor of par value and cap of Rs.500/- per share.

e) Ranking :

The warrants shall rank pari passu inter se , but shall not be entitled to any rights and privileges available to members of the company save and except for the right and option to subscribe to the equity shares as aforesaid and as described elsewhere in this document.

The Equity Shares so issued upon exercise of the warrants shall rank pari passu with the existing equity shares of the Company except for dividend which shall be paid pro-rata for the period from the date of issuance during the year of issue.

Other terms of the Warrants

Payment for the shares issued and subscribed pursuant to each exercise of warrants by the relevant holder shall be made (i) in cash; or (ii) by delivery and surrender of one or more Bonds having aggregate principal and repayment premium amount not exceeding the aggregate purchase price of such shares, which amount shall be applied towards such payment; or (iii) a combination of (i) ande (ii). Any Bonds so surrendered shalll be cancelled."

If the right attached to the Warrant is not exercised within such time as prescribed herein, the entitlement of the holder(s) of Warrant(s) will automatically lapse at the end of the specified period. The Board will thereafter be entitled to make further issue(s) and allotment(s) from time to time of such number of Equity Shares of Rs 10/- each or such other securities as it may deem fit, at the subscription price as is equivalent to the applicable exercise price of the concerned warrants on which the right to subscribe for Equity shares remain unexercised as aforesaid, to any person or persons whomsoever in such proportion and in such manner as the Board may decide in its absolute discretion.

The right to subscribe to Equity Shares against the warrants shall be exercised by the persons whose names appear on the Register of Warrant holders on the Determination Dates as aforesaid. The holders of the Warrant will be eligible to apply for Equity Shares by surrendering to the Company the warrants accompanied by requisite payment and the duly filled in application form wtihin relevant period for each Determination Date.

The exercise price of the warrants as per the above mentioned pricing formula relevant for each of the Determination Date, as decided by the Board from time ot time, will be announced in at least two national newspapers within ten days after the concerned Determnation Date which shall also be construed as the concerned date for the purpose of determining respective entitlement and eligibility of the warrant holders for exercise of the options thereon as of the concerned Determination Date. All eligible requests for transfer of Warrant Certificates recived by the Company upto the end of the official working hours of the Company on the concerned Determination Date shall be considered for arriving at respective entitlements for the particular Determination Date. Such requests for transfer of Warrants received by the Company or its Regitrars after the close of business hours on the concerned Determination Date shall not be entertained for the particular Determination Date and the Company shall not be responsible or liable in any manner for any consequences directly or indirectly arising out of such late receipt or non-receipt of any request for transfer of Warrants. The exercise price and timing for necessary application and payments for each of the concerned Determination Dates as determined by the Board shall be intimated to the Warrant Holders or the first named warrant holders in case of joint holdings under Certificate of Posting within 15 days after the concerned Determination Date for the purpose and shall be announced in the newspapers as mentioned above. The Company shall not be responsible for any delay or non-receipt of the said intimation sent by the Company.

RIGHTS OF THE WARRANT HOLDERS

19

DESPATCH OF ALLOTMENT LETTERS/ BOND CERTIFICATES/ WARRANTS / REGRET LETTERS/ REFUND ORDERS

The Company will Issue and despatch Letter of Allotment/ Bond Certificates/ Warrants / and/ or Letter of Regret along with refund orders, if any, within a period of six weeks from the date of closure of the subscription list. If such money is not repaid, within 8 days from the day the Company become liable to pay it, the Company shall, as stipulated under Section 73 (2 A) of the Act, pay that money with interest @ 15% p.a. Letter of Allotment/ Bond Certificates/ Warrants / Refund Orders above the value of Rs. 1500, will be despatched by Registered Post to the sole/ first applicant’s registered address. However, Refund Orders for value not exceeding Rs. 1500 shall be sent to the applicants under Certificate of Posting. Such cheques or pay orders will be payable at par at all the centres where the applications were originally accepted and will be marked "A/C Payee" and would be drawn in the name of a sole/ first applicant. Adequate funds would be made available to the Registrars to the Issue for this purpose.

Particulars of the applicant’s Savings/ Current Bank Account should be given in the space provided therefor in the application form so as to enable the Registrars to print the same on the refund order, if any.

As regards allotment/ refund to NRIs, the following further conditions shall apply:

In case of NRIs, who remit their application monies from funds held in NRE/ FCNR accounts, refunds and/or payment of dividend / interest and other disbursement, if any, shall be credited to such accounts, details of which should be furnished in the CAF. Subject to the approval of the RBI, in case of NRIs, ho remit their application monies through Indian Rupee draft purchased from abroad, refund and/or payment of dividend / interest and any other disbursement, shall be credited to such accounts, details of which should be furnished in the CAF. Subject to the approval of RBI, in case of NRIs, who remit their application monies through Indian Rupee draft purchased from abroad or funds remitted from abroad, refund and/ or payment of dividend / interest and any other disbursements will be made net of bank charges/ commission in U.S Dollars, at the rate of exchange prevailing at such time. The Company will not be responsible for any loss on account of exchange fluctuations for converting the Indian Rupee amount into U.S Dollars. The certificates for the Bonds / warrants will be sent by registered post at the address of the NRI applicant.

Interest in Case of delay on Allotment/ Despatch

1. As far as possible, allotment of securities offered to the public shall be made within 42 days of the closure of the rights Issue;

2. the Company shall pay interest @ 15% per annum if the allotment has not been made and/or the allotment letters/refund orders have not been despatched to the investors within 42 days from the date of the closure of the Issue.

ARRANGEMENT FOR ODD LOT BONDS

The Company has not made any arrangements for the disposal of odd lot Bonds arising out of this Issue. 23,766 number of Bonds have been reserved for those shareholders whose shareholding will create odd lot and / or fractional entitlement. For all odd lots Bonds arising out of the Issue, the Company will Issue certificates in the denomination of 1-5-10-20-50 Bonds.

HOW TO APPLY

Application should be made only on the enclosed CAF provided by the Company. The enclosed CAF should be complete in all respects, as explained in the INSTRUCTIONS indicated in the CAF before submitting it to the Bankers to the Issue or the Registrars. Different parts of the CAF should not be detached under any circumstances. Detailed instructions as to how to apply have been given in the CAF.

You may exercise any of the following options with regard to the Bonds offered to you, using the enclosed CAF:

Applicants must provide information in the CAF as to their savings bank/ current account number and the name of the bank with whom such account is held, to enable the Registrar to print the said details in the refund orders after the names of the payees. Failure to comply with this may lead to rejection of the application.

Applicants must write their CAF Number at the back of the cheque/ demand draft/ stockinvest.

MODE OF PAYMENTS

Only one mode of payment per application should be used. The payment must be either in cash or by cheque/ demand draft drawn on any of the banks, including a co-operative bank, which is situated at and is a member or a sub member of the Bankers Clearing House located at the centre indicated on the reverse of the CAF where the application is to be submitted. The payment against the share application should not be effected in cash if the amount to be paid is Rs. 20,000/- or more, as per Section 269 SS of the Income Tax Act. In case payment is effected in contravention of this, the application may be deemed invalid and the application money will be refunded and no interest will be paid thereon.

The payment can also be made by the stockinvest, drawn as per the instructions mentioned on the reverse of the CAF. A separate cheque/ draft/ stockinvest must accompany each CAF. Outstation/ post-dated cheques or demand drafts and postal/ money orders will not be accepted and applications accompanied by such demand drafts/ cheques/ money orders or postal orders will be rejected. The Registrars will not accept cash along with the CAF.

All cheques/ drafts accompanying the CAF should be drawn in favour of the Collecting Bank (specified on the reverse of the CAF), crossed " A/C Payee only" and marked " SIFL - Rights Issue". Stockinvests should be drawn in favour of the Company. No receipt will be Issued for application money received. The Bankers to the Issue/Collecting Bank/ Registrars will acknowledge receipt of the same by stamping and returning the acknowledgement slip at the bottom of the CAF.

Applicants residing at places other than places where the Bank Collection Centres have been opened by the Company for collecting applications, are requested to send their applications together with Demand Draft (net of DD charges) favouring the Bankers to the Issue, crossed "A/C Payee only" and marked "SIFL – Rights Issue" payable at Calcutta, directly to the Registrars to the Issue by REGISTERED POST so as to reach them on or before the closure of the Issue. The Company or the Registrars will not be responsible for postal delays, if any.

All conditions mentioned earlier for making an application through cheques/ demand drafts will also apply to application made to stockinvest.

For further instruction, please read the Composite Application Form carefully.

NRI applicants may please note that only such applications as are accompanied by payment in free foreign exchange shall be considered for allotment under the reserved category. The NRIs who intend to make payment through Non-Resident Ordinary (NRO) accounts shall use the form meant for Resident Indians and shall not use the forms meant for reserved category.

As regards the application by NRI shareholders, the following further conditions shall apply:

Payment by NRIs/OCBs/FIIs must be made by demand draft/ cheque payable at Calcutta or funds remitted from abroad in any of the following ways:

APPLICATION ON REPATRIATION BASIS

a) By Indian Rupee drafts purchased from abroad and payable at Calcutta or funds remitted from abroad; OR

b) By cheque/ draft on a Non-Resident External Account (NRE) or FCNR Account maintained in Calcuttai; OR

c) Rupee draft purchased by debit to NRE/FCNR Account maintained elsewhere in India and payable in Calcutta; OR

d) Stock invest Issued against FCNR/NRE Accounts; OR

e) FIIs registered with SEBI must remit funds from special non-resident rupee deposit account.

APPLICATION ON NON- REPATRIATION BASIS

As far as NRIs holding shares on non-repatriation basis is concerned, in addition to the ways specified above, payment may also be made by way of cheque drawn on Non-Resident (ordinary) account maintained in Calcutta or Rupee Draft purchased out of NRO Account maintained elsewhere in India but payable at Calcutta or by stockinvest. In such cases, the allotment of Bonds will be on non-repatriation basis.

All cheques/drafts submitted by NRIs/OCBs/FIIs should be drawn in favour of the Bankers to the Issue and marked "SIFL-Rights Issue-NRI" payable at Calcutta and must be crossed "A/c Payee only" for the amount payable. The Stockinvest must be in favour of "SREI International Finance Limited". The CAF duly completed together with the amount payable on application must be deposited with the Collecting Bank indicated on the reverse of the CAF before the close of banking hours on the Issue closing date. A separate cheque or bank draft must accompany each application form.

Applicants may note that where payment is made by drafts purchased from NRE/ FCNR/ NRO accounts as the case may be, an Account Debit Certificate from the bank issuing the draft confirming that the draft has been Issued by debiting the NRE/ FCNR/ NRO account should be enclosed with the CAF. Otherwise the application shall be considered incomplete and is liable to be rejected.

NOTE

In case where repatriation benefit is available, dividend and sales proceeds derived from the investment in shares can be remitted outside India, subject to tax, as applicable according to Income Tax Act, 1961.

In case shares are allotted on non-repatriation basis, the dividend/ sale proceeds of the Bonds cannot be remitted outside India.

The CAF duly completed together with the amount payable on application must be deposited with the collecting bank indicated on the reverse of the CAF before the close of banking hours on the aforesaid Issue closing date. A separate cheque or bank draft must accompany each application form.

In case application received from Non-Resident Indians and Non-Residents, refunds and other distribution, if any, will be made in accordance with the guidelines/ rules prescribed by RBI as applicable at the time of making such remittance and subject to necessary approvals.

GENERAL

a) Please read the instructions printed on the enclosed CAF carefully.

b) Application should be made on the printed CAF, provided by the Company and should be completed in all respects. The CAF found incomplete with regard to any of the particulars required to be given therein, and/ or which are not completed in conformity with the terms of this Letter of Offer are liable to be rejected and the money paid, if any, in respect thereof will be refunded without interest and after deduction of bank commission and other charges, if any. The CAF must be filled in English and the names of all the applicants, details of occupation, address, father’s/ husband’s name must be filled in block letters.

c) The CAF together with cheque/ demand draft/ stockinvest should be sent to the Bankers to the Issue/ Collecting Bank or to the Registrars and not to the Company or Lead Managers to the Issue. Applicants residing at places other than cities where the branches of the Bankers to the Issue have been authorised by the Company for collecting applications, will have to make payment by stockinvest/ Demand Draft payable at Calcutta and send their application forms to the Registrars to the Issue by REGISTERED POST after deducting DD and Postal Charges. If any portion of the CAF is/ are detached or separated, such application is liable to be rejected.

d) In case of applications for a total value of Rs. 50,000/- or more, i.e. the total number of securities applied for multiplied by the Issue price, is Rs. 50,000/- or more the applicant or in the case of application in joint names, each of the applicants, should mention his/ her permanent account number allotted under the Income-Tax Act, 1961 or where the same has not been allotted, the GIR number and the Income-Tax Circle/ Ward/ District. In case where neither the permanent account number nor the GIR number has been allotted, the fact of non-allotment should be mentioned in the application forms. Application forms without this information will be considered incomplete and are liable to be rejected.

e) Signatures should be either in English or Hindi or the languages specified in the 8th Schedule to the Constitution of India. Signatures other than in the aforesaid language and Thumb impression must be attested by a Notary Public or a Special Executive Magistrate under his/ her official seal.

f) In case of an application under Power of Attorney or by a body corporate or by a society, a certified true copy of the relevant Power of Attorney or relevant resolution or authority to make investment and sign the application along with the copy of the Memorandum & Articles of Association and/ or bye laws must be lodged with the Registrars to the Issue giving reference of the serial number of the CAF. In case the above referred documents are already registered with the Company, the same need not be furnished again; however, the serial number of registration or reference of the letter, vide which these papers were lodged with the Company must be mentioned just below the signature(s) on the application. In no case should these papers be attached to the application submitted to the Bankers to the Issue.

g) In case of joint holders, all joint holders must sign the relevant part of the CAF in the same order and as per the specimen signature(s) recorded with the Company. Further, in case of joint applicants who are renouncees, the number of applicants should not exceed three.

h) In case of joint applicants, reference, if any, will be made in the first applicant’s name and all communication will be addressed to the first applicant.

i) The shareholders must sign the CAF as per the specimen signature recorded with the Company.

j) Application(s) received from Non-Resident/ NRIs, or persons of Indian origin residing abroad for allotment of Bonds shall, inter alia, be subject to conditions, as may be imposed from time to time by the RBI under FERA in the matter of refund of application money, allotment of Bonds, subsequent Issue and allotment of Bonds, dividend, export of share certificates, etc. In case a Non-Resident or NRI shareholder has specific approval from the RBI, in connection with his shareholding, he should enclose a copy of such approval with the CAF.

k) All communication in connection with application for the Bonds, including any change in address of the shareholders should be addressed to the Registrars of the Issue quoting the name of the first/ sole applicant shareholder, folio numbers and CAF number.

l) Split forms cannot be re-split.

m) Only the person or persons to whom Bonds have been offered and not renouncee(s) shall be entitled to obtain split forms.

A shareholder who has neither received the original CAF nor is in a position to obtain the duplicate CAF may make an application to subscribe to the Rights Issue on plain paper, along with an Account Payee Cheque drawn on a local bank at Calcutta/ Draft payable at Calcutta or along with Stockinvest which should be drawn in favour of the Company and send the same by Registered Post directly to the Registrars to the Issue.

The application on plain paper, duly signed by the applicants including joint holders, in the same order as per specimen recorded with the Company, must reach the office of the Registrars to the Issue before the date of closure of the Issue and should contain the following particulars:

1. Name of the shareholder including joint holders

2. Address

3. Folio Number

4. Number of shares held as on Record Date

5. Number of Rights Bonds entitled

6. Number of additional Bonds applied for, if any

7. Total number of Bonds applied for

8. Amount payable on application

9. Particulars of Cheque/ Draft/ Stockinvest

10. Savings/Current Account Number and Address of the Bank where the shareholder will be depositing the refund order, and

11. PAN/GIR number and Income Tax Circle/Ward/District where the application is for Bonds of a total value of Rs. 50,000/- or more for the applicant and for each applicant in case of joint names.

12. Signature of shareholders to appear in the same sequence and order as they appear in the records of the Company

Payments in such cases, should be through a cheque/ demand draft payable at Calcutta to be drawn in favour of the Bankers to the Issue marked "A/c Payee" and marked "SIFL-Rights Issue A/c." or through a Stockinvest to be drawn in the name of the Company i.e. SREI International Finance Ltd.

Please note that those who are making the application otherwise than on original CAF shall not be entitled to renounce their Rights and should not utilise the original CAF for any purpose including renunciation even if it is received subsequently. If the applicant violates any of these requirements, he/she shall face the risk of rejection of both the applications. The Company shall refund such application amount to the applicant without any interest thereon.

APPLICATION ON INTERNET WEBSITE

Details of the Application Form shall be available on the Company’s internet website.

LAST DATE FOR APPLICATION

The last date for submission of CAF is ______. The Board will have the right to extend the said date for such period as it may determine from time to time but not exceeding sixty days from the date the Issue opens.

If the CAF together with the amount payable is not received by the Bankers to the Issue/ Registrars on or before the close of banking hours on the aforesaid last date or such date as may be extended by the Board, the offer contained in this Letter of Offer shall be deemed to have been declined and the Board shall be at liberty to dispose off the Bonds hereby offered, as provided under the heading "Basis of Allotment".

BASIS OF ALLOTMENT

1. The Board subject to provisions contained in this Letter of Offer and the Articles of Association of the Company will proceed to allot the Bonds in the following order of priority:

a) Full allotment to those shareholders who have applied for their rights entitlement either in full or in part and also to the renouncee(s) who has/ have applied for Bonds renounced in their favour, in full or in part.

b) To the shareholders who having applied for all the Bonds offered to them as their entitlement rights, have also applied for additional Bonds, provided there is an undersubscribed portion after making full allotment in (a) above. The allotment of such additional shares will be made as far as possible on an equitable basis with reference to the number of Bonds held on the Record Date within the overall size of the Rights Issue at the sole discretion of the Board but in consultation with the Regional stock exchange.

c) To renouncees who having applied for all the shares renounced in their favour have applied for additional shares, provided there is a surplus remaining after (a) and (b) above.

1. In the event of oversubscription against the Rights Issue, allotment will be considered on an equitable basis with reference to the number of Bonds held on the Record Date, within the overall size of the Rights Issue at the sole discretion of the Board but in consultation with the regional stock exchange. No oversubscription shall be retained by the Company.

2. After taking into account the full allotment under 1(a) above, if there is any unsubscribed portion, the Issue shall be deemed to be "undersubscribed" within the meaning of Regulation Number 3 (1) (b) of the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. In that event, allotment shall be made in terms of 1(b) and 1(c) above. Allotment in terms of 1(b) and 1(c) shall not result in the change of control of Management.

3. After taking into account the allotments made under 1(a), 1(b) and 1(c) above, if there is still any undersubscription, the unsubscribed portion shall be disposed off by the Board or Committee of Directors authorised in this behalf by the Board upon such terms and conditions and to such person/ persons and in such manner as the Board/ Committee may in its absolute discretion deem fit.

DISPOSAL OF APPLICATION & APPLICATION MONEY

The Board reserves its full, unqualified and absolute right to accept or reject any application, in whole or in part, and in either case without assigning any reason.

In case an application is rejected in full, the whole of the application money received will be refunded. Wherever an application is rejected in part, the balance of application money, if any, after adjusting any money due on shares allotted, will be refunded to the applicant within six weeks from the close of Issue.

The procedure for disposal of applications made by cash, cheque or bank draft will apply mutatis mutandis to applications accompanied by stockinvest except in the event of the following:

1. In case of non-allotment, the Registrars will return to the applicants the stockinvest without encashing within six weeks from the date of close of Issue.

2. On allotment/ partial allotment, the Registrars will fill in the amount which would be less than or equal to the amount, filled in by the applicant(s) before presenting the stockinvest to the Bankers to the Issue for payment to the extent of allotment. The issuing bank will lift the lien on the balance amount in the applicant’s account.

BANK ACCOUNT DETAILS OF THE APPLICANT

Applicants are advised to provide information as to their savings/current account number and the name of the Bank with whom such account is held in the Composite Application Form to enable the Registrar to print the said details in the Refund Orders, if any, after the names of the payees. Application not containing such details is liable to be rejected.

The Board of Directors of the company certify that all monies received out of issue of shares or debentures to public shall be transferred to separate bank account other than the bank account referred to in sub-section (3) of section 73

TAX BENEFITS

The Company has been advised by M/s. Deloitte Haskins & Sells., Chartered Accountants vide their certificate dated February 17^th , 2000 that the following tax benefits and deductions are available to the Company and its Members under the Income tax Act, 1961, the Interest tax Act, 1974 and the Wealth tax Act, 1957 for the time being in force subject to the fulfilment of the requirements of the relevant provisions.

1. The company is entitled to depreciation under the provisions of Section 32 at the rates applicable under the Income Tax Rules, 1962.

2. Under the provisions of section 48 the capital gains arising out of long term capital assets will be computed after indexing the cost of acquisition / improvement and would be charged to tax at a concessional rate under section 112 i.e. 20% (plus surcharge of 10%). However, in case of long term capital asset being listed securities, if the tax payable exceeds 10% (plus surcharge of 10%) of the amount of capital gains computed without indexing the cost of acquisition / improvement, then such excess shall be ignored.

3. Under section 10(33), any income by way of dividends declared, distributed or paid by a domestic company will be exempt from income tax in the hands of the Company. Also, any income received by the company in respect of units of the Unit Trust of India or any other mutual fund specified under section 10(23) will be exempt from Income tax.

B. INTEREST TAX ACT, 1974

Under section 5 of the Interest tax Act, 1974, interest tax is not payable by the company on interest received on loans and advances given to other credit institutions as defined under section 2(5A) of the Interest tax Act, 1974.

BENEFITS AVAILABLE TO THE SHAREHOLDERS UNDER INCOME TAX ACT, 1961

A. INCOME TAX ACT, 1961 - RESIDENT INDIANS

1. Under section 10(33), any dividend income received by the shareholders on shares in the company is exempt from Income tax.

2. Under section 48, the capital gains arising on transfer of shares in the company held for a period exceeding 12 months will be computed after indexing the cost of acquisition and would be charged to tax under section 112 at a concessional rate of 20% (plus surcharge of 10%) - provided that where the tax payable thereon exceeds 10% (plus surcharge of 10%) of the amount of capital gains, computed without indexing the cost of acquisition / improvement, then such excess shall be ignored.

3. Under section 54EA the long term capital gains referred above, are exempt from tax entirely / proportionately, if the entire or part of the net consideration is invested for a minimum period of 3 years, within 6 months from the date of transfer, in securities specified by the Central Board of Direct taxes (CBDT) in this behalf by a notification.

4. Under section 54EB, the long term capital gains referred to above, are exempt from tax entirely/proportionately, if the entire or part of the capital gains are invested for a period of 7 years, within 6 months from the date of transfer, in securities specified by the CBDT in this behalf by a notification.

5. Under section 54F, the long term capital gains referred to above, are exempt from tax if the net consideration is invested in the purchase or construction of a residential house within the period, and subject to the fulfilment of the conditions, specified in the said section.

B. INCOME TAX ACT, 1961 – NON RESIDENT INDIANS (NRIS):

1. Under Section 10(33) any dividend income received by the shareholders on shares in the Company is exempt from income tax.

2. The shareholders of the company who are NRIs as defined in Section 115(C)(e) have an option of being governed by the provisions of Chapter XII-A of the Act, which entitles them to the following benefits in respect of income from shares of the company acquired out of convertible foreign exchange:

i. Under Section 115E, income from long term capital gains shall be charged to tax at the rate of 10%.

ii. The long term capital gains are exempt from income tax entirely/proportionately, if the entire or a portion of the net consideration is invested in specified assets within six months from the date of transfer in accordance with Section 115F. The amount so exempt shall be chargeable to tax if the new asset is transferred or converted into money within a period of three years from the date of its acquisition.

iii. Under Section 115G, it shall not be necessary for an NRI to furnish their return of income if their only source of income is investment income or long term capital gains or both, provided income tax has been deducted at source from such income.

3. Under the provisions of Section 115H where a person who is an NRI in any previous year becomes assessable as resident in India in respect of total income of any subsequent year, he has an option to be assessable under the provisions of Chapter XII-A.

If he elects to be assessed under Chapter XII-A, the provisions of the said Chapter shall continue to apply to him in relation to such income for that assessment year and for subsequent assessment years until the transfer or conversion into money, of such assets.

If he elects not to be governed by the above mentioned special provisions of Chapter XII-A, he will then be entitled to tax benefits in so far as they are applicable to resident shareholders.

4. For computing capital gains arising from the transfer of shares in the company acquired in foreign currency, the cost of acquisition and expenditure incurred wholly and exclusively in connection with the transfer and full value of the consideration shall be converted into the same foreign currency as was initially utilised in the purchase of the shares and the gains so computed in foreign currency shall be reconverted into rupees.

C. INCOME TAX ACT, 1961 – FOREIGN INSTITUTIONAL INVESTOR:

1. Under Section 115AD(1)(b)(ii), income by way of short term capital gains arising from the transfer of shares will be taxable at 30%.

2. Under Section 115AD(1)(b)(iii), income by way of long term capital gains arising from the transfer of shares will be taxable at 10%.

3. Under Section 10(33) any dividend income received by the shareholders will be exempted from income tax.

D. INCOME TAX ACT, 1961 – MUTUAL FUNDS:

Under the provisions of Section 10(23D), all Mutual Funds registered under the Securities and Exchange Board of India Act, 1992 or regulations made thereunder or such other Mutual Funds set up by Public Sector banks or Financial Institutions, all Mutual Funds authorised by the Reserve Bank of India will be exempt from income tax on all their income including income from investment in shares in the company.

E. WEALTH TAX ACT, 1957

Bonds are outside the scope of the word "Asset" defined under section 2(ea) of the Wealth Tax Act, 1957 and are, therefore, not liable to Wealth Tax.

F. GIFT TAX

Any gift made after 30th September, 1998, including the shares of the Company, does not attract Gift tax.

The company is engaged mainly in the business of leasing and hire purchase of infrastructure and construction equipment and infrastructure project financing, To cater to the growing needs of this segment, the company proposes to augment its resources through rights issue of Bonds in terms of this document.

The main objects of the Issue are as follows:

• To augment the long-term resources of the Company

• To expand the company’s business of extending financial assistance to infrastructure related projects and equipment.
• To meet the expenses of the Issue

Th e projected sources and deployment of funds for the year 2000 – 2001 are as under :

( Rs. Lacs. )

Note :

1. Bank Borrowings -- The company presently enjoys working capital limits of Rs 160 crs. from a consortium of 17 banks, with Allahabad Bank as the lead bank . The lead bank has appraised the company’s Maximum Permissible Bank Finance for the FY ended March 2000 as Rs 180 crs. In view of its increased business the company has submitted an application to the lead bank for enhancement of the MPBF for the FY 2000-2001 which is in the process of being appraised by the Lead Bank. The Company does not foresee any difficulty in obtaining increase in the Working Capital Limit to the extent of Rs. 30 Cr. Durring F.Y. 2000-2001.
2. Loans from Financial Institutions – The company already enjoys institutional funding sanctioned at Rs. 274.1 crs.

1. Deferred Credits – The Company has already tied up deferred credit limits of Rs. 13 crores and is in the process of tying up the balance Rs. 5 crores.

COMPANY AND MANAGEMENT

MAIN OBJECTS OF THE COMPANY

The main objects of the Company as stated in the Memorandum of Association of the Company are as under:

* This Company was incorporated on 19.05.1998 and commenced Business from 1.6.98

7. GLOBAL INVESTMENT TRUST LTD. Rs. In Lacs

Note :

1. None of these wholly owned subsidiaries are listed in any stock exchange.
2. There are no listed companies under the same management within the meaning of

section 370 (1)(B) of the Companies Act, 1956 other than Srei International Finance Limited.

3. SREI International Securities Ltd. has obtained membership of the National Stock Exchange of India Ltd. for its Wholesale Debt Market segment by its certificate dated 11.9.99. SISL is also registered with the RBI as a satellite dealer in the Gov’t security market vide their letter IDMC.no..1620/03.64.00/96-97 dated 18^th November 97.
4. Srei Home Finance Ltd. has applied for registration with NHB and has not accepted any deposits till date.
5. .SREI Global Asset Management Ltd., an asset management company, was floated for the purpose of asset management of mutual fund schemes. This company is yet to commence business.
6. Global Investment Trust Ltd. set up to act as Trustee company for mutual fund schemes of SGAML has also consequentially not commenced business.
7. SREI Capital Markets Ltd. is registered as a Merchant Banker with SEBI (Regn No. INM000003762) . The registration is valid upto 15.1.2003. The company as a Merchant Banker has not faced any penal action from SEBI.
8. Dei Gratia Globus Ltd., a 100% subsidiary of the issuer company, incorporated in U.K with an initial share capital of £ 330,000 has incurred losses in FY 1998-99 of £ 54347, and has an accumulated loss of £ 240,573 .The Company has applied to the Reserve Bank of India for permission of winding up of the subsidiary.

The following companies hold shares of the issuer company but do not constitute promoter group as defined in Explanation II of clause 6.4.2 (k) if SEBI DIP Guidelines 2000:

1. KBLF Enterprises Limited.
2. Shri Mahakali Commercial Private Limited.
3. Anjiya Finance & Housing Limited.
4. Regav Hifin Private Limited.
5. Anant Hifin Private Limited.
6. Opulent Fiscal Services Limited

LITIGATIONS

AGAINST THE PROMOTER / DIRECTORS OF THE ISSUER COMPANY

There are no pending litigations, disputes, defaults, non-payment of statutory dues/institutional dues, proceedings initiated for economic offences / civil offences including criminal offences under enactments specified in Paragraph 1 of part I of Schedule XIII of the Companies Act 1956, against the above-mentioned Promoter / Directors of the issuer company

There are no cases of pending litigations and defaults where the name of the promoter continues to be associated, in respect of Delta Corporation Ltd. and Srei Impex Ltd. with which he was associated in the past but is no longer associated .

There are no pending litigations, disputes, defaults, non-payment of statutory dues/institutional dues, proceedings initiated for economic offences / civil offences including criminal offences under enactments specified in Paragraph 1 of part I of Schedule XIII of the Companies Act 1956, against the subsidiary companies.

45

The Directors of the Company are interested to the extent of shares held by them and/ or by their friends and relatives or which may be subscribed by them and/ or allotted to them by the Company. The Directors of the Company are interested to the extent of fees, if any, payable to them for attending meetings of the Board or Committee thereof and reimbursement of travelling and other incidental expenses, if any, for such attendance as per the Articles of Association of the Company. The directors of the company may be deemed to be interested to the extent of investments made by the issuer company in subsidiary companies where they are directors.

Save as stated above, no amount or benefit has been paid or given to the Directors since its incorporation except salary and commission paid to the Managing Director in terms of the resolution passed by the Board of Directors at its meeting held on 31^st July 1999.

There are no business interests between the issuer company and its subsidiaries beside reimbursement of expenditure incurred in the normal course of business except as stated hereunder :

1. Purchase and sale of bonds and securities aggregating Rs. 59.23 lacs and Rs. 2058.50 lacs respectively during the FY ended 31.3.99, through Srei International Securities Ltd., a wholly owned subsidiary engaged in securities broking operations and a member of NSE’s wholesale debt market segment.
2. Advances made to Srei International Securities Ltd. and Srei Global Asset Management Ltd., wholly owned subsidiaries, the balance amount outstanding as on 31.3.99 of which were Rs. 119.61 lacs and Rs. 4.00 lacs respectively
3. Maintainence charges from two wholly owned subsidiaries Srei International Securities Ltd. and SREI Home Finance Ltd., aggregating Rs.6lacs each in respect of premises owned by the issuer company occupied by these companies.

PRESENT BUSINESS OF THE COMPANY

The principal business of the company is to extend lease and hire purchase assistance for infrastructure and heavy construction equipment and to finance infrastructure related projects. The company has been in the business of extending financial assistance to infrastructure and construction equipment since 1989. Leveraging its experience in financing heavy construction and infrastructure equipment, the company has diversified into infrastructure project equipment financing In addition, the company has also focussed on financing commercial vehicles and cars. The company is in the process of exploring the feasibility of venturing into financing renewable energy devices and for this purpose has created a separate division in the name of SREI Renewable Energy Unit (SREU).

The company’s overall operations have been organized into several distinct Strategic Business Units:

d) SREI Renewable Energy Unit : This unit of the company shall focus on financing environment friendly equipment for power and other form of energy creation from renewable sources. The Company is at present exploring the feasibility of such financing activities on a large scale. This division of the Company aims at dedicating towards long term energy conservation and financing of renewable energy equipment under self-replicating subprojects.

OTHER DIVISIONS OF THE COMPANY

SUPPORT DIVISIONS

In addition to the operating units, the Company is organized into six support divisions:

3. Asset Management. The broad responsibilities of asset management team are: enhancement of percentage of collection to total dues, implementation of efficient recovery mechanisms, maintenance of repossessed assets, improvement of bottom line by re-marketing assets, and liaison with external agencies.
4. Accounts & Administration. The Accounts Department ensures proper maintenance and reconciliation of accounts, and adherence to the accounting policies and disclosure norms. It also takes care of the personnel and administration issues.
5. Management Information System (MIS). The MIS function ensures timely and reliable data to management for improved decision making. The system has been in place since 1997 and has been constantly updated.
6. Human Resources. This department takes care of the Human Resources of the Company in terms of development, motivation and strengthening the quality to achieve the objectives of the Company.
7. Internal Audit. The Internal Audit function monitors the various activities and processes to ensure that these comply with the Company’s policies and guidelines as approved by the Board.

KEY MANAGEMENT PERSONNEL

The company is managed by a team of experienced professionals acting under the overall directions of the Board of Directors. Details of the key members of the team are provided below.

The following are the key managerial personnel who have joined the company within one year prior to the date of filing the offer document

The following are the key managerial personnel who have resigned from the company within one year prior to the date of filing the offer document

CHANGE IN DIRECTORS & AUDITORS OF THE COMPANY DURING THE LAST THREE YEARS

Directors

Auditors:

M/s Deloitte Haskins & Sells, Chartered Accountants were appointed as Auditors to the Company in the Annual General Meeting held on 31.07.99. There has been no change in the auditors in the last 3 years. .

BUSINESS OUTLOOK AND OPERATING ENVIRONMENT

The company is primarily engaged in the business of financial services activities and is operating within the boundaries and regulatory environment of Indian Financial Market.

The Indian Financial Market is characterised by broadly three different segmental players, within the overall regulatory framework of Reserve Bank of India, viz,

1. Indian Financial Institutions.

a) State Level Financial Institutions : These include the smaller State level financial institutions who normally restrict their activities within the concerned state, mainly for extending financing assistance to smaller and medium sized projects

b) All India Level Financial Institution : These institutions extend long term debt and equity assistance to medium and large scale projetcs only.

2. Banks : These are classified as Public Sector Banks, Old Private Sector Banks, New Private Sector Banks and Foreign Banks.
3. NBFCs : There are several classifications made by Reserve Bank of India for the NBFC segment for regulatory purposes. The most prominent in the market place are the equipment financing companies in the category of Non-Banking Financial Institution.

The Indian Financial Institutions are engaged in providing long term financing for medium and large scale projects. They normally extend long term finance to projects, subject to their appraisal criteria. These institutions are normally not focussed to any particular type of industry and shift their focus from one industry to another depending on national priorities from time to time owing to majority ownership of Government of India in most cases.

The Banking industry in India generally restricts its financing activities to short term working capital finance and non-fund based business . Certain banks also offer advisory services in treasury management and foreign exchange risk management which enabled them to diversify their product ranges to include fee based activities. Besides, the public sector banks extend short and medium term loans and aim at fulfilling certain social objectives and priority sector financing.

One of the primary advantages that banks have over NBFCs is their lower cost of funding vis a vis the NBFCs. However, the advantage is negated by the high levels of NPAs of Public Sector banks. The banks in India have not yet been very aggressive on lease and hire purchase business. The following factors limit leasing activity by commercial banks in spite of enjoying low cost funds in the form of deposits:

0. RBI norms limit the leasing exposure of banks (departmentally) to 10% of total advances.
1. Most of Bank deposit being short term in the nature of savings and current deposits lead to asset-liability mismatch in case of lease and hire purchase mode of finances which are normally long term in nature.

• Banks, on account of their numerous other activities, lack a focus and sensitivity to the leasing market and the leasing supply chain (vendor, insurance company, client) that NBFCs have.
• Banks normally have longer processing time and documentation requirements while leasing companies can turnaround deals much faster.
• Banks seldom enforce quick, successful and profitable turnaround of repossessed leased assets.

The main advantage of NBFCs are lower operational cost, faster decision making, and customer orientation which had enabled the NBFC sector to grow exponentially. In addition, due to limited regulations in early days there had been high growth in number of NBFCs over the years. However, most players in the NBFC sector in India suffered a setback in the recent past due to several factors, like economic recession ,depressed capital market,, high dependence on short term deposits leading to acute asset - liability maturity mismatch, stringent regulatory measures etc.

The company has not only survived the aforesaid NBFC crisis but emerged from it with a healthy portfolio of assets. The following pre-emptive steps taken by management of the Company kept the company insulated from the problems faced by NBFC sector:

1. Focus on the Infrastructure Sector. The Company has focused on infrastructure related financing since commencement of operations. With the large infrastructure requirements of India, demand for infrastructure related facilities has constantly been growing even during the recent economic recession.

 

2. Low Exposure to the Corporate Sector. The Company has maintained a very low exposure in corporate sector financing, as its main emphasis has been in the infrastructure sector related financing.
3. No Speculative Capital Market Activity. The Company as a matter of business policy has never engaged in any kind of speculative activities in capital markets.
4. Near Absence of Asset - Liability Maturity Mismatch. The Company refrained from relying heavily on public deposits and as a result its portfolio has minimal asset-liability mismatch. In addition, The Company's access to long-term funds provided by the Indian Financial Institutions and international multilateral institutions like IFC, DEG, FMO etc has enabled it to maintain nearly zero asset-liability tenure mismatch despite its focus on long term asset financing in infrastructure related business.

 

5. Early Adoption of Stringent Regulatory Norms. Participation of leading international development Financial Institutions in the Company required the adoption of international standards of accounting, provisioning and capital adequacy. These were much more stringent than the norms prescribed by RBI and thus the Company thus has had little impact on account of the change in regulatory measures.

FUTURE STRATEGIES

The company’s future strategies are directed towards a healthy growth for each of its existing activities by ensuring that it gets adequate focus and remains a significant player in the market place. The company intends to work towards building an institution that is comparable to the best in the , maintaining the highest ethical standards, offering quality services and being committed to establishing and enhancing strong relationships with its clients. has a team of professional employees committed towards

The Company believes that in the emerging scenario in the financial sector large and strong players will play an increasingly active role in enabling development of a healthy financial sector and will get immense opportunities for organic and inorganic growth. With a strong capital base and dedicated team of competent and trained professionals, the Company is well poised to capitalise on the emerging opportunities.

The Company's strategy is to continue to expand its business in financing small and medium sized infrastructure projects. Over the long term, aims to gradually enhance the role of infrastructure financing keeping in line with the development of its competence in this segment and access to long term funding resources.

STOCK MARKET DATA

The high and low closing prices in the last three years recorded at the Calcutta Stock Exchange as well as the monthly high or low closing prices during the last six months recorded at the Calcutta Stock Exchange are shown below.

The closing share price of the Company’s stock on day after the Board Meeting approving the Rights Issue was Rs. 14.60 per share on Stock Exchange, Calcutta.

MANAGEMENT DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF THE OPERATIONS AS REFLECTED IN THE FINANCIAL STATEMENTS

FINANCIAL PERFORMANCE OF the company FOR PAST 5 YEARS

The financial performance of the Company during the last five years ended March 31, 1999, adjusted as per the clause 6.8 and 6.45 of the Guidelines for Disclosure for Investor Protection issued by SEBI, based on the report of the Auditors Report from M/s Deloitte Haskins & Sells, Chartered Accountants dated 18.2.2000 are as below.

All the notes to the accounts, significant accounting policies as well as the auditors’ qualifications have been incorporated in this Letter of Offer.

SREI INTERNATIONAL FINANCE LTD.

Balance-Sheet for the last five years .as per Schedule XI of DIP 2000.

( Rs. In crores)

Year ended March 31 1999 1998 1997 1996 1995

SOURCES :

Share Capital 48.19 48.15 77.97 60.69 12.49

Reserves 71.84 67.85 30.67 25.86 16.33 ------- ------- ------- ------- -------

Total Net Worth 120.03 116.00 108.64 86.55 28.82

Secured Loans :

Public Debentures 9.74 9.74 --- --- ---

Bank Borrowings 123.47 106.71 103.91 86.33 57.61

Institutional Loans 135.01 94.63 72.48 67.73 39.63

Bonds --- --- --- --- ---

-------- --------- --------- --------- ---------

Total 268.22 211.08 176.39 154.06 97.24

Unsecured Loans :

Public Deposits 16.83 24.77 29.38 14.94 5.83

Inter - Corporate Deposits 2.05 0.05 5.15 --- 0.77

------- -------- ------- -------- ------

Total 18.88 24.82 34.53 14.94 6.60

TOTAL LOANS 287.10 235.90 210.92 169.00 103.84

TOTAL SOURCES 407.13 351.90 319.56 255.55 132.66

APPLICATION OF FUNDS :

Gross Fixed Assets : 196.68 165.37 160.16 118.42 76.32

less: Dep. & LTA 55.73 41.08 29.88 20.31 11.55

------- -------- --------- -------- -------

Net Fixed Assets 140.96 124.28 130.28 98.11 64.77

Investments 25.31 21.81 13.18 1.78 0.44

Current Assets : 309.64 254.69 207.29 181.12 93.38

less: Current Liab. 73.14 53.93 35.12 29.23 26.88

--------- -------- -------- -------- -------

Net Working Capital : 236.50 200.76 172.17 151.89 66.50

Misc. Exp. Not W/off 4.36 5.05 3.93 3.77 0.95

------- ------- --------- -------- --------

407.13 351.90 319.56 255.55 132.66

P/L Account for the last five years.as per Schedule X of DIP 2000.

( Rs. In Crores)

Year ending march 31 1999 1998 1997 1996 1995

INCOME FROM OPERATIONS :

Leasing & Hire Purchase 76.46 69.17 59.28 52.27 28.81

Financial Services 2.53 4.08 6.99 1.08 4.32

Sale of Currencies & TC 21.10 17.36 12.80 0.61 ---

Other Income 0.11 --- 0.28 0.01 0.27

------ --------- -------- ------- -------

TOTAL INCOME 100.20 90.61 76.35 54.27 33.40 .

EXPENSES :

Purchase of Currencies & TC 20.86 17.16 12.65 0.60 ---

Staff Costs 2.25 2.08 1.49 1.01 0.59

Administrative expenses 4.63 5.65 6.25 4.19 2.32

Financial Expenses 41.68 36.94 32.39 24.09 11.15

Provision/Write off 4.06 6.54 0.50 0.06 0.08

Dep./Lease Equalization

Charge 17.56 16.00 13.06 12.31 8.19

------- ------- -------- ------- --------

Profit Before Tax : 9.16 6.24 13.01 12.01 11.07

Tax 0.95 0.65 --- --- ---

------ ------ ------- ------- --------

Profit after Tax 8.21 5.59 13.01 12.01 11.07

Dividend & dividend Tax 4.24 14.80 8.21 2.48 2.07

Transfer to/ (from) Resv. 3.97 (9.21) 4.80 9.53 9.00

In the opinion of the Board of Directors of the Company there have not arisen, since the date of the last financial statement disclosed in the Letter of Offer, viz., March 31, 1999, any circumstances that materially and adversely affects or is likely to affect the profitability of the Company or the value of its assets or its ability to pay its liabilities within the next twelve months.

I. SIGNIFICANT ACCOUNTING POLICIES

1. BASIS OF ACCOUNTING

The Company prepares its financial statements under historical cost convention and materially complies with generally accepted accounting practices , mandatory standards issued by the Institute of Chartered Accountants of India and also in accordance with the requirements of the Companies Act, 1956 and the prudential norms as stipilated by the Reserve Bank of India.

2. REVENUE RECOGNITION

2.1 Lease/ Hire Income

2.2 Expenses

2.3 Provisions

4. FIXED ASSETS & DEPRECIATION

5. INVESTMENTS

6. CURRENT ASSETS

7. STAFF BENEFITS

8. FOREIGN CURRENCY TRANSACTIONS

2. CONTINGENT LIABILITIES:

1. Estimated Amount of Capital Contracts remaining to be executed ( Net of Advances) : Rs. 15.00 lacs (P.Y. 138.76 lacs)
2. Foreign Letter of Credit issued by banks for acquiring asets for Lease / Hire Purchase : Rs. 194.06 lacs (P.Y. Rs. 462.22 lacs)
3. Disputed Sales Tax Demand : Rs. 22.54 lacs (P.Y. Rs. 13.26 lacs)
4. Disputed Income Tax Demand : Nil (P.Y. Rs. 8.86 lacs)
5. Partly Paid Shares : Rs. 4.00 lacs ( P.Y. Rs. 14.06 lacs)
6. Bank Gurantees issued Rs. 10.10 lacs ( P.Y. Rs. 1.50 lacs)
7. National Savings Certificate of Rs. 15,000/- included in investments is pledged with the Sales Tax Authority against registration.
8. The Company has securitised a part of stocks for hire resulting in Sales of future receivables with the undertaking that the collection of such receivables would be made the Company and remitted to the purchaser . As the deal is with recourse, the Company is contingently liable to the tune of Rs. 2.70 lacs (P.Y. Rs. 60.57 lacs).
9. The Company has entered into various agency agreements with Banka / Companies to make disbursements on their behalf and has given gurantees to them for the repayment of amounts payable under various hire purchase agreements / loans against which the disbursements were made. The future obligations in respect of the agreements / Loans for which the Company is contingently liable amount to Rs. 400.93 lacs (P.Y. Rs. 257.44 lacs).
10. The future obligation toward lease rentals against certain assets taken on lease is Rs. 542.15 lacs ( P.Y. Rs. 64.18 lacs).

4. Managerial Remuneration to Whole Time Directors

Rs. in lacs

2. Expenditure in Foreign Currency:

Expenditure incurred in foreign currency on interest, commitment fees, subscription to magazines, membership fees, travelling and service charges were at Rs.448.38 lacs (P.Y.Rs.264.78 lacs).

3.. The company has securitised a part of stocks for hire, resulting in sales of future receivables with the undertaking that the collection of such receivables would be made by the company and remitted to the purchaser. As the deal is with recourse, the company is contingently liable to the tune of Rs. 2.7 lacs (P.Y Rs. 60.57 lacs).

2. The Company has purchased and sold during the year investments in securities as under:

(Rs. in lacs)

Particulars in respect to Purchase, Sales and Closing Stock of Full-fledged Money Changing Operation

A. CURRENCY NOTES (Rs. in lacs)

A. TRAVELLERS’ CHEQUES (Rs. in lacs)

2. Figures have been regrouped wherever necessary.

3. Balance Sheet Abstract and Company’s General Business Profile Additional information pursuant to Part IV of Schedule VI.

a) Registration Details

Registration Number : 55352

State Code : 21

Balance Sheet Date : 31st March 1999

a) Capital raised during the year (Amount in Rs. ‘000)

Public Issue : Nil

Rights Issue : Nil

Bonus Issue : Nil

Private Placement : Nil

a) Position of Mobilisation and Deployment of Funds

( Amount in Rs. ‘000)

a) Performance of Company

(Amount in Rs. ‘000)

a) Generic Names of Three Principal Products/Services of Company (as per monetary terms)

Item Code No. (ITC) : NA

Product description : Leasing / Hire Purchase / Full Fledged Money Changer

There have been no significant changes in the accounting policies of the company over the last 5 years i.e for the period April 1994 to March 1999 :

Definitions of the Key Accounting Ratios