SEC Company Response from IGC Pharma, Inc. (IGC) (CIK 0001326205) (IGC) — Apr 7, 2011
IGC Pharma, Inc. (IGC) (CIK 0001326205)
Date: April 7, 2011 · CIK: 0001326205 · Accession: 0001185185-11-000454
AI Filing Summary & Sentiment
Reasoning
Referenced dates: February 25, 2011
Letter
VIA EDGAR Securities and Exchange Commission Forms 10-K & 10-K/A for the Year Ended March 31, 2010 Forms 10-Q for the Periods Ended June 30, 2010, September 30, 2010 and December 31, 2010 Definitive Proxy Statement on Schedule 14A filed on July 23, 2010 File No. 1-32830
Dear Mr. Decker:
This is our response to the SEC Staff’s comments in your letter of February 25, 2011 to India Globalization Capital, Inc. (IGC) in regard to the above-referenced filings.
For your convenience, we have included each of the Staff’s comments in italics before each of IGC’s responses. References in this letter to “we,” “our” or “us” mean IGC or its advisors, as the context may dictate.
ss:
India Globalization Capital, Inc.
John Selvaraj,
Treasurer, Principal Accounting
and Financial Officer
1 of 52
FORM 10-K/A FOR THE YEAR ENDED MARCH 31, 2010
General
1. Where a comment below requests additional disclosures or other revisions to be made, please show us in your supplemental response what the revisions will look like. With the exception of the comments below that specifically request an amendment, all other revisions may be included in your future filings.
IGC response: In our responses below, we have indicated which comments we will address by amending IGC’s existing SEC filings and which comments we will address in subsequent filings. Unless we are told otherwise by the SEC, we will wait for the SEC’s comments on this response before amending our current filings. We will take the SEC’s comments from the letter dated February 25, 2011 into account in the preparation of subsequent filings.
Facing Page
2. You state here and in the September 30, 20l0 that India Globalization Capital’s Commission file number is 000-l326205. The EDGAR system reflects India Globalization Capital’s Commission file number as l-32830. Please revise.
IGC response: We will use 1-32830 as the file number in subsequent SEC filings.
Business
Core business competencies - page 4
3. Your disclosure states that IGC’s services to its customers are based upon several core competencies. Please identify and describe each of the core competencies, and expand the discussion under each of the core business areas to make clear which subsidiary is responsible for the core business area and to describe in sufficient detail what the subsidiary’s activities in the core business area are as well the percentage of your revenue generated by each area. Please also put the size of your operations in context as compared to the broader industry, economic, and country specific data that you provide. We note the disclosure under “Overview” on page 4.
IGC response:
Our core business competencies are:
1.
A sophisticated, integrated approach to project modeling, costing, management, and monitoring.
2.
In-depth knowledge of southern and central Indian infrastructure development.
3.
Knowledge of low cost logistics for moving commodities across long distances in specific parts of India.
4.
In-depth knowledge of the licensing process for mines and quarries in southern and central India.
5.
Strong relationships with several important construction companies that operate in southern and central India.
2 of 52
Our core business areas are:
1.
Highway and heavy construction. The Indian government has developed a plan to build and modernize Indian infrastructure. The Wall Street Journal reported on March 23, 2010 that the government plans to double infrastructure spending from $500 billion to $1 trillion. It will pay for the expansion and construction of rural roads, major highways, airports, seaports, freight corridors, railroads and townships. A significant number of our customers are engaged in highway and heavy construction. Our subsidiary Techni Bharathi Limited (‘TBL’), a small road building company, is engaged in highway and heavy construction activities. TBL has constructed highways, rural roads, tunnels, dams, airport runways, and housing complexes, mostly in southern states. TBL, because of its successful execution of contracts, is pre-qualified by the National Highway Authority of India (NHAI) and other agencies. TBL’s share of the overall Indian construction market is very small. However, TBL’s prequalification and prior track record provides a way to grow the company in highway and heavy construction. Currently, TBL is engaged in the recovery of construction delay claims that it is pursuing against NHAI, the Airport Authority of Cochin, and the Orissa State Works. Our share of the overall market in India is significantly less than 1%.
2.
Quarrying rock aggregate. Our subsidiary, IGC Materials Private Limited (‘IGC-MPL’), is responsible for our rock aggregate production. The subsidiary currently has two quarrying agreements with other equity joint venture local partners. The two quarries being mined have approximately 10 million to 11 million metric tons of rock aggregate, or about $40,000,000 of reserves at current prices. In addition IGC-MPL has applied, on its own, for licenses for mining and quarrying. IGC-MPL is also in active negotiations with other land and license owners to expand the number of producing quarries available to it. With the production of the two quarries in Nagpur, our subsidiary is one of the largest suppliers in the immediate area. Our share of the overall market in India is currently less than 1%. However, IGC-MPL has a growing regional presence in the Nagpur area.
3.
Mining and trading. This activity currently centers on the export of iron ore to China and the resale of iron ore to traders in India. India is the fourth largest producer of iron ore. The Freedonia Group projected in May 2010 that China’s $1.15 trillion construction industry will grow 9.1% every year until 2014. This growth will increase China’s already large demand for steel. China is expected to produce 600 million metric tons of steel in 2010, which, as The Wall Street Journal reported, is expected to be almost half of total global output. We believe that IGC is well positioned to provide some Chinese steel mills with the iron ore needed to meet their demand. Our subsidiary IGC Mining and Trading Private limited (IGC-IMT), based in Chennai, India, is engaged in the iron ore business. The subsidiary has relationships and in some cases agreements with mine owners in Orissa and Karnataka, two of the largest ore mining belts in India. In addition, it operates facilities at seaports on the west coast of India and to a lesser extent on the east coast of India. The facilities consist of an office and a plot of land within the port to store iron ore. Our staff is experienced in delivering and managing the logistics of ore transport. Our subsidiary services a customer in China by buying ore from Indian mine owners, transporting it to seaports and then subcontracting stevedores to load the ships. Our share of the export market for iron ore is less than 1%.
3 of 52
4.
Construction and maintenance of high temperature plants. Through our unconsolidated, minority interest in our affiliate, Sricon Infrastructure Private Limited (Sricon), we engage in the civil engineering, construction and maintenance of high temperature plants. Sricon also has the specialized skills required to build and maintain high temperature chimneys and kilns. Sricon’s share of this market in India is less than 1%. We currently hold equity in Sricon.
The following table sets out the revenue contribution from our subsidiaries, including our minority interest in Sricon:
Subsidiary
Revenue percentages
TBL
%
IGC-IMT
%
IGC-MPL
%
IGC-LPL
%
Sricon
%
Total
%
According to the global market researcher eMpulse, the construction industry’s total market size in India is approximately $53 Billion. According to Reuters, India exports about 100 million tons of iron ore per year. Prices for iron ore have averaged around $140 per metric ton. The rock aggregate market is India is approximately $3 billion. As noted above, our share of these markets is less than 1%.
Mining and Quarrying - page 4
4. Disclosure that IGC is in the process of teaming with landowners to build out rock quarries appears inconsistent with pictures on IGC’s website of what appear to be fully operational quarrying activities. Please reconcile the disclosure with the information on the website.
IGC response: We will amend the first paragraph under Mining and Quarrying in future filings as follows:
4 of 52
As Indian infrastructure modernizes, the demand for raw materials like stone aggregate, iron ore and similar resources is projected to greatly increase. In 2009, according to the Freedonia Group, India was the third largest stone aggregate market in the world. The report projected that Indian demand for crushed stone will increase to 770 million metric tons in 2013 and 1.08 billion metric tons in 2018. Through agreements with local partners, we operate two quarries in and near Nagpur, India. In addition, we have applied to the Indian government for licenses for the development of rock aggregate quarries but there can be no assurance that we will receive such licenses. We are also in the process of teaming with other landowners to build out more rock quarries.
We propose to caption the pictures on our Web site to indicate that the quarrying is being done through partnerships with owners of land and of quarrying licenses in and around Nagpur, Maharashtra India.
5. You disclose that you have licenses for the development of rock aggregate quarries. Please provide the following:
·
Please tell us and disclose what these licenses are and how and when were these licenses obtained;
IGC response: All quarrying or mining activities in India require a license. Obtaining a quarrying license is difficult and typically takes between twelve and eighteen months. The process involves a competitive application process. As discussed in our responses to comments 3 and 4 above, we do not directly hold any mining or quarrying licenses. However, Sricon holds licenses and we quarry under licenses held by our partners. In addition IGC-MPL has applied for licenses in its own name. The revised disclosure provided in our response to Comment 4 should clarify this point.
·
Please disclose whether these licenses are reflected on your balance sheet. If so, at what amount are these licenses recorded;
IGC response: As noted above, IGC and its subsidiary do not currently directly own any licenses. Therefore quarrying licenses are not reflected in IGC’s financial statements.
·
Please disclose how you accounted for the acquisition of these licenses;
IGC response: Because we do not currently directly own any licenses, we did not incur any acquisition costs for the licenses we are using.
·
Please summarize the material provisions of the licenses, including their duration. Further, advise what consideration you have given to filing the license agreements as exhibits to the 10-K. See Item 601(b)(10) of Regulation S-K.
IGC response: For all quarries, the licenses are granted for two years. The licenses are automatically renewed for additional periods of two years, provided that all royalty payments and taxes to the Indian government are paid up to date. The Kelzar and IGC-SIIPL agreements were not included as exhibits because they represented less than 5% of revenue and were not deemed to be material.
5 of 52
Risk Factors - page 7
General
6. We note the statement “These risk factors are not necessarily exhaustive and additional risk factors, if any, may be material or have significance to an individual investor.” Since India Globalization Capital must disclose all risks that it believes are material at this time, please delete the statement in future filings.
IGC response: We will delete the quoted statement from our future filings.
7. We note that you conduct substantially all of your operations outside of the United States. In order to enhance our understanding of how you prepare your financial statements and assess your internal control over financial reporting, we ask that you provide us with information that will help us answer the following questions.
a) In connection with your process to determine whether your internal control over financial reporting was effective, please describe whether and how you considered controls to address financial reporting risks that are relevant to all locations where you have operations. If you have an internal audit function, please describe it and explain how, if at all, that function impacted your evaluation of your internal control over financial reporting.
IGC response:
We have subsidiary operations primarily at four locations: Chennai, Bangalore, Nagpur and Cochin. All of these four locations are in India. At each of these locations, we have a well-defined finance function consisting of experienced people. We have implemented an internal control system at each of these locations that consists of an adequate segregation of duties and effective monitoring of critical processes. We believe that the major risk areas from a financial reporting perspective include the cash disbursement process, the expense approval process, and the contract delivery process. We have established effective monitoring mechanisms for each of these processes that include additional transaction approvals by authorized individuals who are not assigned to the subsidiary. We believe that these constitute our primary level of preventive controls.
Additionally, we augment our internal control system through an internal audit process conducted by an external firm at each of these locations. The mandate for internal audit includes testing of the existing internal control system as well as evaluation of effectiveness of the internal control system. Our internal auditors issue separate internal audit reports based on the testing. We use these internal audit reports as a basis for evaluating whether there are any changes required in the internal control system. These are our primary detective controls.
Please also refer to our response to query 7(b) below to understand our processes and controls over preparation of financial statements.
6 of 52
b) If you maintain your books and records in accordance with U.S. GAAP, describe the controls you maintain to ensure that the activities you conduct and the transactions you consummate are recorded in accordance with U.S. GAAP. If you do not maintain your books and records in accordance with U.S. GAAP, tell us what basis of accounting you use and describe the process you go through to convert your books and records to U.S. GAAP for SEC reporting. Describe the controls you maintain to ensure that you have made all necessary and appropriate adjustments in your conversions and disclosures.
IGC response: We maintain our books in accordance with U.S. GAAP in U.S. dollars for the parent company, IGC, and its subsidiary, IGC-Mauritius. For the Indian subsidiaries, we maintain books in accordance with Indian GAAP denominated in Indian rupees (INR).
As part of the closing procedures we convert from Indian GAAP to U.S. GAAP including translation into USD for the purpose of consolidation. While our teams have gone through internal training programs in U.S. GAAP adjustments that affect IGC, recently, we have also appointed a large international accounting firm, based out of India, on a retainer, as our accounting advisor and for any non-recurring transactions, clarification or guidance needed. Our teams have access to professional accountants with relevant experience. We currently perform this functio
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CORRESP
1
filename1.htm
indiaglobal-corresp040511.htm
India Globalization Capital, Inc.
4336 Montgomery Avenue
Bethesda, Maryland 20814
Phone: 301-983-0998
Fax: 240-465-0273
April 7, 2011
VIA EDGAR
Securities and Exchange Commission
100 F. Street, N.E.
Washington, D.C. 20549
Attn: Rufus Decker
Accounting Branch Chief
Re:
India Globalization Capital, Inc.
Forms 10-K & 10-K/A for the Year Ended March 31, 2010
Forms 10-Q for the Periods Ended June 30, 2010, September 30, 2010 and December 31, 2010
Definitive Proxy Statement on Schedule 14A filed on July 23, 2010
File No. 1-32830
Dear Mr. Decker:
This is our response to the SEC Staff’s comments in your letter of February 25, 2011 to India Globalization Capital, Inc. (IGC) in regard to the above-referenced filings.
For your convenience, we have included each of the Staff’s comments in italics before each of IGC’s responses. References in this letter to “we,” “our” or “us” mean IGC or its advisors, as the context may dictate.
ss:
India Globalization Capital, Inc.
John Selvaraj,
Treasurer, Principal Accounting
and Financial Officer
1 of 52
FORM 10-K/A FOR THE YEAR ENDED MARCH 31, 2010
General
1. Where a comment below requests additional disclosures or other revisions to be made, please show us in your supplemental response what the revisions will look like. With the exception of the comments below that specifically request an amendment, all other revisions may be included in your future filings.
IGC response: In our responses below, we have indicated which comments we will address by amending IGC’s existing SEC filings and which comments we will address in subsequent filings. Unless we are told otherwise by the SEC, we will wait for the SEC’s comments on this response before amending our current filings. We will take the SEC’s comments from the letter dated February 25, 2011 into account in the preparation of subsequent filings.
Facing Page
2. You state here and in the September 30, 20l0 that India Globalization Capital’s Commission file number is 000-l326205. The EDGAR system reflects India Globalization Capital’s Commission file number as l-32830. Please revise.
IGC response: We will use 1-32830 as the file number in subsequent SEC filings.
Business
Core business competencies - page 4
3. Your disclosure states that IGC’s services to its customers are based upon several core competencies. Please identify and describe each of the core competencies, and expand the discussion under each of the core business areas to make clear which subsidiary is responsible for the core business area and to describe in sufficient detail what the subsidiary’s activities in the core business area are as well the percentage of your revenue generated by each area. Please also put the size of your operations in context as compared to the broader industry, economic, and country specific data that you provide. We note the disclosure under “Overview” on page 4.
IGC response:
Our core business competencies are:
1.
A sophisticated, integrated approach to project modeling, costing, management, and monitoring.
2.
In-depth knowledge of southern and central Indian infrastructure development.
3.
Knowledge of low cost logistics for moving commodities across long distances in specific parts of India.
4.
In-depth knowledge of the licensing process for mines and quarries in southern and central India.
5.
Strong relationships with several important construction companies that operate in southern and central India.
2 of 52
Our core business areas are:
1.
Highway and heavy construction. The Indian government has developed a plan to build and modernize Indian infrastructure. The Wall Street Journal reported on March 23, 2010 that the government plans to double infrastructure spending from $500 billion to $1 trillion. It will pay for the expansion and construction of rural roads, major highways, airports, seaports, freight corridors, railroads and townships. A significant number of our customers are engaged in highway and heavy construction. Our subsidiary Techni Bharathi Limited (‘TBL’), a small road building company, is engaged in highway and heavy construction activities. TBL has constructed highways, rural roads, tunnels, dams, airport runways, and housing complexes, mostly in southern states. TBL, because of its successful execution of contracts, is pre-qualified by the National Highway Authority of India (NHAI) and other agencies. TBL’s share of the overall Indian construction market is very small. However, TBL’s prequalification and prior track record provides a way to grow the company in highway and heavy construction. Currently, TBL is engaged in the recovery of construction delay claims that it is pursuing against NHAI, the Airport Authority of Cochin, and the Orissa State Works. Our share of the overall market in India is significantly less than 1%.
2.
Quarrying rock aggregate. Our subsidiary, IGC Materials Private Limited (‘IGC-MPL’), is responsible for our rock aggregate production. The subsidiary currently has two quarrying agreements with other equity joint venture local partners. The two quarries being mined have approximately 10 million to 11 million metric tons of rock aggregate, or about $40,000,000 of reserves at current prices. In addition IGC-MPL has applied, on its own, for licenses for mining and quarrying. IGC-MPL is also in active negotiations with other land and license owners to expand the number of producing quarries available to it. With the production of the two quarries in Nagpur, our subsidiary is one of the largest suppliers in the immediate area. Our share of the overall market in India is currently less than 1%. However, IGC-MPL has a growing regional presence in the Nagpur area.
3.
Mining and trading. This activity currently centers on the export of iron ore to China and the resale of iron ore to traders in India. India is the fourth largest producer of iron ore. The Freedonia Group projected in May 2010 that China’s $1.15 trillion construction industry will grow 9.1% every year until 2014. This growth will increase China’s already large demand for steel. China is expected to produce 600 million metric tons of steel in 2010, which, as The Wall Street Journal reported, is expected to be almost half of total global output. We believe that IGC is well positioned to provide some Chinese steel mills with the iron ore needed to meet their demand. Our subsidiary IGC Mining and Trading Private limited (IGC-IMT), based in Chennai, India, is engaged in the iron ore business. The subsidiary has relationships and in some cases agreements with mine owners in Orissa and Karnataka, two of the largest ore mining belts in India. In addition, it operates facilities at seaports on the west coast of India and to a lesser extent on the east coast of India. The facilities consist of an office and a plot of land within the port to store iron ore. Our staff is experienced in delivering and managing the logistics of ore transport. Our subsidiary services a customer in China by buying ore from Indian mine owners, transporting it to seaports and then subcontracting stevedores to load the ships. Our share of the export market for iron ore is less than 1%.
3 of 52
4.
Construction and maintenance of high temperature plants. Through our unconsolidated, minority interest in our affiliate, Sricon Infrastructure Private Limited (Sricon), we engage in the civil engineering, construction and maintenance of high temperature plants. Sricon also has the specialized skills required to build and maintain high temperature chimneys and kilns. Sricon’s share of this market in India is less than 1%. We currently hold equity in Sricon.
The following table sets out the revenue contribution from our subsidiaries, including our minority interest in Sricon:
Subsidiary
Revenue percentages
TBL
22
%
IGC-IMT
56
%
IGC-MPL
3
%
IGC-LPL
2
%
Sricon
17
%
Total
100
%
According to the global market researcher eMpulse, the construction industry’s total market size in India is approximately $53 Billion. According to Reuters, India exports about 100 million tons of iron ore per year. Prices for iron ore have averaged around $140 per metric ton. The rock aggregate market is India is approximately $3 billion. As noted above, our share of these markets is less than 1%.
Mining and Quarrying - page 4
4. Disclosure that IGC is in the process of teaming with landowners to build out rock quarries appears inconsistent with pictures on IGC’s website of what appear to be fully operational quarrying activities. Please reconcile the disclosure with the information on the website.
IGC response: We will amend the first paragraph under Mining and Quarrying in future filings as follows:
4 of 52
As Indian infrastructure modernizes, the demand for raw materials like stone aggregate, iron ore and similar resources is projected to greatly increase. In 2009, according to the Freedonia Group, India was the third largest stone aggregate market in the world. The report projected that Indian demand for crushed stone will increase to 770 million metric tons in 2013 and 1.08 billion metric tons in 2018. Through agreements with local partners, we operate two quarries in and near Nagpur, India. In addition, we have applied to the Indian government for licenses for the development of rock aggregate quarries but there can be no assurance that we will receive such licenses. We are also in the process of teaming with other landowners to build out more rock quarries.
We propose to caption the pictures on our Web site to indicate that the quarrying is being done through partnerships with owners of land and of quarrying licenses in and around Nagpur, Maharashtra India.
5. You disclose that you have licenses for the development of rock aggregate quarries. Please provide the following:
·
Please tell us and disclose what these licenses are and how and when were these licenses obtained;
IGC response: All quarrying or mining activities in India require a license. Obtaining a quarrying license is difficult and typically takes between twelve and eighteen months. The process involves a competitive application process. As discussed in our responses to comments 3 and 4 above, we do not directly hold any mining or quarrying licenses. However, Sricon holds licenses and we quarry under licenses held by our partners. In addition IGC-MPL has applied for licenses in its own name. The revised disclosure provided in our response to Comment 4 should clarify this point.
·
Please disclose whether these licenses are reflected on your balance sheet. If so, at what amount are these licenses recorded;
IGC response: As noted above, IGC and its subsidiary do not currently directly own any licenses. Therefore quarrying licenses are not reflected in IGC’s financial statements.
·
Please disclose how you accounted for the acquisition of these licenses;
IGC response: Because we do not currently directly own any licenses, we did not incur any acquisition costs for the licenses we are using.
·
Please summarize the material provisions of the licenses, including their duration. Further, advise what consideration you have given to filing the license agreements as exhibits to the 10-K. See Item 601(b)(10) of Regulation S-K.
IGC response: For all quarries, the licenses are granted for two years. The licenses are automatically renewed for additional periods of two years, provided that all royalty payments and taxes to the Indian government are paid up to date. The Kelzar and IGC-SIIPL agreements were not included as exhibits because they represented less than 5% of revenue and were not deemed to be material.
5 of 52
Risk Factors - page 7
General
6. We note the statement “These risk factors are not necessarily exhaustive and additional risk factors, if any, may be material or have significance to an individual investor.” Since India Globalization Capital must disclose all risks that it believes are material at this time, please delete the statement in future filings.
IGC response: We will delete the quoted statement from our future filings.
7. We note that you conduct substantially all of your operations outside of the United States. In order to enhance our understanding of how you prepare your financial statements and assess your internal control over financial reporting, we ask that you provide us with information that will help us answer the following questions.
a) In connection with your process to determine whether your internal control over financial reporting was effective, please describe whether and how you considered controls to address financial reporting risks that are relevant to all locations where you have operations. If you have an internal audit function, please describe it and explain how, if at all, that function impacted your evaluation of your internal control over financial reporting.
IGC response:
We have subsidiary operations primarily at four locations: Chennai, Bangalore, Nagpur and Cochin. All of these four locations are in India. At each of these locations, we have a well-defined finance function consisting of experienced people. We have implemented an internal control system at each of these locations that consists of an adequate segregation of duties and effective monitoring of critical processes. We believe that the major risk areas from a financial reporting perspective include the cash disbursement process, the expense approval process, and the contract delivery process. We have established effective monitoring mechanisms for each of these processes that include additional transaction approvals by authorized individuals who are not assigned to the subsidiary. We believe that these constitute our primary level of preventive controls.
Additionally, we augment our internal control system through an internal audit process conducted by an external firm at each of these locations. The mandate for internal audit includes testing of the existing internal control system as well as evaluation of effectiveness of the internal control system. Our internal auditors issue separate internal audit reports based on the testing. We use these internal audit reports as a basis for evaluating whether there are any changes required in the internal control system. These are our primary detective controls.
Please also refer to our response to query 7(b) below to understand our processes and controls over preparation of financial statements.
6 of 52
b) If you maintain your books and records in accordance with U.S. GAAP, describe the controls you maintain to ensure that the activities you conduct and the transactions you consummate are recorded in accordance with U.S. GAAP. If you do not maintain your books and records in accordance with U.S. GAAP, tell us what basis of accounting you use and describe the process you go through to convert your books and records to U.S. GAAP for SEC reporting. Describe the controls you maintain to ensure that you have made all necessary and appropriate adjustments in your conversions and disclosures.
IGC response: We maintain our books in accordance with U.S. GAAP in U.S. dollars for the parent company, IGC, and its subsidiary, IGC-Mauritius. For the Indian subsidiaries, we maintain books in accordance with Indian GAAP denominated in Indian rupees (INR).
As part of the closing procedures we convert from Indian GAAP to U.S. GAAP including translation into USD for the purpose of consolidation. While our teams have gone through internal training programs in U.S. GAAP adjustments that affect IGC, recently, we have also appointed a large international accounting firm, based out of India, on a retainer, as our accounting advisor and for any non-recurring transactions, clarification or guidance needed. Our teams have access to professional accountants with relevant experience. We currently perform this functio