IFCI, the term-lending company which failed to get a strategic partner in 2007 after many months of negotiations, will soon have the government directly own 12% of the company diminishing its chances of reviving the stake sale.
The government is contemplating converting its 20-year zero coupon optionally convertible debentures worth Rs 523 crore into IFCI equity shares, said a person familiar with the development.
IFCI has limped back to life with government aid after it was crippled by bad loans given in the late 1990s. In 2007, it called for bids for a strategic stake which drew investors such as J.C. Flowers, Morgan Stanley, Infrastructure Development Finance Co. and Kotak Mahindra among others. But the stake sale was scrapped after many months of arduous negotiations since IFCI was unwilling to cede management control.
The New Delhi-based lender is owned by 19% by state-owned companies such as Life Insurance Corporation of India, IDBI Bank and Punjab National Bank, among others. The government does not own a stake now. “We are exploring various options, including conversion into equity shares,” said a senior official in the government familiar with the matter. After conversion, the combined holding of the government along with other stated owned financial institutions would be more than 30%. The conversion would happen according to the market regulator Sebi’s prescribed formula, under which the conversion price is fixed as higher of the average price of the last six months or six weeks, according to the official. This would be the first instance when the government is taking equity stake in the institution. IFCI has a paid up capital of Rs 737.84 crore.
The government, which had played a key role in the bailout of IFCI in 2000-01 and also given Rs 523 crore as zero coupon optionally convertible debentures with maturity period of 20 years, has two nominees on the board of IFCI along with some of the institutional representatives.
The board of IFCI had already suggested to the government that it should convert the debentures into interest bearing instruments linked with the 10-year securities. An IFCI spokesperson said he was not aware of any such development.
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