In a move that may set back the private placement of a 26 per cent stake in development finance institution IFCI, state-owned banks and insurance companies have rejected a plan to convert a part of its dues into equity. These institutions hold optionally convertible debentures against the Rs 1,478 crore interest-free debt they had provided IFCI in 2002.
According to highly placed sources, state-owned banks have insisted they want to convert their Rs 800 crore loans to IFCI into equity. And Life Insurance Corporation, which has a Rs 300 crore exposure, said it wants to retain its holding at the current 8.4 per cent after the private placement. Any conversion formula would have to take this into account, sources close to the deal said.
The banks and LIC conveyed their decision to IFCI earlier this month.
Sources in IFCI said the stake sale process was inclusive and would take some more time. However, IFCI executives were not available for comment on the new demand from creditors.
The finance ministry had, at a meeting with IFCI and its creditors in October, hammered out a formula where IFIC would convert up to half the Rs 1,478 crore debt into equity and the rest into bonds bearing interest at half a percentage point below the 10-year treasury bond.
IFCI, however, has offered to convert only 30 per cent of the creditors’ dues into equity and rest into debt bearing interest 150 basis points below the 10-year gilt, according to one of the bankers. “Since IFCI has decided to issue fresh equity to strategic investors, we are seeking to convert the debt into equity,” he added.