The process of roping in a strategic partner by IFCI management through the private placement of 26 per cent equity stake has hit a major roadblock with only one bidder – the consortium of Sterlite Industries and Morgan Stanley – qualifying and that too has sought management control, which is not in line with the bid pack that was given to potential suitors.
According to highly placed sources, at the 10-hour-long marathon meeting of the IFCI board that ended at 5 a.m. on Tuesday, institutional and government nominees stressed that IFCI’s character as a public finance institution must be retained and it could not be handed over to a private company. “If there is case of giving up management control, IFCI should have charged a controlling premium as in the case of Maruti Udyog where Suzuki Motor Corporation paid Rs 1,000 crore as controlling premium to the government. In addition, it should have made the matter public in the initial stage that could have attracted interest from more players,” sources in the institutions said. The board will meet again on December 19.
The consortium of Sterlite Industries and Morgan Stanley had submitted the bid at around Rs 110 per share. The consortium of Cargill Financial Services Corporation and Texas Pacific Group has submitted their interest at Rs 78 per share, while another consortium of Shinsei Bank of Japan, Punjab National Bank and JC Flowers bid at around Rs 85 per share. Since the last two bids were below the average price of Rs 107 it was rejected. The consortium of WL Ross, Goldman Sachs, Standard Chartered Bank and HDFC did not submit its bid and asked for an extension of 45 days since Goldman Sachs has been affected by sub-prime crisis.
IFCI Limited has approved issuing 12.37 crore shares at Rs 107 to public sector banks and insurance companies. In a bail out package of 2002, state-owned banks and insurance firm had given Rs 1,479 crore to IFCI as zero coupon optionally convertible debentures. Of this, Rs 1,323.59 crore has been converted into equity shares. This includes a little over Rs 1,000 crore from banks and the remaining Rs 300 crore from insurance firms.
The institutional nominee on the board, source said, had in fact demanded that the strategic investors should pay a significant premium to Rs 107 per share. “These banks and insurance firms have forgone their interest of the last five years. If the interest part were adjusted, the effective price would be much more. The strategic investors are coming at almost at the same level and asking for dominant position in the board,” questioned a nominee in the board meeting, sources said.
What is significant is that the management is reluctant to hand over the control since Sterlite Industries a leading corporate house and it could lead to a conflict of interest, sources said.
Following the confusion in the board meeting, IFCI’s share price plunged over 10 per cent in early morning trade. After dropping to an intra-day low of Rs 97.40, against yesterday's close of Rs 108.40, it closed at Rs 101.10.