The privatisation process of IFCI, the oldest development financial institution in the country, has hit a roadblock. Around 30 lenders, led by Life Insurance Corporation of India and IDBI Bank, have lined up to convert their loans to IFCI into equity shares.
These institutions had given Rs 1,479 crore as optionally convertible interest-free debentures in 2002. The option is exercisable in April 2022.
As part of a compromise, the management of IFCI has decided to offer conversion of up to 50 cent of these debentures into equity shares at a price to be arrived on the basis of a Securities and Exchange Board of India formula, which is the average of the last six months’ stock price or the last six weeks’ price, whichever is higher.
The balance would be converted into interest-carrying debt, which would be linked to the interest rate on the 10-year gilt, said Atul Rai, chief executive and managing director of IFCI.
Rai, however, added that the ongoing strategic sale would be completed. “We have some internal targets, but the timing depends upon many factors,” he added.
A total of 10 bidders have participated in the first round of bidding for the sale of 26 per cent stake of IFCI. Two bidders, Kotak Mahindra Bank and Newbridge Capital, have dropped out. There were expectations that some more bidders would either drop out or join hands with other bidders, said Rai.
“In case the number of bidders comes down below a threshold so that the competitiveness of the process is under question, we will evaluate the process again,” said Rai.
“We will float requests for proposals within a week and expect to receive financial bids in two months. We expect to finalise the strategic investor in two-and-a-half months on the outside," Rai said after the board meeting.
According to a senior executive of one of the lending institutions, they are wiling to convert their shares but at a suitable price. “Since we have sacrificed our interest on these loans, these factors need to be considered before conversion,” he added.
Besides, the government has also given IFCI an interest-free loan of Rs 923 crore, on similar terms.
IFCI on Monday posted a four-fold jump in net profit at Rs 497.29 crore for the quarter ended September 30, from Rs 115.89 crore in the same period last year. Total income increased 81 per cent to Rs 595.60 crore from Rs 327.4 crore in the year-ago period.