The IFCI deal is off. The IFCI board has decided to call off the exercise to rope in a strategic partner through the private placement of 26 per cent equity stake. The lone bidder that had qualified -- the consortium of Sterlite Industries and Morgan Stanley – had asked for virtual control of the institution's management with three nominees and two independent directors. In addition, Sterlite also wanted a covenant under which the appointment of the chief executive officer needs its affirmative consent.
Hindustan Times had reported earlier that the deal was likely to be called off. Rejecting the offer, the IFCI board said that the character of the public financial institution could not be altered and that management control cannot be given up to a private corporate house, sources in the company said.
Besides the conditions imposed by the consortium was much beyond the offer made by IFCI in the bid pack, which cannot be changed midway, felt the board.
Any alteration to the stipulated condition could have resulted in litigation, as it would have put other bidders at a disadvantage, said sources in the board. "Although the offer price was not an issue, the board was still reluctant to join hands with the consortium, as Sterlite Industries, being a leading corporate house, was not a strategic fit as an institutional investor,” sources said, adding that the two other bids were not legally tenable since they were below the Securities and Exchange Board of India's formula and much below the conversion price of Rs 107 per share
Secondly, the government, which has given IFCI Rs 923 crore as optionally convertible debentures at zero interest, could not continue with the grant in case management control is surrendered to a private company.
IFCI could now approach the government to release assistance of Rs 1,300 crore as promised in the last budget and also negotiate with the International Finance Corporation — the private sector lending arm of the World Bank — to raise $200 million.
On December 12, the government has written to the IFCI that it would not exercise its conversion option in respect of these debentures aggregating at Rs 923 crore at the moment. The government has also committed Rs 1,300 crore. However, it held back the assistance due to the fact the institution was raising funds through a strategic sale of 26 per cent stake. As per the letter, the government had stated that it would assist the company in case such a need arises.
Sources said that IFCI would request the government to release the assistance now that the process has been called off. Sources in the IFCI said it was in an advance stage of discussion with IFC (Washington) to raise around $200 million through private placement of fresh shares. In case the institution manages to mobilise funds from both these resources, it would have more than Rs 2,000 crore in liquid cash, which can be leverage to start disbursement, sources said.