IFCI Limited

IFCI asks bidders to discount govt aid

The IFCI board has ruled out government assistance up to Rs 1,300 crore due this fiscal. The strategic investor in IFCI must discount government’s support of up to Rs 1,300 crore, when making the final bid. The IFCI management has decided to communicate as much to the bidders, that this subsidy should be ruled out while arriving at a valuation for the 26% bid.

“The management has taken a view that government assistance will not be factored in. Though the government has made a budgetary provision of up to Rs 1,300 crore, it will not accrue to IFCI. The bidders will be well aware of this before they put in their financial bids later this month,” a source said.

“Once IFCI gets a strategic investor, the institution can do without government assistance. The assistance was first provided to help IFCI come out of the red. Now that it is back in the black, it might not need the assistance,” a government official had indicated.

This may potentially impact the price that bidders will be willing to pay IFCI. “If the government assistance is ruled out, it will have an impact on the profitability of the institution over a period of time. The government is always justified in bailing out public finance institutions. However, at another level, lesser intervention from the government is welcome,” one of the bidders which is a part of a consortium said.

The bidder was, however, positive about having International Finance Corporation on board saying, “It would be a stabilising factor and would add value.” The IFCI board is in consultation with the multilateral lender for equity stake of less than 20%. Further, conversion of government’s loan to IFCI worth Rs 923 crore into equity is ruled out at this stage. It will now be redeemed only in 2022 as per the original agreement.

Bidders were apprehensive that in the event that the government converted its debt into equity, it would have abridged the 26% that will be offered to the strategic investor. Besides, the government would be perceived as too large a player on the board, since it could reduce the control that the strategic investor could wield.

Already, state-owned banks and insurance companies, have a quasi-government stakeholding in the company, which makes it difficult for the strategic investor with 26% stake to vest management control in future. Last week, at its board meeting, the IFCI management resolved issues of debt conversion for its creditor banks by letting them convert debt worth Rs 1,479 crore into equity. After this change in equity structure, the stake of government -controlled firms in IFCI will rise to 39%.

Till date, of the eight shortlisted bidders, four have conducted due diligence. These include the Sterlite Industries and Morgan Stanley & Co consortium, the WL Ross, GS Capital Partners (VI) Fund, Standard Chartered Bank and HDFC combine, the Shinsei Bank, PNB and JC Flowers group and the Cargill Financial Services Corporation and Texas Pacific consortium.

The last date of submission for financial bids has been fixed as December 14. The IFCI board is expected to announce the strategic investor by December 20. The remaining bidders — GE Corporation, IDFC, Natixis and Blackstone Group — are yet to conduct due diligence on IFCI.

-----With due apologies and full credits to Economic Times