IFCI plans to invite bids from investors for sale of 26% in the early week of July. The institution has decided to make public a ‘memorandum of information’ inviting interested parties, said senior IFCI officials.
They said that IFCI has decided not to convert itself into a bank, but continue as a term-lending institution. “If we become a bank, we would be like any other. We may not even rank among the top 10 banks in India. Further, a bank has to follow directed lending rules, invest one-fourth of its deposits in government securities, and another 5.5% has to be deposited with RBI in the form of cash reserve ratio. These stipulations are not there for FIs,” they said. IFCI officials added they would instead aim at being a world-class term-lending institution.
According to the plan, strategic investors will have to make bids within a month of the `memorandum of information’ being made public. Following this, IFCI will shortlist some investors. These investors will be allowed to do a detailed due diligence and submit a fresh bid indicating the price they are willing to pay for the 26% stake. Based on the second round of bids, the IFCI board will decide on the new stakeholder. “We would want a strong partner, be it an Indian entity or from overseas. They should be able to add value to the company,” said IFCI officials.
Following the induction of the new shareholder, the equity base of IFCI will expand and the shareholding of existing investors will come down. As of now, Life Insurance Corporation is the single-largest shareholder with 8.4%, followed by IDBI Bank at 5%. A large chunk of 26% stake is held by the public, another 21.8% is with foreign institutional investors, and 13.6% is held by private corporate entities. The entire process of diluting stake may take three-six months.
Banking analysts feel that IFCI, which has accumulated losses of Rs 800 crore, may see a turnaround this year with a fresh infusion of funds by the new shareholder and recovery of bad loans.
IFCI plans to hive off a part of its stressed asset portfolio in the asset reconstruction company Assets Care Enterprise (ACE) — a company in which Cargill Value Investment proposes to acquire 49% stake. Last October, RBI had said IFCI’s ARC licence would lapse, if it did not start operations within six months. Recently, the FI was granted an extension of six months to start ARC operations.
Source : Economic Times