Decision on IFCI bond conversion after review of business model

The government will review the business model of IFCI, the New Delhi-based finance company, before taking a decision on converting the debentures it holds into shares.

The government had played a key role in bailing out IFCI in 2000-01 by giving assistance of Rs 523 crore through zero-coupon, optionally-convertible debentures with a maturity of 20 years. “We need to have a relook at the business model and the ministry is seeking advice from a consultant on the matter,” said a senior finance ministry official.

Given the rapidly changing business landscape in the financial sector, the government wants to have comfort on the roadmap for IFCI. The official did not name the consultant and refused to elaborate on timeline for completing the process. The government has two nominees on the board of IFCI.

 

The erstwhile development finance institution had improved its financial health, said the official. For the quarter ended December 2009, it posted a 30 per cent rise in net profit to Rs 136 crore as against Rs 104.4 crore in October-December 2008.

IFCI also raised more than Rs.2,500 crore during the current period at competitive rates. Its capital adequacy ratio is around 17 per cent against the Reserve Bank of India’s (RBI’s) norm of 10 per cent.

It net non-performing assets were almost nil at the end of December 2009 and have not witnessed slippages during the last three years.

In August 2007, it kicked off the process to sell 26 per cent stake to a strategic investor and was to finalise a partner by January 2008. The process faced problems after the board set a minimum reserve price of Rs 107, which was considered steep. As a result, most prospective bidders withdrew. Of the three bids, two were for less than Rs 107 per share and were disqualified. Sterlite Industries-led consortium remained the sole bidder.

In December 2007, the board rejected the proposal submitted by the Sterlite-led consortium as it was conditional.