Ifci Still Enjoys Good Icra Rating

IFCI continues to enjoy a MAA- rating from rating agency Icra, which indicates high safety, and that "the prospect of timely servicing of interest and principal as per terms is high" even though the institution has acknowledged that it is facing a liquidity crunch.

The crisis can clearly be attributed to its failure to generate enough cash from financial operations. With the institution making a huge net loss of Rs 265.93 crore in 2000-01, the drain on its cash position is obvious.

Between 1996-97 and 2000-01, IFCI had an aggregate cash inflow of only Rs 532.33 crore after providing for dividends on its equity and preference shares.

 

IFCI's current liquidity crunch has been aggravated by its net non-performing assets (NPAs) of 4,102.6 crore as on March 31, 2001, which amount to 20.7 per cent of its total net assets of Rs 19,840 crore.

Of the total NPAs, the top 100 cases by size accounted for Rs 2,504 crore -- 13 per cent of net assets and 61 per cent of total NPAs of the institution.

IFCI has a pressing problem on its hands as it has to redeem part of the privately placed bonds of Rs 2,118 crore, part of which came up for redemption on July 20, 2001.

Now, these bonds are to be redeemed in parts over a ten-year period, so the cash outflows over the next 10 years has to be provided for.

Secondly, bonds worth Rs 350 crore, bearing a coupon of 11 per cent, are to be redeemed within seven months from now.

Third, IFCI has to provide for interest accrued on its outstanding bonds and borrowings. In its balance sheet at the end of March 2000, IFCI classified an amount of Rs 765.77 crore as "interest accrued but not due on bonds and borrowings". The institution has not put out its balance sheet for 2000-01.

IFCI could clearly have seen the cash crunch coming its way as its internal accruals did not provide enough cushion for meeting future liabilities.

According to the institution's annual report, IFCI sourced an additional Rs 5879.29 crore between 1997-98 and 1999-2000 from equity capital, reserves and surplus, liabilities and loans funds.

Though the institution pumped in Rs 743.64 crore through increasing its equity capital, it sourced an additional Rs 5,135.34 crore through rupee loans and Rs 317.78 crore from borrowings in foreign currency.

But its cash flow from reserves and surplus was negative at Rs 444.06 crore during the same period.

Borrowings were utilised for providing loans to the corporate sector. A total of Rs 3,881 crore was disbursed into new projects and refinancing the old ones.

The institution also made fresh investment of Rs 1,531 crore in equities and preference shares and convertible debenture of assisted units.`