The stock market on Friday gave the thumbs down to the government decision to make IFCI, the Delhi-based finance company, a state-owned unit. The decision has raised questions over its business model and the fate of its chief executive.
IFCI (Industrial Finance Corporation of India) shares slumped 16.31 per cent, or Rs 5.70, to Rs 29.25 on the Bombay Stock Exchange on Friday on concerns the government's decision to convert optionally convertible debentures into shares would hugely lower the attractiveness of shares as the equity base would increase. The stock was the second biggest loser on the exchange on Friday.
Responding to the development and its implications, Atul Rai, the chief executive and managing director, said the company was yet to get a formal communication and was looking forward to what other shareholders had to say. Asked if he may have to quit his job following the development, Rai said at present he was very much with the company. He, however, did not rule out his exit from the post at the government’s behest.
Unfazed, officials said in Delhi the government would exercise its right, approved by the Cabinet yesterday.
After the conversion, government stake in IFCI would be 55.57 per cent. As of June 30, financial institutions, foreign and domestic combined, owned 42.91 per cent stake. Non-institutional investors such as corporate bodies and individuals owned the rest.
Asked if becoming a government company would change the business model, Rai said he expected some projects such as port development and road construction, being done through separate entities, would remain part of IFCI as they were important for infrastructure development. A senior executive with Indian Banks’ Association said after IFCI’s becoming a public sector undertaking, the government would play a crucial role in shaping the business mandate. Also, there would be closer scrutiny. The existing activities would come under review, he said.
The timeline for the proposed initial public offering of IFCI Factors Ltd, its subsidiary, could change, he added.
An analyst with rating agency ICRA, which tracks IFCI, said the conversion in debentures might not be a credit event, so it was not immediately put “under watch”. In July, ICRA had revised the outlook on the long-term ratings for the bond programmes and bank borrowings from ‘stable’ to ‘negative’. It had reaffirmed the rating at A. The rating of IFCI’s commercial paper was revised from ‘A1+’ to ‘A1’.
The possibility of the government exercising the option to convert optionally convertible debentures into equity had derailed the process of selling 26 per cent stake in the company to a strategic investor in 2007.
IFCI was converted into a company incorporated under the Companies Act, 1956 in 1993. It was then decided the holding of government-controlled institutions would be maintained above 51 per cent.