The government has revived efforts to divest 26 per cent in IFCI Ltd, the country’s oldest financial institution, to a strategic partner. An earlier attempt at this was called off in December 2007.
The government is believed to be pushing the institution to rope in a strategic partner to strengthen its balance sheet. The process is expected to start in the next quarter, starting October.
Differences, however, persist over whether the new partner should be given management control. This was what had caused the IFCI board to cancel the process last year after the lone bidder, the Sterlite Industries-Morgan Stanley-led consortium, demanded management control.
Although the government is keen to give the successful bidder some management control, sources say the IFCI’s management is reluctant to do so on grounds that the institution has improved its performance over the last couple of years.
For 2007-08, its net profit was Rs 1,022 crore, as against Rs 898 crore in the previous year. The institution earned a profit of Rs 151 crore in the first quarter of the current financial year despite a slowdown in industrial growth.
Claiming that the process of finding a strategic partner “had never stopped”, a senior IFCI official said handing over management control was “unlikely” given IFCI’s robust results.
The bidding process last year was fraught with problems after the board set a minimum reserve price of Rs 107, which was considered too steep. As a result, most prospective bidders withdrew. Of the three bids, two were for less than Rs 107 per share and were disqualified.
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The reserve price of Rs 107 was fixed under a formula mandated by the Securities and Exchange Board of India (Sebi) that was applied for the conversion of debt worth Rs 1,324 crore held by Life Insurance Corporation of India, State Bank of India, Punjab National Bank, among other banks and institutions, into equity shares. IFCI issued equity shares worth Rs 12.37 crore to these entities.
However, the share price has crashed from Rs 101 on December 18, 2007, to Rs 49 now, which would lower the reserve price.
Meanwhile, Sterlite sources said the company would re-bid only if IFCI decided to give “some management control”.