IFCI conversion plan in a spot

The creditor banks and insurance companies of IFCI have toughened their stand against the troubled term lender's proposal on conversion of debentures held by them.

At a meeting in New Delhi today, State Bank of India (SBI) and others demanded that 100 per cent of the zero-coupon optionally convertible debentures (OCDs) held by them should be converted into equity shares.

The five public sector insurance companies, including Life Insurance Corporation, wanted IFCI to work out a conversion formula whereby their stake in the term lender remained at current levels after the proposed induction of a strategic partner with a 26 per cent stake.

A total of 30 banks and financial institutions had invested a combined Rs 1,479 crore in the debentures of IFCI in 2002 as part of a government-sponsored restructuring package.

Though the debentures were originally convertible in 2022, a proposal for part conversion is now being mooted because IFCI is inducting a strategic partner and is now in the green. But the profits have been largely due to sale of investments and settlement of bad loans.

"Banks were unanimous and turned up in huge numbers at the meeting arranged by IFCI with the lenders. Banks have asked for a 100 per cent convertibility, for the OCDs. But the insurance companies, who are also the shareholders in IFCI, said that they were long term investors and wanted to maintain their current stake. They were optimistic that a turnaround will happen and hence did not want their stakes to be diluted. Insurance companies have also said that remaining OCDs should draw a good interest rate," said an official from one of the lenders who attended the meeting.

In a letter to its lenders last month, IFCI had offered to convert 30 per cent of the zero-coupon holding along with other debt into equity, as per the SEBI conversion formula.

Besides, the remaining debt amount would draw an interest at a rate that is 150 basis points lower than the 10-year government securities.