IFCI reduces coupon on 10-year bond

Industrial Finance Corporation of India (IFCI), in less than a fortnight, has revised downwards the coupon it would offer on 70 per cent of the Rs 1,479 crore zero coupon bonds, after it converts the rest into equity shares.

The term lender has decided to offer an interest rate of 150 basis points below the yield on the 10-year government bond and not 50 basis points as stated earlier.

"The company sent another letter yesterday saying that it would offer a yield 150 basis points below the benchmark rate. It said that the earlier offer of 50 basis points was a printing error," said a senior official of a large public sector bank.

IFCI had on October 15 offered lenders an option to convert 30 per cent of their Rs 1,479 crore zero coupon optionally convertible debentures into equities, according to Sebi guidelines.

The outstanding portion of Rs 1,035.3 crore was to carry a coupon of 50 basis points below the the 10-year government bond yield. The lenders had been asked to consider the offer by October 25.

Public sector banks and financial institutions had converted 50 per cent of their non-SLR exposure into zero coupon optional bonds, which are convertible in 2022, as part of a debt restructuring exercise of IFCI undertaken in 2002-03.

However, lenders wanted to exercise the option for conversion before IFCI offloaded a 26 per cent stake to a strategic private investor.

IFCI has already short-listed eight entities out of 10 which had expressed interest to buy 26 per cent stake. IFCI, which was posting losses earlier, has posted a net profit of Rs 744 crore in the first half of 2007-08, on the back of Rs 874 crore profit for 2006-07.

Banks had demanded conversion of 50 per cent of the zero coupon bonds into equity and a coupon equivalent to the yield on the prevailing benchmark rate on the outstanding amount.

"The general feeling is that banks will seek a revision on the present offer. There were reservations about the previous offer also on benchmarking to a 10-year paper. The residual maturity on the bonds is 15 years. So it should have been benchmarked to a 15-year government security," said the treasury head of another large public sector bank.

Life Insurance Corporation, which holds around Rs 500 crore of zero coupon bonds issued by IFCI, has already written to the government expressing concerns on the previous offer.