Govt unlikely to convert IFCI debt into equity

Life Insurance Corporation of India11.35 Industrial Development Bank of India4.2 FID Funds (Mauritius)3.93 General Insurance Corporation of India2.18 Deutsche Securities Mauritius1.81  The erstwhile development financial institution informed the Bombay Stock Exchange that its board will meet on June 12 to "take a further view on the issues related to the induction of strategic investor and optionally convertible debentures (OCDs) held by government of India" and consider follow-up measures for reduction of stake of one of the shareholders by about 3 per cent.  After the sale process was called off, IFCI informed the finance ministry about the failure of talks and problems cited by the bidders. North Block recently asked IFCI to seek advice on how the government could maximize its returns on the optionally convertible debentures of around Rs 900 crore. The NBFC then appointed Ernst & Young, Edelweiss and Centrum as consultants.  The recommendations were submitted and last month, the board held one round of discussions, with another meeting slotted for next week.  While IFCI Chief Executive Officer Atul Rai could not be contacted, the company's spokesperson refused to comment on the matter. He also did not react to reports that Punjab National Bank was the likely strategic investor.  According to sources, there would be investors only if there was clarity on what the government would do with the OCDs. One of the options recommended by the consultants was to covert the OCDs which carry virtually no returns into non-convertible debentures that earn 8-9 per cent.  "The move will also make it clear to potential bidders that it is debt from the government," said a source familiar with the matter.  The government already has a considerable clout due to its position on the board and the shareholding of state-run banks and financial institutions. Given the present ownership pattern, a conversion into equity could mean over 10 per cent direct holding by the government.  Besides, sources said, it may be tough for the government to convert the OCDs into equity and later exit the NBFC since it was now a profit-making entity. Under current policy, the government cannot sell its stake in profit-making companies.  Sources said the move to allow LIC to reduce its holdings by 3 per cent from 11.35 per cent at the end of March follows the insurer's decision to pare its holdings to earlier levels.  While one option was to allow a write-down of capital, sources said, legal opinion had been sought. The move will be in line with the provisions of the Companies Act, which also involved going through a judicial process.  The shares of IFCI closed 5 per cent higher at Rs 61.05 on the Bombay Stock Exchange.

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