IFCI bows to creditor banks

Board approves 100% conversion of debentures into equity shares

The board of directors of IFCI Ltd, the troubled term lender which is trying to induct a strategic investor, today approved conversion of all debentures held by creditor banks into equity shares.

The board also ratified partial conversion of debentures held by insurance companies to retain their existing equity stake in the company once fresh shares have been issued to strategic investors.

The remaining debentures held by insurance companies will carry an interest rate that is 75 basis points below 15-year government securities for the first three years of induction of a strategic investor and 75 bps above 15-year G-secs thereafter.

IFCI had issued debentures worth Rs 1,479 crore in 2002-03 to banks and insurance companies, as part of a restructuring package worked out by the government to bail out the country's oldest financial institution that had built up a huge portfolio of bad loans.

Banks held 60 per cent of the debentures, while the remaining 40 per cent were held by insurance companies including LIC and GIC.

IFCI had earlier proposed to convert only 30 per cent of the Rs 1,479 crore of debentures and fix an interest of 150 basis points below the 10-year government bond yield on the unconverted debentures.

However, in a meeting with IFCI on November 8, creditor banks had demanded that all the zero-coupon optionally convertible debentures held by them be converted into equity.

The company, which will give 26 per cent stake to a strategic partner on post-diluted basis, today said that it is also in talks with multilateral institutions to selling a stake in the company.

Out of 10 applicants from whom expressions of interest were received, IFCI had shortlisted eight bidders. Out of the eight shortlisted bidders, four consortiums have carried out due diligence on IFCI.

These are - Sterlite Industries and Morgan Stanley; WL Ross, GS Capital Partners VI Fund , Standard Chartered Bank and HDFC; Cargill Financial Services Corporation and Texas Pacific Group; and Shinsei Bank Ltd, PNB and JC Flowers & Co.

The last date of submission for financial bids has been fixed as December 14, 2007.