IFCI tightens grip on tourism company

Likely to look for more say in Tourism Finance Corporation of India

IFCI, which is negotiating with bidders to sell a 26 per cent stake, is slowly tightening its grip over Tourism Finance Corporation of India (TFCI), a highly successful lender to the booming hospitality and tourism sector in India.

IFCI has hiked its stake from 18 per cent to 21.24 per cent through the creeping acquisition route, giving enough indications that it wants a major say in this company.

It is likely that the board of TFCI, which is meeting tomorrow to decide on a qualified institutional placement (QIP), will give IFCI the preference to buy a further stake in the company in proportion to its stake.

The hike in stake in TFCI by the Delhi-based financial institution is in sharp contrast to its investments in rating agency Icra and the National Stock Exchange.

IFCI exited its entire 21 per cent stake in Icra and also sold 7 per cent of its 12.44 per cent stake in NSE in January this year. The sale of NSE shares fetched IFCI nearly Rs 640 crore, while it got another Rs 39 crore when it exited from Icra at the time of the latter's IPO early this year.

Sources said IFCI, which is the single biggest stakeholder in the company (others being SBI and LIC, which control 7 and 6 per cent respectively), sees its investment in TFCI as "strategic in nature" and not just financial investment. Already, a representative of IFCI is on the board of TFCI.

"Strategic investors, who are bidding for the IFCI stake, may be eyeing a possible role in TFCI as well," said an investment banker on condition of anonymity.

Expecting new investors to put the company's growth on a fast pace, investors have been accumulating TFCI's shares in recent days. The stock has climbed 28 per cent to Rs 42.65 since last Tuesday.

On a falling market on Tuesday, the stock hit the upper circuit of 10 per cent. Foreign investors such as Copthall and Bluebay also hiked their stake in TFCI by nearly 2 per cent to 6 per cent and 7.15 per cent respectively, according to the filings on the Bombay Stock Exchange.

TFCI officials, while declining to comment on the QIP issue, said they were bullish on the growth in the hospitality and tourism industry. According to analysts at Crisil, the number of five-star luxury rooms will increase to 58,000 in the country's 12 biggest cities in five years from 27,500.

Room tariffs at luxury hotels will rise at a slower pace to Rs 11,200 a night by 2012 from Rs 8,900.

The tourism industry in India is set to grow by an average 7.9 per cent between 2008 and 2017, the second-fastest pace after China's 9.1 per cent. The sector is expected to see an increase in investment to $43.9 billion in 2017 from an estimated $18.1 billion this year.

"All this points to a rosy picture for TFCI, which is an exclusive lending to this sector," said an analyst at Emkay Stock & Shares.