BS Reporter / Mumbai
Non-banking finance company IFCI Ltd will next week decide on the process to allow Life Insurance Corporation of
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 relating 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 the talks and the problems cited by the bidders. North Block recently asked IFCI to seek advice on how the government could maximise 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 comment. He also refused to comment on reports that Punjab National Bank is the likely strategic investor.
Sources said that the investors will only come if there was clarity on how what the government will do with the OCDs. The consultants have recommended that one option was to covert the OCDs which carry virtually no returns into non-convertible debentures that earn 8-9 per cent return.
"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 considerable clout due to a position on the board and the shareholding of state-run banks and financial institutions. Given the present level of equity, a conversion into equity could mean over 10 per cent direct holding by the government, a source said.
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 the present policy, the government cannot sell stake in profit-making companies.
Sources said that the move allow LIC to reduce its holdings by 3 per cent from 11.35 per cent at the end of March cent 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 and the move will be in line with the provisions of the Companies Act, which also involved going through a judicial process.
IFCI shares closed 5 per cent higher at Rs 61.05 on the Bombay Stock Exchange.
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