IFCI with a view to restrengthen/reposition its business, have decided to make a preferential allotment of a minimum of 26% equity capital of IFCI to a strategic investor, in conformity to SEBI guidelines in force, in regard to preferential allotment pricing and open offer and in that regard, appointed Ernst & Young, as the Advisor.
The eligibility critiera set for the prospective bidder were quite tough like financial service experience of 5 years of own and having average financial asset portfolio of Rs.8,000 crores or equivalent for last 3 years. The shares to be issued were to have 3 years lock in. The strategic investor needs to have assets book of not less than Rs.10,000 crores or net worth of not less than Rs.4,000 crores or average assets under management of not less than Rs.10,000 crores with consortium of maximum of 4, can get formed.
When so much professionalism was involved in the beginning, why these material and strategic issues were not addressed :--
1) Clarity on availability of Govt grant of Rs.1,300 crores in view of IFCI, now becoming a self sufficient sustaining institution.
2) Conversion option for Zero Coupon Optionally Convertible Debentures of about Rs.1,400 crores, held by the PSU Banks and Insurance Companies.
3) Option of Central Govt. to convert its debt of about Rs.900 crores.
4) Prospects of availability of banking licence to IFCI, post strategic investor induction.
5) Continuing Development Financial Institution nature of IFCI, post strategic investor induction.
6) Strategic investor having no managerial control.
It is learnt that three bidders having submitted their financial bids, have all stated certain conditions while making a financial bid. So, how conditional bids were entertained by IFCI which needs to be rejected ab – initio, as unconditional bids were invited. Also, Final Shareholder Agreement, having given to three final bidders has indicated that IFCI is looking only for a financial investor and not a strategic investor. Also, only 20% of the expanded Board seats were offered (2 Directors out of total 10 post expansion) to new investor. Due to this, two bidders opted out, which are reported to have submitted their bids in the range of Rs.80 to Rs.85 per share.
Sterlite Morgan Stanley consortium is learnt to have bid between Rs.90 – Rs.100 per share, but have been persuaded to raise it to Rs.111 per share, conforming to SEBI derived formula, for preferential allotment, failing which, whole process would not have moved. While acceding to this, Sterlite asked for Management Control with higher representation on the Board as also permission to IFCI for banking licence, as Sterlite combine were not too keen to have IFCI with development financial institution tag.
When government were unable to carry on with IDBI and ICICI as Development Financial Institution, and converted them into banks, why any private party would agree to carry on with IFCI as Development Financial Institution, which otherwise, is the job of a government and termed as ris ky and less profitable business?
It was also feared that Board of IFCI would not allow strategic investor to sell the real estate held by IFCI, having estimated market value of close to Rs.2,000 crores. Incidentally, IFCI hold 4,66,050 sq. ft. of commercial space and 7,54,716 sq. ft. of residential space in various cities and towns of the country with major presence in New Delhi and Mumbai. IFCI also have about 5.44% stake in National Stock Exchange, 21% in Tourism Finance, 17% in Stockholding Corporation and about 8% in GIC Housing. Even transfer of this stake would have been made solely by the Board of IFCI, without having any say of the strategic investor.
It is also learnt that Sterlite combine were asked to pay Rs.145 a share, to have full fledged management control of IFCI, which Sterlite combine did not found it to be worth at.
One fails to understand, when the whole process was so transparent why the rates quoted by three bidders were not made public? Also, why it was not stated that the conditional bids would also get considered which might have encouraged other bidders to go ahead, who withdrew earlier? And finally, it was through competitive bidding or negotiated deal? If negotiations were to take place, other bidders probably would have come forward at the negotiation tables.
Now, what was the effect of this whole exercise? Retail investors have lost heavily by buying shares of IFCI at close to Rs.100 a share, as also lost huge money in F&O, as they have created big long positions. Expectations of a bid of Rs.140 by strategic investor were floating in the market, thus further tempting the investors to buy the stock at Rs.100 to Rs.115 levels. Are informed sources, were playing in the market?
IFCI has also confirmed that the process has now been called off to rope in a strategic investor and there is no possibility for a re-bid in this format in the near future. Insiders, say that the whole process has been called off, mainly to accommodate LIC, the largest shareholder of IFCI, who is keen to venture into banking, to take over IFCI and convert it later into a bank.
If that was the intention why this whole exercise was carried out which had caused huge losses to the investor and traders due to stock price volatility. The revival of process in the short to medium term is likely, which would give a fresh round of speculation, for a second round of stock price volatility?
In the present scenario, IFCI has a fair value between Rs.65 to Rs.75 per share and any revival of process could see share price crossing Rs.100 again. An easy job for the insiders to trade on and make money from IFCI. Let there be frequent rounds of "process on - process off". Who really cares ?
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