Bidders for 26% IFCI stake get fresh jolts

Wednesday, December 12, 2007

Development finance company Industrial Finance Corporation of India (IFCI) has informed interested bidders that the strategic investor will have rights to nominate only two board representatives. It has also made it clear that the bidder will not receive a grant of Rs 1,300 crore from the government.

This twin development may prove to be a dampener for the valuation of IFCI, a state-run financial company, which is in the process of offloading a 26 per cent stake.

Four bidders have already completed the due diligence and the financial bids are expected to be submitted by Friday and IFCI is likely to announce the name of the strategic investor next week.

“This is the latest blow to the valuation of the company,” said two sources in the interested parties, referring to IFCI’s previous decision of conversion of loans worth Rs 1,479 crore taken from banks and financial institutions into equity which would increase the equity base.

The non-receipt of the government grant, which it was supposed to be given by March 2008, translates into a reduction of valuation by Rs 20 a share, said one of them. The IFCI stock on Tuesday rose 1.42 per cent to close at Rs 107.50 in a strong Mumbai market.

“With only two representatives on the board—the IFCI board now comprises eight directors—the strategic investor will not be able to guide IFCI.

The acquisition of 26 per cent equity through the sale process and a mandatory 20 per cent open offer may have give the strategic acquirer 46 per cent stake, but it will have a proportionate representation on the board.

So, the acquisition tantamounts to just a financial investment and not a strategic one, which makes little sense for somebody who would eventually have 46 per cent stake,” said another source.

The goal of the induction of a strategic investor is to re-position its business, help it to grow and attain talent so that it could transform itself into a world-class financial institution.

The sell-off process of IFCI had started with much fanfare with 10 companies showing interest. But now the number has come down to only four parties.