IFCI may not get strategic investor

The finance ministry may abandon the move to rope in strategic investor in the development of financial institution IFCI, as its financial condition has improved and it does not require capital infusion in the near future. The management of the financial institution, it is learnt, is also not keen to bring in a strategic investor in the finance company. The capital adequacy ratio of the institution has gone up to 18% and its non-performing assets (bad loan) has declined to nil. After a long time, the institution could expand its loan portfolio by around Rs 3,000 crore in 2008-09. In the current financial year also, the institution is planning to expand its asset base by around 20% from the present level of Rs 15,000 crore. The institution has been making profit for last three years consecutively. However, the government had initiated a process to divest 25% stake in the institution to a strategic investor in 2007-08. But the process failed because of uncertainty in the equity structure of the institution. During the crisis time of late nineties, the institution had taken loans from the government and other banks with a condition to convert them into equity shares. The central government had lent Rs 52 crore to the institution. With the financial condition of the institution improving and decision of the government to rope in strategic investor, the share price of IFCI jumped from Rs 15 to over Rs 140 within one month. This prompted the banks and the government to consider the conversion of the loan amount into equity shares. But, this could have enlarged the equity base of the institution substantially affecting its earning per share. This had made the various contenders jittery and they pulled out. However, since then the performance of the institution has improved. Since the investments from the strategic investors failed, the share prices of the institution had fallen in tandem with the collapse in the stock markets. In November, its share price had gone down to Rs 15.25. But, on Friday it closed on Rs 55.55. As the company has a capital adequacy ratio of 18% against the statutory requirements of 12%, a further infusion of capital will only lead to reduction on its return on capital.