Shares of Industrial Finance Corporation of India (IFCI) plunged on Friday after the government exercised the option to convert Rs 923 crore worth of debentures into equity with immediate effect. Atul Kumar Rai, MD and CEO, IFCI, told NDTV Profit that the conversion will delay the company’s divestment plan.
Below are the edited excerpts of the interview. Watch the full video here.
- Q: How should we read this government’s move of taking full control at IFCI?
A: We are yet to vet the government's decision, which was taken just a day back. What I have so far gathered is that the government has given approval to the convergence of two instruments, amounting to Rs 925 crore, into equity at par. From the perspective of any financial institution, having the government as a shareholder is a source of strength. Rating agencies will view it favourably, as will the RBI. However, I would say that the government would have had a better opportunity had it gone for conversion at a price below par. But then I think this is in recognition to how well the company has done over the past five years.
For anybody who works with IFCI, the government’s move has to be seen from the perspective of the shareholders. Given the 25 per cent public shareholding criterion, the rest would have to deliberate on the strengths of having the government as a shareholder. So, I wouldn’t be able to prejudge anything on the issue. The best way would be to take up the issue with the shareholders to know what’s on their mind, of course after the board has had a discussion on it.
A: Let us look at it little more closely. I don’t think the law of the land is one which would allow an entity to convert at par, given that it is considered a default situation. There could be the issue of what the right price should be. Bu this figures in only after the ability, or the claim, of the government is confirmed. Talking about instruments, there are two of them in question. The first is worth Rs 400 crore. It’s an optionally convertible debenture with IFCI having the right to prepay the amount to the government. However, this amount has never been with IFCI. It has been reinvested in government bonds with a yield of 9.75 per cent. So, the question is whether IFCI would like to see conversion happening with shareholders claiming 9.75 per cent interest on their investment.
Also, on this instrument, we have the right prepay the amount. So, I would also have to see whether shareholders want the government as a shareholder or whether they would like to have the right to convert. The second instrument is worth Rs 523 crore, but this is yet to come into existence from the company’s perspective as shareholders have till date not approved issuing of this instrument.
The government of course articulates the belief that it does have these optionally fixed convertible debentures. But then these instruments cannot be a matter of presumption alone. They have to be negotiated through shareholders. We can allot them today. There is no problem on that front, but then it all depends on shareholders. Since we have a decision on the issue now, we can have a consultation in the board meet and if necessary in the shareholders’ meeting.
Q: So, does this mean that the government’s decision would be considered by the board, and they would have the right to decide?
- As I said, the first instrument, which is worth Rs 400 crore, comes with IFCI having the right to prepay the amount. So, that right can be exercised and then the right of the government to claim conversion would get extinguished. There would be no surviving claim thereafter for conversion. Talking about the Rs 523-crore instrument, as I said, it has not come into existence. So, at this stage it will be difficult for me to say whether the claim of conversion can be a claim which has to be entertained only on the basis of what the government has decided and not on the basis of what the shareholders have to say, because from their perspective this disturbs their equity.