Govt to convert Rs 925 crore IFCI debentures into equity

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The Finance Ministry is in favour of converting its dentures in Industrial Finance Corporation of India (IFCI) into equity.



That would make the government the single largest shareholder in IFCI, with a 57 per cent stake. A committee headed by Finance Secretary RS Gujral is expected to refer the proposal to the Union Cabinet for its final consent.



A senior Finance Ministry official told that the Cabinet could be apprised of the proposal within the next two weeks.



IFCI owes optionally convertible debentures worth Rs 925 crore to the government. For investors, this may be bad news as a larger equity base will result in fall in the price of the stock.



If the government does go ahead with the move to widen the equity base, it will have a hard time convincing the institutional investors. Over 42 per cent of the equity in IFCI is held by banks, financial institutions, insurance companies, mutual funds and foreign institutional investors (FII). Nearly 11 per cent of this is held by FIIs.



The government will also explore opportunities to disinvest its stake in the company at a later stage. A move to get a strategic investor in the company has failed earlier in 2007 as the government does not have any direct equity stake in the company, and hence no control on its everyday management.



The panel for restructuring of IFCI, headed by the Finance Secretary, had been set up in February, with Banking Secretary DK Mittal, Economic Affairs Secretary R Gopal and Expenditure Secretary Sumit Bose as members. The report is expected to be finalised in the next few days and a draft Cabinet note will be prepared for inter-ministerial consultation.

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