Government to get IFCI shares at par
The cabinet has approved a proposal to convert the Optionally Convertible Debentures of Rs 923 Crore held by Government of India into Equity shares in IFCI at par. The conversion option will be exercised immediately. This is at a steep discount to the current market price of Rs 34.95 per share.
After the government exercises its conversion option, the Government stake in IFCI will increase to 55.57%. Inclusive of holding of Banks/FIs, the stake will be 68.31 percent making IFCI a Government company. In the process, the government would have ensured compliance of the Cabinet decision of 1992.
Government defended the conversion at par, saying that there has been full disclosure in the Annual Reports of IFCI about the said OCDs of Rs.923 crore with a right to convert at par.
Earlier, the Industrial Finance Corporation of India (IFCI) was converted into a company incorporated under the Companies Act, 1956 on 31.3.1993. Thereafter, the government decided that holding of Government controlled institutions in IFCI should be maintained above 51 percent.
But due to likely systemic impact of (FCI defaulting on its liabilities, in the year 2001, the Government infused Rs.400 crore as Tier-l capital of IFCI in the form of 20 year 9.75 percent unsecured Convertible Debentures. This was a cash neutral transaction.
Subsequently, in December 2002, the Government approved a financial assistance of Rs.5220 crore to IFCI which was to be released over the period from 2003 to 2011-12. Out of the package of Rs.5220 crore, financial assistance of Rs.2932.31 crore (Rs.523 crore as loan in the form of OCDs and Rs.2409.31 crore as grants-in-aid) was released. In 2006-07 the company started making profit and it was decided to stop release of further assistance to IFCI.
The equity holding of Public Sector-Banks / Financial Institutions / Insurance Companies remained over the threshold limit of 51 percent till March 2004. Thereafter dilution in the holding took place in 2005 and it came below 51 percent.
To look into issues concerning IFCI and suggest a way forward, the government constituted a Committee of Secretaries, headed by the Finance Secretary and comprising of Secretaries from the Departments of Economic Affairs, Expenditure and Financial Services. The Committee, after due consideration and taking into account all the facts, has inter-alia recommended to convert the OCDs of Rs 400 crore and Rs 523 crore into equity at par. Further the committee also said that the Government need not make an open offer to the shareholders of IFCI and instead take exemption from SEBI under Section 11(1) of the SEBI (Substantial Acquisition of shares and takeovers) Regulations, 2011.
COURTESY: HDFC SEC
The cabinet has approved a proposal to convert the Optionally Convertible Debentures of Rs 923 Crore held by Government of India into Equity shares in IFCI at par. The conversion option will be exercised immediately. This is at a steep discount to the current market price of Rs 34.95 per share.
After the government exercises its conversion option, the Government stake in IFCI will increase to 55.57%. Inclusive of holding of Banks/FIs, the stake will be 68.31 percent making IFCI a Government company. In the process, the government would have ensured compliance of the Cabinet decision of 1992.
Government defended the conversion at par, saying that there has been full disclosure in the Annual Reports of IFCI about the said OCDs of Rs.923 crore with a right to convert at par.
Earlier, the Industrial Finance Corporation of India (IFCI) was converted into a company incorporated under the Companies Act, 1956 on 31.3.1993. Thereafter, the government decided that holding of Government controlled institutions in IFCI should be maintained above 51 percent.
But due to likely systemic impact of (FCI defaulting on its liabilities, in the year 2001, the Government infused Rs.400 crore as Tier-l capital of IFCI in the form of 20 year 9.75 percent unsecured Convertible Debentures. This was a cash neutral transaction.
Subsequently, in December 2002, the Government approved a financial assistance of Rs.5220 crore to IFCI which was to be released over the period from 2003 to 2011-12. Out of the package of Rs.5220 crore, financial assistance of Rs.2932.31 crore (Rs.523 crore as loan in the form of OCDs and Rs.2409.31 crore as grants-in-aid) was released. In 2006-07 the company started making profit and it was decided to stop release of further assistance to IFCI.
The equity holding of Public Sector-Banks / Financial Institutions / Insurance Companies remained over the threshold limit of 51 percent till March 2004. Thereafter dilution in the holding took place in 2005 and it came below 51 percent.
To look into issues concerning IFCI and suggest a way forward, the government constituted a Committee of Secretaries, headed by the Finance Secretary and comprising of Secretaries from the Departments of Economic Affairs, Expenditure and Financial Services. The Committee, after due consideration and taking into account all the facts, has inter-alia recommended to convert the OCDs of Rs 400 crore and Rs 523 crore into equity at par. Further the committee also said that the Government need not make an open offer to the shareholders of IFCI and instead take exemption from SEBI under Section 11(1) of the SEBI (Substantial Acquisition of shares and takeovers) Regulations, 2011.
COURTESY: HDFC SEC
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