The Hindu Business Line : IFCI fiasco

It is strange that the IFCI, with its experience as a public sector financial institution, should suffer the agony of its tender being called off because the company and the bidder had completely different perceptions about what was being bid for. The company says it invited bids for the sale of equity shares amounting to 26 per cent of its total paid-up capital. But the consortium that had quoted the best price thought it was bidding not only for a percentage of future ca sh-flows in IFCI but also for a certain number of seats on the board. The net result is that a false market in the shares of the company’s was created in the run-up to the selection, the price falling sharply once the tendering process was called off.

Investors at large are entitled to know from the company how a tendering process that was so elaborately structured (involving layers of pre-qualification), and that too with the help of an internationally reputed financial consultant, failed to prevent such a misconception at the very start. It is possible, however, the terms of the deal had indeed been explicitly spelt out in the bid documents but that the highest bidder had simply subverted the process by attaching extraneous conditions. In which case, shouldn’t IFCI simply ignore such a bid, taking care, of course, to forfeit the bid deposit, but go ahead and accept the next best bid, which was not vitiated by any conditionality?

But quite apart from all this, there were indications quite some days before the eventual cancellation that the tender was going to be a non-starter. Just a week before the final decision was due, the Government responded vaguely to the question on what it would do with the option that it held on convertible debentures worth over Rs 400 crore. It was equally non-committal on cash grants worth Rs 1,300 crore that it had agreed on years ago as part of the company’s financial restructuring. To top it all, just a couple of days before the board’s final decision on the bid came the announcement that convertible debentures worth another Rs 1,300 crore issued to the financial institutions had been converted into shares — instruments whose conversion terms remained unspecified all these days — thereby adding another 20 per cent to the IFCI’s paid-up capital. These developments hold significant price implications. If the company board and the Government were serious about getting the best possible price, they should have got these uncertainties out of the way much before the invitations went out to prospective investors. In the event, one wonders if the Government was at all serious about getting a strategic investor on board to turn the company’s fortunes around. This is a pity. A large number of public shareholders have gone without dividends for many years. Now, with the share price falling sharply after the bidding fiasco, they also have little to cheer about on the capital appreciation front.

Related Stories:
IFCI board calls off 26% stake sale process

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