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IFCI seeks capital support through convertible bonds

Sarbajeet K. Sen

NEW DELHI, May 6

IFCI Ltd has submitted a fresh capital support plan to the Government seeking Rs 400 crore through convertible bonds, instead of the earlier request for subscribing to a preference shares issue of the similar amount. The bonds are to have a long-term mat urity of about 20 years.

The institution has said that it would be ready to pre-pay the Government at a much earlier date should the FI show a major turnaround within a couple of years of the initiation of the restructuring process.

``We have sought capital support through convertible bonds in lieu of preference capital,'' the Chairman and Managing Director, IFCI, Mr P.V. Narasimham, told Business Line.

He said that while submitting the altered plan, the FI had also made a detailed presentation to the Government on the rationale for seeking the capital support.

The Finance Ministry had earlier asked the FI to explain as to why the Government should support the institution by capital infusion despite not having any shareholding in it.

IFCI, on its part, has pointed out that the Government would have to act as a lender of last resort in view of the troubled patch that the institution is passing through.

Moreover, it has said that since the capital support through the bonds route would be a long-term loan, the Government stands no risk of losing anything, since the institution will be paying interest and would also repay the principal within the stipulat ed time limit.

``Should we get the capital support, it will help us to revive faster. If we have to grow by 10-15 per cent annually, I need the additional capital,'' Mr Narasimham said.

He said that given the present financials, the institution had no scope for raising funds at reasonable rates from other sources and had to look towards the Government for assistance.

He said that the funds infusion from the Government would also help the institution to leverage funds from the market to meet its lending operations.

``I can raise Rs 4,000 crore from the market each year leveraging the Rs 400 crore. Help from the Government would not only enable us to recoup faster, but would also make us play an effective role in the growth of the economy,'' he said.

He pointed out that the funds infusion would help the institution to meet the capital adequacy ratio (CAR) stipulated by the Reserve Bank of India and thereby improve its credit rating.

``The RBI norms are becoming stiffer. To meet them, I need assistance,'' Mr Narasimham said.

IFCI is unlikely to meet the RBI stipulation of CAR of 10 per cent from March 31, 2001. On March 31, 2000, the FI's CAR had stood at 8.8 per cent, a shade below the 9 per cent stipulated at that time.