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Rs 1,000-cr IFCI recap package cleared

Our Bureau

NEW DELHI, Aug. 1

THE Government today cleared a Rs 1,000-crore recapitalisation package for IFCI Ltd. Out of this, Rs 400 crore would come from the Government itself by way of subscription to long-term convertible debentures. The remaining Rs 600 crore would be infused b y the Government-controlled institutional shareholders of IFCI. The entire infusion will come as Tier-I capital to the institution.

The recapitalisation package was cleared at a meeting held by the Finance Minister, Mr Yashwant Sinha. Besides, the Chairman and Managing Director, IFCI, Mr P V Narasimham, others present at the meeting were the Finance Secretary, Mr Ajit Kumar, the Advi sor, Finance Ministry, Dr Rakesh Mohan, the RBI Deputy Governor, Mr G P Muniappan, the SBI Chairman, Mr Janki Ballabh, the LIC Chairman, Mr G N Bajpai, the GIC Chairman, Mr D Sengupta and the IDBI Executive Director, Mr T M Nagarajan.

At a press conference after the meeting, the Joint Secretary (Banking), Mr U K Sinha, said that debentures would be of 20-year tenure. He said that the coupon rate on the debentures would be decided soon. The recapitalisation exercise would be completed in a couple of days.

Mr Sinha said that institutional shareholders of IFCI are expected to split the Rs 600 crore capital infusion on a pro-rata basis. However, a final decision on the extent of equity that each institution would subscribe to and whether it would be direct s ubscription to equity or through similar long-term bonds would be taken by the Board of Directors of each institution separately.

At present, out of the Rs 638.67-crore equity of IFCI, Rs 202 crore (31.71 per cent) is subscribed by IDBI, while LIC, GIC and the latter's erstwhile subsidiaries hold Rs 111.66 crore equity (17.48 per cent), nationalised banks Rs 45.63 crores (7.15 per cent), SBI and its associates Rs 13.40 crores (2.10 per cent), UTI Rs 28.56 crore (4.47 per cent).

The remaining equity is split between cooperative banks, mutual funds, private banks, FIIs and the public.

Mr Sinha said that the Finance Minister had made it clear to IFCI that this would be the final time that the Government would step in to support the institution.

``Although the Government is not an equity holder in IFCI this unusual step of providing recapitalisation support has been taken keeping in view the financial health of the institution and the positive effect that the move would have on the economy in ge neral,'' Mr Sinha said.

He said that while IFCI would have the option of exercising a call option to redeem the debentures, the Government would retain the option of converting the debentures into equity ahead of the 20-year maturity period.

Addressing the conference, Mr Narasimham said that the infusion would take the capital adequacy ratio (CAR) to above 9 per cent from 6.2 per cent on March 31, 2001. He said that the improvement in CAR would help the institution in getting back its credit rating that has been put on watch by several rating agencies.

He said that the institution would also be able to leverage the additional capital to raise further resources to support its lending operations. Mr Narasimham said that IFCI had assured the Finance Minister that it would adopt selective and prudent lendi ng policies to ensure that there are not slippages in its financial position in future.

``We would ensure that there is not further asset-liability mismatches. There would be greater effort at recovering non-performing assets (NPAs),'' Mr Narasimham said. IFCI's NPAs currently stand at around Rs 6000 crore.

Repayment efforts: The IFCI Chairman and Managing Director, said the institution was making all-out efforts to raise new resources to meet its payment obligations.

He said that the institution had defaulted recently on its payment obligations on account of bunching on certain foreign repayments amounting to $ 450 million along with the decision to retire certain other high-cost debt.

``It is clarified that in view of the bunching of foreign repayments of $ 450 million and high cost domestic borrowings, there was a mismatch in cash flows during this year and the next year. These would be managed by IFCI by raising new resources. The s haring of equity would enable the institution to meet its obligations,'' Mr Narasimham said.