IFCI stake sale off ...

It's official now. The IFCI board on Monday called off the sale of 26% of its equity to its only bidder — Sterlite and Morgan Stanley — over irreconcilable differences regarding the degree of management control. The way forward is still not clear for IFCI, which had planned to rope in a strategic partner to fund its future business. India’s oldest development financial institution is facing a resource crunch.

On the future course of action, Atul Rai, CMD IFCI conceded that there is need for capital for IFCI. “There is no possibility for a re-bid in this format. There has to be a certain time lapse before the system can gear up for a re-bid. This proposition has not made sense to 10 of the best bidders in the world; it will not change substantially very soon.”

This comes even as the Wilbur Ross consortium is understood to be making efforts to renegotiate with IFCI to put in a bid. But officials maintain, legally, IFCI cannot entertain any offers from this process. The consortium headed by Mr Ross comprised of Standard Chartered bank, Goldman Sachs and HDFC, and did not put in its bid after conducting due diligence.

Said Mr Rai: “There is disappointment that the entire effort that lasted six months did not translate into a deal. But the board was not agreeable to the conditional offer made by the only bidder.

From the perspective of the investor, they had a certain set of conditions and they are answerable to their shareholders, but it could not be accommodated by IFCI since it changed the nature of the transaction.” While IFCI offered two seats on the eight-member board, the bidder wanted three. Sterlite also wanted to replace the CEO — a non-negotiable condition.

Sources said, Sterlite wanted far greater control for the 26% sale in return for paying more than $1 billion, at Rs 110 a share. “Rights of minority shareholders could have been jeopardised in the long term. The exclusivity of control that they sought was unacceptable to the board. If the board had spelt out these additional conditions in the Request for Proposal (RFP) stage, IFCI could have attracted more bidders at a higher price.”

“We have made our best offer for IFCI to achieve the objective, such as making IFCI a world class institution, retaining existing talent, bringing in new talent and more expertise. We respect the government’s decision not to go ahead with the strategic sale,” an official statement from Sterlite said.

A senior government official, however, said there was no direct intervention from the government. “IFCI is a quasi-government institution and government guidelines apply to it. Under the Chief Vigilance Commission’s (CVC) guideline, a single bidder with a conditional offer cannot be appointed as an investor. Several conditions made by Sterlite were non-negotiable.” He also said that government was open to supporting IFCI in future.

The process that was kicked off earlier this year helped boost IFCI’s stock price from Rs 12 in January to Rs 121 earlier this week. The sale was fraught with uncertainties till the last minute with respect to capital structure and regulatory issues, among others. Detractors were crying hoarse on the non-transparency of the process.

During the entire course of events, rumours were rife that the sale would never take place. Along the way, IFCI allowed creditor banks to convert their debt worth Rs 1,479 crore into equity. There was no clarity on the status of the government’s loan to IFCI before the bids closed.