Govt may look at exiting IFCI

Q: What did you make of what the newswires are reporting now that the government is open to re-looking at its own stake and may even consider a merger with another institution with IFCI?

A: This was an expected move but maybe a belated move also because the government has been in place for last five-months – we have seen two disinvestments happen thereafter in the form of initial public offering (IPO). So even this was on the radar that maybe the inducting a strategic investor will be taken up by the government in next two months or so. But now it has come that they will be appointing a consultant who will be advising including the merger of IFCI with any other institution. I don’t think that maybe the merger option would really be beneficial or will be value creation for the government or for the shareholder.

You can keep this institution intact without merging with anyone. It has a lot of scope because we have seen in the quarterly results also for Q2 – IFCI has seen the reduction in the recovery of non-performing asset (NPA) also plus they been ramping up their core business both of which are quite positive though optically we may not find that recovery of NPA getting tapered down as positive. But infact in reality that is a positive move.

So now the institution is on a clean and on a very healthy note backed by the good real estate holdings with IFCI in the form of residential and commercial premises to the extent of over one million square feet. So this is a beautiful institution and any acquirer will come. If you add the banking license to it, I think it can have a tremendous value. But suppose if you presume that the option is given to merge it with any other institution or bank – I don’t think that will really be value creation for the shareholders.

Q: It’s almost back to square one though in the situation where earlier people had talked about merging IFCI with banks like Punjab National Bank (PNB) but PNB wasn’t interested. What do you think will be the more likely outcome this time that the government will divest stake and they will get a strategic partner in or that they will find one of these banks to merge the company into?

A: That is right because earlier PNB have declined acquisition of IFCI because at that time it was in a bad health. The government has made an allocation of Rs 4,000 crore which even infact they did not disburse because much before that IFCI stood on its own legs. But if you recall, Sterlite came into the race – there were about 7-8 suitors – those who filed for the expression of interest but in the final race, Sterlite was the one who filed an offer of about Rs 105 per share.

As I said that was mainly because of the transformation happening in IFCI because of the good lending of about Rs 7,000 crore, as I said, about the one million square feet of premises and then trimming with the staff. Now it has become very lean and healthy institution.

Suppose now if you put this institution on platter again for maybe inducting a strategic investor or maybe a stake sale – this can again give you a value of over Rs 80 because even in the chain circumstance on the contrary, if you see the appetite for the banking sector, it has been rising though there has been hint by the CEO of the IFCI – though he did not confirmed – that there is chance of getting a banking license also.

So if you add the sweetener of banking license, there will be lot of suitor, those who will be keen to acquire the stake in the institution. But I don’t think that merger would really be a viable or the profitable or the value creation option for the shareholders of IFCI.