Drama on shortlisting strategic investor for 26% stake in the country’s oldest financial institution, IFCI, seems to be coming to an end very soon.
Earlier 10 parties have shown interest in the stake, 8 were qualified and shortlisted, 4 carried out due diligence, 3 submitted its financial bids and out of these three one needs to be selected.
It is learnt that Shinsei Bank, Punjab National Bank and J C Flower combine bid between Rs.80 to Rs.85 a share, while Cargil Financial and Texas Pacific Group submitted its bid below Rs.80 a share. Sterlite – Morgan Stanley learnt to have submitted its bid between Rs.90 to Rs.100.
However, since zero optionally Convertible Debentures held by Public Sector Banks and Insurance Companies were converted at Rs.107 per share for Rs.1,300 crores, the proposed preferential allotment required to be above that price. Incidentally, this is the SEBI derived formula for preferential allotment, below which fresh shares can’t get issued.
In view of recent rise into the stock price of IFCI to about Rs.120, the SEBI formula works out at Rs.111 per share for such 26% preferential allotment. The Board Meeting of IFCI started on Monday at 4 PM, went on till 3 AM of Tuesday wherein long discussions were held with the representatives of Sterlite – Morgan combine to persuade them to accept a minimum price of Rs.111 per share against its bid, learnt to be between Rs.90 to Rs.100 per share.
The value per share has fallen, mainly because of non-availability of grant from Government of Rs.1,300 crores as also non-clarity on availability of permission for a banking licence to IFCI.
However, the institution has huge chunk of stake in non-listed financial stocks like 5.44% stake in NSE, 18.99% stake in TFC, 16.96% stake in SHCIL and 8% stake in GIC Housing Finance. All of these are collectively valued at over Rs.1,200 crores, in addition to the value of quoted investments of over Rs.1,200 crores and value of unquoted investments in other companies of Rs.1,200 crores.
The institution has huge chunk of realty stock of about 7,54,716 sq. ft. of residential and about 4,50,000 sq. ft. of commercial. IFCI Tower at Nehru Place, New Delhi, has about 2.13 lakh sq. ft. independent building with 0.84 lakh car parking. In Nariman Point, Mumbai, it has about 31,000 sq. ft. in Regent Chambers (8,180 sq. ft.) and Earnest House (22,575 sq. ft. with 8th & 9th floor) as well as huge commercial property in Bangalore, Chennai, Kochi and Lucknow.
In residential, IFCI has over 3.50 lakh sq. ft. in New Delhi, while over 46,000 sq.ft. in Mumbai.
Sterlite Group have always believed and benefited from acquisitions with first being Shamsher Sterling, a copper unit at Vidyavihar, in Mumbai suburb, acquired from Amilal Pyarechand in 1978. Thereafter, Sterlite grew leaps and bounds by acquiring Madras Aluminium, Bharat Aluminium, Hindustan Zinc and Sesa Goa.
So, probably relying on the same principles and philosophy, Sterlite group may get convinced to acquire IFCI even at Rs.111 per share. Though this may work out to about Rs.10 to Rs.15 per share extra, eventually costing them extra of about Rs.500 crores (as they are likely to have preferential allotment of 27 crore shares and open offer of about 20 crore shares) but this can get compensated in form of other benefits which otherwise were not clearly defined or spelt out.
So, the whole process of strategic investor is through a competitive bidding process or through a negotiated deal.
Regards,
Axit Shah
Wealth Advisor ~ Allies Financial Services
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