I-bankers had a deja vu about IFCI deal
Last week, when IFCI called off its 26% strategic stake sale, ET received numerous calls from bulge-bracket investment bankers with a definite “I told you so” refrain .
By Atmadip Ray, TNN |
KOLKATA: Last week, when IFCI called off its 26% strategic stake sale, ET received numerous calls from bulge-bracket investment bankers with a definite “I told you so” refrain . During the entire course of events spanning nearly a year, a section of these bankers had silently believed that the sale would never actually transpire, especially since they were far from convinced about the sharp surge in IFCI scrip price over the past 11 months. And there was obviously the issue of the “absence of management control” for the successful bidder.
“Why would anyone take such a risk of putting in some Rs 2,800 crore for 26%, minus management control in an institution that still has negative net worth,” asked an investment banker. Banking sources also reaffirmed that the Sterlite-Morgan Stanley consortium was demanding greater management control for the 26% sale at Rs 110 a share.
A senior banker speaking under conditions of anonymity felt the entire IFCI strategic stake sale process was murky. “When one looks into the non-transparent handling of the IFCI stake sale saga, one gets a sense that IFCI’s share price had been clinically jacked up from Rs 12 in January 2007 to a high of Rs 121 previous week. Naturally , as the price rose steadily, the acquisition became more expensive for investors, which in turn, undermined the possibility of the deal going through,” he asserted.
It is also well known that a few large investors had opted out of the race as a share price above Rs 75 and it did not make sense to them. They also noted that initially , the rumour mills were centering around the possibilities of big guns like Barclays , Citi, Deutsche Bank, BNP Paribas making a pitch for the 26% stake. The truth is neither Barclays, Citi nor Deutsche Bank were in the official list of bidders vying for the IFCI stake.
Earlier in the year, former IFCI managing director RM Malla, who is now at the helm of the Small Industries Development Bank of India, had claimed that IFCI improved its capital adequacy ratio (CAR) to as high as 14.04%, after being in the negative zone for past several years.
Subsequently, by mid-August , ET had reported that it was purely accounting jugglery and according to the CAR calculation formula prescribed by Reserve Bank of India, IFCI’s capital adequacy ratio was still negative. In fact, IFCI also had to issue a clarification: “The CAR calculation takes into account the deferred tax assets carried on in the balance sheet. In case the deferred tax assets carried in the balance sheet are deducted from the Tier 1 capital as per RBI guidelines for bank, the CAR will stand negative.”
Evidently, a whole section of the investment banking community believe, the IFCI stake sale saga is mired in controversy . In fact, in mid-2007 , IFCI chairman PS Shenoy was reportedly forced to resign following reports about some divestmentrelated impropriety.
To make the matters worse, IFCI’s subsequent chairman N Balasubramanian also resigned due to his conflicting role as an adviser to one of the 10 bidders, Standard Chartered Bank. Next, it was the turn of Vinayak Chatterjee, the new incumbent in IFCI’s board, to also resign on similar grounds.
“Why would anyone take such a risk of putting in some Rs 2,800 crore for 26%, minus management control in an institution that still has negative net worth,” asked an investment banker. Banking sources also reaffirmed that the Sterlite-Morgan Stanley consortium was demanding greater management control for the 26% sale at Rs 110 a share.
A senior banker speaking under conditions of anonymity felt the entire IFCI strategic stake sale process was murky. “When one looks into the non-transparent handling of the IFCI stake sale saga, one gets a sense that IFCI’s share price had been clinically jacked up from Rs 12 in January 2007 to a high of Rs 121 previous week. Naturally , as the price rose steadily, the acquisition became more expensive for investors, which in turn, undermined the possibility of the deal going through,” he asserted.
It is also well known that a few large investors had opted out of the race as a share price above Rs 75 and it did not make sense to them. They also noted that initially , the rumour mills were centering around the possibilities of big guns like Barclays , Citi, Deutsche Bank, BNP Paribas making a pitch for the 26% stake. The truth is neither Barclays, Citi nor Deutsche Bank were in the official list of bidders vying for the IFCI stake.
Earlier in the year, former IFCI managing director RM Malla, who is now at the helm of the Small Industries Development Bank of India, had claimed that IFCI improved its capital adequacy ratio (CAR) to as high as 14.04%, after being in the negative zone for past several years.
Subsequently, by mid-August , ET had reported that it was purely accounting jugglery and according to the CAR calculation formula prescribed by Reserve Bank of India, IFCI’s capital adequacy ratio was still negative. In fact, IFCI also had to issue a clarification: “The CAR calculation takes into account the deferred tax assets carried on in the balance sheet. In case the deferred tax assets carried in the balance sheet are deducted from the Tier 1 capital as per RBI guidelines for bank, the CAR will stand negative.”
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“Nevetheless, media reports that large foreign investors were interested in IFCI, or that IFCI had got a positive net worth, helped its stock price soar from a level as low as Rs 12. Has anyone noticed all this? Is it not worth an investigation?” asked another investment banker, who was close to one of the bidders said. Evidently, a whole section of the investment banking community believe, the IFCI stake sale saga is mired in controversy . In fact, in mid-2007 , IFCI chairman PS Shenoy was reportedly forced to resign following reports about some divestmentrelated impropriety.
To make the matters worse, IFCI’s subsequent chairman N Balasubramanian also resigned due to his conflicting role as an adviser to one of the 10 bidders, Standard Chartered Bank. Next, it was the turn of Vinayak Chatterjee, the new incumbent in IFCI’s board, to also resign on similar grounds.
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