Government may turn IFCI debt into equity, make it PSU

NEW DELHI: The government plans to bring IFCI Ltd under its direct control by converting its loans into equity, hoping to better manage India's first development financial institution, plagued by allegations of financial and functional mismanagement.

At current prices, the government will get over 23% equity stake in the company, in which state-owned insurers and banks hold a 29.3% stake. Foreign institutional investors owned 14.95% at the end of September, down from 19.45% in June.

"There are many complaints against both financial and functional mismanagement in IFCI. It should be converted into a state-run firm such as IIFCL for better functioning," a finance ministry official told ET. The proposal is pending with Finance Minister Pranab Mukherjee.

The officials said Life Insurance Corporation of India, General Insurance Corporation, IDBI Bank and Punjab National Bank have been told not to sell their IFCI stake.

IFCI chief executive officer and managing director Atul Rai told ET that the company has not been informed of a decision regarding conversion of the amount into equity.

A Punjab National Bank official confirmed the developments but said no formal instructions have been issued in this regard.

The government's plan is in line with its strategy to turn the last remaining DFI into a state-run company. It had bailed out IFCI in 2002-03 and invested around Rs 523 crore in zero-coupon optionally convertible debentures. While all other state-run institutions had converted their debt into equity, the government had so far not exercised the conversion option.

Last year, the government had appointed Boston Consulting Group to prepare a report on revamping IFCI and converting its debt into equity. "Once the approval comes through we will look at all options, including merging IFCI with a public sector entity or continuing it on a stand-alone basis," the ministry official said.

In September 2011, the Supreme Court had issued notice to the central government on a plea challenging the appointment of Atul Kumar Rai as the chief executive officer and managing director of IFCI despite his alleged involvement in "serious corrupt practices".

The company posted a profit of Rs 198.26 crore in the second quarter ended September 30. On Friday, the IFCI scrip closed at 23.25, down 8.46%, on BSE.