Govt decision to control IFCI poses challenges: Atul Rai

Govt decision to control IFCI poses challenges: Atul Rai

Last Updated: Thu, Sep 06, 2012 20:07 hrs

IFCI Ltd, a non-banking finance company (NBFC), is in the news regarding the Cabinet decision to convert debentures worth Rs 923 crore held by the government in the company into equity at par. The optionally convertible debentures were subscribed the government in two phases— Rs 523 crore and Rs 400 crore. The decision will make IFCI a government company. Chairman Atul Rai tells Vrishti Beniwal what it means for the company. Edited excerpts:

What has IFCI decided about the cabinet decision?

Approval of the IFCI board is required. The board met today. It was decided to take the process forward in accordance with the regulations and guidelines on the subject. In the case of Rs 523 crore (from the total Rs 923 crore) of the debentures, it would also need approval of the shareholders. Since IFCI is a listed company, approval of Sebi (Securities and Exchange Board of India) may also be required. (a sentence is deleted from here).

What are the options before you to prevent any such move by the government?
The question is why that move needs to be prevented. IFCI was a statutory corporation until 1993. It was Parliament which repealed that Act and made it a private company. It’s in this context that there may be a question or two that the decision of the government to convert IFCI back into a government company is fair to shareholders. On the face of it, a conversion at par seems to suggest that those shareholders who have invested in IFCI would be losing something in the short run. The question to consider is whether it would be possible to make up for that loss by substantial gains in the long run.

You had earlier said strategic investors were not coming to IFCI as they were confused whether it was a private or a government company. That clarity will be there now.
I agree there is clarity as to how the government wishes to go forward with regard to the issue of loans and debentures. Whether this clarity achieves the objectives of the company since 1993, the way it functioned and evolved, is a different issue. The Cabinet’s decision has had some impact on many of the things we had desired to do.

In some of them, lack of clarity was an obstacle, but in many others the clarity that has come today would also be a challenge, particularly with regard to our business, shareholders and subsidiary.

So, you would have preferred things to remain as they stand today?
Many aspects of how this decision unfolds are not clear as yet and even if those were clear, the large part would be determined by how it worked. There are challenges that cannot be denied but I can’t say that I would have preferred a status quo. The fact that IFCI is a hugely loss-making entity, there is obviously the issue that we are today in need of an anchor either in the government or in the private sector.

A company having such a large balance sheet will be hard to manage for an individual or a group of individuals, unless their nature and character are well articulated and accepted. In our case, we are in a bit of a no man’s land.

You said the government might ask you to leave after getting the control. Why do you fear such a move?
I didn’t exactly say that. At least that is not implicit in anything that is before me so far. What I said is that any entity which has a majority shareholding in a company would be entitled to have a management of its choice. I cannot have presumptions that I would be their choice.

The finance ministry has moved the Registrar of Companies (RoC), alleging you failed to issue debentures certificates of Rs 523 crore.
We received the communication from RoC and we are sending our response. However, according to my understanding, neither is there any infringement by the company nor it is one of those issues where the consequence to any person or to IFCI is of a serious threat.

Have you completely given up the hope of getting a strategic investor now?
Strategic investor wasn’t going forward anyway because of the capital structure of this company. So now that the clarity has come about it is for the government to decide whether it would like to go ahead with the process of inducting a strategic investor or whether it would like IFCI to be merged with another entity or it wants the company to stand as it is.

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