23-August-2012
Conversion of Optionally Convertible Debentures of Rs.923 Crore held by Government in Equity in IFCI
The Union Cabinet today approved the proposal to exercise the option by the Government to convert Rs.400 crore and Rs.523 crore Optionally Convertible Debentures (OCDs) held by Government of India in IFCI into equity at par. The conversion option will be exercised immediately.
Post exercise of conversion option of Rs.923 crore OCDs into equity at par, the holding of Government will become 55.57 percent and by including the holding of Banks/FIs, it will be 68.31 percent making it a Government company. This would ensure compliance to the Cabinet decision of 1992. There has been full disclosure in the Annual Reports of IFCI about the said OCDs of Rs.923 crore with a right to convert at par.
Background
The Industrial Finance Corporation of India (IFCI) was converted into a company incorporated under the Companies Act, 1956 on 31.3.1993. It was then decided that holding of Government controlled institutions in IFCI should be maintained above 51 percent.
In the wake of likely systemic impact of (FCI defaulting on its liabilities, in the year 2001, the Government infused Rs.400 crore as Tier-l capital of IFCI in the form of 20 year 9.75 percent unsecured Convertible Debentures. This was a cash neutral transaction.
Thereafter, in December 2002, the Government had approved a financial assistance of Rs.5220 crore to IFCI which was to be released over the period from 2003 to 2011-12. Out of the package of Rs.5220 crore, financial assistance of Rs.2932.31 crore (Rs.523 crore as loan in the form of OCDs and Rs.2409.31 crore as grants-in-aid) was released. In 2006-07 the company started making profit and it was decided to stop release of further assistance to IFCI.
The equity holding of Public Sector-Banks / Financial Institutions / Insurance Companies remained over the threshold limit of 51 percent till March 2004. Thereafter dilution in the holding took place in 2005 and it came below 51 percent.
To look into issues concerning IFCI and suggest a way forward, a Committee of Secretaries was constituted, headed by the Finance Secretary and comprising of Secretaries from the Departments of Economic Affairs, Expenditure and Financial Services. The Committee, after due consideration and taking into account all the facts, has inter-alia recommended to convert the OCDs of Rs.400 crore and Rs.523 crore into equity at par and that the Government need not make an open offer to the shareholders of IFCI and instead take exemption from SEBI under Section 11(1) of the SEBI (Substantial Acquisition of shares and takeovers) Regulations, 2011.
