IFCI Lenders Unhappy Over Conversion Rate Irks

LIC, other stakeholders to draw govt's attention to the issue.

Lenders to Industrial Finance Corporation of India (IFCI), who have the option to convert a part of their debt exposure in the financial institution into equity, are unhappy with the conversion proposal.

Life Insurance Corporation of India (LIC), which currently has a majority shareholding (8.4 per cent), is planning to write to the government regarding its concerns.

LIC officials said the insurance major wanted to convert the optionally convertible debentures (OCDs) in such a manner that it was able to maintain the current equity stake in IFCI after the 26 per cent stake sale to a strategic investor.

After the stake sale, LIC’s shareholding in IFCI will fall by 1 to 2 per cent. “We will be writing to the government about our concerns. The concerns relate to the conversion, interest rate and various others issues. The conversion to equity has to be done before the stake sale is done,” officials said.

The conversion will be immediate and will be according to the Sebi formula that stipulates the conversion price at a six months’ high or low or a six-week high, whichever is higher.

General Insurance Corporation of India (GIC) has a 2.37 per cent shareholding in IFCI. A GIC official said, “Thirty per cent of the zero-coupon holding, along with the other debt that was given to IFCI, is eligible for conversion into equity shares. We will bargain for more. Our debt is Rs 15 crore.”

Oriental Insurance, which has a stake of 1.38 per cent, had also subscribed to the debentures, “The rate at which the conversion can take place should not be the market rate, but less than that,” said an Oriental Insurance official.

The IFCI lenders were recently given the option to convert 30 per cent of their combined Rs 1,479-crore zero-coupon OCDs into equity.

The remaining debt amount will draw an interest rate that is 50 basis points lower than the 10-year government securities, according to a letter issued by IFCI to 30 banks and financial institutions, including LIC.

The debentures were issued in 2002 as a part of the overall restructuring package announced for IFCI. LIC had invested Rs 500 crore and also owns some non-convertible debentures.