IFCI - Multibagger

IFCI: Multi-Bagger

The deal to privatise IFCI has been truncated twice during CY08. However, with the PM now heading the Finance Ministry decks are being cleared for a politically acceptable solution. The solution cobbled together by North Block is to divest 26 per cent of the GOI stake to IDFC and then proceed with a massive effort to bring IFCI back to its feet.

Those in the know claims that the Assets held by IFCI including sizeable stakes in many organisations like the NSE and shares held either as investments or as collateral for loans granted to Indian Industry, substantially exceed the market capitalisation of IFCI. What is needed however, is the will to make IFCI realise the value on its books and bring back the venerable institution back to a stage where it can play a meaningful role in the rapid industrialisation of the country.

Here the extraordinary record of IDFC will come to the fore as would the fact, that IDFC is a pseudo GOI entity and its management control of IFCI would be acceptable to politicians of all hues and the labour unions. Investors would recall that IDFC had competed earlier in the year with the likes of Blackstone Group LP and General Electric Capital Corp. for a stake in the state-run project financier.

The bidders had included Blackstone, US billionaire Wilbur Ross and Vedanta owner Anil Agarwal. The deal had failed at the last moment on the issue of pricing and management control and a final phase-out of the GOI holding in IFCI over a period of time. These issues are now believed to have been resolved. The winner of the 26 percent IFCI stake will gain access to a market where lending grew 28 percent last year, and where the central bank limits foreign banks' ownership of local private rivals to 5 percent. IFCI, was bailed out by
the government in 2003 because of bad debts, in July announced plans to sell a stake to a local or overseas investor to bolster its capital.

Other bidders including a group led by billionaire Wilbur Ross and comprising Goldman Sachs Group Inc., Standard Chartered Plc and India's Housing Development Finance Corp., alongside Cargill Financial Services Corp., Natixis SA and Newbridge Asia for the stake. However, most bidders had dropped out by the time the final bids were to be opened.

In the wake of the cancellation of the bidding process IFCI had seen its stock plunge from a high of Rs 140 early on in CY08 to a low of Rs 15.25. On last Friday it closed slightly higher at Rs 23.20, still down 84 per cent from the peak. GOI which has been grappling with means to finance a projected $ 550 bn in infra spend over the next 5 years needs all resources at its disposal to work so as to maintain a 8 per cent plus annual GDP growth, in an environment that has plunged from Euphoria to Gloom.

Analysts however claim that funds are available to the right projects and to the right institutions, only the GOI has to show its resolve and some form of urgency. Some of the $ 550 billion of roads, ports and power stations the government wants built by 2012 could take off in the coming months and years. The potential returns in India spurred Blackstone, Citigroup Inc. and 3i Group Plc to start infrastructure funds this year. Infrastructure Development is partnering Blackstone and Citigroup for a $5 billion infrastructure fund in India and its taking over IFCI will further the aims of the GOI. The IFCI stock can be a multi-bagger of CY09.







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