The board of IFCI Ltd scrapped a process to sell a 26% stake in the company to a strategic investor after it found the conditions laid down by the bidder, a consortium of Sterlite Industries and Morgan Stanley, “not acceptable”.
According to an executive at Sterlite who did not wish to be identified, the bidding process had raised the issue of whether IFCI actually meant it wanted a financial investor (with no say in the company’s management) when it said it was looking for a strategic investor.
The consortium had put up an offer price of Rs111 per share.
Wednesday’s development marked an unsuccessful conclusion to the company’s attempt to find a strategic investor who would bring management expertise and create a globally competitive financial institution.
Officials on both sides said the primary cause for the termination of the process was on account of a difference over the number of seats on IFCI’s board that would be allotted to the strategic investor. IFCI currently has eight board members and the successful bidder was to be offered two seats, taking the board’s strength to 10. The number of seats sought by the Sterlite-Morgan Stanley consortium isn’t known.
“There is no possibility of a rebid in this format,” Atul Kumar Rai, chief executive officer and managing director, IFCI, told television channels after the board’s decision. Mint couldn’t reach Rai for comment.
Problems appear to have surfaced when IFCI, advised in the stake sale process by audit firm Ernst and Young, made available a final shareholder’s agreement it would sign with the winning bidder to four companies and consortia short-listed to make financial bids.
According to people who participated in the bid process who do not wish to be identified, only the Sterlite-Morgan Stanley consortium made a financial bid. The others, these people said, sought clarifications in the shareholders agreement.
The final shareholders’ agreement clearly indicated that the company was not looking for a strategic investor but only a financial investor, said the Sterlite executive.
The shareholders’ agreement says the winning bidder would be eligible for 20% of the board seats, IFCI’s real estate assets can be sold only with the board’s approval and Rai will continue as the chief executive officer for at least another four years, said officials from both sides.
“How do you achieve the objectives (of a strategic investor) after investing close to $1.5 billion?” asked the Sterlite executive. In keeping with Indian laws, the Sterlite-Morgan Stanley consortium would have had to make an open offer for another 20% of IFCI’s equity after acquiring a 26% stake in the company. Its total cost would have been about $1.5 billion.
The consortium chose to make a financial bid despite the shareholders agreement as it did not have anything to lose, said the executive. However, given the extent of investment required in the company, it chose to attach conditions, primarily a greater say on the board, he added.
Bidders also wanted some clarity on how the government, which bailed out IFCI in 2002 through a package that involved investing Rs923 crore in the company in return for convertible debentures, would use these instruments.
On Tuesday, IFCI announced it would issue 123.7 million shares to public sector banks and insurance companies at Rs107 a share. These banks and insurers are existing investors in IFCI who had bailed out the institution by allowing it to roll over some of its obligations.
Share of IFCI fell 1.04% to Rs100.05 at the end of trade on the Bombay Stock Exchange.