With no hope of revival or privatisation, the government will likely close the 75-year-old non-banking finance company IFCI Ltd after addressing its asset-liability mismatch.
The government has been infusing equity for the last several years into the loss-making NBFC. After infusing Rs 100 crore in September 2022, it has again put another Rs 400 crore in IFCI last week to help it meet capital adequacy norms and prepay some of the subordinate bonds.
“An assessment is being done on how much government support is required to cover the asset-liability mismatch. The bondholders have to be paid back prematurely,” an official told FE.
The Board of Directors of IFCI would meet on March 28 to consider premature redemption of subordinate bonds worth `95 crore maturing by 2026-2032 subject to the consent of the bondholders.
IFCI has financial liabilities of `8,545 crore as on March 2022. Besides IFCI’s internal accruals from loan recoveries, interest income and monetisation of assets, the government will likely provide additional support in due course to meet all liabilities before the closure, the official said.
IFCI has half-a-dozen subsidiaries including Stock Holding Corporation of India Ltd (SHCIL) with a 52.86% stake. SHCIL in its part owns a prized 4.44% in the National Stock Exchange (NSE). NSE being an unlisted entity, IFCI is having difficulty in monetising the stake in the premier stock exchange.
Capitalisation profile of IFCI witnessed severe deterioration as the tangible net-worth of the company dropped to (–) `1,408 crore as on March 31, 2022, compared with `249 crore as on March 31, 2021, on the back of net operational losses of `1,991 during the year, according to Care Ratings.
As a result, IFCI’s Capital to Risk Assets Ratio was (-)64.85% in FY22, as against the regulatory requirement of 15% for NBFCs. The NBFC reported a loss of Rs 55 crore in the nine months ending December 2022.
Like in most of the past two decades, IFCI did not make any fresh lending in FY22 and was focused on recovering non-performing assets (NPAs) and fee-based advisory services.
With incomes plummeting, the government is keen that IFCI monetise its investments in subsidiaries to meet obligations as much as possible.
The NBFC’s principal liability outstanding was `7,011.9 crore as on March 2022 comprising of rupee borrowings of `6,639.15 crore and foreign currency loan of `372.75 crore. The broad instrument wise break-up of outstanding borrowings as on March 31, 2022 is private placement of bonds (39.17%), bank loans (17.26%), subordinate bonds (12.08%), public NCDs (10.68%), infrastructure bonds (4.29%), foreign currency loans (3.77%), tax free bonds (2.85%) and zero coupon bonds (2.5%).
The loan book of IFCI has been on a declining trajectory over the years and stood at `7,185 crore as on March 31, 2022, down 32% on the year as it did not disburse fresh loans during the year.
The Centre holds a 64.85% stake in IFCI, whose share price is trading at around the face value of Rs 10 for a long due to the very weak finances of the firm.
According to the public sector enterprises (PSEs) policy unveiled in 2021, PSEs in the strategic sector under which IFCI falls are to be taken up for privatisation, merger, or subsidiarisation with another CPSE or for closure. Only a bare minimum presence of PSEs in the aforesaid strategic sector is to be maintained. The closure process drags on for years in India due to the slower pace of execution.