New Delhi: The government may infuse additional capital into IFCI Ltd and flip it with one of its subsidiaries, two people familiar with the matter said, as part of a rescue plan for India’s oldest development finance institution where losses have mounted over the years. .
Although the reverse merger option is still being worked out, IFCI may most likely be merged with its subsidiary Stock Holding Corporation of India (SHCIL), the people cited above said on condition of anonymity. SHCIL is among the country’s largest depository participants, the largest premier custodian in terms of assets under custody, and the highest profit-generating entity under the fold of IFCI.
IFCI owns prime real estate, and holds significant investments in several entities, including SHCIL and IFCI Financial Services Ltd (IFIN). However, it has done little lending business in the last two decades, and stopped lending operations altogether in FY22 following liquidity constraints. It has reported annual losses for at least five years until FY23.
Queries sent to IFCI and the finance ministry about the reverse merger plans remained unanswered.
Financial services secretary Vivek Joshi, however, said that while the government is considering a number of options to save IFCI, any merger or reverse merger involving a subsidiary would be dealt with by the new government after the general elections.
“We will finalize the cheapest option to restructure IFCI. The option to close the entity would be very expensive,” Joshi said, adding that although the institution’s lending activity has been suspended, it is doing well as an agency for the government’s production-linked incentives. (MORE) schemes.
The secretary did not name the subsidiary for the possible reverse merger and said no final decision had been taken yet.
The people quoted earlier said that as in the previous two financial years, the government would pump again ₹500 crore in IFCI in the second half of FY25—though the Union budget of 2024-25 did not make any allocation—to reduce its debt and strengthen its finances, thereby easing the burden on any other entity or strategic investor involved in its. restructuring
IFCI shares closed 4.58% higher at ₹54.57 on the BSE on Friday.
Set up in 1948 as a development financial institution, IFCI was later converted into a non-banking finance company (NBFC). Its activities covered financing of various types of projects such as airports, roads, telecommunications, power, real estate, manufacturing, services, and other such allied industries. A combination of imprudent lending and poor management sickened the institution in the late 1990s, and has not recovered despite continued government support.
The company reported a loss of ₹444 crore in FY19, which shrank to ₹278 crore in FY20. But the losses shot up to ₹1,958 crore and ₹1,991 crore in FY21 and FY22, respectively. With active capital support, IFCI again lowered losses to ₹288 crore in FY23.
In the current fiscal year, it reported losses in the first and third quarters. It calculated a profit of ₹83.77 crore in the second quarter as capital support from the government covered a large part of its supply requirements.
As on 31 March 2023, IFCI had six subsidiaries: IFIN, IFCI Venture Capital Funds Ltd, IFCI Infrastructure Development Ltd, IFCI Factors Ltd, MPCON Ltd, and SHCIL.
Of these, IFCI has only two material subsidiaries: IFCI Infrastructure Development Ltd, which reported a profit of ₹16.13 crore in FY23, and SHCIL which returned a profit of ₹178.11 crore in FY23.
The company also had seven withdrawal subsidiaries: IFIN Commodities Ltd (indirect control through IFIN); IFIN Credit Ltd (indirect control through IFIN); IFIN Securities Finance Ltd (indirect control through IFIN); IDL Realtors Pvt. Ltd (indirect control through IIDL); SHCIL Services Ltd. (indirect control through SHCIL); Stockholding Document Management Services Ltd (indirect control through SHCIL); and Stock Holding Securities IFCI Ltd (SSIL).