Monday, December 03, 2007

Quiz: If IFC buys into IFCI, then what?

The stock price of IFCI (IFCI@IN) shot up by 13% today, presumably on rumors that International Finance Corporation (IFC) may buy a strategic stake in IFCI. See, for example, the following:

Suppose that the rumor was true. I have no clue, but let's just suppose that it was true.

That is, suppose that IFC bought a strategic stake in IFCI.

Further suppose that the stake was in excess of 15%.

Further suppose that the stake was bought at a premium to today's closing price of 106.80 at NSE, which incidentally is the highest price the stock has seen in more than a decade.

Then, under India's Takeover Code, what will (or won't) happen and why?


Anonymous said...

For the purpose of disclosures to be made by IFC:
IFC shall within 21 days from the financial year ending March 31 make yearly disclosures to the IFCI in respect of its holdings as on the mentioned date.

The IFCI is, in turn, required to pass on such information to all stock exchanges where the shares of IFCI are listed, within 30 days from the financial year ending March 31 as well as the record date fixed for the purpose of dividend declaration.

For the purpose of making an open offer by IFC:
IFC can acquire additional shares only after making a public announcement (“PA”) to acquire at least additional 20% of the voting capital of IFCI from the shareholders through an open offer

Minimum Offer Price and Payments made:
It is not the duty of SEBI to approve the offer price, however it ensures that all the relevant parameters are taken in to consideration for fixing the offer price and that the justification for the same is disclosed in the offer document. The offer price shall be the highest of->

- Negotiated price under the agreement, which triggered the open offer.

- Price paid by IFC with him for acquisition if any, including by way of public rights/ preferential issue during the 26-week period prior to the date of the Public Announcement.

- Average of weekly high & low of the closing prices of shares as quoted on the Stock exchanges, where shares of IFCI are most frequently traded during 26 weeks prior to the date of the Public Announcement

==> I got above info from a web page


Sanjay Bakshi said...

Anonymous, assuming IFC buys more than 15% of IFCI, then IFC will have no obligation to make an open offer to IFCI's minority shareholders.

Tell me why this is so.

Hint: Search for "International Finance Corporation" in the Takeover Code.

Ashish Pandey said...

Hello sir,

Is this because the International Finance Corporation(IFC), Asian Development Bank(ADB), International Bank for Reconstruction and Development, Commonwealth Development Corporation and such other international financial institutions are exempt from this takeover code?

Please respond sir. I searched for International Finance Corporation as you mentioned and got this info.


Sanjay Bakshi said...

Bingo Ashish! you got it right.