IFCI Story

It is reported on 14/Aug that Goldman acquired 20 lakh shares of IFCI
in open market operation (at prices above Rs 60 per shares). The
current holding is around 5.21 %.

If IFCI sells the stake of 26% by issue of new shares, total stake
will be around 31%. If they are forced to make general offer for at
least 20% of remaining shares, and if it succeeds, it may get
controlling stake of 51%. It is possible; IDBI (5%) and LIC (8%) may
sell into 20% general offers. In short, they will have about 405
Millions shares (out of 804 Millions shares, including issue of 165
Millions of new shares)


If this happens, then following scenario may be noted:

1. Goldman is perhaps the largest security firm in the world with
closest connection with US establishment (White House and FED). IFCI
acquisition will be very miniscule investment for them. 5% investment
might cost them Rs 153 crores (5% of 638 Mln shares x Rs 48 average
price) Remaining 26% may cost them Rs 1600 crores (16 crore extra
shares x Rs 105 rumored price). General offers for 20% will cost them
1200 crores. In short, 51% will cost them Rs 3000 crores appx. Or US$
750 Millions

2. Goldman will have instant access to Loans and Advances of over Rs
13500 crores or US$ 3.5 Billions. It will help identify the leading
borrowers for its investment banking side, and may raise IPO for such
companies.

3. Goldman will also identify the NPA (already written off) companies,
and may nurse them back to health by bringing them to market and raise
IPO or make secondary offers. Thus, old written off debts might be
recovered substantially (almost 100% in some cases) that may add
straight to bottom lines.

4. Thus, in a matter of just 2 years, the EPS of IFCI may rise to over
Rs 60 per shares as under

>>>5. However the above target has following caveats or Assumptions:
a. IFCI is really bought by Goldman. If they don't buy, everything
will fall, and the price target may come down to modest Rs 150 (in 12
months) and Rs 300 (in 2 years)
b. GOI does allow Goldman to change the name from IFCI and repeal IFCI
Act, so that the company is fully privatized and no longer a GOI
company
c. Goldman does not go bust in the present sub-prime scenario. It is
already in trouble to the extent of over US$ 30 Billions (including
CDOs of Chrysler and Alliance Boots)


6. Following scenario may emerge as result
a. IFCI may be turned into full fledged Investment Banking and Term
Lending Institutions. It is possible, after 2 years, both activities
may be separated and listed separately. There may be spin off
b. It is also possible that Goldman may consolidate shares in the
ratio of 2: 1 or existing 2 shares may be converted into 1 share
(reverse split) to enhance the share value in absolute terms. (Goldman
is US brokers with access to major pension funds. These funds usually
buy stock having denominated value of US$ 15 or more).
c. IFCI may come out with ADR issue to be traded on NYSE
d. IFCI has Long Term Prospect of trading at Rs 700 or above in about
2 years from take over date.
modest target is around Rs 230-260 ( even if Goldman Sach doesn't buy
it)

IN SHORT GOLDMAN SACHS IS REALLY KEEN ON TAKING A CONTROLLING STAKE IN
IFCI(51%).... FOR THAT TO HAPPEN THEN ALL THE SHARES HAVE TO BE
TENDERED IN THE OPEN OFFER HENCE THEY WILL SET A HIGH PRICE FOR THE
OPEN OFFER. HOWEVER IF GOLDMAN SACHS DOES NOT GET A CONTROLLING STAKE
THEN WE MAY SEE A FALL IN SHARE PRICE....