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Monday, Aug 05, 2002

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Guarantee to IFCI capped at Rs 800 cr

Shaji Vikraman
Sarbajeet K. Sen


THE Government has decided to restrict its guarantee to IFCI to just Rs 800 crore, which is less than half of what the financial institution had sought to redeem its borrowings.

IFCI had last month sought a guarantee from the Government to borrow afresh and fulfil its repayment obligations aggregating Rs 1,800 crore. This included the floating rate notes (FRNs) offering of $300 million (close to Rs 1,470 crore) and local currency borrowings of Rs 300 crore.

The Finance Ministry has, however, decided to provide a guarantee to cover only up to $100 million (around Rs 490 crore) of the foreign currency borrowings, which are now due for redemption in August. The remaining part of the guarantee cleared now will fully cover the domestic borrowings with banks, which are to be rolled over this month, according to senior officials.

The proposal to provide a guarantee to IFCI was approved by the Finance Minister, Mr Jaswant Singh, late last week.

Senior Government officials said that the Finance Ministry decided not to provide a guarantee for the full overseas commercial borrowings as the remaining $200 million of repayments will have to be met only in October. The Finance Ministry took the view that the Group of Ministers constituted to look into the restructuring of IFCI and Unit Trust of India (UTI) ought to consider this issue when it meets in the interim period.

In the near term, IFCI can borrow on the back of the sovereign guarantee and meet its repayment obligations.

This support from the Government is, however, contingent on IFCI agreeing to certain stiff conditions imposed by the Finance Ministry. IFCI will have to agree to give first charge to the Government on future revenue or income streams.

This is to ensure future repayment of the borrowings resorted to by IFCI on the back of the sovereign guarantee. Or in other words, to make sure that this guarantee is not invoked.

IFCI will have to pay the Government the standard guarantee fee of 1.2 per cent on the outstanding borrowings as in the case of (UTI), which was provided a guarantee support of Rs 1,000 crore last month.

In 2001, the Government had infused Rs 400 crore through long-term bonds to bolster its capital adequacy ratio as a part of Rs 1,000-crore package.

The GoM will have the benefit of inputs from a technical committee, which will include experts from the financial sector, the RBI and the Government. This committee has been constituted recently to suggest steps to revive IFCI.

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