Ifci@79
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Future Valuation
Here's an article by The Great Khali (das)
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: (I mentioned part of it in my previous post when I had shown target to Rs 300 to Rs 500 for IFCI without taking into account of it being taken over by foreign entity) a. Regular Earning = Rs 625 crores (5% Interest spread of Rs 13500 crores Advance - Operative expenses) = Rs 7.80 EPS b. Investment Earning = Rs 800 crores per year (from existing Equity and debt holding) = Rs 10 per share c. Recovery earning = Rs 1600 crores per year (from debt tribunals etc) = Rs 20 per share d. New Investment Banking income from IPO’s promoted by Goldman management - (Expected flow will be Rs 16000 crores per year or 5% fees/green shoes of such Gross Proceeds = Rs 800 crores or Rs 10 per share e. The expected EPS for next 3 years at least will be sum of a,b,c,d = Rs 7.80 (a) + Rs 10 (b) + Rs 20 (c) and + Rs 10 (d) = Rs 47.50 per share f. Presenting growth P/E ratio of at least 15 times (generally over 20 times), the stock price may zoom to Rs 712 in less than 18 months
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.
Here's an article by The Great Khali (das)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: (I mentioned part of it in my previous post when I had shown target to Rs 300 to Rs 500 for IFCI without taking into account of it being taken over by foreign entity) a. Regular Earning = Rs 625 crores (5% Interest spread of Rs 13500 crores Advance - Operative expenses) = Rs 7.80 EPS b. Investment Earning = Rs 800 crores per year (from existing Equity and debt holding) = Rs 10 per share c. Recovery earning = Rs 1600 crores per year (from debt tribunals etc) = Rs 20 per share d. New Investment Banking income from IPO’s promoted by Goldman management - (Expected flow will be Rs 16000 crores per year or 5% fees/green shoes of such Gross Proceeds = Rs 800 crores or Rs 10 per share e. The expected EPS for next 3 years at least will be sum of a,b,c,d = Rs 7.80 (a) + Rs 10 (b) + Rs 20 (c) and + Rs 10 (d) = Rs 47.50 per share f. Presenting growth P/E ratio of at least 15 times (generally over 20 times), the stock price may zoom to Rs 712 in less than 18 months
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.
Latest
Infrastructure development finance company (IDFC) an Indian investor in public works, is now in the race to acquire stake in IFCI, reports Business Standard (Oct. 09, 2007), competing with Blackstone Group LP and General Electric Capital Corp. for a stake in the state-run project financier.
We are busy doing the due diligence, IDFC Chief Executive Officer Rajiv Lall said in an interview in Mumbai today. We have yet to decide.
The winner of the 26 percent IFCI stake will gain access to a market where lending grew 28 percent last year, and where the central bank limits foreign banks ownership of local private rivals to 5 percent. IFCI, bailed out by the government in 2003 because of bad debts, in July announced plans to sell a stake to a local or overseas investor to bolster its capital.
Other bidders including a group led by billionaire Wilbur Ross and comprising Goldman Sachs Group Inc., Standard Chartered Plc and Indias Housing Development Finance Corp., are vying with Cargill Financial Services Corp., Natixis SA and Newbridge Asia for the stake, IFCI said last month.
IFCI, the best-performing stock on the BSE500 Index this year, will finance some of the $475 billion of roads, ports and power stations the government wants built by 2012. The potential returns in India spurred Blackstone, Citigroup Inc. and 3i Group Plc to start infrastructure funds this year.
Infrastructure Development is partnering Blackstone and Citigroup for a $5 billion infrastructure fund in India.
Infrastructure development finance company (IDFC) an Indian investor in public works, is now in the race to acquire stake in IFCI, reports Business Standard (Oct. 09, 2007), competing with Blackstone Group LP and General Electric Capital Corp. for a stake in the state-run project financier.
We are busy doing the due diligence, IDFC Chief Executive Officer Rajiv Lall said in an interview in Mumbai today. We have yet to decide.
The winner of the 26 percent IFCI stake will gain access to a market where lending grew 28 percent last year, and where the central bank limits foreign banks ownership of local private rivals to 5 percent. IFCI, bailed out by the government in 2003 because of bad debts, in July announced plans to sell a stake to a local or overseas investor to bolster its capital.
Other bidders including a group led by billionaire Wilbur Ross and comprising Goldman Sachs Group Inc., Standard Chartered Plc and Indias Housing Development Finance Corp., are vying with Cargill Financial Services Corp., Natixis SA and Newbridge Asia for the stake, IFCI said last month.
IFCI, the best-performing stock on the BSE500 Index this year, will finance some of the $475 billion of roads, ports and power stations the government wants built by 2012. The potential returns in India spurred Blackstone, Citigroup Inc. and 3i Group Plc to start infrastructure funds this year.
Infrastructure Development is partnering Blackstone and Citigroup for a $5 billion infrastructure fund in India.
latest
Mumbai, Oct. 10: The Industrial Finance Corporation of India (IFCI) on Wednesday informed all the applicants interested to take a 26 per cent stake in the institution that the request for proposal (RFP ) will be available only on October 16. It was earlier to be made available this week. There are eight suitors for the 26 per cent stake estimated to be valued at Rs 1,500 crores.
The bidders include Japans oldest bank Shinhsai Bank in a consortium with Punjab National Bank and J Chris Flowers, a consortium of Goldman Sachs, Standard Chartered and HDFC, Sterlite and Morgan Stanley, Blackstone, GE Capital and IDFC. Kotak Mahindra was a bidder earlier but it exited. The networth of the bidders has to be Rs. 10,000 crores.
While the reason or reasons for the delay in the RFP was not mentioned, sources say that it could be due to the inconclusive negotiations with the banks and Life Insurance Company which bailed it out when it was sick. LIC and the nationalised banks had given Rs 2,000 crores and were given OCD (convertible bonds) which they are holding. LIC alone gave Rs 500 crores.
There have been discussions between IFCI and the banks as it is said that the banks want to covert these OCDs into equity with interest. This will cause a problem because if the OCDs are converted into equity it will bring down the stake of the proposed strategic partner to just three to four per cent. The parties have yet to reach an understanding on the OCDs. The 26 per cent stake would be worth Rs 1,500 crores and the whole enterprise would be around $1.2 billion or Rs 5,000 crores according to the current price of the stock.
Mumbai, Oct. 10: The Industrial Finance Corporation of India (IFCI) on Wednesday informed all the applicants interested to take a 26 per cent stake in the institution that the request for proposal (RFP ) will be available only on October 16. It was earlier to be made available this week. There are eight suitors for the 26 per cent stake estimated to be valued at Rs 1,500 crores.
The bidders include Japans oldest bank Shinhsai Bank in a consortium with Punjab National Bank and J Chris Flowers, a consortium of Goldman Sachs, Standard Chartered and HDFC, Sterlite and Morgan Stanley, Blackstone, GE Capital and IDFC. Kotak Mahindra was a bidder earlier but it exited. The networth of the bidders has to be Rs. 10,000 crores.
While the reason or reasons for the delay in the RFP was not mentioned, sources say that it could be due to the inconclusive negotiations with the banks and Life Insurance Company which bailed it out when it was sick. LIC and the nationalised banks had given Rs 2,000 crores and were given OCD (convertible bonds) which they are holding. LIC alone gave Rs 500 crores.
There have been discussions between IFCI and the banks as it is said that the banks want to covert these OCDs into equity with interest. This will cause a problem because if the OCDs are converted into equity it will bring down the stake of the proposed strategic partner to just three to four per cent. The parties have yet to reach an understanding on the OCDs. The 26 per cent stake would be worth Rs 1,500 crores and the whole enterprise would be around $1.2 billion or Rs 5,000 crores according to the current price of the stock.