MUMBAI, March 13: The Industrial Development of Bank of India (IDBI), the leading financial institution in the country, has completely ruled out funding any hostile takeover bids. "We would not get involved in any hostile takeovers which could end up in courts, thus jeopardising our existing investments in the target/acquirer company," IDBI chairman, S H Khan said.Ruling out any financial assistance to a hostile acquirer, Khan said in order to protect their exposures in either companies, IDBI can stall a hostile move by refusing permission to an IDBI-assisted company. The permission from the debtors is mandatory before making an open offer.
In other words, IDBI may not sell its stake in Raasi Cements to India Cements as the latter's offer is considered as a hostile takeover and IDBI has loan exposure in both the companies. As Raasi has already filed a case in the Andhra HC, its takeover is mired with litigation thus IDBI would play safe to protect its loans.
At the same time, Raasi has also challengedthe three per cent acquisition by ICL from Kotak Mahindra. Kotak had sold the shares to ICL as Raasi defaulted on a loan. Khan defined a `hostile takeover' as the one where the target company is contesting the bid made by a raider. The IDBI chief, however, said the institution is open to sponsor a friendly takeover bid.
"An acquirer company, in which IDBI has debt exposure, must take our no objection before making such an open offer. We have to evaluate whether the company has the capability to launch such an offer, or whether it will have to further borrow funds for the takeover. If we think the company does not have the ability, we may refuse permission," he said.
Khan said there are three kinds of companies which will have to take approvals from them before making any hostile/friendly takeover moves. One, where IDBI has only equity exposure, second, where it has loan exposure, and finally where the IDBI has both equity and debt exposures. "In the first group of companies, IDBI can sell if the price isgood even in the cases of hostile takeovers. In the second cases, where we have to protect our loans... if we think the loans are protected, we can ask them to go ahead, provided they can arrange for funds from other sources. In the third category, we have to look at the offer from the angle of both shareholders and debtors before taking any decision on giving our permission for such an open offer."
"We have to make in-depth analysis of all the cases as we cannot take a decision in haste. We have to look at the shareholders' interests of all the companies involved," Khan said.
"Besides, the track record and the quality of the present management would considered while taking a final decision in the cases of disinvestment," the chairman said.
On the ongoing takeover bids, Khan refused to comment, but added that the two separate committees have been formed to evaluate the offers made by the acquirer companies, i.e, Sterlite/Alcan and India Cements.
Khan made it clear that the evaluation made by thecommittee would not be binding on any financial institution as each has to protect their own interests. "For example, Unit Trust of India would certainly look at the gain to its unitholders while we have to safeguard our existing debt as well as our equity exposures in both the companies... thus, the FIs may or may not take a joint decision," he said.
IDBI has exposure in terms of equity and debt in around 3,000 Indian companies. Thus, in the years to come it would play a significant role in forthcoming mergers and takeovers.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
