IFCI, which invited expressions of interest (EoIs) from foreign and domestic investors last month for a strategic 26% stake sale, may find itself cut out of the next Rs 1,300-crore tranche of the government’s approved restructuring package.

“IFCI’s recent turnaround and its decision to rope in a strategic investor has led the government to believe that it does not require further grants and can be self sufficient,” senior IFCI sources told FE on condition of anonymity. Other sources close to IFCI said the government had indicated that it was clearly uncomfortable bailing out an organisation that could have an international bank as a sizeable shareholder.

The government had outlined a revival package worth Rs 5,220 crore for IFCI when it was ailing in the late 1990s, of which it has already disbursed Rs 2,409 crore in several tranches between 2004 and 2007.

The EoI document to hive off 26% in IFCI states that the company expects a grant of Rs 1,300 crore in 2008. “If the government decides to withhold this aid, it could have serious implications on the valuation of its sale because suitors are definitely factoring in this money,” said a representative of one of the possible bidders. Investment bankers say IFCI can expect a valuation of well over 0 million from some bidders, primarily on account of its rich real estate assets.

Interestingly, the EoI document also states that while IFCI’s capital adequacy ratio (CAR) is 14.04%, that includes the deferred tax assets carried on the balance sheet. “In case the deferred tax assets carried on the balance sheet are deducted from the Tier-I capital as per RBI guidelines for banks (sic), the CAR will stand negative,” the document states.

Citigroup, Barclays, Standard Chartered Bank, Merrill Lynch and Lehman Brothers figure among the possible foreign suitors. Investment bankers say IFCI’s term lending ability will be a significant value-add for the foreign banks, all of who see a possibility in the project finance business but are strapped for an asset-liability mismatch on their balance sheet for long-term paper.

Selling its stake in the NSE and Icra substantially contributed to IFCI’s cash flow situation. While the last date for EoIs is September 14, IFCI is expected to shortlist candidates from the list of bidders by September 25, while the selection process will be completed by January 2008.