IFCI Ltd is planning to prepay is high-cost debt of around Rs 1,000 crore (Rs 10 billion) by redeeming its millionaire and gift bonds carrying 16.5 per cent interest.

The institution has convened a meeting of bondholders to seek their permission for the plan. IFCI executives said a majority of the bondholders are retail investors.

"The bondholders' concurrence is required for us to get the powers to redeem the bonds after giving them two months notice," an executive said.

The millionaire and gift bonds were issued in 1996 and the last call option, that was due in 2002, could not be exercised owing to paucity of funds. The next call option is due in 2006.

The move follows the decision by the government and institutional lenders to cut the coupon on bonds issued by IFCI which has resulted in savings of Rs 400 crore (Rs 4 billion) last fiscal.

The government will also provide assistance of Rs 1,573 crore (Rs 15.73 billion) to the Delhi-based institution this fiscal, which, sources said, will be used to redeem the two bonds series.

The Centre had provided a support of Rs 543.77 crore (Rs 5.44 billion) to IFCI last fiscal to help it meet the interest gap. Finance ministry officials said the funds, allocated in the budget, will be released shortly.

With savings on interest payment, IFCI is expected to post operating profit for the last fiscal and the capital adequacy ratio is also expected to improve significantly though it may not reach the Reserve Bank of India-stipulated level of 9 per cent.

The board is meeting on June 30 to consider the audited results for 2002-03. During the third quarter of the last fiscal, IFCI registered an over five times increase in operating profit to Rs 137.43 crore (Rs 1.37 billion) against Rs 26.92 crore (Rs 0.269 billion) during October-December 2002.

The hike was attributed to the fact that the savings in interest payment of Rs 295.70 crore (Rs 2.96 billion) for the nine months was accounted for in the third quarter of 2002-03.

As a result, IFCI's interest outgo of Rs 287.69 crore (Rs 2.88 billion) during the third quarter was just 45 per cent of the Rs 628.49 crore (Rs 6.28 billion) it paid during October-December 2001.

Meanwhile, the board has constituted a four-member selection committee to select a new chairman and managing director for the Delhi-based institution. The present CMD V P Singh's tenure is scheduled to end in September.

Those on the panel include Vinod Rai, joint secretary in finance ministry's banking division, who is also on the institutions' board, IFCI director and chartered accountant, Vipin Malik, and chairmen of Life Insurance Corporation and Industrial Development Bank of India, or a representative designated by them.

Institutional sources said the selection committee is expected to submit its report by the month-end. The criteria for selecting the new chairman and managing director will be finalised by the committee.