IDBI Will Be Sold To Private Investors; Sales Process Starts Next Week

The government is looking to sell its entire 94.71% stake.

The government is kickstarting the privatisation of IDBI Bank this month.

Roadshow Starting Next Week

Its advisor KPMG has reached out to several potential buyers including large private equity buyout funds and long-only funds.

They are invited to a roadshow next week which will be a virtual interaction, to be attended by government officials and the bank’s management.

The preliminary interest of investors will be gauged in what will be the first-ever strategic disinvestment of a public sector lender (although majorly owned by LIC).

Sale Of Govt And LIC Stake

The government is looking to sell its entire 94.71% stake, including LIC’s 49.24% equity stake which comes with management control.

The central government holds another 45.48%.

The quantum of stake dilution by the Centre and LIC will be decided while structuring the transaction in consultation with the RBI.

Discussions have involved retaining 26% stake in the lender and both Centre and LIC will proportionately reduce their shareholding in the bank.

Next Steps

The roadshows will help set conditions for the sale and structuring the transaction.

DIPAM will bring RBI on board to vet the interested candidates.

RBI may screen bidders as early as when the EoI is placed so that only those who meet fit and proper criteria move on to the next stage.

The government is likely to come out with an expression of interest within 3 weeks.

‘Voluntary Discovery’ Of Buyers

The IDBI sale will be the first case in India of “voluntary discovery” of the buyer through an open bidding process.

Typically this route is taken to sell banks that are in trouble. 

Further, as an insurer, LIC has to commit to exit its exposure as a prerequisite for its IPO.

Due to the large size of the potential trade the government might retain a partial stake, based on feedback from investors.

Financials

The IDBI Bank stock has appreciated 44.2% in the last one year on improved financials and provisioning of bad loans.

It turned profitable in FY21 after five consecutive years of loss.

Its current market capitalisation is Rs 50,482.53 crore.

Seeking Relaxed Norms

The central government has already approached the RBI seeking relaxation in norms stipulating a promoter shareholding cap of 26% as the new buyer of the state lender will likely hold a higher stake. There is also a 26% voting rights cap.

Aggregate foreign shareholding in private banks is allowed up to 74% under the FDI route

A portfolio investor can hold more than 5% only with the RBI’s approval which in some cases have been relaxed in the past.

It is not yet known whether the government will allow corporations to co-invest with financial sponsors as part of a consortium.

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