The financial bids for the strategic sale of IDBI Bank, the largest in the banking-financial services- insurance (BFSI) space, are expected in May-June after the share purchase agreement (SPA) negotiations conclude.
The department of investment and public asset management (DIPAM) received multiple expressions of interest (EOI) on January 7, 2023 for a total of 60.72% stake in the bank, including 30.48% (approx. Rs 23,700 crore at current prices) from the government and 30.24% from promoter LIC, along with the transfer of management control in the bank. The bidders reportedly include Fairfax India Holdings (promoter of CSB Bank), Emirates NBD, and Kotak Mahindra Bank.
An official said that after security clearance from the ministry of home affairs (MHA) and fit and proper evaluation by the Reserve Bank of India (RBI), the qualified bidders’ due diligence on IDBI Bank is almost complete.
“Draft SPA is being finalised,” the official said, adding that final SPA negotiations takes some time to conclude.
To make the sale smooth, the government should give assurance in the SPA that the potential buyer would have a free hand in the running of the bank, such as a change in management, etc. According to the Banking Regulation Act, 1949, the voting rights of a shareholder or shareholders acting in concert in a bank can’t exceed 26% even if they own more than 26%.
While deciding the terms and conditions of the strategic sale, legitimate concerns of the existing employees and other stakeholders are suitably addressed through appropriate provisions made in the share purchase agreement.
This will be the largest deal in the BFSI field so far in the country and overall, this will be the second largest after Flipkart-Walmart deal, officials reckon.
Walmart acquired 77% of Flipkart for $16 billion in 2018, making it the biggest e-commerce acquisition in the world at the time.
The government is expecting to get some premium over the current market price of IDBI Bank given the bank’s splendid turnaround and performance in the last few years. IDBI Bank share price closed at 72.65 on Wednesday, down 0.08% from the previous closing price. At the current price, the 60.72% stake sale in the lender is worth about Rs 47,400 crore, which needs to be topped-up with some premium as well.
The bank’s net profit rose 31% on year to Rs 1,908 crore for the December quarter of the current financial year. The net non-performing assets (NPAs) to net advances stood at 0.18% for the quarter, down from 0.34% in the year ago quarter.
Post-sale, the government and LIC together will have a 34% residual stake in the lender (19% by LIC and 15% by the government). At a later stage, the government will sell its residual 15% stake in tranches through offer for sale to gain from the upsides in the share price after it is acquired by a private party.