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  1. LIC-IDBI Bank deal: Moody’s puts debt-ridden bank’s long term ratings on review for upgrade

LIC-IDBI Bank deal: Moody’s puts debt-ridden bank’s long term ratings on review for upgrade

In view of LIC’s intent to take control of 51 percent stake in the debt-ridden government-run IDBI Bank, global rating agency Moody's on Wednesday put the lender’s long-term ratings on review for upgrade.

By: | Published: July 25, 2018 10:43 AM
Moody’s will also review any regulatory limitation on LIC for issuing further support and hiking its stake above 51 percent.

In view of LIC’s intent to take control of 51 percent stake in the debt-ridden government-run IDBI Bank, global rating agency Moody’s on Wednesday put the lender’s long term ratings on review for upgrade. Furthermore, all long-term ratings of the bank’s Dubai International Financial Centre (DIFC) branch (IDBI Bank Ltd, DIFC Branch) have also been placed on review, Moody’s Investors Service said today. The global agency will look into the exact amount of capital that will be infused in the bank by the country’s insurance behemoth and also its likely impact on its capital adequacy ratio.

Moody’s will also review any regulatory limitation on LIC for issuing further support and hiking its stake above 51 percent, rating agency said. It was on 17 July that LIC expressed  interest in acquiring a controlling stake in the IDBI Bank through the preferential allotment of shares or an open offer.

The review for upgrade will focus on: (1) the exact amount of fresh equity that LIC will inject into the bank and its impact on IDBI’s capitalization, and (2) the presence of any regulatory limitations on LIC’s ability to provide further support, and particularly on it ability to raise its stake above 51%. In order to build a 51% stake LIC will subscribe to new shares, which will be positive for the bank’s capitalization and consequently its BCA,” Moody’s said.

The global rating agency will also take into consideration the relatively low strategic importance of IDBI Bank to LIC, and the fact that the proposed investment will be funded by policyholder funds rather than its own, it said.

“Given the review for upgrade, a downgrade of the bank’s long term ratings is unlikely. Nevertheless, the long-term ratings could be downgraded in the event of a significant and unexpected increase in net non-performing loan formation that further strains the bank’s capitalization,” Moody’s also said.

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