LIC is understood to considering paying the government the last three months’ average trading price of the stock, which is around Rs 62/share.
The Centre is likely to garner about rs 10,500 crore by disinvesting 40-42% of its stake in the stressed IDBI Bank to state-run Life Insurance Corporation (LIC) at a price of around 62/share, at a premium over the market price, sources told FE. On Tuesday, the IDBI stock closed at Rs 52.50, down 6.25% on the BSE.
The exact details of the proposed transaction such as price and quantum of stake sale would be worked out soon and the deal was likely to go through by September, the sources said. On Friday, the Insurance Regulatory and Development Authority of India approved a proposal by LIC to raise its stake in IDBI Bank up to 51%. LIC currently holds 10.82% in IDBI Bank while the Centre holds 80.96%.
The government is expecting a premium from LIC for its stake in the bank, given its ‘future potential’. While LIC would do a valuation of the bank on its own, it is understood to considering paying the government the last three months’ average trading price of the stock, which is around `62/share. The bank’s current market capitalisation is `21,951 crore.
In a similar transaction last year, the Centre sold its 51.11% stake in oil retailers HPCL to explorer Oil and Natural Gas Corporation for `36,915 crore or 36.9% of its total disinvestment revenue of `1 lakh crore. Defending the proposed deal involving two public sector entities, NITI Aayog vice chairman Rajiv Kumar said: “I am hoping LIC will be making very good money after IDBI Bank is turned around in the coming years.”
The deal will save the government from having to infuse more funds into IDBI Bank, which had received as much as Rs 10,610 crore last fiscal, the most by any public-sector bank (PSB). However, LIC has to bring down its stake in the bank to regulatory limit of 15% in a company over a period of time.
Despite massive infusion by the government last fiscal, IDBI Bank’s core equity capital stood at 7.42% as on March 31, just above the minimum regulatory requirement of 7.37%. Its gross non-performing assets (NPAs) zoomed to 27.95% and net NPAs to 16.69%, the most reported by any PSB. In the Budget for 2016-17, the government had said it could consider trimming its stake in IDBI Bank below 50%, but could not find buyers at the price it wanted.
While the Centre managed to mop up a whopping Rs 1 lakh crore from disinvestment in FY18, the target of `80,000 crore for the current fiscal is challenging, as the pipeline is modest and markets have become volatile. It has so far raised Rs 8,759 crore including `8,325 crore from further fund offer of Bharat 22 – ETF. A fresh tranche of CPSE ETF and listing of the entity to emerge out of the merger of three PSU general insurers, offers for sale and sale of a portion of Suuti holding in Axis Bank and ITC are what the government is banking on.