The Securities and Exchange Board of India (Sebi) is likely to relax rules to facilitate the proposed sale of IDBI Bank to a strategic buyer, by counting the government’s residual shareholding in the bank after the transaction as part of public float, an official source said.
The regulator’s relaxation, in response to a request from the finance ministry, is expected to make it easier for the potential buyer to meet the minimum public float norm and thereby improve investor interest in the entity.
The government is also reasonably assured that the regulator would give five years or more against the norm of one year to the potential buyer to comply with the public holding norm of 25% in the lender given its long history of public sector or deemed public sector status, the source added.
The government is of the view that such a dispensation would give the buyer sufficient time to expand the business and boost the bank’s valuation before diluting the stake.
According to the Sebi norms, a company is required to have a minimum public holding of 25% within one year of merger with/acquisition of a private company or three years after listing. Public sector companies, including banks such as Indian Overseas Bank and Bank of Maharashtra, however, enjoy a leeway in this regard even though they were listed decades ago, as these norms are not strictly enforced in their cases.
IDBI Bank was listed as early as in 1995. Still, the public holding in the bank is just 5.28%, because the lender, which is majority-owned by LIC and the government, was treated with leniency by the regulator.
The government had urged the Sebi to relax the mandatory public shareholding norm for the potential acquirer of IDBI Bank by treating the combined residual stake of both the government and LIC after the strategic sale as part of the public float. However, since LIC is the current promoter of the lender, the regulator may not be favourably disposed to treating its stake as part of public float after the sale of the lender to a private party, the source indicated.
On October 7, the Centre invited expressions of interest (EoIs) for IDBI Bank and offered to sell a total of 60.72% stake in the bank, including 30.48% from the government and 30.24% from LIC, along with the transfer of management control in IDBI Bank. Yet, both the government and LIC together will have a 34% residual stake in the lender (19% by LIC and 15% by the government).
The government has structured the stake sale in such a way that the buyer can potentially increase its stake to about 66% by acquiring the 5.28% held by the public via open offer.
According to Sebi’s takeover regulations, the acquisition of an aggregate of 25% shares in a listed entity would trigger an open offer.
Sebi’s likely categorisation of the Centre’s residual stake of 15% in the lender would mean that the new promoters of the bank would have to just offload another 10% to meet the public float norm of 25%. Sebi had done it in the case of erstwhile state-run Hindustan Zinc, which was privatised in 2002-2003 and the Centre’s 29.54% was categorised as public float.
A strategic investor, sources said, may not like to offload stake in the initial years, a period when it will likely be setting up a new management team, restructuring the business and attempting a rebranding of the bank.
Sources said if Sebi gives a five-year timeline to the new promoters to meet the public float norm, it would also align with the Reserve Bank of India (RBI)’s glide path to reduce the new promoter’s holding in the bank.
According to the preliminary information memorandum for IDBI Bank EoI, the potential buyer would get 15 years to bring down the equity to 26% to comply with RBI norms for private banks. Of course, in the first five years, 40% of the equity capital would be locked in, as per the RBI guidelines.