Canadian billionaire Prem Watsa’s Fairfax is back in the fray bidding for IDBI Bank with a sweetened deal.

According to highly placed sources aware of the matter Fairfax seems to have agreed for an all-cash compensation structure to acquire IDBI Bank. In addition, Watsa is said to have committed to ensure that the identity of IDBI Bank will be preserved after divestment.

The revised offer from Fairfax is believed to have been communicated to the government officials about two weeks ago.

Thorns removed

“Until now, the bidders including Fairfax were hesitant to offer cash compensation and that was a contentious issue because the government usually doesn’t entertain share swap structures. If this is taken care of, the deal may tilt in favour of Fairfax,” said a senior executive aware of the matter. The improved offer comes amidst political tension between India and Canada and the sweetener extended by Fairfax could once again make it a top contender for IDBI Bank.

Revised terms

According to the revised offer, Fairfax India Holding, the Indian entity of the PE major, would bid for IDBI Bank. Since Fairfax is also the promoter of CSB Bank, the former may be merged into IDBI Bank once the deal is sealed, because Indian banking regulations mandate that an investor cannot be a promoter of two banks at the same time. With the market cap of IDBI Bank at ₹90,438 crore multiple times higher than CSB Bank’s ₹5,980 crore market capitalisation, sources say the revised structure would be beneficial for IDBI Bank.

This is a departure from the earlier proposals where Fairfax intended to hold IDBI Bank as a separate entity for a few years post the acquisition and subsequently merge it with CSB Bank. “The Reserve Bank is not keen to allow parallel structures for a common promoter and with IDBI Bank being a very established entity, the government wasn’t not comfortable with the bank losing its identity,” said another senior executive aware of the transaction. Bid from Fairfax India Holding would effectively address concerns raised by the RBI and the government.

With IDBI Bank’s stock price zooming from ₹60 a share when divestment talks were initiated to now over ₹84 a piece, it would be interesting to see if Kotak Mahindra Bank which is also reportedly in fray for IDBI Bank would be willing to match or better Watsa’s offer.

Divestment of IDBI Bank started in October 2022 with Life Insurance Corporation of India (LIC) and the government selling 30.24 per cent stake 30.48 per cent stake respectively in the bank. Email sent to Fairfax and the finance ministry remained unanswered till press time.

Tough to turn down?

Prem Watsa willing offer cash compensation for IDBI Bank

Sources say Fairfax has promised to retain IDBI Bank’s identity after divestment

Revised deal terms said to have been communicated to finance ministry

Divestment of IDBI Bank commenced in Oct 2022

LIC and government to sell 30.24 per cent and 30.48 per cent stake respectively in IDBI Bank