Money & Banking

IDBI Bank buy: HC directs SEBI to examine complaint against LIC

K Ram Kumar Mumbai | Updated on November 07, 2018

Petition seeks direction to life insurer to offer ₹76.77/share against ₹61.73

The Delhi High Court has directed the Securities and Exchange Board of India (SEBI) to take on board a minority shareholder’s petition that the Life Insurance Corporation of India (LIC) should be asked to offer a price of ₹76.77 per share, instead of ₹61.73, to acquire IDBI Bank’s shares. The court has asked the regulator to consider the plea as a complaint and take appropriate action.

According to the order, which was passed by the Court on November 2, the market regulator is required to take action within two weeks.

Open offer

LIC will make an open offer for acquiring 2,04,15,12,929 fully paid-up equity shares of face value of ₹10 each, representing 26 per cent of the fully diluted voting equity share capital of IDBI Bank, from the bank’s shareholders. This offer, at a price of ₹61.73 per share, is in connection with the life insurance behemoth’s plan to take a 51 per cent controlling stake in the bank.

At ₹61.73 apiece, LIC will pay ₹12,602 crore to mop up 204 crore equity shares of IDBI Bank, which was placed under the so-called prompt corrective action framework by the RBI in May 2017, in view of the high non-performing assets and negative return on assets. However, if SEBI finds merit in petitioner Satish Gogia’s contention, the life insurer will have to shell out ₹3,071 crore more to buy the bank’s shares.

Gogia filed a petition praying that LIC be directed to offer a price of ₹76.77 per share as computed on July 18/August 8, 2018; according to him, those are the dates on which the life insurer had agreed to acquire further shares in IDBI Bank.

Concern over investment

Market experts have expressed concern that LIC is putting policyholders’ money on the line by seeking to acquire a majority stake in IDBI Bank. The government-owned bank is grappling with a huge pile of bad loans, which stood at about 31 per cent of gross advances as of June-end 2018, and has posted big losses in the last three financial years beginning FY2016.

They say that the RBI and the insurance regulator will need to tackle issues arising from a possible breach of prudential exposure limits due to the joint exposure of LIC and IDBI in various sectors and industries. As of September-end 2018, the government and LIC owned 85.96 per cent stake and 7.98 per cent stake, respectively, in IDBI Bank.

Justice Vibhu Bakhru, in his order, observed: “The petitioner’s contention is that LIC and IDBI Bank have violated the provisions of SEBI’s Substantial Acquisition of Shares and Takeover Regulations, 2011, thereby benefiting LIC. Admittedly, the petitioner has an alternative remedy of filing a complaint before SEBI.”

The order further said: “The learned counsel for SEBI states that the complaint, if any, made by the petitioner would be examined and the necessary decision would be taken. In view of this statement, no further orders are required to be passed in this petition, except to direct that SEBI treat the present petition as a complaint and take an appropriate decision within a period of two weeks from today.”

Justice Bhakru said that if the petitioner felt aggrieved by SEBI’s decision, he would be at liberty to avail of such remedies as are available in law.

Tendering of shares under the open offer begins on December 3 and closes on December 14.

Published on November 07, 2018

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