As the IDBI Bank privatisation enters the next stage, it may end up being one of the most profitable divestment processes for the government in recent years. Interested bidders are willing to offer a 7-10 per cent premium for controlling interest in the bank, which works out to a valuation of ₹64,000-66,000 crore.
Highly placed sources say that with the market regulator, SEBI, allowing the government’s request to classify its shares as “public holdings” post divestment, it has increased the willingness of investors to pay top dollars to take the promoter’s seat at the bank. “A major roadblock with respect to valuations and the deal has been cleared,” said a person aware of the matter.
It is learnt from multiple sources that nearly 4–5 large investors, a motley of banks and private equity players, have submitted their expressions of interest (EOI) to the Department of Investment and Public Asset Management (DIPAM) to collectively pick up a 60.72 per cent stake in IDBI Bank.
These include consortiums led by Fairfax Financial Holdings, Middle East-based Emirates NBD, and Japan’s Sumitomo Mitsui Banking Group. The interested investors are likely to submit their final bid by March, after which the reserve price for the transaction will be fixed.
Effect of roadshows
“When DIPAM conducted roadshows in April last year, it was looking at closing the deal at just about the then-prevailing market price, which was around ₹40–45 a share,” said a person aware of the matter.
“The bank’s stock has appreciated by over 20 per cent since the road shows. With the commitment coming from the government that it will not take a seat on the board once the new investors step in, exercise control over the affairs of IDBI Bank, and have no special rights with respect to the bank, some of the interested investors are willing to pay the controlling premium for the deal,” he added.
“For a bank with a balance sheet size of over ₹3-lakh crore and 1,900 branches, it makes sense to pay this kind of premium. It would give a head start to the business,” said a person aware of the transaction.
On January 5, IDBI Bank informed stock exchanges that SEBI has relaxed some of the norms with respect to the government’s shareholding in the bank post the divestment, and on January 7 (the last day for furnishing EOIs), Tuhin Kanta Pandey, secretary, DIPAM, announced on Twitter that multiple EOIs have been received for the strategic disinvestment of government and Life Insurance Corporation of India stakes in IDBI Bank.
The government holds a 45.48 per cent stake in the bank, and LIC’s stake is 49.24 per cent. Post divestment, LIC’s stake will reduce to 19 per cent, while the government’s will fall to 15 per cent.