BackIDBI Bank’s stake sale race heats up
IFC has completed the inspection of the bank's assets; CDC Group has started due diligence; TPG also in talks
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Mumbai: The International Finance Corp., one of the investors interested in buying a stake in IDBI Bank Ltd, has finished inspection of the assets and liabilities of the state-run lender, two people with direct knowledge of the matter said.
The UK’s development finance institution CDC Group Plc and US private equity firm TPG Capital are also in talks with the government to buy a stake, these persons said.
Bloomberg first reported that TPG Capital is vying for a stake in IDBI Bank on Friday.
Finance minister Arun Jaitley, in his budget speech last month, said that the government will consider ceding control of IDBI Bank—slashing its stake to less than 50% from 80.2% now. It will be a test case for whether the government, which, according to an estimate by Moody’s, needs to inject ₹ 1.45 trillion by March 2019 to recapitalize weak banks, can pursue the politically difficult plan to privatize the state-run lenders.
“It is very clear that the government is comfortable with the idea of a strategic sale," said one of the two people cited above. “The government has mellowed down on its earlier stance and is ready to share management control and offering board seats to the strategic partner."
The quantum of stake sold to a strategic investor will likely be 15% or higher, the person said, adding that the CDC Group has started conducting due diligence on IDBI Bank.
Both IFC, World Bank’s private investment arm, and CDC Group officials were in Mumbai last week to meet top IDBI Bank executives, this person said.
“Since the proposal was announced in the budget, it becomes easier for the government to move towards privatization of IDBI Bank because Rajya Sabha has no power to either reject or amend the Finance Bill, automatically lowering the resistance from opposing parties," said the person.
IDBI Bank managing director B.K. Batra declined to comment, saying that the lender has not received any official communication on this matter.
Srinivasan Nagarajan, head of South Asia at CDC Group, also declined to comment.
IFC and TPG didn’t respond to emails seeking comment on Friday.
Separately, the two people cited above said IDBI Bank officials have submitted a valuation report to the government as part of the stake sale process.
The valuation for the stake sale process will be based on the capital markets regulator’s pricing formula, according to the first person cited above.
The Securities and Exchange Board of India’s ICDR (Issue of Capital and Disclosure Requirements) rules mandate that the shares shall not be priced below the average of “weekly high and low of the closing prices during the six months preceding the relevant date". Alternatively, the guidelines say that shares will be priced based on the average of the weekly high and low of the closing prices of the shares during the two weeks preceding the relevant date.
IDBI Bank’s shares rose 0.75% to ₹ 67.15 on BSE on Friday. At this price, the value of the government’s stake is ₹ 10,227.70 crore.
The stock has touched a high of ₹ 95.70 and a low of ₹ 47.40 in the past 52 weeks.
Even as the stake sale talks progress, two regulatory issues remain to be clarified.
Reserve Bank of India (RBI) rules do not allow a non-promoter institution to hold more than 10% in an Indian bank without prior permission. For a non-promoter non-institution party, the limit is capped at 5%. As such, IDBI Bank would need permission from the RBI to allow a single entity to pick up more than 10%.
To be sure, RBI has the discretion to approve a higher shareholding in certain cases, including in the case of “financial institutions that are well regulated", according to a master circular released on 19 November.
“Under the current RBI regulations, one cannot own more than 10% voting rights in a bank though they can hold more as part of shareholding pattern, thus, people avoid acquiring more stake as the voting rights are capped. But if the government is willing to sell majority control and makes an exception then it will be a different case, though that seems highly unlikely to be done for one case," said Harish H.V., partner at Grant Thornton India Llp, a financial advisory.
In addition, if the strategic investor in IDBI Bank chooses to pick up more than 25%, it may need to make a mandatory open offer, as per the Sebi takeover code. The investor would then have to offer to buy an additional 26% from shareholders.
If concluded, Harish said that the transaction can fetch the central government a reasonable premium.
The government infusion into state-owned banks is part of the Basel-III norms to improve the banking sector’s ability to deal with financial and economic stress. The norms require banks to maintain a minimum capital adequacy of 9% and a Tier-I capital ratio of 7%. Indian banks need an estimated ₹ 3.7 trillion by the year ended 31 March 2019 to meet the requirements.
ankit.d@livemint.com
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