The government in early October had invited bids for the sale of stake in IDBI Bank, however it first announced a plan to sell the IDBI in 2016. It has taken a while and the government is yet to sell its stake in the bank.
IDBI or the Industrial Development Bank of India landed into a soup after the entity doled out loans to certain corporates, including a ₹ 950 crore loan made to Kingfisher. Its loan book went bad and the bank did not expect these borrowers to repay the loans.
The Reserve Bank of India (RBI) soon placed the bank under the Prompt Corrective Action (PCA) framework in order to protect its capital. However, this move curtailed its ability to expand. In addition, it became difficult for the bank to turn around after facing a series of losses.
In 2019, LIC bought a 51% stake in IDBI Bank for ₹ 21,624 crores at an average price of ₹ 61 per share. However, its shareholding came down after a QIP issue. With this money, things started improving and the RBI lifted the PCA restrictions.
The government owns a 45.48% stake in the bank, while the LIC holds a 49.24% stake and they are looking to sell 60.72% (30.48%+30.24%), along with management control. The public shareholding is just 5.28 percent.
India’s capital markets regulator, the Securities and Exchange Board of India (SEBI) mandates a minimum 25% of public shareholding for all listed entities, excluding state-owned companies, within three years of listing. As a result, the proposed stake sale could run into a regulatory hurdle, experts say.
SEBI’s Approval
The government is seeking Sebi’s approval to reclassify the residual stake in IDBI Bank as “public” shareholding because it is relinquishing management control and is acting as an ordinary shareholder, according to reports. However, the SEBI has not relaxed the norm yet and the government might consider selling the residual stake as well. The government has not opted for an entire stake sale in the current process.
Protests by employees
Earlier this year, employees started agitation against the proposed stake sale of the bank to private corporations. There were nationwide road shows. Unions stressed on the re-categorization of IDBI Bank as a public sector bank.
The government has to hold a minimum of 51% shareholding in public sector banks, however, the government’s holding (45.48%) has gone below the requirement.
Employees had competed at an all-India level to get a job in the Government of India-owned IDBI Bank. Some of them even quit other jobs to join the bank. They consider that the proposed stake sale would jeopardize the future of about 17,000 families supported by direct employment in IDBI Bank, therefore they are protesting against the stake sale.
Valuation
“If you offer large size, some players will not be interested because of bigger deal size. However, if there is smaller offer, some bidders say they need a larger stake as they have to provide some portion for lock-in and sell some portion to be compliant of minimum public shareholding norms. Keeping all these in mind, the present size is balanced one,” said Tuhin Kanta Pandey, Secretary in the Department of Investment and Public Asset Management (DIPAM).
He added that there is a possibility of upside once the management control goes away from LIC because the market might tend to view things differently. He said that they can offer the residual stake to the public a little later at an appropriate stage. In fact, when asked about a timeline, he said. “That discretion would be available with the government.”
The government is seeking a valuation of around ₹ 64,000 crores for this state-owned bank. IDBI has a market value of about ₹ 50,100 crores, therefore the government is seeking a premium of roughly 28%.
Other requirements
There are a few more requirements. Interested parties must have a minimum net worth of ₹ 22,500 crores. In addition, they should have reported profits in the last three of the last five years. Moreover, they are expected to hold and lock in at least 40% of their capital for a minimum of 5 years.
In a nutshell, very few entities have this kind of buying power. Further, the government is seeking SEBI’s approval for modifying key norms for publicly listed companies and is seeking a huge valuation of ₹ 64,000 crores. Moreover, employees are not quite happy with the proposal. These are the reasons why the government is taking a long time to divest its stake in IDBI.
Written by Simran Bafna
Disclaimer
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