The Union Cabinet has approved the strategic stake sale of IDBI Bank to Canada Inc. whose parent company is Fairfax Financial Holdings for Rs 52,878 crore, taking forward the government's long-pending plan to transfer management control of the lender. Finance Minister Nirmala Sitharaman, however, described the transaction as a “strategic restructuring” rather than strategic disinvestment, while clarifying that the government and Life Insurance Corporation of India (LIC) will continue to hold stakes in the bank.
Under the proposed transaction, Fairfax will acquire a 60.72% stake in IDBI Bank, comprising a 30.48% holding of the government and a 30.24% stake held by LIC. The transaction is valued at Rs 52,878 crore, with Fairfax's winning bid fixed at Rs 81 per share.
The government has also stipulated that Fairfax will need to merge CSB Bank with IDBI Bank within two years. reported Bloomberg. The proposed restructuring will alter the ownership structure of the combined entity, with the government and LIC expected to retain a combined 34% stake, according to the terms outlined for the transaction.
LIC's holding in IDBI Bank is expected to decline to 15% from 19% over the next two years, while the government's residual stake will be sold through the open market. Fairfax will also be required to make an open offer for IDBI Bank shares in accordance with applicable takeover regulations.
Fairfax's bid was accepted after the government determined that the offer was reasonable against a benchmark price of Rs 75.99 per share, based on two independent valuations.
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The initial bids had been rejected after failing to meet the reserve price of Rs 94.42 per share. The government subsequently reassessed the valuation, taking into account volatility in IDBI Bank's share price and using market-multiple and asset-valuation methods to determine the benchmark.
The accepted bid of Rs 81 per share is above the revised benchmark, allowing the government to proceed with the transaction.
The transaction remains subject to the Reserve Bank of India's 'fit and proper' assessment of Fairfax and other applicable statutory and regulatory approvals.
The RBI's assessment will be an important step in determining whether the proposed controlling shareholder meets the requirements for owning and managing a bank in India. Fairfax will also need to comply with the applicable takeover rules, including the requirement to make an open offer for IDBI Bank shares.
The proposed sale follows the government's in-principle approval for strategic disinvestment in IDBI Bank in May 2021 and the invitation of expressions of interest in October 2022.
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