IDBI Bank Ltd. shares fell nearly 5% in early trade on Thursday after the Union Cabinet approved the sale of a 60.72% stake in the lender to Fairfax Financial Holdings for Rs 52,878 crore. CSB Bank Ltd., which is also part of the proposed restructuring, moved in the opposite direction, rising 1.32% to Rs 325.55 as of 9:26 a.m., compared with its previous close of Rs 321.30.
IDBI Bank dropped 4.91% to Rs 85.95 at 9:23 a.m., against its previous close of Rs 90.39. The transaction will transfer management control of IDBI Bank to Fairfax, advancing the government's long-pending plan to sell its stake in the lender.
Finance Minister Nirmala Sitharaman described the transaction as a "strategic restructuring" rather than strategic disinvestment. The government and Life Insurance Corporation of India will retain stakes in the bank following the sale.
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Under the proposed deal, Fairfax will acquire the government's 30.48% holding and LIC's 30.24% stake in IDBI Bank. The winning bid stands at Rs 81 per share, above the revised benchmark of Rs 75.99 determined through two independent valuations.
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The government has also stipulated that Fairfax merge CSB Bank with IDBI Bank within two years, Bloomberg reported. The proposed restructuring is expected to leave the government and LIC with a combined 34% stake in the merged entity.
LIC's holding in IDBI Bank is expected to decline to 15% from 19% over the next two years. The government plans to sell its remaining stake through the open market. Fairfax will also have to make an open offer to IDBI Bank shareholders under applicable takeover regulations.
IDBI Bank Sale: Valuation And Regulatory Approvals
The government had rejected initial bids after they failed to meet the reserve price of Rs 94.42 per share. It later reassessed the valuation, considering volatility in IDBI Bank's share price and using market multiples and asset valuation methods to establish a revised benchmark.
Fairfax's accepted offer of Rs 81 per share exceeded that benchmark, enabling the government to proceed with the sale.
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The transaction remains subject to the Reserve Bank of India's assessment of Fairfax as a "fit and proper" owner, along with other statutory and regulatory approvals. The assessment will determine whether Fairfax meets the requirements to own and manage a bank in India.
The government gave in-principle approval for IDBI Bank's strategic disinvestment in May 2021 and invited expressions of interest in October 2022.
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