Banking News

Govt expects ‘decent’ interest in IDBI Bank

With the necessary regulatory forbearance in place, including an extended period for complying with the minimum public shareholding (MPS) norms, the government is hopeful of receiving a “decent number” of expressions of interest (EoIs) for the 60.72% stake on offer in IDBI Bank on Saturday, the last date for submission of EoIs, according to official sources.

IDBI Bank shares closed at Rs 59.05 on BSE on Friday, up 7.85% from the previous closing price, while the broader Sensex closed 0.75% down.

On Thursday, the Securities and Exchange Board of India (Sebi) allowed the Centre to reclassify its holding in IDBI Bank as ‘public’ following the divestment of its stake, on the condition that its voting rights do not exceed 15%. The regulator also said that the buyer will have to adhere to the minimum public shareholding norms of 25% within “a year” of acquisitions, as per its regulations applicable in merger & acquisition transactions.

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However, an official explained that the “one year period” for MPS compliance intimated by Sebi would not be applicable for IDBI Bank as the Centre amended the Securities Contracts (Regulation) Rules, 1957 on Tuesday to give a longer period to the potential buyer. The amended rules give power to the Centre to exempt listed companies like PSUs, or IDBI Bank, in which the government and public sector undertakings (PSUs) together or individually hold a majority stake, from the MPS norms for a specified period.

The MPS exemption would continue to be valid for the period specified, irrespective of any change in control (post privatisation or strategic disinvestment) of the such listed entity after issuance of such exemption, the government had said in a Gazette notification. The MPS norm waiver by amending the Securities Contracts (Regulation) Act, 1956 is expected to boost investor appetite for the bank as the potential buyer might get 3-5 years to comply with MPS.

The public holding in IDBI Bank is just 5.28%, which is majority-owned by LIC and the government. On October 7, the Centre invited EoIs for IDBI Bank and offered to sell a total of 60.72% stake in the bank, including 30.48% from the government and 30.24% from LIC, along with the transfer of management control in IDBI Bank. Yet, both the government and LIC together will have a 34% residual stake in the lender (19% by LIC and 15% by the government).

Sebi’s categorisation of the Centre’s residual stake of 15% in the lender would mean that the new promoters of the bank would have to just offload another 7-10% to meet the public float norm of 25%. A strategic investor may not like to offload a stake in the initial years, a period when it will likely be setting up a new management team, restructuring the business and attempting a rebranding of a company.

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The winning bidder will also be permitted to make an open offer to the public at the same price that it would be paying to the government and LIC, thereby reducing potential additional costs in the event of the bank’s share prices moving upwards after financial bids are submitted. Also, even if the share prices rise after financial bids are submitted and by the time the transaction concludes, there won’t be any tax liability on the notional gain in value to the buyer, sources said.

Foreign banks, funds and investment vehicles incorporated outside India are allowed to bid for IDBI Bank.

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