Stage Set for IDBI Bank Privatization: Govt, LIC Invite Bids to Sell 60.72 Percent Share

NEW DELHI: The government on Friday made an offer to privatize IDBI Bank, saying it will sell a combined 60.72 percent stake in the financial institution with LIC. The Department of Investment and Public Asset Management (DIPAM), while inviting Expressions of Interest (EoI), said the potential investor must have a minimum net worth of Rs 22,500 crore, must report net profit in three of the past five years to eligible come to bid on IDBI Bank.

Also, a maximum of four members would be allowed in a consortium.

The successful bidder would be required to commit at least 40 percent of its equity for five years from the acquisition date.

It further said that the selection of the qualified interested parties and the amount of equity interest that such entities would hold in IDBI Bank would be decided by the Reserve Bank and the bidder would have to approve the ‘Fit and Proper’ assessment that is performed by the banking supervisor.

It also banned large industrial/corporate houses or individuals from participating in the bidding process. The last date for the submission of bids or Expression of Interest (EoI) by potential buyers is December 16.

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The government and LIC together have a 94.72 percent interest in IDBI Bank. Life Insurance Corporation (LIC) owns 529.41 crore shares representing a 49.24 percent stake in IDBI Bank while the government owns 488.99 crore shares or 45.48 percent of the shares. Public shareholders have a 5.2 percent stake in the bank.

The government will sell 30.48 percent and LIC will divest a 30.24 percent share along with 60.72 percent of IDBI Bank’s share capital, along with the transfer of management control in IDBI Bank, Department of Investment and Public Asset Management (DIPAM) said while inviting bids.
After the sale of the shares, the joint interest of LIC and the government will be reduced to 34 percent.

Shares of IDBI Bank closed at Rs 42.70, up 0.71 percent from the previous BSE close on Friday. At the current market price, the 60.72 percent stake would be valued at over Rs 27,800 crore.

The preliminary information memorandum (PIM) issued by DIPAM for the privatization of IDBI Bank also states that private sector banks, foreign banks, RBI registered non-bank finance companies, Sebi registered Alternative Investment Funds (AIFs), a fund/investment vehicle that could submit bids outside India, either individually or as a consortium.

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The IDBI Bank acquisition would be governed by FDI regulations that allow 74 percent foreign participation in banks through the approval route and 49 percent through the automatic route. At all times, a minimum of 26 percent of the bank’s paid-up capital must be held by residents.

“The price at which the shares of IDBI Bank can be transferred to a person residing outside India should not be less than the price calculated in accordance with SEBI guidelines,” the PIM said.

The successful bidder would be required to make an open offer to the public shareholders of IDBI Bank and will be required to pledge the full consideration to be paid under the open offer in cash, assuming full acceptance of the open offer. the EoI.

Under Sebi’s open offer guidelines, any acquisition of a total of 25 percent or more shares in a publicly traded entity or acquisition of “control” requires the acquirer to make a squeeze-out offer to minority shareholders.

Minority shareholders own 5.2 percent in IDBI Bank.

“It is the intention that the strategic acquirer/investor will contribute funds, new technology and best management practices to maximize the development of IDBI Bank’s business potential and growth,” the PIM said.

The PIM said the necessary security clearance will be taken by the DIPAM before access to the data room is given to the Qualified Stakeholders (QIPs). The interested parties, its directors and shareholders who own more than 10 percent, should submit a self-declaration for the security clearance along with the filing of EoI.

In addition, the interested parties and each consortium member should make a statement or make a disclosure by order/pending investigation/proceedings by a court/regulatory body/SFIO/NCLT/NCLAT when filing the EoI.

The successful bidder must reduce/dilute its shareholding in accordance with the glide path to be submitted by the QIPs in the RFP stage in order to bring its shareholding in line with the RBI guidelines.

The ‘Master Directions on Ownership in Private Sector Banks, 2016’, published by RBI, provides a timeline of 15 years from the date of commencement of the bank’s operations to reach the prescribed shareholder limit in the long term.

In the event that the successful bidder plans to merge IDBI Bank with itself or if RBI demands the same, the GOI and LIC will vote in favor of such merger/merger at IDBI Bank board and/or shareholder meetings, the PIM said. .

KPMG India Pvt Ltd and Link Legal are acting as transaction and legal advisors for the management of the sale of IDBI Bank interests.

The announcement of the privatization of IDBI Bank was first made in the Union budget of 2021-22, after which the Cabinet Committee on Economic Affairs approved in principle in May 2021 for strategic divestment and transfer of management control.

IDBI Bank was categorized as a Private Sector Bank by the Reserve Bank of India effective January 21, 2019, after Life Insurance Corporation Of India (LIC) acquired 51 percent of the bank’s total paid-up share capital.

The government has set a target of raising Rs 65,000 crore from divestment by 2022-23 (April-March) of which it has already raised Rs 24,544 crore.

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