The IDBI Bank sale is nearing completion as the government is set to finalize the announcement related to Fairfax Financial Holdings’ acquisition of a majority stake in the bank. The administration is assessing Fairfax’s revised offer in light of the projected valuation of the deal.
It’s worth noting that Government and LIC will divesting an aggregate stake of 60.72% in IDBI Bank, making it one of India’s anticipated banking deals. According to sources within the government, Fairfax continues to lead the race to acquire controlling stake as the sale process is in its final stages.
Deal of IDBI Bank sale: Value is Key
The most important aspect of the proposed acquisition of IDBI Bank by Fairfax is the value proposed by Fairfax.
When initial financial bids for the entire stake were submitted early this year by Fairfax and Emirates NBD of Dubai, these were significantly below the government’s minimum reserve price, causing the strategic sale to be delayed. Both bidders were therefore asked to resubmit their bids and the latest proposal made by Fairfax is believed to be higher than the previous one.
The government will now weigh on the offer by Fairfax based on its expectations from IDBI Bank. It is important to mention that the reservation price was shared with all participating bidders during the first round of bidding. The fact that bidders have resubmitted their revised bids shows that the deal is on the table, and now the value presented needs to justify the stake and the deal to the government.
How much will be sold in IDBI Bank?
The Government will acquire 30.48% and LIC will divest its share of 30.24%. Together, they intend to divest a stake of 60.72%, which represents a majority stake in IDBI Bank along with management control.
Fairfax’s revised offer is estimated to be between 81 and 81 a share. At 81 a stake of 60.72% will represent value worth over 53,000 crore. This transaction when happens will mark a change of ownership and create another precedent of foreign participation in banking sector of India.
Fairfax – the top bidder
The company from Canada now seems to be the lead contender after revising its offer along with other requirements that it will meet. It is the leader in making investment for financial sector through its company, Fairfax Indian Holdings, and CSB Bank is an investment of Fairfax with a substantial stake in the IDBI stake being sold to Fairfax. Due to various regulations related to banking sector, with current involvement in another bank, it poses some constraints on Fairfax, in which case the management stated that they would seek some time to offload the stakes from CSB Bank or look at merger route. It was mentioned earlier that Fairfax will be granted up to two years’ time to offload stakes on this account (as per news of Reuters).
Reason why IDBI Bank will sell stake?
IDBI Bank sale has been in process for over 7 years. The first attempt by Government to undertake the strategic sale and divest majority stake in the bank could be witnessed in 2021. It underwent multiple difficulties pertaining to valuation, regulations and also its process. The process which revived recently, has yet another challenge now with the valuation to match with that of Government expectations.
The Sale of stake is an integral part of government’s disinvestment drive which aims to privatize public sector banks by selling stake to investors who can infuse capital and technology to bring about reforms in the system. The business strategy of IDBI Bank can change if bought over by an organization that can bring financial and other forms of resource support.
IDBI Bank shares under spotlight
Shares of IDBI bank is witnessing market close attention after the approval of latest offer of Fairfax. Investor focus will now shift to finalizing a deal that would be acceptable to the Government and at what valuation this will happen. Analysts believe that the final sale consideration will have some bearing on the share price, though beyond that nothing much would matter from the market perspective.
Earlier, the share price fell in response to the initial thought process of Government about the valuation which Fairfax could potentially buy the stakes. And the eventual outcome that the purchase will eventually result in the market’s response.
What happens now?
The next most important phase is the decision from Government regarding what Fairfax’s revised offer of acquiring stake could stand to gain. Also the timing announcement related to this will play crucial role for various stakeholders involved in it, especially from the investor point of view. Even after a nod from the government, required regulatory and procedural formalities are needed.
Fairfax would also resolve all aspects related to its investment in CSB Bank by either of the proposed alternatives to offload the investment it currently holds.
Key factors for Investors to take note would be the deal consideration value, regulatory approval to this gigantic deal with respect to CSB ownership issue. A foreign control over IDBI Bank will be a historic development which may give a robust fillip to India’s banking sector.
Disclaimer: This article relies on publicly available and reports the opinions of market players. Transaction are subject to receipt of regulatory clearances and official announcement by all relevant stakeholders.
