IDBI Bank stake sale: Suitors may have to place financial bids by March

Sale expected to end by the middle of next financial year

The Department of Investment and Public Asset Management (DIPAM) has received at least five expressions of interest (EoIs) for the proposed 61 per cent stake and transfer of management control in IDBI Bank.

A consortium of private-equity funds, a foreign financial services firm, a global bank, and a non-banking financial company (NBFC) are among those that have submitted bids, people familiar with the matter told Business Standard.

The process will now move to the second phase, where financial bids will be called after the formalities are completed. They include due diligence of the EoIs and an assessment of Reserve Bank of India’s fit and proper process.

Saturday was the last date for submitting preliminary bids for buying a stake in the private-sector lender.

Sources said the shortlisted bidders would be asked to place financial bids by March. The stake sale is expected to be concluded by the middle of next financial year.

Notably, the potential buyers should have a minimum net worth of Rs 22,500 crore and must report a net profit in three of the previous five years to qualify to bid.

In addition, a maximum of four members will be permitted in a consortium. And the successful bidder would be required to lock in at least 40 per cent of the equity capital for five years from the date of acquisition.

The 60.72 per cent stake in IDBI Bank is being sold by the government and Life Insurance Corporation (LIC). For this they had invited bids in October. The last date set was December 16, and was later extended to January 7.

The government has made several provisions and brought regulatory clarity to make the deal attractive for potential bidders. These include allowing a consortium of foreign funds and investment companies to own over 51 per cent in IDBI bank, clarifying that the foreign ownership criteria were for new private banks and not applicable to existing ones like IDBI Bank.

It also gave clarification with respect to norms applicable to public-sector banks and said those would not apply to IDBI Bank after the government and LIC sold their stakes, even though they together would continue to hold about 34 per cent.

The government has also said that IDBI Bank will operate as a private-sector bank, even if it were to be taken over by a foreign bank.

In a major dispensation last week, the Securities and Exchange Board of India (Sebi) acceded to the Central government’s request to reclassify its shareholding in IDBI Bank after its disinvestment as “public holding”.

However, this was approved with some conditions such as the government’s voting rights in the bank will not exceed 15 per cent of the total after the sale. Also, the government must specify its intention to reclassify its shareholding in the bank as “public holding” in the letter of offer dispatched to the shareholders of the bank in connection with the open offer made by the acquirer. 

In addition, the new acquirer must ensure compliance with the minimum public shareholding (MPS) requirements within a year of the sale.

Early last week, government said it reserved the right to exempt public-sector undertakings from the minimum public shareholding norm even after a change in ownership.

This implies that the new owner of IDBI Bank will be exempt from the minimum 25 per cent public float requirement even after the stake sale.

CONTOURS OF THE DEAL
 

• Consortium of PEs, global banks, NBFCs are among the bidders
• Potential buyers should have a minimum net worth of Rs 22,500 crore
• Govt received 600-plus queries on the proposed deal
• Sebi, RBI extended necessary regulatory forbearance