FDI windfall as Govt clears 60.7% IDBI stake sale to Canada's Fairfax. Of India (LIC) acquiring majority stake and becoming promoter. Before strategic restructuring announcement, LIC held 49.24% in IDBI Bank, while Government held 45.48%. After sale, LIC will hold 19% and Government 15%.
On Wednesday, price of IDBI Bank shares surged 9% to close at Rs 90.39 on National Stock Exchange amid constant speculation that bank's disinvestment would be announced any day. LIC's share price was flat at Rs 394.
Fairfax's winning bid was Rs 81 per share, higher than Rs 70.38 on last trading day before invitation of 'best offer bids' on May 18. Once deal is completed, proceeds of Rs 52,878 crore will help Centre meet disinvestment target of Rs 80,000 crore for 2026-27 as whole. According to latest data from Department of Investment and Public Asset Management (DIPAM), Centre has so far raised Rs 55,757.
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Share purchase agreement signed by Fairfax is for three years from completion of deal. This means Fairfax, as new promoter of IDBI Bank, must retain name of bank for that period. Moreover, capital invested by Fairfax must be locked in for five years. Sources said IDBI Bank employees have nothing to worry about since bank is going concern. Further, separate fund has been created for pension of former employees. IDBI Bank officers and employees union have opposed sale of bank, saying price too low.
This will not be Fairfax's first foray into Indian banking sector as it currently owns, through subsidiary FIH Mauritius Investments Ltd, 40% of Kerala's Thrissur-based CSB Bank. But since same promoter can't own two banks, Fairfax has to, within two years, either merge CSB Bank and IDBI Bank or exit CSB Bank.
Shares of CSB Bank also jumped 4.3% Wednesday to settle at Rs 321.30. Fairfax must reduce its stake in IDBI Bank to 26% over a period of 15 years, although exact details of glide path for stake reduction will be between Fairfax and Reserve Bank of India (RBI). For now, Fairfax must go through central bank's compliance process.
The LIC must reduce its 19% stake in IDBI Bank to 15% within two years of deal's completion.
Ministry of Finance, in statement, said, The CCEA has also delegated powers to Alternative Mechanism to undertake minority stake sales of Gol residual shareholding (15% of total shareholding of IDBI Bank Ltd.) through open market in accordance with standard operating procedure. LIC will be free to manage residual shareholding in accordance with its internal procedures while ensuring compliance with directions of its regulators.
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