InvestorQ : How and when does the government plan to sell its stake in IDBI Bank?
vidhya Laxmi made post

How and when does the government plan to sell its stake in IDBI Bank?

sarah Leo answered.
1 month ago

These are early days and it is still in a planning stage. But the government has promised to fast track the strategic sale of IDBI Bank. Here are some key things to know about the proposed sale of IDBI Bank.

a) It is not just government of India, but even LIC (the largest shareholder in IDBI Bank) and almost entirely owned by the government, will be selling its stake in IDBI Bank. LIC is the largest shareholder in IDBI Bank, followed by the Indian government.

b) EOIs or expressions of interest have been invited by the DIPAM, which is the nodal body for disinvestments and strategic sale. The plan is to sell a total of 60.72% stake in IDBI Bank, which is considered sizable enough to be attractive to large institutional investors.

c) Post the issue, government of India and the LIC would transform from being major shareholders in LIC to being minor shareholders in IDBI Bank. In short, their stake would go down from 94.72% to around 34.02% jointly.

d) Government will adopt a 2-stage process for selling IDBI Bank. In the first stage, due diligence of bidders would be done. Once eligible bidders get shortlisted, the transaction advisor will take over and move to the second stage of financial evaluation of bids.

e) Currently, LIC holds 49.24% in IDBI Bank, while government of India holds 45.48% in IDBI Bank. Jointly, these two entities hold 94.72% stake in IDBI Bank with the balance 5.28% being held by the public. However, since LIC itself is 97.5% owned by the government of India, IDBI Bank becomes virtually a government owned company; albeit indirectly.

f) The government will hive off 30.48% in IDBI Bank while LIC will hive off 30.24% stake taking the total size of the strategic stake sale in IDBI Bank to 60.72%. Post the stake sale in IDBI Bank, the government of India will own 15% in IDBI Bank and LIC will own 19% stake, with the strategic investor / investors holding the largest stake in IDBI Bank.

g) Pricing is yet to be decided, but the current market cap of IDBI Bank is around Rs46,000 crore. Hence, the 60.72% in IDBI Bank would be worth Rs27,900 crore. The question is whether the government would look for a control premium and that is extremely likely considering that it is selling a big stake and management control is being ceded.

h) The strategic buyer will get a 15 year glide path to reduce their stake in IDBI Bank to 26%, but up to 40% equity would be locked-in during the first 5 years. The last date for the submission of EOIs is 16th December, although the full process is unlikely to be completed in FY23 and may spill over to FY24, considering its complexity.

i) There is ample interest in IDBI Bank, especially from existing banks, NBFCs and even private equity funds. Government has explicitly barred large industrial houses from bidding for the stake in IDBI Bank, since RBI has for long been wary of this conflict of interest in mixing industrial borrowers and lenders under one umbrella.

j) IDBI Bank numbers turned around in FY22, reporting net profit of Rs2,439 crore and net interest margin (NIM) of 3.73%. Its capital adequacy at 19.1% and ROE at 13.6% are comfortable but gross NPAs would still be the high level of gross NPAs.