InvestorQ : Will the government give full freedom to the new owners of IDBI Bank post the divestment?
Chandralekha Desai made post

Will the government give full freedom to the new owners of IDBI Bank post the divestment?

NISHA Nayak answered.
1 month ago

The government and LIC plan to jointly sell 60.7% stake in IDBI Bank. Currently, the government and the LIC jointly hold about 94.7% stake in IDBI Bank with the balance held by the public. Post the divestment, the stake of LIC and the government will be reduced to a joint holding of just 34% stake in IDBI Bank. However, 34% is not small and hence investors and potential bidders are worried whether the government will respect the hands-off approach after the stake sale in IDBI Bank. Theoretically, with 34% share, the LIC and government can get together and block special resolutions needing 75% favourable votes.

While the government, with the support of LIC, can still veto special resolutions, it has tried to assure potential buyers that their residual stake is only to give comfort to creditors and stakeholders. It has tried to assure that it will not amount to any form of interference. Their argument is that, the very fact that the government is transferring controlling stake of 60.72% is proof that the government does not intend to exercise veto power. That would determine if the buyers are willing to pay control premium, which is what the government is expecting the potential bidder to do.

In short, the government is not interested in continuing to direct the day to day affairs of IDBI and would prefer to get involved only in very extreme cases. Several banks, NBFCs and private equity funds have evinced interested, although industrial houses are still banned from bidding. Government has assured it would act rationally like any large shareholder and not to undermine the new owner. The government is ready to give an assurance on this front at financial bid stage to qualified bidders. Key decisions like buybacks, loans and investments by company, early removal of auditors and capital reduction need 75% votes.