Govt, LIC to sell 60.72% stake in IDBI Bank

The government will follow a two-stage process for the first case of privatisation of a public sector bank where in the first stage the bidders that meet initial eligibility criteria will have to clear a ‘Fit and Proper’ assessment by the Reserve Bank of India and security clearance by the ministry of home affairs.

After clearing the first stage, the qualified bidders will be permitted to enter stage two under a confidentiality clause where financial bids will be sought. Mint had reported last month about this unique process that the government will adopt.

According to the preliminary information memorandum issued by the department of investment and public asset management (DIPAM) which outlines the process of the transaction and the criteria for interested bidders, LIC of India will dilute 30.24% of its 49.24% holding in the bank while the government will dilute 30.48% of its 45.48% holding. At present, 5.28% is held by public. Potential suitors have been given deadline of December 16 to submit their bids.

Interested bidders need to have a minimum net worth of ₹22,500 crore or $2.85 billion as per latest audited financial statement. They will also have to submit profit and loss statements of three of the last five financial years. Maximum four members will be permitted in a consortium and the lead member must have 40% shareholding and each member must have at least 10% shareholding.

Listed private-sector banking companies, foreign banks, non-banking financial companies registered with RBI, SEBI-registered Alternative Investment Funds (AIF) or a fund or investment vehicle incorporated outside India, have been allowed to participate in the bidding process.

“It is hereby clarified that large industrial/corporate houses and individuals (natural persons) shall not be permitted to participate in this bidding process for the Transaction, either on its own or as a part of a consortium,” the government said, noting that the industrial/corporate group with assets of ₹5,000 crore or more with the non-financial business of the group accounting for 40% or more in terms of total assets or in terms of gross income, will be treated as a large industrial house.

The government will also prohibit potential bidders from bidders or entities of countries sharing land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country.

“In addition to the ‘Fit & Proper’ assessment by RBI at the EoI stage, it is clarified that ‘Successful Bidder’ would also be subject to the ‘Fit & Proper’ assessment by RBI,” the government has stipulated as one of the several conditions set for the winning bidder.

The winning bidder will have to make an open offer to public shareholders of IDBI Bank. The current level of ceiling on voting rights at 26% will also apply to a winning bidder, whether a sole entity or a consortium.

The winner will be mandated to hold and lock-in, either directly or through an investment vehicle at least 40% of the paid up and voting equity share capital of the bank at all times, for a period of five years from the date of acquisition.

The lock-in requirement for each of the members of the consortium including the lead member will collectively hold and lock-in 40% of the paid-up voting equity share capital of the bank for five years.

The bidder will have to submit a ‘glide-path’ to bring down its shareholding to 26% in 15 years to meet the minimum public shareholding norms as per SEBI regulations. At all times, at least 26% (twenty-six per cent) of the paid-up capital of the bank is required to be held by residents, except in regard to a wholly owned subsidiary of a foreign bank, the government specified.

Bidders that have been subjected to any punishment or punitive action for any criminal act, or have been convicted or have any adverse order passed against them by any other regulatory authority in any matter involving a grave offence, will not be allowed. “The mere fact that an appeal against any such order mentioned above is pending in any court of law or any regulatory authority will not dilute the disqualification,” the government has specified.

IDBI Bank was under the Reserve Bank of India’s Prompt Corrective Action (PCA) framework from May 2017 to March 2021. Two months after the bank exited the framework, the cabinet committee on economic affairs gave in-principle approval for its strategic disinvestment and transfer of management control.

The government recently conducted road shows in the US and locally for the IDBI Bank stake sale and according to sources several entities including Prem Watsa’s Fairfax Financial Holdings, a clutch of Russian investors and large Indian entities may be among potential suitors.

The IDBI Bank sale, if it concludes this financial year, will contribute to the FY23 divestment target of ₹65,000 crore. The government has already raised ₹24,544 crore, most of it by listing the country’s biggest insurer LIC in May.