Private equity firms Carlyle and Fairfax and Singaporean lender DBS Bank have communicated with the department of investment and public asset management (Dipam), finance ministry officials, and the investment banker hired for the largest privatization in India’s banking space regarding the sale process, the people said, requesting anonymity. KPMG is the adviser managing the IDBI Bank privatization.
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During meetings with potential investors, the government has seen significant interest from buyers willing to offer the government’s minimum target value of over $4.3 billion (about ₹35,000 crore today) for up to 63% of IDBI Bank, the people said.
While a spokesperson from Carlyle declined to comment, emails sent to Fairfax and the finance ministry did not elicit a response. A KPMG spokesperson declined to comment on any company specific matter.
To be sure, Carlyle, Fairfax and DBS Bank’s queries to the finance ministry seeking clarifications or assurances from the government regarding the IDBI Bank privatization may not result in financial bids.
“Pre-bid meetings are going on. Fairfax and Carlyle have asked for clarity from the government on what exactly the ‘public sector nature’ of the bank means currently and how that will change post the proposed privatization of IDBI Bank," said one of the two people.
Last week, The Economic Times reported, citing unidentified people, that Sumitomo Mitsui Financial Group and another global bank are among five investors that have sought information from the government about the sale of equity in IDBI Bank through a formal query process that closed on 10 November.
DBS Bank, in its communication to the finance ministry and the investment banker, sought clarifications on the proposed share sale rules post the proposed qualified institutional placement (QIP), through which the government and Life Insurance Corp. of India (LIC) intend to sell 60.72-63%, the people said. Currently, the government and LIC hold about 94% of IDBI Bank.
“DBS Bank has asked for an assurance that the government will not have any say in IDBI Bank’s equity sale or related processes, post the proposed privatization via QIP of IDBI Bank," said the first person. A DBS Bank India spokesperson said, “The reports of DBS’s interest in the transaction are unfounded."
The deadline for submission of expressions of interest (EoIs), or initial financial bids for IDBI Bank stake purchase, is 16 December.
“Depending on the prices offered by the potential investors, the reserve price for final bidding will be decided by Dipam," said the second person.
On Tuesday, IDBI Bank shares rose 8.02% to ₹58.60 on BSE. At the current market price, IDBI Bank is valued at ₹63,009 crore and a 60.72% stake would generate at least ₹38,259 crore.
The Securities and Exchange Board of India mandates that the issue price in a QIP be not less than the average weekly high and low for two weeks preceding the relevant date of the placement. A discount of up to 5% on the floor price can be offered to investors.
IDBI Bank’s volume-weighted average price is ₹57.39 per share as of Tuesday compared with ₹49.76 on 22 November (a fortnight ago), but the stock price of IDBI Bank has surged from a low of ₹30.50 since 30 June, driven by the news about its privatization.
“Most of the gains in IDBI Bank stock have come very recently, and one cannot ignore that the bank, even though profit-making, is still in the process of getting rid of its stressed assets. Therefore, the government’s expectation for a valuation of over $4.3 billion for a 61-63% stake could be a bit ambitious," said the head of an investment banking firm.
According to the Reserve Bank of India norms, an individual or non-financial entity (other than promoters/promoter group) can hold up to 10% of the paid-up capital in a bank. An individual, as a promoter, can hold up to 15%.
Financial sector entities can hold up to 15% if not regulated, while such entities can hold up to 40% in a bank if they are ‘regulated, well diversified, listed entities from the financial sector’.
However, RBI may allow higher stake or strategic investment through capital infusion by domestic or foreign entities on a case-to-case basis under the circumstances such as “the relinquishment by existing promoters, rehabilitation or restructuring of problem or weak banks or entrenchment of existing promoters or in the interest of the bank or in the interest of consolidation in the banking sector, etc.," say the RBI rules.
According to FDI rules, the aggregate foreign investment in a private sector bank from all overseas sources combined (foreign direct investment, foreign institutional investors, non-resident Indians) can’t exceed 74%.
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