India-born Canadian billionaire Prem Watsa is keen on taking controlling stake in IDBI Bank. Fairfax India Holdings, the investment arm led by Watsa has concluded initial talks with representatives of the Finance Ministry to acquire the government’s 45.48 per cent stake held in the bank.
According to sources, one of the important conditions laid down by Watsa was that once Fairfax acquires the government’s stake, it should take the promoters seat and should be guaranteed of a free hand in the operations and management of the bank. “The government seems to have given an in-principle nod to this point,” said a highly placed source.
Another condition put forward by Watsa is that Life Insurance Corporation of India (LIC) should remain invested in the bank for at least five years after the deal. In fact, eyeing a majority in IDBI Bank, Watsa may acquire a part of shares held by LIC to take the total shareholding of Fairfax to 65–70 per cent in IDBI Bank. At present, LIC holds 49.24 per cent stake in the bank and sources indicate that it may reduce its holdings to 25 per cent or a little lower, if valuations offered by Fairfax is reasonable.
Shares of IDBI Bank currently trade at ₹36.40 apiece. LIC bailed out the bank in September 2019 by picking up 51 per cent stake for ₹61 per share. “The corporation’s objective is that it doesn’t suffer a loss in the bargain,” said the person quoted above.
Valuations being discussed
While the government and LIC view the proposal from Watsa favourably, valuations are still under discussion, RBI’s blessing will hold the key. Initially, the regulator was not in favour of a single shareholder acquiring majority stake in IDBI Bank. “But now, with the proposal from Fairfax being the best in terms of what has come so far, the RBI may make an exception,” said a person aware of the matter.
In fact, IDBI Bank may be the second instance of Fairfax taking majority stake in an Indian bank, the first being Catholic Syrian Bank (now CSB Bank) in February 2019. Since it may not be possible for Fairfax to be a promoter of two banks, CSB Bank may be merged with IDBI Bank to meet regulatory requirements. “Fairfax has agreed to this condition if RBI permits it to acquire majority stake in IDBI Bank,” said a source quoted above. Emails sent to the Finance Ministry, LIC, IBDI Bank and CSB Bank remained unanswered till press time.
With the roadshow in the US concluding last Friday, a formal expression of interest (EOI) will soon be invited from investors. The government announced its intention to exit from IDBI Bank in February 2021. KPMG concluded its vendor due diligence on the bank last year. Sources indicate that once interested investors respond to the EOI, the stake sale will gain traction and all formalities are expected to conclude by March 2023.
June 05, 2022