Govt seeks $7.7 billion value for IDBI Bank in stake sale; stock rises over 2.5%

IDBI Bank stock gained on Friday, October 21, after reports emerged that the government is pushing for a valuation of around $7.7 billion for the state-owned bank, Zee Business channel reported quoting Bloomberg. The government earlier this month invited bidders for a 60.72 per cent stake in the bank. The valuation target means the administration is seeking a premium of roughly 33 per cent, based on IDBI Bank’s market value of about $5.8 billion as of Thursday's close. The scrip jumped 1.45 per cent to trade as Rs 45.60. 

IDBI Bank divestment could be the biggest sale of the government’s stake in a lender in decades.

Meanwhile, state-owned insurance behemoth LIC is expected to recover its Rs 21,624 crore investment it had made in IDBI Bank as share prices are likely to rebound to 2019 levels by the time the lender is privatised, an official said.

The official said that since the commencement of the IDBI Bank privatisation process in May last year, the share price has jumped from Rs 35 a share to Rs 45 a piece currently.

"We are expecting IDBI Bank scrip to move up further. The price is expected to move up closer to the price at which LIC had picked up stake in 2019," the official told PTI.

The government and Life Insurance Corp (LIC) together hold 94.72 per cent in IDBI Bank. Of this, LIC's holding is 49.24 per cent, while the government holds the rest 45.48 per cent stake. Public shareholders hold 5.28 per cent.

LIC had bought a 51 per cent stake in IDBI Bank in 2019 for Rs 21,624 crore at an average price of Rs 61 per share. Following a QIP issue in December 2020, the stake of LIC came down to 49 per cent.

Besides, the government and LIC together infused Rs 9,300 crore in IDBI Bank to bring it out of RBI's Prompt Corrective Action (PCA) framework.

"IDBI Bank privatisation will be a win-win for both the government and LIC," the official added.

Shares of IDBI Bank closed at Rs 44.95, up 2.16 per cent over previous close on the BSE.

At the current market price, sale of 61 per cent stake would fetch about Rs 29,000 crore to the exchequer.

The announcement of IDBI Bank privatisation was first made in the Union Budget of 2021-22, following which the Cabinet Committee on Economic Affairs gave in-principle approval for strategic disinvestment and transfer of management control in May 2021.

On October 7, 2022, the government invited EoIs from investors for buying 60.72 per cent stake, along with management control, in IDBI Bank and set December 16 deadline for submitting preliminary bids.

The Department of Investment and Public Asset Management (DIPAM), while inviting Expressions of Interest (EoI) from potential investors, said that the potential investor should have a minimum net worth of Rs 22,500 crore, must report net profit in 3 out of the past 5 years to be eligible for bidding for IDBI Bank and a maximum of 4 members would be allowed in a consortium.

The successful bidder would be required to mandatorily lock-in at least 40 per cent of the equity capital for 5 years from the date of acquisition.

It further said that the selection of the qualified interested parties and the amount of equity stake of such entities in IDBI Bank would be decided by the Reserve Bank and the bidder would have to clear the 'fit and proper' assessment done by the banking regulator.

It also barred large industrial/corporate houses or individuals from participating in the bidding process.

With PTI Inputs