MUMBAI: The government’s three-year wait to exit IDBI Bank may bear fruition soon with the Toronto-based NRI businessman Prem Watsa’s Fairfax Financial offering an all-cash deal and thus emerging as the strongest contender, while Uday Kotak-founded Kotak Mahindra Bank is also in the fray with a cash and st0ck offer.
The government and Life Insurance Corporation together own 94.7% of the bank and plan to pare 60.72% of this, valued at nearly $5 billion at current market prices.
While LIC was forced to pick up 51% in the bank in January 2019 (after the government could not get any other bidder for the bank which at that time had more than a third of its assets as NPAs) and since then was considered as a private lender, and the government owns 45.48%. The remaining 4.7% are with the public, including retail, foreign investors and domestic institutional investors.
In fact, LIC picked up the majority stake in the bank after it government could not find any other buyer. The national isurer at that time was not a publicly traded entity--LIC went public only in May 2023-- and was forced to pick up 51% stake in the bank for about Rs 21,624 crore, or Rs 61 a share. LIC in 2020 reduced its holding to 49.24% through a QIP.
A source in the know of the development told TNIE Wednesday that as the December-end deadline approaches, which though is likely to be missed as the government has not yet called for the financial bid, only two bidders--Fairfax Financial and Kotak Mahindra Bank—are in the race.
Emirates EBD was also cleared by the fit and proper test of the Reserve Bank but the UAE lender in August chose to go with a $3-billion investment for a 60% stake in the small private sector lender RBL Bank.
The US-based asset management firm Oaktree Capital had also submitted expression of interest and had also passed the RBI test. But did ont move ahead with due diligence.
All these there were shortlisted after expressing interest when the privatisation process began three years ago.
The source said Fairfax leads the race as it’s offering “an all-cash deal that matches the current valuation of the bank,” while Kotak Bank “still remains in the fray with a mix of cash and stock option.”
The source, however said, given that the government has not yet called for the financial bids yet shows that the process is set to spill over into next month. Both bidders were initially required to submit financial offers by the end of December.
It can be noted that the IDBI Bank stock has risen almost 25% this year. But on Wednesday the counter was down nearly 2% with a mcap of Rs 1.05 trillion.
IDBI Bank’s stock has risen almost 25% this year alone, pushing its market capitalisation to around Rs 1.05 trillion and have nearly tripled since the government first announced plans to divest three years ago.
Prem Watsa’ Fairfax already owns a majority stake in the Thrissur-based CSB Bank (foremerly Catholic Syrian Bank), acquired in 2018. However, over the years the Fairfax group, through its affiliate FIH Mauritius Investments, has been paring its holding--from 49.72% in 2018 to under 40% now-- to comply with RBI norms. It has to further reduce the stake to 26% over 15 years. In June 2024 it had sold about 9.7% for roughly Rs 595 crore to institutional investors.
The next major step is for the government to decide on a reserve price for the sale. According to the preliminary information memorandum issued in October 2022, the reserve price will be determined after bids are received but before they are opened. It will remain confidential and will not be disclosed to bidders.
For Kotak Mahindra Bank, buying IDBI Bank looks the only way to arrest the sharp deterioration in its business since the past few years, which has marked by an early leaving of fouder Uday Kotak from the bank in October 2023, and the many troubels it began to face since then.
An industry observer who sought to not be named told this paper that this probably is the only way for Kotak Bank to remain relevant at all.
In 2022, the divestment department had first announced that it was privatisaing the bank and in 2023 said it had received multiple expressions of interest for IDBI Bank. It was later reported that Fairfax Holdings, Kotak Bank, Emirates NBD, and US asset management firm Oaktree Capital had cleared the Reserve Bank’s fit and proper assessment.