The government may sell its stake in IDBI Bank through the Offer-for-Sale (OFS) route to increase public shareholding, news agency PTI reported, citing sources. The earlier attempt of Government to sell its stake in IDBI Bank failed as it did not receive proper bids.
What is Offer-for-Sale (OFS)?
Offer-for-Sale (OFS) is a method used by companies or the government to sell their shares in the stock market in a simple and fast way.
- Used by: Government or promoters of listed companies
- Purpose: To reduce stake or raise funds quickly
- Platform: Shares are sold through stock exchanges
- Who can buy: Both retail and institutional investors
- Process: Investors place bids, and shares are allotted based on price
Simple Example: If the government sells its stake in a bank like IDBI through OFS, investors can buy those shares directly from the market.
Earlier this month, the proposed sale of a 60.72 % majority stake, held jointly by the government and the LIC, was cancelled after financial bids from two potential buyers fell short of the reserve price.
Currently, the public float in IDBI Bank is only 5.29%. The remaining shares are with Life Insurance Corporation of India (LIC), with a controlling stake at 49.24%, while the Government of India (GoI) holding stood at 45.48 %.
Low free float restricts the scope for fair market valuation, and expanding this by 10 per cent or 15 per cent would make price discovery more reliable, sources said. It can provide a reliable benchmark for valuation and further make the price discovery process transparent. Strategic sale can be pursued even after one or two tranches of OFS.
Previous disinvestment attempts of IDBI Bank
Both the government and LIC wanted to sell 30.48 per cent and 30.24 per cent stake, respectively. This is the second time that the government has wanted to privatise IDBI Bank since the first announcement made in 2016. The idea was first officially flagged in the Union Budget speech by then-Finance Minister Arun Jaitley in February 2016. The first attempt to privatise the then state-owned IDBI Bank failed due to valuation concerns.
However, the government later sold the controlling stake to LIC. Subsequently, in January 2019, LIC acquired a 51 per cent controlling stake in IDBI Bank for approximately Rs 21,624 crore to rescue the bank from heavy bad loans as part of the disinvestment process.
As a result, the bank was categorised as a private-sector bank by the Reserve Bank of India. In December 2020, the lender was reclassified as an associate company following the reduction of LIC’s stake in the bank to 49.24 per cent.
Privatisation process of IDBI Bank
The process for privatisation gained formal momentum when the Cabinet Committee on Economic Affairs gave its in-principle approval in May 2021 for strategic disinvestment along with transfer of management control in IDBI Bank.
In October 2022, KPMG India was appointed as Transaction Advisor and the intent to sell 60.72 per cent stake in the bank was announced.
The Department of Investment and Public Asset Management (DIPAM) invited Expressions of Interest (EoI) in October 2022, and market regulator Sebi approved the reclassification of GOI as a public shareholder upon completion of the sale in January 2023.
Among the shortlisted bidders, Fairfax Financial Holdings and Emirates NBD submitted their financial bids on February 6. Another shortlisted bidder, Kotak Mahindra Bank, had earlier indicated that it would not participate in the financial bidding process.
At current market prices, the government’s 30.48 percent stake is estimated to be worth around ₹30,000 crore. The total 61 percent stake planned for sale by the government and LIC together is valued at around $6.5 billion based on prevailing market prices.
