Shares of government, LIC-owned lender IDBI Bank Ltd. will be in focus on Thursday, October 15, as it reacts to the news of its much awaited disinvestment, which was announced on Wednesday evening.
Toronto-based Fairfax Financial, with total assets of over $109 billion, has been chosen to acquire 60.72% stake in IDBI Bank for ₹52,878 crore. This deal, on completion, will make it the largest Foreign Direct Investment (FDI) transaction in India’s financial sector, surpassing the Emirates-RBL Bank and Shriram Finance-MUFG transactions earlier this year.
Fairfax will be paying ₹81 per share to acquire the stake in IDBI Bank. The figure is a 6.6% premium to the independent valuation benchmark of ₹75.99 per share, but is at a 10% discount to the lender’s closing price on Wednesday.
However, it must be noted that IDBI Bank is a stock with very little free float in the market. The government of India owns a 45.48% stake in the lender at the end of the June quarter, while Life Insurance Corporation of India (LIC), India’s largest insurance firm, has a 49.24% stake, as per the shareholding pattern uploaded on the exchanges.
Based on the stake sale details, the government will be selling 30.48% stake, while LIC will be selling 30.24%. After the completion of the transaction, both the government, and LIC, will retain their respective 15% and 19% shareholding respectively.
Among the very little public shareholding, nearly 7 lakh retail shareholders, or those with authorized share capital of up to ₹2 lakh, had a 2.17% stake in IDBI Bank as of June 30. The September quarter figures have not yet been disclosed. Large retail investors had a 1.64% stake. India’s Mutual Funds do not have any significant stake in the bank.
As per the SPA that will be signed, the IDBI Bank brand will have to be retained for three years by Fairfax Financial and the buyer will also lock-in the capital for a five-year period.
Shares of IDBI Bank ended 8.3% higher on Wednesday at ₹89.85. The stock was among the top 10 most traded names on the Nifty 500 on Wednesday as over 14 crore shares changed hands during the course of the session, much higher than its 20-day average of 1.2 crore. 25% or 3.6 crore of those shares were also marked for delivery, well above the 20-day average delivery volume of 47 lakh shares.