Additional 4% public float in IDBI Bank to be available for retail investors once LIC pares stake

The nearly five year exercise for the disinvestment of IDBI Bank is now almost complete with the Union Cabinet giving its approval to Canada’s Fairfax Financial Holdings to purchase 60.72% stake in the lender. In an interaction with Business Today, Arunish Chawla, Secretary, Department of Investment and Public Asset Management explains the next steps to close the transaction and what it means for the disinvestment pipeline for the current fiscal year. Edited excerpts:

The Cabinet has just approved the strategic restructuring of IDBI Bank. What are the next steps?

Now the technical papers submitted by the successful bidder will be submitted to the Reserve Bank of India, and the successful bidder will also present its credentials there, including additional compliance and regulatory requirements. After RBI has cleared the successful bidder, the share purchase agreement (SPA) will be signed, and the deal would hopefully be closed before the end of the current financial year.

The minority and retail investors will be fully protected in this deal?

Yes, the minority shareholders are fully protected. After the share purchase agreement (SPA) is signed, the strategic buyer is required to give an open offer to the minority shareholder. In addition to that, the regulator has directed the LIC to bring down its residual shareholding to from 19 to 15%. The additional 4% public float will be available for retail investors.

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Despite the LIC and the government continuing to hold stake in IDBI Bank, why have you chosen to give up board seats?  

The GoI and the LIC want to become public shareholders. For that, one cannot hold more than 15% equity or sit on the board. Otherwise, you have the same contingent liability for the bank as a promoter has. After strategic restructuring, the responsibility of running the bank and capitalising it from time to time lies with the promoter.

There are some concerns about valuation…

The press note is very clear. It explains all the detailed processes and the steps. The valuation was carried out by two independent methodologies. One was the market multiple method, which derives the fair market value of the enterprise. One was the asset valuation method, which derives the fair asset value of the enterprise, fair net asset value of the enterprise. The average of the two is taken as the benchmark price for the valuation of qualified bids. They all come in sealed covers, independent of each other. The CGD, which is the highest decision-making body, official body headed by the Cabinet Secretary, collectively then evaluates the qualified bids against the fair valuations received, and it found that the winning bid offer was above the benchmark price and also above the individual fair valuations. It was adjusted to be reasonable, recommended, and approved.

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Eventually will the government completely exit IDBI Bank?  

The press note explains that powers have been dedicated to the Alternative Mechanism for any future minority stake sale in the open market through the standard operating procedure.

This is one of the few transactions that has got a foreign investor. Also in the last one year, we have seen foreign investment in the banking sector. How do you see this deal defining the disinvestment landscape, and do you see that further such initiatives also you would consider foreign investors?

The successful bidder for the Ferrous Scrap Nigam Ltd was a Japanese company -- Konoike Transport. It won the race and was approved, and is now running the enterprise successfully. And similarly, in this case also, although the strategic buyer has Indian roots, he came through a fair process, made the made the effort, emerged at the winning bidder, and was has been fairly given the opportunity.

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Will the disinvestment pipeline for this fiscal continue because the target has already been exceeded?

The strategic restructuring of CPSCs will continue, and the existing pipeline will be taken to its logical conclusion. It's not appropriate for me to divulge the individual names. But the IDBI Bank stake sale is the biggest ever strategic transaction and the largest FDI deal.

Will we see more such exercises for bank privatisation coming up?

This is beyond my domain. There is another department which looks after the subject, so no comments from my side.