Centre approves Fairfax Financial’s ₹52,878 crore bid for 60.72% stake in IDBI Bank

The Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved the sale of a 60.72% stake in IDBI Bank to Canada-based Fairfax Financial Holdings’ parent entity, Canada Inc., for ₹52,878.08 crore, marking a major step towards the lender’s strategic disinvestment.

The transaction involves the sale of a 30.48% stake held by the Government of India and a 30.24% stake held by Life Insurance Corporation of India (LIC). Following the transaction, the government will retain a 15% stake in the bank, while LIC will continue to hold 19%.

The winning bid of ₹81 per share was higher than the benchmark fair value of ₹75.99 per share determined by two independent valuation agencies, according to the government’s press note. It is the biggest strategic disinvestment after Air India.

Competitive bidding process

The strategic disinvestment was undertaken through a two-stage competitive bidding process involving expressions of interest, eligibility assessments and the submission of techno-financial bids.

The government issued the Preliminary Information Memorandum inviting expressions of interest on October 7, 2022. Five parties initially submitted expressions of interest, of which four qualified under the prescribed eligibility criteria. Two subsequently submitted techno-financial bids.

Only parties found ‘Fit and Proper’ by the Reserve Bank of India (RBI) and granted security clearance by the Ministry of Home Affairs were eligible to participate in the bidding process.

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The CCEA approved the successful bidder following an evaluation by the Core Group of Secretaries on Disinvestment and consideration of recommendations from the Alternative Mechanism, comprising an empowered group of Cabinet ministers.

Independent valuation determined benchmark price

The government said the valuation was conducted using two independent methodologies to assess the reasonableness of the winning offer.

The Market Multiple Method assessed IDBI Bank against other public sector banks using their financial results, while the Asset Valuation Method considered the lender’s tangible and intangible assets, including land and property, alongside its liabilities.

The government said the bank’s market price was not used as the principal valuation benchmark because it had been volatile during the valuation period. The stock recorded a high-low range of ₹118.38 to ₹61.01 per share.

The average of the two independent valuations was ₹75.99 per share, against which the successful bid of ₹81 was assessed and approved.

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Regulatory approvals remain

The successful bidder will have to present its credentials to the RBI under the Fit and Proper Assessment process and submit a roadmap for compliance with the applicable regulatory conditions.

The government said the transaction, once completed, would be the largest foreign direct investment in India’s financial sector to date.

The CCEA has also delegated powers to the Alternative Mechanism to undertake the sale of the government’s residual 15% holding through the open market, in accordance with the prescribed standard operating procedure. LIC will manage its remaining shareholding under its internal procedures and applicable regulatory requirements.

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