IDBI Bank shares fall 3% to below Fairfax deal price; here's why

Shares of IDBI Bank Ltd fell 3 per cent in Wednesday's trade, slipping below the Rs 81 per share deal price for the proposed sale of a 60.72 per cent stake in the lender to Fairfax. The stock declined for a second consecutive session after the lender reported a 39 per cent year-on-year (YoY) fall in net profit at Rs 2,205 crore for the September quarter, compared with Rs 3,627 crore in the year-ago quarter.

The lender, which has limited analyst coverage, has fallen 11 per cent since the Cabinet Committee on Economic Affairs (CCEA) approved the sale of a 60.72 per cent stake in IDBI Bank to Canada-based Fairfax Financial Holdings' parent entity, Canada Inc, for Rs 52,878.08 crore.

IDBI Bank shares fell 2.63 per cent to hit a low of Rs 80.10 apiece on BSE.

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

In a FAQ, IDBI Bank earlier noted that the fair valuation of the enterprise was carried out by two professional valuation agencies using two independent methodologies. The average of these fair valuations was Rs.75.99 per share, which served as the benchmark price for the evaluation of the qualified bids. Since the winning best offer bid of Rs 81 per share was above the benchmark price, as well as fair value estimates of both the independent valuation agencies, it was adjudged to be reasonable and approved.

IDBI Bank noted the CCEA delegated powers to the Alternative Mechanism to undertake minority stake sales of the GoI residual shareholding, 15 per cent of the total shareholding of the IDBI Bank Ltd, through the open market in accordance with the standard operating procedure.

"The LIC will be free to manage its residual shareholding in accordance with its internal procedures while ensuring compliance with the directions of its regulators," IDBI Bank noted.

Prem Watsa's Fairfax Financial Holdings has reportedly been given 15 years by the Reserve Bank of India to reduce its stake in IDBI Bank to 26 per cent. It has two years to decide the future of Kerala-headquartered CSB Bank, with a merger or sale emerging as the two possible options, Economic Times reported Watsa as saying in a conference call with analysts.