Government to start roadshows for IDBI Bank sale

Amidst the urgency to push through the LIC IPO in the current fiscal year, the government is also planning to trigger off its stake sale in IDBI Bank. In the last few years, IDBI Bank was touted as the first big experiment by the government to undertake a strategy sale of a PSU Bank. Currently, the government of India and LIC hold most of the stake in IDBI Bank, with a small portion being held by the general public.

Prior to the pandemic, the government had wanted to showcase IDBI Bank to institutions as the test case for privatizing a PSU bank with effective shift in management control. Now, the government plans to officially start the roadshows with investors for the proposed strategic disinvestment of IDBI Bank and these roadshows will start from February 25 onwards. The government and LIC will look to sell their stake in IDBI Bank to a private buyer.

Of course, the deal may not happen in the current financial year as time is too short. But this will be the right time to gauge the preliminary interest level of investors for the IDBI Bank stake. In the past, many investors had expressed concerns about the high level of non-performing assets of IDBI Bank and that continues to be a concern. IDBI Bank will be the first-ever strategic disinvestment of a public sector lender and hence crucial.

To begin with, the roadshows will be held virtually as most of the global investors are not keen on physical meetings amidst the pandemic fears. For now, the roadshows will remain virtual and will be managed by the specific intermediaries appointed by the Department of Investment and Public Asset Management (DIPAM), KPMG and Link Legal. Roadshows are the first point of contact with institutional investors to gauge demand and likely price.

Let us quickly take a look at the ownership structure of IDBI Bank currently. The government of India holds 45.48% shareholding in IDBI Bank, which it will be looking to sell. In addition, LIC holds 49.24% shareholding in IDBI Bank and that will also be part of the strategic sale of IDBI Bank. The buyer will get a big chunk of 94.72% of IDBI Bank from the two largest shareholders of the bank. It will also transfer management control to the new buyer. 

However, for now, the government has been non-committal on the quantum of stake dilution by the Centre and LIC. That will be based on the appetite and the price they can get. RBI approvals will also be required for the same. There is one school of thought which wants the government to retain 26% in IDBI Bank to give comfort to the lenders to IDBI Bank and other investors. These decisions will only be taken along the way post the roadshows.

The first round of virtual roadshows will be more like an investor outreach program to set conditions for the sale and structuring of the transaction. DIPAM will bring RBI also on board to vet the candidates interested in acquiring IDBI Bank. The RBI will also screen the potential bidders as soon as the EOI is submitted. This will ensure that only those investors who meet fit and proper criteria move on the next stage. The process is likely to be fairly long drawn.