IDBI Bank Stake Sale: Shares of IDBI Bank Ltd surged 10 per cent to Rs 44.25 on Thursday morning, surging 13 per cent in the past two trading days on BSE after a Bloomberg report said that the government is planning to sell at least 51 per cent of the state-owned lender. The report also said officials in the government and state-owned LIC, which together own nearly 94 per cent stake in IDBI Bank, are discussing the quantum of shares to sell.
It added that LIC and the government will take buyer interest by the end of September. A group of ministers will make the final decision on the structure of the deal. Shares of IDBI Bank have jumped 6.3 per cent in the past 12 months, raising its market valuation to about Rs 42,470 crore ($5.3 billion).
According to the report, authorities also plan to sell some stakes of the government and LIC in IDBI Bank and cut management control. The RBI will allow investors to buy a stake larger than 40 per cent, as entities seek permission from the central bank to purchase stakes above that threshold, while non-regulated firms are capped at purchases of 10-15 per cent.
At 11.03 am, the stock was trading at Rs 43.85, up 9.35 per cent from its previous close. Since the start of June, the stock has advanced 46 per cent whereas so far this year it has declined 8 per cent.
While the government owns 45.48 per cent in the bank, LIC owned another 49.24 per cent stake in the lender as of June 30, data has shown.
In its IPO filings in March this year, LIC had said that it will retain part of its 51 per cent stake in IDBI Bank to reap the benefits of the bancassurance channel. The plan is to completely privatise the bank as the government wants to exit it. IDBI Bank became a subsidiary of LIC with effect from January 2019, following the acquisition of an additional 82,75,90,885 equity shares.
On December 19, 2020, IDBI Bank was reclassified as an associate company due to the reduction of LIC shareholding to 49.24 per cent following the issuance of additional equity shares by the bank under a qualified institutional placement. LIC had bought a 51 per cent in IDBI Bank in 2019 for Rs 21,624 crore at an average price of Rs 61 per share.
LIC also pumped in Rs 4,743 crore into IDBI Bank in October 2019, using policyholders’ funds. The bank further raised Rs 1,435.1 crore on December 19, 2020, by way of a QIP which brought down LIC’s stake in IDBI to 49.24 per cent.
What Should Investors Do?
Avinash Gorakshakar, Head Research, Profitmart Securities, said: “IDBI Bank will be in focus as IDBI bank deal looks to be in the final stages of approval. Markets are very positive here as operationally the bank has made a comeback to profitability in Q1 of the current year and hopefully, if the bank is taken over by a Pvt buyer there are good chances of a further re-rating here.”
Kush Ghodasara, Independent Market Expert, said: “Disinvestment news on IDBI Bank is a positive outcome for the management and company but for shareholders, I believe should exit once by taking advantage of this surge and wait for disinvestment process to get over. I believe the deal price would be a discount from the current market price.”
PSU Banks on Fast Lane
Besides this, other mid-sized public sector banks were also trading higher on hopes of privatisation. The government in its budget had said that it would divest IDBI Bank and privatise two public sector banks.
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