IDBI Bank's proposed stake sale likely to run into regulatory hurdle

Sebi raises concern over low public float in the lender

The proposed stake sale in IDBI Bank by the government may run into a regulatory obstacle on the issue of minimum public shareholding.

The Centre and the Securities and Exchange Board of India (Sebi), the market regulator, may be at odds over a minimum public shareholding in the lender.

Sebi is concerned over the low public float in the lender and the proposed strategic disinvestment may extend the road map to achieve this, a senior regulatory official privy to the discussion told Business Standard.

The government has sought a special dispensation from Sebi with regard to the public float in IDBI Bank. However, the regulator, which is examining the request, is learnt to be not keen on providing it because the float is already low, the official added.

Life Insurance Corporation (LIC) and the government hold 49.24 per cent and 45.48 per cent, respectively, in IDBI Bank. Together they hold 94.72 per cent while the public shareholding is 5.28 per cent.

Earlier this month, the government and LIC decided to offload a little over 30 per cent each in IDBI Bank. They issued a preliminary information memorandum, inviting expressions of interest for an aggregate 60.72 per cent stake, along with management control.

Sources said the government had sought Sebi’s nod to reclassify the residual stake in IDBI Bank as “public” shareholding. This is because the Centre is relinquishing management control and is acting as an ordinary shareholder.

“While the government is ceding control, it will continue to hold more than 30 per cent and transfer over 60 per cent to a private buyer. There is the status quo as far as public shareholding is concerned — around 5.3 per cent. The real objective of minimum public shareholding norms is to ensure that shares are held by a diversified set of public investors. The strategic disinvestment is not helping achieve this,” the official cited above explained.

If Sebi maintains a firm stance on this issue, it could create complications for the government. The strategic disinvestment is expected to unlock value in IDBI Bank. As a result, the Centre would like to sell its residual stake at an enhanced value in future.

The Centre is eyeing a valuation of about Rs 60,000 crore, which is 25 per cent more than its current market value.

Shares of IDBI Bank last closed at Rs 45.2 apiece, valuing the lender at Rs 48,600 crore. By October 28 strategic investors interested in acquiring the bank have to submit queries, if any, on the preliminary information memorandum. Then they can submit expressions of interest by December 16.

The deal involves a two-stage process by which potential bidders will have to pass the Reserve Bank of India’s (RBI’s) “fit and proper” criteria and after they could submit their financial bids.

The government expects the deal to be completed next financial year because the process will take nine to 10 months.

Those allowed to bid for the bank include private and foreign banks, RBI-regulated non-banking financial companies, and entities registered with Sebi as alternative investment funds. A minimum net worth of Rs 22,500 crore has been set for firms looking to bid individually or through a consortium.

Recently, Sebi eased the open-offer pricing norms for public-sector disinvestment. Under this, price discovery for making an open offer will result in a lower price. Also, since the public float in the lender is minuscule, the open offer requirement will be far lower than the mandatory 26 per cent.