IDBI board meet today on merger swap ratio

The board of the Industrial Development Bank of India will meet on Thursday to decide the swap ratio of the merger of IDBI Bank with itself.

Going by today's market price, the swap ratio is likely to be 1.5:1. This means for every 1.5 shares of IDBI Bank, an investor will get one shared of IDBI, the merged entity.

The IDBI stock price dipped by 2.03 per cent to end the day at Rs 113.30 today after touching its life time high of Rs 119.10.

IDBI Bank's share rose by 2.37 per cent to close at Rs 71.35 after touching an intra-day high of Rs 74.90. IDBI's three-month low is 82 while that of IDBI Bank is Rs 44.

The stock market price, however, is only one of the inputs to arrive at the swap ratio. The other factors like size of the balance sheets, quality of assets and other financial parameters like return on assets, return on equity, etc will be taken into consideration for the swap ratio.

One crucial factor is the government's stake in IDBI which will not come down below 51 per cent in the merged entity. This condition is not part of the IDBI Act but was a verbal assurance given by the government.

This precondition allows plenty of leeway in deciding the ratio since government's holding in both entities is way over 51 per cent.

If a 1:2 swap ratio is arrived at, the government holding in the merged entity will be 60 per cent while a 1:1 ratio will keep the promoter's holding at 61 per cent.