IDBI Bank Divestment Could Revive as Fairfax Returns With Revised Offer

The long-stalled disinvestment of IDBI Bank appears to be gaining momentum, with fresh discussions underway between Fairfax India Holdings, led by Canadian billionaire Prem Watsa, and the Department of Investment and Public Asset Management (DIPAM), according to a Moneycontrol report. Fairfax has submitted a revised bid and proposed to make IDBI Bank its anchor investment in India's financial services sector.

"The revised proposal is under review, and the deal seems to be headed in the right direction," the report added citing a source. While a firm timeline has not been confirmed, the divestment could conclude by September, according to the report.

How the Process Stalled

The Government of India and Life Insurance Corporation of India (LIC) announced the sale of their combined 60.72% stake in IDBI Bank in October 2022. DIPAM received letters of intent from several potential bidders in January 2023. Financial bids were received earlier this year from Fairfax and Emirates NBD, but the process stalled due to a difference in valuations, with bids coming in below the reserve price.

The revised deal is structured as an all-cash transaction and is expected to fetch approximately ₹50,000 crore, or just over $5 billion, for the government and LIC combined. Fairfax is reported to have quoted a per share bid price of approximately ₹77. IDBI Bank's market price stood at ₹86.95 at the close of trading on Wednesday, with a market capitalisation of approximately ₹93,500 crore.

Separately, entities linked to Fairfax purchased $1 billion worth of Indian government securities, according to a previous report by Reuters, possibly to bring capital into the country ahead of a potential deal.

Fairfax has also committed that IDBI Bank will be its sole investment in the banking space. As a result, the firm has said it will fully divest its 40% stake in CSB Bank upon completing the IDBI acquisition. This is in line with RBI norms, which do not permit a promoter to hold two banking licences. Fairfax had acquired a 51% stake in CSB Bank, then known as Catholic Syrian Bank, in 2018 in a transaction that helped keep the lender afloat. The bank was listed on stock exchanges a year later.

IDBI as the Anchor

Under the proposed structure, Fairfax has assured the government that IDBI Bank's identity will be retained post-acquisition. Two of Fairfax's large non-lending businesses, GoDigit General Insurance and IIFL Capital Services, are expected to be folded into IDBI Bank as subsidiaries, making the bank the central entity for Fairfax's financial services interests in India.

GoDigit, a digital-first insurance company, was co-founded by Fairfax and former Allianz Insurance CEO Kamlesh Goyal in 2016, with Fairfax holding majority control. On May 7, Fairfax announced it would raise its stake in IIFL Capital to 51% through a ₹2,000 crore equity infusion, taking the promoter's seat in IIFL's wealth and capital markets business.

Following the conclusion of the divestment, LIC's voting rights in IDBI Bank would be capped at 10%, though it would retain close to 19% economic stake. The government's stake would reduce to 15%.