IDBI Bank Privatisation: The government of India is likely to defer the $4 billion IDBI Bank privatization plan over concerns that the unprecedented market volatility may deter prospective buyers, Mint report quoting two people familiar with the matter.
“The market volatility and the weakness in IDBI Bank’s stock means a much higher dilution in the government’s stake. The government may get a much lower value from the total 60.72% stake sale than what it expected earlier. In such a circumstance, the government is thinking of putting the divestment plan on hold,” one of the two people cited in the above report said. “Also, due to the volatility and the fall in IDBI Bank stock, investors themselves are not too keen to spend any significant amount on any large acquisitions or even otherwise,” he added.
The divestment in IDBI Bank is the union government’s first privatisation plan in the banking space. The government holds a 60.72 per cent stake in IDBI Bank and expects at least $4 billion through the sale. The current market scenario is, however, unlike to fetch that valuation. As per the report, if the government decides to go ahead with the divestment despite the market weakness and the prevailing low stock price, the government will need to accept a sharply lower valuation of around $3 billion. The government does not want this.
Therefore, the plan has been altered for now. The sources mentioned in the report also said that the upcoming general election in 2024 is expected to bring market stability, and the government may take up large divestment plans such as IDBI Bank with more certainty after the polls.
IDBI Bank share price fell from a high of Rs 92 on 9 January 2023 to Rs 44.40. Consequently, IDBI Bank’s market value has fallen steeply from Rs 66,665 crore to around Rs l49,000 crore now. In order to fetch $4 billion at the current market value of IDBI Bank, the government and state-run Life Insurance Corporation of India (LIC) will have to sell at least 68 per cent, the report added.
DIPAM, which manages government holding in state-owned enterprises, in October last year invited EoIs for selling a 30.48 per cent stake in IDBI Bank, along with LIC’s 30.24 per cent stake in the bank.
The government and LIC together hold a 94.72 per cent stake in IDBI Bank, which will come down to 34 per cent after the strategic sale. The government will own a 15 per cent stake and LIC 19 per cent in IDBI Bank, taking their total holding to 34 per cent.