If A Bank Wins IDBI Bid, It Will Be A Merger, Says Tuhin Kanta Pandey — BQ Conversations

The government should be in a position to invite bids for IDBI Bank Ltd. in the second half of this year after the process started afresh, according to Tuhin Kanta Pandey, secretary of the department that manages the government's assets.

"We understand that in the event a bank leads the race, it is likely IDBI will see a merger, Pandey, Secretary at the Department of Investment and Public Asset Management, told BQ Prime in an exclusive interview. "However it is unlikely that we know which bidder might stand a chance until much later in the new fiscal."

Pandey said the transaction will now be under the lens of the Reserve Bank of India and advisers for due diligence before it can proceed to the second stage of financial bids.

What would follow after the expression of interest is a qualification check by the transaction advisors and a fit and proper check by the RBI, he said.

"The transaction adviser has already obtained documents" Pandey said, "After that, there will be a virtual data room where bidders will be given information, and the draft shareholding documents will be shared, following which requests for proposals and financial bids will be made."

IDBI's transaction marks the first bank disinvestment by the government through an open bidding process. On Jan. 7, it closed the window for receiving expressions of interest in the strategic disinvestment of IDBI Bank.

"The transaction will now move onto the second stage," the secretary had tweeted earlier last week. In the second step, financial bids are accepted in a competitive bidding process until one bidder or consortium comes out on top.

Earlier, BQ Prime had reported that at least four prospective bidders were in the race. This includes Emirates NBD, Sumitomo Mitsui Banking Corp., and Prem Watsa’s Fairfax Financial Holdings, which have likely submitted EoIs. A domestic non-bank finance company is also likely to be on the list of prospective bidders, BQ Prime has learnt.

The mix of bidders opens various possibilities, which was something the government ensured was clear upfront when the roadshows took place.

"This is a competitive bidding process, so what was really sought out was clarity on who can come in and who can opt, which was stated upfront," Pandey told BQ Prime. "Apart from the master circular of the RBI, we wanted to state it upfront."

"We clarified in terms of the consortium, corporates, non-corporates, and NBFC," the secretary of DIPAM said. "What happens if a bank is involved? How will the merger occur? What would be the regulatory oversight in the process? These were the kinds of questions that were asked," he said.

Through this process, the government is looking to sell 30.48% (out of 45.48%) of its stake, and India's biggest insurer, Life Insurance Corp., is offering 30.24% (out of 49.24%) of its stake. After the success of the transaction, LIC will also transfer management control and not be a promoter of the bank, Pandey said.

"Eventually, the government will exit, taking an upside. Immediately post-disinvestment, the government's share will be public. This was stated in the application, which SEBI has also agreed upon," Pandey said. "This gives a clear sense that we are not there to manage things, and it's the same with LIC," he said.

LIC is also expected to relinquish management control of IDBI Bank while maintaining its stake as a public.

Listen in to the full interview below: