BackIDBI Bank sells 2% stake in NSE to LIC
The stake sale is part of IDBI Bank's turaround plan; 900,000 shares were sold at Rs3,900 apiece for Rs351 crore
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State-owned lender IDBI Bank Ltd Thursday said it has sold a 2% stake in the National Stock Exchange (NSE) to Life Insurance Corp. of India (LIC), as part of the debt-laden bank’s turnaround plan.
The shares were sold at ₹ 3,900 apiece, according to two people aware of the development. In all, the bank sold 900,000 shares that it held in NSE for ₹ 351 crore.
“We went ahead with LIC since it’s a public sector unit and we don’t need to do an RFP (request for proposal) process with them. They gave us a good price of around ₹ 3,900 a share," said a senior official with IDBI Bank.
As of 31 December, IDBI held 5% stake in the exchange.
IDBI’s stake sale is similar to that of IFCI Ltd, which sold its 1.5% stake in NSE in September last year for ₹ 263.25 crore to the US-based fund Deccan Value Investors Lp. At ₹ 3,900 per share, the stock exchange was valued at ₹ 17,550 crore.
Last year, the UK-based private equity (PE) fund Actis Llp also agreed to sell its stake in NSE, The Economic Times had reported on 21 October.
IDBI Bank had on 2 March announced a three-year turnaround plan in which the bank plans to raise ₹ 19,000-20,000 crore worth of equity capital before March 2019. For this, the bank said, it’ll consider options, such as qualified institutional placements (QIPs) and preferential allotment to large strategic investors.
About ₹ 6,500 crore will come from the sale of non-core assets, said Kishor Kharat, managing director and chief executive officer of IDBI Bank in an interview.
“We are expecting to raise between ₹ 1,200 and ₹ 1,500 crore by the end of this year through sale of non-core assets," he said.
Apart from NSE, the bank has investments in non-core assets, such as ratings agency Credit Analysis and Research Ltd and asset reconstruction firm Asset Reconstruction Co. (India) Ltd.
The turnaround plan aims to prop up the bank’s weak capital base and reduce government shareholding.
IDBI Bank’s capital adequacy ratio (CAR)—the ratio of bank’s capital to its risks—as on 31 December 2015 stood at 13% as against 12.23% a year ago. Banks have to maintain minimum CAR of 9.625% as on 31 March 2016, according to the guidelines on the implementation of Basel III norms issued by the Reserve Bank of India (RBI).
For quarter ended 31 December, the bank’s gross non-performing asset (NPA) ratio stood at 8.94%—higher than 6.92% reported as on 30 September.
Net NPA ratio stood at 4.6% as on 31 December, as compared with 3.16% at the end of the second quarter.
An asset quality review of the RBI had recently asked banks to recognize weaker assets as bad loans and make provisions for them.
This took a toll on the profitability of the public sector banks in the quarter ended 31 December 2015.
As part of the troubled lenders’ turnaround plan, the government is looking at reducing its stake by bringing in a strategic investor.
On 21 March, Mint reported that World Bank’s International Finance Corp. (IFC), US-based private equity firm TPG Capital and UK’s development finance institution CDC Group Plc are in talks with the government to buy stake in IDBI Bank.
Finance minister Arun Jaitley, in his budget speech last month, said the government will consider bringing down its stake in IDBI Bank to below 50%. As on 31 December, it owned 80.16% stake.
On 29 March, IDBI Bank informed stock exchanges that LIC has picked up an additional stake of 7.16% as part of a preferential allotment of shares worth ₹ 1,500 crore. LIC now owns 14.37% stake in the bank.
“IDBI Bank has a lot of non-core holdings and the management has indicated that they will sell and realize the value," said Siddharth Purohit, a senior researcher at Angel Broking Pvt. Ltd. But the core operation of the bank has to improve, he said.
“The ability of banks to make these deals and add to capital is limited. Investors would rather be watching their improvement in asset quality and credit growth. While news of non-core sales is a positive, it is not a big surprise," said Purohit.
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