Both are prepared to give a significant control premium in exchange for keeping Kotak Mahindra Bank and CSB Bank independent.
Kotak Mahindra Bank and Prem Watsa’s Fairfax India Holdings are competing for IDBI Bank, with both ready to pay a premium for a controlling interest. At this time, however, neither wants to merge IDBI Bank with their own banks.
“A reasonable share of the government holding may remain in IDBI Bank for at least 2-3 years post-sale,” said a source, explaining why the two bidders want to keep their current banking firms separate from IDBI Bank.
However, according to well-placed sources, both potential investors are ready to pay the premium sought by the government to purchase a controlling ownership in the bank.
IDBI Bank trades at roughly 1.3x 12-month trailing price to book ratio, with a market capitalization of over 57,000 crore.
Businessline reported on Prem Watsa’s interest in IDBI Bank on June 5, 2022, and Kotak’s interest in the bank on February 5, this year. Other bidders are rumored to be Sumitomo Mitsui Financial Group and Emirates NBD.
Looking for exceptions
Kotak has suggested a structure in which IDBI Bank is held as an associate, with none of Kotak’s top management personnel involved in the former.
“There will be no overlaps on the boards of IDBI Bank and Kotak Bank,” said a source familiar with the situation. IDBI Bank may be merged with Kotak Bank once the government’s interest in the bank is reduced. “A glide path of 3-5 years has been sought for the merger,” the person explained.
Fairfax has requested that the RBI not consider it a promoter of IDBI Bank. “Fairfax wants to be seen as a significant investor in the bank because it does not want to cede control of CSB Bank or merge the two banks in the near term,” said one source.
Emails addressed to Kotak Mahindra Bank and Fairfax went unanswered till the end of the day.
It’s a difficult choice.
The exclusions requested by Kotak and Fairfax are in violation of current regulations. The current ownership rules prohibit one individual from holding two banks in the position of a promoter.
Fairfax is the promoter of CSB Bank, owning 49.72 percent of the company. Similarly, a bank cannot invest in another bank, with the exception of March 2020, when the State Bank of India invested.
Monitoring the divestiture
On October 7, 2022, DIPAM filed an expression of interest in IDBI Bank.
It revealed on January 7, 2023, that it had received various offers.
Currently, the LIC and the government own 49.24% and 45.48% of the bank, respectively.
Following the sale, LIC will control 19.24% and the government would hold 15.48%.
Due diligence data rooms are expected to debut in June.
DIPAM may solicit financial proposals as early as September.
