Within days of receiving a go-ahead from the Reserve Bank of India to operate as a wholly-owned subsidiary in India, highly-placed sources have told Moneycontrol that the Dubai-headquartered Emirates NBD has had a conversation with DIPAM on valuations, and has offered $6-7 billion in an all-cash deal for a 61 percent stake in IDBI Bank, giving it a majority control.
At the current market capitalisation of around Rs 1 lakh crore (~$11 billion), this translates into a cash payout of Rs 50,000-60,000 crore for the IDBI Bank stake. The proposed stake sale is valued at a significant premium to the share price of IDBI Bank in January 2023, when the bidders furnished their expression of interest for the lender. IDBI Bank’s stock price was in the range of Rs 50-55 per share when bids were put in place and was trading at around Rs 44 when the divestment process formally kickstarted in October 2022. Life Insurance Corporation of India (LIC) had acquired 51 percent stake in the bank at an average price of Rs 61 per share.
Further, the deal seems to be valued at roughly a Price to Book (P/B) multiple of over 1.8x based on a 12-month trailing number, which is nearly 40 percent higher than the premium expected by Department of Investment and Public Asset Management (DIPAM) when the sale process was initiated in October 2022.
The formal bidding process for IDBI Bank stake sale is likely to open by June or July, source close to the development said DIPAM has informally taken stock of the interest levels of potential bidders, particularly on the valuation front. This includes Canadian private equity player Prem Watsa’s Fairfax India Holdings, Uday Kotak-led Kotak Mahindra Bank, Emirates NDB and global distressed asset management specialist Oaktree Capital, who have likely cleared the ‘fit and proper’ assessment of the RBI, according to news reports.
Emails sent to DIPAM, Kotak Mahindra Bank and Fairfax India Holdings remained unanswered till publishing the article.
“As a matter of company policy, Emirates NBD declines to comment,” said an official spokesperson of the bank in an email response.
The informal outreach by DIPAM is said to have to have happened a few weeks ago. During the process, it became somewhat apparent that the likely bid price that Emirates NBD may offer could be significantly higher compared to others.
“Given that the proposed bids from others could be in the ballpark of $4.5-5.5 billion, and not necessarily outright cash bids, the scale for now seems to be tiled in Emirates NBD’s favour,” said one senior official aware of the developments. However, he cautioned that it’s too soon to predict the outcome of the bidding process.
In fact, speculation around Emirates NDB being the frontrunner for IDBI Bank has been rife ever since the RBI permitted the bank to convert its branch operations in India into a wholly-owned subsidiary.
“With a balance sheet size of over Rs 4 lakh crore, IDBI Bank would give a head start for Emirates in India and that explains why the bank may be willing to stretch its wallet,” said a banker who did not want to be named.
In October 2022, DIPAM had invited bids for IDBI Bank, with the Government of India offering to divest 30.48 percent shares held in the bank, and LIC set to sell its 30.24 percent stake.
In January 2023, DIPAM announced that it has received multiple expressions of interest for IDBI Bank. On January 15, Moneycontrol reported that final due diligence is underway at IDBI Bank. Recently, the DFS Secretary, M Nagaraju, had said the divestment of IDBI Bank will conclude by end of 2025.
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