Moneycontrol
Last Updated : Jun 14, 2018 04:05 PM IST | Source: Moneycontrol.com

Lone bidder looking to exit, IDBI Bank may have to restart IDBI Federal Life stake sale

Max Life had last week withdrawn its bid for IDBI Federal Life Insurance, after lenders refused to meet conditions put forth by the bidder

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M Saraswathy @maamitalks
 
 
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IDBI Bank may have to restart the process of stake sale in its life insurance joint venture, with sources saying that the only remaining suitor  - Aditya Birla Sun Life  - may also pull out of the race.

Max Life had last week withdrawn its bid for IDBI Federal Life Insurance, after lenders refused to meet conditions put forth by the bidder. Now, Aditya Birla Sun Life may also hit the exit mode, for similar reasons.

Meanwhile, IDBI Bank is also going through a leadership transition with current CEO and Managing Director MK Jain moving to Reserve Bank of India. This could further push the deadline of the stake sale, which was initially expected to be completed by September.

On June 4, Jain was appointed as the RBI deputy governor and his last day at the bank and a successor is yet to be declared.

“The process to sell our stake is on. With the bidders pulling out of the deal, we will look to find more suitors…It may get delayed now, but we will not stop the process,” a banking source told Moneycontrol.

IDBI Federal Life is a joint venture between IDBI Bank and Federal Bank, with Belgium-based Ageas SA/NV as the foreign partner.

The government-owned lender holds a 48 percent stake in the venture whereas Federal Bank and Belgian life insurer Ageas hold 26 percent each.

Tight spot

IDBI Bank, which is aggressively looking to pare off its non-core assets in this exercise, is in a tight spot.

For FY18, the state-owned bank reported a net loss of Rs 8,238 crore while for the fourth quarter from January to March, its losses stood at Rs 5,663 crore.

Given that IDBI Bank is also under the restrictive RBI framework of prompt corrective action (PCA), the urgency to shore up capital is the need of the hour.

Also read: Interview with IDBI Bank deputy managing director K.P. Nair

The process to sell stake in IDBI Federal Life, which started 15 months ago, had seen interest from at least nine insurance companies and private equity funds. In the last few rounds, Max and Aditya Birla emerged as the front runners.

But last week, Max Financial Services had informed the stock exchanges that its subsidiary Max Life had decided not to pursue the current acquisition opportunity.

Sources told Moneycontrol that both Max Life and Aditya Birla Sun Life had made several demands including a 10-year exclusive bancassurance partnership as well as detailed estimates for product sales targets by the banks. But the conditions did not go well with the two lenders.

“IDBI Federal is in demand because of the bank partners that it brings with it. Considering the fact that banks produce high value business, it was a win-win proposition for both the final bidders,” added another official.

Max Life did not respond to mails sent by Moneycontrol. Aditya Birla Sun Life said that as a company policy, they do not respond to market speculations.

Even as both the Indian partners want to sell their stakes, IDBI has already put its stake on the block but Federal Bank is waiting to review the offers before taking a final call.

According to the sources, IDBI Federal Life could be valued at around Rs 7,000-7,500 crore. Considering this, IDBI Bank stands to make around Rs 3,400 crore if the stake sale goes through.

The sources also said that Ageas is yet to arrive at a decision on whether or not to bid for the stake on sale. Only if it refuses can one of the other offers be selected, according to the initial terms of the life insurer's shareholding agreement.

The initial plan was to complete the stake sale by the end of the June quarter. However, the process could take more time as negotiations on the pricing and appointment of a new CEO are still underway.
First Published on Jun 14, 2018 02:53 pm
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