Life Insurance Corporation of India has proposed to increase its equity stake in IDBI Bank up to 14.9 per cent through a preferential issue, paving the way for the insurer to acquire 51 per cent majority ownership in the bank. The first round of stake purchase is expected to bring over Rs 2,000 crore to the bank at the current market price.
While LIC already holds over seven per cent stake in IDBI Bank, its stake will rise by another 7 per cent through the preferential issue.
Besides, the board of LIC is likely to meet in the coming days to consider an open offer to buy shares from the minority shareholders under Sebi guidelines and acquire the remaining stake of around 36 per cent. The latest cash infusion is expected to meet the urgent cash needs of the bank.
According to the Securities and Exchange Board of India’s (Sebi) takeover code, an acquirer has to make an open offer to shareholders of the target company on acquiring shares or voting rights of 25 per cent or more.
IDBI Bank on Tuesday said it has received a letter from LIC giving their in principle approval for subscription of the equity shares on preferential basis subject to their total exposure not exceeding 14.90 per cent of post issue capital of the bank at any point of time. “The board of IDBI Bank will consider the proposal for seeking shareholders’ approval through postal ballot for the preferential issue of capital to LIC, aggregating up to 14.90 per cent of the bank’s post issue paid up capital,” it said.
LIC is expected to invest around Rs 12,000 crore to acquire the majority stake in the bank. IDBI Bank shares closed 0.82 per cent lower at Rs 60.80 on the BSE on Tuesday. It has a market capitalisation of Rs 25,421 crore.
The Cabinet Committee on Economic Affairs (CCEA) has already approved LIC’s proposal to own a controlling stake in IDBI bank. Earlier, LIC had received the insurance regulator IRDA’s approval to hold more than 15 per cent stake in the bank.
IDBI Bank had reported a net loss of Rs 2,409.90 crore for the first quarter ending June 2018. The loss widened from Rs 853 crore registered in the same quarter a year ago, due to a jump in non-performing assets (NPAs) and provisions. As a percentage of total loans, its gross NPA ratio rose to 30.78 per cent of advances from 27.95 per cent on a quarter-on-quarter basis. The net NPA ratio also increased to 18.76 percent from 16.69 percent in the previous quarter.
On August 8, IDBI Bank said it has received approval to bring down the government stake to below 50 per cent and get acquired by LIC. The RBI has already placed the bank under prompt corrective action, where it is facing lending restrictions and is also forced to take up cost cutting measures like shutting down non-performing branches and automated teller machines.