Fairfax set for control of IDBI Bank at Rs 81 per share, below market value

what happened

India's Cabinet Committee on Economic Affairs has approved the sale of 60.72% of IDBI Bank to a Fairfax Financial Holdings unit at Rs 81 per share, a total of about Rs 52,878 crore. The government will sell 30.48% and LIC 30.24%, leaving them with 15% and 19% respectively. The price is about 10% below IDBI's Rs 90.39 close on 14 October, a gap of roughly Rs 6,100 crore across 652.8 crore shares, according to Moody's.

Fairfax chairman Prem Watsa said the group plans to move its roughly 57% stake in Go Digit and 30.5% of IIFL Capital, held through Fairfax India, into IDBI at market prices. Those holdings were worth about Rs 18,500 crore at the 19 October close. Fairfax has not said whether IDBI would pay in cash or new shares, and no binding agreement has been signed. The deal still needs approval from the RBI, SEBI and IRDAI.

Bank unions staged a protest on 16 October, and IDBI shares fell more than 7% in the two days after the approval. Officials argue that Rs 81 beats both valuations and that the volatile share price, with only about 5% of shares trading publicly, did not reflect the bank's true worth.

why it matters

For markets, the deal effectively ends public control of IDBI and, according to officials, would be the largest foreign investment yet in India's financial sector. Open questions remain over how the Go Digit and IIFL stakes will be valued and whether they were part of Fairfax's bid, which could draw closer investor attention to the terms.

market impact

IDBI Bank: a price below market and unclear payment terms weigh on the stock and sentiment across Indian banks

tags

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