IDBI Bank’s QIP plan to be revived

New Delhi/Mumbai: The government will resume a plan to sell shares of IDBI Bank Ltd to institutional investors, anticipating greater investor interest after finance minister Arun Jaitley in his budget speech formally stated the government’s intention to pare its stake in the lender to less than 50%.

The government, which owns about 80% in IDBI Bank, is confident that it will be able to reduce its stake over the next one year, said a senior finance ministry official, who did not wish to be identified.

“With the government’s announcement in the budget, there is more interest from strategic investors. The process of book building will start again,” the official said.

On 31 December, IDBI Bank informed stock exchanges that the government had approved a plan to raise Rs.3,771 crore through a qualified institutional placement offer (QIP).

Depressed valuations forced the government to put the process on hold, Mint had reported on Wednesday.

In a subsequent clarification to stock exchanges, IDBI Bank said the QIP issue is not on hold and will be launched depending on the need and suitable market conditions.

IDBI Bank, despite being a state-owned bank, is not bound by the Bank Nationalization Act of 1969. This makes it easier for the government to pare its stake in the lender as compared to other state-run banks where it will need to amend the act to bring down its stake below 50%.

The government first plans to bring in the strategic investors, improve the valuation of the bank, and then look at possible options to further reduce stake at these improved valuations.

IDBI Bank’s capital adequacy ratio (CAR) stood at 13%, with tier 1 capital at 8.71%, as on 31 December 2015.

Banks have to maintain a minimum CAR of 9.625%, as on 31 March 2016, according to the guidelines on the implementation of Basel III norms issued by the Reserve Bank of India (RBI).

IDBI Bank officials were not available for comment.

So far, there has been no intimation from the government to the bankers to restart work on the QIP, said an investment banker, who was involved in the QIP process and did not wish to be identified.

“The current price does not reflect the right valuation of the bank. When the QIP was first contemplated, the price was hovering around Rs.90-95 (per share),” the banker said. “If the government is looking at bringing in a strategic investor then it might do so through a route other than QIP. In a QIP, you cannot allot more than 50% of the issue to one investor, so then, they will also have to look at bringing in other investors to subscribe to rest of the issue.”

Vinod Nair, head of fundamental research, Geojit BNP Paribas Financial Services Ltd, said that the government’s budget announcement regarding IDBI Bank’s privatization is positive.

“Bringing in strategic investors will help in increasing the valuations of the bank, as well as increase the public confidence in the bank, which will be helpful in case the government wants to go to the open market for further bringing down its stake,” Nair said.

“QIP will set a floor price for IDBI. The strategic investor can give confidence to the public worried about asset quality at state-run banks. Also, unlike other state-run banks, where a holding company model is being proposed, a strategic investor will have a greater say in IDBI Bank,” he added.