IDBI Bank shares crash 11% as Fairfax deal moves closer
IDBI Bank shares fell sharply as investors focused on Fairfax Financial Holdings’ reported Rs 81-per-share offer for a 60.72% controlling stake. The proposed Rs 53,000-crore deal and potential CSB Bank merger are key developments for investors.
IDBI Bank's shares saw a significant drop of up to 10% on Tuesday, outperforming broader market trends. The decline was prompted by heightened focus on the price Fairfax Financial Holdings is willing to pay for a controlling stake in the lender. The situation worsened as the major market indices, Sensex and Nifty, also declined due to rising crude oil prices and geopolitical concerns.
The privatisation process for IDBI Bank is nearing completion, with Fairfax Financial Holdings emerging as the leading bidder. The government plans to sell 30.48% of the bank, while Life Insurance Corporation intends to offload 30.24%. Earlier in July, Fairfax raised its offer to around Rs 81 per share, valuing its stake at approximately Rs 53,000 crore ($5.5 billion). This price represents an 11% decrease from IDBI Bank's Monday closing price of Rs 90.7, highlighting the valuation gap for investors.
The proposed acquisition is considered one of the largest foreign investments in an Indian bank if successful. However, the deal is contingent upon final government and regulatory approvals. Fairfax is also reportedly preparing to reorganize its existing financial services investments in India ahead of the IDBI Bank acquisition.
Furthermore, Fairfax is considering selling its 15.2% stake in IIFL Finance, with Blackstone among global investment firms expressing interest in purchasing the stake. Fairfax currently holds around 40% of CSB Bank, but Indian regulatory rules pose challenges for owning stakes in multiple banks following the IDBI acquisition. Indian authorities may provide Fairfax up to two years to resolve this issue, either by selling its CSB Bank share or merging it with IDBI Bank.
Fairfax's expansion beyond banking into capital markets and wealth management further emphasizes the significance of the proposed IDBI transaction. This acquisition would centralize a large commercial bank within Fairfax's Indian financial services operations. The IDBI Bank privatisation process, involving the government and Life Insurance Corporation, has been ongoing for several years and has faced previous delays due to bids falling short of expectations.
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