The Life Insurance Corporation (LIC) has moved a step closer to acquiring controlling stake in IDBI Bank with the Union Cabinet giving its nod to the proposal.
“The Cabinet has approved conveying of no-objection to reduction in Government of India shareholding in IDBI Bank to below 50 per cent by dilution. It has also approved acquisition of controlling stake by LIC as promoter in the bank through preferential allotment / open offer of equity, and relinquishment of management control by the Government in the bank,” a government statement said. A source in the know said there was also an effort to seek SEBI’s exemption from an open offer.
“It is a win-win situation for both LIC and IDBI Bank,” Interim Finance Minister Piyush Goyal told a press conference after a Cabinet meeting. Goyal said with the deal, LIC will have banking network with 1916 branches of IDBI Bank, 11 lakh LIC agents will help in mobilising low-cost fund, and LIC Housing Finance, an arm of LIC, will be benefit by branch network of the bank to expand its housing finance business.
IDBI Bank will get the much needed capital, which could be in the range of ₹10,000-13,000 crore depending upon the share prices.
The next stage in this deal will be the final approval by insurance regulator IRDAI. The deal will progress further by issuance of fresh shares by IDBI Bank which will acquired by LIC. On a bigger capital base, LIC’s shareholding will go up to 51 per cent, from current 7.98 per cent. Meanwhile, on the expanded capital base, the government’s shareholding will come down from to 45 per cent, from 85.96 per cent. However, this dilution will not give any money to the government.
Public shareholding minus LIC’s holding is around 6 per cent. Since, acquisition above 25 per cent initiates the requirement of open offer, now the question is will this deal require open offer? Goyal said, “Since public shareholding (minus LIC) is very small, there may be not be requirement for open offer. Still options are being explored to seek exemption from SEBI on open offer condition.”
Hindustan Copper
Meanwhile, the Cabinet Committee on Economic Affairs (CCEA) approved fresh issuance of 13.87 crore shares by Hindustan Copper. This consists of 15 per cent of paid-up capital. The issuance will help the company mop-up over ₹900 crore through selling shares to institutional investors.
The Cabinet also approved extending Concessional Financing Scheme to support Indian companies bidding for strategically important infrastructure projects abroad.