India’s Cabinet Committee on Economic Affairs approved 10955230 Canada Inc., wholly owned by Fairfax Financial Holdings Limited, to buy a 60.72% stake in IDBI Bank Limited for about $5.6 billion, advancing privatization of the lender.
The Finance Ministry said the purchase consideration is 52,878 crore rupees. The government is selling 30.48% and Life Insurance Corporation of India (LIC) is selling 30.24%; after the sale, they would retain 15% and 19%, respectively. The government and LIC would receive proceeds in proportion to the stakes they sell.
Fairfax’s bid was 81 rupees per share. The company said that price was about 23% above IDBI Bank’s book value as of June 30. The government says the bank previously needed repeated capital infusions from the government and later LIC. The Reserve Bank of India (RBI) placed the bank under its Prompt Corrective Action Framework in 2017 and lifted the restrictions in 2021, subject to conditions and continued monitoring. The government says private ownership is intended to reduce the bank’s reliance on public support.
Fairfax reported $2.3 billion in holding-company cash and marketable securities at June 30, along with an undrawn $2.0 billion revolving credit facility. Its second-quarter results also listed $2.3 billion in other holding-company investments at fair value. Fairfax said it expects to fund the purchase with cash or existing credit sources, and could also sell assets.
Press Trust of India (PTI) reported Oct. 19 that Moody’s Ratings expects the acquisition to have a limited effect on Fairfax’s leverage. PTI said Moody’s put leverage at about 34% as of June 30, or 27% excluding non-recourse debt at non-insurance businesses. PTI also reported that Moody’s expects Fairfax to retain at least $1 billion in holding-company cash and liquid investments after the transaction.
Fairfax Financial Holdings Limited proposes contributing its interests in Go Digit Life Insurance Limited and Go Digit General Insurance Limited to IDBI Bank. Fairfax India Holdings Corporation separately proposes contributing its interest in IIFL Capital Services Limited. Fairfax said the contributions would be at market prices and subject to approvals, and that the bank purchase could proceed without either or both of them.
No final binding agreement had been signed as of Oct. 14, Fairfax said. The Finance Ministry says the approved buyer’s next step is an RBI credential review and a plan explaining how it will meet regulatory conditions; the ministry gave no timetable.
