Kotak vs Watsa: The battle for acquiring IDBI Bank intensifies

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It’s a two-horse race for IDBI Bank between Kotak Mahindra Bank and Prem Watsa-led Fairfax India Holdings, with both parties willing to pay a premium for a controlling stake. However, neither of them wants to merge IDBI Bank with their respective banks at this point.

“A reasonable share of the government holding may remain in IDBI Bank for at least 2-3 years after the sale,” said a source explaining why the two bidders wanted to keep their existing banking entities independent of IDBI Bank.

However, high-ranking sources say both interested investors are willing to pay the premium the government expects to acquire a majority stake in the bank.

At around Rs 57,000 crore market capitalization, IDBI Bank is trading at 1.3 x 12 month graded written valuation.

on June 5, 2022 line of work was Reported on Prem Watsa showing interest in IDBI Bank, while on February 5 of this year we reported Kotak’s interest in the bank. Sumitomo Mitsui Financial Group and Emirates NBD are said to be the other sponsors.

Seek exemptions

Kotak proposed a structure under which IDBI Bank would be held as its partner, with none of Kotak’s key executives playing any role previously.

“There will be no overlap between the boards of directors of IDBI Bank and Kotak Bank,” said a person familiar with the matter. Once the government stake in IDBI Bank is reduced, it can be merged with Kotak Bank. “A path of 3-5 years has been pursued for the merger,” the source said.

Fairfax approached the Reserve Bank of India (RBI) not to consider it a promoter of IDBI. Another senior executive, who did not wish to be identified, said: “Fairfax wants to be seen as a significant investor in the bank because it does not want to give up control of CSB or to merge the two banks in the near term.”

The sources said, “Fairfax may provide comfort to the Indian government and Life Insurance Corporation of India (LIC) that IDBI Bank will remain the bancassurance partner for all of its existing lines of business with these entities.”

Emails to Kotak Mahindra Bank and Fairfax remained unanswered at the time of publication.

tough call

The exemptions Kotak and Fairfax are seeking are inconsistent with current regulations. The applicable property rules do not allow the investor to hold two banks as promoters.

Fairfax is the promoter of CSB Bank with a 49.72 per cent stake. Similarly, no bank can invest in another bank, although there was an exception in March 2020 when the State Bank of India invested a 49 percent stake in YES Bank.

Filter tracking

  • DIPAM opened an expression of interest in IDBI Bank on October 7, 2022.

  • On January 7, 2023, she announced that she had received multiple interests.

  • Presently, LIC and the government hold 49.24 percent stake and 45.48 percent stake in the bank.

  • Sell ​​LIC was announced to hold 19.24 percent and Govt at 15.48 percent.

  • The data room for due diligence is likely to open in June.

  • DIPAM may request financial bids by September.