Sebi permits govt to reclassify stake in IDBI Bank as public holding

In a major dispensation, capital markets regulator Securities and Exchange Board of India (Sebi) acceded to the central government’s request to reclassify its shareholding in IDBI Bank after its disinvestment as “public holding”, the lender told the stock exchanges on Thursday.

This is subject to the condition that the government’s voting rights in the bank will not exceed 15 per cent of the total voting rights after the sale. Also, the government must specify its intention to reclassify its shareholding in the bank as “public holding” in the letter of offer dispatched to the shareholders of the bank in connection with the open offer made by the acquirer.

Further, after disinvestment, the bank must make an application to the stock exchanges for reclassification of the government holding under the public category. And, the new acquirer must ensure compliance with the minimum public shareholding (MPS) requirements within one year of the sale.

At present, the government and state-owned Life Insurance Corporation hold a little over 94 per cent in IDBI Bank and are classified as its co-promoters. While the government holds 45.48 per cent stake, LIC holds around 49.24 per cent, and the remaining 5.28 per cent is public shareholding.

The central government is looking to sell nearly 61 per cent stake in IDBI Bank, and the last day to submit preliminary bids is Saturday. The successful bidder will have to make an open offer for acquiring 5.28 per cent from public shareholders.

The government is selling 30.48 per cent stake in the bank, while LIC will sell 30.24 per cent. After the sale, the government will be left with 15 per cent and LIC will have a little over 19 per cent stake in the bank.

The Centre had requested a reclassification of its residual stake in IDBI Bank after disinvestment as “public holding” because it would relinquish management control and act as an ordinary shareholder to comply with corporate governance norms.

Further, the central government also requested Sebi to treat its residual holding in the bank as purely a financial investment and accordingly reclassify is as “public” subject to the conditions that it will not exercise control over the bank’s affairs; not have any special rights with respect to the bank; and not be represented in the bank’s board of directors nor as key managerial person.

Earlier this week, the government reserved the right to exempt public sector units from the MPS norms even after a change in ownership.

However, legal experts are of the opinion that exemption provided by the government to public sector companies on MPS may not be applicable on IDBI Bank once an acquirer comes.

“Around 60 per cent of IDBI Bank is being sold. The Government’s stake will be considered ‘public’ after the divestment and the acquirer will have to not only comply with the MPS but also provide an open offer. LIC’s stake cannot be considered public and an acquirer in this transaction cannot be a governmental unit. Also, the intent of the government to seek re-classification as public will also be disclosed to shareholders,” said Sumit Agrawal, Managing Partner, Regstreet Law Advisors and former SEBI Officer.

“This approval is to give an acquirer the comfort and confidence that there will be no interference from the government in decision making or loan disbursals. However, at this stage it has not been made clear whether the government will be divesting stake or the co-promoter LIC,” said Shriram Subramanian, managing director of InGovern Research Services.

LIC could not be immediately reached for comment on this issue.

Shares of IDBI Bank closed 0.18 per cent higher at Rs 54.75 apiece on the BSE on Thursday.