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India's Insurance Life Insurance Corporation (LIC) giant will not relax from Sebi's takeover code and will have to make an open offer to stakeholders at IDBI Bank's public bank .
This will be in accordance with the standards established by Sebi, under which an acquisition of more than 25% in a listed entity qualifies as a control and requires an open offer. Shares of IDBI Bank rose 9.05% to close the BSE at Rs 53.20 on Tuesday.
"LIC will make an open offer that will be in the best interest of the minority shareholders who hold more than 8% of IDBI Bank shares.The government will not participate in the public offer," said a government official .
Under this arrangement, the acquiring corporation must make an offer to existing shareholders to purchase an additional interest in the corporation. It aims to provide shareholders with an exit option because there may be a change of direction after the acquisition and investors may perceive potential risks in the company.
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Last month, India's Insurance Regulatory and Development Authority approved the plan from LIC to buy 51 percent in IDBI Bank. At present, the government holds 80.96% of IDBI Bank, while LIC holds 10.82%. The open bid will be made to the remaining stakeholders, with 8.22 percent, according to sources.
The agreement, which would lead to a cash injection of about Rs 130 billion in IDBI Bank, will lead to a complete change of the bank brand. According to sources, the name of LIC will be tagged IDBI Bank, which will become a subsidiary of the first on the model of LIC Housing Finance, LIC Mutual Fund and LIC Pension Fund. The change of name of the bank will require the approval of the Department of Corporate Affairs
"We envisioned a scenario"
Government officials have qualified the agreement as "win-win" for LIC and IDBI Bank. the operating costs, diversify and deepen distribution, create synergies between LIC's distribution network and the bank's network, "fulfilling the objective of providing banking and insurance solutions", added the government official. will also help the bank access new funds as a result of LIC claims payment, said one official. Internationally, insurance companies have promoted banks or created a financial conglomerate either through the intermediary of a group company or a holding company, the company said. responsible. Prudential Financial (which owned Prudential Bank and Trust FSB), ING Group and MetLife are some examples.
"Banks offer bancbadurance to insurance companies, in the form of an efficient and low-cost distribution network. In the absence of the same thing, a large insurer like LIC is in a situation of significant competitive disadvantage ", explained the manager Bancbadurance is the sale of products and insurance services by institutions
Finance Minister Arun Jaitley announced that the government's stake in IDBI Bank would be reduced to less than 51 percent in his 2016 budget speech. However, the trigger for the latest initiative to allow LIC to To increase its stake and not opt for a strategic divestment came last year. "According to sources, SBI Caps, which was hired to help the government in strategic sales of IDBI Bank, had recommended such a decision because of "market conditions" last year.The government also felt that "the current valuation of IDBI Bank did not reflect its intrinsic value "and that selling the bank to a private investor may not have given the best value to the government," officials said. IDBI Bank has a market capitalization of 240 billion rupees and owns real estate and non-core badets worth approximately 70 billion rupees each.
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