With no relief from Sebi, LIC to make open offer to IDBI Bank shareholders

New Delhi, Jul 11: Insurance behemoth Life Insurance Corporation (LIC) of India will not be given any relaxation from the Securities and Exchange Board of India’s (Sebi’s) takeover code and will have to make an open offer to the stakeholders of state-owned IDBI Bank.
This will be in line with the norms set by Sebi, under which an acquisition of more than 25 per cent in a listed entity is termed as control and requires an open offer. IDBI Bank’s stocks went up 9.05 per cent to close on the BSE at Rs 53.20 on Tuesday.
“LIC will make an open offer that will be in the best interests of minority stakeholders that have over 8 per cent shares in the IDBI Bank. The government will not participate in the open offer,” a government official said.
Under this arrangement, the acquiring company must make an offer to existing shareholders to buy an additional stake in the company. It is aimed at providing the shareholders an exit option, as there may be a management change after acquisition and investors may perceive potential risks in the business.
Last month, the Insurance Regulatory and Development Authority of India approved LIC’s plan to buy 51 per cent in IDBI Bank. At present, the government owns 80.96 per cent in IDBI Bank, while LIC holds 10.82 per cent. The open offer will be made to the remaining stakeholders, with 8.22 per cent, sources said.
The deal, which would lead to a cash infusion of around Rs 130 billion in IDBI Bank, will lead to a complete rebranding of the ailing bank. According to sources, LIC’s name will be tagged to IDBI Bank, which will become a subsidiary of the former on the lines of LIC Housing Finance, LIC Mutual Fund, and LIC Pension Fund. The change in the bank’s name will require the nod of the Ministry of Corporate Affairs.
“We have envisaged a scenario where the customer services are strengthened through a dedicated bank,” said a senior government official.
Government officials have termed the deal a “win-win” for LIC and IDBI Bank. LIC will be able to reduce operating costs, diversify, and deepen distribution, create synergies between LIC’s distribution network, and the bank’s network, “fulfilling the objective of providing both insurance and banking solutions,” the government official added.
The move will also help the bank access new funds as a result of payout of LIC claims, said an official. Internationally, insurance companies have promoted banks or created a financial conglomerate either through a group company or a holding firm, the official said.