IDBI Bank looks to exit early from NSE

IPO delay may force lender to sell its 1.5% stake, valued at Rs 700 crore, privately

Peeved by the long delay in the initial public offering (IPO) of the National Stock Exchange (NSE), state-owned lender IDBI Bank is looking to offload its stake in the country’s largest stock exchange through private deals.

Mounting bad loans, tepid business growth and erosion of core capital have forced the state-owned lender to liquidate its non-core assets — such as the NSE stake — to raise resources. 

IDBI Bank was looking to sell its entire stake in the NSE’s IPO, which was initially supposed to hit the market before the end of 2017. But, regulatory overhang created by the co-location (colo) controversy has created uncertainty over the timing of the IPO, forcing IDBI Bank to monetise the stake on its own, said three people with the knowledge of the development. The lender holds 1.5 per cent stake in NSE which, valued at around Rs 700 crore.

“IDBI Bank is in dire need of capital. Like in the past, we might offload the residual stake in NSE through a private deal. We might soon float a request for proposal or sell it directly if we are getting a good price,” said a source with IDBI Bank.

“NSE has not received any communication from IDBI Bank on this matter,” the exchange’s spokesperson said. 

According to the offer document filed by the NSE with markets regulator Securities and Exchange Board of India (Sebi) in December 2016, IDBI Bank is the largest domestic and seventh largest overall “selling shareholder” in the proposed IPO, likely to be worth more than Rs 10,000 crore. 
 

 

NSE's IPO is unlikely before the market regulator finishes the 'unfair access' probe against the NSE. In July, the NSE filed a consent application with Sebi to settle the dispute. Under the consent mechanism, the exchange may agree for a penal action without admitting or denying any guilt.

On several occasions in the past, Sebi has clarified that the NSE IPO can only happen once the long-pending colo matter is settled. The regulator recently appointed forensic auditors to ascertain if any of the entities involved, particularly brokers, made any unlawful gains by getting preferred access to NSE’s colo facility. 

A total of 27 shareholders have plans to sell 111.4 million shares (22.5 per cent stake) in the IPO. Among the largest selling shareholders are private equity funds Tiger Global, Aranda Investments and SAIF Partners.

Sources said other shareholders, too, are getting anxious due to the delay. “There is a little bit of restlessness but they understand that these are factors that our not really in our control. It doesn't in any manner dilute our intention to list,” a senior NSE official had told Business Standard recently.

Investment bankers said if there is any change to the capital structure at the NSE due to a stake sale by IDBI Bank or any other shareholder, it will have to update the details in the offer document. “The offer document will anyways have to be updated with latest financial and other important changes such as new CEO appointment,” said a banker.

The erstwhile Industrial Development Bank of India (IDBI), which merged with IDBI Bank in 2005, is among the founding shareholders in the NSE. Over the years, it has been monetising its stake in the country’s largest exchange. It last sold two per cent stake in the NSE to Life Insurance Corporation in the March 2017 quarter. Besides the NSE, IDBI Bank is also offloading its holding in SIDBI, a lender to small businesses, and Clearing Corporation of India, a clearing and settlement agency.

In the recently concluded June quarter, IDBI Bank's asset quality had worsened with gross bad loans climbing to Rs 50,173 crore, or 24 per cent of the loan book.