IDBI Bank to raise Rs 11,000 cr through QIP; six merchant bankers appointed

Six merchant bankers appointed; LIC may abstain, but committed to retaining stake at 51% for the next two years

IDBI Bank has appointed six investment banks in the run-up to its mega fundraising exercise in November.

Sized at Rs 11,000 crore, the qualified institutional placement (QIP) will be the bank’s maiden equity raise exercise in over five years, and the first since it came under Life Insurance Corporation of India’s (LIC’s) fold in 2018.

ICICI Securities, Axis Capital, SBI Capital Markets, IIFL Securities, Credit Suisse and IDBI Capital Markets have been enlisted to manage the QIP.

IDBI Bank’s shareholders approved of the QIP on July 15. The QIP could hit the market within weeks of the bank declaring its September quarter results — likely to be published in October.

“We are in the initial stages of reaching out to investors. Responses have been reasonable, especially from domestic institutional investors,” said a banker aware of the development.

It is anticipated that this round may attract maximum interest from domestic investors. Overseas pension funds and sovereign wealth funds that were approached by bankers have reverted saying they would have been more forthcoming in case of a preferential equity issue, which would have allowed better flexibility in terms of pricing and stake to be acquired, said people in the know.

As for LIC’s participation, it is gathered that the country’s largest life insurer may give it a miss. With 51 per cent stake in the bank, LIC’s stake may see a dilution because of the issuance.

An email sent to LIC did not receive any response.

However, in an interview to Business Standard last week, LIC Chairman M R Kumar had said: “It is not possible, at this stage, for LIC to commit to a definite timeframe and at what point the market would be conducive for reduction of stake by LIC, especially in the current Covid crisis.”

Kumar was responding to a question on whether the life insurer was looking to pare its stake in IDBI Bank in the near term.

However, people privy to the development said this should not be viewed as an indication of LIC’s plan to reduce its stake in the bank. “We have a firm commitment from LIC that they will retain their stake at 51 per cent for the next two years. Whenever the bank makes a preferential issue, LIC will participate in it to get its stake back to 51 per cent,” said a senior banker with knowledge of the matter.

LIC’s shareholding in IDBI Bank is seen to be crucial, given its support to the lender’s ratings.

IDBI Bank recorded a net profit for two consecutive quarters — Rs 135 crore in March 2020 and Rs 144 crore in June 2020 — marking a steady comeback to the green close to five years after the asset quality review was implemented (in December 2015).

In February, the lender had made an application to exit the prompt corrective action or PCA framework of the Reserve Bank of India. 

The central bank’s decision on this matter is pending.