IDBI defers sale of home finance arm

May look at merger option.

IDBI Bank has put on hold plans for selling its home finance subsidiary following an advisory from the government, which is the bank’s largest shareholder. The government has also hinted at a possible merger of IDBI Home Finance with the public sector player.

Following a letter from the finance ministry, the bank has pumped around Rs 25 crore into IDBI Home Finance to comply with the National Housing Bank-mandated capital adequacy ratio of 12 per cent, sources at the public sector bank said.

Dewan Housing Finance had emerged as the highest bidder for the home finance arm with a bid of around Rs 311 crore. In August last year, IDBI Capital Markets had valued IDBI Home Finance at Rs 351 crore. The base valuation was Rs 17.91 per share, resulting in a total valuation of Rs 261 crore. After factoring in the controlling stake premium and another premium for infrastructure, the total value was estimated at Rs 351 crore.

 

In the wake of changing market conditions, another exercise was undertaken in the first week of January when the base value was estimated at Rs 17 per share, translating into a total valuation of Rs 247 crore. After factoring in the premiums, the total valuation became Rs 333 crore.

Sources close to the development said that the finance ministry had pointed out that it would be worthwhile to wait for the stock markets to improve in order to realise a better value from the sale. In addition, it had said that IDBI have an exposure to Dewan Housing Finance and special dispensation was required to push through the deal.

“The finance ministry has said that providing special facilities to go ahead with the merger was also not a good idea,” said a source at the bank.

Further, the government has said that there was no guarantee that the Dewan Housing management would not lay off some of the 200-odd employees of IDBI Home Finance. Besides, it said that there was a possibility of the company being sold off again. As a result, it advised IDBI Bank to look into the option of merging the subsidiary with itself.

While three companies – Dewan Housing, Tata Capital and Religare – submitted final bids, there were four other players – Edelweiss Capital, Kishore Biyani’s Future Group, along with private equity players New Silk Route and Carlyle India Advisors – which had proposed to bid through Repco Housing that participated in data room visits.

In late January, IDBI Bank had to call off a board meeting to decide on the sale of the home finance arm after a last-minute missive from the finance ministry asking for more in-depth evaluation of the proposals.