Relaxed open offer norm for PSUs to apply to IDBI Bank

Relaxed open offer norm for PSUs to apply to IDBI Bank

Market regulator Sebi is likely to extend the relaxed open offer norm now applicable to public sector undertakings (PSUs) being privatised to IDBI Bank, sources said.

If the relaxation is extended to the wining bidder of the bank, jointly owned by LIC and the government, it could acquire additional shares from the public in the open offer at the winning bid price instead of the volume-weighted average market price of last 60 days preceding the offer.

The relaxation is expected to give comfort to the potential buyer that there won’t be any cost escalation for the open offer. IDBI Bank is a private sector bank by definition as the government’s direct holding in the lender is less than 51%.

According to Sebi’s takeover regulations, the acquisition of an aggregate of 25% shares in a listed entity would trigger an open offer to acquire another 26% shares from the public. Only 5.28% is held by the public in IDBI Bank and the balance 94.72% is held by LIC and the Government of India.

Also Read: IDBI Bank buyer to get tax relief on LIC stake

On October 7, the Centre invited expression of interest (EoI) and offered to sell a total of 60.72% stake in IDBI Bank, including 30.48% held by the government directly and 30.24% by state-run LIC, along with the transfer of management control.

On September 30, the Sebi amended its takeover regulations and dispensed volume weighted average market price (VWAMP) based parameter for the determination of Open Offer price in case of divestment of PSUs resulting in change in control.

The government’s divestment process is long-drawn, getting culminated only when an acquirer is identified, which may take a year or more. So, by the time the share purchase agreement between the government and the buyer is executed, the traded price gets inflated and may lead to an overvalued open offer price requirement basis the prescribed 60 trading days’ VWAMP. This might reduce the bidders’ interest in the company.

So, the discovered price in the strategic disinvestment process is ideal for the open offer price, the official said.