| The right card
Mumbai, May 19: The board of IDBI Bank has decided to offer one share for every two shares held at Rs 22, in a rights issue that will put its parent firmly in the saddle.
The price is lower than Rs 25.45, the going rate of the share on the Bombay Stock Exchange. The offer, then, is being made at a discount of 13.55 per cent to the market price. The pricing takes advantage of the market sentiment, currently in favour of shares of banks.
Analysts say the issue ends speculation the bank will find a strategic partner through private placement of shares, unless IDBI, the parent, decides to renounce the rights. The chances of that happening are bleak now.
IDBI owns 57.11 per cent of the equity while Sidbi controls 14.28 per cent. Promoter shareholding in Indian banks is capped at 49 per cent, but there is a buzz that the Reserve Bank will allow Indian promoters to raise their stake up to 74 per cent, in line with softer FDI rules. How retail investors, confronted by uncertainty over the merger of IDBI with IDBI Bank, lap up the rights issue will determine the fate of the merger.
Bank managing director and CEO Gunit Chadha has been one of the loudest voices calling for a strategic partner and a cut in IDBI’s stake. The fledgling bank is needed to facilitate the transformation of IDBI into the kind of universal bank envisaged in a blueprint drawn by the institution. “It is similar to what happened between ICICI and ICICI Bank, when the parent opted for a reverse merger,” analysts tracking the industry said.
The issue of independence has been at the heart of disagreements between senior officials of IDBI Bank and IDBI in recent months. Chadha has been unsuccessfully trying to lure Bank Muscat and recently J P Morgan into buying a large slice of the bank’s equity through a private placement. Venture capital funds like Chrysalis Capital, WI Carr and New Bridge Capital, besides other overseas investors, were also in talks to pick up 26 per cent in the bank.
However, parent IDBI was not willing to give a guarantee to prospective investors on signing a no-merger pact. This caused a lot of resentment in the bank, and there have been rumours that a miffed Chadha would not seek an extension when his term ends in August. He took over the reins on August 22, 2000, after a 16-year stint with Citicorp in New York and India
A wave of changes swept the bank and brought it closer to parent IDBI once Maya Shankar Verma signed off as the chairman after four years, on March 11. The government had referred the IDBI (Transfer of Undertaking and Repeal) Bill, 2002 — which seeks to corporatise the financial institution and transform it into a bank — to the committee in December 2002.