The Delhi High Court has directed the Securities and Exchange Board of India (SEBI) to take on board a minority shareholder’s petition that the Life Insurance Corporation of India (LIC) should be requested to offer a price of ₹76.77 per share, instead of ₹61.73, to acquire IDBI Bank’s shares. The court has asked the regulator to refer the plea as a complaint and take appropriate action.
According to the order, which was passed by the Court on November 2, the market regulator is needed to take action within two weeks. LIC will make an open offer for acquiring 2,04,15,12,929 fully paid-up equity shares of face value of ₹10 each, representing 26 percent of the fully diluted voting equity share capital of IDBI Bank, from the bank’s shareholders. This offer, at a price of ₹61.73 per share, is in connection with the life insurance behemoth’s plan to take a 51 percent controlling stake in the bank.
At ₹61.73 apiece, LIC will pay ₹12,602 crore to mop up 204 crore equity shares of IDBI Bank, which was placed under the so-called prompt corrective action framework by the RBI in May 2017, in point of the high non-performing assets and negative return on assets. However, if SEBI sees merit in petitioner Satish Gogia’s contention, the life insurer will have to shell out ₹3,071 crore more to buy the bank’s shares. Gogia filed a petition praying that LIC be directed to offer a price of ₹76.77 per share as computed on July 18/August 8, 2018; according to him, those are the dates on which the life insurer had agreed to needs further shares in IDBI Bank.
Market experts have expressed related that LIC is putting policyholders’ money on the line by seeking to acquire a majority stake in IDBI Bank. The government-owned bank is grappling with a big pile of bad loans, which stood at about 31 percent of gross advances as of June-end 2018, and has posted big losses in the last three financial years beginning FY2016. They alleged that the RBI and the insurance regulator will need to tackle issues arising from a possible breach of prudential exposure limits due to the joint exposure of LIC and IDBI in several sectors and industries. As of September-end 2018, the government and LIC owned 85.96 percent stake and 7.98 percent stake, respectively, in IDBI Bank.
Justice Vibhu Bakhru, in his order, said: “The petitioner’s contention is that LIC and IDBI Bank have violated the provisions of SEBI’s Substantial Acquisition of Shares and Takeover Regulations, 2011, thereby benefiting LIC. Admittedly, the petitioner has an alternative remedy of filing a complaint before SEBI.” The order further alleged: “The learned counsel for SEBI states that the complaint if any, made by the petitioner would be examined and the necessary decision would be taken. In view of this statement, no further orders are required to be passed in this petition, except to direct that SEBI treat the current petition as a complaint and take an appropriate decision within a period of two weeks from today.”