Life Insurance Corporation of India (LIC) is unlikely to offer any premium for shares of IDBI Bank, say sources.
The bank's board of directors will seek shareholder approval for preferential allotment of a 14.9 per cent equity stake to LIC.
The insurance behemoth is also expected to approach the Securities and Exchange Board of India (Sebi) and seek an exemption from making an open offer to minority shareholders after the said allotment. Both matters will be taken up by the insurer at its September 4 board meeting.
Sources say LIC is in the final stage of price discovery, in line with the Sebi formula which considers 26 weeks' weighted average market price. LIC expects the deal to be closed in the next two months.
"Shares of IDBI Bank have gained close to 25 per cent since the deal was announced, thanks to the excessive speculative trading on hope of a turnaround with a stronger promoter. The intention behind this acquisition is to revive the ailing lender. Hence, the question of paying a premium over market prices doesn't arise," said an official in the know.
By Sebi's takeover norms, an open offer is mandatory when an entity acquires 25 per cent or more in a listed company. The acquiring entity has to make an offer to buy an additional 26 per cent stake in the company from public shareholders.
In August, the Union Cabinet had approved LIC's proposed acquisition of up to 51 per cent stake in the ailing bank. The deal would cost LIC around Rs 110 billion (additional 43 per cent) for it to get majority stake. At present, LIC holds 7.98 per cent in IDBI.
"The lender received in-principle approval for subscription of the equity shares on a preferential basis, subject to their total exposure not exceeding 14.9 per cent of the post-issue capital of IDBI Bank at any point of time," IDBI informed the stock exchanges on Tuesday.
The bank's board of directors meets this Friday and will consider the proposal for seeking shareholder approval through a postal ballot for the preferential issue, it added.
Sources said the stake sale would take care of the immediate need of IDBI, helping it to meet capital adequacy norms at the end of the financial year's second quarter.
As many as 3.04 million shares of the bank were traded on the bourses on Tuesday.