India’s IDBI Bank falls 7% as government announces $5.5 billion stake sale to Canada's Fairfax
The Indian government has been divesting its stake in several state-owned companies this year as it tries to keep its growth engine running amid deepening fiscal pressures.
Key points
- IDBI Bank shares dropped over 7% after India announced a $5.5 billion majority stake sale to Fairfax.
- The government will sell a 60.7% stake to Fairfax at 81 rupees per share, above the 75.99 rupee fair value.
- The deal, pending approvals, would be India's largest foreign direct investment in the financial sector.
Shares of IDBI Bank fell more than 7% on Thursday after the Indian government announced it would sell a majority stake in the state-owned bank to Canada's Fairfax Financial Holdings for over 529 billion rupees ($5.5 billion).
India's Ministry of Finance said in a release on Wednesday that the deal would become the largest foreign direct investment transaction in India's financial sector once final approvals are granted.
Details of the stake sale
The government will sell a 60.7% stake in IDBI Bank to a "Strategic Buyer," the ministry said. During the bidding process, the government set an average fair value of IDBI shares at 75.99 rupees apiece, while Fairfax's winning bid offered 81 rupees per share.
IDBI shares had closed at 90.39 rupees on Wednesday, above Fairfax's bid. Fairfax will need to present credentials to the Reserve Bank of India for a "fit and proper assessment."
Having supported the bank's recovery, we are now enabling its next phase of growth through the infusion of Foreign Direct Investment while retaining a minority stake.
— Nirmala Sitharaman
What officials said
The ministry said IDBI Bank required repeated capital infusions due to its poor financial health, and after a brief recovery the government decided to sell the majority stake.
Finance Minister Nirmala Sitharaman said in a post on X that the government was enabling the bank's next phase of growth through foreign direct investment while retaining a minority stake. She added that Fairfax's investment reinforced that "India's growth story is strong, its economy is resilient, and the government's commitment to reform is unwavering."
Divestment push continues
The Indian government has sold shares in several companies this year, including Cochin Shipyard, Indian Railways Finance Corp, NHPC, and Coal India. In August, it raised $3.3 billion by selling a 6.5% stake in Life Insurance Corporation of India.
The government has been divesting stakes in state-owned companies as it seeks to sustain growth amid deepening fiscal pressures.
