IDBI FEDERAL LIFE IN TALKS FOR 100% STAKE SALE
IDBI Federal Life Insurance, a three-way joint venture between IDBI Bank, Federal Bank and Belgian insurer Ageas, is exploring the possibility of a 100% stake sale, which would potentially lead to a complete exit for all three stakeholders, two people directly aware of the matter said.
IDBI Federal has initiated the process of hiring investment banks to manage the sale and received proposals from Citibank and Credit Suisse, the people cited above said on condition of anonymity.
“The company is seeking a valuation upwards of ₹3,000 crore, including a control premium,” said the first person mentioned above.
“Given that IDBI Federal has Bancassurance partners in IDBI Bank and Federal Bank, the sale is expected to attract significant buyer interest given the large captive customer base the company has,” the second person said, adding that the company expects bids from all the major domestic insurers, especially those not promoted by banks.
An IDBI Federal spokesperson declined to comment. Emails sent to IDBI Bank and Federal Bank were not answered till press time. Citibank declined to comment and an email sent to Credit Suisse also remained unanswered till press time.
An Ageas spokesperson responded saying, “we do not comment on market rumours.We are however in continuous dialogue with our partners about the development of our JVs”.
In June, IDBI Bank, which owns 48% in the joint venture, said it would sell ₹5,000 crore of non-core assets this fiscal to reinforce capital.
For telecom firms squeezed by falling margins and rising debt, there is light at the end of the tunnel.
As part of a relief package, the finance ministry is considering relaxing some of their payment obligations, on the logic that a robust sector is good for government finances as well.
According to a government official who spoke on condition of anonymity, if the industry is in bad shape, the government will anyway not get its dues; whereas if relief measures place telcos on a stronger footing, their interest in future spectrum auctions will go up.
Telcos start paying for spectrum two years after an auction, and pay over eight years, along with interest. Companies have been seeking an increase to 16 years, and a shift to marginal cost of funds-based lending rate (MCLR) on interest payments. MCLR is a system of interest rate computation introduced by the Reserve Bank of India (RBI) from April 2016 to reflect the latest cost of funds.
The government is in favour of both demands, the official cited above said. Other contours of the relief package are yet to be finalized, he added. The finance ministry has done an assessment and arrived at the conclusion that re-scheduling spectrum payment dues and interest will not hurt exchequer, and could actually fetch more by way of non-tax revenue in future, the official said. “Industry is part of the government’s clientele. If a sector is showing signs of stress, we cannot look the other way,” he added.
The finance ministry’s inclination to offer telcos some relief comes in the wake of the tepid response to the last round of spectrum auctions in October, in which some of the bands received no bids. The government collected 20% less than its targeted non-tax revenue from the sector in 2016-17 at ₹78,715 crore. For 2017-18, the ministry has conservatively estimated its receipts from the sector at ₹44,342 crore.
Besides, easier payment options found favour with the government as it does not want the problem of bad debt to the tune of ₹9.6 lakh crore in the economy to worsen on account of the telecom sector.
Concerns over loans to telcos have been rising for a while. On 18 April, RBI advised banks to set aside higher provisions for good loans in stressed sectors, specifically telecom. On June 2, The Times of India reported State Bank of India has written to the telecom secretary pointing out the “highly unsustainable levels” of debt in the sector.
According to an industry executive who spoke on condition of anonymity, re-scheduling spectrum payments and changing interest computation will give the industry a benefit of around ₹75,000 crore in cash flow over the revised payment period of 18 years.
The government official quoted above said since only a part of the deferred payment is accounted for in the annual nontax revenue estimate, it will not hurt the exchequer.
Telcos are loaded with debt— around ₹4.85 lakh crore at the end of December—and owe close to ₹3 lakh crore in spectrum payment charges, according to industry estimates.