IDBI Bank @ Rs 68 ~ Will Govt really let go?

IDBI Bank @ Rs 68 ~ Will Govt really let go?

In 1995  IDBI the DFI came out with an IPO at Rs 130.I had given it the notorious sobriquet ‘Instant Death By Investment !’ as the Pricing was way to High.The IPO was bailed out by UTI at the time in a quid quo pro really as then IDBI subscribed to Unit 64 at the high purchase price which was a scam in itself as it was 60% higher than the actual Unit 64 NAV which hovered around par of Rs 10 !

Then in 2004  IDBI the DFI merged with IDBI Bank  and in 2010 I had recommended it at Rs 130 in 2010 for several reasons.It did climb past Rs 200 the same year but then disappointed and started it’s downward slide as NPA Demons begin surfacing big time.

Last Month in the second week of February these NPA Demons caused the Share Price to drop below Rs 50

On February 29,2016 our  FM made this  specific budget phraseology for IDBI :

“The process of transformation of IDBI Bank has already started. Government will take it forward and also consider the option of reducing its stake to below 50 per cent” 

It was a no brainer for the Share Price to begin rising the same day from Rs 58 levels to cross Rs 60

It’s now moved up @ Rs 68

Here’s the Share Price Trend of IDBI Bank  from 2004 to 2016 (in Rs)

The Book Value of IDBI Bank is over Rs 110 giving the relative Valuation of  0.6….that’s of course one accepts current audited GPA levels of Rs 19615 crs ,that’s 8.94% of Advances and with a 62.92 % of Provision Coverage

Government owns 80.16% of IDBI Bank and if it is open to bring this down below 50% as proclaimed in the Budget by our FM then it begs the question ~ Will they just bring it down but yet retain Management Control or will IDBI really be up for Privatisation and therefore up for Sale ! ?

Quickly the IDBI Employees have voiced their displeasure and threatened to go on strike in the crucial last week of this month of March 2016 which closes out FY 16

Why would the IDBI Employees resist Privatisation or Government diluting it’s stake below 50!?

Seriously ask yourself this ! I reflected and immediately came up two big reasons in my view :

1. Insecurity of Jobs ~ This is understandable as Employees have huge job security under the Government ~ Bank can Hire but not Fire ~ at best Government can try VRS as they’ve been doing over the years in PSU Banks ~ Connect this with how bloated Government Enterprises really are on workforce be it the Railways or Coal India
2.  Accountability & Transparency in Operations ~ This would open a Pandora’s Box in the Bank for all the NPAs & who really is responsible in the Bank to have advanced Loans that have turned Bad.Of the over Rs 2 lakh crores advances ,the Bank reportedly has an exposure of  Rs 7000 crs  to the JaiPrakash Group,Rs 15000 crs to the Essar Group and @ Rs 925 crs to Kingfisher Airlines.In fact the ED is investigating Vijay Mallya & his Kingfisher Airlines for Siphoning off  @ Rs 300 crs Funds from the Rs 900+ crs IDBI Loan      

So will our Government be influenced by the IDBI Employees opposition & not go ahead with it’s plans to sell it’s stake in IDBI Bank to bring it below 50% ?…the Budget already shows FY 17 Disinvestment Target of Rs 36000 crs + Precise Strategic Disinvestment of Rs 20500 crs.This would  include  IDBI Bank Stake Sale planned

The Government can of course dilute their stake without selling it by Fresh Non Govt Equity Capital Funds being introduced

 Any  Stake  Sale could be through OFS on the Bourses or off it through auction.The Book Value being above Rs 110 (will get affected if losses continue on making more higher NPA Provisions) any significant stake sale cannot be below this price,especially if it truly is a Privatisation of the Bank with Change of Ownership accompanied by Change in Management too

Current Market Cap of IDBI Bank at Rs 68 is @ Rs 13000 crs of which Government’s 80.16% is worth over Rs 10400 crs .

At Book Value the Govt Stake of 152.31 cr shares of FV Rs 10 as on December 31,2015 is worth over Rs 20000 crs which is what I connect with the Strategic Disinvestment Figure of Rs 20500 crs in the FY 17 Budget Estimates.If this is true then it means two things

1. Government is selling full 80.16% stake in IDBI Bank and that would mean Privatisation and change in Ownership & Management too ~ so IDBI Bank is up for grabs !
2.  The Sale will be at at least Book Value  which Govt seems to have computed at @ Rs 135 for it’s 152.31 cr shares to provide the Strategic Disinvestment Figure of Rs 20500 crs in the FY 17 Budget

 So what’s the Risk at Rs 68 in IDBI Bank !?

I see two :

1. IDBI Bank Employees will be successful in thwarting Govt plans to reduce their stake in IDBI Bank and actually privatise it & relinquish Management
2. The Gross NPA Levels of Rs  19615 crs and 8.94% of Advances of over Rs 200000 crs is significantly understated.RBI is on top of an Asset Quality Review conducted already and may command another one soon to test the quality and recoverability  of the Advances of over Rs 200000 crs.RBI would serve India well to reassure us if it made public the findings of such Asset Quality Reviews on which basis Incremental Provisioning of NPAs and Doubtful Advances is directed to be made

To put it simply the Statutory Auditors &  RBI and the Government owes it to us Indians to reveal,as suspected by many, if there indeed  is a bigger Hole than what the Financial Statements &  Identified and declared NPA Levels & Provisioning  signal     

On the flip side if the Bank is really privatised it  would mean  Govt Stake sold  at at least Book Value and probably at a Premium ,a price which has to be offered to Minority Shareholders too, and the Operational Challenges that the Bank faces will be assumed by the New Owners

IDBI Bank is traded in F & O Segment too with a Contract Lot of 8000 shares & today NSE Close showed Calls(Bulls to Buy & Bears to Sell) & Puts (Bears to Buy & Bulls to Sell) at Strike Price of Rs 67.50 available at under Rs 4 for March 31,2016 Expiry   

So are you a Bull or a Bear or neutral in IDBI Bank or don’t know or care what I’ve just posted ?

In 1995 I had termed IDBI ,as stated at beginning of this post, as ‘Instant Death By Investment’ ~ Now with the  Govt planning Stake Dilution the  ‘D’ should mean the other extreme of Death  towards more Life & something more Positive! …and it could be as Instant as in the short term of the one year of FY 17 !

Do reflect on the two  risks though as highlighted in Red above  

Cheers !

Disclaimer : Have initiated a growing interest in IDBI Bank