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The successful bidder of IDBI Bank’s strategic restructuring, Canada Inc (parent entity Fairfax Financial Holdings Ltd) will not get ‘right of first refusal’ (ROFR) in any future sale of residual stake of Government or LIC, a top government official told businessline.

“There is no provision for ROFR in the share purchase agreement,” the official said.  The right of first refusal is a contractual right that gives an individual or entity the right to match an offer to sell before the asset is sold. This means that if the owner receives an offer from a third party, the holder of the ROFR has the right to match the offer before the transaction can be completed.

On Wednesday, the Cabinet Committee on Economic Affairs (CCEA) approved Canada Inc as the strategic buyer for this transaction for a purchase consideration of over ₹52,878 crore for the acquisition of 60.72 per cent stake in the IDBI Bank Ltd. Accordingly, government will sell 30.48 per cent and LIC will sell 30.24 per cent of its equity shareholding. Post the completion of the deal, the government will have a residual stake of 15 per cent, while LIC to have 19 per cent, though LIC needs to dilute 4 per cent of residual within two years.

Also, the CCEA has delegated powers to alternative mechanism to undertake minority stake sales of the government for residual shareholding through the open market in accordance with the standard operating procedure. The LIC will be free to manage its residual shareholding in accordance with its internal procedures while ensuring compliance with the directions of its regulators.

However, the question of ROFR arose as this is only one out of 13 strategic disinvestments completed between 2014 and 2026, in which government will continue to have direct equity shareholding in an entity, where majority holding along with management control to a private party. When asked about provision of ROFR in some of the strategic disinvestment processes completed between 1999 and 2004, the official reminded that those cases and IDBI Bank are not the same considering the nature of businesses.

At the same time, a Supreme Court ruling in the matter of Hindustan Zinc also provided a strong ground not to include ROFR in share purchase agreement of IDBI Bank.  In the matter between National Confederation of Officers Association of Central Public Sector Enterprises Versus Union of India, the top court on November 18, 2021, allowed the Centre to disinvest its residual stake in Hindustan Zinc in the open market as it ceased to remain a government company. This will ensure that the best price is realised for the sale of the shareholding. Now, the government hopes the same for IDBI Bank, in case it monetise its residual stake in future.

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