Shares of IDBI Bank fell more than 7% Thursday after the Indian government announced a majority stake sale in the state-owned bank to Canadian firm Fairfax Financial Holdings for over 529 billion rupees ($5.5 billion).
Once the final approvals are in place, the deal will mark the largest foreign direct investment transaction in India's financial sector, India's Ministry of Finance said in a release on Wednesday.
"Due to its poor financial health, the [IDBI] Bank required repeated infusion of capital," the ministry said, adding that after a brief recovery, the government decided to sell a 60.7% stake in the bank to a "Strategic Buyer."
During the bidding process, the government arrived at an average fair value of IDBI shares at 75.99 rupees apiece. Fairfax's winning bid offered a price of 81 rupees per share, as per the government release.
Shares of IDBI had closed at 90.39 rupees on Wednesday, higher than Fairfax's winning bid. Fairfax will need to present credentials to the Indian banking regulator, the Reserve Bank of India, for a "fit and proper assessment."