Fairfax Financial Holdings considers selling IIFL Finance stake to fund IDBI Bank acquisition

Fairfax Financial Holdings is considering selling its IIFL Finance stake. This move supports its planned acquisition of IDBI Bank Ltd. The Canadian firm is in talks with private equity firms for this potential sale. This transaction is part of a larger strategy for the Indian banking sector. The company aims to consolidate its Indian lending investments after the acquisition.

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Blackstone Inc. is among global investment firms in the fray to buy a stake in mid-sized Indian shadow lender IIFL Finance Ltd., just as Fairfax Financial Holdings Ltd. looks to exit from the company, according to people familiar with the matter.

Fairfax, founded by Indian-born Canadian billionaire Prem Watsa, is weighing selling its entire holding in IIFL Finance to comply with regulatory guidelines as it inches towards acquiring IDBI Bank Ltd., said the people asking not to be named discussing private matters. The plans for IIFL Finance are preliminary and could be subject to change, they added.

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Blackstone is in talks with Fairfax and other shareholders to acquire the stake in IIFL Finance, the people said. The private equity firm’s potential involvement comes at a time when India’s financial services industry has become a target for acquisitions. Last year, the US alternative investment manager invested more than $700 million for a 9.9% stake in Federal Bank.

There was no immediate response from Fairfax and IIFL Finance to email queries sent by Bloomberg News, while Blackstone declined comment.

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Fairfax held a 15.2% stake in IIFL Finance as of June 30, according to data compiled by Bloomberg, with the Indian firm having a market value of $2.9 billion. The stock erased gains of as much as 2.4% to trade 1.2% lower in Mumbai late afternoon on Monday.

Fairfax’s move underscores how it is gearing up to acquire a 60.7% stake in IDBI Bank in a sweetened offer that Indian authorities are close to accepting, people have previously said. A successful bid for the Mumbai-based lender could be valued at $6.2 billion at current prices, potentially making it the biggest foreign investment in the country’s banking sector.

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Buyers are drawn by the growing flow of household savings into formal investments, rising credit demand and the opportunity to scale in a rapidly digitizing market, though regulations often complicate deals.

If Fairfax acquires IDBI Bank, it is expected to consolidate some of its existing Indian investments in lending firms in line with regulatory rules, according to the people. Fairfax also owns a 40% stake in small private-sector lender CSB Bank Ltd.

It would mirror an earlier transaction in which Fairfax Financial Holdings reduced its stake in ICICI Lombard General Insurance Company Ltd. to meet regulatory rules before acquiring CSB.

In May, Fairfax’s India unit agreed to raise its stake to become the majority owner in IIFL Capital Services Ltd., a capital markets and wealth management firm. Fairfax plans to bring IIFL Capital under its wholly owned subsidiary after it acquires IDBI Bank, the people said.

The Indian subsidiary recently brought ‌capital into the country ahead of Fairfax’s potential deal to acquire IDBI Bank, Reuters reported in June.