Mumbai: Canada’s Fairfax Financial Holdings is planning to sell its nearly 11% stake in IIFL Finance to raise funds for its proposed acquisition of a controlling interest in IDBI Bank. The proposed sale is expected to unlock around Rs 3,000 crore, or approximately $320 million, based on the current market value of the holding.

Citing two people familiar with the discussions, reported that Fairfax wants to complete the stake sale soon. The Canadian financial services group is seeking to acquire a 60.72% stake in IDBI Bank from the Government of India and Life Insurance Corporation of India (LIC).

The potential divestment comes as Fairfax prepares for one of the largest cross-border banking transactions in India. The government selected Fairfax as the strategic buyer for the IDBI Bank stake in October, with the transaction valued at Rs 52,878 crore.

The proposed IIFL Finance exit would form part of Fairfax’s broader funding strategy for the acquisition. The company is also considering other sources of capital, including cash available at its holding company, dividends from insurance businesses and the potential sale or contribution of selected investments.

Fairfax’s IIFL Finance holding and proposed sale

Fairfax first invested in IIFL Finance in 2015, when it acquired a stake of nearly 22% in the non-banking financial company. Its holding has since declined to around 11%, following the expansion of IIFL Finance’s capital base.

The remaining stake is currently estimated to be worth approximately Rs 3,000 crore, according to the Reuters report. One person familiar with the discussions said Fairfax was looking to complete the exit soon to help finance the IDBI Bank purchase.

The proposed sale is expected to take place through the secondary market. The controlling shareholders of IIFL Finance are not expected to purchase Fairfax’s holding, according to the report.

The discussions are based on information from people familiar with the matter, who spoke on condition of anonymity. Fairfax and IIFL Finance did not immediately respond to requests for comment.

The proposed transaction could also change IIFL Finance’s institutional shareholding structure. However, the final buyer, transaction price and timing of the sale have not been officially announced.

IDBI Bank acquisition is the larger objective

Fairfax’s proposed exit from IIFL Finance is linked to its plans to acquire a majority stake in IDBI Bank.

On October 14, the Government of India selected Fairfax Financial Holdings as the strategic buyer for a 60.72% stake in the lender. The government’s and LIC’s combined stake is being offered as part of the strategic disinvestment process.

The transaction has been valued at Rs 52,878 crore, equivalent to around $5.6 billion. If completed, it would represent a major expansion of Fairfax’s presence in India’s banking sector.

The proposed acquisition is subject to regulatory approvals and other customary conditions. The transaction is expected to take six to nine months to complete.

The purchase would give Fairfax control of a major Indian banking business and strengthen its existing financial services presence in the country. The group already has interests in banking, insurance, lending and investment-related businesses.

The funding requirement for the IDBI Bank transaction has therefore prompted Fairfax to consider how best to deploy its existing investments and available capital.

Blackstone’s proposed investment in IIFL Finance

Fairfax’s proposed exit comes shortly after IIFL Finance announced a major capital-raising arrangement involving US-based private equity firm Blackstone.

Under the proposed arrangement, Blackstone will acquire a 16% equity interest in IIFL Finance through convertible shares and warrants. The investment is expected to strengthen the lender’s capital base and bring a major global institutional investor into its shareholding structure.

The timing of the proposed Blackstone investment is significant because it coincides with Fairfax’s plans to sell its holding.

However, the two developments are separate transactions. The Reuters report indicated that Fairfax was considering a secondary-market sale, while Blackstone’s investment is structured through convertible shares and warrants.

The proposed investment also highlights continued interest from global private equity investors in India’s financial services sector.

For IIFL Finance, the entry of Blackstone could provide additional capital to support its lending operations and business plans. For Fairfax, the potential sale would release funds that could be redirected towards the much larger IDBI Bank acquisition.

Fairfax’s separate investment in IIFL Capital Services

Fairfax’s relationship with the IIFL group extends beyond IIFL Finance. The Canadian investor also holds a substantial interest in IIFL Capital Services, which operates in investment banking, capital markets and wealth management.

Fairfax holds around 38% in IIFL Capital Services and is seeking to increase its stake to 51% through an open offer. The offer is part of its separate investment strategy and should not be confused with the proposed sale of its IIFL Finance holding.

Fairfax’s India investment arm had increased its stake in IIFL Capital through a preferential allotment in November. The company acquired an additional 11.22% stake for Rs 2,000 crore, taking its holding to approximately 38.04%.

The additional investment reflects Fairfax’s continued interest in the capital markets and wealth management business even as it considers exiting IIFL Finance.

Fairfax has also indicated that it is looking at bringing certain investments, including IIFL Capital and its interests in insurance company Digit, into the broader structure associated with the proposed IDBI Bank acquisition.

How Fairfax plans to fund the acquisition

The proposed sale of IIFL Finance shares is one part of a wider funding plan. Fairfax is considering a combination of holding-company cash, dividends from its insurance businesses, asset sales and contributions from selected investments.

Moody’s has assessed the potential impact of the IDBI Bank acquisition on Fairfax’s financial position. The rating agency does not expect the transaction to lead to a significant increase in leverage, taking into account the funding arrangements being considered by the company.

Fairfax also maintains a policy of keeping at least $1 billion in cash and liquid investments at its holding company. Preserving this liquidity buffer is an important consideration as the group prepares for the acquisition.

The proposed IDBI Bank purchase would expand Fairfax’s exposure to India’s financial sector, but it also requires careful management of its existing investments and capital commitments.

What the proposed sale means for IIFL Finance

Fairfax’s planned exit could become an important development for IIFL Finance investors because of the size of the holding involved. A sale of nearly 11% through the market could influence the company’s shareholding pattern and attract attention from institutional investors.

At the same time, Blackstone’s proposed 16% investment provides a separate source of capital for the lender. The combination of these developments could bring changes to IIFL Finance’s investor base.

For Fairfax, the decision reflects a shift in capital allocation as it prepares to enter a much larger banking business through IDBI Bank.

The proposed stake sale remains subject to completion, and the final transaction details have not yet been disclosed. The IDBI Bank acquisition also requires the necessary approvals before it can be concluded.

If both transactions proceed as planned, Fairfax will have taken a significant step towards reshaping its Indian financial services portfolio while securing funds for its proposed acquisition of IDBI Bank.