Mumbai: Shares of ICICI Bank Ltd, India’s most valuable lender, had their biggest drop in three years on concern that a planned Rs20,900 crore ($4.9 billion) stock sale will cut returns for investors as profit growth slows.
ICICI slumped by as much as 9.6% on the Bombay Stock Exchange on Monday. The bank said Friday that it will sell the equivalent of 20% of its equity locally and overseas in June, the biggest such sale by an Indian company. The Mumbai-based bank also reported fourth-quarter profit that missed analysts’ estimates.
Chief executive officer K.V. Kamath said ICICI needs more capital to sustain an estimated 25% annual growth in lending over three years, helping narrow the gap with peers in China. Industrial and Commercial Bank of China Ltd is worth more than three times the capitalization of India’s 16-stock Bankex index, six months after it completed the world’s biggest initial public offer.
“We believe in India’s growth,” Kamath said. “If you look at China in context, the size of their banks and the size they have grown over the last few years, we need to take this kind of a step change to meet the opportunity.”
ICICI’s announcement of a Rs8,000 crore stock sale in 2005 contributed to the biggest fall in its shares in 16 months. The bank’s shares have since rallied more than 77%, valuing ICICI at about $19 billion.
Planning ahead: ICICI CEO K.V. Kamath said the bank needs more capital to sustain 25% annual growth in lending over three years
“It may dilute the earnings per share in the short run and one could see some short-term negative performance on the stock from the weight of the fresh issuance,” said Rajiv Anand, who manages $3 billion at Standard Chartered Mutual Fund in Mumbai and owns shares in ICICI. Still, “it’s a clear indication of the growth that ICICI can see for India.”
ICICI’s shares fell as much as Rs89.55 to Rs844.1 on the Bombay Stock Exchange, the biggest one-day decline in percentage terms since falling 9.9% on 17 May 2004. The shares traded at Rs865.25 at the 3.30pm closing, down 7.3%, compared with a 0.3% fall in the sensitive index.
“Investors will be concerned about the new paper supply coming into the market,” said Parameswara Krishnan, who manages $150 million at DnB NOR Asset Management in Chennai, India. “Markets are already finding it difficult to sustain gains, and new supply at this point is a concern.”
Indian banks will need Rs50,000 crore this year to bolster capital as lending rises, India’s banking secretary Vinod Rai said on 19 April in New Delhi. State Bank of India, the country’s largest lender, plans to sell shares this year to help bolster capital by Rs10,000 crore.
Prime Minister Manmohan Singh in October doubled his estimate for spending on roads, airports and ports to $320 billion by 2012 to support growth in an economy that expanded an estimated 9.2% in the year ended 31 March. The Sensex doubled in the past two years, driven by record profits in companies such as Reliance Industries Ltd.
“Over the next three years, we will likely see a doubling of infrastructure and manufacturing capacity in the country,” Kamath said in an interview in Mumbai. “There is an investment pipeline that runs into half a trillion dollars” in infrastructure and manufacturing.
ICICI’s proposal rivals that of Tata Steel Ltd, the world’s sixth-largest maker of the metal, which had said on 18 April that it would sell $2.4 billion of shares in India and overseas to fund its purchase of Corus Group Plc.
Companies in India borrowed about 28% more in the year ended 31 March. ICICI’s loans increased 34% that year, after surging 60% the previous year.
Bank lending grew more than an average 35% in the year ended March 2006 and a year earlier, according to central bank data. The Reserve Bank of India last week told banks to maintain loan growth of about 25% in the year to 31 March.
“Assuming a systemic growth of 25%, this capital should be good for the next three years,” Kamath said. “We have to prepare ourselves for market opportunities and, given the economic environment in the country and prospects for the country, we thought it appropriate to raise capital and shore ourselves up for the opportunities going ahead.”
ICICI reported profit rose 4.4% to Rs825 crore in the three months ended 31 March. That’s less than the Rs927 crore median estimate of five analysts surveyed by Bloomberg. Revenue increased 29% to Rs5,180 crore.
The 50-year-old ICICI received bids for seven times the stock offered at its December 2005 share sale to local and international investors, including 40 overseas funds. The bank sold shares at Rs525 apiece in the sale, arranged by Merrill Lynch & Co., Morgan Stanley and Nomura International (Hong Kong) Ltd.
Industrial and Commercial Bank of China boosted the size of the world’s biggest initial public offering to $22 billion after increasing its share sale 15% last year.
Chinese banks have raised about $60 billion in stock offerings in the past two years as the fastest economic growth in a decade drove demand for financial stocks.
That compares with only $890 million raised at home by India’s state-run lenders, including Bank of Baroda, Union Bank of India, Andhra Bank and Indian Bank over the past two years.
“If one looks at it from the perspective of the Chinese banks, and on a global perspective, a $5 billion sale is not very big,” said Anand. “It should get taken quite comfortably.” Anand said he may buy ICICI shares.