Subramaniam Sharma/ Bloomberg
New Delhi: ICICI Bank Ltd and DLF Ltd’s plans to sell a combined $7 billion (Rs28,700 crore) of stock may herald a revival in fund raisings by Indian companies after equity issuance more than halved from last year’s record high.
DLF, a New Delhi-based real-estate developer, received regulatory approval this week to sell at least $2.1 billion worth of shares. ICICI Bank, India’s largest by market value, is raising $5 billion in the country and overseas, the biggest such sale.
Stock sales in India have lagged as the benchmark sensitive index trails 10 Asian markets’ climb to all-time highs. The pace may pick up this year as more banks choose equity to fund a $12 billion capital shortfall and the country expects to invest around $50 billion in ports, roads and bridges .
Equity route: ICICI Bank chiefexecutive K.V. Kamath.
“The world is awash in capital and I see no reason why both deals cannot be financed,” Daniel Loeb, chief executive officer at New York-based hedge fund Third Point LLC, said in an emailed response to questions.
Companies in India raised $2.7 billion from selling shares so far this year against $6.04 billion in the year-earlier period, according to data compiled by Bloomberg. Worldwide equity sales climbed 3.5% to $155 billion in the first quarter from a year ago, the data showed.
The offers by DLF and ICICI Bank will return Merrill Lynch & Co. to the top slot among arrangers of share sales in India. The New York-based investment bank last year helped Reliance Petroleum and oil explorer Cairn India Ltd raise funds from the equity market.
Uday Kotak’s Kotak Mahindra Capital Co. will also manage DLF’s sale. Citigroup Inc., ICICI Securities Ltd, Lehman Brothers Securities Ltd, UBS AG, Deutsche Equities India Pvt. Ltd and SBI Capital Markets Ltd will also help manage the issue.
Goldman Sachs, ranked 10th in India last year, may rise to second this year by helping arrange ICICI Bank’s record stock sale. Mumbai-based ICICI Bank plans to hire Goldman and Merrill along with Indian banks, people close to the development had said on 4 May.
DLF plans to sell 175 million new shares at a minimum of Rs500 a piece, in line with a Securities & Exchange Board of India (Sebi) circular dated 28 May 2004. The regulator has made it mandatory to fix the issue price at Rs500 or more if the face value per share is lower than Rs10. In May 2006, DLF had split each of its Rs10 share into five scrips of Rs2 a piece.
The stock sale by DLF, controlled by billionaire Kushal Pal Singh, would eclipse Oil & Natural Gas Corp.’s 2004 sale as the biggest by an Indian company. DLF had to scrap plans in August for a public offering of as many as 219 million new and existing shares because of shareholder disputes and valuation concerns. In its revised documents submitted to Sebi in January, the Singh family didn’t offer to sell any stock and the company reduced the number of new shares.
“DLF management is well-regarded and their land bank is well-situated, but the last go-around, the promoters were overly greedy in assuming that dumb Western money would flow in at any price,” said Third Point’s Loeb.
Shares of ICICI Bank have declined 4.6% this year, more than a 0.1% fall in the benchmark Sensex of the Bombay Stock Exchange.
Shares of Unitech Ltd, the biggest real-estate company by market value, have gained only 1% this year after soaring 2,895% in 2006.
IPO-bound: DLF Ltd chairman Kushal Pal Singh.
Mortgage rates in the world’s second-most populous nation have risen by about 2.25 percentage points in the past seven months, according to data from Housing Development Finance Corp., the country’s biggest mortgage lender. The “current boom may be cresting” in India’s real-estate industry, commercial property consulting firm DTZ Holdings Plc. said in a study this week.
“It is a big sum. Issues getting bunched up is more of a worry, the size is not a problem,” said Jayesh Shroff, who helps manage the equivalent of $4 billion in assets at SBI Funds Management Ltd in Mumbai.
“Considering the environment is not absolutely conducive for both banking and real estate, both will have to be finely priced,” he added.
ICICI Bank’s chief executive K.V. Kamath needs funds to help support $500 billion of investments in infrastructure and manufacturing to drive the world’s second-fastest pace of economic growth. The bank needs more capital to sustain an estimated 25% annual growth in lending over three years, helping narrow the gap with peers in China.
“We are shareholders and believe ICICI’s shares offer excellent value and good way to ride the secular growth wave of India’s financial and consumer economies,” said Loeb.
Indian banks will need Rs50,000 crore this year to bolster capital as lending rises, India’s banking secretary Vinod Rai had 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 its capital by Rs10,000 crore.
The Prime Minister had, in October 2006, 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.