ICICI Bank Ltd’s $5 billion public offering, the largest ever by an Indian firm, opens on Tuesday and comes in the background of research reports that expect the share price to rise. The bank, whose share price rose 0.25% on Friday to close at Rs908, announced a price band of Rs885-Rs950 for its Rs8,750 crore domestic offering. ICICI Bank will also launch a Rs10,100 crore American depository receipt issue.
In a report released on Friday, Emkay Share and Stock Brokers Ltd, a Mumbai-based brokerage, said the issue would raise the bank’s ability to leverage its balance sheet and ramp up return on equity. Emkay put a buy rating on the issue and raised its target price to Rs1,200.
In a report released on Thursday, Citigroup also put a buy rating on the bank and a price target of Rs1,125. However, it said that the bank’s $10 billion valuation of ICICI Holdings, the holding company for its insurance and asset management businesses, was well ahead of analyst valuations of $5-7 billion.
The company expects to unlock value in its insurance and asset management businesses by attracting strategic investors and then listing ICICI Holdings. Citi’s reservations on ICICI Holdings’s valuation were matched by a Morgan Stanley report. In a report dated 22 May, Morgan Stanley had said it expects the issue to fund the banks’ loan growth for the next four-five years and the bank may not have to come back to the market for a long time.
“Since the bank will be overcapitalized for two years, capital consumption may increase with lower profitability,” the report says. Morgan Stanley’s target for the share price was Rs840-900.
Yet another report by domestic brokerage Enam Securities, however, said that ICICI Bank’s bumper issue would “be the next big leap” but “cause near-term pain”. Enam’s report, released on 30 April, put a price target of Rs1,012 and an outperform rating on the stock.
To entice retail investors, ICICI Bank is offering a discount of Rs50 per share. It is also offering a three-step partial payment option. Investors will be required to pay Rs250 a share on application, Rs250 on allotment and the rest on a call issued by the bank within six months from the date of allotment.
Other public issues such as those of Reliance Petroleum Ltd and ICICI Bank (its earlier issue) have offered a partial payment provision, but the three-step option is new. On previous occasions, investors had to pay the full amount on allotment. “I am glad they are doing this because it will help ICICI Bank have a more diverse holding and strengthen retail shareholding,” said Rahul Rege, head of institutional equities at Brics Securities. The bank has also reserved 5% of the issue for existing retail shareholders.