Most of the brokerages are bullish on the ICICI Bank Ltd’s $5 billion (over Rs20,000 crore) equity issue that will hit the domestic and overseas markets simultaneously on 19 June.
The largest ever equity issue by any Indian firm will generate funds to grow the bank’s rural and international businesses, in addition to meeting the growing demand from Indian corporations, analysts said.
“ICICI’s trajectory is a replica of India’s growth story,” said Krishna Kumar Karwa, managing director of Emkay Share and Stock Brokers, a Mumbai-based brokerage. Emkay has put a ‘buy’ on the Bank, which is India’s largest in terms of market capitalization, and will also recommend the public offering to its investors, Karwa said.
ICICI Bank’s shares fell 0.8%, to close at Rs905.75 on the Bombay Stock Exchange after Thursday’s announcement of the public issue, while the benchmark index Sensex rose by 1.43% to close at 14,203.72. India Bulls, another Mumbai-based brokerage, said that while the equity dilution could result in reduced return on equity and earnings per share growth over the shorter term, the stock has long-term growth opportunities.
The issue will include Rs8,750 crore domestic offering apart from a Rs10,100 crore worth of American depository receipt (ADR) issue. The domestic issue includes a greenshoe option of Rs1,312.50 crore. This essentially means that depending on the demand for shares the bank will allot additional equity. ICICI Bank has appointed DSP Merrill Lynch, an investment banker, to operate a price stabilization mechanism after the listing of the stock. The price band for the issue will be announced on Monday, said Vishakha Mulye, ICICI’s chief financial officer. She said the bank will offer up to a 5% discount for retail investors.
It will also offer a partial payment option and reserve 5% of the issue for its existing shareholders.
The bank, which has posted a compounded annual growth rate of 25% in profit after tax for the last five years, has not yet faced any adverse impact of the five rate hikes by the Reserve Bank of India, said ICICI’s chief executive officer and managing director K.V. Kamath.
State Bank of India and HDFC Bank Ltd are also lining up public issues to meet the growing demand for capital. “There is a need for more funding for infrastructure, which is currently being met through foreign direct investment. There is a huge demand for infrastructure funding which domestic banks need to create supply for,” said Deven Choksey, managing director of KR Choksey Securities, a Mumbai-based brokerage. Credit growth is slowing down only a tad after growing at 30% for three consecutive years.
While 65% of the bank’s advances were in the retail portfolio, for the fiscal year 2007, 19% of its revenues now come from its international banking operations, which will be boosted through this offering, Mulye said. “We are seeing a structural transformation of the economy happening and this helps us prepare for it,” Kamath said.
“Retail investors have always made money on ICICI,” said Emkay’s Karwa. “So it is clearly a favourite with retail investors. DLF Ltd and Vishal Retail Ltd coming before will not really have any adverse impact on this issue,” he said.
Goldman Sachs will be the lead manager for the issue along with DSP Merrill Lynch, JM Financial and EnamSecurities.
Ahead of the public issue, ICICI Bank has created a holding company for its insurance and asset management businesses. This is valued at over Rs40,000 crore.