Hungry for More: Investors await ICICI Bank's $5 billion FPO

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The bank announced that it will be raising Rs. 8750 crore in the domestic market with an option to raise another Rs. 2625 crore. Another Rs. 10,000 crore of capital will be raised from the overseas markets through American Depository Receipts (ADRs). The bank, which has a market value of $20 billion, is likely to use the capital to fund robust demand for loans in the rapidly expanding economy for the next three years.

The bank, which was created through a reverse merger between ICICI Bank and ICICI Ltd., filed its Red Herring prospectus with the Securities and Exchange Board of India (SEBI) on June 14.

This would be the largest public issue ever made in domestic corporate history surpassing Cairn India's $2 billion issue last year and DLF's $2.34 billion issue this month. The follow-on sale would also be the biggest by an Indian company, surpassing the $2.3 billion raised by state-run Oil and Natural Gas Corporation (ONGC) in 2004.

As on March 31, 2006, the total foreign shareholding in the bank was 73.87 percent (with the maximum permissible limit at 74 percent).

The issue would help the bank to increase its capital adequacy ratio (CAR) substantially to more than 20 percent from the present level of 0.98 percent from 0.71 percent. The bank's net non-performing assets (NPA) in home loans is estimated at 0.71 percent and net retail NPA is pegged at Rs. 1,500 crore of which 47 percent were non-collateralized.

ICICI bank plans to raise the fund by reserving 35 percent for retail investors, 15 percent for HNIs and the remaining 50 percent of the issue for qualified institutional investors.

To encourage retail participation, the bank is expected to offer its shares at a discount to retail investors. In its previous issue, the bank had offered shares at a 5 percent discount to retail investors.

Given the large size of the FPO, ICICI Bank has also made it a lot sweeter for investors across the board; it has chalked out a payment plan, where retail investors can pay Rs. 250 per share on application, Rs. 250 at the time of allotment and the balance amount six months after the date of allotment.

The bank has appointed a stabilization agent that will ensure price stability of the stock post-listing. Goldman Sachs, DSP Merrill Lynch, J M Morgan Stanley , Enam and Karvy are the lead managers to the issue.

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