ICICI Bank, India's second largest commercial bank after the State Bank of India and the largest private sector bank in the country, announced a $300 million dollar five-year 144A bond issue yesterday (November 7). Deutsche Bank and Merrill Lynch have been appointed joint bookrunners for the transaction.
The deal will represent the second offshore bond issue by an Indian bank this year following a $250 million 5.375% five-year offering for Bank of India in late September. It will also mark ICICI's first international foray since August 2004 when the bank similarly raised $300 million from a five-year issue that carried a coupon of 5% and launch spread of 168bp over Treasuries, or 120bp over Libor.
Similar to the August 2004 transaction, proceeds will be raised via ICICI Bank's Singapore branch. This will allow it to escape some of India's withholding taxes.
ICICI Bank is currently rated Baa3 rating by Moody's and BB+ by Standard & Poor's. Back in early 2002, it enjoyed a higher rating than the sovereign, with a Ba1 rating from Moody's versus a then sovereign rating of Ba2.
However, it now lies further down the rankings following a recent announcement by Standard & Poor's concerning T&D ratings. This new classification assesses transfer and convertibility risk, enabling some non-sovereign entities to be rated higher than their respective sovereigns on the basis that the latter would not restrict their access to foreign funds in the event of a sovereign default.
Each country was assigned a T&D rating ceiling one to three notches higher than its foreign currency rating. In India's case, the ceiling was set two notches higher at BBB, with S&P upgrading Infosys Technologies and Tata Steel to this level.
Earlier this month, ICICI Bank announced that first half profits were up 27% year-on-year to $252 million. Most of the increase was attributable to high growth in fee income and retail assets. As of end September 30, retail assets stood at $15.6 billion, up significantly from $9 billion in September 2004 and representing the largest retail asset portfolio among Indian banks and finance companies.
ICICI Bank currently has 583 branches and extension counters in India. Its international diversification is proceeding rapidly, driven by a desire to service Non Resident Indians and provide banking services to its fast globalizing domestic corporate customers.
The tally currently stands at four branches in the UK, five in Canada and two in Russia through wholly owned subsidiaries, as well as branches in Singapore and Bahrain and representative offices in Shanghai, Johannesburg, Dhaka, Dubai and New York. ICICI bank will shortly be launching fully-fledged branches in Hong Kong, Sri Lanka and the Dubai International Financial Centre for which regulatory approval has been received.
ICICI Bank will also be in the market for equity later this month with plans to execute a combined ADR and domestic share offering to raise roughly $1.6 billion via Merrill Lynch and Morgan Stanley. In keeping with its retail friendly focus, ICICI Bank is contemplating offering shares to retail investors at a discount to the price offered to qualified institutional investors and non institutional high net worth applicants.
Foreign Institutional Investors currently own 45% of the bank's shares, with ADR holders owning 27%. ICICI Bank increased its ADR pool earlier this year in March, but no new equity was raised at that time.
