India's largest private sector bank executed one of the most successful follow-on offerings of the year yesterday (December 6), raising $1.52 billion from a combined ADR and ordinary share offering.
The Merrill Lynch and Morgan Stanley led deal for ICICI Bank set a number of new precedents for the Indian market. The deal not only ranks as the largest ever primary equity offering from the country, but is also the second largest follow-on primary capital raising from Asia this year after PetroChina.
Overall, it ranks second to ONGC's privatization as the largest equity offering of any kind from the country. It also marks the first time an Indian company has been able to concurrently execute a domestic issue and ADR tranche. In doing so, ICICI Bank had to comply with new guidelines from both the SEC and Indian regulator SEBI.
In total, the bank raised $433 million from the ADS tranche and $1.08 billion from the domestic tranche after pricing the former at $26.75 per ADS and the latter at Rs525 per share. There is also a greenshoe, which could bump total proceeds up to $1.75 billion.
Analysts say the bank appears to have picked a particularly opportune time to raise new capital. India's stock markets have been buoyant over the last few weeks and recent economic data reflecting stronger than predicted GDP growth figures, has reinforced this trend.
The Sensex went up 80 points intra day on the day of pricing and ICICI Bank was able to take advantage of this bullish trend by pricing the domestic offering at a 1% discount to spot. The ADR's (representing two equity shares) came at an 18% premium to the domestic offering price after rising 2.94% on the day ahead of pricing.
The share sale had, however, caused an overhang on the stock price, which has steadily come down from a high of Rs600 at the beginning of October. Year-to-date, it remains up 46%.
The ADS represents 4% of total shares outstanding and the domestic equity 13%. The tranching of the deal means that FII investment in the stock will drop from roughly 73.5% pre deal to 70% post deal. Analysts believe this is a positive result, since it will re-open some headroom for additional foreign buying post deal up to the FII cap of 74%.
The international book was the strongest of the two, closing 12 times subscribed. Across both books, it is estimated that 150 investors placed orders, of which 40 were for more than $30 million or above. By geography, US investors accounted for 43% and Asian investors 37%, with 20% from Europe.
Retail investors in the country were not as enthused by the local offering and despite the sop given to them in the form of a 5% discount, the retail portion was not fully subscribed. However, on the whole the domestic offering was oversubscribed by six times.
The capital raising is intended to support ICICI Bank's fast asset growth in both corporate and consumer lending and is expected to be sufficient to support the bank for at least three years. ICICI Bank management have said that the capital adequacy ratio should reach 16% post issue, while the book value will increase by about 50%.
Alongside the two lead managers, Nomura led a Public Offering without Listing (POWL) in Japan. The Indian subsidiaries of the lead managers, DSP Merrill Lynch and JM Morgan Stanley led the domestic offering, which was co managed by ICICI Bank's subsidiary, ICICI Securities, Enam Financial Services and Kotak Mahindra Capital Company.
In the trading day following price, the domestic stock price rose 2.4% to close at Rs542.75 in Mumbai. At this level, the bank is valued at about 2.5 times book on a post money basis.