ICICI Bank creates holding company to unlock value

ICICI Bank proposes to carve out investments in insurance and asset management subsidiaries into a holding company which will later be listed.
ICICI Bank, India's largest private sector bank, announced on Saturday it will transfer identified subsidiary investments to a holding company to unlock value.

ICICI Bank will transfer its 74% ownership in ICICI Prudential Life Insurance and ICICI Lombard General Insurance as well as its 51% ownership in Prudential ICICI Asset Management and Prudential ICICI Trust to a wholly owned subsidiary, ICICI Holdings. The transfer will be made at the value at which the investments currently stand in the books of ICICI Bank, namely Rs19.5 billion ($442 million). The holding company is likely to be structured as a non-banking finance company.

Analysts say the proposed structure will achieve multiple objectives. Estimates suggest that the market value of the investments could be more than 10 times the book value. The structure will enable ICICI Bank to unlock the value of the investments from its balance sheet and allow the new company to capture the intrinsic value of the subsidiaries. The discounting given to parent companies rarely captures the value of subsidiaries hence subsidiary carve-outs are a common way of achieving this end.

ICICI Bank is reaching the 20% of net worth which is stipulated by the RBI as the maximum investment allowed in para-banking activities. The holding company structure will allow new sources of capital to be inducted to meet the ongoing capital requirements of various businesses. For example, the insurance sector in India is fast growing and both ICICI subsidiaries are among the largest in their business areas. As they continue to grow, they need to continue to strengthen their balance sheet through capital infusions. This structure will enable capital to be raised without recourse only to the parentÆs balance sheet.

An IPO of ICICI Holdings by the end of calendar 2007 is under consideration although ICICI Bank will ensure it retains majority ownership even after an IPO. ICICI Bank joint managing director Kalpana Morparia was named managing director and CEO of ICICI Holdings.
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