ICICI brings India's largest ADR

Indian bank converts domestic shares for ADR''s.

India's second largest bank increased its ADR pool by $405 million following the pricing of a 19.2 million ADR offering after New York's close on Thursday. The Merrill Lynch, Morgan Stanley and UBS led deal was priced at $21.11 per unit. This represented parity pricing to the ADR close and a 14.5% premium to the stock's Rs401.3 close on the Bombay Stock Exchange.

No new money was raised from the deal, which followed Infosys's pioneering example in August 2003 when domestic investors tendered their shares into an offering that was then syndicated out to international investors through an ADR. The structure enables domestic investors to lock in the profit between the two prices and for the company in question to expand its ADR pool.

ICICI Bank had filed to accept back up to 6% of its outstanding share capital and received fractionally just over this amount from domestic investors by the March 11 cut off date. The new ADR issue equated to 5.2% of the company's issued share capital and 24% of the outstanding ADR float.

There is also a $2.8 million unit greenshoe, which could bump total proceeds up to $466 million.

In the run up to pricing, the ADR premium did not contract as markedly as might have been expected. When Infosys completed its deal, for example, the premium came down from 48% at the beginning of pre-marketing to 31.7% on the day of pricing.

By contrast, ICICI's premium had been hovering around the 20% level at the beginning of roadshows, dropping marginally to 18% when investors tendered their shares. It then dropped a further 3.5% in the next six days ahead of pricing on Thursday March 17

During New York's trading session ahead of pricing, the ADR price rose from $20.77 to $21.11. Successful completion of the deal also helped push up the stock up 2.93% on Friday. Year-to-date, it is up 7%.

The ADR order book is said to have closed four times covered with participation from over 100 accounts. Retail investors were allocated 20% of the deal and on the institutional side, specialists counted 10 orders for more than $30 million. By geography, Asia was allocated 40%, the US 40% and Europe 18%.

Virtually all the investors that successfully tendered domestic share were international accounts. This re-opened trading of domestic shares to foreign investors since the 49% limit had been almost full. Pre-deal, foreign investors owned 48.8% of the bank in domestic shares. Post deal it has dropped to 43%.

However, there is not much room for further foreign buying since foreign investors now own 71% of the bank through the ADR and domestic shares. The overall foreign shareholding limit stands at 74%.

At its current share price, ICICI Bank is valued at about 2.3 times 2006 book and 11.3 times 2006 forecast earnings. In recent years, the stock price has been driven by the bank's efforts to increase its retail loan book and reduce corporate NPL's.