ICICI Bank increases size of ADR issue - Views on News from Equitymaster

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ICICI Bank increases size of ADR issue

Mar 8, 2000

ICICI Bank plans on increasing its American Depository Receipt (ADR) issue from US$ 125 m to US $ 175 m. The ADR issue is expected to be listed on the New York stock exchange by the end of this month. ICICI Bank, a subsidiary of ICICI reported a turnover of Rs 6.3 bn as at March'99. In a span of five years of operations its branch network has expanded to 55. Its capital adequacy ratio was 11.06% as at March'99.

The main reason for this issue is to spruce up its capital adequacy ratio (CAR) that recently stood at 9%. As per the RBI guidelines banks are required to maintain a 9% capital adequacy ratio as at March'2000. Hence if ICICI Bank does not raise equity it will be unable to expand its asset base. ICICI Bank's business ( which includes deposits, advances, and credit like corporate debt instruments) has gone up by 71.5% for the first 9 months of FY2000, over the corresponding period of FY99.

Also ICICI is seeking permission from RBI to keep their stake at above the stipulated 40% level. According to RBI regulations promoters of new generation private banks have to reduce their stake to 40% over a period of time. Currently ICICI has a 74.3% stake in ICICI Bank and this will come down to 58% after the issue. ICICI's request for keeping the stake in ICICI Bank to above 40% has also been the result of a notification issued by RBI in January 1999, wherein RBI has stated that if a long term lending financial institution decides to provide commercial banking services directly it could do so through a 100% subsidiary.

The interest of ICICI in ICICI Bank has been very useful as it has been able to leverage upon ICICI's existing relationships. Hence ICICI Bank feels that if this stake is reduced it could affect the business prospects of the bank. Hence in a statement filed the US Securities and Exchange Commission it has mentioned this risk. The statement reads " Any divestment of ICICI's holdings in ICICI Bank could result in the latter's inability to continue to exploit corporate and retail relationships of the ICICI group. This would adversely affect their business, results of operations and financial position."

Hence to convince the future investors the bank has applied to RBI for keeping the stake above 40%.

Since FY99 ICICI Bank's performance has been phenomenal and it has become an aggressive player. It is also on the prowl of a takeover target to keep up its expansion plans. With good growth prospects and a strong brand name raising equity should be easy for them.

Market View:
ICICI Bank has good growth prospects and is a technology savvy bank. Its on the "BUY" list of many analysts.

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