Mar 16, 2001|
ICICI unlocking value
Indiaís one of the largest financial institution, ICICI has finally unlocked the value of its stake in ICICI Bank. ICICI has divested a 4.99% of its equity stake in the bank to Prudential Assurance Company Ltd. for a consideration of Rs 170 per share.
The objective of the divestment is to bring down the promoterís holding to around 40% from the current level of 55.7%, in accordance with the Reserve Bank of Indiaís licensing norms. After this strategic divestment, ICICIís stake in the bank will be reduced to 50.6%. ICICI plans to dilute the stake further to 47% before the end of current financial year (i.e. before March 2001) This would result in the bank ceasing to be a subsidiary of ICICI.
Shareholding pattern of ICICI Bank
The sell off is likely to add a gross capital gain of Rs 1.7 billion to its profits in the current year. ICICI can use this gain in writing off its non-performing assets to show a better picture of its balance sheet. The institution is expected to post a flat growth in its profits for the year ended FY01. This is due to lower other income and higher provision on assets. Divestment of a strategic stake in its subsidiary is likely to move up its profits by 11%. If the institution dilutes the stake further to 47%, by selling 3.6% stake, it will result in a rise of 18% (cumulative) in its profits in FY01.
|5% stake (shares in m)
|Value of stake
|Tax on gain
|Net of tax gain
|Benefits to ICICI
|ICICI's FY01E profits
|Net profit including capital gain
|% addition to profits
|Number of shares (m)
At the current market price of Rs 94, ICICI is trading at a P/E multiple of 5 times its FY01 projected earnings and a Price/Book value ratio of 0.7 times. Its current valuations are comparatively lower than its global peers.
|Market Price (Rs)
|Book Value (Rs)
|Price/Book value (x)
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