Takeover angle, FIIs behind ICICI float

ICICI Bank's plan to float a Rs 3,500 crore equity issue may have been triggered by two critical objectives: ring-fencing against a possible takeover and giving more leeway to foreign institutional investors to play in the market.

Possibly, there could be a third reason too. Part proceeds of the issue may be used to clean the balance sheet of the country's second largest bank by bringing down its bad loans.

As on December 31, 2003, the bank's net non-performing assets (NPAs) was 4.7 per cent at Rs 3,180 crore. Over the last two years, it has provided over Rs 5,000 crore to bring down its NPAs.

The bank went in for accelerated provisioning in 2002 and, subsequently, it used the proceeds of an equity sale to a FII to bring down its net NPA further.

Analysts say the bank may use part of the capital float to bring down its net NPA to around 3 per cent in next fiscal.

On December 31, 2003, FII holding in the bank was 45.25 per cent, while ADR holders accounted for 25.99 per cent.

Non-resident Indians and other foreign entities held over 1 per cent equity stake, taking the total foreign holding to over 72 per cent.

Government norms allow foreign entities to hold up to 74 per cent in a private bank. By opting for a domestic issue, the bank will bring down the foreign stake to less than 65 per cent. This will offer leeway to FIIs to play in the secondary market.

Post issue, ICICI Bank's equity base will go up to around Rs 715 crore, up from Rs 615 crore. The higher equity base will ward off any takeover threat by a foreign entity. Following the opening up of the sector, foreign banks have been scouting for takeover targets.

The official reasons cited by the bank for the issue is growth in its retail lending. As on December 31, its capital adequacy ratio was 11.2 per cent. This will go up to 15 per cent following the issue giving the bank enough space to prop up its retail asset base.

Analysts, however, said a major part of the money will be used to pump in fresh equity in the bank's life insurance outfit which now accounts for about 31 per cent of the private insurance market.

The bank will also use the money for its foreign operations where it plans to go in for a slew of buyouts over the next one year.