ICICI Securities Rs 40-billion IPO fails to garner full subscription

The Rs 40-billion initial public offer (IPO) of ICICI Securities' equity failed to garner full subscription. The 44 million share offer from the country's largest broking outfit got bids for 34.5 million shares, worth about Rs 18 billion.

After allotting Rs 17.2 billion of shares to anchor investors, the IPO plan was to mop another Rs 23 billion. 

This was despite a list of marquee investment banks handling the issue. Bank of America Merrill Lynch, Citibank, CLSA, Edelweiss, IIFL, SBI Capital and ICICI Securities were lead managers. 

Due to the demand shortfall of about Rs 5 billion, parent ICICI Bank would have to settle for lower dilution. Its plan was to divest 24 per cent stake for Rs 40 billion. Instead, it will be diluting 21 per cent stake for around Rs 35 billion. 

The small investor and high net worth individual portion was subscribed only 84 per cent and 36 per cent, respectively. Only 10 per cent of the issue size was reserved for small investors, those investing up to Rs 200,000. According to the rule, a company has to garner at least 75 per cent subscription from institutional investors if IPO size is more than five times its net worth. The institutional investor portion just about managed full subscription. 

Experts cited weak market conditions and high valuations for the subdued demand.  "At the higher end of the price band of Rs 520, the issue is expensively priced at 49.6 times its FY17 earnings and 34.2 times its FY17 book value," said Centrum Wealth, advising investors to subscribe only for the long term. Antique Broking had advised clients to avoid the IPO, stating the pricing was 12 per cent above the fair value estimate.

During FY13-17, ICICI Securities' revenues, operating profit and net profit witnessed compounded annual growth of 19 per cent, 38 per cent and 45 per cent, respectively. However, market players think this could even reverse, if market conditions deteriorate.

Weak demand had already forced ICICI Bank to settle for lower valuations. According to an initial filing, the plan was to sell only 64.43 million shares for raising about Rs 40 billion. Later, it revised the offer to 77.25 million shares for raising the same amount.