ICICI banks on $320 bn Government infrastructural investment - Live Mint

ICICI Bank Ltd.’s plan for the biggest share sale by an Indian company may prompt investors to sell its stock on concern it could dilute earnings of the nation’s largest lender by market value.

The bank plans to raise Rs200 billion ($4.9 billion) by selling stock in India and American Depositary Shares in June, Chief Executive K.V. Kamath said on 28 April. Its equity will increase 20%. Mumbai-based ICICI raised Rs80 billion in 2005 to meet demand for loans from companies and consumers in the world’s fastest-growing major economy after China.

`It may dilute the earnings per share in the short run and one could see some short-term negative performance on the stock from the weight of the fresh issuance,’’ said Rajiv Anand, who manages $3 billion at Standard Chartered Mutual Fund in Mumbai and owns shares in ICICI Bank. Still, `it’s a clear indication of the growth that ICICI can see for India.’

Prime Minister Manmohan Singh in October doubled his budgeted spending on roads, airports and ports to $320 billion by 2012 to support growth in an economy that expanded an estimated 9.2 % in the year ended 31 March. The benchmark Sensitive Index gained 65 % in the past two years amid record profits at companies such as Reliance Industries Ltd., India’s biggest.

`Over the next three years, we will likely see a doubling of infrastructure and manufacturing capacity in the country,’’ Kamath said in an interview in Mumbai. `There is an investment pipeline that runs into half a trillion dollars’’ in infrastructure and manufacturing.

Rivals Tata Steel

ICICI Bank’s proposal rivals that of Tata Steel Ltd., the world’s sixth-largest maker of the metal, which said on 18 April that it will sell $2.4 billion of shares in India and overseas to fund its purchase of Corus Group Plc.

Companies in India borrowed about 28 % more in the year ended 31 March. ICICI Bank’s loans increased 34 % that year, after surging 60 % the previous year. Bank lending in India grew more than an average 35 % in the year ended March 2006, and a year earlier, according to central bank data.

The Reserve Bank of India (RBI) last week told banks to maintain loan growth of about 25 % in the year to 31March.

`Assuming a systemic growth of 25 %, this capital should be good for the next three years,’’ Kamath said. `We have to prepare ourselves for market opportunities and given the economic environment in the country and prospects for the country, we thought it appropriate to raise capital and shore ourselves up for the opportunities going ahead.’

Funding Needs

Indian banks will need atleast Rs500 billion this year to bolster capital as lending expands, India’s banking secretary Vinod Rai said on 19 April in New Delhi. State Bank of India (SBI), the country’s largest lender, which needs Rs100 billion of capital this year, has not made any decision to sell shares.

The 50-year old Mumbai-based ICICI Bank received bids for seven times the stock offered at its 2005 share sale to local and international investors, including 40 overseas funds. Merrill Lynch & Co., Morgan Stanley and Nomura International (Hong Kong) Ltd. arranged the previous sale.

The bank sold shares at 525 rupees apiece in December 2005. The stock, which has risen 4.9 % this year against the benchmark’s 0.9 % increase, dropped 30.4 rupees, or 3.2 %, to 933.65 on the Bombay Stock Exchange on April 27.

China, India

`We believe in India’s growth,’’ Kamath said. `If you look at China in context, the size of their banks and the size they have grown over the last few years, we need to take this kind of a step change to meet the opportunity.’

Industrial & Commercial Bank of China Ltd. boosted the size of the world’s biggest initial public offering to $22 billion after increasing its Shanghai share sale 15 % last year.

`If one looks at it from the perspective of the Chinese banks, and on a global perspective, a $5 billion sale is not very big,’’ said Anand of Standard Chartered Mutual Fund. `It should get taken quite comfortably.’

Anand said he will consider investing in the new ICICI Bank shares depending on their price.

The bank said that the money will also be used to conform to Reserve Bank of India (RBI) regulations that stipulate increased capitalization levels for consumer and other loans.