Era of mega equity offerings ?

Just as one thought it is curtains for DLF IPO, another is raising its hood.

ICICI Bank’s domestic issue is part of a $5bn capital raising program. In addition to the local issue, ICICI Bank plans to raise another $2.5 b from the issue of American Depository Receipts.

In addition to the equity issues, ICICI Bank is also raising money by selling shares of the holding company for its insurance businesses. The timing of the stake sale in the holding company would be determined by clearances from RBI and IRDA.

This week, ICICI Bank received permission from the Foreign Investment Promotion Board to sell up to 24% equity in ICICI Holdings. However, the bank will be offering only 5% to international investors.

“China is possibly 10 years ahead of us. Even if the top four banks in India are put together, the size would be lesser than that of the fourth largest Chinese bank. The combined market capitalisation of all banks in India would be lesser than half of the M-cap of China’s second largest bank,” points KV Kamath, MD & CEO, ICICI Bank.

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ICICI Bank, has a market cap of about $ 19.89 b that is the highest among financial services companies in India. ICICI Financial Services, the holding company for its insurance and asset management business, has been valued at $10.94 billion. Goldman Sachs, Swiss Re and Nomura, along with two other investors, have picked a 5.9% stake. Of this, Goldman Sachs has picked up 2.02% stake.

A few swallows (few days of downturns of stock indices) do not a summer maketh - and we thought the India story is played out. Can’t be more wrong.

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The DLF dilemma

To invest or not to ?

DLF IPO never ceases to surprise by contrasts. The moment I finish reading a news that says overwhelming response by Institutional investors to its mega IPO, there’s another article which elaborates why the IPO should be dumped by investors.

The issue opened on Monday 11 June. On the second day, the issue was subscribed by 1.28 times. However, the retail investors have not given warm response to the country's biggest IPO, as the retail portion was subscribed merely 0.101 times.

Valued at the higher end of the price band, the company would be the eighth largest by market capitalisation, post-listing. With negative cash flows and current earnings abysmally low compared with future projections, the company is demanding its price relying solely on its vast land holdings, the value of which is not clear.

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The Good, The Bad and The Ugly

I came across some interesting bits of news today. All related to DLF in some ways.

The Good – DLF IPO subscribed 41% on day one. The QIP portion is fully subscribed. The initial public offering of real estate major DLF, which is expected to mop up Rs.96.25 billion ($2.40 billion), received 41 per cent subscriptions within an hour of opening on Monday.

The Bad – Analysts say the issue is overpriced and figure that the concentration of DLF land bank in Gurgaon (near Delhi) does not bode very well for the prospects of the company. Sample these -

Brokerage house Enam said: "At the upper band of Rs 550 the stock trades at a significant premium to our base case valuation of Rs 404. We believe the stock is overvalued and initiate coverage with Sector Underperformer rating and a price target of Rs 404."

Raising concern about DLF's over-dependence on Gurgaon, Angel Broking said that this is a big concentration in one city, considering the fact that Gurgaon is a satellite town and it took DLF 30 years to develop the 3,000 acre DLF township.

The Ugly - After a brief respite, the city [Gurgaon] is again sweating under unscheduled power cuts. New Gurgaon, like DLF and Sushant Lok, seems to be the worst-hit. DLF phase II suffered a power cut on Tuesday night, while phase III has been experiencing unscheduled cuts for the past two weeks. Read the full report here.

DLF issue could have very well done without these bits. What do you think ?

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