- Spinning off Insurance and AMC into a listable entity — ICICI will be spinning off its holdings in Life Insurance, General Insurance and Asset Management businesses into a 100%-owned holding company. The transfer – Rs19.5b (9% of capital) of its investment will be at book value. Management suggests a listing timeframe of 6-9 months, within regulatory approvals needed for this structure.
- Objectives: Raise and generate capital, crystalize value, management continuity — Primary drivers for this move appear to be: (1) creating structure to generate capital for and from these business and avoid regulatory roadblocks with the current holding structure; (2) better recognize value of its investments through a market-priced holding; (3) ensure management continuity – Ms Kalpana Morporia, Joint MD, slated to retire in mid-2007, will now be CEO of this entity.
- Capital self-sufficiency for the parent, the big gain — This structuring and expected capital raising thereafter should bring capital self-sufficiency for the parent, for the medium term. We see this as a positive for ICBK valuations; frequent access to the capital markets has, in our view, been a drag on ROEs, and an overhang on valuations. This should now no longer be the case.
- How much is the subsidiary business worth? — The value of the subsidiaries has not been ignored by the market; the issue is how much is recognized in ICBK’s stock price. Our estimates suggest a value of Rs177 per share for the 3 entities (Rs160 for Life Insurance). This translates into about 21% of market value or about 16% of our target price of Rs1,125.
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