ICICI Bank - FIPB move could impact growth

ICICI Bank today said in a release that the rejection by the Foreign Investment Promotion Board (FIPB) of its proposed divestment of stake in ICICI Financial Services could adversely impact its ability to capitalise insurance subsidiaries and their growth, the bank's future capital adequacy and financial performance, and the price of its equity and American depository shares.

The bank was planning to sell 5.9% stake in ICICI Financial Services to foreign institutional investors, which would increase the foreign holding in the insurance venture to over 26%, and, as a result, breach the cap of foreign holding in insurance ventures.

The bank, in consultation with its advisors, is evaluating further steps to obtain the requisite approvals in the regard.

"ICICI Bank has not received any official communication from FIPB in respect of its application. The bank has been given to understand that its application has not been approved by FIPB at its June 22 meeting,'' the statement said.

ICICI Financial Services, the proposed NBFC, would hold the bank's equity shareholding in ICICI Prudential Life Insurance Company, ICICI Lombard General Insurance Company, ICICI Prudential Asset Management Company and ICICI Prudential Trust. The bank proposes to transfer its aggregate investment in these companies of Rs 2,228 crore at year-end fiscal 2007.

The bank maintains that it has definitive offers from potential investors.

The subscription amount is Rs 2,650 crore towards fresh issue of shares by the proposed subsidiary, and the investors would acquire a collective stake of 5.9% in the proposed new subsidiary, valuing it at Rs 44,600 crore on a post-issue basis.

Affiliates of Goldman Sachs International, one of the underwriters for the bank's ADS offering, has presented definitive offers to subscribe for shares constituting 2.02% of the post-issue equity capital of the proposed subsidiary.

The stake sale plan would be terminated if the requisite approval is not received within a mutually agreed date.