ICICI Securities’ IPO sails through after parent trims issue size
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The initial public offering (IPO) of ICICI Securities Ltd, the stock broking arm of ICICI Bank Ltd, sailed through on the final day on Monday after its parent firm trimmed the issue size owing to a shortfall in demand from retail investors and wealthy individuals.

On the final day, ICICI Securities’ book received demand for 67.7 million shares, or 87.64% subscription for shares on offer. It had offered to sell about 77.25 million shares, including the anchor allotment.

The issue size was trimmed by roughly 12%.

ICICI Bank was looking to raise Rs 4,017 crore ($617 million) by selling a total of 77.25 million shares, or 24% stake.

“The company has successfully closed its proposed Offer for Sale (OFS) and raised approximately around Rs 3,500 crore,” ICICI Securities said in a statement. "Earlier the OFS attracted a strong response from anchor investors raising around Rs 1,717 crore. The QIB portion was fully subscribed as of 8:30pm on 26th March 2018."

As per the Securities and Exchange Board of India (SEBI) ICDR Regulations, the company issuing fresh shares needs minimum 90% demand of the total offer size, failing which the company is either required to extend bidding (by a few hours or days) until it receives minimum bids, or it may be forced to forfeit the public offer.

For ICICI Securities’ offer to sail through, it needed to dilute at least 10% stake of its total 322.14 million equity base, as per SEBI’s guidelines. It diluted about 21% stake against the original 24% on offer.

The lender will get three years from the date of listing to bring its stake down to 75% or below to meet the SEBI’s minimum 25% public holding norm.

The portion set aside for qualified institutional buyers (QIB) received 1.04 times demand for shares on offer. The non-institutional investors’ category comprising wealthy investors and corporate bodies bid for roughly 36% of shares on offer.

The retail investors’ category was subscribed roughly 90% of 7.33 million shares on offer as on the final day. Bidding for retail investors was extended till 9pm on Monday.

ICICI Securities’ IPO had received one-third subscription on the first day of the issue on Thursday. It saw little demand and closed with 36% demand for shares on the second day on Friday.

Ahead of the IPO, the stock broking arm of ICICI Bank Ltd had raised Rs 1,717 crore ($263 million) from anchor investors including Singapore state investor Temasek Holdings, Norway’s Government Pension Fund Global and an affiliate of billionaire investor Prem Watsa’s Fairfax Financial Holdings Ltd. The company allotted a tad more than 33 million shares at the upper end of the IPO price band of Rs 519-520 apiece.

Mumbai-based ICICI Securities was seeking a valuation of Rs 16,751 crore ($2.6 billion) through the IPO, as calculated at the top end of the price band.

The stock broking unit became the fourth group company from ICICI’s stable to float an IPO. ICICI Bank had gone public in 1998. Its arm, ICICI Prudential Life Insurance Co Ltd, went public in September 2016 through a Rs 6,056-crore offering. ICICI Lombard General Insurance Co Ltd went public in September 2017.

ICICI Securities had filed for the IPO on 15 December and received regulatory clearance on 2 February. The company will join listed peers Edelweiss Financial Services, Motilal Oswal Financial Services, JM Financial Holdings, IIFL Holdings Ltd and Emkay Global Financial Services Ltd.

According to Geetanjali Kedia, senior research analyst at securities advisory firm SP Tulsian, ICICI Securities’ business is heavily dependent on market sentiment and hence cyclical in nature.

"Since more diversified players are ruling at lower valuations, ICICI Securities’ IPO is not attractively priced, and hence can be skipped," she said.

ICICI Securities was quoting at 26 times its one-year forward price-to-earnings. In contrast, more diversified firms such as IIFL and Edelweiss quote a one-year forward P/E of 20-23 times.

Motilal Oswal trades at 24 times, while JM Financial trades at roughly 15 times its one-year forward earnings.

Recent IPO hiccups

The primary markets have witnessed demand pressure of late after a near 10% decline in the secondary market. Public issues of Bharat Dynamics Ltd, Hindustan Aeronautics Ltd, and Mishra Dhatu Nigam sailed through with some difficulty. All three offerings from the government received support from state-run Life Insurance Corporation (LIC) of India.

It comes after a flood of IPOs over the past year hit primary markets in India, with many of them getting heavily oversubscribed.

The most recent case of a company withdrawing its share sale due to a lack of enough demand was in December 2016 when Chennai-based GreenSignal Bio Pharma Ltd scrapped its public offering despite lowering the issue price band and twice extending the bidding date by six days.

NCML Industries Ltd withdrew its offering due to poor investor response in January 2015.

In March 2014, Ortel Communication and Adlabs Entertainment had extended their bidding time and lowered their respective price band.

In September 2015, Ahmednagar-based Prabhat Dairy Pvt Ltd’s IPO failed to clear the ropes and the company had to extend the issue closure by three days and cut the price band.

Update: An earlier version of this article stated that ICICI Securities needed a minimum 90% subscription for it to sail through based on SEBI regulations. When the article was published, the issue had received 87.62% demand for its total shares on offer.

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