Investment bankers are hoping to catch their attention in the follow-on issue of ICICI Bank by offering sops like discount of Rs 50 a share and part-payment option.
MUMBAI: After a lukewarm response from retail investors in the initial public offer of realty giant DLF last week, investment bankers are hoping to catch their attention in the follow-on issue of ICICI Bank by offering sops like discount of Rs 50 a share and part-payment option.
The country's largest private lender is aiming to raise about five billion dollars (over Rs 20,000 crore) with its follow-on equity issue in India and the US. The domestic issue of Rs 8,750 crore opens on June 19 and closes June 22.
The bank has reserved five per cent domestic issue, or Rs437.5 crore, for existing retail shareholders.
While it has fixed the price band at Rs 885-950 a share, the retail bidders, including existing retail shareholders, would be allotted shares at a discount of Rs 50 per share to the issue price.
In addition, the issue is offering two payment options for retail investors. In the first method, retail bidders are required to pay the full bid amount less the discount at the time of application.
The second option allows retail bidders to pay Rs 250 per share on application, Rs 250 per share on allotment and the balance on a call by the bank within six months of allotment. The discount would be adjusted against the call amount.
According to an official of an investment banking firm, the issue offers a hedge against downside risk to retail investors even if the stock price on listing remains the same as the offer price.
For example, if the bank fixes the offer price at Rs 900 and the stock lists at the same price, retail investors still stand to gain Rs 50 a share by virtue of the discount offered.
While retail investors would be given shares at Rs 850 after discount of Rs 50, they would pay a paid up value of Rs 500 -- Rs 250 on application and another Rs 250 on allotment.
The unpaid value would remain Rs 350, while the partly paid shares would be traded at a price equivalent to the market price of fully paid share of Rs 900 less the unpaid value, which would be Rs 550 in this case.
As the listing price of the partly-paid share would be Rs 550, the investor stands to gain Rs 50, resulting into a gain of 10 per cent on the paid value of Rs 500 and about 14 per cent gain on the unpaid value of Rs 350 a share.
If shares list above the issue price, the gains could be more than 20 per cent due to the discount to retail investors.
For example, if the issue price is fixed at Rs 900 and the stock lists at Rs 925 a share, the retail investors would get the shares for Rs 850 due to the discount.
The partly-paid shares would be traded at a price equivalent to the market price of fully-paid share less the unpaid value of Rs 350, which would be Rs 575.
As the listing price of partly paid share would be Rs 575, investor would gain Rs 75 a share, which is 15 per cent of the partly paid investment of Rs 500 and a benefit of about Rs 21 per cent on unpaid value of Rs 375 to be paid later.
Besides, non-institutional bidders have also been given the option to pay Rs 250 on application and the balance on allotment.
Qualified Institutional Bidders, who have to pay 10 per cent of the bid amount at the time of application, have the option to pay Rs 250 less the margin amount on confirmation of allocation and the balance on allotment. But non-resident bidders, including FIIs, would need prior RBI approval to subscribe to partly-paid shares.
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