Business | Opinion
Indian bank steps into service economy
Most people applaud those who put their money where their mouth is. But that is not always true of investors, as K.V. Kamath, head of India's largest private lender, ICICI Bank, found out yesterday.
- By Joe Leahy, Andrew Hill and Mark Mulligan, Financial Times
- Published: 00:00 May 3, 2007
Most people applaud those who put their money where their mouth is. But that is not always true of investors, as K.V. Kamath, head of India's largest private lender, ICICI Bank, found out yesterday. Kamath's bank is known in India as a first-mover - it saw the country's consumer boom coming before many of its peers and was one of the first institutions to develop channels to tap into the savings of the country's wealthy diaspora.
Now Kamath is predicting Indian corporations will invest an unprecedented $500 billion in infrastructure and manufacturing over the next three years, doubling the country's existing industrial capacity. To position his bank for this, he is planning to sell Rs200 billion ($4.9 billion) in stock in India and overseas - the largest stock sale by an Indian company.
He has also signalled further capital raisings in the future, if necessary. The only problem is, investors did not like it, prompting a 7.3 per cent fall in ICICI's stock on Monday.
The sale, the equivalent of 20 per cent of the company's equity, will be heavily dilutive. Its last big stock sale two years ago, which raised Rs80 billion, caused the bank's shares to under-perform for some months.
But Kamath and his team probably deserve some benefit of the doubt. Since that last capital-raising, ICICI shares have rebounded 80 per cent. As he said last week, if India's economy is going to continue to grow at breakneck speed, its banks are going to have to grow with it.
The last twist in the takeover of Countrywide, the perplexingly popular UK real estate agency, makes you wonder whether there is any longer such a thing as a "normal" bid. The group does finally seem to have fallen, after seven-and-a-half months, to an offer from Apollo, the US private equity firm. Even that bid had to be sweetened on the last day to see off 3i, a British buy-out fund whose first recommended offer was ignominiously rejected by shareholders in January.
Once upon a time, an agreed offer would have been nodded through, provided investors trusted the board's judgment. But, as Christopher Sporborg, the Countrywide chairman, has said, relationships with long-only funds count for little once aggressive, short-term investors buy in.
3i has not emerged well from this. It made a tactical error in billing its original bid as "final" which, under UK takeover rules, meant it could not be raised when the extent of investor opposition became clear. Apollo stepped in almost as soon as that offer was defeated, at which point 3i was clear to bid again. But the final auction of Countrywide took place behind the scenes, with Apollo exercising its right to match the UK firm's proposals.
Polygon, the hedge fund, emerges as a winner - assuming that, despite a toppy UK housing market, its aggressive assessment of Countrywide's long-term prospects is correct. It started as the holder of a speculative stake in Countrywide and ended up as a 29.9 per cent shareholder.
As such, it successfully insisted on receiving "stub equity" in the continuing business from Apollo. Long-only shareholders generally shun the offer of an illiquid minority stake. Its use here is a sign of how alternative asset managers are calling the shots. In other respects, however, the deal underlines how they have made the process less certain.
The dispiriting lesson of Countrywide is that when "recommended" no longer counts as a recommendation, "final" no longer means "final", and bidders have to pander to individual blocs of shareholders, boards will struggle to do the right thing.
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