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Capital Markets

ICICI Securities lists at steep discount as scandal hits parent ICICI Bank

Stock of India's largest equity broker started trading 17% lower than IPO price

The controversy surrounding ICICI Bank comes at a time when investor confidence in India’s banking sector has already taken a hit after a massive $2-billion fraud was exposed in February.   © Reuters

MUMBAI (NewsRise) -- Shares of ICICI Securities listed at a steep discount on the Indian stock exchanges amid investor caution about its valuation and lingering concerns about authorities probing parent ICICI Bank's lending policy.

ICICI Securities, India's largest equity broker, opened trading as much as 17% lower than the issue price of 520 rupees ($8) on Wednesday, after its initial public offering raised a lower-than-expected $540 million last week.

The company, which had sought to raise $620 million from the share sale, set the price of the issue between 519 rupees and 520 rupees apiece. The sale of 77.2 million shares was subscribed 88%, after which ICICI group cut the size of the offer to 67.6 million shares.

ICICI Securities closed the first day's trade at 445.1 rupees, while parent ICICI Bank lost 0.4%. The benchmark S&P BSE Sensex closed 1.1% lower on Wednesday.

Analysts had previously raised concerns about the company's steep valuation, saying the pricing leaves "little room for error." Such concerns were amplified by the volatility in the Indian stock market, rattled by weak investor sentiment since the beginning of this year.

Allegations of nepotism against ICICI Bank Chief Executive Chanda Kochhar cast a pall over the listing. Over the past one week, India's third-largest lender has been roiled by rumors of alleged conflict of interest while lending to Videocon Group, a consumer electronics and oil and gas exploration company.

Some online blogs and social media reports last week alleged that Videocon Group Chairman Venugopal Dhoot invested 640 million rupees in Nu Power Renewables, a firm owned by Deepak Kochhar, the husband of ICICI Bank CEO. Dhoot's investment came after Videocon secured loans worth 32.5 billion rupees from ICICI Bank, according to reports that appeared on social media.

In a statement last Wednesday, ICICI Bank sought to quell the murmurs, saying its board "has come to the conclusion that there is no question of any quid pro quo/nepotism/conflict of interest as is being alleged in various rumors."

On Tuesday, a senior Indian finance ministry official said the government's probe agency, the Central Bureau of Investigation, is verifying the facts related to an enquiry into ICICI Bank's lending practice.

After the listing of its shares, ICICI Securities didn't hold a press briefing as companies usually do in Mumbai. Its executives present at the event declined to comment on the weak listing.

The controversy surrounding ICICI Bank comes at a time when investor confidence in India's banking sector has already taken a hit after a massive $2-billion fraud, allegedly perpetrated by billionaire jewelry designer Nirav Modi, was exposed in February. The scandal tainted several state-owned lenders, eroding their credibility, and compounded investor concerns over the sector that is already grappling with a mountain of sour loans.

Meanwhile, the troubles in the banking sector as well as worries of a global trade war triggered by a U.S. move to slap tariffs on imports from China dented investor sentiment. The S&P BSE Sensex has fallen 9.4% since touching a record high in January.

Last month, the first-time share sale of state-owned military aircraft maker Hindustan Aeronautics Ltd., or HAL, too received a tepid investor response. HAL, too, had a weak debut on the stock exchanges, listing at a 4% discount to its issue price.

On Wednesday, state-run special steels and alloys maker Mishra Dhatu Nigam, which raised $67 million though an IPO, debuted at 3.3% discount to its issue price. The weak listings have triggered fears of the buzz fizzling out of fund-raising through IPO in India that hit a decade-high last year at $10.3 billion.

--Dhanya Ann Thoppil

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