Why delisting was the best available option for ICICI Bank
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New order in broking
In the last few years, the undertone of the Indian broking industry has shifted to a more technology driven sector. It is not just about online trading or app-based trading. It is about brokers and financial advisors positioning themselves more as Fintech players rather than as financial sector players. It is only the companies with such fintech models that done well in terms of valuations. That explains why many of the low-cost broking houses became unicorns. In the absence of that, it is unlikely to work.
No value addition in listing
While ICICI Securities has been around for nearly 30 years, it only got listed in the year 2018. While the stock did show some promise in the aftermath of the COVID pandemic, most of the gains of that period were lost after retail trading volumes fell sharply on the bourses. For a company that still derives much of its business from retail customers, the fall in retail participation led to a sharp fall in the price of the stock. Clearly, that was not an exciting proposition for the bank as the listing was exposing the brokerage arm to wild variations in its valuation. Price volatility was too high.
That is the market model
If you look at the way brokers evolved in India, the bank-based brokers have stayed unlisted as listing adds little value for them. The listed names were the pure brokers who needed to raise money at high valuations to fund their lending book. Most of the full-service brokerages raised funds at peak value to expand their lending book. Today, the lending book accounts for bulk of the revenues for these brokerages. The bank-based brokers like I-Sec do not have such compulsions. It was logical that being unlisted suited the interests of the shareholders of I-Sec a lot more.
ICICI Bank is monetizing value
There is also a monetization angle to it. The question for ICICI Bank is how to monetize its holdings in I-Sec. Keeping it listed was not the answer. Doing a swap of 67:100 favors ICICI Bank as the bank has been through a big rally while the stock of I-Sec has struggled prior to the announcement of the delisting. For ICICI Bank, the most lucrative use of its funds was to put it in its own group units. After all, ICICI Securities was a self-sustaining model and did not need any external fund infusion on a regular basis. It had a matured model and there was no value addition in keeping the company listed on the bourses. Above all, ICICI Bank is monetizing at peak valuations. I-Sec holders are also getting a fair deal for their money!
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