ICICI Bank delays 10K/20F filing with SEC

Report says ICICI Bank delayed filing of Annual Report with SEC -10K/20F - reasons unknown

SEC requirements requires the bank to file 3Q and also 10K/20F with SEC within prescribed time, generally 3 months from the closure of Annual Accounts.

This raises the eyebrow - WHY? There could be following reasons:

Point 1
ICICI Bank will be required to report hefty loss by marking its CDO/CDS/CLN exposure, by marking to the market (MTM). The current MTM is almost ZERO because underlying collateral assets have been seized by the primary lenders who own the property and also entire profit/loss therefrom. Thus, the value of collateral is ZERO

ICICI has provided for negligible amount so far, on the premise that it will hold the security until maturity (generally 30 years). However, whether the bank holds until maturity or not make no difference to amount lost - which is entire exposure of CDO

Bank has not disclosed actual exposure to CDO by stating that it does not have direct exposure to subprime loans. In fact, there can not be direct exposure to subprime loans. That belongs to original mortgage lender. It is the derivative exposure that counts.

It was reported sometime ago that ICICI bank exposure could be US$ 2.64 Billion (so they provided only 10% or US$ 264 Millions or Rs 1050 crores). The entire valuation could be ZERO

Following is the Times of India report:
QUOTE
Subprime crisis hits ICICI Bank - 5 Mar 2008, 0059 hrs IST,TNN
NEW DELHI: The subprime loan crisis in the US has taken its first toll in India with ICICI Bank's profit taking a hit of more than Rs 1,050 crores ($264 million) in 2007-08.
UNQUOTE

INCOME FROM CDO
When the original subprime lender issues the derivatives, he is transferring the risk to the buyer of the derivatives. The seller pays the Fees which may be around 1% to 3% of derivative amount depending on maturity left.

The buyer (ICICI Bank) will be required to issue guarantee for receiving the fees for entire derivative of $2.64 Billions. Looks like ICICI Bank would have stood as "guarantor". This is how CDO normally works.

Source HSBC Annual Report 2006 Page 69
QUOTE
.....Credit derivatives are arrangements that provide for one party (the “beneficiary”) to transfer the credit risk of a ‘reference asset” to another party (the “guarantor”). Under this arrangement the guarantor assumes the credit risk associated with the reference asset without directly purchasing it. The beneficiary agrees to pay to the guarantor a specified fee. In return, the guarantor agrees to pay the beneficiary an agreed upon amount it’ there is a default during the term of the contract.
UNQUOTE

In short, ICICI Bank stood as guarantor for entire CDO exposure by receiving the fees (1% to 2%). It would have received a fee of about $ 24~$48 Millions (Rs 96 ~192 crores). Against this fee, it assumed "guaranteed obligations" of about $ 2.64 Billions.

POINT 2
What is the actual exposure of ICICI Bank. If published report is any guide, it will be $2.64 Billions or Rs 10,500 crores

or could it be more?
ICICI Bank raised massive amount $ 6.7 Billions (Rs 27000 crores) by capital and bonds by way of right issue, bond offering in $, Euro and Yen. Why such large amount?

Did it want to shore up the capital already lost? The actual loss could be between Rs 10500 crores and Rs 27000 crores. This is guesstimate, by linking news event and capital raising exercise without any perceptible need.

As at 31-12-2007, ICICI Bank reported profit for 9 months at Rs 3000 crores (Annualized Rs 4000 crores or $ 1 Billion) and Capital shown Rs 41703 crores ($10.42 Billions)

If the loss is as above, the bank can not report profit for 2 1/2 years to 6 1/2 years. The capital would have been reduced by Min 25% and Max 64%.

POINT 3
To avoid disclosure of massive loss, the alternative is to de-list from NYSE to skip US laws.

Wait for some more days for confirmation.

Kalidas, Hong Kong
11-04-2008 Ref: 09-009