Why Is ICICI Bank Soaring Today?

News Behind Move

Russian oil giant Rosneft inked an agreement with India's Essar Group to buy Essar Oil in a $13 billion in cash. Essar suggested that it would use the sales proceeds to deleverage the group and look for strategic consolidation and growth in other businesses.

A Barron's report quoting Nomura Securities said Essar Oil's parent, the Essar Group's debt stands at 1.2 trillion rupees or roughly $17.8 billion. About 300 billion rupees of it is attributable to Essar Oil.

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So, Why Are Investors Flocking To ICICI Bank?

The proportion of Essar Group's debt as a percentage of the bank's total loan book is the highest for ICICI Bank followed by Axis Bank, the Punjab National Bank and the State Bank of India, according to Nomura. So, investors are obviously relieved that the company is looking to deleverage.

Citing Nomura Barron's also noted that private banks such as ICICI and Axis Bank have already considered the debt of some Essar Group companies such as Essar Steel and Essar Power as bad debt and have also opted to sell their exposure in Essar Steel to asset construction companies at over 50 percent discount. Meanwhile, state-owned banks such as State Bank of India are still treating them as non-performing loans.

ICICI Shares Underperforming Peers This Year

The shares of ICICI Bank are still down 1 percent this year despite Monday's rally. This pales before an 18.4 percent gain for Axis Bank. Given ICICI Bank's large exposure to stressed assets, Nomura noted that the markets are penalizing ICICI, as its shares are trading at 1.7 times Nomura's 2016 book estimate compared to 2.9 times for Axis Bank.

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