India: Hyderabad MFI Spandana Eyes Rs 100-cr (USD 20 ml) Private Equity Infusion

Nov 2008
Hyderabad, India, November, 19 2008 - Private equity investors are betting big on microfinance institutions (MFI) in these turbulent times, as valuations are becoming more attractive for them now.

The city-based microfinance institution, Spandana, is set to raise Rs 100 crore from a private equity investor by off-loading a 10-12% stake. It is understood to be in talks with US-based Valiant Capital Partners for the second round of capital infusion.

Spandana’s valuation would be around Rs 1,000-1,200 crore, said industry experts. The company officials, however, declined to comment on the deal. The proposed deal comes close on the heels of another big-ticket transaction that was clinched in the MFI space recently. Last week, private equity investors led by Sandstone Capital infused around Rs 366 crore in SKS Microfinance, another city-based MFI. The new equity investor issued a fresh set of shares, making SKS the country’s first foreign-owned MFI-NBFC.

Although Spandana has roped in private equity investors, it will continue to be Indian-owned MFI-NBFC, said the sources. The fresh equity infusion will help the MFI to diversify into new geographies. It would also strengthen its borrowing capacity and enable MFI leverage and reach out to a greater number of clients.

Spandana’s net worth was around Rs 270 crore at October-end of this year. Right now, the MFI has a comfortable capital adequacy ratio — an indicator of the capital strength — of 16%, against the RBI norm of 10%. This will go up to around 23%, after the additional capital infusion of Rs 100 crore.

A year ago, the MFI had raised Rs 50 crore in the first round of capital infusion. Existing investors — JM Financial and Lok Capital — have 23% and 5.3% stake, respectively in Spandana. Spandana plans to raise another Rs 200 crore from private equity funds within this fiscal for future growth.

The MFI will use the funds to increase its existing customer-base from 16 lakh borrowers to 25 lakh borrowers by the end of the financial year. It will also extend its services in both the eastern and western parts of India.


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