India: SKS Microfinance may hit Street with Rs 1,000-cr IPO

Mar 2010
New Dehly, India, March, 16 2010 - Hyderabad-based SKS Microfinance is looking to raise Rs 1,000 (USD 219 ml.) crore from its upcoming public flotation , whose progress is being keenly watched as it is the first share issue by a company in the fledgling microfinance sector.

“We plan to sell around 10-15 % stake. The quantum of stake sale will depend on the valuation of the company,” said a senior executive with a private equity investor in SKS, founded by Vikram Akula, one of the pioneers of the industry.

The firm, which specialises in offering small loans to poor borrowers, is expected to file its draft red herring prospectus (DRHP) by end of this month and is looking for a valuation between Rs 5,000 crore and Rs 7,000 crore, he said, requesting anonymity.

Akula, SKS managing director and chief executive Suresh Gurumani and two leading private equity firms Sequoia Capital and Kismat are putting part of their holdings, aggregating to 20% under promoters’ category for a mandatory lock-in for three years, which is needed for doing an IPO.

According to two officials involved in the deal, Akula, who owns a little over 6% in SKS directly will tender a miniscule part of his holding in the promoters category as most of his stake in the company comprises ESOPs, which was converted into equity only last year. This too is yet to complete the mandatory one-year period before it can qualify as promoter’s holding.

It is pertinent to add that there was a speculation in the financial market for a while that Akula was intending to exit the company even before the IPO. However, Industry executives familiar with the lender’s listing plans dismiss these reports, attributing them to jealous competitors. All these facts – like Akula being a promoter and the top management locking in their shares for three years – will be spelt out in the DRHP, one executive told ET.

“Akula is a promoter too. But, in part because of his small stake in the company, his contribution to the 20% lock-in will be in “low single digits” . ET was also told that SKS management team – Akula, S Gurumani and chief operating officer MR Rao have agreed to lock up their shares for the three year period,” a senior industry executive said.

It was reported last week that the company’s investors, led by Sequoia Capital, have become the promoters of SKS.

Since then, other details about the SKS IPO, which will be India’s first IPO from the microfinance sector, are slowly entering the public domain. The company posted a Rs 80 crore profit on revenues of Rs 544 crore in 2008-09 .

The issue will be a combination of fresh issue by the company and offer for sale by the existing private equity players. To fulfill SEBI’s requirements for promoters locking in 20% of their equity for three years, Sequoia Capital and Kismet will contribute 12% and 8% (out of their 24% and 17% shareholding in the company), said an executive with a private equity firm, who asked not to be named.

Sandstone, which has around 12% stake in the company, is not affected by this stipulation as it invested in SKS only last year. While all three PEs are offloading a part of their holding in the company, they will continue to hold shares after listing.

The IPO is primarily to help investors and employees encash their stakes. SKS already enjoys a healthy capital adequacy ratio of 24.36% — against the Reserve Bank of India mandated 12%. This is supported by the fact that this is a combo deal – part offer for sale by existing investors, part fresh issue by the company. Hence, the listing is primarily intended to give an exit route the private equity players.

Agrees PN Vasudevan, Equitas Microfinance : “A lot of the PE firms that entered the market during 2005-06 are looking to exit now. We will now see a new wave of retail investors.”


Research Analysis Tools

The fund indexes, institution benchmarks and other market information displayed here are all Symbiotics designed analysis tools, created in-house by our analysts and experts. Symbiotics has one of the oldest track records in microfinance investment analysis dating back to the late 1990s; its indexes and benchmarks have been regularly used as markers by investors, asset managers, financial institutions and practitioners. These, as well as several other research products, are available through the Research Account. Click on the link below to find out more.

Learn More