Equitas Holdings plans IPO launch in April

Equitas Holdings intends to raise nearly Rs2,000 crore through the IPO, which will see several existing foreign shareholders trim their holding

Small finance bank (SFB) licence holder Equitas Holdings Ltd is planning to launch its initial public offering (IPO) next month, with the first week of April as the most likely time frame, according to three people aware of the development.

The April IPO will make Equitas the first SFB in the country to list on stock exchanges.

“Roadshows have been going on for a while now. The markets too have picked up post the Union budget. However, there are already a bunch of IPOs slated for March and there are also several holidays in the last week of the month. So they are looking at first week of April,” said one of the three people cited above, requesting anonymity.

Another SFB licensee, Ujjivan Financial Services Ltd, also plans to tap the primary markets after receiving regulatory approval late last month. However, the company is yet to finalize the launch date, said a second person cited above, also requesting anonymity.

E-mails sent to Equitas and Ujjivan did not elicit any response.

Chennai-based microfinance lender Equitas Holdings intends to raise nearly Rs.2,000 crore through the IPO, which will see several existing foreign shareholders trim their holding as part of the Reserve Bank of India’s (RBI) directive on foreign ownership in SFBs. Foreign shareholders held 93% of the equity in Equitas as on 31 March 2015, according to information available in the company’s draft IPO documents filed in October.

Foreign investors that are selling shares in the IPO include Sequoia Capital, World Bank arm International Finance Corp., Dutch development finance institution FMO, Helion Venture Partners, Aavishkaar, India Financial Inclusion Fund, Westbridge Ventures, Lumen Investment Holdings and Aquarius Investments. Collectively, they hold a 67.53% stake in the company.

RBI guidelines for SFBs mandate foreign shareholding as per the foreign direct investment (FDI) policy for private sector banks.

“As per the current FDI policy, the aggregate foreign investment in a private sector bank from all sources will be allowed up to a maximum of 74% of the paid-up capital of the bank (automatic up to 49% and approval route beyond 49%). At all times, at least 26% of the paid-up capital will have to be held by residents,” RBI said in the statutory guidelines issued for SFBs in November 2014.

Equitas’ founder P.N. Vasudevan, who owns 3.17% stake in the firm, will also sell a part of his holding, according to the prospectus.

The company received Securities and Exchange Board of India (Sebi) approval for its IPO on 29 December.

Equitas had planned to raise Rs.300 crore in a pre-IPO round, but dropped the idea and will now go ahead with the IPO. “They were earlier looking to raise funds in a pre-IPO placement round and had held some discussions. However, that plan has been dropped and they are looking at going directly for the IPO,” said the third person cited above, again on condition of anonymity.

Last month, Ujjivan raised Rs.312 crore from domestic investors in a pre-IPO placement round to convert itself to a small finance bank from a micro-lender. About 33 domestic investors, including institutional investors such as HDFC Standard Life Insurance Co. Ltd, Shriram Life Insurance Co. Ltd and Bajaj Allianz General Insurance Co. Ltd, participated in the round.

The pre-IPO placement was done at a price-to-book value multiple of 2.1 times, Mint reported. Price-to-book value multiple is a ratio used to value financial institutions. The funding round valued the company at around Rs.2,150 crore, post money.

Ujjivan had filed its draft prospectus with Sebi on 31 December and received regulatory approval last month.

Some experts believe that domestic investors will be keen to snap up shares offered by these firms given the strong growth the microfinance sector has posted in recent years. Currently, the mainstay of a majority of the SFB licensees is microfinance.

“Domestic investors have warmed up to the sector in the recent years. One of the biggest attractions is that these entities have displayed strong top line growth, while also maintaining extremely low levels of non-performing assets, as compared to larger commercial banks,” said Khushroo Panthaky, partner at auditing firm Walker Chandiok and Co. Llp.

Equitas’ revenue increased 56% to Rs.755.9 crore in 2014-15 from Rs.483.5 crore in the previous year, data from the company’s draft IPO filings show. Last fiscal, the company reported a profit of Rs.106.6 crore, an increase of 44% over the previous year’s profit of Rs.74.1 crore.

The company disbursed fresh loans of Rs.3,606 crore in fiscal 2015.

This article was published in the Live Mint, to read please click here.