Viewpoint: Upcoming IPOs Will Be an Acid Test for Indian MFIs
Monday, October 26, 2015
Between 2007 and now, globally, two microfinance institutions (MFIs) got themselves listed on the stock exchanges. In the next six months, this number will be doubled; it could even be trebled. And, all entities opting for public listing are from India.
Equitas Holdings Ltd, one of the eight MFIs which have got the Reserve Bank of India’s (RBI) in-principle approval to float a small finance bank, has already moved India’s market regulator with its plan for an initial public offer (IPO). The proposed public issue will have a fresh issuance of shares of around Rs.600 crore and an offer for sale by its existing foreign investors. The overall issue size could be around Rs.1,500 crore, depending on the valuation of the company, in which foreign investors hold a 93% stake.
Another MFI, Ujjivan Financial Services Pvt. Ltd, which has also got an in-principle nod of the banking regulator for a small bank, is preparing for its IPO—a combination of new shares being issued and an offer for sale by its existing foreign investors. The public issue of Ujjivan, in which foreign investors hold a 89% stake, may have the same size as that of Equitas.
There could be a couple of other IPOs as well. Utkarsh Micro Finance Pvt. Ltd, in which foreign holding is 85%, could be one of them.
On 28 July 2010, SKS Microfinance Ltd, India’s largest MFI then with 5.8 million clients, became the first MFI in India to sell shares through a $350 million IPO. The offering was subscribed 13 times. A little more than a month after it got listed on 16 August 2010, SKS’s share price rose 42%. SKS followed the pathbreaking $467 million IPO by Banco Compartamos in Mexico in 2007.
There is a difference between the past couple of IPOs of MFIs and the latest round. While both SKS and Banco Compartamos wanted to raise money from the public, the forthcoming offerings by MFIs are a regulatory compulsion. The MFIs need to pare the foreign stake in them to at least 49%—a pre-condition for the final licence of the Indian banking regulator. Janalakshmi Financial Services Pvt. Ltd has around 75% foreign stake and Suryoday Micro Finance Ltd 68%.