MFIs reconsider listing plans
Lukewarm response of retail investors to Spandana IPO, choppy markets key factors
Micro-finance institutions (MFIs), planning to launch their initial public offerings (IPOs), have decided to take it slow after the lacklustre performance by Spandana Sphoothy.
The Hyderabad-based MFI’s ~1,200crore IPO, which closed on August 7, was subscribed just 1.05 times. The main reason for this performance was choppy markets as well as lack of enthusiasm from retail investors, who subscribed to only 10 per cent of the quota reserved for them.
In the next few quarters, at least two other MFIs, Arohan and Muthoot Microfin, had planned IPOs. But now, they plan to wait for more clarity. According to Sadaf Sayeed, CEO, Muthoot Microfin, the MFI will evaluate its plans to go for an IPO in the next two months based on the market situation.
The MFI had got Securities and Exchange Board of India (Sebi) approval for the IPO last October, and the licence is valid for one year. The MFI was earlier planning an IPO around January-February, but it got postponed due to unfavourable capital market conditions.
“We are evaluating the situation, and will go for an IPO in the next two months, if the market situation improves. The present market condition is not conducive for an IPO,” said Sayeed. Arohan has been contemplating an IPO since last year, but as of now it’s looking to beef up capital through alternative sources.
“We are hopeful of filing an application for an IPO by Q4 this year. At present, we are internally doing a rejig of promoters’ holding, which is set to increase from nearly 33 per cent to 38 per cent ahead of the IPO. The proceeds will help us expand into new geographies. The market is not buoyant now, and ideally one needs to wait for more stability before going for an IPO,” said Manoj Kumar Nambiar, managing director, Arohan.
As some of the top MFIs grow in size, beyond ~3,000 crore in terms of credit outstanding, many have been seeking to go for an IPO.
Last year, Credit Access Grameen got listed on the exchanges. Apart from this, Satin Creditcare Network is the other listed micro finance company after Indus Ind Bank acquired Bharat Financial Inclusion in June. After Bharat Financial, Credit Access Grameen is the largest MFI, followed by Satin and Arohan, according to data available with Microfinance Institution Network (MFIN).
According to a top executive in the MFI sector, several mid-sized MFIs could also be thinking to tap the capital markets for funding. However, they are now seeking other ways of raising capital, mostly qualified institutional investments, due to adverse market conditions.
The MFI industry has been growing rapidly in the last few months. The industry’s gross loan portfolio or GLP stood at ~1,87,386 crore at the end of March, up 38 per cent year-on-year, according to data by MFIN.
Apart from this, several small finance banks (SFBs) would need to mandatorily go for an IPO in the next few months to comply with the Reserve Bank of India’s norms.
The norms specify that SFBs must be listed within three years after launching operations.
So far, three SFBs have listed on the stock markets – Equitas Financial Holdings, Ujjivan Financial Services and AU Small Finance Bank. Seven others would need to mandatorily go for an IPO.