PE investors likely to use the issues to exit their investments.
After a number of private equity (PE) investments in recent years, micro-finance institutions (MFIs) are in for another round of ownership restructuring, with public offers of equity shares next on their agenda.
Last month, SKS Microfinance became the first MFI to file a draft red herring prospectus with the Securities and Exchange Board of India (Sebi) for an initial public offering (IPO). Spandana and Share, Hyderabad-based MFIs, hope to hit the capital market over the next 12 months.
An IPO is a pragmatic exit route for PE firms and, thus, a compelling factor for most MFIs to go public. In general, the investment tenure of PE firms is three-five years.
For instance, in case of SKS, more than half the issue comprises secondary sale of shares. Of the public issue of 16,791,579 equity shares, fresh issuance is to the tune of 7,475,323, while PE firms Sequoia Capital and Mauritius Unitas Corporation, apart from SKS Capital and five other trusts, are offering 9,346,256 shares.
Sequoia Capital, Vinod Khosla, Small Industries Development Bank of India, Bajaj Allianz, Yatish Trading, Kismet Capital, Sandstone Capital, Silicon Valley Bank and Unitus are among the present equity partners of SKS Microfinance, according to the company’s website. SKS’s recent investors include Catamaran Management Services, a fund started by Infosys Chairman N R Narayana Murthy, which invested about Rs 28.13 crore.
In 2007, JM Financial India Fund and Lok Capital had invested about Rs 50 crore in Spandana. Another PE firm, Valiant Capital, took an 11.50 per cent stake in the MFI for about Rs 100 crore the following year.
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“We are exploring the possibility of an IPO over the next one year,” said YV Shiv Narain, vice-president, finance, Spandana.
In Share, PE firms include Legatum, with about 62 per cent stake, and Aavishkaar, which has a 5 per cent stake. The two invested about Rs 100 crore in Share in 2007.
“We are thinking of an IPO over the next one year. Normally, PE investors look for an exit over a period of time. The IPO is the best exit option for them,” said M Udaia Kumar, managing director, Share.
An IPO was the preferred exit route for the firms, as MFIs might find it hard to rope in other investors at high valuations, said Kumar.
PE investments in MFIs have been increasing over the past few years, with $300 million (Rs 1,335 crore) estimated to be infused by them in MFIs in the last three years, according to Shashi Shrivastava, vice-president, Grameen Capital India, an MFI advisory firm. In the past three months alone, total PE investments in MFI would be about $80-100 million (Rs 355-445 crore) in MFIs, he added.
Even hedge funds, whose investment horizon is one-two years, have started investing in MFIs. In the last three months, nearly $20 million (Rs 90 crore) was invested by hedge funds in MFIs, according to Shrivastava.
Last month, Janalakshmi Financial Services raised $10 million (Rs 45 crore), with Treeline Asia Master Fund as the lead investor. In a separate deal, SKS Microfinance Chairman Vikram Akula sold a part of his stake to hedge fund Tree Line Asia.