PE-backed Spandana Sphoorty’s IPO subscribed nearly 6% on first day

By Ankit Doshi

  • 05 Aug 2019
Credit: Thinkstock

The initial public offering (IPO) of Hyderabad-based microlender Spandana Sphoorty Financial Ltd got off to a slow start on Monday, in part owing to the volatility in the stock market.

Spandana’s public offering of 9.82 million shares, excluding the anchor allotment, received bids for 5.71 lakh shares. That amounts to a subscription of 5.8% at the end of day one, stock-exchange data showed.

The portion set aside for qualified institutional buyers saw nearly 19% subscription while the quota reserved for retail investors and non-institutional investors, such as corporate houses and affluent individuals, saw muted response.

High net-worth individuals (HNIs) typically invest in very large quantities on the final day of the issue to save on the interest cost. HNIs borrow short-term capital from various avenues, barring banks, to fund their IPO applications in what is known as IPO financing. These investors deploy a small fraction of their own capital—which is called margin money—upfront. Additional capital raised through short-tenure loans help HNIs or wealthy investors place large bids in an IPO.

On the grey market, shares of Spandana’s shares were quoting at a premium of Rs 5-7 over its price band of Rs 853-856 apiece. Last week, Spandana shares quoted a premium of Rs 10-15 over its price band. The grey market is a pseudo, over-the-counter market where IPO shares are traded before the official listing on a stock exchange.

Indian stock markets fell sharply but ended off lows while the rupee suffered its biggest one-day fall in six years against the US dollar, amid a global selloff in risk assets. At day's lows, the Sensex fell more than 700 points to 36,416 while the Nifty tumbled below 10,800, before ending off lows.

Spandana attracted prominent domestic and foreign investors, including a private equity firm and a hedge fund, as anchor investors last Friday. It raised Rs 360.28 crore ($51.7 million) by allotting nearly 4.21 million shares to 18 anchor investors at the upper end of its price band.

Spandana Sphoorty is seeking a valuation of Rs 5,504.64 crore ($791 million) from the IPO.

The IPO is a combination of a fresh sale of shares worth Rs 400 crore and an offer for sale worth Rs 800 crore by the microlender’s institutional backers. The IPO will see a stake dilution of 21% on a post-issue basis. That's lower the 27.71% stake dilution anticipated at the time the company filed for its IPO.

Spandana counts homegrown private equity firm Kedaara Capital, venture capital firm Helion Venture Partners and strategic investor Valiant Mauritius Partners FDI Ltd as its backers.

Kedaara and other investors were previously hoping to raise an estimated Rs 1,125 crore by selling 13.15 million shares. Instead, they are now selling a total of 9.35 million shares.

VCCircle had first reported in March last year that Spandana had appointed merchant bankers for a planned IPO later in the year. However, India’s primary market activity came to a standstill due to the trade war between the US and China and a liquidity crisis after IL&FS Ltd defaulted on its debt, causing redemption pressure at other non-banking financial companies.

Axis Capital, ICICI Securities, IIFL Holdings, JM Financial, IndusInd Bank, and Yes Securities are the merchant bankers managing the IPO. 

Spandana will become the latest microlender to go public after a bunch of its peers listed their shares on the stock exchanges in recent years.

Bharat Financial Inclusion Ltd -- formerly SKS Microfinance Ltd -- was the first Indian microfinance institution to float an IPO, in 2010. Microlenders-turned-small finance banks Equitas Holdings Ltd and Ujjivan Financial Services Ltd went public in 2016.

Microlender-turned-commercial lender Bandhan Bank and Bengaluru-based CreditAccess Grameen Ltd floated their IPOs last year. Kolkata-headquartered Arohan Financial Services Pvt. Ltd appears to have postponed plans after receiving debt capital from the World Bank’s private-sector investment arm International Finance Corporation.