US private equity giant The Carlyle Group and India’s largest lender (by assets) State Bank of India (SBI) will make partial exits from SBI Cards and Payment Services Ltd as the credit-card issuing company has filed its draft prospectus with the Securities and Exchange Board of India (SEBI) for an IPO.
The public offering comprises fresh sale of shares worth Rs 500 crore ($70 million at current exchange rate) besides a secondary market sale of 130.52 million shares by Carlyle and SBI. The PE giant has offered to sell 93.23 million shares, or a little over one-third of its 26% stake.
The total IPO size is estimated at Rs 9,000 crore ($1.25 billion at current exchange rate) and the offering may result in a 14.5-15% stake dilution, two people aware of the development told VCCircle.
Carlyle’s 26% stake may dilute to an estimated 16% depending on the price of the IPO and the number of fresh shares issued through the offering, while SBI’s 74% stake will dilute to roughly 69.5%, VCCircle estimates show.
Kotak Mahindra Capital Company, Axis Capital, DSP Merrill Lynch (a Bank of America subsidiary that operates in India), HSBC Securities and Capital Markets (India), Nomura Financial Advisory and Securities (India), and SBI Capital Markets are part of the merchant banking syndicate arranging and managing the share sale.
SBI Cards will become the fifth group company under the SBI Group to go public following the listing of its parent and another group entity SBI Life Insurance Co. Ltd.
SBI General Insurance Co., the non-life insurance arm, is also looking to go public.
Another group company, SBI Home Finance Ltd, was also publicly traded earlier but its shares were suspended in October 2005. SBI filed for the unit’s liquidation three years later.
VCCircle had reported in August this year that SBI was considering a plan to dilute its stake in its credit card subsidiary via an IPO and the bank was seeking the Reserve Bank of India (RBI)’s approval to sell its stake.
VCCircle had also reported in 2017 that Carlyle was in advanced stages to acquire a 26% stake in two credit card joint ventures as GE Capital was looking to exit these firms.
SBI Cards & Payment
SBI Cards, which was incorporated and started operations in 1998, is the second-largest credit-card issuer in terms of number of credit cards outstanding as well as the amount spent with 9.46 million credit cards outstanding as on 30 September. It only trails behind HDFC Bank in terms of the number of cards issued.
Earlier this year, home-grown ride-hailing company Ola had partnered SBI Cards to launch a co-branded credit card.
SBI’s management has been looking at selling its investment in non-core assets to raise capital, while also looking to tap the growing opportunities in India as cashless transactions increase.
SBI Cards reported a net profit of Rs 725.88 crore for six months ended September 2019 on revenue (from operations) of Rs 4,363.93 crore.
For the full year ended March 2019, the company’s net profit was 862.72 crore on revenue of Rs 6,999.11 crore.
The banking, financial services, and insurance (BFSI) sector has been at the forefront of India’s deal making for the last few years. The sector recorded two big mergers in the last two quarters that jacked up the total deal value even as private investment activity remained on a stable path.
Among marquee deals, bulge-bracket investor Carlyle made its single-biggest investment in India earlier this year when it purchased a 9% stake in SBI Life Insurance Co. Ltd.
