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SKS Microfinance’s strong listing boosts IPO prospects

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MUMBAI (Reuters) – A strong listing of Indian bank SKS Microfinance, which counts U.S. billionaire George Soros as one of its investors, has boosted hopes for more such services in the world’s largest microfinance market. prospect.

Customers of a microfinance institution string beads into necklaces at a workshop in a Mumbai slum, February 17, 2007. REUTERS/Prashanth Vishwanathan/fILES

Shares of SKS, India’s largest microlender, rose nearly 18% on Monday, the best debut among major offerings since March, after raising about $358 million and becoming the country’s first to enter the market. microfinance institutions.

“Both subscription and listing performances suggest that if there is a new theme and it is driven by the Indian growth story, then investors will be interested,” said Jagannadham Thunuguntla, head of equity at SMC Capitals in New Delhi.

“You’ve seen that with MakeMyTrip and now with SKS,” he said, referring to Indian travel company MakeMyTrip Ltd, which soared 92% in its U.S. debut last week.

Founded by former McKinsey consultant Vikram Akula, named by Time magazine as one of the world’s most influential people, SKS has nearly 7 million clients and total spend of nearly $3 billion. It claims to have a 99% repayment record.

“The share price opened much higher than expected,” said Arun Kejriwal, director of KRIS. “This will provide an opportunity for more microfinance institutions to enter the market.”

Buoyed by SKS’s response, at least six large Indian microfinance institutions may be considering initial public offerings, analysts said. These may include Spandana Spoorthy Financial Ltd, Share Microfin Ltd, Asmitha Microfin and Bhartiya Samruddhi Finance.

Shares in SKS, which provides microloans to poor women, were up 13.6% at 1,118.65 rupees in Mumbai at 12:35 p.m. (0704 GMT), little changed. The stock rose to Rs 1,159.90 in early trade.

The stock was the third-largest major stock in terms of trading volume, with 4.3 million shares changing hands.

“It’s a new concept and I believe the company’s business strategy will work well in the medium to long term,” said Dhara Kapadia, a retail investor in the SKS share offering. view of the market.”

State-run Coal India, the world’s largest coal producer, last week filed a draft prospectus for an initial public offering to raise as much as $3 billion, with the offering expected to go public around Oct. 15.

Since April, India has raised $260 million through the IPO of state-run utility SJVN and $211 million through the sale of Engineers India. Both offers have received a strong response from investors.

Other government share sales planned for this fiscal year include public offerings by Steel Authority of India, Hindustan Copper and Power Grids.

SKS received bids 13.7 times the 16.8 million shares it would issue in its IPO and priced the shares at Rs 985 each, at the upper end of the indicative price range.

profiting from poverty?

Akula started SKS as a nonprofit in 1998 and transitioned to a for-profit model five years ago. High-profile investors such as venture capitalist Vinod Khosla and Infosys founder NR Narayana Murthy have been drawn to the country, where 40 percent of its 1.2 billion people live on less than $1.25 a day.

“If you look at the market opportunity, there’s a huge opportunity for growth,” Acura said after the listing. “There are 150 million poor households across the country and only 22 million have access to financing. There is a huge unmet need.

SKS is the world’s highest-profile microfinance company listing since Compartamos in Mexico in 2007, attracting strong interest from key microfinance industry countries as well as private equity firms that have recently flooded into the industry.

“Global capital markets haven’t had much chance to taste the issues in the space, despite the controversy over these institutions aimed at social justice and financial inclusion,” Thunuguntla said.

SKS has been criticized for charging 28% interest rates to borrowers, mostly poor women in self-help groups, who take unsecured loans of about 12,000 rupees ($261) to buy cows or start small shops.

The company said in its prospectus that it plans to use the proceeds from the sale to expand its capital base to meet future capital needs, which may be driven by business growth.

According to industry estimates, India has more than 400 active microfinance institutions serving some 70 million poor people. There may be 120 million unbanked households in India, so the demand for microfinance is likely to grow substantially.

Although microfinance has existed in many forms for decades, the industry has grown since Bangladeshi economist Muhammad Yunus was awarded the 2006 Nobel Peace Prize for improving access to finance for the poor. Has rapidly developed into a huge market.

(Author: Devidutta Tripathy; Editor: Muralikumar Anantharaman)

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