A share offering by India's biggest lender to the poor, SKS Microfinance, was oversubscribed nearly 14 times as it became the country's first microfinancier to seek a stock listing, data showed Monday.
The initial public offer (IPO) by SKS, which aimed at raising at least 350 million dollars, received strong demand from investors, who bet on its business model of lending to the poor.
"Investor response was very good, indicating confidence in the company's asset quality," a source told AFP.
The microlender, based in the southern city of Hyderabad, which lends small sums to India's neediest, who are unable to get credit from mainstream banks, is selling a 22 percent stake in the IPO.
The lender received about close to 190 million bids for the 13.7 million shares on offer -- a 13.6 times oversubscription, stock exchange data showed.
SKS, which plans to use the capital raised to expand its lending operations, will join a select group of microfinancers globally to have shares listed. The shares will start trading in mid-August.
The IPO, managed by Indian financial group Kotak Mahindra Capital, Citigroup and Credit Suisse, was launched last Wednesday.
SKS, which says its mission is to eradicate poverty, fixed the price band for its IPO at 850-985 rupees (18-21 dollars).
Most bids were at the top end of the price band, indicating robust investor demand. Interest was strongest from institutional investors.
"Our feedback from institutions is that they are confident that the business model can be replicated as the company expands," the source said.
SKS has served a total of seven million borrowers and operates more than 2,000 branches in 19 Indian states.
It offers loans which average about 7,000 rupees (150 dollars).
Founded in 2003, SKS, whose borrowers pay back their loans in weekly installments, has a 99-percent repayment rate.
SKS has cited research showing that the supply of funds for micro-loans in India stood at 4.3 billion dollars in 2008 while demand was 51.4 billion dollars.
Demand for small loans is expected to reach 72 billion dollars by next year.
The offering could trigger a series of stock market listings by Indian microfinance firms hungry for equity to finance loans, analysts say
Like most microfinance lenders, SKS's interest rates are hefty. SKS's annual loan rate ranges up to 28 percent, which some critics say is exorbitant.
But the lender says the rates reflect its costs and are far lower than those charged by predatory moneylenders who ask for up to 72 percent interest annually and to whom India's poor would otherwise turn.
Less than half of India's 1.2 billion population has a bank account while fewer than 10 percent have life insurance.
With India posting 8.6-percent expansion in the latest quarter, experts say improving the poor's access to financial services is crucial to ensure they can take advantage of robust growth.
Lack of availability of credit for the poor at an affordable cost is a stumbling block for growth and equitable development, which are essential for reducing poverty in Asia's third-largest economy, they say.
SKS is one of the biggest micro lenders to float since 2007 when Mexican microfinancier Banco Compartamos -- which means "let's share" in Spanish -- listed on the stock market, making large sums for its founders and sparking a public debate about the ethics of making profits from the poor.
© ANP/AFP
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TEN REASONS WHY ONE SHOULD NOT INVEST IN SKS MICRO FINANCE IPO
1. Unethical business: The Company is charging interest around 40% p.a. on money lent to the poor and down trodden.
2. Unsustainable business model: The business model will not sustain in the long -run.
3. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year.
4. Look at the salary of top executives :
Suresh Gurumani - Managing Director of the Company. The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.
Dr. Vikram Akula - chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a.
5. Mohd. Yunus says - “I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,”
6. The IPO will make the promoters, and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty.
7. Government /RBI will not be mute spectators to the exploitation.
They are bound to regulate the segment. This will make the business un- attractive.
8. Financial inclusion initiatives taken by the public sector banks will marginalize the micro finance business. Do not buy the theories put forth by the BRLMs to sell the issue.
9. The average cost of acquisition of shares by promoters is less than Rs50/-The Company has limited period of history and no dividend payment record.
10. The Andhra Pradesh government has constituted district level ‘Task Force Committees’ (TFCs) to investigate the unethical practices of micro finance institutions in the state. The committees were constituted after the government received many complaints against the loan shark practices adopted by some leading MFI’s of the state.
for further details log on to firstchoiceipoanalysis.com
TEN REASONS WHY ONE SHOULD NOT INVEST IN SKS MICRO FINANCE IPO
1. Unethical business: The Company is charging interest around 40% p.a. on money lent to the poor and down trodden.
2. Unsustainable business model: The business model will not sustain in the long -run.
3. No commitment from the promoters: SKS’s founder and chairman sold his shares to Tree Line Asia Master Fund (Singapore) Pte for $12.9 million in Feb. this year.
4. Look at the salary of top executives :
Suresh Gurumani - Managing Director of the Company. The total monthly salary is Rs. 12, 50,000. In addition to the above, Mr. Suresh Gurumani was paid onetime bonus of Rs. 10,000,000, in April 2009.
Dr. Vikram Akula - chairman Rs 70.00 lacs p.a. In addition, ESOP amounting to Rs10.97lacs, totaling Rs 1.79cr p.a.
5. Mohd. Yunus says - “I get very worried when investment funds come to microfinance,” said the founder of Bangladesh’s Grameen Bank, which pioneered the industry by giving small loans to rural women to start their own businesses. “I don’t want to excite businessmen that there is profit to be made here,”
6. The IPO will make the promoters, and other venture capitalists including some P/E funds that have stakes in these companies’ millionaires. The hapless borrowers continue to live in abject poverty.
7. Government /RBI will not be mute spectators to the exploitation.
They are bound to regulate the segment. This will make the business un- attractive.
8. Financial inclusion initiatives taken by the public sector banks will marginalize the micro finance business. Do not buy the theories put forth by the BRLMs to sell the issue.
9. The average cost of acquisition of shares by promoters is less than Rs50/-The Company has limited period of history and no dividend payment record.
10. The Andhra Pradesh government has constituted district level ‘Task Force Committees’ (TFCs) to investigate the unethical practices of micro finance institutions in the state. The committees were constituted after the government received many complaints against the loan shark practices adopted by some leading MFI’s of the state.
for further details log on to firstchoiceipoanalysis.com