Microfinance IPO’s in 2016

A long list of Initial Public Offerings (IPO’s) from microfinance companies is expected to hit Indian Markets over the next one year.

Equitas microfinance has become the first microfinance company to have filed it’s draft red herring prospectus with SEBI to do an IPO in 2015. According to details available on their website Equitas plans to raise up to Rs 600 Crore from the primary markets through new issue of shares and an additional offer for sale by existing investors. Some analysts estimate that ESAF Microfinance’s IPO would raise between Rs 1000 -1500 Crores.

Equitas received in principle approval from RBI to set up a Small Finance Bank earlier this month.  It’s stock could be attractively priced to entice retail investors looking to cash in on the Small Finance Bank phenomenon. For FY2014-15, the company disbursed financial loans having a value of Rs 3600 Crore.

The reason why some microfinance companies are going to come our with IPO’s is because of regulatory compliance issues which require MFI’s to bring down their foreign stake down to 49% to be given banking license from the Reserve Bank of India. Other microfinance companies that may opt for the IPO route are Janalakshmi Financial Services where foreign holding is in excess of 75% and Suryoday Microfinance Ltd with foreign holding of 68%. There are some more MFI’s like Ujjivan Financial Services that have a foreign holding of more than 50% and these could opt for either the IPO route or private placement.

2016 microfinance IPO's

Small Finance Bank IPO’s

Two other companies Capital Local Area Bank and Au Financier’s are also looking to raise capital through private placement, IPO’s or issue of bonds. ESAF Microfinance is another company that has more than 60% foreign share holding, a spokesperson for the company stated that the foreign investors invested in ESAF may sell their stakes to the Staff Welfare Trust to bring down their shareholdings within RBI norms.

List of Companies looking to raise Capital via IPO / Private placement are :

  1. Equitas Holdings Ltd
  2. Janalakshmi Financial Services Pvt Ltd
  3. Utkarsh Microfinance
  4. Au Financiers
  5. ESAF Microfinance
  6. Capital Local Area Bank
  7. Disha Microfinance
  8. Suryoday Microfinance

Should you invest in the IPO’s of microfinance companies?

Past experience shows that many investors burnt their fingers when they brought the highly over priced shares of SKS Microfinance whose IPO hit the capital markets in 2010. However this time the scenario is bound to be more positive because the shares of these small finance companies will not be as highly priced as SKS Microfinance.

SKS Microfinance was one of the first microfinance companies to list on the stock markets and this novelty let to the issue managers pricing the shares aggressively which left little room for appreciation. Moreover the ensuing Andhra Pradesh Microfinance crisis ensured that SKS Microfinance suffered huge losses which led to it’s share price dropping from a peak of Rs 1300 to a low of Rs 57. Since then the shares have managed to climb back to a respectable Rs 400-500 range but investors who burnt their fingers may be wary of subscribing to these issues.

All these development indicate that India’s vibrant Microfinance sector remains one of bright spots in an otherwise dull national economy.


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