SKS Microfinance – IPO, China Plans and Rated Bonds

SKS Microfinance may launch IPO in 2010

SKS Microfinance, the largest microfinance institution in the country and the fifth largest globally in terms of client base, is looking at more than doubling its total loan disbursals in 2009-10 to Rs 8,770 crore, from over Rs 4,000 crore disbursed so far in the current fiscal, according to Mr Vikram Akula, Founder and Chairman of the company.

The Hyderabad-based institution has set itself a target of disbursing Rs 4,500 crore in loans to the rural poor in 2008-09, growing at over 270 per cent compared with the previous fiscal. The outstanding portfolio would stand at Rs 5,100 crore by March 2010, compared with Rs 2,400 crore currently, he said.

The growth would be attained by expanding its client base and venturing into new markets, he said.

It plans to launch operations in Tamil Nadu this year by opening 54 branches, Mr Dilli Raj, Chief Financial Officer of the company, told Business Line.

The southern region of the country is the largest contributor to its business, with Andhra Pradesh and Karnataka accounting for 30 per cent and 17 per cent disbursals respectively. The client base, by March 2010, would increase to 6.5 million from 3.9 million clients across 60,000 villages currently, he said. Currently, it provides loans for income generating activities to rural women in 19 states and also extends third-party micro-insurance products of LIC, Bajaj Allianz, SBI Life and ICICI Lombard.

Public issue

The microfinance institution plans to open nearly 400 new branches in 2009-10, raising the total number of branches to 1,750, Mr Raj said.

It may also look at launching an IPO, Mr Akula said. “We may go for a public issue in the future in order to support our capital raising plans,” he said.

The IPO may be launched in 2010, a senior official at the company said. The company has an equity base of Rs 660 crore. It raised Rs 366 crore in October through the private equity route.

In 2009-10, the company is also looking to raise Rs 5,000 crore through bank loans, cash credits, placements with mutual funds and other debt instruments, Mr Raj said. Nearly Rs 500 crore of it would be raised through rated instruments like bonds, pool securitisation and commercial papers, he added. The incremental debt in the current fiscal stood at Rs 3,200 crore.

The capital adequacy ratio of the NBFC stands at 30 per cent, reports The Hindu Business Line.


SKS Micro plans to foray into China

HYDERABAD: SKS Microfinance, the largest microfinance provider in the country in terms of assets, is eyeing China as its next destination for expansion. The export-driven Chinese economy is reeling under the impact of recession due to the global meltdown. Several vocationally-trained employees have already suffered job losses.

SKS reckons this would be an opportune time to lend money to these groups to help them start their own ventures. It is planning to tie up with a China-based microfinance firm to start operations there, subject to regulatory approvals being granted by both the governments.

If SKS succeeds in foraying into China, it would be the first MFI in the country to expand operations overseas. “We are looking at expansion in China because it is a large country with a significant population that is poor.

The international expansion is not aimed at boosting our business in India but targeted to sharing our knowledge in the field and seeing how it can benefit a larger section of people,” said Suresh Gurumani, chief executive officer and managing director, SKS Microfinance. Currently, the company is evaluating regulatory issues that may have to be sorted out to set up a joint venture China.

“There are strict restrictions on operations within China. There would definitely be legal, compliance issues, cultural issues which we need to understand well before we get into a detailed exercise,” said Mr Gurumani.

However, no timeframe has been set for the proposed venture. The microfinance sector in China is dominated by NGOs, international organisations such as the United Nations Development Program and government agencies including the Agricultural Bank of China and Rural Credit Cooperatives. NGOs within China operate on temporary licenses issued by the government. However, they all operate with different guidelines.

“The Chinese government is encouraging rural financial institutions to aggressively expand their services. Microfinance has a good scope there, especially in such times when the downturn in the US economy has hit the country’s export sector,” Mr Gurumani said.

About 85% of the 1.3 billion Chinese population live in rural areas. China has a significant rural-urban divide and vocationally-trained rural employees are facing a severe job crunch now. “These rural masses can avail small loans to run their own business,” Mr Gurumani said.

SKS has replicated the model of Grameen Bank in Bangladesh, founded by Nobel laureate Professor Muhammad Yunus. The bank gives small loans to the poor (without collateral) that can be used to start an income generating enterprise.
“Our foray in China will be based on this robust model. However we will continue to build on the stronger Indian market and step up efforts to cater to the Indian poor as well,” Mr Gurumani said.

SKS Microfinance charges a 26% interest on loans to the poor. Around 1.5% of the interest amount is invested in expansion into new areas.

Founded by Vikram Akula, the poster boy of Indian microfinance, SKS has disbursed loans aggregating to Rs 5,788 crore to 3.6 million women households across eighteen states.

The micro finance institution claims that it has virtually no non-performing assets, given that the repayment rate is around 99%. It has a work-force of around 14,000 now and expects to raise the number to 17,000 by 2010.


SKS Microfinance to raise Rs 500 crore through rated bonds

As part of a Rs 5,000 crore borrowing plan for the next fiscal, Hyderabad-based SKS Microfinance is planning to raise Rs 500 crore through rated bonds next fiscal. It has also firmed up plans to raise Rs 25 crore through issuance of commercial paper (CP) in the next few days. SKS will be the first non-banking finance company (NBFC) in the micro finance space to use CP for fund raising.

SKS had recently raised Rs 25 crore through the issue of non-convertible debentures (NCD), fully subscribed by Yes Bank. The bond had a tenure of one year and carries a coupon rate of 10.50 per cent annum.

This fiscal, SKS expects to disburse a total of Rs 4,500 crore, with a total portfolio outstanding of Rs 2,500 crore. Next fiscal, it planned to disburse a total of Rs 8,750 crore, with a portfolio outstanding of Rs 5,000 crore, said S Dilli Raj, chief financial officer, SKS Microfinance.

This apart, SKS will raise Rs 500 crore through securitisation deal with financial institutions. Securitisation is the process of pooling and repackaging of cash flow producing financial assets into securities sold to investors.

Generally, a pool of micro-finance assets are sold to a bank at a discounted rate. These assets then become a part of the bank’s books.

Mostly banks were the subscribers to such instruments. SKS was mulling to sell such securities to mutual funds as well, said Vikram Akula, founder and chairperson, SKS.

SKS Microfinance and ICICI Bank recently completed a securitisation deal worth Rs 200 crore.

Last year, it had raised Rs 366 crore through private equity deals. The total equity capital of the company at present is Rs 660 crore.

Currently SKS is present in 18 states. This year it has plans to expand in Tamil Nadu and in the North East.


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