Bengaluru-headquartered microfinance firm CreditAccess Grameen Ltd, which operates as Grameen Koota, has filed its draft red herring prospectus with the country's markets regulator to float an initial public offering.
The company, which counts private equity firm Olympus Capital Holdings Asia India Advisors Pvt. Ltd among its key investors, will issue fresh shares worth Rs 900 crore. Also, its promoter, the Netherlands-based CreditAccess Asia NV,Â will sell 10.28 million shares.
The IPO size is estimated at Rs 1,500 crore ($236 million), according to two people familiar with the development.
VCCircle had first reported the companyâs plan to go public in September last year.
Grameen Koota is the second-largest microfinance institution in India. It will likely become the largest by the end of 2018 if its peer Bharat Financial Inclusion completes a planned merger with IndusInd Bank.
IndusInd Bank recently said the acquisition of Bharat Financial is likely to be completed by the second quarter of the next financial year.
CreditAccess holds about 99.5% of Grameen Koota. The microfinance firmâs promoters and employees own the remaining stake.
Hong Kong-headquartered private equity firm Olympus Capital Asia is CreditAccessâ largest investor with a 16% stake. In January last year, it secured $30 million from Olympus Capital to fund expansion in existing markets and set up operations in new geographies within Asia.
Olympus Capital specialises in control-oriented investments in mid-market companies with a strong focus on the financial services sector.
Other investors include the Asian Development Bank with a stake of around 10%.
âOlympus ACF Pte. Ltd holds more than 10% of the equity share capital of CAA. However, by virtue of being purely a financial investor in CAA, Olympus ACF is not being disclosed as an entity forming part of the promoter group,â the company stated in its draft documents filed with the Securities and Exchange Board of India.
CreditAccess Grameen will join other microfinance institutions-turned-small finance banks such as Ujjivan Financial Services Ltd, Equitas Holdings Ltd and AU Small Finance Bank Ltd in going public. The trio saw a massive response from investors when their shares went on sale.
In May 2016, the IPO of Bengaluru-based microfinance firm Ujjivan FinancialÂ received bids for 40.66 times while the IPO of Equitas was covered more than 16 times.
Private equity-backed AU Small Finance Bankâs IPO was subscribed more than 50 times.
VCCircle had reported last month that CreditAccess Grameenâs peer company Arohan Financial Services Pvt. Ltd had shortlisted investment bankers to float an IPO.
Hereâs a snapshot of the proposed IPO:
Grameen Koota is looking to raise around Rs 1,500 crore through a combination of fresh and secondary share sales.
The company will issue fresh shares worth Rs 900 crore besides an offer for sale of 10.28 million shares by its promoter, the Netherlands-based CreditAccess Asia NV.
Use of Proceeds
The company aims to use the net proceeds from the fresh share component to boost its capital base for future capital requirements arising from anticipated growth in its assets - primarily loans and advances - and other investments.
ICICI Securities, Credit Suisse Securities (India), IIFL Holdings, and Kotak Mahindra Capital Co are the merchant bankers managing the IPO.
Cyril Amarchand Mangaldas is the legal counsel to the company and the promoter selling its stake.
Luthra & Luthra and Clifford Chance are India and international legal counsel, respectively, representing the merchant bankers on the IPO.
CreditAccess Grameen was originally incorporated as Sanni Collection Pvt. Ltd (SCPL) in 1991. It operates as microfinance lender, providing simple financial access loans - mainly to women - in rural India.
The company offers loans to customers to help them establish a new enterprise or expand an existing business in their individual capacity (for instance, for the purchase of inventories, machinery or two-wheelers).
In 2007, the entire shareholding of SCPL was acquired by some trustees of T Muniswamappa Trust (TMT). SCPL was subsequently named Grameen Financial Services Pvt. Ltd in 2007.
The firm then adopted its current name, CreditAccess Grameen Ltd, earlier this month.
Grameen Koota claims it covers 112 districts in the five states of Karnataka, Maharashtra, Tamil Nadu, Chhattisgarh and Madhya Pradesh.
CreditAccess had backed Grameen Koota as early as 2008. It also backed Equitas Microfinance around the same time but partially exited after Equitas converted into a small finance bank (SFB). Equitas was the first SFB to list on stock exchanges last year.
Grameen Koota and CreditAccess made a strategic decision to remain focused on its core customers i.e. rural clients and its core business â providing simple financial access loans.
As a result, Grameen Koota did not apply for a small finance bank finance license, which would have resulted in dilution of focus from its core market and core business, in addition to much higher operational costs, issues now impacting several SFBs.
CreditAccess, the parent company, also supports Grameen Koota in the areas of acquisitions, risk management, audit and IT.
Driven by Nobel laureate Muhammad Yunusâ Grameen methodology, historically a majority of Grameen Kootaâs book has come from group lending.
Going forward, it will continue to diversify its suite of lending products based on the requirement of its client base.
As per norms, MFIs can lend up a maximum of Rs 1 lakh to small borrowers and can have exposure of 15% of total assets to individual loans.
CreditAccess plans to cover 10% of the pan-Asian market and reach about 10 million clients over the next three to five years from 2.2 million clients across the region now.
Grameen's past investments
Grameen Koota raised Rs 80 crore (approximately $13.5 million) of fresh equity from CreditAccess in May 2014.
CreditAccess also acquired the whole of the existing shareholding of Aavishkaar Goodwell India Microfinance Development Company and IIM Impulse 2 (Incofin), early investors in Grameen Koota, and part of the existing shareholding of promoters and employees.
From the transaction, CreditAccessâ stake in in Grameen Koota rose to 64.8% with the acquisition and the new round of equity infusion, compared with 26.2% stake earlier.
Previously, CreditAccess had invested an undisclosed amount in Grameen Koota in 2009 and also $2.86 million jointly with Incofin Investment Management in 2013.
CreditAccess Asia operates a portfolio of â¬240 million ($258 million) serving over 1.3 million clients.
In May 2016, International Finance Corporation (IFC), the World Bankâs private-sector lending arm, announced an investment of up to Rs 135 crore ($20 million) in Grameen Koota through non-convertible debentures (NCDs).
IFC has previously invested in a number of Indian microlenders including Bandhan Financial, which has now turned into a commercial bank, as well as Satin Creditcare Network and Swadhaar FinServe, besides backing a host of sector-focused fund managers like Aavishkaar and Lok Capital.
The World Bank arm also invests in several other sectors through both equity and debt deals. Most recently, it proposed to invest up to Rs 266 crore in Repco Home Finance Ltd as part of its plan to support mortgage lenders that offer loans for low-cost houses.
This came after IFC in April 2016 invested $38 million in three housing finance companies in IndiaâAspire Home Finance Corporation, Micro Housing Finance Corporation and Aptus Value Housing Finance India Ltd.
Grameen Koota reported net profit of Rs 60.72 crore for the first six months of the current financial year on revenue (from operations) of Rs 380.17 crore in the same period.
Its net profit stood at Rs 80.29 crore for the financial year 2016-17 compared to Rs 83.24 crore in 2015-16.
The companyâs gross non-performing assets (NPA) shot up sharply to Rs 210.49 crore at the end of the April-September 2017 period against Rs 2.58 crore for the full year ending March 2017 and Rs 1.98 crore at the end of March 2016.
The firmâs annual average gross assets under management (AUM) stood at Rs 3,506.20 crore at the end of September 2017. Average AUM was Rs 2,807.10 crore for 2016-17.