Equitas Small Finance Bank, a unit of Equitas Holdings Ltd, has filed a draft prospectus with the Securities and Exchange Board of India (SEBI) to float an initial public offering.
The IPO comprises a fresh sale of shares worth Rs 550 crore and a secondary market sale of 80 million shares by Equitas Holdings.
The total IPO size is pegged at Rs 1,000-1,100 crore ($141-155 million at current exchange rates), two people in the know told VCCircle.
An IPO and stock-market listing is imperative to the bank’s operations. In September, the Reserve Bank of India had barred the bank from opening new branches for missing its listing deadline, a key licensing condition. The RBI had also frozen the salary of Equitas SFB managing director and CEO Vasudevan PN.
The central bank had warned the lender that it might impose more restrictions if it failed to make “satisfactory progress” towards listing its shares.
Equitas SFB is the largest small finance bank by banking outlets, and second-largest by assets and deposits.
Equitas SFB, formerly Equitas Finance Ltd, will join Ujjivan SFB and PE-backed AU Small Finance Bank Ltd in going public. Ujjivan SFB went public earlier this month with a strong investor turnout and bumper listing. AU Small Finance Bank floated its IPO in 2017.
Chennai-based Equitas Holdings had listed its shares in April 2016, followed closely by Ujjivan SFB parent Ujjivan Financial Services Ltd.
Here’s a snapshot of the proposed IPO of Equitas SFB:
Use of proceeds
Equitas SFB will use fresh net proceeds from the IPO to augment its tier – 1 capital base to meet its future capital requirements for organic growth, expansion, and meeting regulatory requirements.
The proceeds from the secondary sale will go to the promoter selling shareholder.
JM Financial, Edelweiss Financial Services and IIFL Securities are the merchant bankers that are part of the syndicate arranging the share sale.
Cyril Amarchand Mangaldas is the Indian legal counsel representing the company and the promoter. S&R Associates and Squire Patton Boggs (MEA) LLP are India and international legal counsel to the merchant bankers managing the IPO.
Incorporated originally in June 1993 as VAP Finance Pvt. Ltd, Equitas SFB now offers a range of products and services to customers with an aim to serve the financially unserved and underserved customer segments in India.
Chennai-based Equitas SFB has a market share of 16% of overall assets managed by India’s small finance banks. Its offerings include small business loans, housing loans, agriculture loans to micro-entrepreneurs, microfinance to joint lending groups predominantly comprising women, and used and new commercial vehicle loans, among others.
Its parent Equitas Holdings is backed by the International Finance Corporation, the World Bank’s private-sector investment arm, and the UK government’s development finance institution CDC Group Plc. Early-to-mid-stage venture capital firm Helion Venture Partners is also an investor in the company.
As per the RBI's licensing conditions issued in November 2014, a small finance bank’s shares have to be mandatorily listed on the stock exchanges within three years of touching a net worth of Rs 500 crore. For Equitas SFB, that three-year period lapsed on September 4 this year.
Equitas Holdings had sought an extension from the RBI to list the small finance bank in June and August this year. However, the central bank rejected the request.
As per the licensing conditions, Equitas Holdings is also required to pare its stake in the small finance bank from 100% to 40% by September 2021.
In February this year, the parent company had proposed a scheme to provide its own shareholders a stake in Equitas SFB directly and comply with RBI norms. The scheme comprised issuance of 892.06 million shares to all shareholders for no cash. This would mean about 2.66 Equitas SFB shares for every one share of the parent company.
The small finance bank reported a net profit of Rs 106.54 crore for the six months ended September 2019 on operating revenue of Rs 1,242.82 crore.
For the full fiscal year 2018-19, the company’s net profit was Rs 210.56 crore on revenue of Rs 2,111.93 crore. In the year prior, its net profit was Rs 31.83 crore on revenue of Rs 1,531.68 crore.
For the six months ended September 2019, the bank’s gross non-performing assets stood at Rs 377.22 crore, or 2.86% of its gross advances. Net NPAs stood at Rs 211.87 crore, or 1.63% of net advances, according to its draft prospectus.