Several PE firms invest in Suryoday Microfinance

A clutch of private equity firms have invested in Suryoday Microfinance Pvt. Ltd to shake up its shareholding structure and make it compliant to operate as a small finance bank, four persons privy to the development told VCCircle.

The Pune-based company has just sealed a deal worth Rs 225 crore ($33.6 million) involving around half-a-dozen PE firms besides other institutional investors.

The transaction involves investment of Rs 100 crore into the firm through a fresh issue and a secondary deal where two of its existing venture capital investors have sold shares. While Aavishkaar Goodwell has exited, Lok Capital has sold part of its stake.

Private equity firms that joined in include three domestic PE funds Gaja Capital, ASK Pravi and Arpwood. These apart, Swiss investor responsAbility and India-focused fund-of-funds Evolvence India Fund II, which is sponsored by mid-East based investor and typically co-invests with other PE funds it has backed, also participated, the persons cited earlier said.

Other investors include IDFC Ltd, HDFC Standard Life, Polaris Banyan Holdings, Bangur Group, Americorp Capital, besides a couple of individual investors.

Suryoday declined to comment on the story but ASK Pravi and responsAbility acknowledged the investment.

In an email statement, ASK Pravi, said, “We see great potential in SFBs (small finance banks) particularly in the underbanked rural and semi-urban markets. Suryoday under Baskar Babu’s (co-founder & CEO) leadership has grown into a high quality micro finance business and we believe it is very well poised to transform itself into a leading SFB in the years to come.”

“We are excited to become a shareholder in Suryoday. Small finance banks are poised to play an important part in India's financial sector development,” a spokesperson of Suryoday replied.

Emails sent to IDFC, HDFC Standard Life, Arpwood, Polaris Banyan Holdings, Bangur Group, Evolvence, Gaja Capital and Americorp did not elicit any response.

Early on Tuesday, Aavishkaar had said it has exited Suryoday at a profit. It did not name the buyer nor the quantum of money it pocketed. Previously, Financial Express had reported citing unnamed persons that Suryoday has raised Rs 100 crore from IDFC Bank Ltd, HDFC Standard Life and some family offices.

In a separate development IDFC Bank acquired another microlender Grama Vidiyal.

Suryoday, small finance banks

Promoted by bankers R Baskar Babu, VL Ramakrishnan and Ganesh Rao, the company provides loans to women from economically weaker sections who do not have access to traditional banking services. The company has lent Rs 2,980 crore to date and had gross loan portfolio of Rs 1,036 crore with 6.51 lakh borrowers as of March 31, 2016, according to industry body Microfinance Institutions Network.

Suryoday, India's twelfth largest microlender by gross loan portfolio as of March 31, 2016, was one of ten applicants that received in-principle nod from Reserve Bank of India last September to start a small finance bank.

The government had decided to created small finance and payments banks as two separate niche set of banks to support financial inclusion by provision of savings vehicles and supply of credit to small business units; small and marginal farmers; micro and small industries; and other unorganised sector entities, through high technology-low cost operations.

RBI norms cap foreign stake in small finance banks at 49%. The applicants have a window of 18 months within which they need to meet the norms. This expires next March.

Several others who had received in-principle approval for small finance bank have shaken up their shareholding to comply with the norms.

Early this month, Au Financiers (India) Ltd closed a secondary transaction where its private equity investors sold all or part of their stake as part of the non-banking finance company’s plan to pare the foreign shareholding level to comply with regulatory norms.

Equitas and Ujjivan recently went public while Disha Microfin was looking to raise about Rs 300 crore to comply with the central bank’s foreign shareholding norms. Utkarsh Micro Finance was also reportedly looking to raise Rs 350 crore from domestic investors to bring the foreign holding to below 50%.

India's largest microlender Janalakshmi Financial recently raised about Rs 1,000 crore from investors led by global private equity firm TPG. It had said that this round would help it comply with RBI norms without specifying how. Most of the money in this round came from foreign investors. In May, the private investment arm of World Bank, IFC also said it may lend $50 million to Janalakshmi.

Aavishkaar, Lok Capital

Social impact venture investor Aavishkaar was the earliest backer of Suryoday. It had initially put in Rs 6 crore valuing the microlender at just Rs 13 crore in 2009, according to VCCEdge, the data research platform of News Corp VCCircle. A year later another domestic impact investor Lok Capital joined in to co-invest Rs 21 crore along with Aavishkaar.

The two put in Rs 20 crore again in 2013. Later the same year they again pitched in along with IFC to invest more in a transaction that also saw Suryoday founders sell some stake.

Both Aavishkaar and Lok Capital invested in the microlender through multiple funds.

Last year, Developing World Markets had picked under 10% stake in the micro-finance firm for Rs 23.2 crore in a secondary transaction where Aavishkaar had part exited. The latest transaction, where Aavishkaar and Lok Capital together received some Rs 125 crore, marked the full exit for Aavishkaar.

Aavishkaar Goodwell has realised around $15.25 million (Rs 100 crore) so far from its investments in Suryoday Microfinance with a 4x return from fund I and 3x from fund II, both in rupee terms, said one of the person.

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