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PE-backed AU Small Finance Bank’s IPO subscribed 18% on day one

28 June, 2017

The initial public offering of AU Small Finance Bank Ltd made a slow start on the first day of the issue on Wednesday as institutional investors stayed away.

The public issue of 37.69 million shares–excluding the anchor investors’ portion–received bids for nearly 6.62 million shares, or about 18% of the shares on offer, stock-exchange data showed.

Institutional buyers did not bid while the portion set aside for non-institutional investors, such as corporate houses and wealthy individuals, was covered 8%.

The portion reserved for retail investors, whose total bid value cannot exceed Rs 2 lakh, was subscribed 32%. The employee quota was covered 16.4%.

Jaipur-based AU Small Finance Bank, which was formerly known as Au Financiers (India) Ltd, is seeking a valuation of around Rs 10,176.18 crore ($1.6 billion) through the IPO that closes on Friday.

The public issue comprises a complete offer for sale by private equity firms Warburg Pincus, Kedaara Capital, MYS Holdings Pvt. Ltd, ChyrsCapital Investment Advisors India and International Finance Corporation, besides its promoters. The selling shareholders will raise as much as Rs 1,912.51 crore.

On Tuesday, the lender raised Rs 563 crore ($87 million) from a bunch of anchor investors including the sovereign wealth funds of Singapore and Kuwait. GIC Pte Ltd and Kuwait Investment Authority as well as US-based private equity firm East Bridge Capital bought 541,000 shares each at the upper end of the Rs 355-358 price band, a stock-exchange filing showed.

Other foreign investors who took part in the anchor allotment include the Master Trust Bank of Japan, Singapore hedge fund Amansa Holdings and investment funds of Nomura, Wells Fargo and HSBC. As many as 13 domestic mutual funds also bought shares.

Anchor investors are institutional investors who accept a one-month lock-in period for a sizeable allocation of shares and support a public offering.

This is the third public issue by a small finance bank in the past 15 months, after the IPOs of Equitas Holdings Ltd and Ujjivan Financial Ltd last year.

At the announced price band, AU’s shares will be valued at roughly three times its price-to-book (P/B) value for 2016-17. Equitas and Ujjivan trade at two to two-and-a-half times their respective one-year trailing book value.

AU filed its draft red herring prospectus for the IPO on 2 February. It received regulatory approval on 22 March.

ICICI Securities Ltd, HDFC Bank Ltd, Motilal Oswal Investment Advisors Pvt. Ltd and Citigroup Global Markets India Pvt. Ltd are financial advisers to the IPO.

The lender has hired AZB & Partners as its legal counsel, whereas the bankers have appointed Shardul Amarchand Mangaldas & Co as their Indian legal counsel and Sidley Austin LLP as their international counsel. Selling shareholders together have appointed law firm Cyril Amarchand Mangaldas as their counsel.

The financial services firm, in its earlier structure, started operations in 1996 in Jaipur, Rajasthan, and was registered as a non-banking finance company with the Reserve Bank of India in 2000. It was among the 10 firms to receive the RBI’s in-principle approval in 2015 to start a small finance bank.

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PE-backed AU Small Finance Bank’s IPO subscribed 18% on day one

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