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IFC to sell nearly half its stake in Bandhan Bank IPO

02 January, 2018

Bandhan Bank Ltd, India’s first microfinance lender to receive a universal banking licence, has filed its draft prospectus with the Securities and Exchange Board of India (SEBI) for an initial public offering.

The Kolkata-based bank, which counts Singapore sovereign wealth fund GIC Pte Ltd and World Bank arm International Finance Corporation among its backers, will issue 97.66 million fresh shares, while IFC will sell nearly half its holding through the IPO.

IFC, directly and through its fund IFC FIG Investment Company, will sell a total of 21.61 million shares out of the 54.04 million shares (4.93% stake) in the IPO. Its stake will decline to 2.71% after accounting for the fresh issue of shares, VCCircle estimates show.

The IPO will see a total 10% stake dilution. Promoter entity Bandhan Financial Holding Ltd’s stake will fall to 82.28% after the issue from 89.62% at present.

It needs to be seen if the bank issues fresh shares in a pre-IPO round. Else, the promoter will get three years from the date of listing to bring its stake down to 75% as part of SEBI’s minimum public float norms.

The bank had picked merchant bankers about four months ago to arrange the share sale. The IPO size is estimated at Rs 5,500 crore ($860 million), people close to the development had told VCCircle.

Bandhan will join erstwhile microlenders Equitas Holdings Ltd and Ujjivan Financial Services Ltd to tap into primary markets; Equitas and Ujjivan, which both turned into small finance banks, went public in early 2016.

Last year, Kedaara Capital-backed AU Small Finance Bank also floated an IPO that was heavily subscribed. The lender’s shares had jumped 50% on its stock market debut.

Here’s a snapshot of the proposed IPO by Bandhan Bank

Issue
The IPO size is estimated at Rs 5,500 crore ($860 million), according to people in the know.

Bandhan Bank will issue 97.66 million fresh shares, while IFC will sell nearly half its holding through the IPO. IFC’s stake will drop from 4.93% at present to 2.71% after accounting for the fresh issue of shares. IFC and its affiliate entity will sell a total of 21.61 million shares.

The IPO will see a total 10% stake dilution. Promoter entity Bandhan Financial Holding Ltd’s stake will fall to 82.28% after the issue from 89.62% at present.

Use of proceeds
The net proceeds from the IPO will be used to augment the bank’s Tier 1 capital base for future capital requirements such as organic and inorganic growth and expansion, besides meeting regulatory requirements for anticipated enhanced capital base.

The objective of the IPO is to list shares on or before 22 August 2018, a deadline set by the Reserve Bank of India (RBI) for its listing. Small finance banks get three years from the date of commencement of business to list their shares on the exchanges.

Merchant bankers
Kotak Mahindra Capital Co, Axis Capital, Goldman Sachs (India) Securities, JM Financial Institutional Securities, and JP Morgan India are merchant bankers managing the IPO.

Lawyers
Cyril Amarchand Mangaldas is the legal counsel representing Bandhan Bank in the IPO, while AZB & Partners is representing IFC, the selling shareholders.

Khaitan & Co and Clifford Chance are India and international legal counsel, respectively, to the merchant bankers in the IPO.

Company
Bandhan was originally set up as a microfinance NGO in 2001 named Bandhan Konnagar.

The bank started its microfinance business in 2006 and the NGO transferred the business entirely to Bandhan Financial Services Ltd (BFSL) in 2009, which was India’s largest microfinance company by number of customers and size of loan portfolio.

It received RBI approval to start banking operations in April 2014 and got incorporated in December 2014. The bank started banking operations in August 2015.

Bandhan, which converted from a microfinance institution to a full-fledged lender, kept its focus on borrowers, who make up more than 90% of its loan book. Going forward, it intends to diversify into affordable housing and loans to micro enterprises.

The micro lender currently has 841 branches and a customer base of more than 11 million, according to its website. It has a loan book of about Rs 21,900 crore.

The bank has a network of 2,546 doorstep service centres (DSCs) and over 9.47 million micro loan customers as on 30 September 2017.

The bank operates through 864 bank branches and 386 ATMs, together serving over 1.87 million general banking customers. Its distribution network is particularly strong in east and northeast India, with West Bengal, Assam and Bihar together accounting for 57.75% and 58.13% of its branches and DSCs, respectively, though its focus is to expand across India.

Financials
Bandhan’s net interest margin, that is, the difference between the rate a bank charges for loans and what it pays for deposits, stood at 10.01% as on September 2017 compared with 10.75% for the three months ended June 2017—the highest among all Indian banks. The margin stood at 10.39% at the end of September 2016, Bloomberg data showed.

Its net bad loan ratio stood at 1.43% of its portfolio as on September 2017.

Bandhan reported net profit of Rs 657.65 crore on interest income of Rs 2,273.47 crore as on September 2017.

The bank’s net profit grew 35% during the quarter ended June 2017 to Rs 327 crore compared with Rs 242 crore in the same period last year.

It had reported a net profit of Rs 1,111.95 crore for 2016-17. A comparable year-ago figure isn’t available because the lender started operations only in August 2015.

Bandhan’s capital adequacy ratio, an indicator of financial strength, was 24.85% at the end of September 2017.

Early investors
Bandhan Bank is backed by Singapore’s sovereign wealth fund GIC and the World Bank’s private sector investment arm IFC.

In 2015, it raised Rs 1,020 crore from IFC, GIC and other shareholders. The bank’s managing director Chandra Shekhar Ghosh said that Bandhan had received Rs 344 crore from IFC, Rs 35 crore from SIDBI (Small Industries Development Bank of India), and Rs 640 crore from GIC, taking its capital base to Rs 2,616 crore.

New banks are required to keep a minimum capital base of Rs 500 crore, as per RBI rules.

In July 2015, the bank had named Ashok Lahiri as chairman of its ten-member board.

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IFC to sell nearly half its stake in Bandhan Bank IPO

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