Kedaara Capital set to take control of microlender Spandana Sphoorty

Private equity firm Kedaara Capital Investment Managers Ltd is in talks with Hyderabad-based microfinance firm Spandana Sphoorty Financial Ltd to acquire a controlling stake.

Spandana, in a public notice on 14 March, said it had received in-principle approval from the Reserve Bank of India on 10 March for Kedaara to acquire over 26% stake in the company.

The proposed transaction will result in a change of control of the company, it said.

According to the disclosure, Kedaara will invest in Spandana through the Kedaara Capital I Ltd fund. It has a corpus of $542 million, of which $300 million has been invested since inception. The fund will, in turn, pick up a stake through a special purpose vehicle called Kanchenjunga Ltd.

The notice didn’t specify the deal value or the structure of the proposed transaction. Spandana's existing shareholders include JM Financial India Fund, Lok Capital, Helion Ventures, Small Industrial Development Bank of India and Valiant Capital Partners.

Spandana didn’t respond to an email seeking details of the investment till the time of filing this article.

However, a Mint report cited an unnamed person as saying that Kedaara will pick up a stake of about 60% in the company.

The business daily also quoted Padmaja Reddy, founder and managing director of Spandana, as saying that she expects the transaction to close before March-end.

“We have already got approval from lenders for the CDR exit and we are looking at getting back to industry leadership position soon,” Reddy said, referring to corporate debt restructuring.

Spandana was one of five companies that were adversely affected by the implementation of an ordinance by the Andhra Pradesh government in 2010 to regulate microlenders. Following the ordinance, its collections had plummeted below 20%, from nearly 99%, and it was subsequently referred to the CDR cell.

According to Reddy, the proposed deal with Kedaara Capital will follow Spandana’s exit from the CDR cell. Three or four existing lenders, who were part of the 37-member consortium under the CDR package, will look at refinancing the Rs 1,100 crore debt, which will be used to square off the debt owed to other lenders.

After the stake transfer, Spandana Sphoorty will have net owned funds of Rs 700 crore and debt of Rs 1,000 crore as of 31 March 2017, Reddy said.

As of February 2017, the company had a gross loan portfolio of Rs 2,103 crore from across 540 branches in 14 states.

The microlender, typically, takes the joint liability group route to meet the needs of the unbanked and under-banked rural and urban population. Through this lending model a group of five or six individuals are given a loan for generating income.

Kedaara's Investments

The PE firm was founded in 2011 by Manish Kejriwal, the former India head of Singapore state investment fund Temasek, and Sunish Sharma and Nishant Sharma, the former managing director and principal, respectively, of global private equity firm General Atlantic in India. Kedaara Capital had raised $540 million through its debut fund in November 2013.

It typically invests $25-75 million in each firm, but has also put in larger sums – $ 200 million, or more – in select situations, according to its website.

The PE firm’s portfolio in the financial services space include Rajasthan-based non-banking finance company Au Financiers (India) Ltd. It has also invested in the NBFC’s housing finance arm Au Housing Finance Ltd.

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