Five Star Business Finance Ltd, a lender to small businesses, said it has got $234 million (Rs 1,700 crore) from new and existing investors at a valuation of $1.4 billion (Rs 10,300 crore).
The round included existing investors – led by Sequoia Capital India with participation from Norwest Venture Partners – as well as new investors led by KKR with participation from TVS Capital.
VCCircle first reported about the impending investment two weeks back.
The investment will be done through a combination of primary transaction and secondary sale by existing investor Morgan Stanley Private Equity.
According to Five Star's 2018-19 annual report, Morgan Stanley’s NHPEA Chocolate Holdings BV holds 21.4% stake in the company.
Other existing investors -- Matrix Partners and TPG Capital -- will continue to stay invested.
Five Star plans to use the capital to expand its lending business.
D Lakshmipathy, chairman and managing director, said, “We aim to achieve social goals through grass-root efforts without compromising on the pillars of asset quality and profitability that are needed to build a sustainable institution of scale.’’
He added, "We are excited to welcome our new investors – KKR through its Global Impact Fund, which shares our mission of financial inclusion – and TVS Capital, backed by one of the most respected business houses of South India.’’
The deal marks KKR Global Impact Fund’s second investment in India and fifth in the Asia-Pacific.
The Global Impact Fund is focused on generating risk-adjusted returns by investing in companies that contribute toward the United Nations Sustainable Development Goals.
G V Ravishankar, managing director, Sequoia India, said, “Sequoia Capital India is a strong believer in the business model of Five Star that bridges the large credit gap that exists for small and micro enterprises.”
Niren Shah, managing director, Norwest India, said, “We are delighted to be deepening our partnership with Five Star as they reach 10x of the scale compared to when we first invested.’’
Five Star is expected to end the financial year with assets under management of Rs 4,500 crore, VCCircle had previously reported.
The firm, which started operations in 1984, was set up by VK Ranganathan with a focus on consumer loans and vehicle finance. In 2005, it shifted to SMEs in urban and semi-urban markets.
The current promoter D Lakshmipathy has been involved with Five Star since 2002 and has been the managing director for around 10 years.
Five Star also makes small housing loans to salaried and self-employed customers.
All these loans, secured against residential property, target the middle and lower middle-income segments in urban, semi-urban and fast-growing rural geographies.
As on September 30, the lender had a presence in eight states through 261 branches with the head office in Chennai, according to a January Care Ratings report.
As on March 31, 2020, the firm had a gross loan portfolio of Rs 3,892 crore, of which MSME loans accounted for 73.8%, housing loans 6.3% and loan against property the rest.