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PE-backed Aavas Financiers’ IPO falls short of full subscription on market jitters
Photo Credit: Shah Junaid/VCCircle

The initial public offering (IPO) of Aavas Financiers Ltd scraped through on Thursday but failed to get full subscription as concerns related to non-banking financial companies (NBFCs) continued to hurt market sentiment.

The IPO of 14.78 million shares, excluding the anchor allotment, received bids for 14.36 million shares at the end of the final day of the issue. That amounts to a subscription of nearly 97%, stock-exchange data showed.

Market sentiment has weakened in recent weeks amid fears that NBFCs and housing finance companies are facing a cash crunch. The concerns have risen after Infrastructure Leasing & Financial Services (IL&FS) defaulted on its debt this month, sparking a sell-off in shares of NBFCs and mortgage lenders.

The BSE’s benchmark Sensex has fallen 7% since the record highs of 38,989.65 on 29 August. The mid- and small-cap indices have fallen 11% and 13% since then, stock-exchange data showed.

The Aavas IPO is third PE-backed offering in the recent past that has received tepid response from retail investors and wealthy investors against a backdrop of volatile market sentiment and frothy valuations.

TA Associates-backed TCNS Clothing Co. Ltd’s IPO had sailed through solely on the back of institutional investors’ support in July. The company made a weak debut on the stock market.

In August, the IPO of microlender CreditAccess Grameen Ltd had also sailed through with support from institutional investors, but retail investors and high net-worth individuals remained on the sidelines. Its shares fell on market debut late last month.

Weak sentiment has affected a state-run company’s IPO, too. On Wednesday, Garden Reach Shipbuilders & Engineers Ltd extended its IPO by three days after failing to get enough bids.

Stock-exchange data showed that institutional buyers bid for nearly three times the shares reserved for them in the Aavas IPO while the portion set aside for retail investors was covered 24%.

Non-institutional investors—which include corporate bodies and wealthy individuals—used up 26% of their quota, as margin funding appeared unfavourable given the weak undertone in secondary markets.

The IPO had made a slow start on the first day on Tuesday, getting subscribed 4.4%. It was subscribed 29% on the second day on Wednesday.

Jaipur-based Aavas, which counts homegrown private equity firm Kedaara Capital and Swiss investment company Partners Group as its backers, had filed its IPO draft prospectus in June.

The IPO comprises a sale of fresh shares worth Rs 400 crore and a sale of 16.24 million shares by the private equity firms as well as members of Aavas’ management. Kedaara and Partners Group are together selling 15.21 million shares in the IPO, or one-fourth of their respective stake in the company.

Aavas provides housing loans to low- and middle-income segments in semi-urban and rural areas. The lender was incorporated in February 2011 and started operations in March 2012. It had disbursed a total of Rs 3,444 crore as of 31 March 2017, according to its annual report.

Aavas will join a host of housing finance companies and non-banking financial companies that have gone public over the past two to three years.

ICICI Securities, Citigroup Global Markets India, Edelweiss Financial Services and Spark Capital Advisors (India) are the merchant bankers managing Aavas’ IPO.

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