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PE-backed AU Small Finance Bank eyeing $1.6 bn valuation via IPO

19 June, 2017

Private equity-backed AU Small Finance Bank Ltd, which has received a licence from the Reserve Bank of India (RBI) to start a small finance bank (SFB), is seeking a valuation of around Rs 10,176.18 crore ($1.6 billion) through an initial public offering (IPO) that opens next week.

The Jaipur-based SFB has fixed the price band for its IPO at Rs 355-358 per share, the firm said. This would help the selling shareholders raise around Rs 1,912.51 core ($296 million) at the upper end of the price band.

The IPO will open on 28 June and close two days later. This is the third public issue by an SFB in the last 15 months,

The anchor allotment, in which institutional investors accept a one-month lock-in period for a sizeable allocation of shares and support a public offering, will open on 27 June, one day prior to the opening of the public issue.

At the announced price band, AU’s shares will be valued at roughly three times its FY2016-17 price-to-book (P/B) value.

Peer firms in the SFB space such as Equitas Holdings Ltd and Ujjivan Financial Ltd that went public in April last year, trade at a P/B of two to two-and-a-half times their respective one-year trailing book value.

The public issue of AU, which was formerly known as Au Financiers (India) Ltd, comprises a complete offer for sale by its private equity backers Warburg Pincus, Kedaara Capital, MYs Holdings Pvt. Ltd, ChyrsCapital Investment Advisors India and World Bank’ investment arm International Finance Corporation (IFC) besides share sale by promoters Sanjay Agarwal and members of Agarwal family.

The shareholders will sell a total 53.42 million shares representing an 18.79% stake on a post-issue basis, as per the draft prospectus.

Warburg alone will sell roughly 5.21%, while IFC will part with a 2.66% stake.

ChrysCap, through its investment vehicle Labh Investments Ltd, will sell 3.96% stake, while Kedaara Capital via its vehicle Ourea Holdings Ltd will sell 3.64% stake.

Agarwal will sell a total 2.97% stake through the IPO on behalf of himself and the family.

AU filed its draft red herring prospectus (DRHP) for an IPO on 2 February. The firm, which is among the 10 firms to receive RBI’s in-principle approval last year to start an SFB, received SEBI approval on 22 March.

VCCircle first reported that the firm in its earlier avatar as Au Financiers got new investors on board as it looked to pare foreign ownership to adhere to regulatory norms for small finance banks. RBI norms cap foreign stake in SFBs at 49%.

In July last year, Au Financiers closed a secondary transaction where its private equity investors sold all or part of their stake as part of its plan to pare the foreign shareholding level to comply with regulatory norms.

The deal came four months after AU Financiers sold its housing finance arm to a joint venture of local PE firm Kedaara Capital and Swiss investment firm Partners Group.

The India Business Excellence Fund-I was the first PE fund to invest in Au Financiers and had bought an 88.24% stake for about Rs 20 crore in 2008. It invested again in 2010 and part-exited in 2012, 2013 and 2014, according to VCCEdge, the data research platform of News Corp VCCircle.

IFC, the private-sector arm of the World Bank, first invested in 2010. In 2012, Au Financiers raised about Rs 246 crore from Warburg Pincus and IFC. In February 2013, ChrysCapital bought a 10% stake for Rs 120 crore from Motilal Oswal PE fund and the company’s founders.

In March 2014, the NBFC raised almost Rs 124 crore from IFC, Warburg Pincus, ChrysCapital, Motilal Oswal PE and its promoters.

The firm joins several other peers with approval to start a small finance bank in reducing its foreign holding. Janalakshmi Financial Services Pvt. Ltd, Disha Microfin Pvt. Ltd, Equitas Holdings Ltd, Ujjivan Financial Services Ltd and Utkarsh Micro Finance Pvt. Ltd are among the others which have raised funds to launch small finance banks or meet the RBI’s norms on shareholding.

ICICI Securities Ltd, HDFC Bank Ltd, Motilal Oswal Investment Advisors Pvt. Ltd and Citigroup Global Markets India Pvt. Ltd are financial advisors to AU’s IPO.

AU 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 company started operations in 1996 in Jaipur, Rajasthan, and was registered as an NBFC with the RBI in 2000.

In 2005, the firm became a commercial associate of HDFC Bank for originating and servicing vehicle loans. It expanded its product portfolio to include MSME loans in 2007, housing finance in 2011 and SME loans in 2012.

The company received the licence from the RBI to set up an SFB on 20 December last year.

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PE-backed AU Small Finance Bank eyeing $1.6 bn valuation via IPO

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