PE-backed SBI Cards’ IPO crosses one-third mark on first day
Photo Credit: VCCircle

The initial public offering of SBI Cards & Payment Services Ltd crossed the one-third mark on the first day of the issue on Monday led by retail investors, company employees and some existing shareholders.

However, institutional investors and high-net-worth individuals (HNIs) remained on the sidelines.

The offering of 100.27 million shares, excluding the anchor allotment, was covered 39.34% after receiving bids for 39.45 million shares, stock-exchange data showed at the end of the first day.

The portion of shares reserved for retail investors was covered nearly 63% while that for employees and existing shareholders was subscribed 80.25% and 68.89%, respectively.

The qualified institutional buyers’ (QIBs) category saw only a handful of bids while the non-institutional investors’ category, comprising corporate bodies and wealthy investors, was covered a little more than 12%.

HNIs typically bid on the final day of a public offering to keep their IPO financing costs at a minimum. They borrow short-term capital from various avenues, barring banks, to fund their IPO applications and deploy only a small fraction of their own capital—called margin money—upfront.

The IPO comes at a time when Indian and global stock markets have been rattled by concerns over a slowdown in economic growth on the back of the coronavirus outbreak.

In a recent development, one person died in the US while two new cases were detected in India — one each in New Delhi and Telangana. More than 3,000 people have died worldwide since the outbreak of coronavirus in December.

The BSE’s 30-stock benchmark Sensex has fallen nearly 10% since touching an all-time high of 42,273.87 on January 20, exchange data showed.

SBI Cards, which counts US private equity major Carlyle Group as its backer, raised Rs 2,768.55 crore ($385 million) on Friday from a bunch of anchor investors that included PE firms and sovereign wealth funds such as Singapore’s GIC Pte Ltd, Kuwait Investment Authority and Norway’s Government Pension Fund Global.

At the upper end of the Rs 750-755 price band, SBI Cards is seeking a valuation of Rs 70,891.24 crore ($9.9 billion) via the IPO. The IPO closes on March 5.

The IPO comprises a fresh sale of shares worth Rs 500 crore and a sale of 130.52 million shares by Carlyle and State Bank of India. The PE giant has offered to sell 93.23 million shares, or a little over a third of its 26% stake.

Carlyle had invested in SBI Cards through its fourth Asia buyout fund, which focuses on control deals and makes significant minority investments in established companies across the continent excluding Japan, in 2017.

After the IPO, Carlyle’s 26% stake in SBI Cards will dilute to about 15.9-16%. SBI’s 74% stake will fall to roughly 69.5%, VCCircle estimates show.

SBI Cards will join parent SBI and SBI Life Insurance Company Ltd on the bourses. Another group company, SBI Home Finance Ltd, was also publicly traded earlier but its shares were suspended in October 2005. SBI filed for the unit’s liquidation three years later. SBI General Insurance Co., the non-life insurance arm, was also looking to go public.

SBI Cards, which was incorporated and started operations in 1998, is the second-largest credit-card issuer in terms of number of cards outstanding as well as the amount spent. It had 9.46 million cards outstanding as on September 30 last year. It only trails behind HDFC Bank in terms of the number of cards issued.

Kotak Mahindra Capital Company, Axis Capital, DSP Merrill Lynch (a Bank of America subsidiary that operates in India), HSBC Securities and Capital Markets (India), Nomura Financial Advisory and Securities (India), and SBI Capital Markets are part of the merchant banking syndicate arranging and managing SBI Cards’ IPO.

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