Hyderabad-based microfinance institution Spandana Spoorthy Financial Ltd is close to raising $50-60 million through the private equity route.
“We will be announcing this in a week’s time when our board meeting is due. We have short listed three investors, of which one will be finalised. We have seen an enormous interest from high-quality investors,” said Padmaja Reddy, CEO, Spandana Spoorthy Financial Ltd. The MFI hopes to raise the funds in two weeks time. Nearly 23 investors are keen to invest in Spandana, Reddy told VCCirlce.
While declining to name the investors in fray for the deal, she said, the Rajeev Lall-promoted Lok Capital, which holds 5% stake in Spandana, was looking at divesting 50% of its interest. Rajeev Lall is the MD and CEO of Indian Development Finance Company Ltd. Other stakeholders in Spandana include JM Financial PE fund (18% stake), Valiant (11%) and senior employees (15%).
Spandana has been aggressive on the capital-raising front. It has already explored the non-convertible debentures and debt routes to fund its growth plans. Only in June, it raised Rs 80 crore via non-convertible debentures. Also, it recently concluded Rs 50-crore ($12 million) loan deal with Rabo Bank, a Dutch cooperative.
Spandana’s fund-raising is not an isolated case as private equity and venture capital investors have taken a serious shine to the MFI sector. The sector is presenting an investment opportunity, even in these times, as it is delinked from global consumption patterns.
Earlier this year, SKS Microfinance raised Rs 75 crore ($15.8 million) through a one-year non-convertible debenture issue at a coupon rate of 10%. In late 2008, SKS raised Rs 366 crore ($75 million) with investments from Sandstone Capital, Kismet Capital and SVB India Capital partners. Fellow Andhra Pradesh MFI player Share Microfin is also in the process of raising $50 million from International Finance Corporation, the private equity fund of World Bank, and others. In April, Bhartiya Samruddhi Finance Ltd raised $10 million.
Commenting on market criticism that MFIs tend to be over-valued, Reddy said, “The repayment rates of MFIs are as high as 99.8% or 99.9%, which, no other financial institution can match. Besides, the MFI sector has grown 200% in the last five years.” According to research undertaken by Deutsche bank, the microfinance business in India is expected to touch $3 billion by 2010.
As on March 31, 2008 Spandana’s gross loan portfolio was $182.2 million and total assets were $208.9 million. Its debt-to-equity was 8.56, return on equity was 53.62% and return on assets was 4.34%.
Spandana claims to have one of the lowest operating cost structures in Asia. The MFI has a client base of 3.1 million with a portfolio of Rs 2,333 crore across nine states, mostly in south India. Spandana has shelved its plan to expand in north India citing lack of infrastructure, political will and cultural differences. Instead, it is strengthening its existing network and customer base.
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