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Warburg Pincus-backed Au Financiers files draft papers for IPO

03 February, 2017

Private equity firm Warburg Pincus-backed Au Financiers (India) Ltd on Thursday filed a Draft Red Herring Prospectus (DRHP) with the capital market regulator Securities and Exchange Board of India (SEBI) for an initial public offering (IPO).

While the deal size is still being deliberated, the share sale is estimated to be more than Rs 1,500 crore (around $223 million) of primary market offering, two persons familiar with the matter told VCCircle. This would value Au Financiers at around Rs 8,000 crore ($1.18 billion).

VCCircle first reported that Au Financiers got new investors on board as it looked to pare foreign ownership to adhere to regulatory norms for small finance banks (SFBs).

The proposed IPO by the firm is an offer for sale (OFS) of 53.42 million shares by promoters and existing shareholders. This represents approximately 18.8% of the firm’s equity capital, as per the draft proposal filed with SEBI.

Sellers include managing director Sanjay Agarwal as well as members of the Agarwal family as well as Warburg Pincus, Kedaara Capital, MYs Holdings Pvt. Ltd, ChyrsCapital Investment Advisors India and World Bank’ investment arm International Finance Corporation (IFC).

The Jaipur-based firm was one of 10 applicants to receive the Reserve Bank of India (RBI)’s in-principle approval last year to start an SFB. RBI norms cap foreign stake in small finance banks at 49%.

Foreign shareholders currently own about 47.11% stake in Financiers, according to the draft prospectus.

Snapshot of the IPO

Issue: The public issue by Au Financiers will be the third by an SFB applicant, after Equitas Holdings and Ujjivan Financial Services listed on stock exchanges last year.

Managing director Sanjay Agarwal and promoters belonging to Agarwal family will sell 8.43 million shares representing 3% stake in the company.

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 the non-banking finance company (NBFC)’s 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.

Au Financiers joins several other firms 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 either raised funds to launch small finance banks or meet the RBI’s norms on shareholding.

Janalakshmi Financial raised about Rs 1,000 crore in April from investors led by global private equity firm TPG, though it didn’t say whether this round helped in reducing its foreign holding.

Equitas and Ujjivan recently went public while Disha Microfin was looking to raise about Rs 300 crore to comply with the central bank’s foreign shareholding norms. Utkarsh Micro Finance was also reported to looking to raise Rs 350 crore from domestic investors in an effort to bring the foreign holding in the company to below 50%.

Bankers:

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

Lawyers:

Au Financiers 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.

Company:

Au Financiers is a retail-focused NBFC, primarily serving low- and middle-income individuals and businesses that have limited or no access to formal banking and finance channels. 

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

In 2005, Au Financiers 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. 

Au Financiers operates in three business lines: vehicle finance; micro, small and medium enterprises (MSMEs) loans; and small and medium enterprises (SMEs) loans. 

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

Financials:

For FY2015-16, its revenues from operations stood at Rs 1,051.95 crore compared with Rs 689.40 crore in the previous year. Net profit for FY2015-16 was Rs 247.15 crore compared with Rs 139.45 crore the year before.

Au Financiers informed SEBI that financial statements included in the DRHP are standalone (unconsolidated) as it does not have any subsidiary.

“As a result of the sale of 90.10% of the outstanding equity shares of Au Housing Finance Ltd and 100% of the outstanding equity shares of Index Money Ltd last year, Au Financiers does not have any subsidiaries,” the company said in the draft prospectus.

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Warburg Pincus-backed Au Financiers files draft papers for IPO

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