Share Microfin Ltd IPO postponed for now, say sources
BY Siddharth Kumar
Delhi
The unrest in India's microfinance sector due to recent regulatory changes has spoiled the party for several microfinance institutions (MFIs) that had hoped to to tap the buoyant capital markets to meet their funding requirement.
Hyderabad-based Share Microfin Ltd, which was planning to hit the market in early 2011, has postponed its initial public offering (IPO) for the time being, people involved in the IPO planning told Financial World. Udai Kumar, chairman and managing director of Share Microfin, did not respond calls made on his mobile number.
Spandana Spoorthy Financial Ltd, another Hyderabad-based lender, has also reportedly shelved its IPO plan. Spandana, India's second largest MFI in terms of reach, was planning to come out with a share sale in IPO in the first of 2011.
"Microfinance is an emerging sector. It is facing trouble even before it could have reached the peak. The unrest in the sector is of course hitting the company's plan to get funds from public," said Jagannadham Thunuguntla, strategist at the Delhi-based brokerage SMC Global Securities.
"The uncertainties in sector is making hard for microfinance lenders, especially the smaller companies, to meet their fund requirement," said an official of one of the top MFIs. The official did not want to be identified.
The situation was not same four months ago and it seemed that all was well when the country's largest MFI, SKS Microfinance, mopped up Rs 1,600 crore through a highly successful IPO. This was first listing by an MFI in Asia and second in the world.
However, after Andhra Pradesh took the lead in setting a cap on the interest rate that could be charged by MFIs, the valuation of the SKS share has fallen sharply from its high of Rs 1,490 it was trading at two months ago. The scrip is now trading below its IPO issue price of Rs 985 per share. The SKS counter ended Monday at Rs 710.40, down 0.18 per cent, on the National Stock Exchange.
"Uncertainties in the sector is a major hindrance to meet fund requirement of players in this field," said an official of SKS Microfinance on condition of anonymity. He, however, clarified that SKS is well capitalised and has no dearth of funds.
The Indian microfinance sector has faced heightened regulatory scrutiny in past few months. Analysts said the sector's growth, access to funding, asset quality and operational costs has suffered severely because of these regulatory changes.
Andhra Pradesh passed an ordinance a month ago that enhances regulatory control on MFIs in the southern state. The government headed by then K Rosaiah made it mandatory for microfinance players in the state to register themselves, specify the area of operations, the rate of interest and system of recover.
Besides, under the new rules, MFIs collections have be on a monthly basis instead of weekly. Andhra's share of loans outstanding represents nearly 35 per cent of the sector's total portfolio, according to rating agency Crisil.
"Post-ordinance, the entire sector is in the wait and watch mode. As a consequence to this ordinance, fresh investment in the sector is on hold and lending from public sector banks is also not in very good," said Alok Prasad, chief executive officer of Micro Finance Institutions Network, an industry body of microlenders.
Additionally, the Reserve Bank of India has also announced formation of a sub-committee to assess MFI functioning. Moreover, the Union government has for a long time been mulling a regulatory act for the sector.
The small-scale lenders have attracted criticism from various quarters for charging high interest rates and the coercive means of recovery they are alleged to adopt.
Market experts also said that because of delay in IPOs by these companies, several private equity (PE) players are also worried as they are unable to cash in the buoyant Indian stock market, the best performer in top 10 markets across the globe. Public issues provide PE funds an option to exit a company by selling its stake.
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