Mumbai: Seven years after being hit by the microfinance crisis that originated in Andhra Pradesh, control of microfinance lender Spandana Sphoorty Financial Ltd is set to change hands.
The microfinance lender is in talks with private equity firm Kedaara Capital Investment Managers Ltd to sell more than 26% in the company, according to a public notice released on 14 March. The company also said it has received in-principle approval from the Reserve Bank of India (RBI) for the proposed deal.
Kedaara will pick up close to 60% in the company, said a person directly involved in the matter, asking not to be identified.
“We are looking at raising equity capital and are expecting to close the transaction before March end. We have already got approval from lenders for the CDR exit and we are looking at getting back to industry leadership position soon," said Padmaja Reddy, founder-managing director of Spandana Sphoorty.
After the stake transfer, the company will have net owned funds worth Rs700 crore and debt of Rs1,000 crore as of 31 March, Reddy said.
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Spandana is one of the five microfinance companies referred to the corporate debt restructuring (CDR) cell after a controversial law by the Andhra Pradesh state government crippled the sector. The law was enacted to rein in microlenders after a series of suicides were reported due to alleged coercion of borrowers by some microfinance companies to recover loans.
The proposed deal with Kedaara Capital will follow Spandana’s exit from the CDR cell, which is expected before March end. Three-four existing lenders which are part of the 37-member consortium under the CDR package will look at refinancing Rs1,100 crore of existing debt which will be used to square off the debt owed to other lenders, Reddy added.
The microfinance lender, which had an exposure of Rs2,200 crore in Andhra Pradesh at the time of the crisis, had suffered two years of losses before turning positive. According to the management, the company made its first profit of Rs60 crore in 2013-14 and since then, the going has been good. The company is expected to close this current financial year with a Rs165 crore profit.
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Reddy added that the company had to make several changes to bring about a turnaround. This included expanding outside Andhra Pradesh, changing the collections from weekly to bi-weekly. The company’s total loan portfolio which stood at Rs4,500 crore before the crisis fell to Rs600 crore in the subsequent period as it stopped disbursements. Spandana’s total gross loan portfolio as of March stands at Rs1,400 crore with a network of 524 branches across 11 states
This is Kedaara Capital’s second investment in the financial services sector. The private equity firm already has an investment in Au Financiers, a Rajasthan-based non-banking financial company (NBFC), which recently got the licence to start a small finance bank.
It has also invested in the NBFC’s housing finance arm Au Housing Finance Ltd. According to the public notice, Kedaara Capital will be investing in Spandana through a fund called Kedaara Capital I Ltd with a corpus of $542 million, of which $300 million has been invested till date. This fund will pick up a stake through a special purpose vehicle called Kanchenjunga Ltd.