A screen grab of Equitas Holdings website
A screen grab of Equitas Holdings website

Equitas Holdings’ IPO subscribed 38% on Day 2

The demand from domestic institutions reflects the restrictions on foreign investors from subscribing in the initial public offering

Mumbai: The initial public offer of Equitas Holdings Ltd, one of the eight micro-finance institutions that won small finance bank licence last year, picked up pace on day two with 38% overall subscription, data from stock exchanges showed.

As of 5.05pm on Wednesday, the institutional investors bid for 26% or 10.35 million shares against 39.8 million shares on offer. The retail and high net worth individuals categories were subscribed 59% and 3%, respectively, data from the stock exchanges showed.

Investment bankers are confident of the quality of the company’s business and financial track record and expect bids to pour in on Thursday, the final day.

“The investors that participated in the anchor allotment is an indication to the quality of the issue. The IPO will be covered because some of large domestic institutions outside of the anchor book have shown interest. Some investors have sought approval to apply for shares worth 360 crore. That’s 10% stake and maximum cap as per banking and capital market regulations. They need RBI’s approval, which will be cleared by next week. Even on the retail side, we expect the book to be subscribed 1.5-2 times," said a person familiar with the matter on conditions of anonymity citing the firm’s compliance rules.

On 4 April, Mint reported that the public issue is expected to witness strong demand from major DIIs. About 4-5 DIIs have applied to the Reserve Bank of India (RBI) for approval to acquire more than 5% stake in the IPO.

The demand from domestic institutions reflects the restrictions on foreign investors from subscribing in the IPO. Foreign portfolio investors or FPIs are not allowed to participate in the public issue as their holding exceeds the limit stipulated by the Reserve Bank of India (RBI).

RBI guidelines for the small finance banks mandate a foreign shareholding limit of 49%. At all times, at least 26% of the paid-up capital will have to be held by residents or domestic investors, said the central bank’s statutory guidelines for the small finance banks in November 2014.

Foreign holding currently stands at 92.64%, according to information made available in the red herring prospectus (RHP).

As part of the IPO, six foreign investors will fully exit their holdings. They are Sequoia Capital India Investments III, Aavishkaar Goodwell India Microfinance Development Co. Ltd, Aquarius Investments Ltd, MVH SpA, Lumen Investment Holdings and WestBridge Ventures II Llc.

Other foreign investors selling a part of their shares include World Bank arm International Finance Corp., Dutch development finance institution FMO and Helion Venture Partners Llc. Equitas’s founder P.N. Vasudevan, who owns 3.17% stake in the firm, will also sell a part of his holding, according to the RHP.

Equitas looks to raise 2,176 crore by selling close to 198.3 million shares at the lower price band of 109 per share. At the upper band of 110 apiece, the company may end up selling 197.7 million shares.

Equitas raised 652.18 crore through anchor book subscription on Monday by allotting 59.28 million shares to 16 domestic institutional investors (DIIs). The investors included mutual funds and insurance companies such as Franklin Templeton Asset Management (India) Pvt. Ltd, Tata AIA Life Insurance Co. Ltd, Sundaram Asset Management Co. Ltd, Birla Sunlife Trustee Co. Pvt. Ltd and SBI Funds Management Pvt. Ltd.

The anchor book is that portion of the IPO that bankers can allot to institutional investors on a discretionary basis. The subscription opens a day before the launch of an IPO and acts as an indicator of institutional investor interest.

Post the stock market listing, Equitas may garner a market capitalisation of 3,700 crore, the company said in a press conference last week. The company received approval for its IPO from Sebi on 29 December.

In the so-called grey market, Equitas’s shares were quoting at a premium of 15-20 per share on the price band. Grey market is a pseudo over-the-counter market where IPO shares are bought and sold before a company officially lists it on the stock exchange. It gives a broad indication of the appetite for a public issue.

Equitas is the seventh public issue since January. Six firms have raised 2,454.76 crore through the IPO this year, according to data collated by Prime Database Group, a primary market tracker.

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