Set for bank status, Ujjivan plans IPO

Mumbai: Ujjivan Financial Services Pvt. Ltd, the microfinance lender that was granted a provisional licence to convert into a small finance bank, has hired investment banks to start work on a ₹ 1,500 crore initial share sale, according to two people familiar with the development.

Ujjivan, in which foreigners owned 88.69% as on 31 March, has to ensure that overseas shareholding in the company drops to 49%, one of the conditions that the company has to meet to become a small finance bank. The share sale is aimed at raising funds and giving overseas investors an opportunity to sell their stakes in the microfinance lender founded by veteran banker Samit Ghosh.

Ujjivan is the second of the 10 companies that won Reserve Bank of India (RBI) approval for setting up small finance banks to initiate work on selling shares to the public. Chennai-based microfinance lender Equitas Holdings Ltd filed share sale documents with the capital market regulator. It is planning to raise about ₹ 2,000 crore through its initial public offering (IPO), Mint reported on Friday.

Small finance banks and microfinance institutions are expected to raise as much as ₹ 4,000-5,000 crore over the next 12 months, either through the public markets or private equity, according to a September report by investment bank Avendus Capital.

“The success of one or two IPOs will lead to others,” said Khushroo Panthaky, a partner at auditing firm Walker Chandiok and Co. Llp. “The fact that these institutions have been given a licence by a regulator means that they have gone through a thorough evaluation and therefore they should be accepted by investors in the public markets.”

The main purpose of the Ujjivan IPO is to provide an exit to investors in the firm, especially foreign ones, so that the firm can comply with norms set by the banking regulator, said one of the two people cited above, requesting anonymity.

Ujjivan declined to comment.

“Depending on the final dilution agreed upon by the shareholders and the valuation at the time of the launch, the IPO size could be anywhere between ₹ 1,500 and ₹ 2,000 crore,” he added.

Founded in 2006, Ujjivan’s investors include International Finance Corp. (IFC), the UK’s development finance institution CDC, venture capital firm Sequoia Capital and home-grown private equity fund CX Partners.

CDC is currently the biggest shareholder in the company with a 12.69% stake, followed by IFC and CX Partners, which own 11.84% and 10.69%, respectively.

On 16 September, the RBI issued small finance bank licences to Ujjivan, Equitas, Janalakshmi Financial Services Pvt. Ltd, Au Financiers (India) Ltd, Capital Local Area Bank Ltd, Disha Microfin Pvt. Ltd, ESAF Microfinance and Investments Pvt. Ltd, RGVN (North East) Microfinance Ltd, Suryoday Micro Finance Pvt. Ltd and Utkarsh Micro Finance Pvt. Ltd. Eight of the 10 are microlenders. Many have significant foreign holdings because of early investments from private equity funds and multilateral institutions and will have to comply with the RBI’s rules to convert into small finance banks.

“It seems that institutional investors and long-term investors would be more keen to invest in these businesses,” said Panthaky.

Ujjivan raised ₹ 600 crore from a clutch of investors including CDC, CX Partners, NewQuest and a unit of the Bajaj Group in January.

In the year ended 31 March, Ujjivan’s revenue rose 72% to ₹ 599.3 crore from a year earlier. Net profit rose 38% to ₹ 75.8 crore from ₹ 55 crore. It disbursed loans worth ₹ 4,328 crore in the year and had a network of 423 branches across the country.