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Mumbai/New Delhi: US private equity (PE) major Blackstone Group is likely to make more than five times return on its investment in Fino Payments Bank when the latter goes ahead with its public listing planned for next month.

The Navi Mumbai-based scheduled commercial bank is a fully-owned subsidiary of Fino Paytech, which is backed by marquee investors such as Blackstone Group, Mauritius-based Headland Asian Ventures Fund 3 Ltd (HAV 3 Holdings), Intel Capital, World Bank unit and global development finance institution International Finance Corporation (IFC), ICICI Group and Bharat Petroleum Corp. Ltd (BPCL).

The decision on shareholding dilution will be decided by November.

New York-headquartered Blackstone Group had first invested 150 crore (approximately $33 million) in Fino Ltd, now Fino Payments Bank, for a significant minority stake in July 2011. With an expected valuation of 5,300 crore for the upcoming initial public offering (IPO), its 15.13% stake in the company is now valued at more than 800 crore.

Thus, the investor is set to make annualized returns of close to 18% with its initial investment growing by more than 5.3 times, according to VCCircle estimates.

IFC has made a cumulative investment of 31.28 crore since 2007. That stands at more than 413 crore now. This translates into over 21% annualized returns and 13 times return on cumulative investment in absolute terms.

Intel Capital has invested just over 36 crore in Fino Paytech till date. Its stake value exceeds 406 crore at the given valuation, which is more than 11 times its cumulative investment. This sums up to annualized returns of 21%.

Headland Asian Ventures (formerly HSBC PE Asia), has put in 69 crore and is sitting on more than 608 crore at the time of IPO. This turns out to be annualized returns of over 20% and close to nine times returns in absolute terms.

Emailed queries sent to the investors and Fino did not elicit a response till press time.

Fino has already expressed its intent of looking to raise a pre-IPO round and a rights issue of 75 crore at the holding company level (Fino Paytech). “The proceeds of this rights issue will go to a microfinance subsidiary, Fino Finance Pvt. Ltd," a senior executive familiar with the deal said on condition of anonymity. “The asset-light model is helping us scale up faster. We operate a three-layered pyramid, which is helping us to digitize cash for remitters, merchants, logistics and e-commerce firms, and individuals," the person said.

If the listing goes ahead as planned, it will be the third IPO for a Blackstone portfolio company this year after Sona Comstar and TaskUS.

A fourth portfolio company, Aadhar Housing Finance, has also filed for a listing.

IFC, Intel Capital and other investors are also likely to rake in near-benchmark returns with Fino’s IPO, which received the go-ahead from the Securities and Exchange Board of India (Sebi) last week.

Fino, however, will be required to collapse the holding company Fino Paytech, which it plans to do with the help of a reverse merger of the entity with the bank. A merger of Fino Paytech with the payments bank could help shareholders realize value, said the executive mentioned above. However, there may not be any “major exits by strategic investors", the executive said.

Fino is slated to be the first payments bank and likely to be the first profitable fintech player to hit the Indian stock exchanges. The bank turned profitable in Q4FY20 and has remained profitable since then. For FY21, Fino made a profit after tax of 20.5 crore compared with a loss of 32 crore in FY20. It had filed the preliminary IPO papers in the last week of July. Since then, the senior management has been doing road shows meeting 5-8 investors every day.

The IPO includes a fresh issue of 300 crore and an offer for sale component of up to 1.56 crore of equity shares, according to the draft red herring prospectus. It also intends to do a pre-IPO fundraise aggregating to 60 crore.

beena.parmar@livemint.com

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