MUMBAI : Washington-based private equity (PE) firm Carlyle Group’s partial stake sale in SBI Cards and Payment Services Ltd, the credit card unit of the country’s largest lender, is set to become the largest-ever exit of a PE firm through an initial public offering (IPO) in India,two people aware of the matter said, requesting anonymity.

SBI Cards filed draft papers for its IPO on 27 November. The IPO, which is expected to be around Rs9,600 crore in size, according to one of the people, will see both State Bank of India, the parent entity, and Carlyle, which holds 26% in the unit, pare their stakes by 4% and 10% respectively.

SBI holds 74% stake in SBI Cards, while Carlyle owns the rest 26% through its subsidiary CA Rover Holdings.

At an expected enterprise valuation of up to 65,000 crore, the second person said, Carlyle’s stake sale could be worth 6,500 crore—the largest-ever made by a PE firm through a public listing in India.

The previous major IPO exits witnessed in the Indian primary markets include Tata Opportunities Fund’s 1,636 crore exit from Varroc Engineering Ltd, Chrys Capital’s 1,347 crore exit from Eris Lifesciences Ltd, Actis’s 910 crore exit from Endurance Technologies Ltd and International Finance Corporation’s 810 crore exit from Bandhan Bank Ltd.

The size of the proposed Carlyle stake sale shows that public market investors are increasingly keen to lap up shares of companies backed by PE firms.

“Having private equity backing helps companies to hit public markets at a larger scale and at a later stage of their growth cycle, as compared to what used to happen earlier when most of them would raise primary capital to fund their growth. Now, PE investors come in at the growth stage of the company, scale up the business, put processes in place and make them ready for IPO, which also in a way suits public market investors as they can put their money into more stable businesses," said Subhrajit Roy, executive director and head, equity capital market origination at Kotak Investment Banking.

Despite a slow year for listings due to volatile markets, IPOs of most PE-backed firms have performed better than their peers. This year, three PE-backed firms— Kedaara Capital-backed Spandana Sphoorty Financial Ltd, Quona Capital-backed IndiaMART InterMESH Ltd and another Carlyle-backed firm Metropolis Healthcare Ltd, went public amid difficult primary markets.

“In today’s environment where corporate governance and the quality of companies is of utmost importance to investors, a company which has private equity backing also adds that much more credibility to the business," said Satyen Shah, head of investment banking at Edelweiss Financial Services.

“We believe that this year primary markets have seen fewer issuances but almost all the IPOs that have hit the market have done very well, as evident from the strong interest they have generated from investors across categories. They have also provided very good returns to investors, which is a very positive sign," he added.

While this year, PE investors sold shares worth 803 crore in three firms through IPOs, between 2014-2018, 47 such companies launched IPOs, offering exits worth 20,133 crore to their PE investors, according to data from primary market tracker Prime Database.

Of the total PE exits made so far via IPOs, the period between 2015-2017 saw nearly 80% of the total exits worth 16,816 crore.

“Today, IPO investors want more liquidity, more float, hence the IPO sizes are also higher. Therefore, companies that tap the markets now will have to be of a certain scale and size to attract higher valuations, which is why having a PE investor in the interim period makes so much sense. In my view, this trend will get more dominant going forward as investors keep pushing for more liquidity, more distributed book, larger market cap and a larger float in IPO-bound companies that go for an IPO," said Roy.

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