Non-banking financial company Five Star Business Finance has raised around Rs 1,588.5 crore through its initial public offering (IPO), lower than its actual issue size, given the tepid response from investors, and is ready to list on the bourses as per schedule on Monday, November 21.
The company closed its public issue on November 11 with just 70 percent subscription despite the positive market conditions, largely supported by qualified institutional buyers (QIBs), who are generally long-term investors.
The maiden share sale garnered bids for 2.12 crore equity shares during November 9-11, against the offer size of 3.04 crore shares. The QIB book was subscribed 1.77 times, that of non-institutional investors by 61 percent and retail just 11 percent.
How did the issue go through with just a 70 percent subscription? The Rs 1,960-crore IPO was completely an offer for sale (OFS) by its promoters and investors. According to Securities and Exchange Board of India norms, total bids have to be worth at least 10 percent of its market capitalisation, a key parameter met by the oversubscription by QIBs, allowing the IPO to pass despite the lukewarm response.
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The company has reduced its final issue size to Rs 1,588.5 crore raised at upper end of the price band of Rs 450-474 per share. This final fund raising is 81 percent of the actual issue size of Rs 1,960 crore.
“We raised roughly around Rs 1,588.5 crore via the public issue after removing all technical rejections,” said chief financial officer G Srikanth.
At the upper end of the price band, the total market capitalisation is around Rs 13,800 crore. Ten percent of this comes to around Rs 1,380 crore. The company had already raised Rs 588 crore from anchor investors on November 7 and the rest of bids worth around Rs 1,000 crore were received between November 9 and 11.
“Considering it is entirely an offer for sale issue, the QIB portion should get fully subscribed and the minimum public shareholding norm should be 10 percent of the implied market cap, both of which have been fulfilled by the company,” Srikanth said.
With this, the unsubscribed portion has been taken back by selling shareholders.
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Promoters SCI Investments V and Matrix Partners India Investment Holdings II, LLC, intended to sell shares worth Rs 166.74 crore and Rs 719.41 crore at the upper end of the price band, respectively, via OFS, while investors Matrix Partners India Investments II Extension LLC, Norwest Venture Partners X – Mauritius and TPG Asia VII SF Pte Ltd offered shares worth Rs 12.08 crore, Rs 361.44 crore, and Rs 700.31 crore, respectively.
Reason behind lukewarm response
That it was a complete OFS may have been a big factor behind the less-than-enthusiastic response.
Besides, rising interest rates and rising competition may be other reasons not only for the undersubscription but also for the subdued activity in the grey market.
Headquartered in Chennai, Five Star Business Finance with a strong presence in south India provides secured business loans to micro-entrepreneurs and self-employed individuals.
“Among the compared peers, it has the fastest gross term loan growth and a consistent track record of financial growth with increasing revenue and profit. However, high competition and rising interest rates are big threats to this,” said Parth Nyati, founder, Tradingo, an Indore-based online brokerage.
Moreover, some of its peers are available at a better price in the secondary market, said Nyati, who had assigned an ‘avoid’ rating to this issue.
Five Star Business Finance shares traded at around a 1 percent discount to its issue price in the grey market, analysts said on condition of anonymity. The grey market is an unofficial platform for trading IPO shares that generally indicates the expected listing price.
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