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AU Small Finance Bank IPO opens, but foreign shareholding issue persists

LiveMint logoLiveMint 29-06-2017 Ami Shah

Mumbai: Analysts have given a thumbs-up to AU Small Finance Bank Ltd’s (SFB) Rs1,912 crore initial public offer (IPO) that opened on Wednesday, even as the company said it was working with the Reserve Bank of India (RBI) to address the issue of its inclusion in a so-called caution list of foreign shareholding.

The central bank routinely lists companies where foreign shareholding is approaching the permitted limit. On Tuesday, the RBI added AU SFB to the list, since FII holding in the company is close to the limit of 49% permitted for small finance banks. This means FIIs can buy more shares in AU SFB only after obtaining prior RBI permission.

ALSO READ: AU Small Finance Bank IPO subscribed 18% on Day 1

“We are in discussions with RBI to address this caution list (issue). We did not know a clarification was required. We approached RBI today, and hopefully (it) will get resolved tomorrow,” Sanjay Agarwal, managing director and CEO of AU SFB said over the phone on Wednesday.

Agarwal said small finance banks were allowed to have foreign shareholding up to 49%, and that AU had foreign holding of 47.11%. After the share sale, its foreign holding would probably be around 38%, he added.

“We thought the caution list which kicks in at 47% is only applicable after IPO, but RBI told us it also applicable before,” Agarwal said.

The Jaipur-based small finance bank, which serves low and middle-income individuals and small businesses has set a share price band of Rs355-358 for the IPO.

Agarwal said the bank has already received its anchor allotment, which is around 40% of the total issue size. The allotment of these shares would be done after RBI’s clarification, he added. AU SFB sold Rs563 crore of shares to anchor investors at Rs358 per share on Tuesday.

AU promoter Sanjay Agarwal and private equity investors Warburg Pincus, World Bank arm International Finance Corp., ChrysCapital and Kedaara Capital are selling part of their holdings.

Together, they are selling 53.42 million shares, which at the upper end of the price band would mean an IPO size of Rs1,912.5 crore. The IPO values the company at a little more than $1.5 billion.

The offer closes on Friday. On Wednesday, non-institutional investors subscribed to 0.08 times the shares reserved for them, retail individual investors, bids for 0.32 times the portion reserved for them, and employees bid for 0.16 times the portion for them, according to data uploaded on BSE. Qualified institutional buyers, including foreign and domestic institutional investors, were yet to subscribe at the end of the first day.

AU Small Finance Bank was one of the 10 non-banking finance companies (NBFCs) that obtained approvals from RBI for setting up a small finance bank in September 2015.

In a note on 26 June, Reliance Securities Ltd. said the company’s evolution from being a direct sales agent of HDFC Bank to a significant retail lending NBFC and its outstanding performance track record suggest that AU SFB has the potential to emerge as one of the most successful SFBs in the next three to five years. Angel Broking also has a “subscribe” recommendation on the issue.

Still, at the current price, there’s little room for an upside, brokerage Prabhudas Lilladher Pvt. Ltd said, recommending that investors subscribe to the issue only with a long-term investment horizon.

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