Soros-Backed SKS Microfinance Seeks as Much as $347 Million in Indian IPO

SKS Microfinance Ltd., the Indian lender backed by Sequoia Capital and George Soros, raised its initial public offering to as much as 16.3 billion rupees ($347 million) after six quarters of gains by the key equity index.

Shares in the Hyderabad-based company will be offered from July 28 for 850 rupees to 985 rupees each, with a 50 rupees discount for retail buyers, according to an advertisement in the Financial Express newspaper today. Kotak Mahindra Capital Co., Citigroup Inc. and Credit Suisse Group AG are managing the IPO. The company in March had said it would seek $250 million.

SKS, India’s largest microfinance company, has lured investors including Soros and billionaire N.R. Narayana Murthy on expectation credit to the nation’s poorest may surge by more than 40 percent in a market where about 120 million households don’t have access to banking and financial services.

“The basic appeal lies in the fact that it’s a high-growth segment of the financing market,” Apurva Shah, head of research at Prabhudas Lilladher Pvt., said by phone from Mumbai. “Whether lenders will be able to maintain asset quality when they scale up remains a big risk.”

SKS provides loans from $22 to $260 each for women raising cows or opening a village tea stall in a nation where 828 million people live on less than $2 a day. India has an untapped credit demand of 1.2 trillion rupees, according to Crisil Ratings, the Indian unit of Standard & Poor’s.

Market Growth

Microfinance lending in India, the world’s largest market for such loans, may surge about 40 percent annually over the next few years, according to Sanjay Sinha, managing director at Micro-Credit Ratings in New Delhi, which provides ratings services to potential investors. Prabhudas’s Shah estimates the industry may expand at almost 50 percent for the next few years.

SKS, which received a non-banking finance company license from the Reserve Bank of India in 2006 and currently has 5.3 million customers, is India’s largest microfinance company by value of loans outstanding, the number of borrowers and number of branches, according to Crisil.

The offering cements Citigroup’s No. 1 ranking among banks managing share sales in India for a second consecutive year, after it advised companies including state-run NMDC Ltd. and NTPC Ltd. on raising funds, according to Bloomberg data. Kotak Mahindra is ranked second, followed by UBS AG.

A 21.6 percent stake in SKS will be offered to investors, with 7.45 million new shares to be sold by the company and 9.35 million shares by existing investors, according to a July 16 sale document. At least 5.03 million shares will be made available to retail bidders. The offer period ends on Aug. 2, with institutional investors allowed to bid until July 30.

Sequoia, Soros

U.S. venture capital firm Sequoia, one of Google Inc. and Yahoo! Inc.’s early investors, plans to sell about a third of the SKS holding it has accumulated since March 2007 in the IPO.

Soros’s Quantum (M) Ltd. hedge fund, which bought 300,000 shares for 636 rupees each in recent weeks, will hold a 0.4 percent stake after the sale, according to the prospectus. Murthy’s Catamaran Management Services Pvt. will own 1.3 percent.

Indian companies have garnered more than 654 billion rupees from share sales this year, according to Bloomberg data, putting the market on course to exceed 2008’s record 782 billion rupees.

Foreign fund inflows to Indian stocks have increased 35 percent this year to $8.86 billion, according to data compiled by Bloomberg. India’s benchmark Sensitive Index climbed for a sixth quarter in the past three months, the longest rally based on data going back to 1979.

To contact the reporter on this story: Ruth David in Mumbai at rdavid9@bloomberg.net

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