Hyderabad-based microfinance institution SKS Microfinance has issued one-year 10 percent bonds, raising Rs. 75 Crore (USD 15.8 million). The bonds, which will be listed on the Bombay Stock Exchange (BSE), were placed with Standard Chartered Bank’s Foreign Institutional Investments. Standard Chartered was the sole book runner and lead arranger for the issue. The funds will be used by SKS to extend loans to new and existing borrowers.
According to the article on the Indian website VCCircle, SKS plans on significant growth in the year ahead. It expects to expand its branch network to 1,750 branches across the country from 1,350 branches currently, increasing its members from 4 million to 6.5 million, and doubling its incremental disbursements to Rs. 9,000 Crore (USD 1.9 billion) from Rs. 4,327 Crore (USD 913.3 million) in last fiscal year. The MFI also expects to double its gross loan portfolio to Rs. 5,200 Crore (USD 1.1 billion) from Rs. 2,460 Crore (USD 519 million).
SKS chose to raise the funds through debt in order to match its recently raised equity. As reported on MicroCapital, SKS last year raised Rs. 366 Crore (USD 75 million) from private equity investors in a deal led by Sandstone Capital. Also participating in the transaction were existing investors Kismet Capital and SVB India Capital Partners, an affiliate of Silicon Valley Bank. Edelweiss Capital was the investment banker to the issue. According to the VCCircle article, the company’s debt-to-equity ratio is currently 3 times and total equity is USD 135 million. Dilli Raj, the CFO of SKS Microfinance also stated that listing the bonds on the BSE helps the MFI diversify its funding sources as well as enhances its public accountability, transparency and corporate governance through increased public reporting.
Earlier this year, as reported in the Business Standard of India, foreign institutional investors enthusiastically bid for investment allocations on the National Stock Exchange after the Indian government raised the cumulative investment limit on corporate debt held by foreigners from USD 6 billion to USD 15 billion. Rates on Indian corporate debt can be attractive to foreign investors versus US corporate and government debt, as spreads can be several hundred basis points higher. According to one fixed income manager, even after subtracting for hedging costs, spreads can be over 200 bps.
SKS Microfinance was established in 1997. According to the MIX Market, the microfinance information clearinghouse, as of March 31, 2008, SKS had 1,629,474 active borrowers and a gross loan portfolio of USD 262 million. Total assets were USD 337 million, debt-to-equity was 5.4 times, ROE was 11.95 percent and ROA was 2.0 percent.
By Laura Anderson, Research Associate
Additional Resources:
VCCircle: SKS Microfinance Raises Rs. 75 Crore Debt, Lists NCDs on BSE
SKS Microfinance: Home
Bombay Stock Exchange: Home
Standard Chartered Bank: Home
MicroCapital Story: SKS Microfinance Raises $75.4m in Equity Capital in Transaction Led by Sandstone Capital
The MIX Market: Home, SKS Profile
The Business Standard: FIIs put in Rs. 29,000 cr bids for debt
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