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SKS Microfinance Files for IPO – WSJ.com

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MARCH 26, 2010, 4:04 A.M. ET
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SKS Microfinance Files for IPO

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By JOHN SATISH KUMAR

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MUMBAI — SKS Microfinance Ltd. has filed a preliminary prospectus with the Indian capital market regulator to raise about $250 million through a proposed initial public offering, seeking to become the first microfinance company in India to tap public markets for funds in what is considered a much sought after space by private equity investors.

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A study by Intellecap, a social sector advisory firm, said Indian microfinance institutions grew at a compound annual growth rate of 96% from 2007 through 2009, attracting 25 equity deals from April 2008 to September 2009 worth a total of 12.07 billion rupees ($265.8 million).

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Two investment bankers involved in the share sale Friday told Dow Jones Newswires that the company would look to tap the market around June by issuing more than 16.79 million shares.

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“It is a fast-growing sector, (investor) sentiment will be fairly all right, but much depends on the valuations though and they could suffer if they attempt to overprice it. As a theme, it’s hot and financial inclusion is in favor politically as well,” said Saurabh Mukherjea, head of Indian equities at Execution Noble.

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He added that the timing is right since foreign funds have a preference for Indian equities at the moment, but if more than half the money raised is invested back into the business, the size of the issue won’t be a showstopper.

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According to the preliminary prospectus filed Thursday, the issue would consist of a fresh issue of nearly 7.45 million shares and an offer for sale of close to 9.35 million shares by Sequoia Capital India II LLC and SKS Mutual Benefit Trust.

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The issue would constitute 21.6% of the fully diluted post-issue paid-up capital of the company.

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It has appointed Kotak Mahindra Capital Co. Ltd., Citigroup Global Markets India Pvt. Ltd. and Credit Suisse Securities (India) Pvt. Ltd. as the book runners and lead managers to the share sale.

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Microfinance reduces poverty by helping the poor finance small businesses, from farms to snack stalls, in rural India or in urban pockets such as slums where it is difficult to obtain a normal loan.

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According to Sa-Dhan, an industry association based in New Delhi, microfinance has reached more than 20 million clients with a portfolio of 120.28 billion rupees, or $2.64 billion, in 422 districts in the country.

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Still, the total estimated demand for microfinance in India is approximately $51.4 billion, said a 2008 Intellecap report titled Inverting the Pyramid.

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The Government of India’s 2008 Report of the Committee on Financial Sector Reforms, chaired by Raghuram Rajan, known as the Raghuram Report, says only 34.3% of people in the lowest income quartile have savings and only 17.7% have a bank account.

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Factors contributing to such low savings rates and bank account participation are a lack of access to banks in rural India and cultural perceptions of risk among the poor associated with formal banking. In addition, the poor lack access to other formal sources of credit.

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