At issue size of Rs 10,355 cr, the offering will be Asia’s biggest this year and fifth-largest domestically.
SBI Cards and Payment Services (SBI Cards), a subsidiary of State Bank of India (SBI), has set a price band of Rs 750-755 per share for its initial public offering (IPO).
At the top end, the issue size works out to Rs 10,355 crore ($1.4 billion), making it the largest Asian IPO in 2020 and fifth-biggest domestic IPO.
The IPO will comprise Rs 500 crore worth of fresh equity issuance, which will be used to strengthen the country’s second-largest credit card company’s capital base.
The bulk of the IPO will be a secondary share sale by parent SBI and private equity (PE) major Carlyle.
The largest public sector bank is offloading a 4 per cent stake in the IPO, while Carlyle will sell a 10 per cent stake.
After the issue, SBI’s stake will drop from 74 per cent at present to 70 per cent, while Carlyle will see its holding come down from 26 per cent to 16 per cent.
The PE had bought the stake in 2017 from the lending arm of General Electric for about Rs 2,000 crore.
The value of the stake has jumped to Rs 18,400 crore.
The public shareholding in SBI Cards will be 14 per cent post listing which will have to be enhanced to 25 per cent within three years.
SBI Cards will be the first credit card company to list in the domestic markets.
The company will command a market capitalisation of nearly Rs 71,000 crore, making it India’s 38th most valuable company.
SBI Cards’ valuation could even exceed the Rs 1 trillion-mark going by the grey market premium.
According to market operators, the stock is changing hands at a premium of 45 per cent (Rs 1,100 per share) in the unofficial market.
Market players said investors are enthused by the company’s unique business model, financial track record, high return ratios, and growth potential.
Currently, credit card penetration in India is about 3 per cent. Hardayal Prasad, MD and CEO, SBI Card, said the low penetration offers the company potential for growth.
However, SBI Card would not compromise quality for growth, he added.
Many are looking at the SBI Cards IPO to get a signal into investor appetite for a new paper, which has been battered by the coronavirus outbreak.
So far this year, the Asian share sale has painted a dull picture, with not even a signal IPO worth over $500 million getting launched.
Experts said the coronavirus scare in the major Asian financial hubs of Singapore and Hong Kong has made deal-making challenging.
Investment bankers handling the SBI Cards share sale said they don’t expect the coronavirus scare to impact the IPO.
They had conducted their roadshows much in advance.
“We have seen the market volatility spike because of the coronavirus and this could persist.
"However, we don’t see any material impact as far as this IPO is concerned.
"Some adjustments were made, and we did some calls instead of meetings, but all the roadshows have been satisfactory,” said S Ramesh, managing director & CEO, Kotak Investment Banking.
Mangesh Ghogre, head of equity capital markets at Nomura India, said issuers, which are looking to do roadshows now, are facing challenges.
He said SBI Cards’ overseas roadshows took place much in advance.
Investment bankers said they had arrived at the pricing for SBI Cards IPO after conducting nearly 200 investor meetings.
The SBI Cards IPO would also end the lull in the domestic IPO market.
The last IPO to hit the market was that of Prince Pipes in December.
Earlier this month, state-owned ITI had to withdraw its follow-on share sale because of poor demand.
Bankers said if SBI Cards’ issue does well, it will encourage other companies to launch their share sales.
“SBI Cards’ IPO has the potential to open up the moribund IPO markets,” said Hitendra Dave, head of global banking and markets at HSBC India.
Photograph: Rupak De Chowdhuri/Reuters