SBI Cards IPO draws strong demand from investors

The State Bank of India’s credit card company is going public in one of the country’s few billion-dollar flotations in years, defying a bearish mood as the Indian economy slows and the coronavirus knocks equity markets.

SBI Cards, which is seeking to raise Rs103.5bn ($1.4bn), closed its books on Thursday after a four-day share sale that was subscribed over 20 times. The strong demand came as investors bet that India’s second-largest card issuer would shrug off the downturn and ride a wave of newly financially literate Indians taking out cards for the first time. 

India had only 2 credit cards per 100 people in 2017, according to brokerage Axis, compared with 42 in China and 320 in the US. 

The company will issue Rs5bn of new shares and SBI, India’s largest bank, will sell 4 per cent of its 74 per cent stake. Carlyle, the private equity firm that holds the remainder of shares, will sell 10 per cent of its stake. 

Shares in SBI Cards, the first Indian credit card company to list, are expected to start trading around March 16, according to brokers. 

It is a boon for Carlyle, which is set to pocket about $1bn at a time when many foreign investors are souring on India. Its remaining holding will be worth over $2bn at the IPO valuation — eight times its initial $300m investment three years ago. Carlyle bought a 26 per cent stake in SBI Cards from General Electric in a transaction that closed in December 2017.

“It is a mega, mega-deal,” said the India head of one of Carlyle’s competitors, who bid unsuccessfully for SBI Cards. “While it is painful for me to even think about it, it is great for the industry, to show that there is still opportunity here. Nobody thought that you can make this kind of money in India.” 

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Since the start of the year the Bombay Stock Exchange’s benchmark Sensex index has fallen 7 per cent, as global equities suffer on concern about the spread of the coronavirus. 

India meanwhile is experiencing its deepest economic slowdown in years, and recent violence in New Delhi has spooked foreign investors and prompted them to question the government’s commitment to economic reforms. 

Analysts said the rare large listing has piqued the interest of institutional and retail investors. SBI Cards’ revenues have grown more than 40 per cent annually since 2017, and the company argues it is well positioned to tap demand from the millions of Indians entering the formal financial system.

The broader economic and political uncertainty “makes it even more attractive that in this environment there’s a company which has been able to grow . . . and there’s huge scope”, said Siddhartha Khemka, head of retail research at brokerage Motilal Oswal. 

India is about 20 per cent of Carlyle’s exposure in Asia, compared with only 5 per cent five years ago. The group’s Asia head, XD Yang, said it plans to continue expanding in the country. “In the future it will be an even bigger part,” he said.



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