SBFC Finance IPO gets 29.7% anchor allocated

The anchor issue of SBFC Finance Ltd saw a robust response on 02nd August 2023 with 29.7% of the IPO size getting absorbed by the anchors. Out of the 17,98,24,561 shares on offer, the anchors picked up 5,34,07,893 shares accounting for 29.70% of the total IPO size. The anchor placement reporting was made to the BSE late on Wednesday. The IPO of SBFC Finance Ltd opened on 03rd August 2023 in the price band of ₹54 to ₹57 and will close for subscription on 07th August 2023 (both days inclusive). The entire anchor allocation was made at the upper price band of ₹57. Let us focus on the anchor allotment portion ahead of the SBFC Finance Ltd IPO.

Before we go into the details of the actual anchor allotment, a quick word on the process of anchor placement. The anchor placement ahead of an IPO/FPO is different from a pre-IPO placement in that the anchor allocation has a lock-in period of just one month, although under the new rules, part of the anchor portion will be locked in for 3 months. It is just to give confidence to investors that the issue is backed by large established institutions.

However, the anchor investors cannot be allotted shares at a discount to the IPO price. This is explicitly stated in the SEBI revised regulations as under, “As per the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirement) Regulations, 2018, as amended, in case the Offer Price discovered through book building process is higher than the Anchor Investor Allocation Price, then the Anchor investors will be required to pay the difference by the pay-in as specified in the revised CAN.

An anchor investor in an IPO is normally a qualified institutional buyer (QIB) like a foreign portfolio investor or mutual fund or insurance company or a sovereign fund which invests before the IPO is made available to the public as per SEBI regulations. Anchor portion is part of the public issue, so the IPO portion to the public (QIB portion) is reduced to that extent. As initial investors, these anchors make the IPO process more attractive for investors, and instil confidence in them. Anchor investors also largely aid in price discovery of the IPO

Anchor placement story of SBFC Finance Ltd

On 02nd August 2023, SBFC Finance Ltd completed the bidding for its anchor allocation. There was an enthusiastic response as the anchor investors participated through the process of book building. A total of 5,34,07,893 shares were allotted to a total of 37 anchor investors. The allocation was done at the upper IPO price band of ₹57 which resulted in an overall allocation of ₹304.42 crore. The anchors have already absorbed 29.70% of the total issue size of ₹1,025 crore, which is indicative of the robust institutional demand.

Listed below are the 18 anchor investors who got allotted at least 3% of the total anchor allocation individually. The entire anchor allocation of ₹304.42 crore was spread across these 37 major anchor investors. These top 18 anchor investors listed below accounted for 76.36% of the total anchor allocation of SBFC Finance Ltd.

Data Source: BSE Filings

While the GMP has remained steady and robust at around ₹40 levels, it shows an attractive premium of 70% on listing. This has led to reasonable anchor response with the anchors taking in 29.7% of the total issue size. The QIB portion in the IPO will be reduced to the extent of the anchor placement done above. Only the balance amount will be available for QIB allocation as part of the regular IPO.

The general norm is that, in anchor placements, smaller issues find it hard to get FPIs interested while larger issues do not interest mutual funds. SBFC Finance Ltd has been a mix, getting good response from FPIs but it has also got extremely strong response from the domestic mutual funds and the domestic insurance companies, considering its product positioning in the Indian market. The number and spread of the Foreign Portfolio Investors has been fairly healthy in this case. With strong SIP flows, most equity funds are flush with cash at this point of time and that has helped the MF appetite for anchor allocation in this IPO of SBFC Finance Ltd. SBI Mutual Fund, HDFC AMC, ICICI Prudential AMC, Kotak Mahindra Mutual Fund, Axis Mutual Fund and Aditya Birla Sunlife Fund were some of the key AMCs to participate in the anchor allotment of SBFC Finance Ltd.

Out of the total 5,34,07,893 shares allotted by way of anchor placement, SBFC Finance Ltd allotted a total of 2,23,08,260 shares to 18 domestic mutual fund schemes across 10 AMCs. The mutual fund allocation represents 41.77% of the overall anchor allocation.

Brief on the SBFC Finance Ltd business model

SBFC Finance Ltd is a systemically important non-deposit taking NBFC (non-banking finance company). SBFC Finance Ltd was established in 2008, with a primary focus on small business owners, entrepreneurs, self-employed as well as on the salaried persons. Its predominant lending products are the secured MSME loans and gold loans. There are a vast number of entrepreneurs and small business owners who lack access to traditional sources of bank financing. Most banks insist on a pay slip and a steady job and that is where most of the small businesses take a hit. It is this gap that SBFC Finance intends to fill.

Traditional assessment metrics do not apply to self-employed professionals, so SBFC Finance deploys a unique set of parameters for evaluating this segment before giving a loan. The NBFC is spread across 105 cities and towns located across 16 states and these are served through a network of 137 branches. The NBFC will use the proceeds from the fresh issue portion to boost its capital adequacy buffers to enable further growth in the loan book. The latest financial year ended FY23 saw net interest income (NII) grow 49% to ₹379 crore. NIMs are extremely healthy at 9.32%.