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India's SBI Cards IPO draws strong investor interest

Share sale of country's second-largest credit card issuer oversubscribed 22 times

SBI Cards, a joint venture between State Bank of India and Carlyle Group, is expected to fetch 103 billion rupees through its IPO. (Photo by Keiichiro Asahara)

MUMBAI (NewsRise) -- The initial public offering of SBI Cards and Payments Services was oversubscribed 22 times as investors rushed to buy into India's second-largest credit card issuer despite the volatility in broader markets caused by the novel coronavirus epidemic.

The IPO, which aimed to raise $1.4 billion, came at a time when the virus outbreak roiled global financial markets and disrupted businesses as well as normal life in several countries. The share sale was launched amid bets that improving liquidity in India's banking system and more government reforms will boost the nation's stock market that has been sagging through last year.

The spread of the flu-like-virus outside China, where it first appeared late last year, sparked a global selloff over the past 10 days, portending the worst such meltdown since the financial crisis of 2008.

On Wednesday, India identified 28 virus-infected patients, while the number of cases in countries such as South Korea, Iran, and Italy spiraled. The rapid spread of the epidemic prompted the U.S. Federal Reserve and many other central banks to cut interest rates to shore up investor confidence.

India's benchmark Sensex has been on a losing-streak on eight of the 10 past trading sessions, while foreign institutional investors sold shares worth $2 billion through Wednesday. Still, investors ignored the turmoil to buy into what is touted as India's first billion-dollar IPO in the past two years.

In October, investors latched on to the bumper listing of state-owned Indian Railway Catering and Tourism Corp. that more than doubled its value in market debut after being subscribed nearly 112 times.

SBI Cards' four-day IPO, which ended Thursday, received bids for about 2.2 billion shares against the total issue of more than 100 million shares, data from the National Stock Exchange showed. The portion set aside for qualified institutional buyers saw demand outstripping supply by 32 times. The non-institutional investors' part was subscribed 23 times, while the retail portion was subscribed 91%.

At the upper end of the price band of 755 rupees a share, the IPO is expected to fetch 103 billion rupees ($1.4 billion), valuing SBI Cards at 700 billion rupees.

Earlier, the company, a joint venture between State Bank of India, the nation's largest lender, and Carlyle Group, raised 27.69 billion rupees from 74 anchor investors, including HDFC Mutual Fund, the Government of Singapore, and Monetary Authority of Singapore. SBI is diluting 4% stake in card issuer, while Carlyle is divesting 10%.

SBI Cards, with an 18% market share, has about 10 million cards and over 1.03 trillion rupees in spending in the fiscal year ended in March 2019.

"SBI cards is a formidable play on rising discretionary spends and non-cash economy," brokerage Prabhudas Lilladher said in a report. At the upper end of the price band, SBI Cards is valued at 29 times its expected fiscal year 2022 earnings. That's a "significant premium" to global peers which are trading at nine to 13 times, it said. Prabhudas has a Buy rating on the stock, with a target price of 1,191 rupees a share.

To be sure, the slowing domestic economy remains a major damper for consumption spending in the south Asian country. Asia's third-largest economy grew at the slowest pace in more than six years in October-December, as government spending and private investments remained sluggish.

--Dhanya Ann Thoppil

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