Existing investors evince interest in SKS Microfinance
Nov '2011


Existing investors evince interest in SKS Microfinance QIP: Mr Dilli Raj

·         QIP to fund huge unmet demand in non-AP states

·         Existing investors continue to repose faith in the Company

·         Capital adequacy of 47 per cent; net worth of Rs 1,181 crore

·         Bank balance of Rs 236 crore as at September 30, 2011


Hyderabad, November 18, 2011: Mr S Dilli Raj, CFO, SKS Microfinance Limited, today said a couple of existing  investors have evinced interest in the proposed Qualified Institutional Placement in view of the fact that the Company is seeking growth capital to fund opportunities stemming from the unprecedented consolidation in the microfinance sector.

“The non-Andhra Pradesh outstanding has reduced by $2 billion for the sector, and the regulatory clarity is driving buoyancy in the long term,” said Mr Dilli Raj.

“The QIP is basically a growth capital raise to help us cash in on the demand-supply gap in the non-Andhra Pradesh markets,” said Mr Dilli Raj. The Company has started the QIP process by sending postal ballot to shareholders, and hopes to have all approvals in place by December first week.

Mr Dilli Raj said the potential investors fall into five different buckets: existing investors, Socially Relevant Investors, Microfinance Investment Vehicles in the developed world, Private Equity players and public market participants. He said the investors have shown interest on account of the fact that the Company’s bullet-proof balance sheet has weathered the external event well in the last one year and that the Company is ready to look beyond the Andhra Pradesh situation. The Company has met all its financial commitments including repayment to banks. The Company’s balance sheet is strong because of high liquidity and adequate capitalization with a bank balance of Rs 236 crore and net worth of Rs 1,181 crore as at September 30, 2011.”

“All the pre-IPO investors continue to stay invested in the Company,” said Mr Dilli Raj. “These include Catamaran Management Services, WestBridge, Sequoia Capital India, Sandstone Investment Partners, Kismet Microfinance and Mr Vinod Khosla, founding CEO of Sun Microsystems, formerly a partner at Kleiner, Perkins, Caufield & Byers, and partner at Khosla Ventures. They have not sold a single share in the Company.”

SKS Micofinance enjoys a competitive advantage over the other players, as the major ones went in for a CDR and the smaller ones find it difficult to meet the new enhanced supervisory standards.

Capital adequacy ratio of 47 per cent

“We have always remained well capitalized and highly liquid,” said Mr Dilli Raj. “The average capital adequacy over the last five years was at least 2.5 times of the RBI norms. Today we have a capital adequacy of 47 per cent and our net worth is Rs 1,181 crore as at September 30, 2011.”

In the unlikely eventuality of the Company facing the worst-case scenario where its collections would be zero in AP, the restructured capital adequacy ratio would still be 35 per cent. However, even in the worst of situations, the Company’s collections did not drop below the 11 per cent mark in Andhra Pradesh.

Losses due to conservative provisioning

“The decision to provide for Rs 350 crore in this quarter itself has been voluntary, though  we could have easily spread the same over the next six quarters as per the Reserve Bank of India norms,” said Mr Dilli Raj. “We have written off the outstanding loans in AP and brought them down from Rs 1500 crore to Rs 822 crore. In addition, there is a cushioning of Deferred Tax of Rs 220 crore, and if that is factored in the total outstanding comes down further. If we write off the total loan outstanding in AP, we get a tax benefit on write-off of Rs 270 crore and, in the unlikely worst case scenario of zero recovery of loans in AP, we would only be left with a net residual risk of Rs 337 crore.”

Contagion no longer an issue

“We can safely put the fear of spread of the AP contagion behind us,” said Mr Dilli Raj. “Our confidence is on account of three reasons: collection efficiency in non-AP states is 96-97 per cent; seven states with strong MFI operations are part of the panel that drafted the Central MFI Bill which is likely to be tabled in Parliament in the Winter Session; and no other state has enacted a law similar to Andhra Pradesh.”

About SKS Microfinance Limited:

SKS Microfinance Limited (SKS) is a non-banking finance company (NBFC), registered and regulated by Reserve Bank of India, whose mission is to provide financial services to low-income households.

SKS operates across 19 states of India. They include: Andhra Pradesh, Karnataka, Maharashtra, Orissa, Madhya Pradesh, Bihar, Uttar Pradesh, Rajasthan, Uttaranchal, Himachal Pradesh, Haryana, West Bengal, Jharkhand, Chhattisgarh, Gujarat, Kerala, Tamil Nadu, Punjab and Delhi.

SKS has been recipient of many awards, which include Social and Corporate Governance Award by BSE, NASSCOM Foundation for Best Corporate Social Responsibility Practice (2007), Social Performance Reporting Award (MFIs) - Silver Category for Social Performing rating conducted by MIX market (2009) etc. SKS was founded by Dr Vikram Akula.


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