Investors show confidence in SKS

SKS Microfinance, the only listed micro-lender in the country, said on Friday some of its existing investors were willing to put more money in the company to support its future plans.

Earlier this month, the company's board had approved fund raising up to Rs 900 crore through a qualified institutional placement (QIP).

"A couple of existing investors have evinced interest in the proposed QIP in view of the fact that the company was seeking growth capital to fund opportunities stemming from the unprecedented consolidation in the microfinance sector. The company had started the QIP process by sending postal ballot to shareholders, and hopes to have all approvals in place by December first week," S Dilli Raj, chief financial officer of SKS, said in a statement.

SKS aims to raise the money to cash in on the demand-supply gap in non-Andhra Pradesh markets.

According to industry analysts, SKS may find the going a bit tough due to loss of confidence in the sector among investors. In addition, the micro lender also faces serious valuation hurdles. The company had lost 80 per cent of its market capitalisation till the beginning of this month, since its listing in August.

The microfinance institution, however, remains confident it would be able to convince investors to infuse more funds in to the company as it had been able to weather the recent crisis in the sector and expanding operations beyond Andhra Pradesh.

"The company has met all its financial commitments, including repayment to banks. Its balance sheet is strong because of high liquidity and adequate capitalisation with a bank balance of Rs 236 crore and net worth of Rs 1,181 crore as on September 30," he said.

SKS' capital adequacy ratio was at 47 per cent as of September-end. The company said even if it was not able to recover its loans in Andhra Pradesh, the restructured capital adequacy ratio would be 35 per cent. "However, even in the worst situation, the company's collections did not drop below the 11 per cent mark in Andhra Pradesh," it said.

Raj said the micro-lender's net loss mounted to Rs 385 crore in the September quarter due to higher provisions.

He said the company was exploring opportunities to raise funds not only from existing investors but also from global microfinance investment vehicles, private equity players, socially relevant investors and public market participants.

He said it was unlikely that crisis in microfinance sector in Andhra Pradesh will spread to other states. "We can put the fear of spread of the Andhra Pradesh contagion behind us. Our confidence is on account of three reasons: collection efficiency in non-Andhra states is 96-97 per cent, seven states with strong microfinance 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," he said.