Fidelity, HDFC Mutual eye India's Five Star IPO at lower valuation: Report

Indian non-banking finance company Five Star Business Finance is planning to make its stock market debut within weeks, with anchor investors including Fidelity Investments in talks to subscribe to the issue at a valuation 27% below the company's last fund raise, three sources said.

Backed by U.S. investors such as KKR & Co and Sequoia Capital, the NBFC, or shadow lender, caters to small businesses in India's thriving lending market.

The IPO is an offer-for-sale, where its existing investors and founders will sell their shares to new investors, and the company won't raise any fresh capital.

Five Star won regulatory approval for the $267 million IPO in January, hoping to list soon, but the global stock weakness and rising interest rates delayed its plans, said the sources, who did not wish to be named as the IPO discussions are private.

The shadow lender's last funding round in December 2021 was closed at a valuation of 220 billion Indian rupees, roughly $3 billion at the time.

Fidelity and India's HDFC Mutual Fund, among others, are in in talks with Five Star to invest in the so-called anchor book of the IPO but at a company valuation of 160 billion rupees, due to weak market sentiment, the sources said.

Anchor investors are high-profile institutional investors that are allotted shares before the subscription opens for retail and other investors.

Five Star, HDFC and Fidelity did not respond to a request for comment.

Five Star has planning to list in the last week of October, which coincides with Diwali, a popular Indian festival.

Two sources, however, said that the company was closely tracking the ongoing stock market weakness in India before finalising a date.

Five Star's other investors include TPG, Matrix Partners and Norwest Venture Partners. It currently has a total loan book of over $480 million and 250 branches, giving out loans between $1200 and $8500 as per its website.

For the fiscal to March 2022, Five Star recorded a net profit of 4.5 billion Indian rupees ($55.14 million) on a total income of 12.5 billion Indian rupees ($152.74 million), growing about 20% year-on-year, according to its annual report.

($1 = 82.3875 Indian rupees)

(Reporting by M. Sriram; Additional reporting by Abhirup Roy; Editing by Aditya Kalra & Simon Cameron-Moore)