This decade-old Sebi guideline is holding up much-awaited SBI Cards IPO

Latest rule change may, however, clear decks for Rs 9,500-cr offering

A regulatory guideline introduced more than a decade ago has resulted in an inadvertent delay in one of the most eagerly awaited public share sales. 

The Securities and Exchange Board of India (Sebi) has held back from giving its observations on the draft prospectus of SBI Cards and Payment Services, the credit card arm of State Bank of India (SBI).  The offer document was filed with the regulator in November, and the company completed its global roadshows by early January, expecting to hit the market the same month. 

However, the regulator kept the share sale in abeyance because of an ongoing probe against group company SBI Mutual Fund, said two people familiar with the matter. 

The latter is contesting insider trading charges levelled against it for trading in the Manappuram Finance scrip. SBI MF was reportedly among the five asset managers to whom Sebi had issued show cause notices last year for alleged use of price-sensitive information for trading in the scrip in March 2013.

“One of our group companies, SBI Funds Management Private Limited, is involved in proceedings initiated against it by Sebi… While Sebi had issued show cause notices, which have been responded to by SBI Funds, no order has yet been passed by Sebi in relation to such show cause notices,” SBI Cards’ draft offer noted.

According to a general order put out by Sebi in 2006, observations on draft offer documents would be kept in abeyance for a period of 90 days from the date of the show cause notice, or filing of the draft offer document — whichever is later. 

The appropriate authority shall — in a fit case — pass an appropriate interim or final order after hearing the person affected, within the period of 90 days. Sebi tweaked the norms for holding back approvals for proposed share sales on Wednesday — putting in place a broader framework but doing away with the abeyance period in cases where show cause notices were issued to entities in an adjudication proceeding.

To what extent the latest modification improve SBI Cards’ approval timeline is still unclear. 

An email sent to SBI Cards, SBI MF, and Sebi did not elicit a response. People in the know said the observations may come this month.

Investment bankers say the delay will have no bearing on IPO prospects, which has got a stellar response from institutional investors.

SBI Cards is targeting a mop-up of Rs 9,500 crore from the share sale, with a fresh issue size of around Rs 500 crore. SBI and Carlyle Group are both divesting their holdings.

“This is the only stand-alone card business that is going to be listed and has the potential to generate superior RoE (return on equity). The market is underpenetrated and we expect significant growth in the business. With the backing of SBI, there is a strong case for reaching out to the untapped segment,” said an investment banker.

According to brokerage reports, the IPO could command premium valuations given the firm is a strong play on the consumption and digitisation story. 

Ambit Capital considers strong parentage and a good distribution network as its strengths and over-dependence on co-branded partners and an unsecured portfolio as weaknesses.

“Banks have become more competitive in this space. Other modes of payments like mobile and UPI are also able to attract large volumes. This could put both margin and growth pressure on the company, if not countered well,” said a note by the brokerage.

SBI Cards — the biggest credit card issuer in India after HDFC Bank — had an 18 per cent market share in outstanding credit cards at the end of September 2019, and 17-18 per cent share in the number of credit card transactions/value of credit card transactions in the first half of FY20. 

Its market share in most of these parameters has increased over the years. In FY19, SBI Cards had posted net profit of Rs 862 crore on revenues of nearly Rs 7,000 crore.

The share sale is being handled by Kotak Mahindra Capital, Axis Capital, Bank of America Merrill Lynch, HSBC, Nomura, and SBI Capital.