Five Star Business Finance undersubscribed but sail through

MUMBAI: The initial public offering of Five Star Business Finance got a tepid response from investors, with only 70% of the shares on offer receiving bids on Friday, the final day of the process. However, the IPO managed to scrape through after the institutional portion was fully subscribed. This is the first mainboard IPO that went under-subscribed after the Rs 7,250-crore public offering of Rakesh Jhunjhunwala-backed Star Health and Allied Insurance garnered only 79% subscription in December last year.

One of the bankers to the IPO said the issue sailed through as all the criteria set by the Securities and Exchange Board of India for an IPO with an offer for sale had been met.

“As per the Securities and Exchange Board of India's rules for an offer for sale, there should be a minimum of 1000 applications, the QIB portion should be fully subscribed, and minimum public shareholding should be 10% of the implied market cap,” said an investment banker.

The company received bids for 2.12 crore shares against the offered 3.05 crore shares, according to the data available on the stock exchanges. Overall, the issue was subscribed 0.70 times.

The IPO kicked off for subscription on November 9. At the lower end of the IPO price band of Rs 450-474, the portion reserved for the qualified institutional buyer was subscribed 1.77 times. The non-Institutional segment was subscribed 0.61 times. The retail portion was subscribed 0.11 times.

Five Star Business Finance raised Rs 588 crore from anchor investors ahead of IPO. Overall it saw a subscription of 73%. At the upper end of the price band of Rs474 apiece, including the anchor book, they have garnered Rs 1593.06 crore. The IPO was an offer for sale aggregating to Rs 1,960 crore by the company's promoters and existing shareholders.

ICICI Securities Limited, Kotak Mahindra Capital Company Limited, Edelweiss Financial Services Limited, and Nomura Financial Advisory and Securities (India) Private Limited are the book-running lead managers to the issue.

The company provides secured business loans to micro-entrepreneurs and self-employed individuals, who traditional financing institutions primarily exclude.

Analysts were mixed on the issue. Some suggested subscribing to the issue with caution, but a majority of them found the valuations expensive as the issue was entirely an offer for sale.