A financial company that is not bank-related, Five Star Business Finance has raised about the sum of 1,588.5 crore in its first public offering (IPO), which is lower than the actual amount increased due to the lack of interest from investors. It is scheduled to go public according to its timetable on November 21, on Monday.
Five Star Business Finance IPO
The company concluded its public offering on November 11, with only 70% of the market’s subscribers despite favorable market conditions, aided mainly by qualified institutional buyers (QIBs) who tend to be long-term investors.
The initial share sale attracted offers in the range of 2.12 crore equity between November 9-11 versus the size of 3.04 million shares. It was reported that the QIB book was filled 1.77 times, the book of non-institutional investors was the 61 percent mark, and retail only 11 percent.
How could the issue get through with only a 70% subscription? The Rs 1,960-crore IPO was purely offered for sale (OFS) by the promoters and investors. By Securities and Exchange Board of India rules, bids should be at 10% of its market capitalization, a crucial requirement fulfilled by the oversubscription by QIBs, which allowed the IPO to be completed despite the low response.
The company has cut its final size of issue to approximately 1,588.5 crores at the top portion of the price band of Rs 474-474 per share. This is 81 % of the original amount of the issue, which is 1960 crore rupees.
“We collected approximately the sum of Rs 1,588.5 crore through the public offering after we had removed any technical objections,” said chief financial officer G Srikanth.
At the top of the price band, the total market capitalization is approximately 13800 crore. 10% of that amount comes at around 1380 crore. The company has already received the sum of Rs 588 million from investors who were anchors on November 7, and the remaining offers of approximately 1000 crore were received between November 9 and 11.
“Considering that it’s an offer to sell issue, not selling issue it is recommended that the QIB component must be fully subscribed and the minimum standard for holding public shares should be 10 percent in implied capitalization, and both of these were achieved through the company,” Srikanth said.
In this way, the unsold portion was returned by the selling shareholders.
Promoter SCI Investments V and Matrix Partners India Investment Holdings II, LLC, intended to sell shares of approximately 166.74 crores and 719.41 crores, respectively. 719.41 crore, at the top part of the price range, respectively, through OFS, as the investor’s Matrix Partners India Investments II Extension LLC, Norwest Venture Partners X – Mauritius, and TPG Asia VII SF Ltd sold shares for approximately 12.08 crore as well as the equivalent of Rs 361.44 crore and Rs 700.31 crore, respectively.
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Why do we get a low response?
That it was a complete OFS may have been a significant factor behind the less-than-enthusiastic response.
Alongside, increasing interest rates and rising competition are possible reasons that are only partially responsible for the lower subscription and the sluggish market activity on the grey.
Based in Chennai, Five Star Business Finance, with a significant presence in South India, offers secured business loans to self-employed and micro-entrepreneurs.
“Among the peers that are compared, It has the highest rate of growth in gross terms as well as an uninterrupted performance of financial growth, with an increase in revenues and profits. But, the high competition and increasing interest rates pose significant challenges for this, ” added Parth Nyati, founder of Trading, an Indore-based internet brokerage.
Furthermore, some of its competitors are also available at a lower cost on the second-hand market, according to Nyati. Nyati had issued an ‘avoid’ score to this particular issue.
Five Star Business Finance shares were traded at a 1 percent discount from their original price on the market, known as grey, and experts claimed under anonymity. Grey market trading is an informal market to trade IPO shares, typically indicating the price the company is expected to list.
Five Star Business Finance
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