SBI Card IPO: HNIs may have to pay extra for borrowed funds

Non-bank lenders are raising cash so that high-networth individuals (HNIs) seeking to buy into one of India’s biggest initial share sales can bid aggressively. But they may have to pay more – perhaps 15 per cent by way of interest – to deploy borrowed funds into the ongoing IPO of SBI Cards.Domestic institutions have issued commercial papers (CP) worth more than Rs 80,000 crore to fund SBI Cards and Payments Services IPO at an interest rate of 11-13 per cent. That means HNIs will have to pay interest in the range 13-15 per cent since there is a mark-up over and above the cost of raising funds at local institutions.Funding costs have climbed due to the ongoing equity-markets crisis following the spread of the Covid-19 epidemic around the world. While HNIs make money from the listing premium, the lenders will make a neat profit with 2-3 per cent spread, according to market participants. The grey market premium for the SBI Cards IPO, however, fell to Rs 180 on Monday from a high of Rs 380 last week.Bajaj Finance, Kotak Mahindra Capital, JM Financial, IIFL Wealth Finance, Edelweiss Finance, ECL Finance, Aditya Birla Finance and Sharekhan BNP Paribas are among the firms raising nearly Rs 75,000 crore by issuing commercial papers maturing in 9-14 days. These instruments will have an interest rate of 11-13 per cent, said market participants.“One AAA-rated firm raised about Rs 25,000 crore at an interest rate of 11.5 per cent initially to fund the SBI Cards IPO, which led to the increase in cost for all others with 11.5 per cent benchmark,” said the CEO at an NBFC.The SBI Card IPO garnered more than 7.5 lakh applications on the first day, with the issue getting subscribed 35 per cent.The IPO, which opened on Monday for subscription, will close on March 5. The company plans to raise up to Rs 10,341 crore by selling 137.1 million shares at the upper end of the Rs 750-755 price band. The lot size has been decided at 19 shares, meaning one will have to shell out at least Rs 14,250 to bid for the issue.This category includes all other investors other than those who fall under the retail and qualified institutional buyer categories.The company has set aside 18.3 million shares for the HNI category, which is defined by a minimum application threshold of Rs 2 lakh. If this category is fully subscribed, it will help raise Rs 1,384 crore.The huge success of the last two IPOs – IRCTC and CSB Bank – was due to domestic brokerages and NBFCs aggressively extending IPO funding to HNIs at attractive interest rates, brokers said. While the HNI portion in IRCTC was subscribed 354 times, it was 165 times in CSB Bank issue, which closed on November 26.Out of the 15 IPOs, only three – Affle India, IRCTC and CSB Bank — were financed by NBFCs. In 2018, only three of the 24 IPOs saw demand for IPO finance.“Both HNIs and NBFCs involved in the IPO funding are aware of the grey market premium and number of times the issue would be subscribed. Accordingly, they calculate the cost of the application and net gain on listing,” said Arun Kejriwal, CEO, KRIS Research & Advisory. “The lower interest rate of 7-8 per cent annually excludes the interest they are getting from the money blocked in the Asba account.”IPO scrips below Rs 250 will have a price band after 10 am on listing day and any IPO above Rs 250 crore will have a 20 per cent price band. Also, IPOs below Rs 250 crore will have to go through a 10-day period where they will be trade for trade (T2T), which means that scrips can be traded only if one has shares in his/her account.

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