Friday Sep 20, 2024
Friday Sep 20, 2024
Friday, 19 November 2021 00:21 - - {{hitsCtrl.values.hits}}
Sarvodaya Development Finance Chairman Channa de Silva speaking at the Investor Forum held on Wednesday on its IPO. Others from left: NDB Investment Bank Chief Corporate Advisory Officer Nilendra Weerasinghe, Sarvodaya Development Finance CEO Nilantha Jayanetti and NDB Investment Bank Director and CEO Darshan Perera – Pic by Ruwan Walpola
The Colombo stock market will have its first impact investing opportunity via the Initial Public Offering (IPO) worth Rs. 1 billion by the Sarvodaya Development Finance (SDF), which is confident of growth by empowering village level entrepreneurs.
SDF, the financial services arm of one of Sri Lanka’s oldest social movements, the Sarvodaya Shramadana Movement, is offering a 30% stake in the venture via the IPO of 45.45 million shares at Rs. 22 each. The IPO is in
two tranches, with first being Rs. 500 million (22.7 million shares), oversubscription of which, will keep the balance amount up for subscription at the discretion of SDF Board.
The IPO is up for subscription now, whilst its official opening is on 23 November. In a vote of confidence in SDF’s successful business model thus far and future prospects, Sampath Bank and NDB Bank have underwritten 50% of the initial tranche of the IPO.
SDF intends to raise the entire Rs. 1 b to part finance its growing loan portfolio and help fulfil its regulatory core capital requirements.
Senior management of the company as well as financial advisors and managers to the issue NDB Investment Bank said SDF would add to the diversity of the Colombo Stock Exchange by being the first impact investment opportunity in the non-bank sector.
The SDF IPO will also offer potential investors the opportunity to participate in creating significant social and economic value across all communities in Sri Lanka through the vast network of over 5,400 Sarvodaya societies across the country.
SDF Chairman Channa de Silva said Sarvodaya was an initiative begun over 60 years ago by founder the iconic A.T. Ariyaratne to empower village communities and entrepreneurs. In the past decade, over Rs. 6.5 billion has been invested via 5,400 Sarvodaya societies and Rs. 1 billion in FY21.
Realising the need for a dedicated development financing arm, the SDF was set up 30 years ago and today SDF has an asset base of over Rs. 9 billion up from Rs. 4.8 billion in FY17. With 51 branches SDF has a customer base of over 435,000 of whom 57% are female. The business model has been successful as evidenced by the fact that the Net Non-Performing Loan (NPL) after provisioning is only 3.7% whilst nearly 80% of the loan portfolio originates outside the Western Province.
“With improved core capital post-IPO we have a conscious and aggressive strategy to double the loan book in the next five years to about Rs. 20 billion,” de Silva said.
He also said that globally impact investing was gaining traction both in terms of source of funding as well as preference by institutions and individuals. He said that the World Bank Group’s International Finance Corporation estimates that in 2020, impact investing market saw an infusion of $ 2.3 trillion. “Doing good while doing well is our focus,” the SDF Chairman added.
Chief Executive Officer Nilantha Jayanetti said SDF had demonstrated that development financing could grow via the socially-responsible and economically-viable 5,400 Sarvodaya societies across the country. He said that SDF was the fastest growing development finance institution and had outperformed the industry in FY21, which was largely due to the prudent and resilient business model. In FY21, SDF’s net profit grew by 80% to Rs. 183 million.
Commenting on the IPO, Jayanetti said based on the feedback received, SDF was confident that it would receive wide-ranging interest from both local and foreign investors. He encouraged all those interested in being a catalyst in creating an economically-progressive society to seize the opportunity afforded via the IPO and create equitable value for all stakeholders.
NDB Investment Bank Chief Corporate Advisory Officer Nilendra Weerasinghe that the SDF IPO was attractively priced, offering a “generous” discount apart from what he described as a unique value proposition. It was pointed out that Rs. 22 per share presents an upside of 18% per share, resulting in a projected market capitalisation of Rs. 3.29 billion assuming full subscription at the Issue price. The IPO price is also 30% discount to sector Price Earnings Ratio (PER) and 47% discount to Sector Price to Book Value (PBV). The PER of SDF is 12.5 times whilst PBV is 1.05 times.
He also said that small finance companies with sustainable growth had outperformed and remained more attractive than large Non-Bank Financial Institutions in terms of Price to Book Value. By listing before the end of the year, SDF will enjoy far lower taxation than most of its peers.
SDF has also taken a decision to ensure 40% distribution in dividends since its parent Sarvodaya Economic Enterprises Development Services (Gte) Ltd., which owns 51.86% at present (36% post-IPO), relies on contribution to fund its village level empowerment activities.
SDF is also rolling out a Smart Village app to provide an electronic platform for its entrepreneur customers to link and transact with their customers.
