Several MFOs are considering an IPO
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In the face of difficulties in attracting funding on the debt market, microfinance organizations are turning to the stock market. For MFOs, an IPO can mean understanding the real market valuation of the company and its transparency, which also helps to attract financing from banks on more comfortable terms. In addition, companies in the sector have an established pool of investors. However, such investments may be too risky, including in an environment of ever-tightening regulation.
Shares of another microfinance company may appear on the stock market. On Friday, September 15, shareholders of the Financial Support Center (FSC) MFC made a unanimous decision to acquire public status by the company and place 10 million ordinary shares worth RUB 33 million. (at par) by open subscription. The TsFP did not respond to Kommersant’s request.
At the beginning of July, trading in shares of Smarttechgroup (it owns the Karmani multifunctional complex; see “Kommersant” dated July 3) began on the Moscow Exchange. In addition, two or three more microfinance companies may go public by the end of 2024, says Anton Khrapykin, investment director of the IDF Eurasia fintech group. Kommersant’s interlocutors, however, do not name specific names.
TsFP operates under the Viva Money brand and offers loans in amounts up to 100 thousand rubles. for a period of up to one year. At the end of the first half of 2023, the company’s interest income amounted to 3.13 billion rubles, net interest income – 1.44 billion rubles, net profit – 0.61 billion rubles.
Currently, the company’s authorized capital is divided into 20 million shares. The total capital of the CFP at the middle of the year was estimated at almost 3 billion rubles, but most of it accounted for retained earnings (2.6 billion rubles).
Neither the placement date of the securities nor the placement price have been announced yet. According to Artem Outlev, the company will probably be able to attract hundreds of millions of rubles in capital. Smarttechgroup raised RUB 824 million.
There may be demand for the new issuer’s shares, experts believe. “The stock market is now dominated by individuals; they account for more than 80% of exchange trading. This is a positive thing: bonds of microfinance companies are also bought mainly by individuals, so the largest players already have an established investor base,” says Dmitry Alexandrov, Managing Director of Ivolga Capital Investment Company.
It is cheaper for such issuers to raise funds through an IPO than by placing bonds during a period of high interest rates, explains Ingosstrakh-Investments analyst Artem Outlev.
According to RusBonds, there are currently two issues of the company’s bonds in circulation with maturity in 2024 in the amount of RUB 1.5 billion. and yields of 16.4% and 18% per annum. In total, according to SRO MiR, 7–10% of microfinance market funding comes from bond issues. The placements were carried out by 13 companies from 34 microfinance organizations that are allowed to raise funds in this way.
In addition, an understanding by the company’s owners and potential partners of its market value will allow them to attract more credit lines from banks under better conditions, and with the money raised they can pay off more expensive loan obligations, notes Anton Khrapykin.
However, the segment also has risks, primarily the ongoing tightening of regulation – tighter macroprudential limits and a decrease in the overall cost of credit. “Investors need to be very careful when investing in MFO shares, since they usually have a rather risky business model and low credit ratings. Quotes can be extremely volatile due to low liquidity,” points out Artem Outlev.
In addition, the placement of Smarttechgroup shares can hardly be called successful for investors, experts agree. The deal was completed at inflated multipliers, and since the placement the shares have decreased significantly, Mr. Alexandrov points out. Now on the stock exchange they are quoted at about 2.7 rubles, while in early July transactions were concluded even at 3.5 rubles. During the same time, the Moscow Exchange index grew by 13%.
To conduct a successful placement, the issuer should focus not on speculative demand, but on forming a base of investors who truly understand the business and see its long-term development. This, Dmitry Alexandrov believes, “will ensure a more restrained supply of shares at secondary trading, and therefore will support quotes during the circulation process.”
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