Billionaire Chandler-Backed Microfinance Firm Delays India IPO on Turmoil

Share Microfin Ltd., backed by New Zealand billionaire Christopher Chandler, plans to delay an initial public offering after rival microfinance companies in India sought emergency funds to cope with rising loan defaults.

The lender, based in Hyderabad, had planned to raise 10 billion rupees ($221 million) in early 2011, Philip Vassiliou, managing director of Chandler’s Legatum Ltd., said in an interview in Mumbai yesterday. The company has also postponed a merger with another lender, said M. Udaia Kumar, Share Microfin’s managing director.

Repayment rates have fallen to less than 20 percent in Andhra Pradesh state for most lenders after the government in their biggest market clamped down on lending practices in mid- October, Kumar said. The state capped rates for micro-lenders, who typically offer loans starting at $100, and barred coercive collection methods following suicides by borrowers.

“The challenge for MFIs is to manage the liquidity crisis” with the new regulations, Kumar said. “Most of the MFIs, including Share, have stopped disbursing loans in the state of Andhra Pradesh because of the ordinance.”

The southern state’s new norms included requiring lenders to shift collections to a monthly basis from weekly, and ordering repayments to be made only at government-designated places. That’s led to a slump in cash flows this month and strained some lenders’ capital levels.

Collections have been further disrupted by politicians telling borrowers to abstain from payments as loan-waivers may be granted, Share Microfin’s Kumar said. The lenders’ staff have also been harassed by local village leaders, who prevented them from entering the areas or filed police complaints, he said.

The lender won’t consider an IPO until clients begin repaying debts and state and central governments deal with the current upheaval, Kumar said. Banks and the lenders’ staff also need to regain confidence in the companies’ operations, he said.

Harassed Staff

Microfinance companies are seeking 10 billion rupees from banks for an emergency liquidity fund, Vijay Mahajan, head of the Microfinance Institutions Network lobbying group, said on Nov. 16 in New Delhi. Shares of SKS Microfinance Ltd., the nation’s largest provider of small loans, have plummeted 40 percent since Oct. 15, when Andhra Pradesh introduced the rules.

‘Adequate Liquidity’

SKS has adequate liquidity and doesn’t need emergency funding, Chairman Vikram Akula said in an interview today in Hyderabad, where the company is based. ICICI Ltd., Axis Bank Ltd. and Kotak Mahindra Bank Ltd. are among eight lenders that provided financing to SKS in the last two weeks, he said.

The company, backed by George Soros, yesterday said 66 people among its field staff who had been arrested or detained in the state have been released. Andhra Pradesh accounts for about 26 percent of SKS’s loan portfolio.

Dubai-based Legatum, which had invested about 1 billion rupees in Share Microfin in 2007, currently holds a 61.5 percent stake, Vassiliou and Kumar said yesterday. Aavishkaar Goodwell, a company that provides financing to micro-lenders, owns 3.5 percent, employees hold 2 percent, and the remaining is held by Kumar and his family, they said.

Legatum isn’t “overly concerned” by the current crisis, Vassiliou said. Microfinance companies are essential for providing financing to people in India where banking services aren’t available, he said.

Still, rising delinquencies may lead smaller lenders to default on their loans to banks, Kumar said.

“Even if a single MFI defaults, it might have a trickle- down effect on the entire sector,” he said. “Institutions with stronger net worth have a possibility of survival for a period of time.”