Tano, TR Capital to score high returns from Arohan via IPO

 Tano, TR Capital to score high returns from Arohan via IPO

Asia-focused alternative asset manager Tano Capital and Asian secondaries firm TR Capital will walk away with superior returns by making a partial exit from Arohan Financial Services Ltd via its initial public offering.

The Kolkata-based microlender has filed a draft prospectus with the Securities and Exchange Board of India for an IPO. It will raise fresh equity and offer a partial exit to its private equity investors and institutional backers.

Arohan, part of Aavishkaar Group, plans to raise Rs 850 crore in fresh capital. It also has an option to raise Rs 150 crore in a pre-IPO offering to private investors.

The total IPO size is estimated at Rs 1,750-1,800 crore (US$241-248 million), three people aware of the matter told The Capital Quest.

The IPO may result in roughly 35-36% stake dilution on a post-issue basis after accounting for the fresh equity infusion, as per CQ estimates. This would value the firm around Rs 4,850 crore (US$665 million).

Besides Tano Capital and TR Capital, other existing shareholders such as Denmark’s Maj Invest, the Michael and Susan Dell Foundation (MSDF) and Aavishkar Group will also sell shares in the public offering.

MSDF will sell two-third of its 2.72% stake in the company. Maj Invest will divest a little over one-tenth of its stake.

Tano Capital, which runs an India-specific fund, had invested about US$11.5 million (Rs 60 crore) for a 30% stake in two tranches. Its stake fell after a secondary share sale deal with TR Capital and a change in the company’s capital base as a result of fresh equity infusion by Aavishkaar Group.

Tano Capital will part with half of its 14.07% stake in the company. The investment firm will take home an estimated Rs 210 crore (about $30 million).

About three years ago, Tano Capital had sold about 4% stake in the company to TR Capital for about Rs 42 crore. In all, Tano will fetch about Rs 250-255 crore.

This means Tano Capital will stand to make about 6.81 times returns, factoring in the partial stake sale to TR Capital and the proposed share sale in the IPO. This translates into an internal rate of return (IRR), or annualised return, of 41% based on the amount realised or proposed to be generated in the IPO, per The Capital Quest estimates. The estimates don’t include any dividend income it may have received.

As for TR Capital, the investment firm has proposed to sell about one-tenth of its stake. It will take home about Rs 28 crore, scoring two times returns, or 26-27% IRR in rupee terms on its investment so far spanning three years.

PE and VC firms typically chase about 20-30% returns in local currency terms in emerging markets such as India.

Separate email queries sent to Tano Capital and TR Capital did not yield a response till the time of publishing this article.

Arohan Financial

A successful IPO and listing will see Arohan join a bunch of listed peers such as CreditAccess Grameen Ltd and Spandana Sphoorty Financial Ltd.

Edelweiss Financial Services, ICICI Securities, Nomura Financial Advisory and Securities (India), and SBI Capital Markets are merchant bankers arranging and managing the IPO.

Arohan was incorporated in September 1991 as ANG Resources Pvt. Ltd. It started microlending operations in 2006.

The company’s parent, Aavishkaar Group, makes early-stage impact investments in India and abroad. The group also advises organisations on inclusive business strategies and offers venture capital funding.

The Aavishkaar Group had assets under management worth $1 billion across Asia as of September 2020.

Arohan provides income-generating loans for household purposes and other financial inclusion-related products to customers who have limited or no access to financial services. Its gross loan portfolio as of September 2020 was Rs 4,857 crore — the fifth-largest among Indian microfinance companies.

The company operates in 17 Indian states through 720 branches. Rural areas account for three-fourths of its microfinance portfolio. Women customers comprise almost all of that portion.

Ankit Doshi

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