‘My Opposition To Axis Bank Deal Reason For Ouster From Spandana,’ Says Padmaja Reddy

Padmaja Reddy has stepped down as the managing director of Spandana Sphoorty Financial Ltd., more than two decades after she founded the microfinance lender, over a dispute with its key investor Kedaara Capital.The argument stemmed from a proposed transaction with Axis Bank Ltd., which was considering taking over the assets of the 1998-founded Spandana Sphoorty.Kedaara Capital, according to BloombergQuint’s conversation with Reddy, backed the transaction at 1.6 times the book value. Other similar deals, she said, have happened at 4-4.5 times the book value, and so she was not willing to sell the company cheap.“They were expecting a ‘Yes boss’ kind of nature from me, but I said this is not correct,” Reddy said. “I also said look at public market investors who invested at Rs 860 stock price. If they have to sell at Rs 700, then they will have a very bad memory of the company.”Spandana Sphoorty had a loan book of Rs 7,390 crore as on June 30 compared with Rs 8,157 crore as of March. Its gross non-performing asset ratio stood at 4.6% at the end of the first quarter, rising 150 basis points sequentially. It had a capital adequacy ratio of 42.4%.Reddy alleged that because of her opposition to the transaction, the microfinance company’s board didn’t approve an extension of her tenure as managing director. She resigned from her position last week.“The board of directors unanimously gave its approval for the leadership changes at Spandana as well as for all other strategic discussions of the company,” said a statement from the microfinance lender’s board that has nominees from Kedaara Capital. “As stated in our press release, the new managing director and chief executive officer will take on the new role in the coming quarter, the details of which will be shared in due course.”On Nov. 2, Spandana Sphoorty informed the bourses about Reddy’s exit and the process of appointing a new MD and CEO. In the interim, a committee headed by former Punjab National Bank Chairman KR Kamath will provide strategic direction to the business operations.At present, Kedaara Capital has a 45.5% stake in Spandana Sphoorty, while Reddy owns around 17% directly and through her family. As such, her approval for a sale of the microfinance company’s business is not essential, she said.Reddy also spoke about the major problems between Kedaara Capital and herself, the repercussions of her exit and the future of Spandana Sphoorty..Here are the edited excerpts from the interview:.Could you tell us about the major differences which have cropped up between you and Kedaara Capital?Till Axis Bank came into the picture, I had made it clear that I am not going to sell my stake, I am not going to sell my company at low valuations. This is not the right time. But whatever has happened it is because I said no to the Axis Bank transaction. They also understand that the valuation is very low. But, remember that when Kedaara invested, we were just exiting from CDR (corporate debt restructuring). They invested at Rs 400 crore pre-money value. Even at 1.6 times book value, the company was valued at Rs 4,060 crore. They were making huge return on their investment (in the Axis Bank deal). You know how private equity operates. There were two or three people who would have had 20% carry on the returns, which is around Rs 200 crore had the Axis Bank transaction happened. They were unhappy about it. They expected 'yes boss' kind of nature from me. I said this is not correct. I said look at the public market investors. They invested at Rs 860 stock price and if after two years they sell at Rs 700, they will have very bad memory of the company. They were tracking that my contract was coming up for renewal. So at the backend they decided that they will not renew my contract, I will leave the company and since the due diligence was already done (by Axis Bank) they will sell the company in two months..You continue to hold sizeable stake in the company. Is there any way for you to oppose the Axis Bank transaction as a shareholder?I was wondering if they can do the transaction without my approval. But I was told that in a merger plan, it requires 75% shareholder approval, then the remaining 25% have no choice but to follow. They (Kedaara Capital) have almost 50% stake and the remaining 25% they have to manage. They thought I will just resign and leave because my contract was not renewed, then they can just convince the other investors that the company will not have a future because I have left. Whatever hungama that is happening now, the other investors know that their investment is not safe, so they will feel it is better to support the merger and exit the company. Legally I cannot do anything. I have told Valiant (Mauritius Partners) already about the events but their concern is that I am not there in the company..Did the board discuss the renewal of your contract as managing director? What were their concerns?In the last month and a half they (Kedaara Capital) have been trying to instigate things against me. They have been writing all kinds of things about me through their operators. They were preparing the market, the employees and the other shareholders. Prior to all this, I had written to the board asking if my contract will be renewed soon. On Oct. 7, a board meeting was called and the chairman of the board just informed me that my resignation had been accepted, even though I never offered it. It was a shock of my life. I asked them why they were lying, but then the meeting was concluded without a clear decision taken. After that many meetings and discussions took place and then they convened another board meeting last month without me and I was informed that the board was not prepared to renew my contract.During our discussions over the last one month, I told them (Kedaara Capital) that I don't think we can work together anymore. I don't have the capability to buy their stake, so I asked them to buy my stake. Then whatever power they need for decision making, they can have that. But they outright rejected this option..What does the future hold for Spandana Sphoorty now that your role has been reduced to that of a shareholder?I do not know, honestly. Since my resignation was announced, about 250 more people have resigned. This is a temporary thing. Spandana has been built over a strong foundation. Once the new CEO joins, the organisation will do well. But it all depends on the lenders' confidence. Since CDR (corporate debt restructuring in 2010), I have single handedly managed to raise Rs 20,000 crore from lenders to conduct our microfinance business. The lenders will likely wait and see how the new CEO is doing before they decide on future funding..The Spandana Sphoorty's board said it strongly denies that the directors or Kedaara Capital spread any rumours or allegations against anybody in the market. "The board did not remove Padmaja from her position — she chose to resign ahead of the natural expiry of her term in April 2022," the board said in a statement. "Further, the board would like to note that all strategic decisions of the company were made only after unanimous approval of the board."On a possible transaction with Axis Bank, it said the "board would not like to comment on any market speculations involving the company".

‘My Opposition To Axis Bank Deal Reason For Ouster From Spandana,’ Says Padmaja Reddy

'Kedaara Capital ousted me owing to my opposition to Axis Bank deal,' says Spandana's Reddy.

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