India’s First Credit Card IPO Slips in Debut as Markets Tumble
India’s First Credit Card IPO Slips in Debut as Markets Tumble
(Bloomberg) -- SBI Cards & Payment Services Ltd. declined in its stock market debut as investor uncertainty stemming from the coronavirus pandemic cast a shadow over the listing of India’s first pure-play credit card issuer.
The company’s shares opened at 658 rupees, versus an offer price of 755 rupees apiece, and closed at 681.4 rupees, valuing the credit card issuer at $8.6 billion.
The stock’s launch couldn’t have come at a worse time. While concerns over the widespread disruption of businesses due to the outbreak have rattled stock markets globally, slowing economic growth and the seizure of Yes Bank Ltd. have damped the appetite for risk at home as well. Trading in Indian equities was halted briefly on Friday after a 10% slump in the main indexes triggered a market-wide circuit breaker.
Still, the $1.4 billion initial public offering was 22.5 times oversubscribed due to the company’s perceived potential for growth in an under-penetrated Indian market, its dominant position in the industry and strong parentage in the form of country’s largest bank worked in its favor.
“The overhang of the pandemic is weighing on investor sentiment even though SBI Cards remains a good bet on India’s long term consumption story,” said Chokkalingam G, head of investment advisory Equinomics Research & Advisory Pvt. in Mumbai. “Deflationary conditions in fact see credit card spends go up. The stock is still a buy as the current disruption doesn’t alter the long-term potential of the company given the country’s low penetration of credit cards.”
Priced at the upper end of its expected price band, the IPO raised 70.4 billion rupees ($952 million) for its backers, State Bank of India and Carlyle group. It drew 74 anchor investors including the Singapore government and Kuwait Investment Authority, raising 27.7 billion rupees.
Key Insights
- SBI Cards is India’s second largest credit card issuer after HDFC Bank Ltd., with a market share of 18% in terms of number of cards issued. The market has a total of about 74 players.
- Credit card spending in India grew about 32% annually from 2015 to 2019, and is expected to total 15 trillion rupees in 2024, according to CRISIL Report.
- “Structurally, the credit card sector is poised to grow in India but we don’t know how the coronavirus impact will unfold,” said Kajal Gandhi, analyst at ICICIDirect. “Pain can accentuate in the short term as there could be a possibility of bad loans spiking due to the impact of the pandemic.”
Market Reaction
Here’s how India’s prior 10 largest IPOs fared in their market debuts:
| Issuer Name | Offer Size (billion) | Debut Gains (%) |
|---|---|---|
| Coal India | $3.4 | 40 |
| Reliance Power | $3.0 | -17 |
| DLF | $2.3 | 9 |
| Cairn India | $1.9 | -14 |
| Reliance Petroleum | $1.8 | 42 |
| General Insurance Corp of India | $1.8 | -4 |
| The New India Assurance | $1.5 | -9 |
| NHPC | $1.4 | 2 |
| HDFC Life Insurance | $1.3 | 19 |
Billion Dollar Pipeline
- The most high-profile pending deal in India’s IPO pipeline is the privatization of state-run behemoth Life Insurance Corp. of India, which could fetch as much as 900 billion rupees.
- Tower Infrastructure Trust has filed for an IPO to raise as much as 252 billion rupees.
To contact the reporters on this story: Zhen Hao Toh in Singapore at ztoh4@bloomberg.net;Nupur Acharya in Mumbai at nacharya7@bloomberg.net
To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Kurt Schussler, Ravil Shirodkar
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