India's largest public sector lender State Bank of India (SBI) is selling 2.9 crore shares in SBI Funds Management at ₹574 per share in a pre-IPO deal that will give value exposure while targeting strategic investors before the company's public issue.
SBI Funds Management’s pre buy-out of shares is now a significant step towards listing on the stock exchanges. Companies typically look to sell shares before an IPO in order to get investors, establish a benchmark valuation and to bring a firm in and optimize their shareholding structure. SBI selling a portion of shares in this case is in line with its company-wide target of value creation and is still associated with one of the best asset management businesses in India.
Under the offer price, SBI will offer 2.9 crore equity shares at ₹574 per share. The total deal value is almost ₹1,665 crore. The sale will result in great money for the bank and institutional and strategic investors can invest in the company before it goes public market.
SBI Funds Management is among India's largest asset management companies, managing mutual fund schemes in equity, debt, hybrid and other investment sectors. Since starting its business in the country's fast growing mutual fund industry, SBI has developed an institutional and commercial network of distribution centres and the SBI brand.
The proposed IPO has already attracted considerable attention from investors due to the continued growth of India's asset management sector. With more retail participation in mutual funds, increasing financial awareness and higher investment through systematic investment plans (SIPs) the long-term growth prospects of the industry are improving significantly. Thus, companies operating in this sector are now attractive investment targets.
For SBI, the sale will unlock the value of its investment while also maximizing capital efficiency. Strategic divestments have become more common among financial institutions on the move to monetize subsidiaries but without taking away operational power.
As it approaches its IPO, market participants will look at the company’s valuation, financial performance and future growth trajectory. Regulatory approval, financial performance and the final shareholding structure before the public issue will be closely watched as well, investors will also be watching for.
The pre-IPO transaction is a critical step, but the IPO is still subject to regulatory approval and market sentiment. If the listing goes in the direction of being a reality, SBI Funds Management could be one of the most closely watched public offerings in India’s financial services sector and the market will be more interested in the quality of asset management firms to offer.
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