Investors in SMILE Microfinance renew stake sale plan


Kolkata: US-based financial services group Developing World Markets (DWM) has renewed its 67% stake-sale plan in Chennai-based SMILE Microfinance after a failed attempt last year.

The group is in discussions with two or three prospective buyers, people familiar with the development told ET.

Promoters of SMILE are also likely to exit, a move that would help the eventual buyer take control of the microfinance firm.

The investors have hired global consulting major Ernst & Young (EY) to finalize the valuation and negotiate with the buyers.

“EY has been hired by investors to look at options after a deal with a housing finance company fell through last year,” one of the people cited above said.

EY is providing transaction advisory, which includes valuation, deal advisory, due diligence on the company and negotiating with buyers.

DWM holds 66.64% in SMILE through DWM Investments (Cyprus) Ltd, while promoter stake is at 18.57%: S Gurushankar holds 15.59% alone. The microlender has Rs 426 crore of gross loan portfolio as on December 2018.

SMILE Microfinance has been looking for a buyer for over a year. In 2013-2014, the founder-promoter N Sethuraman and DWM Investments had a legal tussle over the control of the company.

The MFI, incorporated in March 1995, earned a net profit of Rs 16.84 crore in FY18. It is engaged in providing microfinance services to underprivileged women in Tamil Nadu. It typically offers small-value, collateral-free loans of up to Rs 50,000 for one to two years, with fortnightly repayments.

The microfinance space is bracing for M&As again after a lull in 2018, when MFIs were mostly engaged in rebuilding their portfolios after demonetization.

The sector expanded 51% year-on-year at the end of September before the IL&FS crisis led to a liquidity squeeze. The sector’s gross loan portfolio stood at Rs 1.47 lakh crore, according to Microfinance Institutions Network. NBFC-MFIs, which control 37% of the market, have grown by 50% with total loan outstanding at Rs 54,018 crore.