India: Gold Financing IPO Far Oversubscribed

April 22nd, 2011
in econ_news

gold-coins Econintersect (reported by Sanjeev Kulkarni):  Muthoot Finance, India's largest gold financing company, has closed bids on its IPO with a vast over subscription.  What might appear to be the equivalent of a U.S. pawn shop operation is actually more like a banking operation based on gold as the banking reserve.  The Indian finance companies use only gold (and not other physical property) as collateral for loans and continue to roll over loans for continuing interest payments until principal is repaid.

Follow up:


Muthoot Finance IPO could vault 8-10 per cent from its IPO allotment price feel analysts and investment bankers. They expect that investors who got lower allotments will scramble to buy shares of the gold loan company on listing.

“We expect Muthoot Finance stock to get listed at 8-10 per cent premium on the first day of listing,” said Jagannadham Thunuguntla, strategist & head of research at SMC Global Securities. “If the market sentiment remains bullish, the stock can witness a sharp rally and premium over the issue price could even be more than 8-10 per cent,” he added.

He expects Muthoot to fix the IPO price at the top end of the Rs 160-175 a share price band. The issue closed on Thursday with the qualified institutional bidders’ portion getting subscribed 25.01 times and the retail investor portion subscribed 8.5 times.

Some major global fiancial players are biddong for shares in Muthoot, including Goldman Sachs, Citigroup and Temasek, the Singapore Sovereign Fund.  The Times of India reports that Indian funds are also bidding, naming specifically SBI, HDFC, Reliance, Birla and IDFC

Another publicly traded company in the gold financing space is Manappuram Finance which has seen its stock appreciate more than 10X over the past two years (BSE:MANAPPG). 


Sanjeev Kulkarni is an entrepreneur based in Pune, India. He worked for large organizations in board level position before venturing on his own. He is currently involved as an investor in health care software company and as an investor, mentor in an automation company. Very widely traveled, he has experience of working in different geographical areas with people of varying nationalities. He did his BS from Indian Institute of Technology, Delhi.

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1 comment

  1. Gold says :

    Wow, those are definitely some big numbers. Too bad they've stopped taking IPO money, could you imagine having that problem when you go public?

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