Coming Soon to a Theatre Near You!

The last two days I've been hearing the simple, yet immediately evocative two-note theme song from the movie Jaws in my head. I wasn't sure why until I remembered that I'd read a few articles about SKS' gearing up for an Initial Public Offering (IPO).....the likes of which the Indian microfinance community has never seen! I have a feeling that the hype will continue to become more hyper until the actual IPO itself, which is predicted for sometime in early 2010.

The Financial Times reported that SKS has recently brought Citigroup, Credit Suisse and Kotak Mahindra Capital on board to manage the listing. Hearing the involvement of Credit Suisse brings me back a few years to the Compartamos IPO which shook the foundations of the microfinance sector. Credit Suisse was selected as Compartamos' underwriter and they peddled the shares to institutional investors including hedge funds and pension funds. After the road show, in April 2007, Compartamos sold 30% of its equity in an IPO. The demand for shares was 13 times oversubscribed and the sale resulted in $468 million in revenue for shareholders who had liquidated their stocks. Framed another way, the revenue would have equated to roughly 8,437 pesos (or $780) in share profit for each of Compartamos' then-600,000 clients (they have since grown), had they shared in the sale.

Shareholders	% Held Before IPO (Total Compartamos Shares)	% Sold in IPO (Total Compartamos Shares)	% Held After IPO (Total Compartamos Shares)O	Number of shares sold/purchased
Compartamos A.C.	39.2%	7.4%	31.8%	(25,159,212)
ACCION	18.1%	9.0%	9.0%	(38,613,240)
IFC	10.6%	2.7%	7.9%	(11,302,644)
Individual Investors	32.2%	11.%	21.2%	(36,497,448)
New Investors	N/A	N/A	29.9%	128,308,412

The Compartamos IPO raised innumerable eyebrows (including those of a Nobel Laureate) and forced a lot of the sector into an existential dialogue over whether it was acceptable to make huge profits off of microfinance. To be fair, much of the hoopla over Compartamos stemmed from macro-level conditions including a barren landscape IPO listing in Mexico during the months prior to Compartamos. Thinking through some of the issues raised during Compartamos for SKS' debut made me think of the following questions in the lead-up..............

a) Will the IPO be a secondary offering, a primary offering or some sort of hybrid? Right now, the shareholders of SKS are as follows (taken from an interesting/controversial Forbes article about Vikram Akula)

Sequoia Capital 23.60% Kismet Capital 17.30% SKS Mutual Benefit Trust 13.60% Vinod Khusla 6.30% Unitus 5.50% Vikram Akula 5.40% SKS Employees 4.10%

b) If the SKS Mutual Benefit Trust sells some of its shares in the IPO, how will the profits be distributed? And what will be the psychological/social impacts between the clients who receive these dividends and those who do not (assuming that they are in regular contact with each other).

c) Who will be the new shareholders? Will they be socially responsible investors or commercially-oriented or a mix? Just for fun (I know I'm a dork), about 18 months ago I listened in on the 4Q earnings report of Compartamos with its (relatively new) shareholders. In 45 minutes, not once was the word "poverty," uttered or "social impact." Of course this is a superficial measure of what shareholders prioritize, but I was pretty struck by the absence of certain topics.

Obviously there are still a lot of details to work out with SKS' potential IPO. But either way, I think this will be a watershed event for SKS, which now serves more than 5 million clients, and for Indian microfinance.

So let's grab some popcorn and get a front row seat for the show! (And I have a feeling that, much like Jaws, there will be some sequels as well...)