The biggest news in global credit cards right now is the long awaited Initial Purchase Offering (IPO) for the second largest credit card issuer in India. The big deal begins next week, CNBC summarizes:
The much-awaited Rs 9,000-crore initial public offering (IPO) of SBI Cards and Payment Services is going to hit the bourses on March 2. The pure-play credit card company has set the price band for the share sale at Rs 750-755. The company is a subsidiary of State Bank of India (SBI), the country’s largest commercial bank in terms of deposits, advances, and the number of branches.
The portfolio is not the largest in the market, but given potential volume in the country, there is promise for long term growth:
According to the Reserve Bank of India (RBI), SBI Cards is the second-largest credit card issuer in India both in terms of numbers of credit cards outstanding and amounts of credit card spends.
On the other hand, HDFC Bank has the most significant credit card business in the country, with 13.3 million cards issued, while ICICI Bank stands third with 7.9 million credit cards, according to the RBI.
India Times is optimistic:
MUMBAI: Top lender State Bank of India said the price band of an initial public offering of SBI Cards and Payment Services had been fixed in the price range of Rs 750-755 per share.
At the higher end of the price band, the SBI Cards IPO is expected to raise around Rs 9,000 crore, making it the fifth-largest IPO so far.
The issue will open for subscription on March 2 and close on March 5.
The Carlyle Group, a global investment firm, is likely the big winner in the IPO:
The secondary share sale will include up to 37.29 million share sale by SBI and up to 93.23 million shares on offer by the Carlyle Group. SBI holds 74% in SBI Card, while Carlyle holds the rest. Both will pare their stakes by 4% and 10%, respectively, via the initial share sale.
Outlook for success is strong. LiveMint talks about demand:
Analysts expect strong demand for shares of SBI Cards. “It is an excellent opportunity for IPO traders to flip it on the opening pop and expect a record demand for this issue,” HDFC Securities said in a note.
And another investment firm sees a rapid 50% growth:
Credit card industry spends to grow 2.5 times in the next five years. Credit card spends have registered a robust growth, growing at a CAGR of 32 per cent from fiscal 2015 to fiscal 2019 to reach Rs. 6 trillion as of fiscal 2019. It is expected to grow at a healthy rate to reach Rs. 15 trillion as of fiscal 2024, which is 2.5 times over fiscal 2019, according to CRISIL Research.
Geojit Financial Services NSE -3.32 % pointed that the outlook for SBI Cards business also looks healthy with the total credit card spends and outstanding growing at a CAGR of 35 per cent and 54 per cent respectively, over the last two years till FY19.
The big question from where I sit is how the global risk of the coronavirus will impact this exciting IPO. Mastercard just issued an impact statement, as Financial Times reports.
Mastercard has cut its financial outlook, citing the impact of the coronavirus on cross-border travel and commerce.
The payments company now expects its first-quarter revenues to grow 9 to 10 per cent, compared with a year ago, roughly 2 to 3 percentage points lower than the company forecast when it reported 2019 earnings a month ago.
The company expects full-year revenue growth to be at the “low end” of its previous outlook, which called for revenue growth in the low teens, but noted that “there are many unknowns as to the duration and severity of the situation.”
Global bank HSBC projects a potential impact of $600 million in losses “if Coronavirus persists,” according to Reuters.
Reports from New Delhi suggest concern for the outbreak, as a local news source reports:
The government is keeping a close watch on the impact of coronavirus outbreak on the Indian economy and various options are being gauged at various levels, Finance Minister Nirmala Sitharman said on Wednesday.
The minister also said that the process of merger of public sector banks was underway as per the schedule. The government has announced to merge 10 state-run banks to create four big lenders.
Next week will give a better view on how the market thinks the coronavirus will impact the credit card market, first with India’s fledgling credit card market, but even more importantly, the global impact.
Overview by Brian Riley, Director, Credit Advisory Service at Mercator Advisory Group
