Micro-finance lender Spandana Sphoorty has been in the eye of the storm with its founder MD resigning under a cloud, amid alleged differences with its large investor- Kedaara Capital. The lender is in a tussle now with its competitor Bharat Financial’s parent IndusInd Bank over the appointment of its next CEO and CFO. The stock, therefore, has been under pressure on the back of these concerns.

Padmaja Reddy, the founder and former MD of Spandana Sphoorty spoke to CNBC-TV18’s Ritu Singh to throw light on the issues surrounding her exit. Here’s an edited excerpt of the conversation.

Ritu Singh: What were the events leading up to your exit from Spandana, what ured your relationship with Kedaara Capital?

Padmaja Reddy: I never thought that I would exit from Spandana Sphoor now, particularly at this point in time when the industry is in crisis following COVID1 and COVID2. Of course, Spandana was not an exception, it was very much impacted by COVID. And since I have so much experience in terms of dealing with multiple crises, and you are all aware that in 2010, there was a major crisis-AP crisis- and AP had about 20 to 25 MFIs and again, if you see all those 20-25 MF eyes do not exist anymore.

But again Spandana was the most impacted during the AP crisis. But today Spandana is the only MFI that has survived and followed by that that was a demonetisation issue, there were Krishna district issue, but again, with my experience and my nature of being on the ground, Spandana and was able to survive all the crisis. I never, never thought, I never dreamt that I would leave Spandana at this point in time.

While I was dreaming that I will take a Spandana from Rs 8,000 crore to Rs 20,000 crore in another two and a half years- which is very much possible because if you recollect in 2017 when we exited from CDR, our portfolio was as small as Rs 1,000 crore. In just three years, I grew the book from Rs 1,000 crore to Rs 8,000 crore. It is a history, it has never happened, I don't think that it can happen in future also.

Me and my team, we worked day and night, we sacrificed our lives and we have grown the book to Rs 8,000 crore. With 1000 crore we felt that we were irrelevant in the industry, because Spandana used to be the largest MFI in India, and it used to be the sixth-largest across the globe. When we realised that that with Rs 1,000 crore we were in 12th place. I felt that the first thing that I had to do is I have to make Spandana relevant in the industry because Spandana used to be the leading MFI in India.

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While I was having my own plans, Kedaara came to me one day saying that Axis Bank is interested in buying Spandana, they explained to me that they have no other option other than looking at selling Spandana because they have 45 percent stake in the company and block- deals will be very, very challenging and they cannot sell on the screens and they have to exit. I said okay, let us go ahead. Then after a few days, they came back and they said that they got the valuation, when I asked what is the valuation they said it is 1.6 times book value multiple.

To my surprise, I was wondering in terms of why 1.6 times multiple, because I was recollecting at what valuation the SKS-IndusInd Bank acquisition happened. I still remember it was acquired at 4.75 times to book value multiple and again, during the same time there was another acquisition that happened, where Fullerton was acquired by Sumitomo Bank. Again, it was acquired at 4.75 times to book value multiple.

Another small MFI Midland Microfinance in which ICICI Bank has taken 10 percent stake in that equity-that happened at 3.5 times multiple. I was shocked and surprised because Spandana is the leading microfinance organisation in terms of profitability, efficiency and everything. Why are these guys underselling? I said I will not let this deal happen. I'm not selling my stake. They were very upset because later I came to know that this private equity funds, it's not the profit the entire profit is shared with the limited partners who invested in the fund. The fund managers get a hefty carry.

Had that transaction happened, these guys should have got almost 300 turned 60 throat carry when they got to know that, because of me, whatever the under-sale they wanted to do, it was not happening. Then they started making their plans to make sure that I will leave the company that they can do Axis Bank transaction within a month or two because I knew that they had absolutely no plans to run the company.

Even now absolutely telling the staff that in a month or two, Spandana's name will change, it is going to be Axis Bank, you all will be Axis Bank employees. There was no other difference between me and Kedaara. It was only that they wanted to sell the company. I resisted,

Ritu Singh: But what was the breaking point when it comes to the Axis Bank deal? Were you only opposed to the valuation part of it, or the fact that, you know, allegedly, a new CEO was proposed, along with the deal? What exactly was the concern?

Padmaja Reddy: They never told me that they're proposing Shalabh Saxena as CEO and MD to Axis Bank because I read in the news that the terms signed by Kedaara with Axis Bank has this clause. They already proposed to do that. Because I told them that if you are selling the company, I'm not sure whether I'll be heading that business of Axis Bank.

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I'm an entrepreneur. I can only work as an entrepreneur. I cannot head a small division in Axis Bank. But however, later I came to know that as part of the overall deal, they proposed that they are hiring Shalabh Saxena and they projected Shalabh Saxena as the future CEO & MD once Spandana is acquired by Axis bank.

Ritu Singh: Were there any other suitors for Spandana Spoorthy besides Axis Bank?

Padmaja Reddy: In fact, these Kedaara guys only told me that they were contacted by Federal Bank as well. But again, they felt that Axis bank, the stock has higher liquidity. Again, they were bullish about Axis bank stock, it was a stock to stock deal. For every one share of Spandana, they were getting one share of Axis bank. They were more bullish about Axis bank, but again, as a listed company, one should really explored the entire opportunity in the market, because we have to be fair with the public market investors, we have to be fair with the retail investors, and the process has to be done.

But unfortunately, the process was not run though, the banker was appointed. It seems that that's what they told me, they told me that Axis bank said that the company has to sign exclusivity. We cannot run the process. We cannot really talk or engage with other suitors. That is they said that they’re not in discussions with the Federal Bank because the federal bank stock doesn't have much of liquidity as access bank stock. They wanted to get immediate cash for the deal.

Ritu Singh: What to your mind is Kedaara’s motivation to exit via an Axis Bank deal? Don’t they want to remain invested much longer? Why would they settle for a lesser value—private investors rarely do? Are there worries about the asset book or me other issues?

Padmaja Reddy: Kedaara invested in Spandana, from a fund, which they raised in 2014. They told me that, the fund life is getting expired. All other investments that they have made from this particular fund, from which they made investment in Spandana, they exited. And it's only one or two companies, including Spandana. They had to exit -they have a pressure to exit.

But again, this is something that even today, I'm not able to understand, there is a pressure to exit, but again, what is the reason to undersell the company and that too, if you see they wanted to do the deal at Rs 700 per share. And again when the Spandana when we did the IPO the share price was Rs 860 and we had two normal quarters after that, and the share and the share price went up to 1400. That being said, I told them enough number of times, unfortunately, post IPO we do not have a normal quarter in a normal quarter the company will make 800 crore profit after tax.

There are less than 100 companies in India who will be able to make that kind of profit. Even today. I don't have an answer of why they wanted to undersell the company. They knew very clearly that this Spandana is the highest profit-making. Though we are the second largest in terms of AUM, and we are smaller by almost 30 to 40 percent. Still, we are the highest profit-making MFI in India and in terms of NIM in terms of efficiency, productivity, we are the best across South Asia.

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They knew this very clearly, but I still do not understand what is the trigger What is the reason for them to under-sell the company agonist the interest of public market investors in the interest of retail investors, when you clear that this is the best place they're in.

Ritu Singh: What in your mind is the best way forward for Spandana at this point of time? The assets on the management have declined significantly as you were al pointing out. Is it an outright sale? Or the appointment of management as quickly as possible, what is the best option?

Padmaja Reddy: If you want to construct anything, it takes its own time it takes its own resources, but if you want to destroy anything, it doesn't really take any effort. It took much of effort for us to take this company to 8000 crore. Today, in the last three-four months, today it is already 6300 crore and you know that the deadline for Q2 audit was 15th and November and today the company is not able to complete the audit and again as per SEBI guidelines, as per RBI guidelines, the current auditor, Batliboi and EY, and they have to complete the audit, and they have to resign by 15 to November, but till date, they have not resigned.

Which means if they have to continue as auditor for third quarter and fourth quarter, they need approval, they need exception and approval from SEBI and RBI, because an auditor can only do the audit only for three years. But this Batliboi and Company has completed has been doing audit for the last 8 years. That in a very, very risky position, a listed company not being able to announce even that result. It's not that the portfolio has gone down, the portfolio quality got completely deteriorated and they have no clue, who are getting into the company.

There are three, four guys, who are getting satisfaction out of doing boss-ism power and all, old employees who did fraud, and who got terminated because of all the odd reasons - are getting into the company. I don't see any future for this company. If there is a buyer, I think it is a private equity fund they do not know they can't manage the business, they have absolutely no clue. And again, the guys that they're going to bring, they have already done a big mess in IndusInd bank.

I don't think neither Kedaara nor these two guys have the capability in terms of running the company. And again, at least as an 18 percent shareholder, I don't want Shalabh Saxena and Ashish Damani, who are involved in a fraud, they created 80,000 loans without the borrower's knowledge

Ritu Singh: You still continue to hold about 17 percent stake in the company. I know now you're saying there's no value left in Spandana. But what are your future plans? Do you intend to come back? Do you intend to move the courts about you know your ouster from the company?

Padmaja Reddy: No. Basically, everything was a plan. Now they have appointed Shalabh Saxena for five years. When they were appointing me as a managing director, when they were reappointing me as a managing director, they looked at when their fund life is going to expired. They knew that if for any reason I don't agree for sale or under-sale, I don't know what under the table transactions they have in this particular sale, but again, at that point in time, they have renewed my contract for two years, six months. It was a deliberate attempt.

Ritu Singh: Your shares are under lock-in until August of next year. So what is your plan thereafter on your 17 percent stake, will you continue to hold it or exit after the lock-in period ends?

Padmaja Reddy: Out of 17 percent, 6 percent of my shares are in lock-in till August 2022. And again, this is the question I asked Kedaara- when you are not renewing my contract when I'm not going to be in the company as a managing director when I'm not privileged enough to take any call for the company, why should I continue to carry the obligations for the company? Why should my shares be locked in till August?

But again, this guy said that Mr. Suneesh Sharma, he said that I can't do anything about it. You have to deal with the SEBI. And again, I asked Kedaara- I don't think that, the things have come to a stage where we cannot work together. I don't have any trust on you. And you are completely manipulating things. Instead, why don't you buy my stake? He immediately said that our fund life expired, we cannot invest, I cannot buy your stake. Basically, I don't have any solution for my stake, I think. I just gave up. I think it's a destiny. I have absolutely zero value for the stake in the company.

And since I left, things are in very bad shape. I came to know that the November collection efficiency was 66 percent. And again, they don't have IT, they don’t have reports, they have absolutely no idea in terms of what is happening, what kinds of what kind of frauds are happening in the company.

Ritu Singh: Since you say you want to completely exit from Spandana Spoorthy, what's next for you? Do you have plans to start your own NBFC?

Padmaja Reddy: Yes. I'm exploring the opportunity of starting my own NBFC. But this time, having spent all my life in microfinance, of course, I will stay focused to be the low-income households. But again, I'm looking at the possibility of focusing on LAP loans in this property and the gold loans. We are in the process of loading the NBFC. The company has already been incorporated, and we are in the process of capitalising it.

Ritu Singh: And how on will we see this NBFC come up? Have you already identified me of the senior management?

Padmaja Reddy: Yes, the senior management, but there are quite a few. I think when people got to know about my resignation, I received almost 350 resignation. They all left, and they're all with me. I have a responsibility in terms of generating employment. And we are all engaged on a course.

(Edited by : Priyanka Deshpande)

First Published:Nov 26, 2021 8:58 PM IST