Kerala-based Federal Bank was a potential suitor for Spandana Spoorthy, but was not considered by Kedaara Capital, the founder and former managing director of the micro-finance lender Padmaja Reddy told CNBC-TV18.

Reddy's exit from Spandana Spoorthy earlier this month came amid differences with the lender’s largest shareholder investor- Kedaara Capital over a proposed deal with Axis Bank, which the founder believed "under-valued” the company.

When asked whether Axis Bank was the sole suitor for Spandana Spoorthy, Padmaja Reddy said, "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."

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However, Reddy said Kedaara Capital did not explore any deal with Federal Bank as the other suitor- Axis Bank- wanted an exclusivity agreement to negotiate the deal.

"They were more bullish about Axis Bank, but again, as a listed company, one should really explore 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 through. A 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…They said they're not in discussions with the Federal Bank, because the Federal Bank stock doesn't have as much liquidity as Axis Bank stock. And they wanted to get immediate cash for the deal," she explained when asked about why the offer was not considered.

Padmaja Reddy's differences with Kedaara Capital stemmed from what she claims was the "under-selling" of Spandana to Axis. "There was no other difference between me and Kedaara. It was only that they wanted to sell the company. I resisted," she said.

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"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 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 the book value multiple. To my surprise, I was wondering why 1.6 times multiple, because I was recollecting at what valuation the SKS-IndusInd Bank acquisition happened. I still remember it was acquired 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 a 10 percent stake -that also 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 are underselling?," she questioned.

"I said, I will not let this deal happen. I'm not selling my stake. They were very, very upset," Reddy added.

She alleged that once she made her opinion about the Axis Bank deal clear, Kedaara Capital pushed her out of the firm she founded in 1998.

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"They (Kedaara) started making their plans to make sure that I will leave the company so that they can do the Axis Bank transaction within a month or two because I knew that they had absolutely no plans to run the company. Even now 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," Reddy told CNBC-TV18.

The firm was most recently in news over its spat with Indusind Bank after it tried to appoint a new CEO and CFO from the bank's subsidiary Bharat Financial. Spandana Sphoorty announced that Shalabh Saxena, currently the MD and CEO of Bharat Financial Inclusion had accepted the position of MD and CEO, and Ashish Damani, Bharat Financial's CFO, had agreed to become the president and CFO at Spandana. But a day later, IndusInd countered the news of the appointments, making it clear that neither of the two executives had resigned, and they would not be relieved until an ongoing audit relating to over 84,000 loans being sanctioned without BFIL customers’ consent due to a technical glitch was completed.

Spandana Spoorthy was among the several microfinance lenders that were heavily affected by an industry-wide crisis in Andhra Pradesh in 2010. The NBFC-MFI was admitted to the corporate debt restructuring (CDR) cell thereafter.

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It emerged out of debt restructuring in 2017, raising $270 million in funding. Out of this, about $100 million came as equity capital from a Kedaara Capital-led consortium. Currently, Kangchenjunga Ltd, a special purpose vehicle through which Kedaara invested in the company, owns 45.5 percent, and promoters Padmaja Reddy and her husband hold 16.79 percent in Spandana Sphoorty.

Spandana Sphoorty saw a massive decline in its total assets under management (AUM) stood at the end of the June quarter. Its AUM stood at around Rs 7,390 crore as of June end compared to Rs 8,157 crore in the quarter before. Its gross non-performing assets increased by over 34 percent during the quarter to Rs 339.94 crore, with the Gross NPA ratio at 4.6 percent as of the June quarter from 3.1 percent in the previous quarter. The lender is yet to report its second-quarter numbers.

CNBC-TV18 reached out to Federal Bank for a comment on the story. Their response is awaited.

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(Edited by : Jomy Jos Pullokaran)

First Published:Nov 26, 2021 4:00 PM IST