Goldman Sachs, Citigroup, Temasek rush for Muthoot Finance IPO

Goldman Sachs, Citigroup and Temasek are among scores of global investors scrambling for a share of the pie in companies that are in the rapidly-growing business of lending against gold. Heightened investor interest in this segment is reflected in the fact that the 900-crore initial public offering from Muthoot Finance, the country's largest gold loan company, drew bids for at least 25 times the shares on offer.

Returns from an earlier public offering by rival Manappuram have raised investors' hopes of profiting from this issue too. That raises the possibility of pricing it at the top end of the 160-175 band.

"It is a unique business model and given Indians' obsession with gold, it is an attractive business model," said a director of a US-based fund that bid for it, but did not want to be identified for regulatory reasons. "Given these reasons, the issue is priced attractively and it is difficult to match the scale and expertise of the private players in this segment for banks as it is not their core business."

Manappuram has more than doubled while Shriram Transport Finance has gained 72% since January 2010, compared with a 21% rise for the benchmark Sensex. South Korea's Mirae, US' GMO, Jupiter, Tudor, DKR Oasis, Geosphere and Congruix and private funds such as Barings and Wellcome Trust were among the global bidders, said brokers familiar with the bids.

Attractively priced, feel investors

Domestic funds SBI, HDFC, Reliance, Birla and IDFC also bid for the Muthoot IPO. Lending against gold is seen as the best bet in secured lending, with the precious metal at a record high of $1,500 an ounce. With inflation fears, gold and silver prices are forecast to rise.

Commodities bull Jim Rogers expects gold to rise to $2,000 an ounce in the coming years. Lending about 30% of the value of such an asset ensures safety at 13% interest. If the loan value rises, then interest rate jumps without additional risk which equity investors prefer.

"Investors want to buy unique stories," says Falguni Nayar, head of investment banking at Kotak Mahindra, one of the share sale arrangers. Furthermore, investors believe the stock was priced at a reasonable valuation compared with listed peers, unlike most other issues that are overpriced.

"Muthoot will be trading at an FY12 priceto-book range of 2.2-2.4 times," says Santosh Singh, analyst at Espirito Santo Securities .