Rainbow Children's Medicare gets SEBI nod for an IPO

Hyderabad based Rainbow Children’s Medicare, which had filed its draft red herring prospectus (DRHP) with SEBI during the last quarter of the previous year, has got SEBI approval. Normally, SEBI takes about 2-3 months to approve the IPO draft application.

Once the regulator is satisfied, it issues its observations to the company, which is equivalent to an IPO approval.

Rainbow Children’s Medicare is a multi-speciality paediatric, obstetrics and gynaecology hospital chain based out of Hyderabad. It started more than 20 years ago as a single-hospital chain in Hyderabad. The healthcare company is backed by UK-based development finance institution CDC Group PLC.

The total size of the Rainbow Children’s Medicare IPO would be around Rs.2,000 crore and it will have a fresh issue component and also an offer for sale (OFS) component.

Let us quickly run through the IPO details. The IPO comprises of a fresh equity issue of Rs.280 crore and an offer for sale of 240 lakh shares by the promoters and the early investors of the company.

The indicative total size of the issue is Rs.2,000 crore but we need to await the announcement of the price band by the company once the issue date is announced. It is very likely that they may wait for the LIC IPO issue to first get through.

The normal process is that once the SEBI approval is received, the company starts off its roadshows to institutional investors even as other formalities are being ironed out. Normally, it has been observed that companies announce the IPO within 15-30 days of the IPO approval.

However, currently, there are a string of IPOs that are approved but waiting in the side-lines for the LIC IPO to get through so that the liquidity battle can be reduced.

The fresh issue component of Rainbow Children’s Medicare will be used by the company to redeem the NCDs (non-convertible debentures) issued by the company. It also plans to spend part of the fresh funds raised on opening of new hospitals in its chain and also to buy medical equipment for its new hospitals.

Some part will also be applied to general corporate purposes. The OFS portion does not result in any fresh funds, just transfer of ownership. There is also a special reservation for subscriptions by the eligible employees.

Rainbow Children’s Medicare has grown over the last 22 years from being a single 50-bed paediatric speciality hospital to a chain of 14 hospitals today with 1,500 beds. The company was founded by NRI doctor turned entrepreneur, Dr. Ramesh Kancharla.

The founder will also be participating in the offer for sale. The issue will be lead managed by Kotak Mahindra Capital Company, JP Morgan India and IIFL Securities, who will act as the BRLMs to the issue.

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