The promoters of India's newest stock exchange are set to sell 45% of its equity to a consortium of three global stock exchanges and six global funds, a sale that will take the exchange one step closer to getting regulatory approval for equities trading and thus turn further the heat on the two warring incumbents, National Stock Exchange and the Bombay Stock Exchange.
A person with knowledge of the deal said the list of buyers include London Stock Exchange, New York Stock Exchange-owned NYSE Euronext, US-based General Atlantic Llc, Abu Dhabi Investment Authority, hedge fund TPG-Axon Capital Management Lp, a fund owned by Fidelity International Ltd, and Temasek Holdings Pte Ltd.
The nine buyers will own 5% each of the stock exchange, the maximum allowed to them by local regulations.
The deal will value MCX-Stock Exchange (MCX-SX) at Rs5,000 crore, exactly the same valuation during earlier share sales in 2009.
“Before March, the promoters' collective holding will be brought down to 10%, which will allow it to clear the regulatory hurdles to start equity trading,” said the person with knowledge of the deal.
MCX-SX is promoted by Multi Commodity Exchange of India Ltd (MCX) and Financial Technologies (India) Ltd (FTIL), which had in the middle of 2009 sold a total of 30% to a group of domestic banks and financial institutions, including Bank of India, Union Bank of India, and IFCI Ltd.
The current deal is the next stage of bringing down the promoters' holding to 10%, as mandated by market regulator Securities and Exchange Board of India (Sebi).
MCX and FTIL together now own 25% of MCX-SX.
In an email response to Mint, Joseph Massey, managing director and CEO of MCX-SX, said: “MCX-SX board is committed to comply with shareholding guidelines and will complete the divestment process within the time frame set by the regulators. Being a regulated entity and as a matter of policy we do not comment on rumours/speculation nor do selective disclosures and we have no comments to offer at this point of time.”
However, late on Thursday evening, an MCX spokesman said: “We deny this rumour/development and cannot comment anything at this time.”
Sebi has not cleared MCX's application to begin equity trading for nearly one-and-a- half years.
Indian regulations mandate that no single entity can own more than 5% in a stock exchange. The exceptions are other stock exchanges, depositories, banking companies, insurance companies and public financial institutions, which can hold 15% each.
Considering the nature of business of the promoters, MCX is a commodity exchange while FTIL is a technology provider for markets, and rules permit them to hold only up to 5% each in MCX-SX.
Sebi rules also say that the total holding of overseas investors in a stock exchange cannot exceed 49%, with no single foreign entity owning more than 5%.
With the latest 45% stake sale to nine foreign players, MCX-SX has headroom to sell another 4% to a foreign investor.
In October 2008, Sebi had permitted MCX-SX to start trading in currency futures on condition that the promoters of the stock exchange divest part of their stakes within a year, that is, by 30 September 2009, when the deadline was extended by a year. The two promoters, MCX and FTIL, originally held 51% and 49% in MCX-SX, respectively.
The promoters had appointed three investment bankers–Deutsche Bank AG, Nomura Financial Advisory and Securities Ltd and Antique Capital Markets Pvt. Ltd–to help them bring down their stakes. Deutsche Bank left the mandate in 2009.
Source: Trading Markets