Mumbai: Financial Technologies (India) Ltd (FTIL), the promoter of India’s largest commodity exchange, Multi Commodity Exchange of India Ltd, or MCX, may have to play broker to Fidelity International and Citigroup Mauritius Strategic Holdings Ltd if the two financial institutions decide to sell their stakes in the exchange. It can also buy them out, spending at least Rs400 crore.
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Both investors have clauses in their share subscription agreement with MCX, allowing them to sell their stake through MCX if the bourse is unable to sell shares through an initial public offer, or IPO, within a specified deadline.
Fidelity has a 9.21% stake in MCX, and holds 7.2 million shares in the exchange. The company bought around half of this stock under the share subscription agreement at Rs600 a share.
Citigroup holds 5%, or 3.9 million, shares. Of this, only 1.9 million shares which Citi bought in September 2007 at Rs1,050 a share come under the share subscription agreement.
In the pre-IPO document which MCX filed with the capital market regulator, the Securities and Exchange Board of India, or Sebi, in February 2008, the commodity exchange said that if it can’t go public by 31 March 2008, it will arrange to sell Fidelity’s stake at a price at least equal to the subscription price.
It has a similar agreement with the Citigroup, but the last date for launching an IPO in this case is 30 October 2008. Both agreements expire when MCX successfully launches an IPO.
India’s largest media group Bennett, Coleman and Co. Ltd (BCCL) too owns 756,825 shares in MCX which it bought at Rs148.65 a share. But unlike Citi’s and Fidelity’s agreements that have lapsed, its agreement expires only on 26 June.
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Ravi Dhariwal, chief executive officer of BCCL, declined comment.
According to the draft red herring prospectus of MCX filed with Sebi, “if the proposed IPO is not completed by March 31 2008, the company shall make efforts to arrange the sale of the Fidelity shares, either by way of a private negotiation or by way of an offer for sale by an investment/merchant banker at a price not lower than the subscription price.”
Similarly in the case of Citi, the agreement says: “In the event that the proposed IPO is not completed before October 30 2008, the company and FTIL shall use their best efforts to arrange a sale of the purchase shares no later than three months from October 30 2008 to a buyer acceptable to the purchaser, at a price not lower than the purchase price.”
If Fidelity and Citi want to exercise the option to sell the shares, Financial Technologies can itself opt to buy the shares. On the basis of the subscription price, Fidelity’s holding (of 3.6 million shares under the clause) would be worth Rs216 crore. Citi’s stake would be worth Rs 205 crore. To be sure, Fidelity and Citi could always decide to stay invested in MCX.