Mumbai: Citigroup Mauritius Strategic Holdings Ltd is selling its 5% stake in Multi Commodity Exchange of India Ltd (MCX) to Ashmore Group Plc for $40 million (Rs185 crore), according to two people familiar with the transaction.
The deal values India’s largest commodity exchange at $800 million, less than the $1 billion value at which MCX sold stakes to private equity investors in 2007. And it means that Citi exits with a loss of around 10% to its original investment.
The British private equity fund, which focuses on emerging markets, has approached the Foreign Investment Promotion Board (FIPB) to purchase the 3.9 million shares from Citigroup Mauritius Strategic Holdings Ltd, one of the two persons familiar with the development said, asking not to be identified.
Citi is selling its stake in brokerage and asset management businesses worldwide as chief executive officer Vikram Pandit seeks to raise capital and cut losses.
Citigroup Inc. reported a $7.58 billion loss in the fourth quarter of 2009.
Citigroup India’s spokesperson Indu Anand and a spokesperson for Ashmore Investment Advisors (India) Pvt. Ltd declined declined comment.
An MCX executive who did not want to be identified ahead of the deal being finalized said “it is between two investors and FIPB has to clear the proposal”.
A spokesperson for MCX said: “We don’t comment on third party information, processes or action and we also do not do selective disclosure nor comment on speculation/rumours and hence we would not like to comment.”
Citigroup paid Rs1,050 a share for 1.95 million shares in the exchange in September 2007 when the market was nearing the peak of a bull run. Subsequently, the shares were split into two and the company held 3.9 million shares.
In a pre-share sale document it filed with the Securities and Exchange Board of India in February 2008, the commodity exchange said that if it didn’t manage to sell shares to the public by 30 October, it would arrange to sell Citi’s stake at a price at least equal to the subscription price.
Subsequently, MCX sold stakes to Passport India Investment (Mauritius) Ltd and GLG Financials Fund for which it “received valuation ranging from $1.0 billion to $1.1 billion for the above transactions,” the exchange’s parent company Financial Technologies India Ltd said in a 28 September 2007 notification to the Bombay Stock Exchange.
To be sure, the 20% decline in MCX’s valuation is also a result of the market crash in early 2008 and the subsequent global credit crunch.
Between September 2007 and December 2008, the Sensex, India’s benchmark index, plunged 50%.
It has since recovered and is now trading 6.52% lower than September 2007 levels.
MCX’s share sale plans were delayed by the events of 2008—just like that of at least 60 other companies which had filed offer documents in 2008—and it has not revived its initial public offer plans since then.
The MCX-Financial Technologies combine runs ten exchanges across various asset classes such as power and currency derivatives both in India and abroad.
The group has also floated a stock exchange, MCX-SX, which has operations in currency futures. Financial Technologies has 32.5% stake in MCX.
Other major shareholders of MCX include State Bank of India with 5.37% and Merrill Lynch (Mauritius) Holdings and IL&FS Trust Co. Ltd, both with a 5% stake, according to the pre-IPO document.