The Bombay Stock Exchange (BSE) will bring down the holding of its broker members in the exchange to 49% by May 2007 through private placements with a clutch of foreign as well as domestic investors, including the Singapore Stock Exchange, according to sources familiar with the development.
Earlier reports had suggested the exchange could do this through a combination of private placements and an initial public offering (IPO).
“The broker-members will sell their stakes to the prospective investors including banks and financial institutions,” said the sources.
In 2005, BSE became a corporation and issued each of its 735 broker members 10,000 shares. Market regulator Securities and Exchange Board of India has set a May 2007 guideline for BSE to reduce the holding of its broker members to less than 51%.
This is part of an effort to make it an independent entity and not one controlled by brokers. Last week, Frankfurt’s Deutsche Borse picked up a 5% stake in BSE through the issue of fresh shares.
BSE is currently negotiating with financial investors and at least one strategic investor. The new strategic investor is likely to be Singapore Stock Exchange, said sources.
While Deutsche Borse was issued shares at Rs5,200 a share, BSE is negotiating to get a better price for the private placement portion with financial investors. The sources also said BSE could still consider an IPO in October or November to raise funds.
Over the past few years, BSE has lost its status as India’s premier exchange to the National Stock Exchange (NSE), which was set up as a demutualized exchange (one not controlled by its member brokers). It has also lagged behind NSE in derivatives trading.
The choice of Deutsche Borse, which runs Eurex, one of the largest derivatives exchanges in the world is expected to help BSE get its act together in this segment.
At the time of the deal with Deutsche Borse, Rajnikant Patel, chief executive, BSE had said that the exchange would “be able to complete the stake reduction before the deadline.”
BSE’s rival NSE sold a 5% stake for $115 million (Rs506 crore) to New York Stock Exchange. NSE has also sold another 15% stake to three financial investors.
The initial deals by NSE and BSE peg the valuation of the competing exchanges at $2.3 billion and $854 million, respectively.