Mumbai: A month after the New York Stock Exchange (NYSE) picked up stake in National Stock Exchange (NSE), Deutsche Borse, the operator of the 422-year-old Frankfurt Stock Exchange, has bought a 5% strategic stake in the 132-year-old Bombay Stock Exchange (BSE), India’s oldest stock exchange, for Rs189 crore.
This values BSE at Rs 3,777 crore ($854 million), which is less than half of NSE’s valuation of Rs8,500 crore ($2.3 billion). On 10 January, NYSE had acquired a 5% stake in NSE for $115 million. Accordingly to Indian law, no investor can own more than 5% in a stock exchange.
Bombay Stock Exchange will issue 3.6 lakh new equity shares to Deutsche Borse at Rs5,200 per share. At this price, the shareholding of each of the 735 brokers who are members of the BSE will be worth Rs5.2 crore.
Each of them was issued 10,000 shares in the exchange at the time of the exchange’s corporatization in 2005. Before corporatization, a BSE broker’s card used to be sold at a price anywhere between Rs3 crore and Rs5 crore.
And since the corporatization, new brokers have been inducted onto the exchange on payment of a membership deposit; they do not become shareholders in the exchange.
BSE is talking to other financial and strategic investors to further reduce the holding of its original broker-members in the exchange to below 51%. The exchange is mandated to do so by the market regulator, and has to achieve the target by May 2007.
“We are fully committed and we will be able to complete the stake reduction before the deadline,” said Rajnikant Patel, chief executive, BSE, who did not rule out the entry of more strategic investors.
BSE was reported to be talking to other stock exchanges like NASDAQ and Singapore Stock Exchange for picking up a stake in it.
Patel said the bourse is open to various ways of diluting the stake of its members, from issuing fresh equity to a sell-off of existing shares.
It is widely expected that BSE will sell a stake of around 25% to various strategic and financial investors and dilute the rest through an initial public offering (IPO). Patel, however, refused to confirm the IPO plan. “At present, we have not taken any decision on IPO,” he said.
BSE was also talking to NYSE before the exchange decided to acquire stake in NSE. Part of BSE’s desire to rope in a foreign exchange as a strategic investor is driven by the hope that this will help it regain its status as India’s premier stock market exchange, a position it has lost to NSE.
It is particularly looking for a partner with expertise in the derivatives market (where NSE is dominant) and Deutsche Borse is expected to fulfil this requirement.
Deutsche Borse has 85% stake in Eurex, one of the largest derivatives exchange in the world. “It is not about just picking up of a stake in BSE. It is something more special, which will extend into cooperation and collaboration. We are open. We will bring in knowledge, know-how and technology,” Deutsche Borse chief executive Reto Francioni said after the announcement of his exchange’s partnership with BSE was made.