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Business News/ Market / Stock-market-news/  Shareholders in NSE likely to face exit hurdles
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Shareholders in NSE likely to face exit hurdles

Increased competition, greatersupplyofshares and unwillingness to go public dampen investor interest in the bourse

India’s stock exchange segment is dominated by NSE and BSE, with the former historically leading in the equity and derivatives segments. Photo: Hemant Mishra/MintPremium
India’s stock exchange segment is dominated by NSE and BSE, with the former historically leading in the equity and derivatives segments. Photo: Hemant Mishra/Mint

Mumbai: Shareholders looking to unload their holdings in National Stock Exchange (NSE) could face challenges in securing the right valuation, as a greater supply of its shares, increased competition and unwillingness to go public dampen investor interest.

IFCI Ltd and IDBI Bank Ltd, which hold 5.55% and 5% respectively in NSE, have said that they plan to dilute their stakes, as they try to unlock capital by selling non-core holdings.

A senior official from IDBI Bank, who did not want to be identified, said the bank is in preliminary talks with some institutions and expects to complete the deal by 31 March. He acknowledged there could be others too trying to sell their stake, but added that the bank does not expect any major impact on its sale process.

IDBI Bank had tried to sell a small portion of its holding in late 2013 after IDFC Ltd sold some of its stake, but there were no buyers at the expected price.

The last big transaction involving NSE shares was in June 2013, when GTI Capital Group bought 0.44% in the exchange from IDFC for 79 crore, valuing the bourse at 17,955 crore, according to VCCircle.

A person who was directly involved in IDBI Bank’s failed 2013 attempt said the bank was not willing to sell below the 3,950 per NSE share at which GTI had bought. “But there was not much demand at that price and so, the plans were shelved," he said.

IFCI has not been very successful in its attempts either. According to an IFCI official who did not want to be named, it abandoned plans to sell NSE shares last year after it failed to get the right valuations. A Business Standard report on 4 October 2014 said the sale process was postponed as IFCI received lower-than-expected bids. IFCI’s official spokesperson declined to comment.

A senior official of a private equity firm that owns NSE shares says since the exchange is unlisted, the valuation has to be based on factors like cash flows, market share and past transactions, besides the relative valuation of listed overseas exchanges.

This official, who did not want to be named since he is not authorized to speak to media, said his company has internally estimated NSE shares to be worth 4,800. “But we believe there are too many sellers in the market, which will impact the price," the official said.

The last time more than 1% of NSE’s equity changed hands was nearly two years back, according to the exchange’s shareholding data. In the quarter ended 30 June 2013, IDFC reduced its stake in NSE from 6.55% to 5.33%. IDBI Bank marginally increased its stake from 4.988% to 5% in the same period.

To be sure, such data is available only for transactions involving at least 1% of NSE’s equity. It could not be independently verified if shares in small tranches were traded frequently.

An email sent to NSE on Tuesday remained unanswered.

Shareholding of none of the other major shareholders—including State Bank of India (SBI), Life Insurance Corp. of India, SBI Capital Markets Ltd and state-owned non-life insurers and overseas entities—has seen any change in the last two years.

Patrick Young, executive director at DV Advisors, a Europe-based capital markets advisory firm, said listing exchanges is important in the interests of transparency.

“There is a rich seam of investors across the globe who love investing in exchanges the world over. The difficulty is that India has become perceived as a nation where such investors are not overly welcome and hence, the attraction of investing in Indian exchanges has been muted for some time," says Young, who has advised several institutions in their exchange investments.

SBI is the largest shareholder in NSE with a stake of 10.19%. Bank of Baroda, Indian Bank, Union Bank of India, Oriental Bank of Commerce, Punjab National Bank, Kotak Mahindra Bank Ltd and ICICI Bank Ltd all own shares in the exchange, according to NSE filings with the Registrar of Companies.

“Not that there is no value in NSE, but these are pure investment deals, and so, exit options matter," said an investment banker who executed a transaction involving NSE shares in 2010. “It is widely believed that NSE is currently not keen on listing and the recent past has seen regulatory actions against NSE apart from increased competition from BSE. All these factors impact valuations and ease of sale," the banker said, requesting anonymity as he is not authorized to speak to the media.

India’s stock exchange segment is dominated by NSE and BSE, with the former historically leading in the equity and derivatives segments. However, BSE has turned more aggressive in the recent past, especially in the derivatives segment.

In currency derivatives, BSE is offering trading at a fraction of the fees charged by NSE. On 30 December, BSE beat NSE for the first time in currency derivatives turnover, with 11,634.42 crore against NSE’s 11,284.51 crore. MCX Stock Exchange Ltd (MCX-SX) reported 1,484.14 crore. A BSE statement attributed the record turnover to its new trading technology and lower transaction fees.

BSE has beaten NSE in the small and medium enterprises (SME) segment as well, with 83 companies on its SME platform against NSE’s six. Both exchanges launched their platforms in March 2012. NSE also lost a long-drawn battle with MCX-SX after the Competition Commission of India (CCI) directed NSE to levy charges in its currency derivatives segment and also imposed a penalty of 55 crore on NSE for allegedly following unfair pricing policies.

While the Competition Appellate Tribunal upheld the CCI order, NSE has challenged it in the Supreme Court and has managed to get a stay on the penalty till the case is heard.

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Published: 02 Feb 2015, 12:54 AM IST
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