Mumbai: Asia’s oldest stock exchange BSE Ltd will sell up to a 30% stake before 31 March 2017 through a so-called offer for sale (OFS) with a possible fresh sale of equity tagged on, the exchange informed its shareholders on 28 May.
The exchange could raise around Rs.1,300 crore from the sale.
BSE will hold an annual general meeting (AGM) on 24 June to seek shareholder approval for the listing, which would make it the first listed stock exchange in the country.
“A combination of an offer for sale (OFS) and fresh issue, for up to a maximum of 30% of the post-issue issued equity share capital of the company, subject to regulatory requirements”, would be considered at the AGM, said the notice. A copy of the shareholder notice has been put up on the exchange’s website.
Seeking shareholder approval takes BSE a step closer to a listing. On 14 March, BSE received in-principle approval for its share sale from the Securities and Exchange Board of India (Sebi).
BSE first approached Sebi with a listing plan in January 2013. However, the IPO proposal could not be cleared due to lack of clarity on Stock Exchanges and Clearing Corporations (SECC) norms.
Based on industry feedback, Sebi issued a notification on amendments to the SECC Regulations 2012 on 1 January. The amendments were aimed at making it easier for exchanges to list.
This allowed BSE to dust off its IPO plans.
Rahul Mehta, director at Argonaut Private Equity and an investor in BSE, says the listing is important because it creates an exit option for shareholders.
“This marks the clear intent of the exchange to list and provide the shareholders an exit opportunity. The exchange is taking the right steps at the right time to proceed with listing,” said Mehta.
According to a person familiar with the plans, the exchange will sell anywhere between 15% and 30% stake through the OFS.
“This is to give flexibility to the exchange. The aim is to offload a minimum of 10% and if more shareholders are interested in selling their stake, then it can go up to a maximum of 30%. The exchange and shareholders are seeking at least Rs.400 per share,” added this person, who asked not to be identified because the exchange is still firming up its plans.
If not too many shareholders are interested in selling, BSE will issue fresh equity to touch the 30% mark.
A second person familiar with the development confirmed that the exchange is seeking a valuation of Rs.400 per share.
BSE has 109.1 million shares as part of its issued capital. At a proposed price of Rs.400 per share, the exchange would be valued at around Rs.4,367.05 crore.
BSE declined comment on the valuation and timing of the issue.
Multi Commodity Exchange of India Ltd (MCX), the only listed Indian exchange, ended trading on Monday with a market valuation of Rs.4,867.28 crore. MCX’s shares closed at Rs.954.40 each, down 0.80% from their previous close.
On 5 April, IFCI Ltd sold 150,000 shares in BSE’s rival exchange National Stock Exchange (NSE) for Rs.3,950 per share. That deal pegged the value of NSE at Rs.17,550 crore.
Patrick L. Young, a capital market expert and chief executive officer of crowdfunding platform Hanza Trade, said in an e-mail that the proposed valuation seems low.
Young added that the low valuation may be attributable to regulatory interventions. He also noted that investor interest in the exchange’s IPO may not be very high.
“Investors will be wary of the Indian marketplace for exchange IPOs, given the past history of (Bimal) Jalan and the general interventionist behaviour of Sebi which is broadly regarded as a brake on Indian capitalism being allowed to grow freely. This will probably restrain the total likely market capitalization/premium even though, clearly, BSE is a very interesting property in a nation where the capital market structure can still develop in considerable ways,” Young said.
In 2012, a committee headed by former Reserve Bank of India governor Bimal Jalan had opposed the idea of listed stock exchanges. In 2015-16, BSE’s total income grew 5.36% to Rs.652.27 crore over the last year, the company said in its annual report. Revenue from operations grew 18.1% year on year to Rs.426.54 crore. However, its net profit declined 37.79% from the year-ago period to Rs.96.74 crore.
According to BSE’s notice to shareholders, the exchange will allow all existing shareholders to participate in the OFS, which could lead to a rejig in its current shareholding pattern.
BSE counts foreign stock exchanges such as Deutsche Boerse AG and Singapore Exchange Ltd among its shareholders. They hold a 5% stake each. Its domestic shareholders include Life Insurance Corporation of India, State Bank of India and Bajaj Holdings and Investment Ltd.
Foreign investors such as US billionaire George Soros’s hedge fund Quantum’s Mauritius investment arm Quantum (M) Ltd, Canada-based investor Thomas Caldwell’s Caldwell India Holdings Inc. and US fund Argonaut Private Equity are also investors in the exchange.
“The company has formulated a tender process to facilitate participation by the shareholders in the OFS,” said the BSE notice.
The exchange has also constituted an advisory committee of selling shareholders to ensure transparency in pricing and timing of the issue.
“In order to ensure complete transparency and fairness of the decision making process that would affect the participation of existing shareholders of the company and the equity shares tendered by the shareholders as a part of the OFS, it is proposed to create a committee that would consist of selling shareholders called as the advisory committee,” said BSE in the notice.
According to Tejesh Chitlangi, partner, IC Legal, a law firm, since a number of shareholders in BSE will not fall in the category of promoter, the exchange will be compliant with Sebi’s rules which say that any listed exchange needs to have a minimum public shareholding of 51%.
According to the Sebi (Issue of Capital and Disclosure Requirements) regulations, 2009, a promoter includes a person or persons who are in control of the issuer; person or persons who are instrumental in the formulation of a plan or programme pursuant to which specified securities are offered to public; or a person or persons named in the offer document as promoters.