The Singapore Stock Exchange picked up a strategic 5% stake in the Bombay Stock Exchange, Asia’s oldest exchange, for Rs189 crore, or $42.7 million.
This comes on the heels of Frankfurt’s Deutsche Borse picking up a similar stake for the same price.
With this deal, the first time that the Singapore exchange (SGX) has entered into a strategic alliance with another exchange, the BSE is now at the center of a three-way alliance.
“This triangle of growth will work towards the benefit of stake holders across the world,” said BSE chief executive Rajnikant Patel.
“We expect this alliance to go well,” said Hsieh Fu Hua, the chief executive of SGX, referring to prior conversations between his exchange and Deutsche Borse over their respective stakes. “Our investment in BSE is consistent with our strategy of building an Asian gateway for securities and derivatives products,” he said in a statement.
The deal was struck at Rs5,200 per share, the same rate at which Deutsche Borse also bought their stake, and values the BSE at a rich 41.82 times last fiscal year’s earnings. That is a premium to the 35 to 45 price-earning multiple at which many listed stock exchanges are trading currently.
“It’s a good move as it helps them (SGX) to diversify and boost revenue growth,” said Daphne Roth, vice-president for equity research at ABN Amro Private Banking in Singapore. “India’s economy is growing strongly and that will lead to more companies wanting to list and seek funding.”
Similar to the Deutsche Borse stake, SGX’s 5% stake too will be through an issue of fresh shares. BSE had 6.9 million equity shares before signing both the deals, which has now expanded by 10% after the new equity issues to Deutsche Borse and SGX. Both the exchanges will have the right to pick up additional shares to maintain their 5% stake as and when BSE issues new shares to other institutional investors, said T.V. Raghunath, executive director, Kotak Investment Banking, who along with UBS, were advisors to the deal.
BSE is committed to reduce its broker-members’ shareholding in the exchange to below 49% by 19 May, in line with the deadline set by the market regulator.
After the two strategic deals with the two foreign stock exchanges, BSE is now looking to divest the balance 41% stake to financial investors.
As reported first by Mint, BSE will be taking the private placement route to reduce the broker members’ stake to below 49% and not through an initial public offering (IPO), confirmed Patel. An IPO is expected some time later after broker members’ stake is brought down to below 49%.
An exercise is now on to persuade broker members to submit a part of their shareholding for sale in the private placement process. Any short-fall in the shares submitted by brokers will be made up byissue of fresh equity shares to meet the 49% stake target by broker members. BSE has 735 original broker members.
The BSE, which operates the nation’s benchmark 30-share Sensitive Index, is seeking partners as it raises funds to upgrade its systems and catch up with younger rival National Stock Exchange of India Ltd. The NSE, founded in 1992, has double the daily trading value of its 132-year-old counterpart.
With this deal, three of the major stock exchanges now have strategic stake in Indian stock exchanges—Deutsche Borse and SGX in BSE and New York Stock Exchange in the National Stock Exchange., all part of a growing global trend toward alliances. SGX shares gained five cents, or 0.8%, to S$6.35 at the trading close.
SGX is forming alliances and offering new products as it seeks to expand overseas to boost profit and diversify its income sources.
Gautam Chakravorthy and Chua Kong Ho of Bloomberg contributed to this story.