Mumbai: Rating agency Crisil Ltd, the Indian subsidiary of US-based Standard and Poor’s, or S&P, plans to reduce its stake in the National Commodity and Derivative Exchange Ltd (NCDEX), the country’s second largest commodity exchange, from 12% to 5%.

The rater has asked investment bank JM Financial Consultants Pvt. Ltd to find a buyer.

The sale has been necessitated by the recent changes in foreign investment norms.

In a series of three press notes earlier this year, the department of industrial policy and promotion (DIPP) had introduced far-reaching changes in the way foreign investment in a domestic company is calculated.

The second of the three press notes put out in February said that a company will be deemed Indian-owned only if Indians own more than half its equity capital and have management control.

If either of these requirements is not met, the company will be considered foreign-owned.

The implications of such norms are significant because India imposes caps on foreign direct investment (FDI) in several sectors including banking, insurance, telecom and stock and commodity exchanges.

Going by the press note, no single foreign investor/entity, including persons acting in concert, can hold more than 5% in a local commodity bourse, while combined portfolio and direct investment has been capped at 49%. Since S&P, a subsidiary of the McGraw-Hill Companies Inc., holds a 51% stake in Crisil, the rating agency is deemed to be a foreign entity and cannot hold more than 5% of NCDEX.

M.K. Ananda Kumar, chief, corporate services, NCDEX, said Crisil has to pare the stake according to the new regulations. “Crisil had to bring it down by 30 September but the deadline has been extended to 31 March 2010. They have started the process. It will take some time," he said.

A Crisil spokeswoman said she cannot comment on “strategic and investment matters".

JM Financial declined to comment for this story.

The country’s top equity market National Stock Exchange Ltd, state-owned insurer Life Insurance Corp. of India and UTI Asset Management Co. Ltd own 15% each in the commodity exchange.

Among others, Crisil and Indian Farmers Fertiliser Cooperative Ltd, or Iffco, hold 12% each; state-owned lenders Punjab National Bank and Canara Bank own 8% stake each. Three other entities hold 5% each—Goldman Sachs Investments (Mauritius) Ltd, Intercontinental Exchange Inc. (ICE) and Shree Renuka Sugars Ltd.

In January 2004, Crisil picked up 12.1% of the equity share capital of NCDEX for Rs2.6 crore.

At the time, S&P had a minority stake of 9.48% in Crisil. In April 2005, S&P increased its stake to 51%.

In August, sugar producer, Shree Renuka Sugars purchased 5% stake in NCDEX from Goldman Sachs Investments and ICE for Rs36.5 crore.

This deal valued NCDEX at Rs730 crore. Based on that valuation, the 7% stake would fetch Crisil around Rs51 crore—almost 20 times its investment.

Goldman Sachs Investments held 7% and ICE 8% in the exchange. They divested their holdings by 2% and 3% respectively.

NCDEX, regulated by the Forward Markets Commission, currently facilitates trading of 57 commodities. It has a substantial market share in agri-commodities trading but overall it is a very distant second to rival Multi Commodity Exchange of India Ltd which enjoys about 85% share of the market.