IFCI offloads 1.5% stake in NSE, plans to sell more

Mumbai: IFCI Ltd on Wednesday said that it has sold a part of its holdings in National Stock Exchange of India Ltd (NSE) for ₹ 263.25 crore to US-based fund Deccan Value Investors Lp, said two people familiar with the development.

IFCI sold 675,000 shares, or a 1.5% stake, in the stock exchange at a price of ₹ 3,900 apiece, the company said in a notice to stock exchanges. IFCI did not disclose who bought the shares. The transaction, the first such in NSE shares in the last two years, values the exchange at ₹ 17,550 crore.

Malay Mukherjee, chairman of IFCI, said that a Mauritius-based fund had bought the shares from the company. He declined to disclose the name of the investor. Deccan Value Investors has invested through Mauritius-registered DVI Fund Mauritius.

IFCI, which held 5% in NSE prior to this deal, has been trying to sell its stake in the exchange since the start of this year.

“We are looking to offload another 1% within a month. We are in the process of looking for other investors,” Mukherjee said.

IDFC Securities advised IFCI on this deal, he confirmed.

“NSE is happy to welcome the new shareholder,” said a spokesperson for the exchange in an email response, without naming the entity. The spokesperson did not respond to a question on the valuation at which the deal was struck.

The last big transaction involving NSE shares took place 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 Network.

IFCI’s stake sale has happened at a valuation slightly lower than that.

“The transaction is well below the fair value of the exchange. The valuation at which these institutions are being forced to sell is almost half of the fair value of the company,” an institutional investor said on conditions of anonymity as he is not authorized to speak to the press.

The investor added that the reason for such low valuations is probably because of no decisions around NSE’s listing yet.

Other financial institutions, including IDBI Bank Ltd, have also been looking to sell shares in the exchange as a way to unlock capital.

A senior official from IDBI Bank, speaking on conditions of anonymity, said that the state-owned lender had been in discussions with a few potential investors some time back; however, these talks have now petered out.

“We are in no hurry to sell our stake. The pricing and the pedigree of the buyer are of utmost importance for us,” the IDBI Bank official said.

Speaking about the possibility that the valuations might be lower than expected, the bank official stated that regulatory uncertainty around the settlement guarantee fund (SGF) was one of the reasons why valuation expectations are so varied among investors.

“It depends on which side of the issue you are at. If you are expecting the regulator to drop the SGF, you will obviously be expecting a higher valuation,” he said.

According to existing guidelines by the Securities and Exchanges Board of India (Sebi), every stock exchange will have to transfer 25% of their reported profits into a core SGF. Earlier this month, a committee headed by K.V. Kamath had suggested that replenishing the SGF further would not be needed as the requirement of this fund had already been met.

“Since Sebi is yet to decide on the SGF, it is a major concern before the exchange decides to list. How do you go to a retail investor without having any clarity on whether you will retain a part of your profit?” the IDBI Bank official asked.

A third institutional investor, who also spoke requesting anonymity, said that the NSE is having its annual general meeting (AGM) on Friday and shareholders are expected to bring up the topic of listing during the meeting.

While State Bank of India (SBI) is the largest shareholder with a stake of 10.19%, other shareholders are Bank of Baroda, Indian Bank, Union Bank of India, Oriental Bank of Commerce, Punjab National Bank, Kotak Mahindra Bank Ltd and ICICI Bank Ltd, according to NSE filings with the Registrar of Companies.

“NSE already has an established footprint. Also with the expectation of opening up of the markets further with the entry of International Financial Centres, most exchanges will have a larger role to play, with the footprint going from local to global,” said Deven Choksey, group managing director and CEO of KR Choksey Shares and Securities Pvt. Ltd.

For an exchange business, anything less than two times the price-to-book value would be a good investment, according to Choksey.