Home >companies >news >Kotak Mahindra Bank seen exiting MCX

Mumbai: Kotak Mahindra Bank Ltd’s 459 crore investment in Multi Commodity Exchange of India Ltd (MCX) has almost doubled in less than nine months and some say the lender may sell its stake in the country’s largest commodity bourse after failing to get a board seat.

In July, Kotak Mahindra Bank bought a 15% stake in MCX from Jignesh Shah-promoted Financial Technologies India Ltd (FTIL) for 600 per share at a time when the prevailing market price was 783, beating other bidders including BSE Ltd, Reliance Capital, Tata Capital Ltd, and the Chicago Mercantile Exchange.

On Monday, shares of MCX closed at 1,158.10 on BSE. It rose to as much as 1,289.40 on 2 March.

Interestingly, the difference between the then market price and the deal price prompted BSE to seek a clarification from FTIL, which responded by saying that it was a fair price based on detailed negotiations and a transparent bidding process.

Even as the share price of MCX, which commands a market share of over 85% in the commodity futures segment, surged, Kotak Mahindra Bank had a run-in with the commodities market regulator Forward Markets Commission (FMC).

FMC said Kotak Mahindra cannot nominate a board member because ownership regulations of commodity exchanges do not allow for it.

The new shareholding and ownership norms for commodity exchanges state there should be no relation between a board member and a trading member.

Kotak Commodity Services Ltd (KCSL), a commodity brokerage, is listed as a related party in the annual report of Kotak Mahindra Bank. The brokerage is a trading member of MCX.

In January, the private bank withdrew the nomination of Paul Parambi from the board of MCX.

According to a 2 January report in The Economic Times, FMC had written to the board of MCX saying that Kotak Commodity Services is a related party, and so Kotak group cannot nominate directors on the MCX board.

This development, along with the surge in MCX valuation, has led many in the market to speculate that Kotak group could exit the exchange if it does not get a board seat and have a say in the management.

In an analyst conference call in October, Uday Kotak, managing director and executive vice-chairman of the Kotak Mahindra Bank, had said that MCX was a financial investment.

“It will be appropriate for us to say that we have got in only as a financial investment to start with. We are obviously looking at opportunities down the road, but at this stage, it is a pure financial investment from our point of view," he had said.

Responding to an email seeking comment, a spokesperson for the bank said there are no plans to sell stake in MCX.

“The investment has doubled and there will be no shortage of buyers given the market share of MCX. It all depends on till when Kotak group is comfortable with their 15% stake with no say in the running of the exchange," said a person who was among those shortlisted for the chief executive officer’s post of MCX. He declined to be named.

On 13 February, MCX’s board approved the appointment of V. Balasubramaniam as managing director and CEO.

“Kotak group is not known to be an entity that will make quick money and exit. I am sure they have a strategy for MCX. Also, with the government move of merging FMC with Sebi (Securities and Exchange Board of India), dynamics could change. There could be a different view on the board seat issue," said Sudip Bandyopadhyay, managing director and chief executive officer of Destimoney Securities Pvt. Ltd, a financial services firm.

According to another person who was part of the FTIL-Kotak deal negotiations, MCX is an important asset for the group, and globally, there are examples where entities own a significant share in a commodity bourse and do not have a board seat. This person too spoke on condition of anonymity.

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