Singapore Exchange to exit BSE during IPO

Mumbai: Singapore Exchange Ltd (SGX) has put up its entire 5% stake up for sale in the upcoming initial public offering (IPO) by BSE Ltd, seeking to make a complete exit from Asia’s oldest stock exchange, said two people familiar with the matter.

Around 30 million shares, almost 30% of BSE’s issued capital, have been tendered by existing shareholders in the offer for sale, the people said on condition of anonymity. The share sale is expected to raise ₹ 1,300 crore, Mint reported in May.

BSE changed from a member-owned organization to a shareholder-owned company in 2005—a decision that took effect in 2007. SGX and Deutsche Boerse AG each acquired a 5% stake in 2007. At that time, SGX paid an estimated ₹ 189 crore for its stake, valuing BSE at ₹ 3,780 crore.

Nine years later, it is exiting with a gain of 15.4%. According to the people cited above, BSE plans to price its stock at around ₹ 400 per share, which values the bourse at around ₹ 4,365 crore.

“These foreign exchanges did not invest in Indian exchanges as financial investors but as strategic investors. Keeping in mind the government restrictions on foreign shareholding in exchanges, these strategic investors were reduced to financial investors as there is very little one could do with a 5% stake,” said Prithvi Haldea, founder-chairman of Prime Database Ltd, a primary market tracker.

“In my sense, if Singapore is exiting then it is more from a strategic point of view rather than financial gains,” Haldea added.

Haldea was referring to government restriction that did not allow a foreign shareholder to hold more than a 5% stake in domestic exchanges. In this year’s budget, the government allowed foreign shareholders to hold up to a 15% stake in local bourses.

But that doesn’t seem to have changed SGX’s plans for an exit from BSE.

An email sent to an SGX spokesperson did not elicit a reply and calls on the landline went unanswered. A BSE spokesperson declined to comment.

BSE’s other foreign shareholder, Deutsche Boerse, will stay invested, said the two people quoted earlier.

On 30 August, Bloomberg reported that the German exchange was unlikely to increase its stake in BSE before its IPO despite the government’s recent relaxation of ownership rules.

In 2013, Deutsche Boerse and BSE announced a technology alliance after which BSE shifted its equity and derivatives markets to the trading platform used by the German exchange.

A mail sent to Deutsche Boerse was not answered as of press time.

Individual shareholders, mainly brokers and trading members, hold 56.83% in BSE. The rest is held by institutional holders such as Life Insurance Corporation of India (LIC), State Bank of India (SBI) and Bajaj Holdings and Investment Ltd, besides the foreign bourses.

Mint reported on 24 August that large shareholders had tendered up to one-fifth of their holdings in the exchange to participate in its offer for sale.

The exchange, the first to be recognized by the government under the Securities Contracts (Regulation) Act, was completely held by 790 brokers and trading members till 2007, when it separated ownership and management.

On 14 March, the bourse received in-principle approval from the Securities and Exchange Board of India (Sebi) for an IPO.

The exchange last month set up an escrow account for shareholders to tender shares for the proposed IPO. The deadline for the submission of shares ended on 22 August.

BSE plans to file a draft red herring prospectus with Sebi later this month, the two people said.

BSE’s larger rival National Stock Exchange of India Ltd said last month that it had decided to hire four investment bankers including JM Financial Institutional Securities Ltd and Kotak Mahindra Capital Co. Ltd for its proposed share sale. The exchange also said it would file documents in January for an IPO that would give an exit opportunity to its institutional investors.