The exchange collected a net of less than `7 crore from the sale of stock to existing shareholders
Mumbai: MCX Stock Exchange Ltd (MCX-SX) ended up collecting a net of less than ₹ 7 crore from a rights issue that closed in April—about one-tenth of the amount the exchange claimed in May to have raised.
According to a filing made by MCX-SX with the Registrar of Companies (RoC) late last month, the management committee of the exchange approved the allotment of 13.7 million equity shares to four entities on 30 June, at a price of ₹ 5 each, thereby netting the exchange some ₹ 6.85 crore.
The amount is a fraction of the ₹ 60 crore that MCX-SX said it had raised in a statement issued on 2 May detailing the collections through the rights issue, or sale of stock to existing shareholders.
Responding to an email query, an MCX-SX spokesperson said two banks that had earlier committed to subscribe to the rights issue could not do so because of technical issues and so the actual amount was less than that reported in the media statement.
“During the period the rights issue of the exchange was open, several banks had informed us they were going to remit money on the last day and had received all approvals to invest. Based on the confirmation received from banks on their desire to invest, we had arrived at a figure well in excess of ₹ 60 crore," the spokesperson said.
“Based on such developments, it was informed to the press in response to their constant queries that the exchange is mopping up around ₹ 60 crore. However, due to unforeseen technical issues, two banks could not remit the amount within the time limit in spite of having received all possible internal and regulatory approvals. By the time, the press had come out with the release," the spokesperson added.
To be sure, the exchange raised a total of ₹ 42.18 crore, but had to refund approximately ₹ 35.33 crore to Bank of Baroda (BoB) and IL&FS Financial Services Ltd due to guidelines governing ownership of stock exchanges as laid down by the Securities and Exchange Board of India (Sebi).
Sebi guidelines allow only a small category of entities to hold a 15% stake in stock exchanges while the upper limit for all other investors is set at 5%. According to the shareholding pattern as on 30 June 2014, BoB and IL&FS Financial Services each had a stake of 5% in MCX-SX.
“The allotments had to be made keeping in mind the shareholding pattern requirements outlined by the regulator. Hence, the application moneys were refunded to certain shareholders who had subscribed to the rights issue to maintain the shareholding pattern in conformity with the Sebi regulations/letter. Since a lot of our investors were already on the threshold limit of 5%, they could not invest more in the exchange owing to the tepid response to the rights issue. Due to the nature of shareholding restrictions in the SECC (Stock Exchanges and Clearing Corporations) regulations relating stock exchanges, unless all investors invest a rights issue cannot succeed," said the spokesperson
The filing with the RoC said Union Bank of India was allotted 10 million equity shares while BoB and IL&FS Financial Services were allotted 2.919 million and 754,000 equity shares, respectively.
B.D. Sumitra, a former board member of MCX-SX, has been allotted 25,000 shares.
The amount raised was much lower than the revised target of ₹ 200 crore.
The inability to raise capital via the right issue and other avenues such as preferential allotments to private equity investors gains significance in light of the falling net worth of the exchange.
According to the annual report of MCX-SX for the financial year 2013-14 (FY14), the net worth “in terms of the audited financial statements as on 31 March 2014 stood at ₹ 107.3 crore."
On 15 September, Sebi renewed the licence of MCX-SX for one year, but directed the bourse to build an undisputed net worth of ₹ 100 crore within three months.
FTIL appealed the Sebi order before the Securities Appellate Tribunal, which on 9 July upheld the ruling and gave the company and its affiliates four weeks to comply. The four-week deadline ended on 7 August, but FTIL has failed to sell its 4.86% equity stake in MCX-SX.
On 25 August, MCX-SX extinguished warrants worth ₹ 56.24 crore held by FTIL and transferred the non-refundable deposit against the warrants to the capital reserve to boost the net worth.
However, Shah-led FTIL decided to take legal recourse against the exchange’s decision. In light of this dispute, Sebi asked the exchange to ensure that the net worth is above ₹ 100 crore.
“Our net worth as per accounting standard as on the period ended on 30 June 2014 is well above the ₹ 100 crore mark, even without considering extinguishment of warrants (which happened in August and led to a boost in our free reserves). Further, the exchange is in the process of raising funds through private placement and is in touch with some prospective investors. Hope this ends the endless round of speculation," said the MCX-SX spokesperson.
Sebi has barred MCX-SX from launching any new contract before fulfilling the net worth requirements.