BSE looks to divest up to 30% in CDSL through IPO
3 min read . Updated: 04 Aug 2016, 02:23 AM IST
PremiumAt an issue size of about Rs500 crore, CDSL will be valued at up to Rs1,500 crore
BSE Ltd, the oldest stock exchange in Asia, is preparing to divest a stake of up to 30% in depository firm Central Depository Services (India) Ltd (CDSL) through an initial public offering (IPO) that could fetch the exchange up to ₹ 500 crore, said three people aware of the development.
“The company and BSE are currently in discussions with various investment banks and they are expected to hire a set of bankers to start working on the draft prospectus over the next one or two months," said one of the three people cited above, requesting anonymity as the talks are private.
At an issue size of about ₹ 500 crore, the company will be valued at up to ₹ 1,500 crore, he added.
CDSL was set up in 1999 by BSE along with banks such as State Bank of India (SBI), Bank of India, Bank of Baroda, HDFC Bank Ltd, Standard Chartered Bank and Union Bank of India. BSE holds a 54.2% stake in the company.
A depository, CDSL facilitates holding of securities in electronic form. It, along with National Stock Exchange-promoted National Securities Depository Ltd, are the only two depositories in the country.
The IPO, a pure offer for sale (OFS), is being looked at as a divestment route for BSE, said the second person cited above, also requesting anonymity.
“The company doesn’t need money as it is cash-surplus. BSE is looking at divesting its stake and hence the need for the IPO. They want to complete this divestment within the current financial year," he said.
P.S. Reddy, managing director and chief executive at CDSL, confirmed the development, but declined to comment on the value of the stake sale.
“BSE is keen on divesting its shareholding in CDSL, by way of an OFS, wherein the price would be determined through book-building process, which is a transparent mechanism. However, the exact amount that would be fetched would depend on the market conditions and other fundamental factors prevailing at the time of divestment," a BSE spokesperson said in an e-mailed response to questions on the exchange’s CDSL divestment plans.
The appointment of book-running lead managers (BRLMs) and other relevant stakeholders will follow the process of getting the requisite approvals and the completion of the divestment would be based on appropriate market conditions as per the advice received from the BRLMs and advisors to the issue, he added.
BSE’s plan to divest its stake in CDSL comes at a time when the exchange is planning an IPO of its own to provide an exit route to its investors. On 30 June, Mint reported that BSE had cleared the final hurdle to going public after its shareholders approved a proposal for the IPO.
BSE had informed shareholders on 28 May that it would sell as much as 30% stake before 31 March 2017 through an OFS, with a possible fresh sale of equity tagged on. On 31 May, Mint reported that BSE was seeking a valuation of 400 per share, which would value the exchange at ₹ 4,367 crore.
The CDSL IPO will also create liquidity for other shareholders, especially state-owned banks which are invested in the company. With rising bad assets and large sums of money needed for recapitalization, these banks have been pushed by the finance ministry to look at divestment of non-core assets to raise funds.
On 28 June, Press Trust of India reported that the country’s largest lender SBI will divest non-core investments of around ₹ 3,000 crore to shore up its capital. Earlier, on 15 June, Mint reported that SBI had sold a 5% stake in NSE to private equity firm ChrysCapital.
In February, in an interview with Mint, Bank of Baroda’s managing director and chief executive officer P.S. Jayakumar said that the bank would not ask for an infusion from the government and is looking at selling non-core assets as one of the options to unlock capital over the next 12 months.
Other state-owned lenders are also going down the same path to raise capital to shore up their balance sheets.
“These assets, whether they are credit bureaus or stock exchanges, will be of high interest to buyers, both public and private. However state-owned banks looking to sell stakes in these non-core assets should initiate these processes expeditiously, in a transparent manner with a clear empowered group to conclude these transactions," said Ritesh Chandra, executive director and head (consumer, financial institutions group and business services group) at Avendus Capital Pvt. Ltd.
