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Things have just gotten complicated for those bidding for a 24% stake in Multi Commodity Exchange of India Ltd (MCX). MCX said it will consider a preferential issue of shares on 3 April, which clashes with Financial Technologies (India) Ltd’s (FTIL) plan to sell up to a 24% stake in the exchange.

With the extent of dilution and the pricing of the preferential issue being two major unknowns, interest in FTIL’s bidding process is bound to dampen. This brings to the front regulatory risks involved with FTIL’s 24% stake sale.

In February, a Press Trust of India report said that the Forward Markets Commission (FMC) and the government are contemplating a 15% cap on the largest shareholder in a commodity futures exchange. Currently, the cap stands at 26%.

Since last year, FMC moved to the finance ministry, and it’s worthwhile noting that the Securities and Exchange Board of India (also under the finance ministry) has a similar 15% cap on shareholding for stock exchanges. If the proposal goes through eventually, the buyer of FTIL’s stake may be forced to sell about two-fifths of its shares.

A report in The Economic Times said last week that two overseas exchanges, a domestic stock exchange and two large domestic financial firms have lined up to buy FTIL’s stake and have sent in expressions of interest. They are now likely to wait and watch for the outcome of MCX’s preferential allotment plans.

FTIL, understandably, is livid and has said it will take necessary legal action to protect the interests of its shareholders. If MCX ends up issuing a large number of new shares, FTIL could end up getting a much lower value for its shares.

MCX’s eagerness to rope in new shareholders through a share sale of its own appears to be driven by a 30 April deadline given by its regulator, FMC, to ensure that FTIL’s stake in the exchange is brought down to 2%, among other things. The Economic Times report suggests that FTIL’s sale process is unlikely to conclude within the deadline, which stands to reason as a transaction of this size will entail a higher level of due diligence.

But, surely, MCX will not increase its equity capital by 13 times so as to meet FMC’s guidelines. Whatever the thought process, MCX’s move will unwittingly further delay FTIL’s stake sale process.

It is also likely to affect the price that bidders are willing to pay. In any case, the possibility of having to bring down their stake to 15% may affect the extent of premium bidders are willing to pay in order to gain control of MCX. The news report said FTIL is seeking a per share valuation close to its initial public offer (IPO) price of 1,032, or more than double the current market price of 492. But a lot has changed since the IPO: the government imposed commodities transaction tax last year, which, coupled with the payments crisis at National Spot Exchange Ltd, has hit both volumes and profit at MCX badly. While it’s true that a new anchor investor will help restore confidence and some of the lost volumes can be regained, a 100% premium over the current market price looks far-fetched.

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