MCX-SX extends rights issue subscription deadline to 30 April
2 min read 17 Apr 2014, 06:47 PM ISTAs per the exchange, few shareholder banks had requested for an extension as they needed more time for clearances
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MCX Stock Exchange Ltd (MCX-SX) has extended the deadline for subscribing to its rights issue to 30 April.
The exchange said a few shareholder banks had requested it to extend the deadline as they needed more time to seek clearances from their investment committees, boards and the regulator. MCX-SX did not disclose how much of the rights issue has been subscribed so far.
A rights issue is often used by cash-strapped companies to raise funds in difficult times. This allows existing shareholders to buy additional shares directly from the company in proportion to their existing holdings at a discount to the current trading price.
This is the second time MCX-SX has extended its rights issue and for a similar reason. It had earlier extended the date to 17 April saying some banks had sought more time as their proposals to subscribe to the issue were at an advanced stage of clearance by their boards or the Reserve Bank of India (RBI).
The stock exchange’s rights issue, offering one new share for every two held by existing shareholders, is priced at ₹ 5 per share, making for a total issue size of ₹ 544.69 crore. The rights issue was announced on 17 February and had been slated to close on 21 March.
Financial Technologies (India) Ltd (FTIL) and Multi-Commodity Exchange of India Ltd (MCX) hold about 5% each in MCX-SX in the form of equity shares. They also hold convertible warrants in MCX-SX, which if converted, would bring their combined holding to around 72%.
On 19 March, Securities and Exchange Board of India (Sebi) declared that FTIL was unfit to hold a stake in any stock exchange or clearing corporation and gave it 90 days to sell its holdings in such entities.
FTIL is under investigation by multiple agencies after a ₹ 5,574.35 crore settlement crisis surfaced in end-July at National Spot Exchange Ltd (NSEL), in which FTIL holds a 99.99% stake.
Since the Sebi order also bars entities related to FTIL from holding any stake in any exchange, MCX will also have to sell its entire holding in MCX-SX. FTIL holds a 26% stake in MCX.
According to the Sebi order, FTIL and MCX can hold neither the equity shares nor the convertible warrants any more.
The settlement crisis at NSEL came to light on 31 July when the exchange abruptly suspended trading in all but its e-series contracts. These were suspended a week later.
The closure of trading may have been prompted by an instruction from the ministry of consumer affairs to the exchange asking it not to offer futures contracts. A spot exchange isn’t supposed to do so, but NSEL was doing that.
NSEL tried to implement the change, but because its appeal was to investors and members who were not interested in spot trades, it eventually had to suspend all trading.
All trading on NSEL, it later emerged, happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity. They pocketed the difference—around 18%.
The entities selling on spot and buying futures were planters or processors and members of the exchange. It turned out there were only 24 of them, and they used the paired contracts as a way to raise easy money. When the trading was suspended, the investors were left holding contracts that the members couldn’t buy because they didn’t have the money to do so.
On 14 August, NSEL proposed a payout plan, but it has been unable to stick to the schedule.
