As a first step, MCX-SX plans to sell a 25-30% stake to PE funds, high networth individuals and family offices to raise money
Mumbai:MCX Stock Exchange Ltd (MCX-SX), the country’s youngest bourse, is working to raise private equity (PE) capital, change its name and expand its employee base as part of a revival strategy, according to two people familiar with the plan.
“The exchange has all the potential to attract enough turnover on both equity and debt platforms, but the general perception about the way the exchange is being run has to be changed," said one of the two people cited above. The exchange’s currency derivatives business is doing well, but the equity and debt segments need attention, the person said.
As a first step, MCX-SX is looking at new avenues to raise capital. It plans to sell a 25-30% stake to PE funds, high networth individuals and family offices to raise money, the person said. As part of the process, several banks holding stakes in MCX-SX may sell their holdings and the exchange could raise ₹ 500 crore over the next three months, he added. MCX-SX is in the process of appointing bankers for the fund raising.
To be sure, the exchange has had limited success in raising capital so far. A rights issue that concluded in May managed to raise just ₹ 60 crore, less than one-third of the ₹ 200 crore target.
MCX-SX currently has 22 major shareholders. Of these, 17 are banks and they collectively hold about 80%, while Financial Technologies (India) Ltd (FTIL) EXPAND and Multi Commodity Exchange of India Ltd (MCX) hold 5% each. On March 19, the Securities and Exchange Board of India (Sebi) had declared FTIL and MCX unfit to hold equity in any stock exchange in India following a ₹ 5,574.35 crore payments crisis at National Spot Exchange Ltd (NSEL), which came to light in July 2013. FTIL holds 99% in NSEL. NSEL did not respond to emailed questions.
“The exchange (MCX-SX) needs more serious shareholders to help it grow," said the person cited above.
It urgently needs capital, since it is close to breaching its minimum networth requirements. According to Sebi norms, every exchange is required to maintain a net worth of ₹ 100 crore. The net worth of MCX-SX was ₹ 120 crore as on 31 March, down from ₹ 275 crore at the end of the previous fiscal year, according to the latest balance sheet of the exchange.
“The rights issue failed because, surprisingly, the bank shareholders did not subscribe. They would not have made a loss had they subscribed to the issue. If they are serious about supporting the exchange’s growth, they should have subscribed to the rights issue. That is another reason the exchange is looking for more serious shareholders who could replace the banks who hold the exchange’s shares," said the second person cited above.
The exchange also wants to distance itself from the MCX brand, which is closely linked to Jignesh Shah, who is currently in jail in connection with the NSEL payments crisis. MCX-SX has already received Sebi’s approval to change its name.
According to the people cited above, the management has suggested two new names for the stock exchange—New Age Stock Exchange Ltd and International Stock Exchange Ltd. Of these, the exchange is most likely to go ahead with New Age Stock Exchange. Mint has reviewed a copy of the mail sent to Sebi proposing the name change.
“The exchange is likely to have a new name in a few weeks," said the first person. According to him, rebranding was crucial as the stock exchange has no connection with MCX. The exchange is also shifting its head office and server from Chakala in Andheri to Bandra-Kurla Complex in Mumbai over the next month or so, he said.
The management is also scouting for new employees. “Over the past three months, about 60 of MCX-SX’s 250-odd employees have left. More will go. The exchange has started hiring new people both in mid- and senior management positions. About 12 new employees have replaced the old ones," said the first person.
Rajnikant Patel, a former chief executive of Asia’s oldest bourse BSE, welcomed the MCX-SX initiatives, but doubted if the plan to increase liquidity would work out easily. “I compliment the new management for this kind of strategy and it will certainly help the exchange in breaking up ties with FTIL or MCX and changing public perception. At this juncture, changes in brand, alliances and management are crucial to make the exchange look truly independent. However, replacing the existing shareholders with other institutional investors may take some time due to the existing shareholding norms of Sebi."
“Having said that, even after changing these basic things like technology contracts, brand, management and shareholders, attracting liquidity in the equity and equity derivatives space will remain a challenge. After struggling for long, BSE managed to attract some liquidity in the derivatives space. NSE (National Stock Exchange of India Ltd) and BSE are already competing with each other for liquidity and to snatch market share from them will be a challenge for this exchange unless it offers a product differentiation," Patel added.
A special audit of MCX-SX by Kalyaniwalla and Mistry, a chartered accountancy firm, conducted at Sebi’s behest, recently pointed to several heavily one-sided, related-party transactions between the exchange and FTIL or FTIL-related entities. Mint has reviewed a copy of the report submitted to Sebi a few weeks ago.
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