Home/ Market / Stock-market-news/  TVS Capital-led group to buy FTIL’s stake in IEX for Rs577 cr

Mumbai: A consortium led by Chennai-based private equity firm TVS Capital Funds has bought the nearly 26% stake held by Jignesh Shah-led Financial Technologies India Ltd (FTIL) in the Indian Energy Exchange (IEX) for around 577 crore.

FTIL was in May directed by the power sector regulator, the Central Electricity Regulatory Commission (CERC), to sell its holding in the exchange. The sale of the 25.64% stake for 576.84 crore, announced in a late-night press release by FTIL, values the exchange at nearly 2,300 crore.

Nearly 18 bidders were in the race for FTIL’s stake in IEX, which is one of India’s two operating energy exchanges. Power exchanges provide a platform for buyers, sellers and traders of electricity to enter into spot and forward contracts, besides enabling trading of renewable energy certificates. They also provide a payment mechanism to buyers and sellers. These exchanges primarily serve to discover the price for the day ahead, which is the electricity sector’s equivalent for a spot price.

In May, CERC issued a directive to FTIL, asking it to sell its holdings in IEX, following a March order by the Securities and Exchange Board of India (Sebi), which declared FTIL and Shah unfit to hold a stake in any stock exchange or clearing corporation Sebi’s order came after commodity market regulator, Forward Markets Commission, declared FTIL and Shah unfit to run a commodity futures exchange in the country in a December order, following a 5,574.34 crore fraud at National Spot Exchange Ltd (NSEL). FTIL holds 99.99% in NSEL.

CERC gave FTIL time till the end of September to exit the exchange, but later extended the deadline till the end of October. CERC directed FTIL to submit a compliance report by 5 November.

Gireesh Pradhan, chairman of CERC, said he was not aware of the deal but added that IEX is an important asset for development of the power sector.

“We regard IEX as an important component for the development of the power sector. The exchange has played an important role," said Pradhan.

On 20 July, Kotak Mahindra Bank Ltd bought 15% stake in Multi Commodity Exchange of India Ltd (MCX) from FTIL. The remaining 11% stake held by FTIL in MCX has been sold via open market deals. However, FTIL still holds 5% equity in MCX-SX, the stock exchange promoted by the group.

The fraud at NSEL came to light on 31 July 2013 when the exchange suspended trading in all but its e-series contracts. These, too, were suspended a week later. The suspension 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. It later emerged that all trading on NSEL happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity. 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. Subsequent investigations highlighted the involvement of promoters. On 14 August last year, NSEL proposed a payout plan, but it has been unable to stick to the schedule and has not made a single successful payout ever since.

The government, in late October, ordered the merger of NSEL and FTIL.

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Updated: 05 Nov 2014, 11:50 PM IST
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