NSE taps Sebi for IPO even as banks plan to offload shares

A spokesperson for NSE, India’s largest stock exchange, confirmed the IPO plan. “We have asked the Securities and Exchange Board of India (Sebi) for approval and only once this comes, will we start the IPO process. We have not spoken to merchant bankers so far, as we are awaiting regulatory clarity," the spokesperson said.

Meanwhile, banks that hold shares in NSE have invited expressions of interest to sell some of them before the end of the fiscal year. Last week, State Bank of India (SBI), India’s largest bank, announced plans to sell 5 million NSE shares, representing 1.01% of the 5.19% it holds in the exchange.

“SBI is one of the shareholders of National Stock Exchange of India Ltd and intends to divest up to 1.0101 per cent (50,00,000 equity shares) of its equity shareholding in NSEIL (National Stock Exchange of lndia Ltd) through a competitive bidding process," the lender said in a public notice on 3 January. In 2016, SBI had sold 5% stake in NSE to Mauritius-based Veracity Investments for ₹911 crore. State-run Indian Bank also aims to sell 1 million shares in NSE, according to a newspaper advertisement. Last month, IFCI had sold its entire 2.44% stake in NSE for ₹805.6 crore.

Bankers say the plans are part of a routine exercise to monetize non-core assets. “Sebi has given time for the IPO and there are buyers in the market. We don’t foresee any problem. If it materialises, we will give it up in IPO. There has been a clear-cut direction from the government and, gradually, we will go out of the non-core business. You are seeing an interest among investors. Last time there were regulatory issues," a senior banker said who did not want to be named.

Sebi had previously pulled up NSE over select brokers securing privileged access to its servers as part of the exchange’s co-location services, an issue that had become a hurdle to its listing plans.

“In consonance with the Sebi and Securities Appellate Tribunal (SAT) rulings, we are continuing to transfer revenues arising out of co-location services in the escrow account," the NSE spokesperson told Mint.

Sebi had on 30 April passed three orders against NSE, directing it to deposit ₹1,200 crore in an investor fund and barring it from accessing capital markets for six months. This was after the market regulator had alleged that exchange officials in collusion with a few traders and brokers misused the co-location facility, giving some market participants preferential access to its servers for a fee.

As part of interim directions, NSE was asked in September 2016 to deposit revenues from its co-location service in an escrow account pending investigations. The amount in this account stood at ₹2,344 crore as on 21 May 2019.

While appealing against the Sebi orders before SAT, NSE had not challenged the Sebi directions barring it from launching new products and going for fresh fund raising. The ban ended on 30 October, clearing the decks for an IPO.

A person familiar with the exchange’s thinking said the impact of funds being deposited in escrow account is limited as these funds may be reverted to NSE books once SAT pronounces an order in the co-location case in the coming months.

“Banks selling non-core assets is a routine exercise that they undertake during book closing to reflect better numbers. NSE shares have a lot of demand in the open market. The NSE shares typically trade at a valuation of more than ₹1,000 per piece, valuing the company at more than ₹45,000 crore," said an investment banker who did not wish to be named.

NSE aims to raise about ₹10,000 crore from the IPO, which would result in existing promoters selling 22-24% of their stakes. LIC of India, SBI Group, IDBI, Norwest Venture Partners and GS Strategic Investments Ltd (Mauritius) are among the shareholders that may sell a portion of their stake through the public offering.