Kotak Mahindra Bank has decided to buy a 15 per cent stake in Multi Commodity Exchange (MCX) for Rs 459 crore (Rs 4. 59 billion) from Financial Technologies India (FTIL).
The deal values MCX at Rs 600 a share, a discount of nearly 24 per cent to Friday's closing price of Rs 783.5 on the National Stock Exchange. Also, there is a steep discount to the price at which MCX issued shares to the public in March 2012 (Rs 1,032 a share).
The value of the country's largest commodity exchange in Kotak's purchase comes to Rs 3,060 crore; its market capitalisation by Friday's closing price stands at Rs 3,996 crore.
The deal has to be approved by the Forward Markets Commission (FMC) and the Securities and Exchange Board of India. The former's approval is seen as procedural, as Kotak Mahindra already owns a commodity exchange (the ACE), while the latter will have to clear FTIL from the lock-in of its 20 per cent stake at the time of MCX's listing two years ago.
The holding of FTIL, which earlier had a 26 per cent stake in the commodity exchange, will come down to only five per cent.
It had already diluted six per cent through open-market transactions and investor Rakesh Jhunjhunwala had raised his holding in MCX to a little above four per cent.
After the remaining five per cent stake has been sold, FMC would clear the way for approving new MCX contracts, which were put on hold till the exchange ensured an FTIL exit.
Financial Technologies' exit plan from the exchange business began after promoter Jignesh Shah resigned from MCX as a director ahead of Diwali last year, in the wake of the National Spot Exchange payment crisis. In December 2013, FMC passed an order declaring FTIL, Jignesh Shah and two others 'not fit and proper' to run a commodity exchange. As a result, FTIL was forced to sell stake.
"We have agreed to take a significant minority stake in MCX. We are excited by the potential presented by the financial infrastructure space in the country and believe an investment in MCX, with its significant franchise, will create long-term value," said Uday Kotak, executive vice-chairman and managing director of Kotak Mahindra Bank.
FTIL had appointed JM Financial as an investment banker and ICAN as an advisor for divesting its holding in MCX. Venkat Chary, non-executive chairman of FTIL, said: "FTIL will continue to remain a technology partner to Multi Commodity Exchange." There had been pressure from FMC on MCX to review its technology pact with Financial Technologies; this had been termed one-sided and unduly favouring FTIL by Price Waterhouse, in a special audit. The pact was later re-negotiated.
"Despite many challenges since the initiation of the divestment process, FTIL was successful in generating and negotiating a binding offer from one of India's largest private sector banks, Kotak Mahindra Bank," Financial Technologies said in a statement.
It added it would "continue with its divestment process to sell the remaining (five per cent) stake, subject to the receipt of binding bids and all regulatory and other approvals".
THE STORY SO FAR
• Jignesh Shah-promoted FTIL sets up Multi Commodity Exchange 2012
• Mar: FTIL lowers its MCX stake to 26% through an IPO
• Dec 17: FMC declares FTIL ‘not fit and proper’ to run an exchange after a Rs 5,574-cr payment crisis at NSEL, another exchange promoted by it 2014
• Feb 27: FTIL appoints JM Financial as a merchant banker to find a buyer for its 26% stake in MCX, even as its case challenging FMC’s ‘fit and proper’ order is pending in high court
• Apr: Ten investors, including some global names in the exchange space like CME, put non-binding bids for MCX stake
• Apr 21: Price Waterhouse highlights issues in its special audit report on MCX, says the bourse’s technology supply pact with FTIL favoured the latter; this report is believed to have delayed the stake-sale process
• Jul 9: Billionaire investor Rakesh Jhunjhunwala buys one million MCX shares (2% stake) from FTIL, through a bulk deal at Rs 664 a share, for Rs 66 crore
• Jul 16: FTIL sells over two million shares (around 4%), worth Rs 153.6 crore, in the open market to pare its MCX stake to 20% from 24%
• Jul 20: Kotak Mahindra Bank announces it is buying a 15% stake in MCX from FTIL for Rs 459 crore (at Rs 600 a share)