|
| MCX-SX had a special deal for some investors |
| Sanjay Jog & Sidhartha / Mumbai/New Delhi Aug 16, 2010, 00:00 IST |
|
The promoters of MCX Stock Exchange (MCX-SX) had entered into a special arrangement with some banks and financial institutions that are investors in the stock exchange, assuring them a fixed return for a specified period.
Though it had provided comfort to investors, of helping find a nominee in case they wanted to exit MCX-SX after a specified time, it has now told the Bombay high court this was not “legally binding” or “enforceable”.
At least two entities, IFCI and Punjab National Bank (PNB), who were given a board berth last year, have an agreement with MCX-SX. In April, MCX-SX said in a statement that the two entities, along with representatives from IL&FS, Corporation Bank, Bank of India and Union Bank of India, had been given representation on the board.
IL&FS, which converted a part of its equity shares into warrants, along with promoters MCX and Financial Technologies India Ltd (FTIL), and Bank of India and Corporation Bank, refused to comment. A Union Bank of India executive said it had not entered into any special arrangement.
MCX-SX has filed a petition in the high court over the delay in clearance from the Securities and Exchange Board of India (Sebi) to enter new segments, including trading in shares.
During a hearing on August 10, Additional Solicitor General Darius Khambatta, who was appearing for Sebi, had said: “MCX-SX has entered into a buyback agreement with certain banks, which Sebi is inquiring into. If there are serious issues, we will look into it.”
‘Sebi knows’
Asked to comment on the special arrangement, MCX-SX Managing Director and CEO Joseph Massey said, “We are fully compliant with Sebi norms. We are sharing all the information with Sebi.”
The special arrangement is significant in light of Sebi’s Manner of Increasing and Maintaining Public Shareholding in Recognised Exchanges (MIMPS) Regulations, 2006, which require promoters to hold not more than five per cent stake in a stock exchange and permitting only specified entities to hold up to 15 per cent. To comply, MCX-SX undertook capital restructuring, under which MCX and Financial Technologies India Ltd converted a part of their shares into warrants.
In a court filing, MCX referred to the letter written by PNB on July 20, 2009, saying the bank would be entitled to simple rate of return at 16 per cent a year, after three years from the date of investment, on the total amount invested. The letter said Financial Technologies (FT) or its appointed nominees have a right to buy back the shares from PNB after a year from the date of investment, with a notice to the investor. The simple rate of return will be paid on a pro-rata basis at 16 per cent a year.
“If PNB would like to retain the shares in spite of the buyback offer by Financial Technologies or its nominee, in such case, PNB shall not be entitled to assured rate of return and Financial Technologies and/or its nominee will have no liability of buying back of shares in future. The offer is valid for six months from the date of approval,” the letter had said.
Subsequently, on August 12, 2009, Financial Technologies, in its communication to PNB, referred to the latter’s terms and conditions and said it accepted these. “However, FT or MCX-SX will not be able to enter into any agreement, as FT or MCX-SX has not entered into any legally binding agreement with PNB,” the letter said.
‘No buy back at all’
MCX-SX reiterated that, “We have no buy back arrangement whatsoever with PNB or with any other investors for that matter. During our first round of seeking investors in pursuit of complying with MIMPS Regulations, PNB, being apprehensive about our future, seems to have agreed to equity investment in our company subject to certain conditions, as per their letter dated July 20, 2009. At the first round of seeking investors, refusal of PNB to invest could have made other banks worry about their investment. Hence, FTIL, our promoter, in the larger interest of our company, issued their letter of comfort dated August 12, 2009, to assist PNB to take a suitable decision, however, disagreeing to enter into a formally binding buyback agreement or a shareholders’ agreement or share subscription agreement.”
An IFCI executive also said a fixed return had been offered to it but did not disclose the return. In addition, the executive said the stock exchange, which is allowed to undertake trading in currency futures only, would help it find a buyer, in case it wanted to exit. “The understanding (at the time of investment) was that MCX-SX will be fully functional over the next few months. If they still become fully operational, the situation will be different.”
IFCI had acquired a five per cent stake in MCX-SX and paid a premium of '34 for every Re 1 share. The finance ministry nominee on the non-banking finance company’s board had sought clarity on the issue, as the exchange was valued at nearly '5,000 crore. Subsequently, IFCI said MCX-SX had promised a downside protection and it would get a higher stake if any investor bought shares at a lower valuation. During the capital restructuring, IFCI’s shareholding went up to 13.23 per cent.
|
|
|
|
|
|
|
|
|
|
 Read Business news in |  |
|
|
|
|
|
|
Advertisements |
|
|
|
|
|
|
|
|
|
|
Content Guide
