MCX scouts for new anchor investor

Board sets up panel to look for strategic investor with long-term view

The board of the Multi Commodity Exchange of India Limited (MCX) has decided to bring in a new anchor investor — a move that could curtail the influence of the promoter, Jignesh Shah-promoted Financial Technologies India Limited (FTIL).

The new investor could be brought in even before the courts take a call on the Forward Markets Commission (FMC)’s fit-and-proper order, if the plan is executed. Now, FTIL is the anchor investor in MCX.

“The board has set up a committee to look for a new investor,” said a senior official familiar with the development. “The exchange can always bring in new people and it is looking for a strategic player, who is fit and proper and who will come in with a long-term view.”

MCX might issue fresh shares on a preferential basis to the investor. Such a move would expand the capital base of the bourse and was likely to dilute the holdings of existing shareholders, unless they subscribe to new shares.

“Once the committee identifies prospective investors, the exchange will take a view and the Forward Markets Commission will decide if they are fit and proper,” the official added.

Recently, FMC had approved private equity fund Blackstone’s proposal to raise its stake to five per cent from around two per cent. Foreign institutional investors, foreign corporate bodies and financial institutions hold more than 52 per cent stake in the bourse.

This move to get a new investor is independent of the recent board direction to FTIL to reduce its stake. On Thursday, MCX directed FTIL to reduce the promoter’s 26 per cent stake to below two per cent, as the FMC found it not fit and proper to run exchanges. This was in the wake of the collapse of the National Spot Exchange Limited (NSEL), a 99.99 per cent arm of FTIL. However, the execution of this order could be delayed, as FTIL had challenged the FMC order in the Bombay High Court.

The NSEL crisis erupted in July when it suspended trading. NSEL was accused of offering a pair of contracts that allows speculators to make money without taking physical possession of commodities. In August, news came out that NSEL did not have enough money to pay dues, after it deferred all settlements by 15 days. This started a series of events, leading to resignations of senior officials of the companies involved and the FMC declared promoter Shah unfit to run an exchange.

On FTIL’s move to stall the entry of an anchor investor, market watchers said FTIL’s options are limited as it was already outnumbered on the board.

FTIL had one nominee in Miten Mehta on the 14-member MCX board. On Thursday, FMC withdrew its approval of the nominee-director, citing the fit and proper order. Mehta was not allowed to attend the board meeting which decided on the FTIL issue. MCX shares have gained significantly after the FMC order of December 17. Some analysts have attributed this as an anticipation of the entry of an anchor investor.

MCX shares were around Rs 385 each on December 16, but gained more than 22 per cent to close at Rs 472.60 on Thursday. On Friday, MCX shares closed at Rs 451.95, 4.4 per cent lower than the previous close.

BOURSE TO BUST

* Early 2003: FTIL gets nod to set up an exchange

* Nov 2003: Commodities exchange MCX goes live

* 2006: Jignesh Shah quits as MCX founder-MD, becomes permanent director on board

* 2007: Commodities exchange NSEL set up as a FTIL subsidiary

* July 12, 2013: Govt ask NSEL not to permit new contracts and settle existing ones on maturity

* July 31, 2013: NSEL suspends trading

* August 20: NSEL defaults on payment

* October 4: FMC issues notice to Shah, others

* October 9: Shah steps down from the board of MCX-SX

* October 19: Shreekant Javalgekar resigns as MCX managing director

* October 30: Shah resigns from MCX board ahead of FMC verdict on if he is fit to run an exchange

* December 17: FMC says FTIL, Shah, others unfit to run bourse

* December 20: FTIL challenges FMC’s decision

* December 26: MCX board asks FTIL to reduce MCX stake to 2% from 26% within two months

* December 27: MCX looks for new anchor investor