BSE IPO may hit markets as soon as Jan 2017

Asia’s oldest bourse, BSE, has completed its roadshows abroad for the coming Initial Public Offer (IPO) of equity. According to sources, it expects approval soon from the Securities and Exchange Board of India (Sebi).

“We got a decent response from overseas investors and are currently marketing the offering to domestic investors,” said an involved investment banker.

BSE had filed its draft prospectus with the regulator in early September. About 29.95 million shares that were tendered during the offer for sale process will be sold in the IPO. Bankers are looking at pricing the issue at about Rs 500 apiece, which will value the exchange at around Rs 5,500 crore and put the IPO issue size at Rs 1,500 crore.

Member brokers believe a better valuation is possible. “If one considers the numbers being touted for the NSE (National Stock Exchange, its major rival and also planning an IPO), one can expect pricing of Rs 700-750, which will push the issue size over Rs 2,000 crore,” said a broker on condition of anonymity. Added another: “There will be another round of discussion on the pricing next week and we are looking at an issue size of at least Rs 1,500 crore.”

NSE’s IPO is expected to be valued at least 30 times its one-year forward price to earnings ratio. BSE chief executive Ashishkumar Chauhan declined comment on the timing and valuation for the offering.

Brokers say the exchange deserves a rich valuation, with the 140-year pedigree and presence across the currency, insurance and mutual funds segments. “BSE has established itself in the currency market, got a head start in insurance and mutual funds, and is slated to start a new international exchange. All these are factors that will drive up valuations,” said Deven Choksey, managing director at KR Choksey Shares & Securities, without specifically commenting on the pricing.

The bourse already has a presence in the mutual funds business with BSE Star MF and recently applied to the regulator to float two insurance-related arms under its fully owned subsidiary, BSE Investments.

Consolidated net profit for 2015-16 declined 38% to Rs 96.7 crore, from Rs 155.5 crore the previous year. The exchange has seen a dip in cash market volumes, its mainstay, and has a market share of a fifth NSE's. Volumes in the derivatives segment have dived to almost nil, after the exchange trimmed its incentive structure for market makers last year.

Edelweiss Financial Services, Axis Capital, Jefferies and Nomura are acting as global coordinators and lead managers for the BSE IPO.