BSE shares get fizz back in grey market

BSE has said it would offload 30% stake before end-March 2017 through an OFS

Asia’s oldest bourse, BSE’s share price in the grey market (channels that are legal but unintended by the entity), has surged in the past few days as the exchange gradually moves towards an initial public offering (IPO) of equity. After being mostly steady in the past three months, the price has picked up momentum, gaining 10 per cent to Rs 355 in the past 10 days, after the bourse set up an escrow account to enable shareholders to tender shares in its Offer for Sale (OFS), said sources.

The shares have gained about 25 per cent in six months, posting a sharp spike after BSE told the Securities and Exchange Board of India in a letter dated January 22 that it was fully compliant with regulations and ready to list for an IPO. In the past two years, BSE shares have zoomed more than two times in off-market trades, added sources.

“The shares are moving up in anticipation of a listing. The grey market is an illiquid market, as there are hardly any participants. The real price discovery will happen once the shares are actually listed,” said a broker, on condition of anonymity. BSE declined to comment for this report.

The price of Rs 355 is still lower than the Rs 375-380 that billionaire investor George Soros had paid in August 2011 for a four per cent stake in the exchange through his Quantum hedge fund. Sources said shareholders who want to participate in the ongoing OFS expect the shares to be priced at Rs 400 each. “We expect the off-market price to remain range-bound between Rs 350 and Rs 375. We saw good volumes at the price range of Rs 320-325 but volumes have tapered as prices crossed Rs 350,” said Rajan Shah, founder, 3A Capital Services, which deals in unquoted and unlisted shares.

BSE has said it would offload 30 per cent stake before end-March 2017 through an OFS, along with a possible fresh sale of shares. Shares not sold in the OFS shall be locked-in for a year from the date of allotment/transfer of shares in the IPO. The sellers will receive the same sale price as the issue price for the IPO, net of expenses and applicable taxes. The exchange is likely to file its draft prospectus and select all its bankers by September. BSE has already appointed Edelweiss Financial Services as lead merchant banker, with AZB & Partners and Nishith Desai Associates as legal advisors.

The consolidated net profit for 2015-16 declined 38 per cent 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 less than 20 per cent of rival National Stock Exchange. Volumes in the derivatives segment have dived to almost nil, after the exchange trimmed its incentive structure for market makers.