ICEX struggles to stay afloat

Loss-making exchange looks to raise capital

In an effort to avoid closure, the Indian Commodity Exchange Ltd (ICEX), promoted by Reliance Exchange-next, a unit of Reliance Capital, state-owned MMTC and Indiabulls Financial Services, among others, is looking for fresh capital. Reliance Group company Exchange-next, which entered later, holds 26 per cent stake in India’s fourth-largest commodity futures exchange. The exchange’s average daily turnover has dropped by half in six months to about Rs 250 crore.

In its last meeting in December, the board had decided not to launch contracts till the negative sentiment towards commodity futures market ebbed. All contracts are set to expire in May.

The exchange could seek capital infusion through the introduction of a rights issue and ask its existing shareholders to subscribe in proportion to their stake to keep their shareholding intact or bring in new investors. New investors may not come now, looking at the grim scenario prevailing in the commodity futures market, but even convincing existing shareholders would be difficult: Exchange-next, MMTC and Indiabulls have different views. MMTC might not be ready to infuse capital, given that its investment is gradually eroding. “The decision on infusion is expected to come from the finance ministry, which is highly unlikely to consider an investment so close to the general elections,” said a company official.

Indiabulls has sold a part of its stake at a premium and recovered most of its initial cost. Now, it is the third-largest shareholder while Exchange-next, which bought shares at a premium and will think twice before committing to a fresh infusion. An email sent to Exchange-next did not get any response. MMTC’s board nominee on ICEX, Anand Trivedi, too, did not respond. An ICEX official declined to comment on the matter.By the guidelines of the regulator, Forward Markets Commission (FMC), an anchor investor can hold up to 26 per cent stake in any exchange. Hence, on a stand-alone basis, neither MMTC nor Reliance can raise their stake through a fresh infusion.

The exchange has been making losses since its inception in November 2009. In 2009-10, ICEX made a loss of Rs 5.5 crore, which shot up to Rs 31 crore the following year. In 2011-12, it recorded a loss of Rs 26 crore. The paid-up equity capital, however, continues to remain at Rs 100 crore, as prescribed in the guidelines, but the net worth is eroding fast.

ICEX has not appointed any managing director for long and is run by Chief Financial Officer Ramesh Shetty. In case the overall commodity futures market sentiment does not improve by May and the exchange is not able to raise funds, it will have no option but to shut down, according to a source close to the board.