Indian bourses fail to halt dragon march into Asian stock exchanges

Chinese stock exchanges are going all out in stamping their authority in the Asian financial space by picking up stake in stock exchanges across the continent. 
 

Meanwhile, India's desperate attempts to thwart China's aggressive charge have proved to be toothless. In May, a consortium of Chinese stock exchanges trounced a bid by India's National Stock Exchange (NSE) by a huge margin to acquire a considerable stake in Bangladesh's Dhaka Stock Exchange (DSE). This was not a one-off. In the recent past, China grabbed stake in stock exchanges in Pakistan, Nepal and Myanmar. Sources say more exchanges, including Israel's Tel Aviv Stock Exchange (TASE) and Saudi stock exchange Tadawul, are looking to sale stake as part of the demutualisation strategy. Here too, Indian exchanges could be no match for China's stock exchanges, which have "political funding", say industry observers.

An expert observed that Beijing had been throwing its political weight behind the deals, and was using diplomatic channels and technical support to secure the transactions.
 

Meanwhile, industry sources said the Indian government's approach lacked steam and, so far, it had only nudged the country's top exchange, NSE, to consider acquiring stake in the regional bourses. However, in the absence of government subsidies and diplomatic help, the NSE's bid has not been any match for China.

India is the largest market in Asia after Japan and China, and the NSE is one of the leading exchanges globally, in terms of trading volumes, especially in the derivatives segment.
 

"You can compete with business capital and political capital. When it comes to the former, you can make a rational bid after evaluating the financials and earnings potential. But it is very difficult to match the political capital. This was clearly seen in the recent DSE stake sale," said an industry official.

Demutualisation among Asian bourses has brought up Indian and Chinese bourses face-to-face. It is the process of changing the ownership structure of an exchange from a co-operative association of brokers to an institution- owned or a publicly traded company.

Illustration by Ajay Mohanty

 

Sources say countries such as Vietnam, Kazakhstan and Kuwait are also looking for suitors for their exchanges.

"Most countries treat their exchanges as national assets, and hence are very choosy about who buys stake in them. In order to compete with aggressive bids by Chinese players, we need stronger backing from the government at diplomatic as well as regulatory levels," said another official.

Experts are of the opinion that there is a vast difference in how the Indian system works compared to that of the Chinese. At the macro-level, the Chinese government has been using cross-border acquisition by its firms as a tool for advancing its diplomatic agenda. 

A large number of Chinese companies are either government-controlled or the ones in which exchequer has substantial interests. Hence, incentivising them makes sense from the Chinese point of view. Most of the Chinese stock exchanges are state-owned entities.

On the other hand, the Indian government has no direct ownership in stock exchanges. However, several PSUs are founders and investors in domestic bourses, particularly the NSE.

"It is difficult for India to replicate the Chinese model of subsidising deals. Hence, our exchanges have to mind the commercial aspects while placing bids. It is desirable for our exchanges to own stake in foreign bourses. However, it cannot come at the cost of business," said Sandeep Parekh, founder, Finsec Law Advisors.

Expanding footprint 

• Several Asian exchanges are undertaking stake sales
• China using the opportunity to expand its footprint in the region
• Indian bourses finding it hard to match those in China
• Chinese exchanges have acquired large stakes in exchanges in Pakistan and Bangaldesh
• Sources say China providing exchanges with capital and diplomatic backing