NMCE plans to issue more shares to meet net worth norm

To appoint a merchant banker in a week, may soon submit detailed plan to Sebi for increasing net worth

The Ahmedabad–based National Multi Commodity Exchange (NMCE) plans to raise funds through new share issuances, to achieve the minimum net worth criteria announced last week by the Securities and Exchange Board of India (Sebi).

As stipulated by the regulator, NMCE requires Rs 100 crore of minimum net worth by May 2017. It currently has Rs 71 crore, including Rs 13 crore contributed to the Settlement Guarantee Fund. So, the exchange requires to raise Rs 29 crore of additional net worth in around 18 months. And, needs to present Sebi a detailed plan, approved by shareholders, to this effect by March 2016.

Barely two days after Sebi’s November 26 circular, NMCE’s board met on how to achieve the Rs 100 crore target. “They were of the view that new shares should be issued to new investors. We have a number of corporate shareholders with more than five per cent stake (each) and they need to bring it down to five per cent or below. Their stake would automatically be diluted by issuing fresh shares. At the same time, we would be able to raise funds to meet our net worth requirement,” said Anil Mishra, managing director.

This is the only national exchange with less than the Rs 100 crore of minimum stipulated net worth. The other two, Multi Commodity Exchange and National Commodity & Derivatives Exchange, are way above.

The exchange plans to appoint a merchant banker for this new task in a week. The fund raising might not be easy, due to a falling daily average turnover, a benchmark to assess the valuation of any exchange. NMCE was valued at Rs 200 crore in 2010, when then financial advisor Equirus Capital successfully looked for a new investor, Bajaj Capital, for buying 12.82 per cent stake in the exchange for Rs 25 crore. Then, too, the exchange issued new shares, resulting in a decline in the equity stake of existing shareholders. For instance, the stake of Reliance Capital was diluted to 8.72 per cent after NMCE’s stake sale to Bajaj Capital, from 10 per cent earlier.

Now, however, NMCE’s daily average turnover has declined to a sixth of the 2010 level, to Rs 246 crore now from Rs 1,486 crore then. In that period, its share in overall commodity exchanges’ turnover has slumped to a negligible 0.94 per cent; it was 5.84 per cent only five years earlier. The daily average turnover of the three national commodity exchanges (representing a little over 99 per cent of the total) has risen only marginally from the Rs 25,431 crore in 2010, to Rs 26,301 crore now.

Meanwhile, NMCE might play with the letter it received in April 2013 from the Union ministry of consumer affairs, the then parent ministry of comexes’ regulator, the Forward Markets Commission (since merged into Sebi), saying, “No deadline is applicable on NMCE till the pendency of the case in the Supreme Court against its erstwhile promoter, Neptune Overseas Ltd.” The latter holds 30 per cent stake in NMCE and the issue of its shareholding is still pending at the apex court.

• NMCE plans to raise Rs 29-cr to achieve Rs 100-cr networth
• To issue fresh shares, appoint financial advisor in a week
• Reliance Capital not contemplating raising its stake
• To submit a detailed fund raising plan by March as per Sebi order
• No timeline applicable on NMCE as per Ministry of Consumer Affairs letter dated April 2013