ICEX, NMCE considering merger: EY to do due diligence

Key deal hurdle: NMCE's promoters' stake is in an escrow, its main promoter is in jail

NMCE   

• Net worth Rs 70 cr, required to meet Rs 100 cr criterion    
• Rubber contract most successful with farmers’ participation 
• Total volume: Average Rs 268 cr daily
• Legal case relating to promoter’s holding major dampener for the exchange’s performance

ICEX
 

• Net worth already in accordance with regulatory requirement of Rs 100 crore
• Launching diamond futures, first in the world, on or before April
• After merger, new entity will have presence in agri and non-agri commodities
• Challenge is relaunching of trading after suspension

Ahmedabad-based National Multi Commodity Exchange (NMCE) and Mumbai-based Indian Commodity Exchange (ICEX) are considering a merger.

According to sources, accounting firm Ernst & Young has been appointed to do a due-diligence, which will decide the valuation of both, the share swap ratio and perhaps a name for the proposed entity. Both have Reliance Capital as a common shareholder. When asked, an NMCE spokesperson said their board of directors “has decided to consider a proposal for merger and acquisition”. The ICEX spokesperson declined to comment.

ICEX is relaunching trading. NMCE, a running exchange, is short of the required net worth to operate on its own. ICEX had suspended trading in 2014. It now has with a second rights issue, met the minimum Rs 100 crore net worth criterion to begin trading, as mandated by the regulator.  MMTC, one of ICEX’s promoter shareholders, has according to the sources conveyed that it is not willing to participate in the latest round of rights issue. “This devolved rights have to be allocated to the existing shareholders or to new shareholders,” said the source. 

Insiders say, “ICEX has offers from top Indian sight holders of De Beers (meaning, authorised bulk purchasers of the latter, leading global diamond miner),  to buy equity stake at a premium.” 

The exchange board has not decided on allocating equity to new shareholders. The share face value is Rs 5 and existing rights are at a premium of Rs 5. MMTC presently holds 15 per cent.  

NMCE’s net worth is Rs 70 crore. The key issue coming in the way of raising this to the required minimum is its promoters’ stake, in an escrow account after the erstwhile Forward Markets Commision declared they were not fit to handle the charge; the main promoter is also in jail; his appeal is before the Supreme Court. When the merger proposal is gone into, the shares in escrow account will be considered and whatever the swap ratio, shares will be issued for those in escrow, too.

NMCE has vibrant rubber contracts, with farmer participation. ICEX has created ripples in the market with a proposal to launch the world’s first ever diamond futures. It will be a delivery-settled contract and the needed infrastructure has been set up. Hence, the merged entity will have presence in agricultural and non-agri commodities.