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The National Stock Exchange (NSE), the country's leading bourse, has no plans to go for a listing in the immediate future, though leading private equity (PE) investors in it had made a joint representation last week, raising concerns over the exchange's refusal to consider this.
Delay in initiating the process of listing was not only against the interest of NSE but also against the collective interest of all its shareholders, the letter said. An NSE spokesperson declined to comment on a listing plan but a source privy to the development said: "The board (of directors) will take an appropriate decision at the right point of time, keeping the interest of all stakeholders in mind."
In their representation, the investors said their money in the exchange was stuck, giving them no exit option. And, the returns through dividend payout were too low, even though the exchange had a huge cash balance of Rs 5,846 crore and reserves of Rs 5,380 crore.
Several new investors have entered the two-decade old bourse in recent years. Many are PE firms, with investments of over five years. The refusal to list has put them in a problematic situation. Two of the leading PEs, which did not want to be named, said the exchange simply did not bother to engage with its shareholders. "The management has formed a cosy club and is possibly avoiding the IPO (Initial Public Offering) route as that would require greater transparency," they said.
They said the Securities and Exchange Board of India's direction on transferring 25 per cent of profit to the settlement and guarantee fund of the exchange was a strange one; such a system did not exist anywhere else in the world. This, they claimed, had resulted in a fall in NSE's valuations.
As an example, they said Financial Technologies sold its one per cent stake in the exchange three years earlier at an enterprise valuation of $3.7 billion. That had come down to less than $3 billion, going by a deal this June.
The exchange is waiting for the outcome of the Kamath committee deliberations before implementing this. The investors said NSE had a settlement guarantee fund of Rs 2,679 crore and perhaps never found a need to use that. "We fail to understand why legitimate profits of the exchange should be transferred to that fund," said an investor.
"The issue about the NSE which hurts investors interest is that it has not enough shareholders' representation on the board and it is not listed which otherwise would have made it open to public scrutiny. In such a scenario, there are no checks and balances to the management's power, which is not good for robust corporate governance." a person with direct knowledge of the matter said.
Several investors, which together hold over a third of NSE's equity, also said, "As on date, there are 11 directors, out of which four are shareholder directors' and six are public interest directors. Two more shareholder directors can be appointed on the board as per the requirements under Regulation 23 of the SECC (Stock Exchange and Clearing Corporation) Regulations."
Alleging uncertain use of incremental cash and non-declaration of interim dividends, the investors said investments made by NSE in AAA- rated debt securities in the past had reduced the returns the shareholders would have otherwise received. They were given to understand that NSE was planning to use the incremental cash for inorganic growth options, to diversify the asset base and business.
"Unfortunately, such opportunities have not materialised and there currently does not seem to be a concrete plan to utilise the $1 billion of cash on the balance sheet. In the best of interests of NSE and all its shareholders, NSE's management must make known to its shareholders its proposal for utilising the incremental cash, together with the reasonable time frame within which the management would complete or implement such proposal," went the letter mentioned earlier.
Privately, the investors also say the chief executive officer's salary was the highest among peers and not linked to shareholder returns.
