March 03, 2010

exchange of stakes

Last week, I wrote (in the magazine I write for, presently) about change of shareholders of the National Stock Exchange of India and the Bombay Stock Exchange. It has interesting information and details.

Here is what I wrote:

Exchange of stakes
The unlisted shares of Indian stock exchanges continue to attract attention of international and domestic investors
- Feb 2010

The unlikely hunting ground for private equity and investment management companies, the unlisted shares of stock exchange companies in India, is again getting active. An institutional investor from the Middle East is keenly scouting to pick up a stake in the National Stock Exchange of India (NSE), according to a source close to the potential transaction.

This investor, and other potential interested ones, has very little choice but to buy their required stake from an existing shareholder of the stock exchanges. The central government rules for foreign investments in infrastructure companies in the services sector such as stock exchanges restrict the maximum stake in stock exchanges to 49% -- of which upto 26% can be through foreign direct investment route and upto 23% can be through the portfolio route of Securities and Exchange Board of India-registered foreign institutional investors.

The last major stake change had happened on the NSE in June 2009 when a global private equity investment firm, Norwest Venture Partners Mauritius (NVPM), bought 950,000 shares (representing a 2.11% stake in the total equity capital) from IL&FS Securities Services whose stake in NSE reduced to zero as a consequence.

With this transaction the foreign holdings on NSE has gone up to 28.11%, of which only NVPM's investment is through the FII route. Since then, 20.89% stake is available to FIIs to pick up from other existing shareholders of NSE. The foreign holdings on the Bombay Stock Exchange were 25.65% as of August 2009.

Domestic investors—institutional, corporate and individual—, too, have shown an interest in picking stakes on the two exchanges (see table). The most prominent one has been Hospet-based mining company, MSPL, and its chairman-cum-managing director, Narendra Baldota, in his personal capacity. The two, together, picked up a 0.91% stake in the NSE between August 2008 and September 2009 (post-September 2009 shareholding data of NSE and BSE were not available).

MSPL also holds a 1.17% stake in BSE. BSE also a new significant shareholder called Bombay-based Blue Star Diamonds Pvt Ltd take 1.03% stake, ostensibly from an individual investor, Bombay-based Anuj V Mehta (see table below).

Major sellers of NSE's shares, during August 2008-September 2009, LIC, IFCI and Stock Holding Corporation, are likely to the first targets for the Middle Eastern investor. It is, however, not clear whether this investor has any connections with Dubai Financial Group Llc that already has a 3.9% stake in the BSE since over two years.

Expect a lot of action in this unlikely hunting ground.

Unlisted shares of stock exchange companies are proving to be an attractive ground for active financial investors

Shares** (million) % of total eq. cap. Post-sale/purchase stake (%)
Changes in NSE's shareholding from Jul '08 to Sep '09:

Major* sellers:

IL&FS Securities Services 0.95 2.11 0.00
Life Insurance Corporation of India 0.43 0.95 11.49
IFCI 0.13 0.28 5.16
Stock Holding Corporation of India 0.12 0.25 3.08
Rambhabhen U Tanti (from Pune) 0.08 0.18 0.00

Major* buyers:

Norwest Venture Partners

Mauritius 0.95 2.11 2.11
Narendra Baldota (of MSPL) 0.22 0.49 0.49
MSPL Ltd (Hospet) 0.19 0.42 0.42

Changes in BSE's shareholding from
Aug '08 to Sep '09:


From Caldwell Asset Management Inc

Inc to Caldwell India Holdings Inc 4.02 4.96 4.96

Major* sellers:

Anuj V Mehta (Bombay-based) 1.06 1.03 0.00

Major* buyers:

Blue Star Diamonds Pvt Ltd (Bombay-based) 1.06 1.03 1.03

Shares** (million) % of total eq. cap.

Top 10 NSE shareholders as of Sep '09:

Life Insurance Corporation of India 5.17 11.49

State Bank of India 4.70 10.44

Infrastructure Devp. Finance Co.

Stock Holding Corporation of India 3.08 6.86

IFCI 2.32 5.16

NYSE Group 2.25 5.00

GA Global Investments Ltd (Cyprus)

GS Strategic Investments Ltd 2.25 5.00

SAIF II-SE Investments Mauritius Ltd

IDBI Bank 2.24 4.98

Top 10 BSE shareholders as of Sep '09:

Deutsche Boerse AG 5.10 4.96

Singapore Exchange Ltd 5.10 4.96

State Bank of India 5.02 4.88

Life Insurance Corporation of India 5.02 4.88

Acacia Banyan Partners Ltd 4.02 3.90

Dubai Financial Group LLc 4.02 3.90

Caldwell India Holdings Inc 4.02 3.90

Atticus Mauritius Ltd 4.02 3.90

Bajaj Holdings & Investment 3.01 2.92

MSPL Ltd 1.20 1.17

* where pre-sale/post-purchase stake is
than 0.17%

** face value Rs 10 per share

***face value Rs 1 per share & post-12:1 bonus
issue in
NSE - National Stock Exchange of India

BSE - Bombay Stock Exchange

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