Huge demand for MCX shares triggers pre-IPO deals
BS Reporter / Mumbai Feb 16, 2012, 00:32 IST
There is a rush to corner shares of the Multi Commodity Exchange (MCX) ahead of its public issue, which opens for subscription on February 22.
MCX is offering 6.4 million shares through its initial public offer (IPO), which may fall way short of demand, say stock brokers, as it is the first exchange to get listed in India. Stock brokers are offering Rs 3,500 to retail investors for each application of Rs 2,00,000 on their behalf. The promoters of MCX will begin a road show for retail investors on Thursday.
Brokers in Mumbai and Gujarat are already quoting MCX shares at a 20 per cent premium to its IPO price, which they expect to be around Rs 1,000 per share, valuing the exchange at around $1 billion. Citigroup had paid Rs 1,050 a share for 1.95 million shares of MCX in September 2007.
“Retail investors could be seen returning to the markets if the MCX listing is as per expectation. The only worry is that allocation would be low, as the shares being offered are too few, compared to demand. This has triggered pre-IPO deals and brokers are offering incentives,” said a dealer at a Mumbai-based broking firm. Also, triggering these off-market transactions is the fact that a fairly large-size IPO is hitting the primary markets after a long gap. In fact, all of 2011 was dominated by small-sized IPOs, which raised only Rs 50-100 crore each and had below-average fundamentals.
The equity primary market has been running dry, as IPOs worth Rs 32,000 crore were put off by companies due to poor market conditions in recent months. The only IPO in which retail investors made handsome gains was Coal India in November 2010. Post-listing, the stock moved up a little over 50 per cent from its issue price.
MCX, predominantly a metal and energy futures trading platform, is promoted by Financial Technologies (FT), founded by Jignesh Shah, who plans to sell the exchange as a new concept stock. The plans of Bombay Stock Exchange (BSE) hit a roadblock in 2010, giving MCX an opportunity to be the first player. MCX generates investor interest as it is a leader in providing a platform for commodity trading in the country, with an 80 per cent market share.
The National Stock Exchange (NSE) was valued at $3 billion or Rs 17,100 crore in November 2010, when MCX sold a near one per cent stake it held in the equity bourse at Rs 3,800 a share. In comparison, the BSE is valued at a little less than $1 bn. The National Commodity and Derivatives Exchange, distant second to MCX, is valued at around 10 per cent less than MCX.
MCX had started operations in November 2003 and has paid a dividend of 3.15 times equity since inception. From filings by the exchange, the average cost of acquisition per equity share for FT is Rs 8. The IPO will be an offer for sale and see FT selling a five per cent stake. Another 7.6 per cent stake will be sold by the State Bank of India, GLG Financials Fund, Alexandra Mauritius Ltd, Corp-oration Bank, ICICI Lombard General Insurance Company and Bank of Baroda, together. MCX refused to comment on market speculation.
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