Merrill, Citigroup buy 5% each in MCX

Merrill Lynch & Co and Citigroup Inc have bought 5 per cent equity each in Multi Commodity Exchange of India (MCX), the world's third-largest gold bourse that registered a three-fold growth in trade last year.

The seller is the exchange's promoter, Financial Technologies, which so far held 64 per cent equity. It is also selling smaller stakes to Passport India Investment (Mauritius) and GLG Financials Fund "" 3 per cent and 2 per cent, respectively.

According to Bloomberg, the total sale is worth about Rs 645 crore. That will peg MCX's valuation at about Rs 4,300 crore "" over $1 billion.

Fidelity already holds 9 per cent in MCX and therefore the total foreign equity in MCX, after these four deals, will rise to 24 per cent. The government is finalising the guidelines for foreign equity holding in commodity exchanges and is said to be in favour of a 5 per cent cap for each investor.

Overseas investors including Goldman Sachs Group have invested in Indian markets as the fastest pace of economic growth since independence spurs demand for commodities in the world's second-largest sugar and rice producer.

According to the spokesperson for MCX, it plans to invest the proceeds in greenfield ventures such as National Spot Exchange, which, as the name suggests, will be a spot trading exchange, or National Bulk Handling Corporation, which will be into warehousing and procurement.

"The deal shows the confidence of foreign investors in the reforms in the country's commodity markets and the potential of Indian commodity futures market despite the fact that the market is passing through a delicate phase," the spokesperson added.

Financial Technologies informed Bombay Stock Exchange today that investments by strategic international partners would give MCX access to global know-how, best practices, domain knowledge and technology, making it more efficient, competitive and transparent.

Goldman Sachs and Intercontinental exchange holds 7 and 8 per cent in NCDEX respectively. These investors will have to divest stake above five per cent if the government puts a cap of five per cent on foreign investment.

BSE's proposal to invest 26 per cent in NMCE, an Ahmedabad-based commodity exchange has been approved by the department of consumer affairs.

Industry observers see this as a welcome step and want similar deals to be encouraged. The share price of Financial Technologies shot up by 6.10 per cent to Rs 2761.05 on the BSE on the back of the stake sale in MCX.