Consolidation in commodity market space: ICEX-NMCE considering merger

ICEX getting offers from Indian sight holders of De Beers to buy stake

Consolidation in India's exchange space is set to begin with two exchanges - one relaunching trading and another falling short of net worth - are considering a proposal to merge. The proposal is a win win for both the exchanges as Ahmedabad based National Multi Commodity Exchange (NMCE) and Mumbai based Indian Commodity Exchange (ICEX) have good synergy if they merge. According to knowledgable sources, leading accounting firm Ernst & Young (EY) has been appointed to do due diligence which will decide valuation of the exchanges, share swap ratio and perhaps name of the merged entity.

ICEX had suspended trading in 2014. it has now with the second rights issue, has managed to meet Rs. 100 crore net worth criteria at present. MMTC, one of the promoter shareholder, according to the sources, has conveyed to the exchange 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.

The insiders said that, "ICEX has already received offers from top Indian sight holders of De Beers to buy equity stake in the exchange at a premium."

The exchange board, however, has not taken a decision of allocating shares to new shareholders yet.

Exchange share face value is Rs.5 and existing rights which is second, is at a premium of Rs.5. MMTC which at present holds 15 % in the exchange may see its holding falling as it is not subscribing to the rights issue. 

ICEX has already received funds over Rs.100 crore meeting its net worth requirement mandatory as per Sebi regulations to start trading. NMCE is not been able to increase its net worth to Rs. 100 crore. It is at present Rs.75 crore. The key issue coming in the way is its promoters' stake which is in escrow account following FMC declaring them not fit and Malini promoter is jailed. However, when the proposal of merger of NMCE and ICEX is discussed, shares in escrow will be considered and whatever swap ratio is decided, shares will be issued in escrow. At present the case is being heard in the Supreme Court. 

When contacted, NMCE spokes person said that, "the exchange's board has decided to consider proposal for merger and acquisition." ICEX spokesperson declined to comment.

NMCE has vibrant rubber contracts where farmers are participating and selling their contracts while ICEX has created ripples in the market with a proposal to launch world's first ever diamond futures. It will be a compulsory delivery settled contract and exchange has worked set up required infrastructure for it. Hence the merged entity will have presence in agri and non agri commodities. 

Merged entity will also have additional net worth which will help the merged entity to invest for growth and will get a larger time frame to achieve equilibrium.