Deutsche Boerse buys 5% in BSE

Deutsche Boerse, Europe's top stock exchange and transaction service provider, today signed an agreement to buy 5 per cent equity in the Bombay Stock Exchange (BSE), Asia's oldest bourse, for Rs 187 crore.

The deal values the exchange at $910 million (Rs 3,740 crore) on an expanded equity base.

The BSE will issue 36,13,157 fresh shares of Re 1 face value at Rs 5,200 a share to the Frankfurt-based exchange.

Deutsche Boerse, which is strong in all asset classes, especially in derivatives and fixed income products through its F&O subsidiary Eurex, would help the domestic exchange strengthen its derivatives segment.

BSE, which is required to offload 51 per cent stake held by its members by May this year, will dilute another 46 per cent before the deadline, its MD & CEO Rajnikant Patel told a joint news conference with Deutsche Boerse executives.

The rules require stock exchanges to sell not more than 26 per cent through foreign direct investment (FDI) and a single entity cannot hold more than 5 per cent.

The entry of Deutsche Boerse comes weeks after another US major, NYSE, bought 5 per cent in the National Stock Exchange for Rs 517 crore ($115 million). This values NSE higher, at $2.3 billion, than BSE.

However, considering its low equity base (Rs 70 lakh), revenues and profitability, bankers said, BSE may have got a better valuation per share. BSE shares command a price/earnings multiple of 41.8 based on its 2006 fiscal numbers.

Reto Francioni, chief executive officer of Deutsche Boerse, said, "The strategic partnership was an important step towards expanding Deutsche Boerse's activities in Asia."

Saying that Deutsche Boerse saw "the exchange business becoming increasingly global", he added that this partnership is our joint effort to benefit from each other's strengths while establishing a presence in multiple time zones and regulatory environments".

With the decision to become a strategic investor in BSE, the German exchange, which lost the takeover bid for Euronext exchange to NYSE last year, now seems to be readying for a battle for supremacy in Indian markets, the second fastest growing economy in the world.

Patel said BSE had the option to bring in another overseas stock exchange as a stakeholder, but affirmed that Deutsche Borse would be its "preferred partner".

NO IPO FOR NOW

An initial public offer is not on the exchange's agenda for now, its CEO Rajnikant Patel said.

On how the exchange would reduce the members' stake, he said this could take place through a private placement with financial institutions or the public. BSE posted a net profit of Rs 90 crore last fiscal.