| Goldman Sachs and Fidelity International will need to reduce holdings in India's commodity exchanges after the government dropped plans to allow overseas investors to own larger stakes. Foreign ownership will be capped at 5 per cent for a single investor, with a 49 per cent overall limit, the government said late yesterday, backing away from an earlier proposal. |
| The about-turn may erode investor confidence in the nation's commodity bourses after a ban on wheat and rice futures stalled trading growth. Still, Indian banks paid more than twice as much as the US investors for stakes last month, signaling Goldman and Fidelity would profit from any sale. |
| "The intention seems to be broad base ownership and at the same time not allow anyone to capture control,'' said Suresh Kotak, chairman of the Federation of Indian Commodity Exchanges. "We are slow, but definitely moving to globalize the industry.'' |
| Investing in commodity bourses is the only way that foreign investors can gain from trading in Asia's third-biggest economy because they're barred from commodity futures, although the South Asian nation is the world's largest gold user and the second-biggest producer of wheat, sugar and rice. |
| Fidelity paid $49 million for a 9 per cent stake in Mumbai-based Multi Commodity Exchange of India in February 2006. Three Indian investors including ICICI Bank's unit last month paid more than twice that amount for 9.55 per cent of the exchange, valuing it at $1.1 billion. |
| New York-based Goldman bought 7 per cent in the National Commodities & Derivatives Exchange in June 2006 for $21 million and Intercontinental Exchange has an 8 per cent holding in the Mumbai-based bourse. |
| "The government will give investors such as Fidelity more time to comply with the new guidelines,'' B C Khatua, chairman of the Forward Markets Commission, which regulates the commodity bourses, said in an interview. |
| Fidelity India spokeswoman Anjali Patil and Edward Naylor, the Hong Kong-based spokesman for Goldman, declined to comment. |
| Fidelity, a unit of the world's biggest money manager, may get a chance to cut its stake through a proposed initial share sale. |
| The bourse said on December 14 it plans to file documents with the stock market regulator for a share sale after the government set the investment limits. Jignesh Shah, MCX's managing director yesterday declined to comment on the IPO. |
| While turnover surged 68 per cent to Rs 36 lakh crore in the year ended March 31, it was little changed at Rs 27 lakh crore in the nine months ended December 31 after wheat futures were banned in February. Trading in food staples has inflated prices, the Communists, which support the central government, have said. |
| "The government now needs to push ahead by allowing banks and institutions to trade commodities,'' Avinash Raheja, senior vice-president at Commtrendz Risk Management Services in Mumbai, said by phone. |
| "It may be a tough task for the government to overcome the Communists opposition.'' |
| Citigroup and Merrill Lynch in September bought 5 per cent stakes each in the Multi Commodity Exchange, the world's third-largest gold bourse. MCX sold smaller stakes to Passport Capital and GLG Partners for Rs 645 crore. |
| Foreign companies have so far invested in Indian commodity exchanges after securing permission from regulators, including the central bank. |
| India in 2006 allowed overseas investors to buy up to 49 per cent in its stock exchanges. The limit for a single investor was set at 5 per cent. |
| Trade Minister Kamal Nath said on December 3 the limits on overseas investment in commodity bourses may be increased. |
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