FMC may inquire, even as both sides cagey on committed targets not being met.
The anchor investor deal of November 2010 between the National Commodity & Derivatives Exchange (NCDEX) and Delhi-based Jaypee Capital seems to have run into trouble.
With the agreement, NCDEX, the country’s second largest commodity exchange, offered 13.1 million of its equity shares at a massive discount to Jaypee. This was done to incorporate the company as an anchor investor. The issue was with a rider that Jaypee would make specified efforts to increase volume on the exchange. JayPee was issued shares at Rs 59 each; prior to this deal, Shri Renuka Sugars bought shares of the exchange in a secondary deal at Rs 145 per share. JayPee, headed by Gaurav Arora, got 22.38 per cent stake in the exchange after this deal.
The volumes were to be increased in three stages over three years. Failing which, Jaypee was supposed to make good the discount offered by paying the difference if the exchange's volumes did not go up as stipulated. The NCDEX board asked Jaypee, an equity and commodity trader, to take the exchange’s average daily turnover (ADTV) to Rs 7,000 crore of on the exchange platform for three subsequent months within the first year of entry. Jaypee’s efforts helped the exchange surpass the benchmark Rs 7,000 crore average daily volume in the initial two months. Then, in March 2011, average volume plunged to Rs 5,550 crore and then never went above Rs 7,000 crore. In the second year, beginning December 2011, Jaypee was to make efforts to increase average volumes to Rs 12,000 crore and then to Rs 16,000 crore for three successive months during the third year. If the company achieved the first year milestone but could not do in subsequent years, it would have to pay the difference on 67 per cent of the shares and so on.
Reactions
However, as noted, the target hasn’t been met for even the first year. Jaypee promoter Gaurav Arora said , “We would not like to comment on specific clauses of our shareholders' agreement with NCDEX, though we would like to point out that it is framed in consonance with all applicable laws and regulations.” He said increasing the volumes on the exchange by trading or market making was not possible for him, as shareholders of the exchange were barred from trading on it.
He said the allotment of shares to him was a ‘“primary share issue from the exchange” for enhancing the paid-up capital in line with Forward Market Commission (FMC) norms.
Adding: “Jaypee Capital has been inducted as the anchor investor by NCDEX after due consideration to our knowledge and expertise of the industry. As important shareholders, with vast experience, credibility and contacts in this field, we are guiding and advising the exchange on how best to improve its business and contribute to the growth of the industry as a whole.”
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Ananda Kumar, chief of corporate services at NCDEX, said, “The business strategy of the exchange is an internal issue and is not shared with the media...any strategic investment or anchor investment in any company is invited with the objective of improvement of business of the company. Such improvement has to be within the regulatory framework and applicable law. The exchange maintains vigilance to ensure promoters or their relatives or their entities are not trading on the exchange.”
FMC query
A senior official of the FMC, the commodity markets regulator, queried why an investor on the exchange would make a commitment to increase turnover on it when the same entity as a shareholders was not allowed to trade on the associated platform.
There are, thouhg, he conceded, “legal means to enhance an exchange’s business...an anchor investor can bring more market participation, increase the number of members and traders through intensified awareness programmes. This is an ongoing process all exchanges must do. But, making a commitment for achieving a certain level of business is a matter the regulator would look into.”
The shareholders’ agreement between the two is clear that Jaypee would have to pay Rs 113 crore as “liquidated damages” to NCDEX if it failed to achieve the ADTV target of Rs 16,000 crore for a continuous period of three months within three years of the completion date of the deal i.e December 2013.