NCDEX to buy NSE's stake in JV clearing firm

NCCL was set up about five years ago as a joint venture between NSE & NCDEX, with 65% and 35% equity stake, respectively

The National Commodity & Derivatives Exchange (NCDEX), India's second-largest, is set to acquire 65 per cent stake in National Commodity Clearing Limited (NCCL) from National Stock Exchange (NSE), at an enterprise value of about Rs 5 crore.

Set up about five years ago as a joint venture between NSE and NCDEX, with 65 per cent and 35 per cent equity stake, respectively, NCCL is the sole clearing company of commodities traded on NCDEX. After the acquisition, NCCL would be a wholly-owned subsidiary of NCDEX.

In its latest fortnightly review, the Forward Markets Commission (FMC) said, "The commission, on December 13, conveyed its approval to NCDEX's proposal to acquire NSE's 65 per cent stake in NCCL."

DEAL TIME

• NCCL was set up as a joint venture between NSE and NCDEX
   
• After the deal, NCCL would be NCDEX's wholly-owned subsidiary
   
• The deal would make the settlement of commodity trades easier
   
• FMC has rejected NSE's proposal to raise stake in NCDEX from 10% to 15%

When contacted, NCDEX and NSE didn't comment on the issue.

The deal, consultations for which are already underway, is expected to be completed by the end of January. It is likely the deal would ensure smooth operations and make the settlement of commodity trades logistically easier, said an analyst. NSE's exit from the clearing company was a sign of its waning interest in the commodity futures market, the analyst added. Earlier, however, the exchange had denied this.

NSE plans to raise its shareholding in NCDEX from 10 per cent to 15 per cent. The exchange said as a founder member, it should be allowed to own 15 per cent of equity stake in NCDEX, owing to the fact that it had played a major role in supporting the growth of the agri-centric commodity exchange. FMC, however, rejected a proposal in this regard on the basis of shareholding guidelines, revised in July 2010. These bar any stock exchange from owning more than five per cent stake in a commodity exchange. FMC said the norms could not be changed for any entity and, therefore, NSE would not be allowed to increase its stake in NCDEX.

Following this, NSE had knocked on the doors of the ministry of consumer affairs, which is yet to take a decision on the proposal.

Meanwhile, NCDEX's anchor investor, Jaypee Capital, faces the threat of having to pay Rs 130 crore to NCDEX. While inducting Jaypee Capital as anchor investor, NCDEX had offered it stake at Rs 45 a share, compared to its last-traded stake at Rs 110 a share. This meant Jaypee Capital was offered stake at a discount of about 60 per cent, on condition the company would have to raise the exchange's average monthly turnover to at least Rs 7,000 crore, Rs 12,000 crore and Rs 16,000 crore in any three consecutive months of the three subsequent years, respectively, against Rs 3,000 crore during the allocation of shares. In the first two years, Jaypee Capital had failed to generate the committed turnover. According to the share agreement, if the target is not met by the third year, the company would have to pay the difference in share price, which stands at Rs 130 crore.

The allotment of shares to Jaypee Capital was carried out in consultation with other shareholders, including National Bank for Agriculture and Rural Development, Life Insurance Corporation and Indian Farmers Fertiliser Cooperative Limited.