NYSE Euronext's MCX stake sale fails to go through

Subdued investor demand seen as a reason

NYSE Euronext (NYX) cancelled its plan to sell a 4.8 per cent stake in the Multi Commodity Exchange (MCX) on Thursday due to poor investor interest, said sources involved. NYX was looking to sell 2.44 million shares in India’s only listed exchange at a price between Rs 1,003 and Rs 1,024 per share through block deals on the bourses.

Analysts said investor appetite for MCX has waned following the Budget proposal to levy commodity transaction tax (CTT) from April 1 on non-agricultural commodity contracts, which is feared to hurt volumes and squeeze profitability. Bulk of MCX’s volumes comes from non-agri commodities. Also, investors are concerned over the possibility of fresh supply of MCX shares with the one-year lock-in period for pre-initial public offering (IPO) investors set to end. MCX shares on Thursday ended Rs 40.20, or 3.81 per cent lower at Rs 1,015.85, the lowest close in over seven months.

Citigroup, which was the sole book-running lead manager for the transaction, declined to comment. NYX couldn’t be reached for a comment.

Morgan Stanley on Thursday reduced its price target for MCX to Rs 1,020 from Rs 1,150 citing uncertainty surrounding the impact of CTT on volumes and valuations as the key reasons.

“Transaction costs can increase by about 35 per cent... volumes of jobbers, arbitrageurs who work on thin margins are most at risk, and there could be a flight to unorganised markets and/ or other asset classes,” said Subramanian Iyer of Morgan Stanley in a note to its clients.

Shares of MCX, which enjoys 87 per cent market share, have come off by more than 35 per cent from its peak of nearly Rs 1,600 touched in November 2012.

“Valuations are comfortable but we keep the rating under review till clarity emerges on two important factors — impact of CTT on volumes post its implementation since April 1, 2013 and  partial exit of pre IPO investors post-lock-in period getting over,” said Amit Jain of Sunidhi Institutional Research.

Analysts also pointed out that several domestic banks, which had bought MCX shares at face value, could look to sell their holdings to make treasury gains. Union Bank of India, State Bank of India and Canara Bank each own about one per cent in MCX.