 "United Stock Exchange, DSE in talks for merger")
The United Stock Exchange (USE) is in talks with the management of the Delhi Stock Exchange (DSE) for a possible merger, amid opposition by the latter's broker shareholders, concerned the deal will erode value.
The proponents tout it a win-win for the USE, which has operations in the currency segment but no presence in the equity space, and the DSE, which has hundreds of companies listed on it but has been struggling to revive trading amid technological and marketing challenges.
The move comes months ahead of a May deadline by the Securities and Exchange Board of India (Sebi) for winding down unviable exchanges. The USE-DSE deal could help the DSE meet the Rs 1,000-crore turnover criterion.
"The DSE has a good number of listed companies. It will give the USE a head start in the space. The USE is cash-rich. If the merger materialises, it will unlock value for all stakeholders. The talks are in preliminary stages," said a DSE executive. A USE official declined to comment.
An email did not elicit any response from USE executives.
The matter was discussed at DSE's recent annual general meet. The minutes said, "Regarding shareholders' query about plans for the exchange, the chairman informed the board had examined various options. He told shareholders there had been preliminary talks in respect of a tie-up/merger between the USE and DSE." The chairman assured an extraordinary general meet would be convened in February to "apprise shareholders of the developments.”
DSE's broker shareholders are, however, sceptical about the discussions, as several attempts by the exchange to revive trading and return to business have faltered. "The idea of a regional exchange is passé. Today, you can trade from any corner of the country, even from London, through your mobile phone. They are just wasting time and money," said VK Kapur, a DSE shareholder. He added it wasn't easy for a new platform to garner market share against the National Stock Exchange and BSE.
With a stake of 14.56 per cent, the BSE is the largest shareholder in the USE. A clutch of banks and corporate investors also hold a significant stake. In the DSE, corporate investors such as Financial Technologies, Bennett, Coleman & Co, Omaxe and Parsvnath Developers own 51 per cent, with the rest accounted for by minority shareholders, including many erstwhile brokers of the exchange.
Saurabh Chugh, another DSE shareholder said, the USE would be more interested in DSE's cash reserves and real estate assets than its potential as a functioning exchange. "They are interested in the land and buildings, Rs 200-250 crore, and the settlement guarantee fund and other reserves, Rs 70 crore. It will be better for small shareholders if the exchange is wound up, according to Sebi guidelines." Last year, DSE had to scrap a technology tie-up with Millenium IT Software, a London Stock Exchange subsidiary. The DSE official said the current negotiations would take into account the interests of all stakeholders, including minority shareholders.
The official quoted earlier said Sebi didn't intend to shut viable exchanges. "The economic environment is changing. DSE is earning handsome listing fees. The staff strength is skeletal and expenses are minimal." For 2012-13, the DSE saw a four per cent rise in revenue to Rs 9.75 crore. In the unofficial market, the shares are traded at Rs 10 apiece. "Outright liquidation has the potential to fetch Rs 30-40 a share; this may take a couple of years. But getting into a merger could destroy whatever value is left, as the venture is doomed to fail," Kapur said.
The proponents tout it a win-win for the USE, which has operations in the currency segment but no presence in the equity space, and the DSE, which has hundreds of companies listed on it but has been struggling to revive trading amid technological and marketing challenges.
The move comes months ahead of a May deadline by the Securities and Exchange Board of India (Sebi) for winding down unviable exchanges. The USE-DSE deal could help the DSE meet the Rs 1,000-crore turnover criterion.
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"The DSE has a good number of listed companies. It will give the USE a head start in the space. The USE is cash-rich. If the merger materialises, it will unlock value for all stakeholders. The talks are in preliminary stages," said a DSE executive. A USE official declined to comment.
An email did not elicit any response from USE executives.
The matter was discussed at DSE's recent annual general meet. The minutes said, "Regarding shareholders' query about plans for the exchange, the chairman informed the board had examined various options. He told shareholders there had been preliminary talks in respect of a tie-up/merger between the USE and DSE." The chairman assured an extraordinary general meet would be convened in February to "apprise shareholders of the developments.”
DSE's broker shareholders are, however, sceptical about the discussions, as several attempts by the exchange to revive trading and return to business have faltered. "The idea of a regional exchange is passé. Today, you can trade from any corner of the country, even from London, through your mobile phone. They are just wasting time and money," said VK Kapur, a DSE shareholder. He added it wasn't easy for a new platform to garner market share against the National Stock Exchange and BSE.
With a stake of 14.56 per cent, the BSE is the largest shareholder in the USE. A clutch of banks and corporate investors also hold a significant stake. In the DSE, corporate investors such as Financial Technologies, Bennett, Coleman & Co, Omaxe and Parsvnath Developers own 51 per cent, with the rest accounted for by minority shareholders, including many erstwhile brokers of the exchange.
Saurabh Chugh, another DSE shareholder said, the USE would be more interested in DSE's cash reserves and real estate assets than its potential as a functioning exchange. "They are interested in the land and buildings, Rs 200-250 crore, and the settlement guarantee fund and other reserves, Rs 70 crore. It will be better for small shareholders if the exchange is wound up, according to Sebi guidelines." Last year, DSE had to scrap a technology tie-up with Millenium IT Software, a London Stock Exchange subsidiary. The DSE official said the current negotiations would take into account the interests of all stakeholders, including minority shareholders.
The official quoted earlier said Sebi didn't intend to shut viable exchanges. "The economic environment is changing. DSE is earning handsome listing fees. The staff strength is skeletal and expenses are minimal." For 2012-13, the DSE saw a four per cent rise in revenue to Rs 9.75 crore. In the unofficial market, the shares are traded at Rs 10 apiece. "Outright liquidation has the potential to fetch Rs 30-40 a share; this may take a couple of years. But getting into a merger could destroy whatever value is left, as the venture is doomed to fail," Kapur said.