NYSE, 3 others take 20% in NSE

$490 mn deal is the first instance of FDI in bourses.

In the first instance of foreign direct investment (FDI) in an Indian stock exchange, the New York Stock Exchange and three financial investors "" General Atlantic, Goldman Sachs and Softbank Asian Infrastructure Fund "" have picked up a 5 per cent stake each in the National Stock Exchange (NSE) for $490 million (Rs 2,205 crore).

This pegs the upper-end valuation of the country's largest bourse at $2.5 billion (Rs 11,250 crore). The NSE had recorded a net profit of Rs 191 crore on a revenue of Rs 472 crore for the financial year ended March 31, 2006.

The NSE can still offload another 6 per cent (maximum of 5 per cent to a single entity) to any foreign investor barring these four. With this headroom and valuations discovered, it is likely that other shareholders like the State Bank of India may also seek to realise value from their investment in the exchange.

Investors who have sold their stake in the NSE include the Industrial Finance Corporation of India, IL&FS, ICICI, General Insurance Corporation and Punjab National Bank, which sold 7, 5, 5, 2 and 1 per cent stakes, respectively. The entire transaction was co-ordinated by IL&FS.

The NYSE has acquired the 5 per cent stake at a lower price "" $115 million "" over the $125 million each paid by the other three investors. This is because the NYSE has agreed not to pick up a stake in the Bombay Stock Exchange (BSE).

"The discounted price is to reward the NYSE for agreeing not to pick up stakes in any other stock exchange in India," a source close to the development said.

The development comes in the backdrop of the BSE having shortlisted the London Stock Exchange, the Nasdaq, the Deutsche Borse and the Singapore Stock Exchange for offloading up to a 26 per cent stake, the maximum permissible FDI in stock exchanges. The NYSE was also on the list but the NSE deal has put it out of the reckoning.

The NYSE, however, is free to pick up stakes in commodity exchanges. Additionally, there is no restrictive clause for the three other investors, General Atlantic, Goldman Sachs and Softbank, which implies that they can pick up stakes in other stock exchanges, including the BSE.

NSE Managing Director and CEO Ravi Narain said the deal was likely to be completed before March after approvals from the Foreign Investment Promotion Board and the Reserve Bank of India. "There is no immediate plan for any initial public offering or capital expansion plan," he added.

For the NYSE, the 5 per cent stake is strategically important. It will work closely with the NSE to increase efficiency and reduce cost of operations.

"Our interest is totally strategic. This is the beginning of a long-term relationship," NYSE Group Executive Vice-President and Chief Financial Officer Nelson Chai said.