In a bid to tap into the boom in commodities trading, the Bombay Stock Exchange (BSE) has picked up 26 percent stake in Ahmedabad-based National Multi-Commodity Exchange of India Ltd (NMCE) for about Rs.100 crore ($25 million).
Kailash Gupta, managing director of NMCE, said the stake of major shareholder and promoter Neptune Overseas Ltd. would come down to 18-19 percent from the current 25 percent after the sale.
Other major stakeholders are Central Warehousing Corporation (holding 26 percent), Nafed (10 percent), Punjab National Bank (10 percent) and Gujarat Agro Industries Corporation (5 percent).
The sale makes NMCE the second commodity exchange in India with a stock exchange as promoter. The National Stock Exchange of India (NSE), which already holds 2.56 percent stake in MCX, has 15 percent interest in India's No.2 commodity bourse, the National Commodity and Derivatives Exchange Limited (NCDEX).
BSE's foray into the commodities market space will bring 133 years of expertise, global brand value, technology, best corporate governance practices and nation-wide reach, said Rajnikant Patel, managing director and CEO, BSE. It denotes BSE's expanding horizon in the financial market space.
The commodity market has just opened up and BSE wants to enter the market at the right time, Patel said. Things are changing and the objective is to bring in synergies together and take the business forward. We are focused on transforming the exchange.
There could be technological and network integration between the two exchanges (BSE and NMCE). Eventually, apart from multi-segment, multi-exchange trading will also be possible, he added.
We'll bring in the reach, technology and domain expertise to the commodity exchange, Patel said. There's a huge potential for expansion of professionally run commodity exchanges.
This tie-up is truly futuristic. I believe that the futures trading of the NMCE in Ahmedabad will make an important contribution to the future development of the Indian economy, especially India's agricultural economy. With this small step we are taking today by this signing, we start a new journey that will bring rewards to all the stake holders in the commodity markets, Gupta said.
The acquisition will take place through fresh issue of shares to the BSE and the deal is expected to be complete in the next two months, the bourse said in a regulatory filing.
According to market watchers, the acquisition is of mutual benefit as it will facilitate BSE's entry into commodities trading while it will help NMCE to increase its market share.
The BSE buying a stake will help the exchange spread its wings and catch up with the other exchanges, said B.C. Khatua, chairman of the Forward Markets Commission, which regulates the nation's 23 exchanges. The National Multi Commodity Exchange has a small membership base and profile.
The oldest stock exchange in Asia, the 133-year-old Bombay Stock Exchange demutualized last year, selling a 51 percent stake to a group of investors led by Deutsche Boerse AG and Singapore Exchange Ltd. to pare its brokers' holdings to 49 percent as part of a plan by the Securities & Exchange Board of India (SEBI) to separate ownership from trading. Ever since, BSE has taken stride in expanding its role in the financial markets space and has already acquired 5 percent stake in Calcutta Stock Exchange.
NMCE is India's first demutualized and third-largest online commodity exchange. The most actively traded commodities on the exchange are rubber, pepper, raw jute, cardamom, castor seeds, oil seeds, menthol crystals, and metals.
The bourse commenced futures trading in 24 commodities in November 2002 on a national scale and the basket of commodities has grown since then to include cash crops, food grains, plantations, spices, oil seeds, and metals.
BSE's buy comes close on the heels of NYSE Euronext picking up 5 percent stake in India's largest commodity trading platform, the Multi-Commodity Exchange (MCX), earlier this month.
Investing in commodity exchanges is the only way that foreign funds can tap the surge in trading in India, the world's largest user of gold and the second-biggest producer of wheat, sugar and rice. Overseas funds are barred from trading commodity futures.
The commodity bourses are increasingly attracting investments due to their immense growth potential.
Given the increased participation in commodity trading, the segment is expected to touch a volume of Rs.74,15,613 crore ($1.85 trillion) by FY10, growing at a steady rate of about 30 percent.
According to a recent Assocham-e-Valueserve study, the commodity trading segment has expanded almost 50 times in just five years - to Rs.33,75,336 crore ($844 billion) in 2007 from Rs.66,530 crore ($17 billion) in 2002.
Among the prominent national commodity exchanges set up in India are the Multi Commodity Exchange (MCX), Mumbai, the National Commodity and Derivatives Exchange Ltd (NCDEX), Mumbai, the National Multi Commodity Exchange (NMCE), Ahmedabad and the National Board of Trade (NBOT), Indore.