It is the time for the domestic stock exchanges to flaunt their foreign partners. Valentine's Day provided the best occasion for the country’s oldest stock exchange —Bombay Stock Exchange — to partner with Germany’s Deutsche Borse (DB), which will pick up 5 per cent stake in the former for Rs 189 crore.
The deal values BSE at Rs 3,777 crore ($854 million). The deal, which was signed on Wednesday, will take the total enterprise value of BSE to Rs 3,966 crore, once the process of issue of fresh shares to DB is completed. This is about 37 per cent of the valuation of $2.45 billion National Stock Exchange (NSE) fetched when four investors, including New York Stock Exchange, picked up stakes last month.
“We do not want to miss an opportunity of partnering with DB. This is just the beginning of dilution of 51 per cent of member holding in the BSE in fulfilment of the demutualisation obligation,” said BSE’s chief executive Rajnikant Patel after signing the deal. The deal was structured as a private placement.
This is not just an investment, but a strategic initiative to leverage on each other’s strengths towards BSE realising its mission to “emerge as the premier Indian stock exchange by establishing global benchmarks." Patel said.
Deutsche Borse said the strategic partnership was an important step in expanding its activities in India. “We see the exchange business becoming increasingly global and this partnership is our effort to benefit from each other’s strengths,” Deutsche Borse CEO Reto Francioni said.
The BSE, which analysts had valued at $1.1-1.3 billion, also said it was open to offering stakes to other exchanges as well.
The Singapore Exchange has said it wants to buy 5 per cent in BSE, and on Wednesday confirmed it was still in talks. “We are still in dialogue with BSE. We can’t comment further,” a spokeswoman for the Singapore bourse said. India caps foreign investment in stock exchanges at 49 per cent, including foreign direct investment of 26 per cent and foreign portfolio investment of 23 per cent. Any one strategic investor’s stake is limited to 5 per cent.
The BSE, which was established in 1875, wants to reduce the stake held by its brokers by offering 26 per cent to strategic investors and a further 25 per cent through an initial public offering scheduled for May. There were reports that the BSE would also sell a further 21 per cent to private equity funds. However, future partnerships with other exchanges will hinge on agreements with DB and the value the new partners may bring to BSE, Patel said. Though BSE wants to leverage its partnership on latest technology solutions and bringing global investment instruments, Patel parried questions on specifics.
TV Raghunath of Kotak Investment Banking, advisors to the deal, said that the deal valuation was arrived at based on ‘going concern’ basis and BSE’s Jeejeebhoy Towers as an asset was not included in the valuation separately. BSE’s profit for 2005-06 was at Rs 90 crore. “The future valuations will be benchmarked to this and most probably the share valuations would be above the present level of Rs 5,200 (per share of Rs one each),” Raghunath added.