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Thu, 31 Aug 2017 | News Corp VCCircle
Exclusive: IIFL set to buy stake in National Stock Exchange

IIFL set to buy stake in National Stock Exchange

IIFL Asset Management Company Ltd has signed a pact to pick up a stake in the National Stock Exchange through a new fund that has raised a large corpus to invest in companies preparing to go public.

The asset manager will buy the stake via the IIFL Special Opportunities Fund, IIFL Asset CEO Prashasta Seth told VCCircle. “We are awaiting a final approval from the NSE board,” he added.

Seth declined to reveal the identity of the seller or the share price at which the deal was struck since the NSE board is yet to approve the transaction. An NSE spokesperson declined to comment.

VCCircle reported earlier this week that IIFL Special Opportunities Fund had increased its corpus to Rs 4,021 crore by raising a third tranche of Rs 601 crore. It had previously mobilised Rs 1,980 crore in the first tranche in May and Rs 1,440 crore in the second tranche last month.

The fund mainly invests in companies that are IPO-bound. It has so far deployed Rs 1,500 crore. This includes its investment in the NSE.

The IIFL Special Opportunities Fund can invest a maximum of $100 million in one transaction, but it may not commit that much money to the NSE, Seth clarified.

Valuation, selling shareholders

While Seth declined to disclose the valuation at which IIFL is investing in the NSE, two persons familiar with the matter said the going price for the bourse’s shares on the grey market was Rs 900 apiece as the impending listing had opened up a liquidity option for investors. At this price, the NSE’s valuation may touch Rs 44,550 crore.

This will be more than double the Rs 18,220 crore valuation at which SBI had sold a 5% stake in the NSE to private equity firm ChrysCapital for Rs 911 crore in July 2016. India’s largest lender had sold the shares were sold at Rs 4,050 apiece. In December, just before filing for the IPO, the NSE had split its shares in a ratio of 1:10, or 10 shares for each share held.

Previously, state-run IFCI Ltd had sold a 0.5% stake in the exchange to US-based fund Deccan Value Investors at Rs 3,900 per share, according to a September 2015 media report. IFCI was looking to sell an additional 1% stake, the report said.

SBI, too, may look at divesting its remaining stake if an opportunity arises, a CNBC report said last year. Another state-run lender, Bank of Baroda, is also looking to sell its stake in the NSE.

In February 2017, state lender IDBI Bank sold a 2% stake in the NSE to Life Insurance Corporation, but did not disclose the share value. The lender has been distressed because of rising bad loans on its books and has been seeking to sell some non-core assets.

Earlier this week, the Business Standard reported that IDBI Bank was exploring the sale of its remaining 3% stake in the NSE.

IPO hurdles

The NSE, India’s largest stock exchange, had filed for an IPO in December last year and aimed to float the share sale by the end of 2017. That looks unlikely now and a mid-2018 timeline looks more probable.

This is because the exchange has yet to receive regulatory approval as the Securities and Exchange Board of India investigates whether the bourse provided some brokers unfair access to its servers. In July, the bourse filed an application before SEBI to settle the probe.

It will now have to refile for the IPO.

According to the NSE’s draft IPO prospectus, a number of investors including Singapore state investor Temasek Holdings, US hedge fund titan Tiger Global, Goldman Sachs Citigroup as well as Indian lenders State Bank of India, IDBI Bank and Bank of Baroda were looking to sell a collective 22.5% stake.

The share sale was estimated to be Rs 10,000 crore, valuing the NSE at Rs 44,450 crore, VCCircle reported last year.

Merchant banks Kotak Mahindra, Morgan Stanley, JM Financial and Citigroup are the global coordinators for this issue. Law firm Cyril Amarchand Mangaldas is the legal adviser for the issue.