FTIL opposes preferential allotment of shares by MCX
Mumbai: Financial Technologies (India) Ltd (FTIL) on Monday said it opposes a plan by Multi Commodity Exchange of India Ltd (MCX) to consider a preferential allotment of shares at the latter’s board meeting on 3 April.
“MCX is fully aware that FTIL has initiated action to divest its
stake up to 24%. Such a move is vindictive in nature to support certain
vested interest and deprive FTIL of its level playing field to sell its
shares,” FTIL said a statement.
FTIL
plans to take legal action against MCX in the interest of its own
shareholders. It holds 26% of the shares in MCX and is in the process of
reducing its holding.
MCX had notified BSE about the board meeting on Monday.
In
February, MCX’s board asked promoter FTIL to cut its current holding of
26% in the commodities exchange to 2% in keeping with an order by the
commodity futures market regulator Forward Markets Commission (FMC). FMC
is likely to bar MCX from launching fresh contracts if it fails to
bring down FTIL’s stake to 2% by 30 April.
“MCX
is under strict orders by regulators to bring down FTIL’s shareholding
to 2%. MCX might be considering preferential allotment of shares to
comply with such directives of regulator. Such an issue will
automatically result in dilution of FTIL’s shareholding and increase
shareholding of the non-FTIL group as FTIL can’t subscribe to such
shares since it has to divest its shareholding in MCX,” said Rajnikant Patel, a former managing director of BSE Ltd. “This may also adversely affect the pricing of FTIL shares.”
FMC
on 17 December said FTIL was unfit to run an exchange. The order to
reduce stake to 2% followed a probe into the operations of National Spot Exchange Ltd (NSEL), also promoted by FTIL, following a Rs.5,574.34 crore payments crisis at the commodities spot exchange.
Irregularities
at NSEL came to light on 31 July when the exchange abruptly suspended
trading in all but its e-series contracts. These, too, were suspended a
week later. The closure of trading may have been prompted by an
instruction from the ministry of consumer affairs asking the exchange
not to offer futures contracts. A spot exchange isn’t supposed to do so,
but NSEL was doing that.
NSEL
tried to implement the change, but because its appeal was to investors
and members who were not interested in spot trades, it eventually had to
suspend all trading. It later emerged that all the trading on NSEL
happened in paired contracts, with investors, through brokers, buying a
spot contract and selling a futures one for the same commodity.
The
entities selling on spot and buying futures were planters or processors
and members of the exchange. It turned out there were only 24 of them,
and they used the paired contracts as a way to raise easy money. When
the trading was suspended, the investors were left holding contracts
that the members couldn’t buy because they didn’t have the money to do
so.
On
14 August, NSEL proposed a pay out plan, but it has been unable to stick
to the schedule and has not made a single successful pay out.
Meanwhile,
FTIL is going ahead with the process of finding a buyer for its 24% of
stake in MCX. “Non binding bids from interested parties are likely to be
submitted by April 10th and the idea is to complete the process by the
end of April,” said a person involved in the transaction.
More
than 10 domestic and international investors have expressed an interest
in picking up stake in MCX, added the person. On March 27, The Economic Times had reported that a number of global and local bidders had expressed interest in FTIL’s share in MCX.
On Monday, shares of MCX rose 0.93% to Rs.490.10 on BSE, while the exchange’s benchmark Sensex rose 0.21% to 22,386.27 points. FTIL shares fell 0.44% to Rs.373.35
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