With market watchdog Securities and Exchange Board of India (Sebi) declaring Jignesh Shah-led Financial Technologies India Ltd (FTIL) unfit to hold shares in stock exchanges and other related entities, it will have to dispose of holdings worth about Rs. 2,500 crore in five companies.
FTIL will have to sell shares in MCX Stock Exchange, rival National Stock Exchange of India, two non-functional bourses – Delhi Stock Exchange and Vadodara Stock Exchange – and MCX-SX Clearing Corporation within three months, Sebi said in an order on Wednesday.
According to market sources, the total value of FTIL’s holdings in these five entities is estimated at about Rs. 2,500 crore, although it could be difficult to sell these shares in the current scenario.
Financial Technologies has 2.71 crore shares as well as 56.24 crore transferable warrants in MCX-SX, 57.5 lakh shares in MCX-SX Clearing Corporation, 14.96 lakh shares in DSE, 2.9 lakh shares in VSE and 10,000 shares in NSE.
The shares and warrants held in MCX-SX would account for a large chunk of the potential sales proceeds, the sources said, adding that FTIL had told Sebi it had no intention to convert the warrants. These are convertible into an equal number of shares.
Sebi directed FTIL to sell its shares in MCX-SX and the other entities within 90 days on the ground that it was not “fit and proper” to own stakes in any exchange.
The market regulator’s order came when the MCX-SX is under the scanner of the Central Bureau of Investigation for alleged irregularities in being granted a licence in 2008 and its subsequent renewals.
FTIL is the flagship firm of the Shah-led group and one of the original founders of the MCX-SX, although it is no longer classified as a promoter shareholder.
Since a payment crisis broke out at group company National Spot Exchange Ltd (NSEL) in August last year, it has sold holdings in some entities, including Singapore Mercantile Exchange and National Bulk Handling Corp Ltd.
It recently appointed JM Financial as an advisor for the divestment of a stake in the Multi Commodity Exchange of India (MCX).
In February, the FTIL board had constituted a committee to propose and oversee a restructuring plan, which included the sale of up to 24 per cent stake in MCX.
FTIL is a listed company with a market valuation of Rs. 1,738 crore, while MCX, also listed, is valued at Rs. 2,575 crore.
According to a Sebi’s order, FTIL is not a “fit and proper person to acquire or hold any equity share or any instrument that provides for entitlement for equity shares or rights over equity shares at any future date, in a recognised stock exchange or clearing corporation”.
This would be applicable for both direct and indirect holdings of FTIL in stock exchanges and clearing corporations. Sebi had issued a show-cause notice on the “fit and proper” status of FTIL, which submitted its response earlier this week.