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MCX whets appetite for new issues

BIG TIME

Calcutta, Feb. 16: The proposed initial public offering (IPO) of Multi Commodity Exchange of India Ltd seems to have renewed investor interest in new issues.

If the grey market premium is any indicator of demand, brokers and dealers in Mumbai, Gujarat and Calcutta are offering a 50 per cent to 80 per cent premium to the offer price of MCX shares in pre-IPO deals.

Last year was a dull one for IPOs, during which as many as 25 companies postponed their floats.

“The demand for the MCX IPO is very high and the grey-market price for the issue is currently quoting between Rs 1,200 and Rs 1,500 a share,” said a Mumbai-based dealer.

MCX, the country’s largest commodity exchange by turnover and the first exchange to be listed on bourses, has fixed the price band between Rs 860 and Rs 1,032 apiece for 64.3 lakh equity shares that its seven shareholders, including the State Bank of India, Bank of Baroda and Corporation Bank, have offered to sell.

Justifying that there would be enough left on the table for investors in the IPO even at this price (read the upper limit of the price band), MCX-promoter Jignesh Shah said, “The last private placements of MCX shares to institutional investors done in 2007 were at Rs 1,050 a share. In 2007, the income and profits of the exchange were half of what they are now.”

However, between 2007-08 and 2010-11, MCX has given hefty dividends and one share in bonus for every four shares held. These effectively reduced the cost price of Rs 1,050 to Rs 819 a share.

In other words, at the upper limit of the band, the IPO is priced at a 26 per cent premium to the price at which private placements were done in 2007.

But then the profit after tax of the exchange has increased to Rs 217.95 crore for nine months of the current financial year from Rs 158.84 crore at the end of 2008-09 and the net asset value (read book value) per share is Rs 210.58.

The IPO price of Rs 1,032 a share, thus, works out at nearly five times the book value.

“In international stock exchanges, shares of listed exchanges trade at five times premium to book value and 15 times premium to earnings per share,” said an analyst with brokerage house CLSA.

The IPO will, however, entail a hefty windfall for the State Bank of India, which reported a loss of Rs 1,060 crore on the sale of its equity investments in the September-December quarter of the current financial year.

The SBI will sell 21,12,025 from its pre-IPO holding of 26.4 lakh shares in MCX. From the partial sale of its stake, the SBI will get between Rs 181.63 crore and Rs 217.96 crore depending on the final issue price.

 
 
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