Mumbai, May 22: The board of the BSE, the largest shareholder in the United Stock Exchange (USE), has decided to merge the struggling currency bourse with itself, a move that will boost its own stressed currency trading business that is dominated by rival National Stock Exchange.
When contacted today, a spokesman for the Bombay Stock Exchange (BSE) confirmed the board approval for the merger and said it would soon seek approvals from Sebi and other regulatory bodies.
The spokesman said the move was backed by the USE board. However when contacted, a USE spokesman declined to comment.
If the deal goes through, this will be the first such transaction in the Indian exchange industry. The USE has not only been facing dwindling volumes but also erosion of net worth.
Sebi rules say an exchange should have a net worth of Rs 100 crore at all times. But the USE’s net worth has been eroding and it may not be able to sustain this above the threshold limit beyond a few quarters.
According to a financial statement issued by the USE, at the end of December 2013, its net worth stood at Rs 118.13 crore.
According to sources, the deal is likely to be structured through a share swap, which is likely to be 1:385, meaning USE shareholders will get one BSE stock for 385 of their stock. The deal will be effective April 1.
The BSE board has valued the USE at around Rs 150 crore and itself at about Rs 4,000 crore, the exchange spokesman said.
The merger of the USE will lead to the BSE’s equity capital dilution of around 3 per cent.
After the merger, all the shareholders of the USE, who are commercial banks, will be added as additional members on the BSE.
The USE, promoted by Jaypee Group, had created a record by registering a turnover of Rs 45,486 crore on its inaugural day in 2010, but since then its volume has been plunging because of competition and lack of infrastructure.
Its volume stood at a paltry Rs 274.97 crore today where the BSE’s currency derivatives turnover stood at Rs 4,887 crore and that of the NSE at Rs 9,542 crore today.
In 2013-14, the USE reported a net loss of Rs 2 crore against a profit of Rs 56 lakh in 2012-13, despite a marginal rise in income to Rs 5 crore from Rs 4 crore a year ago.
Against this, the BSE’s net income jumped 24 per cent to Rs 135 crore even as income slipped 5 per cent to Rs 485 crore in 2013-14.
At 14.56 per cent, the BSE is the single-largest shareholder in the USE, followed by Federal Bank (5.83 per cent). The BSE had picked up the stake in the four-year-old currency bourse in 2009.
Sebi today asked stock exchanges to facilitate in a time-bound manner the process for listing of companies that are currently trading on non-compliant bourses.
The capital market regulator’s latest direction comes against the backdrop of a May 30 deadline, whereby stock exchanges that have not achieved the prescribed turnover of Rs 1,000 crore on a continuous basis would be de-recognised.