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Wednesday, September 06, 2006

Foreign stake issue delays MCX float

The much-awaited Rs 500 crore initial public offering (IPO) from the Multi Commodity Exchange (MCX) will get delayed by ‘several’ months owing to governmental delay in clarifying the issue of foreign participation in the equity of an exchange.

“The Reserve Bank of India (RBI) has sent a query to the finance ministry seeking clarifications on the foreign ownership of stock exchanges. To the best of my knowledge, there should be no restriction. We have never been given any indication on that. But the RBI has now asked for a clarification,” says Lamon Rutten, joint managing director of MCX.

Rutten believes that this will delay the IPO. “Even if there is an immediate turnaround from the government’s side and it issues a clarification tomorrow, it would have taken so much extra time that we will have to restart our procedure for an IPO,” he says. “The authorised data will be too old. So, we will have to go through the whole process again, have our accounts audited again and there will be several months of delay,” he adds.

Recently, there has been talk that the finance ministry was moving a cabinet note to define foreign portfolio and direct investments in the wake of an application by MCX for a pre-IPO private placement with foreign institutional investors (FIIs). The RBI is of the view that a pre-IPO placement, being a negotiated deal, is foreign direct investment (FDI), though there are FIIs investing in IPOs, in pre-IPO companies and in unlisted companies.

However, MCX being an exchange, its proposal for a pre-IPO placement to FIIs has kicked up some dust.

It also raises jurisdictional issues, as different ministries handle the norms on FDI policy and that on foreign portfolio inflows.

“We can go ahead with the IPO even now. But now, the RBI wants a policy on foreign investments in exchanges. It has sent a query to New Delhi for clarifications on foreign direct investments (FDI) in exchanges. But it is better to wait for the clarification,” MCX managing director Jignesh Shah told DNA Money.

When asked if the IPO will get deferred due to lack of clarification on the regulatory side, Rutton said, “We will do the IPO once the paper is cleared. Unfortunately, these things take so much time. But it does not influence our business and our operations. Financially, it is not an issue. We will have positive cash flows.”

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