24 Mar, 2014,
An ongoing rights issue by the beleaguered stock exchange, MCX-SX, may face turbulence, with many of the 16 state owned banks and financial institutions, which together own little over 80 per cent of the bourse, reluctant to participate in the wake of an ongoing CBI probe.
The exchange is currently being run by three directors appointed by stock market regulator SEBI in October last year. Former home secretary GK Pillai, who chaired the board from October 2013, quit earlier this month.
The exchange's new SEBI-installed management had decided to raise Rs545 crore through the rights issue to ensure MCX-SX continued to meet its minimum net worth requirements while funding its losses of around Rs10 crore a month. According to SEBI norms, a stock exchange must have a minimum net worth of Rs100 crore in order to continue operations.
However, a week before the issue's original closing date of March 21, the Central Bureau of Investigation launched a preliminary enquiry against the exchange's founding promoter Jignesh Shah and SEBI former chairman CB Bhave, questioning the issue of a licence to the stock exchange. Pillai subsequently quit the exchange's board, handing over charge to former LIC chief Thomas Mathew, another director appointed by SEBI. Following the CBI probe, MCX-SX had extended the rights issue announced in mid – February till March,31.
The three-member board led by Mathew subsequently extended the issue till April 17, but persuading its public stakeholders to bet more money on the exchange could prove to be difficult. The MCX-SX board originally had 18 members, but banks were told that they cannot nominate directors on its board as they are trading members on the exchange.
IFC BSE 0.21 % Limited, the exchange's largest shareholder, has decided to skip the exchange's ongoing rights issue, an official said. "Our board has decided not to invest in the MCX-SX rights issue, keeping in mind we already own a considerable stake and due to the prevalent conditions such as the ongoing CBI probe," said a member of the IFCI board, requesting anonymity. IFCI owns 13.2 per cent stake in the exchange. Many of the 15 public sector banks who own smaller stakes are similarly wary of investing more money in an entity whose operational licence is now under the CBI scanner.
ET spoke to senior officials and board members at half a dozen of these banks who expressed their reluctance. "We already have enough problems coping with our non-performing assets. The RBI has asked us to get out of non-core investments. So, we can't put in more money without its nod, even if we can rise above the fear of the CBI," explained a banker, adding they might as well write off their existing investments in MCX-SX.
MCX-SX has, however, said the rights issue, which offers one new share for every two held by existing shareholders, is on track. "We have started receiving funds as part of subscription to the rights issue," an MCX-SX spokesperson said. "With the proceeds of rights issue received by the exchange till date, our net worth is way above the Rs100 crore mark," he said in response to ET's queries about the prospects of its net worth slipping below Rs100 crore soon.
Market sources said the exchange had enough money to function for another six months. But almost all of the exchange's public sector owners are looking for a signal from the government before firming up their decisions on the rights issue. "Look at it from our perspective... the stock exchange was already controversial after the NSEL spot scam came to light. Now, if we invest more into it, the CBI could tomorrow say that our decision must be probed too" said the chairman of a large public sector bank.