BSE - ENLISTED TO GET LISTED

By Ruma Dubey

The thought and expectations have been going on and on for quite a number of years now, since 2006. And looks like it might become a reality in 2013.

The BSE has finally given a definitive timeline to get itself listed – before the first half ends in 2013. This too sounds too vague but it is at least better than before, where it was open ended. And this time it looks like it will keep up with its time frame as a lot of spade work is happening. It has appointed 14 investment bankers to handle the issue - Bank of America Merrill-Lynch, UBS Securities, JP Morgan, Barclays Securities, Edelweiss, Kotak Mahindra, Axis Capital, SMC Capital, Motilal Oswal and India Infoline.

And what we hear is that BSE will be opting for the Offer for sale (OFS) route to get itself listed. This is more cost effective than the IPO route wherein shares to the public are sold through an auction on a stock exchange during market hours. If the valuation of BSE comes around Rs.4000 crore, it plans to dilute 10% stake and if it slips below that, maybe the exchange will look at diluting 25% stake.

Ever since the buzz got stronger, the price of BSE off market price has jumped up over 50% to almost Rs.300/share (face value Re.1). It is slowly and surely moving towards record highs it had made when in 2007. At that time, BSE had completed the process of demutualization wherein the BSE diluted 51% of brokers' stake in favour of public shareholders, bringing in strategic partners like Deutsche Borse and Singapore Exchange, which held 5% each at Rs.5200 per share. Later, a 12:1 bonus put the share price at Rs.400  This price of over Rs.300/share currently values the BSE at around Rs.3200 crore and over the next few months, as listing plans get unveiled, the price and valuation could go up further. Already buyers are said to be lining up, ready to buy the shares at off market deals, at much higher prices than last year and many say it is headed to the price George Soros paid.

In August 2011, George Soros paid a price of Rs 375-380 for a 4% stake. In Dec 2011, the share price is said to have gone abegging at Rs.135 per share, finding no buyers. But once MCX announced its plans to list, there has been an uptick the share price of BSE. Further, the price received a boost in May 2012 when SEBI spelled out listing norms for the BSE, headed by Bimal Jalan. In May 2012, a few transactions were made at Rs.210-215 per share. This pegged the value at around Rs.2200 crore.

When the Jalan report came in 2010, the BSE share price was at Rs.350-400 levels and as the days grew and prospects of listing grew dimmer, many sold off their holdings. In the coming days, we could see a mad scramble in the off market deals to get hands on these shares.  In 2007, BSE had offered shares worth at Rs.5,200/per share to its members as part of the demutualisation process, to ensure that non-trading members held a majority stake in the company. In 2009, a 12:1 bonus was issued and the share was split and that put the share price at around Rs.400.

Though it is the oldest bourse in Asia, 136 years old, NSE, the new kid on the block is the market leader and competition is expected to heat up with MCX also planning start India’s third stock exchange. Falling volumes and market share continues to dog BSE and on the financial front, BSE did not post a very good performance for Q2FY13, with a 1.5% drop, on YoY, in is total income atRs.131 crore and net profit was at Rs.26 crore, down 48%. One cannot help but wonder how come an exchange with such a large legacy and repute, have such a low income structure. A break-up of BSE's revenues showed that income from stock exchange activity, including transaction charges and listing fees among major sources fell 9% but income from depository activity increased 4%. The only gratifying fact is that compared to Q1, the performance in Q2 has improved a lot and it is expected to be better in Q3.

Those holding the stocks might be cribbing about the delay in its listing but they have also been earning well on the dividend front. Each of the over 600 broker shareholders, for FY12 received a dividend cheque of about Rs 4 lakh when the BSE gave out a generous 600% dividend compared to 400% it had given out in the previous three years. This means, in FY12, based on the price of Rs.180-200, the brokers earned a dividend yield of 3% which is quite good in these turbulent times.

The BSE listing will give the much needed exit route to many brokers but if one removes the haze of it being the oldest bourse in Asia, and one looks at it purely from a financial perspective, it does not paint a very attractive picture. The brand equity of BSE is what will probably create some fancy. If only it had acted fast and got itself listed, it might have got better valuations that what it will get now. A complete waste of an opportunity - from where it was the uncrowned leader to now struggling to keep its volume intact.

Quick facts about Offer for sale (OFS):

• Enables promoters to dilute their holdings in listed companies in a transparent manner with a wider participation 
• You can participate in OFS by placing bids online through your online trading accounts; no forms like IPOs are issued in OFS.
• No market orders but only limit orders will be accepted. There is no restriction on number of bids from single buyer. 
• In OFS, floor price is Floor price is the minimum price at which you can bid, orders below floor price will be rejected.
• It is not mandatory for the seller to disclose floor price. In cases where floor price is not disclosed, there shall be no price band applicable for the orders places under OFS. 
• Shares will be allotted directly to your demat account on T+2, where T is the day of issue.
• Where there is no allotment, money collected in the bidding process, will be released on T+1, where T is the day of issue. 
• OFS is usually for one trading day. You can modify/cancel your bids during the offer period. However, no modification or cancellation will be allowed during the last 30 minutes of the offer duration.