NSE IPO buzz…The Market players expect NSE moving towards its mega IPO

On 2nd December 2021, suddenly BSE scrip moved up by 16% to end at Rs 1,912 & MCX added 5% . . The traders now  believe the National Stock Exchange’s IPO could lead to sharp re-rating in shares of BSE and MCX

Shares of BSE & MCX climbed on Thursday amid buzz that larger rival National Stock Exchange of India (NSE) is moving closer to an IPO.

Market players expect NSE’s valuation to be around Rs 2 trillion. They feel the exchange’s IPO could lead to sharp re-rating in shares of BSE and MCX, which are currently valued at Rs 8,550 crore and Rs 8,378 crore, respectively.

Why such Rally ??
Thursday’s sharp rally comes days after the Securities Appellate Tribunal  indicated it has reserved certain orders in the colocation matter. The orders pertain to appeals filed by the NSE, OPG Securities, and NSE’s former heads Chitra Ramkrishna and Ravi Narain.

In April 2019, the Sebi barred the NSE from accessing the capital markets for six months for alleged lapses at its colocation facility. The ban ended on October 30, 2019. The markets regulator also directed the exchange to disgorge Rs 625 crore along with 12 per cent interest since April 2014. Multiple appeals have been filed against Sebi’s orders before the SAT. The pendency of the cases is seen as a major roadblock for the exchange’s IPO.

Earlier this year, the NSE had formally written to Sebi asking whether it can once again file its draft red herring prospectus (DRHP) to go public.

“NSE has requested Sebi to convey its no-objection to enable it to proceed with its IPO plan and for filing the DRHP. Response from Sebi is awaited,” the exchange said in its annual report.

Road block to the IPO Plan :
In 2016, NSE had filed its DRHP for a Rs 10,000-crore IPO. However, the probe in the colocation matter derailed its listing plan. A total of 27 shareholders had planned to sell 111.4 million shares (22.5 per cent stake) in the IPO. Among the largest selling shareholders are private equity funds Tiger Global, Aranda Investments, and SAIF Partners. A clutch of domestic banks and financial institutions had also planned to sell their holdings in the IPO.

What may be the IPO-size as per Earlier DRHP ?

It will be an offer for sale (OFS) of 111.4 million equity shares, 22.5% of the exchange’s post offer paid-up equity capital.
In 2015,NSE was ranked first among exchanges globally in terms of stock index options and currency options trading volumes , according to the World Federation of Exchanges.BSE, its rival and Asia’s oldest bourse, has already filed a draft prospectus with the markets regulator for a Rs 1,200-crore IPO.
The issue size is pegged at Rs 10,000 crores, which will eclipse ICICI Prudential’s Rs 6,000 crores IPO concluded recently, but will fall short of Coal India’s Rs 14,475 crores IPO launched in October 2010 .The NSE, which was set up in 1992, has been under pressure from some institutional investors to float an IPO to provide them an exit option for quite some time. In May 2016, Reuters reported that some foreign investors had accused the NSE of going slow on its IPO but the exchange rejected those allegations.

The Exchange is  expected  to get valuation of Rs 2 trillion on listing.

Existing Shareholders:
Major shareholders are Life Insurance Corporation, with a 12.5% stake, and Gagil FDI, Aranda Investments and SAIF II SE Investments, each holding 5%. A few months earlier, Mauritius-based Veracity Investments had acquired a 5% stake in the bourse from  State Bank of India for Rs 911 crore, valuing the exchange at Rs 18,200 crore.
The OFS will give existing shareholders a chance to exit, and most shareholders have opted for a partial exit. The top-selling foreign shareholders are Aranda, SAIF Investments, GAGIL FDI, Norwest Venture Partners, Citigroup Strategic Holdings and GS Strategic Investments. Major domestic shareholders doing so are SBI, SBI Capital, IFCI, Bajaj Holdings and Bank of Baroda. Tiger Global Five Holdings, which has 3% stake, is offering all its shares. Goldman Sachs and Temasek Holdings would get a chance to reap profits after being forced to sit on for  over 10 years.

Listing on Foreign Exchange :
NSE’s board of directors has also given their nod to list the exchange abroad. It had said the draft prospectus would be filed by April.

Lead Managers and Legal Advisors:
AS per the earlier DRHP, NSE had appointed Citigroup Global Markets, JM Financial Institutional Securities, Kotak Mahindra Capital and Morgan Stanley India as joint global coordinators to manage its IPO. Cyril Amarchand Mangaldas was the legal advisor. HDFC Bank, ICICI Securities, IDFC Bank and IIFL Holdings were the Book running lead managers.