Universal Commodity Exchange may sell 5% stake to bullion trader

MUMBAI: Universal Commodity Exchange (UCX), the country's youngest commodity futures bourse that became operational last month, is in talks with Dubai-based bullion trader Harish Pawani to sell his company a 5% stake in the exchange, according to two persons aware of the development.

Pawani's UAE-based company, Bin Sabt, is a supplier of bullion bars to nominated agencies like MMTC, HHEC, PEC and STC. He is a well-known figure among bullion dealers and banks in the country. The sources said this would be the first stake sale by UCX at a premium. Based on the discussions, they claimed, the premium could vary from 15 to 40 on shares with a face value of 10. This would value the bourse between 262.5 crore and 525 crore.

If the talks are successful, the exchange will issue 50 lakh fresh shares (5% stake) to Pawani's company, raising the paid-up and subscribed shares to 10.5 crore from 10 crore.

Against this, the current market value of metals and energy exchange MCX, the only listed Indian bourse, stood at 4,585 crore on Tuesday. Agricultural commodity bourse NCDEX was valued at 299 crore when it sold a 22.4% stake to Delhi-based broker Jaypee Capital at a heavily discounted 59 a share in October 2010.

When contacted, Ketan Sheth, MD, Commex Technology, a listed exchange solutions provider that has promoted UCX, declined tocomment. An email sent to Harish Pawani, MD, Bin Sabt Jewellery, to confirm the development, remained unanswered. Commex Tech shares ended at 24.65, up 1.9%, on the BSE on Tuesday.

The proceeds from the stake sale, if the deal goes through, sources said, would be used to upgrade trading technology, the major investment for any exchange.

A former head of a Commex attributed Pawani's interest in UCX rather than in MCX to the new exchange's attractive valuation.

The new exchange has an average daily turnover of around 400 crore, FMC data for the fortnight ended May 15 showed. Of this, kilo gold futures accounted for over half of UCX's turnover, and silver for 34% of turnover, making it the second-biggest futures exchange for trading bullion products after MCX.

UCX will have to inform commodity futures market regulator Forward Markets Commission (FMC) of the sale, to ensure that the expanded capital base does not reduce stipulated PSU holding in a commex below the 26% threshold. Since PSUs like IDBI (10%), REC (16%) and Nabard (16%) cumulatively hold 42% in UCX, this will not be a problem for Sheth. The other shareholders include Commex Technology, UCX's anchor investor with 40%, Iffco (15%) and others (3%).