BackFTIL signs new deal to sell IEX stake for Rs357 cr
The earlier agreement that took place in November stands cancelled and the new agreement will be closed within 60 days, said the company
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Mumbai: Financial Technologies (India) Ltd (FTIL) has entered into a new share purchase agreement with a clutch of entities, including DCB Power Ventures Ltd and Aditya Birla Private Equity, to sell a 16.6% stake in Indian Energy Exchange Ltd (IEX).
The new agreement is for the sale of the stake for ₹ 357.06 crore. FTIL holds a nearly 26% stake in the energy exchange.
An earlier share purchase pact stands cancelled and the new agreement will be closed within 60 days, subject to certain technology-related conditions and regulatory approvals, according to regulatory filings.
The new agreement has been signed between FTIL and DCB Power Ventures, Kiran Vyapar Ltd, Agri Power and Engineering Solutions Pvt. Ltd and Aditya Birla Capital Advisors Pvt. Ltd (for and on behalf of Aditya Birla Trustee Co. Pvt. Ltd, trustees to Aditya Birla Private Equity Fund I and Aditya Birla Private Equity Sunrise Fund).
This is the second time that FTIL has entered into such an agreement. In November, FTIL had said it sold its 25.64% stake in IEX to a consortium led by Chennai-based private equity firm TVS Capital Funds Ltd for around ₹ 577 crore.
In May 2014, power sector regulator Central Electricity Regulatory Commission (CERC) directed FTIL to sell its holding in the exchange. The earlier sale agreement of its 25.64% stake valued IEX at nearly ₹ 2,300 crore.
According to FTIL’s statement issued on Friday, the earlier agreement stands terminated due to non-fulfilment of certain conditions and also due to the Economic Offences Wing’s directive restraining sale of FTIL assets.
The new agreement comes on the heels of a ruling by the Bombay high court on 12 June, allowing FTIL to go ahead with the sale of its stake in IEX subject to it depositing ₹ 84 crore from the sale proceeds with the court within four weeks of completion of the transaction.
Gopal Srinivasan, chairman and managing director of TVS Capital Funds, said the energy exchange is a fundamentally good asset, but talks fell apart due to issues related to regulatory and legal complexity.
“I am happy that the deal has been done. It is a great asset. In our case, it was just that we were not clear if we should give it more time or move on given the complexities involved. Some of our co-investors have participated in the transaction this time. And we have still not closed our minds on a deal with IEX. We are still pursuing, but have not yet decided the best way to do it," said Srinivasan.
Sudip Bandyopadhyay, managing director and chief executive officer of Destimoney Securities Pvt. Ltd, said there will not be a shortage of entities looking at owning a piece of the energy exchange business; globally, the business is big and India is also slowly moving towards increased regulatory clarity.
“Energy trading is flourishing across the globe. It helps power consumers and other players in the space. Unfortunately in India, there is lack of regulatory clarity and that has held back growth. Once the issues are clarified, then we will definitely see a stronger future for energy exchanges," said Bandyopadhyay.
In May last year, CERC issued a directive to FTIL, asking it to sell its holdings in IEX, following a March order by capital market regulator Securities and Exchange Board of India (Sebi), which declared FTIL and its promoter Jignesh Shah unfit to hold a stake in any stock exchange or clearing corporation.
Sebi’s order came after commodity market regulator Forward Markets Commission declared FTIL and Shah unfit to run a commodity futures exchange in the country in a December order, following the ₹ 5,574.34 crore fraud at National Spot Exchange Ltd (NSEL). FTIL holds a 99.99% stake in NSEL.
CERC gave FTIL time till the end of September to exit the exchange, but later extended the deadline till the end of October. CERC had directed FTIL to submit a compliance report by 5 November.
The fraud at NSEL came to light on 31 July 2013 when the exchange suspended trading in all but its e-series contracts. These, too, were suspended a week later.
The suspension may have been prompted by an instruction from the ministry of consumer affairs to the exchange asking it not to offer futures contracts. A spot exchange isn’t supposed to do so, but NSEL was doing that. NSEL tried to implement the change, but because its appeal was to investors and members who were not interested in spot trades, it eventually had to suspend all trading. It later emerged that all trading on NSEL happened in paired contracts, with investors, through brokers, buying a spot contract and selling a futures one for the same commodity.
The entities selling on spot and buying futures were planters or processors and members of the exchange.
It turned out there were only 24 of them, and they used the paired contracts as a way to raise easy money.
Subsequent investigations highlighted the involvement of promoters. On 14 August 2013, NSEL proposed a payout plan, but it has been unable to stick to the schedule and has not made a single successful payout.
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