Corporate affairs ministry finalises share swap ratio for proposed NSEL-FTIL merger

NEW DELHI: The corporate affairs ministry has finalised the share swap ratio for the proposed merger of crisis-hit National Spot Exchange (NSEL) with its holding company Financial Technologies (India) (FTIL). The ministry has decided that three fully paid-up equity shares of Rs 2 each of FTIL will be issued in exchange of eight fully paid-up equity shares of Rs 10 each of NSEL. The order, made public on Friday, will be effective only after the government takes a final decision on merger.

Swap ratio is the ratio in which a company will offer its shares for the shares of the company it is acquiring or merging with itself. The calculation is based on the valuation of various assets and liabilities of the merging companies. In the case of NSEL, the valuation has been done by Lodha & Co, a Delhi-based chartered accountancy firm that was appointed by the ministry. “The resulting company (FTIL) shall issue three fully paid-up equity shares of Rs 2 each of FTIL to be issued in exchange of eight fully paid-up equity shares of Rs 10 each of dissolving company (NSEL),” the government’s assessment order said.

Commodity market regulator Forward Markets Commission (FMC) had late last year proposed to merge NSEL with FTIL, as demanded by investors following a Rs 5,600-crore payment crisis at the exchange.

The fair value per share of FTIL has been recommended at Rs 208 while NSEL has been valued at Rs 77 per share. NSEL has a paid-up share capital of Rs 45 crore, of which 99% is owned by Jignesh Shah-promoted FTIL. FTIL’s shareholding has been recommended for cancellation FTIL has a paid- up capital of Rs 9, 21,57,074 divided into 4,60,78,537 equity shares with a face value of Rs 2 each. The decision on the final order of merger is pending as the matter is being heard by the Bombay High Court.

The government also wants to restrain FTIL from disposing its assets on the ground that it will defeat the purpose of merger. As per the court’s direction, the merger will be done only after hearing objections of the shareholders, creditors, employees and other stakeholders of the two companies within the next 30 days.

Further, the government cannot effect the merger order for two weeks after it is passed to give the affected parties an opportunity to pursue legal redress.

The merger of NSEL with FTIL will be done under Section 396 of the Companies Act, 1956, which says that the central government can order the merger of two companies if it is essential in public interest. Commodity market regulator Forward Markets Commission (FMC) had late last year proposed to merge NSEL with FTIL, as demanded by investors following a Rs 5,600-crore payment crisis at the exchange.

The corporate affairs ministry had passed a draft order to merge both companies on October 21. This was challenged by FTIL in the Bombay High Court.

Meanwhile, the government has sought more time from the Bombay High Court to pass the final order on the merger. The court will take up the matter on April 15.