Gaurav Arora-promoted Jaypee Capital Services Ltd (JC), which is facing pressure to exit India’s largest agri-centric commodity exchange—National Commodity & Derivatives Exchange Ltd (NCDEX)—has decided to stay put and not to succumb to pressure from other stakeholders. He said he is not selling his stake.
Arora was inducted on the board of the exchange two years ago. JC became an anchor investor on NCDEX on October 7, 2010, and was allocated 11.34 million equity shares at a heavily discounted price of Rs 59 per share, compared to the last transacted share price of Rs 110 per share, through a rights issue. According to an agreement between Arora and the exchange, he had to increase the turnover of the exchange. But since he has not been able to achieve this, it has unnerved some stakeholders.
With JC clarifying to the exchange that Arora is not selling his stake, the board meeting, scheduled for tomorrow, where the issue was supposed to be raised, has been postponed. The meeting has now been set for November 16. But the issue of stake sale is understood to have been removed from the agenda.
According to sources close to the development, it is debatable how long Arora will be able to withstand the pressure to sell stake as the commodity markets regulator, Forward Markets Commission (FMC), has conveyed to the exchange its discomfort on a broker remaining an anchor investor on the bourse. However, FMC’s position on record is ‘this is the issue between the exchange’s board and the shareholder’. When contacted, Arora said he has decided to remain invested on the exchange and is not selling his stake. An e-mail sent to NCDEX managing director Ramalinga Ramaseshan did not elicit a response.
The trader turned corporate — JC — was issued shares on the condition that it would raise the exchange’s monthly average turnover to at least Rs 7,000 crore, Rs 12,000 crore and Rs 16,000 crore in any three consecutive months of the three subsequent years, respectively, from the Rs 3,000 crore level at the time of share allocation. But, the company failed to generate the committed turnover in the first two years. If the targeted turnover is not achieved in the third year too, JC would be required to pay the difference in share price amounting to Rs 130 crore.
However, in the first two years, the monthly average turnover ranged between Rs 5,500-6,700 crore.
“This is the reason why Gaurav (Arora) is looking for a competent buyer. No existing or new buyers have evinced interest so far, though. It would not be easy for anyone to enter at this stage as whoever buys the stake would have to meet the obligation which Gaurav was expected to fulfil,” said a person in the know.
According to informed sources, JC has assigned the job of finding a buyer to two broking firms - Anand Rathi and Angel Broking.
Before acquiring the anchor investor’s stake in NCDEX, the Delhi-based broking firm was engaged in trading in commodities and equities on behalf of clients. In September 2010, JC along with a consortium of banks, floated a currency exchange – United Stock Exchange. However, it exited the venture in 2011.
“We had only two options to remain in business: first, to remain as an anchor investor on NCDEX and second, to do only trading. And, we have decided to remain anchor investor on the exchange,” said Arora.
After being inducted as an anchor investor, JC had to surrender its broking membership to meet regulatory guidelines. Under the Forward Contracts (Regulation) Act (FCRA), any trader with more than one per cent stake in an exchange should not hold any position on the exchange’s board. Also, brokers cannot trade on the exchange in which they hold an equity of over one per cent. Strict FCRA guidelines resulted in JC’s ouster from the broking business.
There were reports of JC’s stake being bought by Shree Renuka Sugars, the second largest shareholder (12.50 per cent) on the exchange. The sugar maker’s managing director Narendra Murkumbi however, declined comment on the issue.
Other large stakeholders on NCDEX include LIC and Nabard with 11.10 per cent each and NSE with 10 per cent stake.