LISTING OF BSE - A PIECE OF HISTORY, NOTHING ELSE

By Ruma Dubey

The news has been doing the rounds over a decade now – the news of BSE getting listed and looks like finally, maybe this year, it could become a reality.

Five days ago, the premier stock exchange of India, the Bombay Stock Exchange (BSE) filed the draft red-herring prospectus (DRHP) for its IPO with securities market regulator SEBI. The largest exchange in terms of number of listed companies, the BSE, which is part of our Indian history and folklore, sitting pretty and having observed so much since July 9, 1875, this listing is historic.

SEBI has mandated that an exchange cannot list itself and the BSE has received the in-principle approval from the NSE to list its shares. What is on offer is the entire stakes of Singapore Exchange Ltd, Acacia Mauritius Ltd and Quantum – totaling 30%; to be sold via IPO to raise Rs.1300 crore. LIC and SBI are amongst the top shareholders and rightfully, they do not want to sell out a single share now, especially now when it is time for them to cash-in on their patience.

Well, actually the patience has not really paid off in this instance. The three institutions selling their stake had got the shares nine years ago at Rs.400/share and today, they are selling at the same rate – so what profit did they gain at all? There are an estimated 9,000 shareholders in BSE, where originally mostly brokers held shares.

In 2007, BSE had completed the process of demutualization wherein it diluted 51% of brokers' stake in favour of public shareholders, bringing in strategic partners like Deutsche Borse and Singapore Exchange, which held 5% each at Rs.5200 per share. Later, a 12:1 bonus put the share price at Rs.400  

In August 2011, George Soros paid a price of Rs 375-380 for a 4% stake. In Dec 2011, the share price was said to have gone abegging at Rs.135 per share, finding no buyers. But once MCX announced its plans to list, there has been an uptick the share price of BSE. Further, the price received a boost in May 2012 when SEBI spelled out listing norms for the BSE, headed by Bimal Jalan. In May 2012, a few transactions were made at Rs.210-215 per share.

When the Jalan report came in 2010, the BSE share price was at Rs.350-400 levels and as the days grew and prospects of listing grew dimmer, many sold off their holdings. In the coming days, we could see a mad scramble in the off market deals to get hands on these shares.  In 2007, BSE had offered shares worth at Rs.5,200/per share to its members as part of the demutualisation process, to ensure that non-trading members held a majority stake in the company. In 2009, a 12:1 bonus was issued and the share was split and that put the share price at around Rs.400.

Though it is the oldest bourse in Asia, 136 years old, NSE, the new kid on the block is the market leader and competition is expected to heat up with MCX also planning start India’s third stock exchange. Falling volumes and market share continues to dog BSE and on the financial front, BSE is not on a sound footing as its earnings are barely enough to cover its expenses. It had ended FY16 with a PBT of Rs.238 crore while investment and other income stood at Rs.232 crore. And it’s net profit for Q1FY17 stood at Rs.53 crore, which really does make you wonder whether we are looking at the income of the largest listed companies bourse in the world?

Those holding the stocks might be cribbing about the delay in its listing but they have also been earning well on the dividend front. Each of the over 600 broker shareholders, for FY12 received a dividend cheque of about Rs 4 lakh when the BSE gave out a generous 600% dividend compared to 400% it had given out in the previous three years.

The BSE listing will give the much needed exit route to many brokers but if one removes the haze of it being the oldest bourse in Asia, and one looks at it purely from a financial perspective, it does not paint a very attractive picture. The brand equity of BSE is what will probably create some fancy. If only it had acted fast and got itself listed, it might have got better valuations that what it will get now.

A complete waste of an opportunity - from being the uncrowned leader to now a struggling to keep its volume intact kind of bourse.