BSE (formerly Bombay Stock Exchange) IPO Opens today Monday Jan 23,2017

BSE (formerly Bombay Stock Exchange), Asia’s oldest stock exchange, is making an initial public offer

 At the upper-end of the price band of  Rs 805-806, investors in the exchange will be selling shares worth ₹1,243.4 crore by offloading 1.54 crore shares, representing 28.26 % of the outstanding shares. 

Singapore Exchange and Quantum Mauritius are exiting fully

The shares will be listed on rival NSE’s platform as SEBI doesn’t allow self-listing.

 On estimated earnings for 2017-18, BSE is asking for a valuation of around 17 times (based on profits post-divestment in CDSL) at the higher end of the price band.

BSE is cash rich. 

One-third of its income comes from earnings in investments and deposits.

BSE has 4 sources of income — 

1. securities services (income from transaction charges and clearing and settlement of funds), 
2. services to corporates (income from listing charges), 
3. fees collected from selling data and, 
4. lastly, income from investments and deposits. 

Investment income contributes 30 per cent of the total income. Of the balance, 40 per cent comes from securities services (where half the contribution is from depository services of CDSL).

In the last five years, BSE’s revenue has grown at a compounded annual rate of 5.8 per cent. Growth in profits was at a lower 4 per cent.

 In 2015-16, total income was ₹658 crore and net profit ₹122.5 crore. 

The sluggish performance is explained by the loss in market share.

In the equity cash segment, BSE’s market share stands at 13.7 per cent now, down from 19 per cent in 2011-12.

 In equity derivatives segment too, the exchange has negligible volumes. 

Between 2011-12 and 2014-15, equity derivatives volume on the BSE increased, thanks to the liquidity enhancement initiative (where the exchange incentivised its members to transact on its platform), but in the last two years, after discontinuation of the scheme, volumes have fallen to where they were initially and the market share is under 1 per cent now.

In currency derivatives, the exchange has been faring well. 

The average daily turnover on the segment is now ₹13,000 crore compared to NSE’s ₹20,000 crore. 

Revenue contribution through transaction charges from this segment is also set to go up as the exchange has indicated it will be revising its charges up to ₹20/crore of turnover in the next few months from the current ₹12/crore (was ₹10/crore in October). 

Given that NSE’s charges are way higher (₹110/crore) in the currency derivatives segment, there is enough room for BSE to improve its revenue 

BSE’s other segments — interest rate futures, mutual fund trading platform and the SME board — are still nascent. The international exchange set up in GIFT city, will also take time to generate revenues.

Income from depository services of CDSL will reduce in 2017-18 as BSE will divest its stake in the entity (CDSL contributes 20 per cent to revenue and 30 per cent to net profit). Growth drivers next year will thus, be the income from higher transaction charges in currency derivatives and increased volumes in the equity segment if equity penetration increases.

In the first six months of 2016-17, BSE has grown its revenue by 26.6 per cent compared with the same period last year. 

This is thanks to increase in transaction charges for illiquid scrips and increase in income from depository services of CDSL. Profit margin at the operating level increased to 50.4 per cent from 45.7 per cent.

Margin at the net level was also higher as the liquidity enhancement programme was discontinued from April 1. 

Profitability may improve in the coming year, as SEBI has exempted stock exchanges from transferring 25 per cent of profits to the Settlement Guarantee Fund (SGF) of clearing corporations.

 Over the next few months, the exchange will receive an additional ₹200-250 crore when its sells stake in CDSL. 

BSE  has to reduce its stake in the depository to 24 % from 50 %  in line with SEBI regulation.

BSE IPO opens, subscribed 50% on Day 1

Retail investors showed faith in the initial public offering (IPO) of Asia’s oldest stock exchange, BSE Ltd, bidding for 86 % of the portion reserved for them, ensuring that the half of the IPO was subscribed on day one.

Institutional investors bid for 16.5 % of their portion, while high-net-worth individuals placed bids for 12 per cent.

On Saturday, anchor investors had been earmarked 46,28,158 equity shares by BSE at a price of ₹806 per share, totalling ₹373 crore, a statement said.

The IPO, which closes on Wednesday Jan 25,2017, is an offer-for-sale of up to 15,427,197 equity shares with a face value of ₹2 each in a price band of ₹805 to ₹806 per equity share.

It constitutes up to 28.26 % of the fully diluted post-offer issued share capital of BSE. 

Bids can be made for a minimum of 18 equity shares and in multiples of 18 thereafter. 

The global co-ordinators and book running lead managers are Edelweiss, Axis Capital, Jefferies India, and Nomura.

Note

Seven of the top 10 shareholders of Bombay Stock Exchange Ltd. (BSE) are paring their holdings in the forthcoming Initial Public Offer. The exchange disclosed this in its draft red herring prospectus filed with the Securities and Exchange Board of India (Sebi)

According to the prospectus, nearly 69.3 percent of the shares under offer for sale are owned by seven of the top 10 shareholders.

The BSE IPO will see Singapore Stock Exchange sell its entire 4.7 percent stake, while competitor Deutsche Boerse will continue to hold its 4.7 percent stake in the India’s oldest exchange. 

Among the other shareholders, Atticus Mauritius Ltd. and Quantum (M) Ltd., each holding 3.7 percent stake in BSE, will also exit completely. Other investors also selling stakes include GKFF Ventures, Acacia Banyan Partners Ltd., Caldwell India Holdings Inc and Bajaj Holdings and Investments Ltd.

Domestic financial institutions have chosen not to exit via the IPO. State Bank of India and Life Insurance of India, each with a 4.7 percent stake, will continue to remain invested and will be the largest shareholders along with Deutsche Boerse’ after the IPO.

In the IPO, BSE’s shareholders will sell 2.99 crore shares through an offer for sale, and the exchange will list on rival NSE (National Stock Exchange). BSE will be the second stock exchange to list in India. Multi Commodity Exchange Ltd was the first listed stock exchange, it had received deemed stock exchange status post the merger of commodity market regulator, The Forward Market Commission (FMC) with SEBI.