NSE IPO: Is more value creation in store for investors?

Moneycontrol BureauAs the National Stock Exchange (NSE) prepares for its initial public offering (IPO), investors in India’s largest stock exchange are busy assessing the quantum of holdings to retain and liquidate.

According to a report in Mint on Tuesday, the IPO that values the exchange at roughly Rs 45,000 crore is likely to create more value after its listing which might prompt existing investors to sell only a part of their stake now. Securities and Exchange Board of India (Sebi) rules mandate that existing investors together divest at least 10 percent of their stake in an IPO.

Through the IPO which will be a pure offer for sale (OFS) the exchange is planning to put at least 20 percent stake on offer and the valuation is being pegged at 30 times NSE’s projected earnings for fiscal 2018. This valuation compares well with 34 times for Multi Commodity Exchange of India Ltd, the only listed bourse in India.

However, sources tell Mint this valuation prices the issue closer to the higher end of any price band for the IPO which would mean not much will be left on the table for new investors. The final valuation, though, depends on various other factors like market conditions at the time of the issue and investor appetite as assessed by merchant bankers.

After selling nearly half of its over 10 percent stake in NSE in July, State Bank of India, which has so far been voting in favour of listing the exchange will reportedly not be participating in the OFS.  The other big shareholders include Life Insurance Corporation of India (10.51 percent), Goldman Sachs (5 percent), Tiger Global Management (3 percent) and Citigroup Strategic Holdings Mauritius (2 percent).

NSE’s rival BSE, Asia’s oldest exchange, has also filed its offer for sale prospectus earlier this month to sell a 27.43 percent stake. However, unlike NSE, strategic shareholders in BSE including Singapore Exchange and Caldwell Investment Management exited the exchange entirely.