PE-backed NSE’s valuation hits new peak despite co-location scandal

 PE-backed NSE’s valuation hits new peak despite co-location scandal

National Stock Exchange of India Ltd’s valuation has surged again after it crossed the $10-billion mark late last year, as the world’s top derivatives exchange recently recorded a secondary transaction involving its existing shareholders.

India’s biggest stock exchange, which is backed by a string of private equity and venture capital investors including ChrysCapital, TA Associates, Fairfax, Temasek and Tiger Global, saw some shares changing hands earlier this year at Rs 1,921 apiece, The Capital Quest has learnt.

This pegs the company’s valuation at more than Rs 95,000 crore ($12.3 billion), much higher than the valuation of Rs 79,200 crore (around $10.6 billion then) it commanded previously, back-of-the-envelope calculations show. To be sure, the grey market share price of NSE is almost twice this level.

Shareholding pattern indicates the number of trading members and public shareholders have shot up by 30-40% in the January-March 2022 quarter from a year earlier.

Recent shareholding changes reveal that existing shareholder Crown Capital, which had picked up an additional 1% in the NSE to take its holding to around 3.58% last year, diluted its stake to 3.17%. An entity of Morgan Stanley, too, sold shares earlier this year.

The latest deals translate into a mark-up of around 33% over the valuation at which Canada Pension Plan Investment Board (CPPIB) bought a small stake in tranches in 2020 and early 2021. The North American nation’s largest pension fund had invested $150 million (about Rs 1,110 crore) to buy a 1.53% stake in the NSE. That deal valued the NSE around Rs 71,000 crore.

While CPPIB hadn’t named the sellers, state-run insurance behemoth Life Insurance Corporation (LIC) of India and venture and growth capital firm SAIF Partners (now Elevation Capital) had sold a part of their stakes during the January-March quarter of 2021, the disclosures show.

US-based private equity firm TA Associates had bought a 2.33% stake in the NSE for $150 million (Rs 1,140 crore) during the three months ended June 2020. That deal was stuck for about Rs 980-1,000 per share, valuing the exchange around Rs 49,000 crore then.

NSE’s valuation bump, co-location scam

The transaction involving TA Associates was at a 10-15% premium compared with the earlier deal when state-run development financial institution IFCI Ltd sold its stake in the NSE at a valuation of Rs 43,500 crore ($6.1 billion then) between December 2019 and February 2020.

Previously, the NSE was hit by its alleged involvement in a market manipulation scandal by allowing some brokers an unfair access to its trading servers.

The co-location scam came to light after whistle-blower complaints and allegations just after the NSE first filed its draft prospectus for an initial public offering in December 2016. At the time, it had proposed to list its shares on the rival exchange BSE Ltd with an estimated IPO size of Rs 10,000 crore and a valuation of Rs 44,000 crore.

The NSE’s then-shareholders Goldman Sachs Group Inc., Singapore’s Temasek Holdings, Tiger Global Management, SAIF Partners, Norwest Venture Partners, Citigroup Strategic Holdings, IDBI Bank and State Bank of India were looking to sell either partial or entire stake in the IPO.

The scope of inquiry into the co-location scam has widened over the past few months after it emerged that the then NSE CEO Chitra Ramkrishna was also allegedly involved and that her actions were guided by a mysterious yogi. Subsequently, the Central Bureau of Investigation arrested Ramkrishna and former NSE group operating officer Anand Subramanian. Both are currently in judicial custody.

The latest deals show that the co-location scam didn’t adversely affect the NSE’s valuation. Moreover, the latest transactions place the NSE in the list of top 10 exchanges in the world by valuation, at the number eight spot.

According to FTSE/Mondo Visione Exchanges Index, a joint venture between FTSE Group and Mondo Visione, the US-based CME Group is the world’s most valued with nearly $76 billion in market capitalisation. It is followed by Intercontinental Exchange ($56.17 billion) and Hong Kong Exchanges and Clearing ($53 billion), the London Stock Exchange (nearly $45 billion), Deutsche Boerse ($31.48 billion), Nasdaq ($25 billion) and Brazil’s B3 SA.

The NSE’s local rival BSE, which itself is listed on the NSE, is valued around just Rs 9767 crore ($1.3 billion).

The NSE had filed its draft prospectus for a proposed IPO six years ago but deferred its plan due to pending court case. It is also expected to seek an overseas listing subsequent to closing of the local IPO. It had appointed Citibank, JM Financial, Kotak Mahindra and Morgan Stanley as lead investment banks to manage the IPO.

Vivek Sinha

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The Capital Quest