The Indian Energy Exchange (IEX), the electronic power trading platform, is planning to acquire 15 per cent stake in Indian Commodity Exchange (ICEX), the Reliance ADAG - anchored commodity derivatives trading platform. The energy exchanges is estimating the consideration of Rs 150 crore for the deal.
However, it is not defined as stock exchange and hence current law will permit it to start with only 5 per cent stake buy in another stock exchange (ICEX).
ICEX which offers futures trading in commodities which include rubber, diamond and basmati paddy among others, will issue new shares to IEX. Its existing shareholders including Reliance Exchangenext, MMTC, Indian Potash and Indiabulls Housing Finance may see some reduction in percent of holding but not number of shares they hold.
Sources close to the development said that talks between them are in advanced stage but closing of the deal would take some time due to regulatory hurdles.
As per the existing Securities Contract Regulation Act (SCRA), other than an anchor investor only a stock exchange can hold 15 per cent stake in another stock exchange. IEX being a non-stock exchange (it is an energy exchange regulated by the Central Electricity Regulatory Commission or CERC) cannot hold more than 5 per cent stake in a stock exchange (ICEX as a target company in this case). The regulator will have to address the issue if it wants to allow on-stock exchange to buy upto 15 per cent in stock exchange by getting the Securities Contract Regulation Act amendment, which is a difficult task.
“A team of both exchanges (i.e. IEX and ICEX) met with officials in the Securities and Exchange Board of India (Sebi) to apprise with the regulator about the difficulties being faced by them. Sebi has assured them to consider the issue,” sources said.
“We won’t comment on market speculation,” said an ICEX spokesperson.
An IEX spokesperson, however, said, “We are a listed entity. Currently, we are on silent period and hence, won’t talk. Any business dealing will, therefore, be informed to the stock exchanges first.”
Another source apprised with the development said, “ICEX is looking for an investor since long. ICEX is planning to set up a clearing corporation with the minimum networth of Rs 100 crore as prescribed by the regulator. Also, if and when the deal goes through, the remaining Rs 50 crore will be invested for developing market and launch new products.”
After successful launch of diamond and basmati paddy futures, albeit with low initial daily average turnover, ICEX is now planning to launch electricity futures on its platform. The exchange see synergy with IEX as it can link its electricity futures contracts with that on IEX spot electricity for settlement.
IEX is a cash rich company reported 25 per cent increase in its net profit at Rs 165 crore for the financial year 2019 as compared to Rs 132 crore in the previous year.