National Commodity and Derivatives Exchange (NCDEX), the country’s largest agri derivatives exchange, plans to issue fresh equity of ₹100 crore through an initial public offering.
Of the IPO proceeds, ₹70 crore will be used for its Core SGF (settlement guarantee fund) and to meet the minimum capital requirement of its clearing corporation, NCCL. The balance amount will be used for general corporate purposes, said the exchange.
Including an offer for sale, the IPO is expected to raise about ₹500 crore, sources said.
Apart from fresh equity issue, existing investors will offload 1.44 crore shares through the offer for sale. The selling shareholders include: Build India Capital Advisors LLP, Canara Bank, Indian Farmers Fertiliser Cooperative (IFFCO), Investcorp Private Equity Fund I (formerly IDFC Private Equity Fund III), Jaypee Capital Services, NABARD, Oman India Joint Investment Fund and Punjab National Bank.
ICICI Securities and SBI Capital Markets have been appointed as the book running lead managers.
Some of the key investors in NCDEX include NSE, LIC, NABARD and IFFCO.
Core SGF requirements
NCCL is required to establish and maintain an SGF to guarantee the settlement of trades executed on the exchange. The SGF is required to be utilised in the event a clearing member failing to honour its settlement obligations. Under SEBI regulations, the contribution to the SGF has to be made by the exchange, NCCL and the clearing members.
Under the norms, NCDEX’s contribution to the Core SGF has to be at least 25 per cent of its minimum required corpus, while the contribution of the clearing members shall not be more than 25 per cent of it.
In September 2018, NCCL told SEBI that it will increase the corpus of its Core SGF to ₹250 crore by FY22. Accordingly, NCDEX proposes to utilise a portion of the net IP proceeds towards its contribution to the Core SGF, and for its investment in NCCL’s contribution to the Core SGF.
Minimum net worth
Additionally, NCCL is required to maintain a minimum net worth of ₹100 crore or an aggregate of capital requirements each for counter-party credit risk, business risk, legal and operational risk and capital to cover costs required for orderly winding down or recovery of operations, whichever is higher.
In the first six months of this fiscal, the exchange recorded a net profit of ₹7 crore on income of ₹93 crore. Last fiscal, the net profit was ₹16 crore, against a net loss of ₹11 crore logged in FY18. Last fiscal, its income was up at ₹195 crore (₹162 crore).
NCDEX has maintained its leadership position since 2005 in the agricultural commodity derivatives market in terms of average daily turnover by value (ADTV), said the IPO prospectus. In FY19, it had a market share of 81.5 per cent in the agricultural commodity segment, based on an average daily turnover (by value).