MCX plans IPO for expansion drive

The country's premier commodity exchange, the Multi Commodity Exchange of India, has decided to float its initial public offer, to raise approximately Rs 330 crore (Rs 3 billion) from the market, in the next three to four months, Venkat R Chary, chairman, MCX, said on Tuesday.

"As the commodity markets are growing vertically, we thought of entering the market as soon as possible to seize the opportunity. Accordingly, on Monday we informed the Bombay Stock Exchange of our intention, to float the IPO to raise funds to meet our expansion plans," Chary added.

The MCX board already approved the resolution to go ahead with the maiden public offer at its board meeting on September 24 and will now proceed to take the shareholders' approval, he said.

If everything goes right about the move, the MCX will be the third of its kind to offer IPO after Chicago Merchantile Exchange and Sydney Exchange.

The MCX IPO is aimed at sharing benefits with farmers and people closely associated with the exchange, Chary said. Jignesh Shah, managing director, MCX, said the IPO would be a great success, as investors had enough reasons to rely on MCX's future plans and the current function.

"In commodities, we are reaching out to approximately 700 million people in the country, and this segment has at least 100 per cent growth potential. So, this IPO should be a big success," Shah said.

As an exchange, the MCX's role to take care of landing, warehousing, delivery, suitable technology, inside and outside infrastructure, training programmes etc. Besides, the exchange is also willing to tap other areas of commodities on which future trades are possible.

"The commodity markets have entered its second phase which calls for world-class infrastructure and technology. And the MCX is equipped for global expansion, today. So, we are raising funds to tap thousands of other commodities in which the exchanges are not acting now," Shah said.

The MCX has appointed three merchant bankers - Citigroup, DSP Merrill Lynch and Kotak - to carry out due diligence on the IPO's timeframe and the financial front. A sub-committee has also been formed to pursue the Reserve Bank of India approval.

The MCX is planning to start trading in Dubai in December. It is also expected to start trading in carbon credits in the first quarter of 2006.

Commenting on the FMC's decision to raise penalty on failure of delivery, Shah said certain exchanges were taking undue advantage by creating doubt in the buyers' minds, forcing them to square the position. Now, when the penalty - which could differ from commodity to commodity - is raised substantially, the delivery would be assured and the buyers would not suffer.

Retailers are going to be the final driver of growth. Today, only 10 commodities are contributing significantly to the turnover of the exchange and others are intangible commodities that are just for supports. But a combination of all these is required, Shah said.

"The current boom in commodities would continue for at least next 10 years. Farmers would be rich by participating in commodity exchanges and become richer by trading on a global platform. So, the IPO would be the biggest ever retailer-friendly story," Shah added.