Windfall for brokers in BSE public offer

Reports have suggested Rs 400-650 as the possible IPO price

Several Dalal Street veterans and top brokers have enlisted as selling shareholders in the initial public offering (IPO) of Asia’s oldest bourse, BSE (formerly Bombay Stock Exchange).

While some are selling their shares in individual capacities, others are doing so through their firms. According to the draft red herring prospectus (DRHP) filed by the bourse with the Securities and Exchange Board of India (Sebi), there is no fresh issue of shares and the entire IPO will be in the form of offer for sale by existing shareholders.

As of September, BSE had 9,855 shareholders. Of these, 8,559 were public shareholders who held about 55 per cent in the bourse. The remaining 1,296 were trading members or their associates.

Of these, as many as 262 shareholders have put their shares on block in the offer. Merchant bankers say this could be a record in itself as typically a handful of institutions participate in such offers. Over two-thirds of the 29.95 million shares on sale came from top 8 holders, including SGX and other institutions.

The smaller shareholders, selling between 150 and 200,000 shares, accounted for the rest. Among them were several interesting names. Enam group co-founder Nemish S Shah, Sharekhan, Ramesh S Damani Finance, Centrum Broking, Emkay Global, IDBI Capital Markets, JM Financial and its arms, and Keynote Capitals are among 133 entities selling 25,000 shares or more.

Reports have suggested Rs 400-650 as the possible IPO price, depending on various parameters. Even going by the conservative estimate of Rs 400 per share, these shareholders would be richer by over Rs 1 crore each. A couple of defunct regional stock exchanges would also be richer by a few crores each.

JSEL Securities, a subsidiary of Jaipur Stock Exchange, and MSE financial Services, an arm of Madras Stock Exchange, are selling 130,000 BSE shares each in the IPO. Another 129 entities would sell between 150 and 25,000 shares. JRD Securities, Churiwala Securities, Mangal Keshav Securities, Siddartha J Shah are among these, as per BSE DRHP filed on Friday.

Prominent BSE shareholders declined to comment, citing confidentiality agreements with the bourse ahead of the offer.

A BSE shareholder, who is selling a part of his holdings in the BSE share sale, said “We have been a stock broker for three decades. After a long wait of eleven years, we have got this opportunity. After demutualisation, shares were issued in 2005. It is not even about exit any more. It is about keeping a promise that was made long ago.”

Before the structural changes that took place a decade ago, the exchange was owned and run by brokers. Only cardholding members were allowed to trade on the bourse. The broker card was considered valuable and was traded for crores of rupees, according to senior brokers.

Following corporatisation, every cardholder was allotted 10,000 shares. Following a 12:1 bonus issue, the cardholders typically have come to hold 130,000 shares each.

Five entities which are selling exactly 130,000 shares in the offer are Sanat M Dalal Securities, Citigroup Global Markets, JSEL Securities, Niranjan R Shah and MSE Financial Services. During the demtualisation process, when broker ownership was brought down to 49 per cent, some brokers sold their shares to institutions and realised the value.

Not all brokers are selling their entire holding in the IPO. Some shareholders, who had not offered their shares in the demutualization process, are anxious to exit. Many are selling only a portion of the shares owned.

“Even we are selling only a small portion. We are holding on to most of the shares as we feel the outlook is positive for the exchange and it will get stronger after listing,” said the BSE broker quoted earlier.

Brokers are also bullish about the IPO price. Some feel when compared to valuations of MCX, which has also started its listing process, “Rs 550 upwards would be reasonable” for BSE shares. Sebi takes a minimum of a month to clear IPO documents. If all goes well, brokers are hoping to laugh all the way to the bank.

Photograph: Danish Siddiqui/Reuters