FTIL responds to BSE notice on “undervaluing” MCX shares in KOTAK deal

Jignesh Shah’s Financial Technologies India Ltd asked Bombay Stock Exchange to specify the exact basis on which the exchange, which held unsuccessful negotiations to buy a stake in MCX, was questioning the company’s decision to sell most of its stake in MCX to the Kotak group at a discount to market price.

“We reiterate that we are fully compliant with all disclosure requirements and had therefore asked for a specific basis on which the BSE is asking this query. Clause 4(a) of the circular dated November 18, 2011 referred to by you deals with the consequences of non-compliance but you have not disclosed which provision of the listing agreement the BSE is relying on to ask for an analysis of the sort you have asked,” FTIL wrote back to BSE.

BSE had, in a letter two weeks ago, sought to know why Jignesh Shah’s FTIL had sold its shares at Rs 664 each to Kotak group, and why a higher price was not extracted. BSE said it was asking in the interest of the shareholders. MCX shares were trading well above the mark at the time the deal was announced.

In reply, FTIL said: “The price per share for the sale of our stake in MCX Ltd. is Rs. 600/- and not Rs. 664/- as mentioned in your e-mail. This is a fair price and the price that has been arrived at after detailed negotiations and a transparent bidding process was adopted. You may be interested to know that the BSE as a corporate body was also interested in purchasing these shares.

“There are multiple considerations and reasons on which this price offered by the Kotak Group, an institutional financial group is appropriate and advantageous to FTIL shareholders. It may also be noted that the 90-day average price for MCX shares was around Rs. 593 per share.

“There has been an inherent urgency and coerciveness in the sale of these shares, which has also been underlined by the fact that in the hands of FTIL, these shares do not have any voting rights until the proceedings are resolved. Many such factors have been taken in to account by the Board of

FTIL, including the future business needs of FTIL, the price offered by competitive bidders (including that of BSE) etc,” it noted.

The fact that the price of FTIL has gone up almost 25% post the announcement in three days and share price of MCX increased by more than 15% next day vouch for the positive reaction of the market to the deal – and this price factors in the future value of FTIL under the ownership of a new substantial shareholder, it added.