Asia?s oldest bourse, the Bombay Stock Exchange (BSE) is in advanced stages of negotiations with a couple of banks to acquire a controlling stake in Central Depository Services Ltd (CDSL). Last week, J&K Bank agreed to sell its 1.91% stake in the depository to BSE. Though the deal value couldn?t be confirmed, it is expected to be around Rs 50 per share, valuing CDSL at around Rs 500 crore. BSE is reported to be in talks with a couple of state-owned and private sector banks, who are the current shareholders in the firm.
People familiar with the development said BSE is in discussions with HDFC Bank, Bank of Baroda (BoB), Bank of India (BoI) and State Bank of India (SBI). Bank of India, State Bank of India and Bank of Baroda, (who own 9.57% stake each) as well as HDFC Bank (which has 14.36% stake) are also believed to be evaluating options on the quantum of stake to part with.
Apart from BSE, there are nine shareholders in CDSL, which was set up in February 1999. BSE, after the recent J&K Bank deal, holds 38.5% equity stake in CDSL. Acquiring HDFC Bank?s 14.3% stake alone would help BSE meet Sebi norms to hold at least 51% stake in a depository. Alternatively, BSE could pick 9.5% each from two among SBI, BoB and BoI to sail past the 51% mark.
BSE officials were unavailable for comment, but officials at one of the public sector banks told FE that they were in the process of appointing advisors to value their shareholding in CDSL. Incidentally, BSE had appointed Kotak Mahindra Bank as its advisor in its earlier demutualisation process. The decision to increase its stake in CDSL was taken by BSE at its February board meeting.
The BSE plan would be similar to that of the National Stock Exchange (NSE), which had, last month, picked up an additional 9.42% stake in National Securities Depository Ltd (NSDL), taking its total shareholding to 25.05%. The deal, valued at approximately Rs 125 crore was executed after the Specified Undertaking of the Unit Trust of India (SUUTI) expressed its willingness to offload 9.42% of its 25% equity stake held in NSDL. The deal valued NSDL at around Rs 1,300 crore.
According to the Sebi (Depositories and Participants) Regulations 1996, the sponsor shall, at all times, hold at least 51% of the equity share capital of the depository. However, the latest move by domestic bourses to acquire controlling stakes in their respective depositories assumes significance in the light of market regulator Securities and Exchange Board of India (Sebi) constituting a committee under Bimal Jalan, former governor of Reserve Bank of India (RBI) to take a re-look into the ownership and corporate governance issues of stock exchanges, depositories and clearing corporations.
BSE wants to increase its holding in CDSL as it will help it gain higher valuations ? by being present across the value chain of the stock exchange business. However, one section of CDSL shareholders fears that by becoming a 100% subsidiary of BSE, the depository will lose its independent status and might lose some of its key members to rival NSDL. Out of the 498 depository participants registered with CDSL, around 120 are exclusive members of the NSE.