Eurozone member countries have approved just half of the €130bn bailout for Greece saying that Athens has yet to prove that it will meet all the terms and conditions required for the second bailout.
The remaining €71.5bn will be paid once officials from the European Union and IMF are happy that Greece is committed to implementing key measures aimed at putting the country back on a sound economic footing.
Athens has passed laws on fiscal consolidation, pension reform, financial sector regulation and structural reforms. It still has to issue some decrees and other ministry decisions that will translate the laws into action.
However, eurozone finance ministers did sign off on funds to underpin the debt swap aimed at cutting the value of the Greek bonds held by private investors.
The money can be paid out only after the completion of a bond swap between Athens and private investors which is to be concluded by March 9 and which aims to halve Greece's privately-held debt, cutting it by €100bn.
Jean-Claude Juncker, the Luxembourg prime minister who chairs the eurogroup, said Greece's official creditors would "finalise in the next few days" an assessment of Greece's steps to enshrine the bailout conditions into law.
"All required legislation by the parliament and the ministerial cabinet has been adopted and a few pending implementing acts should be completed shortly," Mr Juncker said in a statement.
The second financing programme for Greece, which follows a €110bn bailout agreed in May 2010, will total €130bn, plus €34.4bn of the undisbursed remainder of the first programme.
Heading into the finance ministers meeting, Ireland's Finance Minister Michael Noonan said the meeting would largely focus on Greece. "There will be a review of the prior agreement and there will be a review of how far they have implemented the requirements.
The ministers also agreed on a backstop facility for the recapitalisation of Greek banks. No figures were given but two euro officials said €23bn out of the €130bn was earmarked for that purpose. Another official said it could be as much as €40bn.
A desperate seller unwilling to compromise on the product's price; a product that is plagued by a major shortcoming; buyers who are aware of both the seller's desperation and the expensive price of the product. What do you get when you combine all these? Answer: a debacle called ONGC disinvestment.
The details are murky but one fact is clear: the auction process for ONGC could have bombed on the government and but for LIC coming to its rescue, the Centre may have been left red-faced with the mortification of seeing its Maharatna's shares having no takers. The insurance major coughed up as much as Rs.12,000 crore of the Rs.12,767 crore raised from the auction, or 94 per cent.
It can never be proved conclusively whether LIC was ordered to bridge the large shortfall in demand. Circumstantial evidence, however, offers some pointers. Until 3.20 p.m. on the day of the auction, only 1.43 crore shares were bid for on the BSE and NSE. It is difficult to believe that bids for the balance 40.6 crore shares were made in the remaining 10 minutes before the offer closed at 3.30 p.m.
Second, the details of the bids were declared close to midnight on Thursday, eight hours after the auction closed. Why did it take so long for the bids to be tabulated? The auction was screen-based and the exchanges have efficient computer systems that have handled several big ticket initial public offerings (IPOs) in the past. So the explanation of glitches is not convincing and the exchanges have also clarified there were no technical problems.
Third, it is also difficult to believe that institutional investors putting in large bids will wait until the last 10 minutes of the auction. One explanation being given is that they were waiting for the indicative price to be declared by the exchanges. This did not happen because there were just 1.43 crore shares bid and the exchanges could not arrive at the indicative price from them. The fact is that all bidders, not just institutional, could see the trends live on the websites of the exchanges and were aware that the indicative price might not be announced. The question of indicative price arises only if there is excessive demand which was not the case with the ONGC auction.
The evidence, therefore, points in the direction of possible intervention by the government to save the auction. That institutions such as LIC and others have in the past been treated as handmaidens of the government only bolsters the case. It might well be that LIC will make handsome gains from the investment at some point in the future. Yet, that should not be confused with whether it is right for the government to lean on such institutions to bail it out of a tricky situation of its own making. The test question is: Would LIC have invested such a large sum in a single stock on its own volition?
Looks like the disinvestment ministry has taken the Life Insurance Corporation's tagline ('Why go anywhere else?') a bit too seriously.
Minutes before the government's first-ever disinvestment through the auction route was about to end in a fiasco, India's government-owned life insurer had to throw its owners a lifeline. It was roped in to bail out ONGC's floundering issue on Thursday.
The disinvestment ministry's additional secretary, Siddhartha Pradhan, of course, completely denied that there was any pressure on LIC to invest in ONGC.
Having the government of India as owner is the biggest risk to the future of the LIC.
As if one cue, the insurance company on Friday said that it "had found value" in the stock and that is why it had made a small purchase worth Rs 3,880 crore.
Nice Coincidence.
This amount, by some strange coincidence, was almost equal to the shortfall that the issue faced at the close of trading hours. To top it all, LIC's buying announcement came late in the night and the delay was conveniently attributed to technical and punching errors.
It is understandable if a small retail broker makes such an error, but the orders were directed through some of the biggest brokers in the country by a fund (LIC) which buys and sells crore worth of shares every month. And if an order worth Rs 3,880 crore was to be punched, the senior-most executive is generally present. In a normal day, given the brokerage given by LIC to its brokers, this would have resulted in a brokerage income of Rs 3.8 crore in one transaction only.
The other quaint fact is LIC's discovery of value in the ONGC stock a few minutes before the auction closed. The fact is the insurer has been holding nearly 3 percent of ONGC shares and has been regularly trading in and out of the company. LIC needs to re-evaluate its discovery process as the stock did not bleep on its radar when the price was 20 percent lower a month back.
The insurance company has also 'discovered value' in a series of banks, which needed equity infusion from the government. Given the series of disinvestments planned over the next few weeks, it would not be surprising if LIC's discoveries take it the UTI way.
For a company that has made money on the pretext of covering risk, it needs to follow its own advice.
Having the government of India as owner is the biggest risk to the future of the LIC.
Warren Buffett released his annual letter (PDF file, Adobe Acrobat required) to Berkshire Hathaway (NYSE: BRK-B ) on Saturday. If you have the time, it's worth reading the whole thing. If not, here are 25 important quotes.
On value: "The logic is simple: If you are going to be a netbuyer of stocks in the future, either directly with your own money or indirectly (through your ownership of a company that is repurchasing shares), you are hurt when stocks rise. You benefit when stocks swoon. Emotions, however, too often complicate the matter: Most people, including those who will be net buyers in the future, take comfort in seeing stock prices advance. These shareholders resemble a commuter who rejoices after the price of gas increases, simply because his tank contains a day's supply."
On market moves: "Here a confession is in order: In my early days I, too, rejoiced when the market rose. Then I read Chapter Eight of Ben Graham's The Intelligent Investor, the chapter dealing with how investors should view fluctuations in stock prices. Immediately the scales fell from my eyes, and low prices became my friend. Picking up that book was one of the luckiest moments in my life."
On foreclosures: "A largely unnoted fact: Large numbers of people who have 'lost' their house through foreclosure have actually realized a profit because they carried out refinancings earlier that gave them cash in excess of their cost. In these cases, the evicted homeowner was the winner, and the victim was the lender."
On share buybacks: "The first law of capital allocation – whether the money is slated for acquisitions or share repurchases — is that what is smart at one price is dumb at another."
On predicting turnarounds: "Last year, I told you that 'a housing recovery will probably begin within a year or so.' I was dead wrong."
On housing: "I believe [low housing construction] is the major reason a recovery in employment has so severely lagged the steady and substantial comeback we have seen in almost all other sectors of our economy."
On everything besides housing: "Though housing-related businesses remain in the emergency room, most other businesses have left the hospital with their health fully restored."
On recovery after the bubble: "[The] supply/demand equation is now reversed: Every day we are creating more households than housing units. I believe pundits will be surprised at how far unemployment drops once that happens. They will then reawake to what has been true since 1776: America's best days lie ahead."
More on buybacks: "Charlie and I favor repurchases when two conditions are met: first, a company has ample funds to take care of the operational and liquidity needs of its business; second, its stock is selling at a material discount to the company's intrinsic business value, conservatively calculated. We have witnessed many bouts of repurchasing that failed our second test."
On conditions for share buybacks: "First, we have the normal hope that earnings of the business will increase at a good clip for a long time to come; and second, we also hope that the stock underperforms in the market for a long time as well. A corollary to this second point: 'Talking our book' about a stock we own — were that to be effective — would actually be harmful to Berkshire, not helpful as commentators customarily assume."
On risk management: "[I]f the insurance industry should experience a $250 billion loss from some megacatastrophe — a loss about triple anything it has ever faced — Berkshire as a whole would likely record a moderate profit for the year because of its many streams of earning."
On acquisitions: "We now have eight subsidiaries that would each be included in the Fortune 500 were they stand-alone companies. That leaves only 492 to go."
On Burlington Northern: "We must, without fail, maintain and improve our 23,000 miles of track along with 13,000 bridges, 80 tunnels, 6,900 locomotives and 78,600 freight cars. This job requires us to have ample financial resources under all economic scenarios and to have the human talent that can instantly and effectively deal with the vicissitudes of nature, such as the widespread flooding BNSF labored under last summer."
On Berkshire's subsidiaries: "Some of the businesses enjoy terrific economics, measured by earnings on unleveraged net tangible assets that run from 25% after-tax to more than 100%. Others produce good returns in the area of 12[%]-20%. A few, however, have very poor returns, a result of some serious mistakes I made in my job of capital allocation. These errors came about because I misjudged either the competitive strength of the business being purchased or the future economics of the industry in which it operated. I try to look out ten or twenty years when making an acquisition, but sometimes my eyesight has been poor. Charlie's has been better; he voted no more than 'present' on several of my errant purchases."
On committing to bad investments: "Any management consultant or Wall Street advisor would look at our laggards and say 'dump them.' That won't happen. For 29 years, we have regularly laid out Berkshire's economic principles … [describing] our general reluctance to sell poor performers (which, in most cases, lag because of industry factors rather than managerial shortcomings). Our approach is far from Darwinian, and many of you may disapprove of it. I can understand your position. However, we have made — and continue to make — a commitment to the sellers of businesses we buy that we will retain those businesses through thick and thin. So far, the dollar cost of that commitment has not been substantial and may well be offset by the goodwill it builds among prospective sellers looking for the right permanent home for their treasured business and loyal associates. These owners know that what they get with us can't be delivered by others and that our commitments will be good for many decades to come."
On banking: "The banking industry is back on its feet, and Wells Fargo [ (NYSE: WFC ) ] is prospering. Its earnings are strong, its assets solid and its capital at record levels. At Bank of America [ (NYSE: BAC ) ], some huge mistakes were made by prior management. Brian Moynihan has made excellent progress in cleaning these up, though the completion of that process will take a number of years. Concurrently, he is nurturing a huge and attractive underlying business that will endure long after today's problems are forgotten. Our warrants to buy 700 million Bank of America shares will likely be of great value before they expire."
On derivatives: "Though our existing contracts have very minor collateral requirements, the rules have changed for new positions. Consequently, we will not be initiating any majorderivatives positions. We shun contracts of any type that could require the instant posting ofcollateral. The possibility of some sudden and huge posting requirement — arising from an out-of-the-blue event such as a worldwide financial panic or massive terrorist attack — is inconsistent with our primary objectives of redundant liquidity and unquestioned financial strength.
On bond yields: "Today, a wry comment that Wall Streeter Shelby Cullom Davis made long ago seems apt: 'Bonds promoted as offering risk-free returns are now priced to deliver return-free risk.'"
On fixed-income: "Most of these currency-based investments are thought of as 'safe.' In truth they are among the most dangerous of assets. Their beta may be zero, but their risk is huge. Over the past century these instruments have destroyed the purchasing power of investors in many countries, even as the holders continued to receive timely payments ofinterest and principal. This ugly result, moreover, will forever recur. Governments determine the ultimate value of money, and systemic forces will sometimes cause them to gravitate to policies that produce inflation. From time to time such policies spin out of control. Even in the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as 'income.'"
On liquidity: "Under today's conditions, therefore, I do not like currency-based investments. Even so, Berkshire holds significant amounts of them, primarily of the short-term variety. At Berkshire the need for ample liquidity occupies center stage and will never be slighted, however inadequate rates may be."
On gold: "Gold … has two significant shortcomings, being neither of much use nor procreative. True, gold has some industrial and decorative utility, but the demand for these purposes is both limited and incapable of soaking up new production. Meanwhile, if you own one ounce of gold for an eternity, you will still own one ounce at its end. What motivates most gold purchasers is their belief that the ranks of the fearful will grow. During the past decade that belief has proved correct. Beyond that, the rising price has on its own generated additional buying enthusiasm, attracting purchasers who see the rise as validating an investment thesis. As 'bandwagon' investors join any party, they create their own truth – for a while."
On stocks: "Whether the currency a century from now is based on gold, seashells, shark teeth, or a piece of paper (as today), people will be willing to exchange a couple of minutes of their daily labor for a Coca-Cola [ (NYSE: KO ) ] or some See's peanut brittle. In the future the U.S. population will move more goods, consume more food, and require more living space than it does now. People will forever exchange what they produce for what others produce."
On why Berkshire chooses businesses over gold or fixed-income: "Berkshire's goal will be to increase its ownership of first-class businesses. Our first choice will be to own them in their entirety — but we will also be owners by way of holding sizable amounts of marketable stocks. I believe that over any extended period of time this category of investing will prove to be the runaway winner among the three we've examined. More important, it will be by far the safest."
On opportunity: "[T]wo categories enjoy maximum popularity at peaks of fear: Terror over economic collapse drives individuals to currency-based assets, most particularly U.S. obligations, and fear of currency collapse fosters movement to sterile assets such as gold. We heard 'cash is king' in late 2008, just when cash should have been deployed rather than held. Similarly, we heard 'cash is trash' in the early 1980s just when fixed-dollar investments were at their most attractive level in memory. On those occasions, investors who required a supportive crowd paid dearly for that comfort."
On smart investing: "Investing is often described as the process of laying out money now in the expectation of receiving more money in the future. At Berkshire we take a more demanding approach, defining investing as the transfer to others of purchasing power now with the reasoned expectation of receiving more purchasing power — after taxes have been paid on nominal gains – in the future. More succinctly, investing is forgoing consumption now in order to have the ability to consume more at a later date."
Small policyholders of the country's largest life insurer are carrying the can for the government's ambitious disinvestment programme. Almost all of Life Insurance Corporation (LIC) of India's investment calls in the government's disinvestment programme that restarted in 2009 have gone wrong, resulting in huge notional losses for policyholders in the underlying schemes.
couple of months earlier, the government had allowed LIC to raise its stake in state-owned companies to over 10 per cent to help recapitalise these.
According to data compiled by the BS Research Bureau, LIC has invested around Rs 12,400 crore in seven recent divestment issues since 2009, accounting for a quarter of more than Rs 45,000 crore through public offers in the past two years. The BS Research Bureau compiled the data from the quarterly shareholding filings of 13 state-owned firms which participated in the disinvestment programme since 2009.
These holdings are worth Rs 9,379 crore at current prices. On a cumulative basis, this investment has seen an erosion of 24.5 per cent till date, resulting in a notional loss of Rs 3,038 crore. Unless there is a dramatic turnaround in the markets, these losses will eventually get passed on to the policyholders who have purchased insurance policies and unit-linked investment plans.
This is excluding last week's last-minute investment in the Rs 12,766-crore offer for sale of ONGC shares. Losses are expected to swell if the seven per cent post-auction fall in the explorer's share prices is taken into account.
LIC has been investing money collected from individuals in savings and insurance schemes, buying huge chunks of government shares in the disinvestment programme. While the government insists the institution is investing by its "investment rationale", there are not many takers for this theory.
Further, the results produced by the so-called "investment rationale" speak for itself. While the companies it had taken big bets on have seen their share prices tumble, at least four public offers the insurer avoided have performed very well.
Of the seven companies LIC bought stakes in, six are in the red. The biggest losses came in investments such as Shipping Corp (50 per cent), PTC India (41 per cent) and NMDC (39 per cent). In terms of absolute losses, the NMDC investment saw the biggest erosion of Rs 2,293 crore, followed by Rs 654 crore lost in NTPC. In SJVN, which has lost a quarter of its value since its public issue, LIC's Market Plus 1 scheme held 47.5 million shares as of December 2011. However, it is not clear what part of this stake was picked up in the said IPO.
Like in SJVN, the insurer has been trying to make amends by picking additional shares at lower prices in some other counters, too. It has added nearly 56 million shares in Shipping Corporation, 23 million in NTPC and one million in NMDC, according to the shareholding data of these companies for the quarter ended December 2011. Its only primary market investment in the green is the Rs 73-crore investment in Power Grid Corp.
This investment has seen a gain of 22 per cent or Rs 17 crore.
One of the usual explanations has been the institution buys shares for the long term and that these offers provide it an opportunity to pick good stocks for the long term. However, LIC did not buy shares in the biggest and most successful public issue of the country, Coal India, which has gained 35 per cent since. Other successful issues such as OIL India, Rural Electrification and United Bank of India, which have given decent returns to investors, were also inexplicably shunned by the country's largest institutional investor. On the contrary, these issues were lapped up by foreign institutions and private sector funds, who have laughed all the way to the bank.
An email sent to the LIC spokesperson seeking comments did not elicit any response.
In addition to the choice of stocks, the price at which these stocks were picked has also raised eyebrows in the analyst community. Several analysts have questioned the insurer's rationale of picking the ONGC stock, which did not see enough demand at the floor price of Rs 290, at a substantially higher price. The average price of the sale, in which LIC is said to have bought nearly 400 million shares, was Rs 303.
The ONGC sale is fresh in the mind, but LIC has been the lender of last resort for the government's divestment programme ever since it began in mid-2009 after the United Progressive Alliance returned to power, but without the support of Left parties.
The first crisis call came to LIC in early 2010, when the government was pushing the sale of NTPC through a follow-on public offer. The rescue story continued as the insurer picked over 168 million shares in the NMDC FPO, steeply priced at Rs 300. Both these shares are trading much below the FPO levels at Rs 178 and Rs 184, respectively. Engineers India, which offered shares at Rs 290, is now trading at Rs 273.70.
According to data compiled by the BS Research Bureau, LIC has invested around Rs 12,400 crore in seven recent divestment issues since 2009, accounting for a quarter of more than Rs 45,000 crore through public offers in the past two years. The BS Research Bureau compiled the data from the quarterly shareholding filings of 13 state-owned firms which participated in the disinvestment programme since 2009.
These holdings are worth Rs 9,379 crore at current prices. On a cumulative basis, this investment has seen an erosion of 24.5 per cent till date, resulting in a notional loss of Rs 3,038 crore. Unless there is a dramatic turnaround in the markets, these losses will eventually get passed on to the policyholders who have purchased insurance policies and unit-linked investment plans.
This is excluding last week's last-minute investment in the Rs 12,766-crore offer for sale of ONGC shares. Losses are expected to swell if the seven per cent post-auction fall in the explorer's share prices is taken into account.
LIC has been investing money collected from individuals in savings and insurance schemes, buying huge chunks of government shares in the disinvestment programme. While the government insists the institution is investing by its "investment rationale", there are not many takers for this theory.
Further, the results produced by the so-called "investment rationale" speak for itself. While the companies it had taken big bets on have seen their share prices tumble, at least four public offers the insurer avoided have performed very well.
Of the seven companies LIC bought stakes in, six are in the red. The biggest losses came in investments such as Shipping Corp (50 per cent), PTC India (41 per cent) and NMDC (39 per cent). In terms of absolute losses, the NMDC investment saw the biggest erosion of Rs 2,293 crore, followed by Rs 654 crore lost in NTPC. In SJVN, which has lost a quarter of its value since its public issue, LIC's Market Plus 1 scheme held 47.5 million shares as of December 2011. However, it is not clear what part of this stake was picked up in the said IPO.
Like in SJVN, the insurer has been trying to make amends by picking additional shares at lower prices in some other counters, too. It has added nearly 56 million shares in Shipping Corporation, 23 million in NTPC and one million in NMDC, according to the shareholding data of these companies for the quarter ended December 2011. Its only primary market investment in the green is the Rs 73-crore investment in Power Grid Corp.
This investment has seen a gain of 22 per cent or Rs 17 crore.
One of the usual explanations has been the institution buys shares for the long term and that these offers provide it an opportunity to pick good stocks for the long term. However, LIC did not buy shares in the biggest and most successful public issue of the country, Coal India, which has gained 35 per cent since. Other successful issues such as OIL India, Rural Electrification and United Bank of India, which have given decent returns to investors, were also inexplicably shunned by the country's largest institutional investor. On the contrary, these issues were lapped up by foreign institutions and private sector funds, who have laughed all the way to the bank.
An email sent to the LIC spokesperson seeking comments did not elicit any response.
In addition to the choice of stocks, the price at which these stocks were picked has also raised eyebrows in the analyst community. Several analysts have questioned the insurer's rationale of picking the ONGC stock, which did not see enough demand at the floor price of Rs 290, at a substantially higher price. The average price of the sale, in which LIC is said to have bought nearly 400 million shares, was Rs 303.
The ONGC sale is fresh in the mind, but LIC has been the lender of last resort for the government's divestment programme ever since it began in mid-2009 after the United Progressive Alliance returned to power, but without the support of Left parties.
The first crisis call came to LIC in early 2010, when the government was pushing the sale of NTPC through a follow-on public offer. The rescue story continued as the insurer picked over 168 million shares in the NMDC FPO, steeply priced at Rs 300. Both these shares are trading much below the FPO levels at Rs 178 and Rs 184, respectively. Engineers India, which offered shares at Rs 290, is now trading at Rs 273.70.
MUKESH AMBANI is Asia's richest person with a net worth of $26.8 billion, even after his shares in India's top company by market value slid 18 percent over the past 12 months, according to the Bloomberg Billionaires Index.
Reliance Industries Ltd. Chairman Ambani
Mukesh D. Ambani, chairman of Reliance Industries Ltd
Ambani, who owns 44.7 percent of Reliance Industries Ltd. (RIL), Operator of the world's biggest oil refining complex and owner of India's biggest natural gas field, ranks 11th among the world's richest. The 54-year-old industrialist's stake in the Mumbai-based energy explorer and refiner is worth $24 billion.
Last year's 35 percent drop in Reliance's share price prompted Ambani to offer to buy back the stock for the first time in seven years.
Reliance's cash more than tripled in the past two years to $15 billion after BP Plc (BP/), Europe's second-largest oil company, bought stakes in 21 fields in India for $7.2 billion last year.
Two years ago, India's richest man completed his 27-story house in Mumbai, where half of the city's population lives in slums. The skyscraper, called Antilia, is worth at least $500 million, according to Anuj Puri, chairman and country head of Jones Lang LaSalle.
UK regulators and global banks are discussing a potentially far-reaching overhaul of the calculation and regulation of interbank lending rates, amid claims that the benchmark for $350tn contracts worldwide may have been subject to manipulation.
The review comes as regulators in North America, Europe and Japan have expanded their year-long probes into alleged manipulation of the London Interbank Offered Rates, and other benchmark lending rates, which help set the price of financial products, including mortgages and credit cards.
The Libor rate-setting process is not considered a regulated activity under the UK Financial Services and Markets Act, but US and European banks and interdealer brokers have suspended or fired more than a dozen traders in recent months following allegations of abuse.
The British Bankers' Association, which sponsors Libor, and many of the banks that help set it met Treasury officials, the Bank of England and the Financial Services Authority on Monday to kick off the review process. The rethink will take into account regulatory changes such as the planned imposition of new global bank liquidity requirements in 2015.
The BBA said in a statement: "As part of the normal reviewing processes of Libor, a number of contributing banks met today to consider future regulatory and market developments, such as the incoming liquidity rules, relevant to the parameters that Libor measure."
It added that "a technical discussion with interested groups including users of the rate will commence shortly", and promised to keep the market and government officials updated.
People familiar with what was discussed in the meeting said the review could encompass everything from revamping the way Libor rates are set to imposing new regulatory oversight and compliance requirements on participating banks.
Industry participants did much of the talking, discussing market concerns about the rate-setting process and making suggestions on how to improve it. The FSA, Bank and Treasury representatives did not make clear what approaches they favoured.
Libor is set daily under the auspices of the BBA in 10 currencies. Panels of banks submit estimates of their unsecured borrowing costs over 15 different time periods to Thomson Reuters, and these are used to calculate the daily rate.
Oversight of the process is managed by the Foreign Exchange and Money Markets Committee, which is independent of the BBA and chaired by a representative of a panel bank that submits rates in at least three currencies. Thomson Reuters is responsible for looking into any outlying rates but does not make public its investigations – or any reports to the oversight committee.
Bajaj Holdings takes 3% in MCX
Rahul Bajaj-promoted Bajaj Holdings and Investment Ltd has picked a 3.06 per cent stake in the listing-bound Multi Commodity Exchange (MCX).
In a notice to investors, MCX indicated Bajaj purchased 1.56 million MCX shares from Passport Capital LLC. The deal would lead to a change in the list of top 10 shareholders in the prospectus, the company added.
Passport Capital, which operates as a hedge fund, was the fourth largest shareholder in the company with 2.5 million shares or 4.9 per cent stake as on February 10, when the company filed a draft red herring prospectus.
After this deal, Bajaj Holdings will take a joint ninth slot in the top shareholders list, holding an identical number of shares as Nabard. Passport Capital, with less than one million shares, will drop out of that list.
According to sources, transfer agreement between Passport and Bajaj Holdings was struck at Rs 800 per share, a fews days before the MCX offering opened for subscription. The source added the Forward Markets Commission (FMC) is set to clear the share transfer.
Passport Capital had acquired these MCX shares in two tranches in the past, at Rs 860 and Rs 1,155 per share. Thereafter, MCX had issued bonus shares in the ratio of 1:4 to shareholders. After adjusting for the bonus issue, the cost of each share acquisition for Passport comes to Rs 900 plus, said sources.
HT Media, another shareholder with 0.2 per cent stake, also exited the company in the run up to the IPO, according to the above notice. MCX shareholders have raised Rs 663 crore in an offer for sale, pricing each share at Rs 1,032.
The issue is getting listed in early March.
In June 2011, Passport had sold 1.6 per cent stake for Rs 62 crore in Financial Technologies (India) Ltd, one of the promoters of MCX. Passport had been cutting its stake in MCX since 2009, when it held 10 per cent in the company.
Passport Capital had started building up stakes in Financial Technologies during January 2007, when its share was trading at around Rs 1,700. The hedge fund continued to build up stake in the firm as its stock price reached over Rs 3,000 per share and was trading between Rs 2,400 and Rs 2,700 during late 2007, thus, increasing its stake to 4.23 per cent by March 2008. The fund had later averaged out its investment by buying more shares after the financial meltdown in 2008, raising its stake to 10 per cent in March 2009.
San Francisco-based Passport Capital LLC, founded by John H Burbank III in 2000, manages approximately $4.7 billion in assets. It has invested in other Indian companies like VA Tech Wabag and Koutons Retail.
Other shareholders of MCX include Euronext, Merrill Lynch, IFCI, Intel Capital and New Vernon Private Equity, besides ad-for-equity investors HT Media and Bennett, Coleman & Co, among others.
