MCX expected to list at 35-40% premium to the IPO price of Rs 1,032 apiece

MUMBAI: Multi-Commodity Exchange, which received bids worth Rs 35,000 crore for its Rs 660-crore initial public offering (IPO), is set to debut on the domestic bourses on Friday. MCX, the first Indian exchange that will be listed on the bourses, is expected to list at a 35-40% premium to the IPO price of Rs 1,032 apiece, as per the rates in the unregulated grey market.

MCX shares, which were to be listed only on the BSE, will also be available for trading on the National Stock Exchange. But, the hour-long special pre-open session, starting at 9 am to discover the ‘equilibrium price’ through a call auction will be available only on the BSE.

The 20% circuit filter, starting 10 am, will be based on this equilibrium price. MCX is the first company to be listed after Sebi introduced circuit filters on the listing day. High net worth investors, who had borrowed funds to invest in the offer for sale, would like to see a premium of over 35-40% on listing to be profitable. HNIs have been alloted only a fraction of what they had applied for due to over 150 times subscription in the non-institutional investors category.

A bid worth around Rs 15 crore has fetched about 1,000 shares in the non-institutional category. An investor in the non-institutional category, who borrowed at 12% rate for eight days to subscribe to the issue, will have to pay an interest of about Rs 400 per share.

So, this means the investor, who has borrowed at 12%, will profit only if the share lists above roughly Rs 1,400 apiece. A majority of the borrowings has been made at 12-14% interest rates. MCX will have to list at roughly 35-40% premium if they have to break even on their investment. Retail investors, who put applications worthRs 2 lakh in the issue, have got about eight shares.

“Even a 35% premium may not break-even HNIs’ cost of funding as the category saw a huge subscription of 146 times. Most HNIs who have borrowed at 12-14% for 8-10 days, will achieve break-even only if the stock lists at a premium of at least Rs 400,” said Ahmedabadbased grey market broker Dhaval Shah. Grey market brokers said the activity has been subdued in the run-up to the listing partly due to weak market sentiment.

“Due to high borrowing costs, expectations had mellowed over the last few days. The weak market sentiment added to the waning interest. The only entities that made a killing were the NBFCs,” added Shah.

Investors will also be keenly watching the outcome of MCX-SX which has filed an application to set up a new equities trading platform. MCX owns 5% in MCX-SX. In the event of an adverse outcome in the outstanding litigation between MCX-SX and Sebi in relation to the application for diversification of trading operations, it may not be able to benefit from the investments as anticipated, according to a pre-IPO note by Nirmal Bang Securities. Major upsides in MCX’s near-term business prospects will depend on whether the government introduces a commodity transaction tax in the March 16 Budget.

“The government may levy a commodity transaction tax which would raise the trading cost and negatively affect volumes,” said CLSA’s Prakhar Sharma. “Also, while the permission to offer options-contracts is expected to expand the market, participation of banks may be restricted by RBI,” he said in a note to clients last month.

Publisher’s Disclosure: “Bennett, Coleman & Co. Ltd and/or its subsidiaries holds 3.04% of the pre-offer share capital of MCX, as on the date of filing of the DRHP with Sebi