Saturday, August 9, 2008

Merrill Lynch Transfer Of Its 5% Stake In MCX - Aug 09 , 2008

NEW DELHI: Merrill Lynch is transferring half of its 5% stake in Multi Commodity Exchange (MCX) to a separate entity, Valley Energy. The US financial services giant had picked 5% in MCX for Rs 205 crore in September 2007. This was a pre-IPO placement for MCX, which filed its draft prospectus for public float in February this year.

The US financial services firm is now in the process of transferring half of its stake in MCX to a recently-formed subsidiary in Mauritius, Valley Energy, an affiliate of Merrill Lynch Holdings (Mauritius). Valley Energy will hold 2.5% in MCX as part of this transaction. Its holding will, however, come down to 2.25% after the proposed IPO.

It is learnt that Merrill Lynch has applied for FIPB’s green light before MCX proposed the IPO. This is because if the proposal for transfer of shares to Valley Energy is not cleared before the allotment of shares under the IPO, the US firm won’t be able to do so for another year as it would have to comply with the share ‘lock-in’ clause.

The transaction is seen as a result of norms set for foreign investment in Indian commodity exchanges. Earlier this year, the government had allowed foreign investment up to 49% in commodity exchanges, out of which FII investment would be 23%. The norms had the clause that no single entity would hold more than 5% in the commodity exchange.

Merrill Lynch had invested in MCX through the FDI route. After the transaction, the equity stake held by Valley Energy will also be treated as FDI.

As per Sebi guidelines, shareholders who hold shares in a company before its goes public cannot sell them for a year from the date of allotment of shares in the IPO. This basically means these ‘locked-in’ shares cannot be bought or sold for one year.

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