Goldman close to investment in Indian commodities exchange

Goldman Sachs said to be in discussion to acquire 7.5% stake in IndiaÆs National Commodity & Derivatives Exchange Limited (NCDEX) from ICICI Bank.
Goldman, Sachs is currently in discussion to acquire up to a 10% stake in IndiaÆs National Commodity & Derivatives Exchange Limited (NCDEX).

NCDEX is an online multi-commodity exchange promoted by ICICI Bank, Life Insurance Corporation of India, National Bank for Agriculture and Rural Development and the National Stock Exchange. NCDEX is a public limited, unlisted company and commenced operations on December 15, 2003. It currently facilitates trading of 48 commodities and announced recently that it would be adding onions, potatoes and basmati rice to the list by end of July. NCDEX also offers some information products such as an agricultural commodity index.

ICICI Bank holds about 15% in NCDEX and it is understood Goldman is in discussions to acquire at least half its stake. Bankers say that Goldman views this as a portfolio investment for its PIA group, and its interest is driven by the potential for growth in this area in India.

The interest of foreign financial institutions is corroborated by events earlier this year. In February Fidelity acquired a 9% stake in the Multi-Commodity Exchange of India (MCX) for around $50 million. Many are predicting that the value at which the MCX transaction was consummated could provide a benchmark for ICICI Bank. MCX is an independent multi-commodity exchange which started in November 2003 to facilitate online trading, clearing and settlement operations for commodity futures markets across India offering futures trading in more then 55 commodities. Its shareholders include Financial technologies, State Bank of India and its subsidiaries, the National Stock Exchange and others.

ICICI Bank has been selling non-core assets in an effort to clean up its balance sheet. It exited, in tranches, its 20.6% stake in Federal Bank and 11% in South Indian Bank, choosing not to even retain the 5% permissible under the Reserve Bank of India guidelines. The second tranche of 6.7% in South Indian Bank which ICICI Bank sold earlier this year was purchased by Goldman Sachs Investments and the India Capital Fund, both existing shareholders in South Indian Bank. It also sold its residual 4.7% in Federal Bank to IFC Washington. These transactions were executed in March and netted ICICI Bank a healthy profit.

Yesterday ICICI Bank's shares reacted to the rumoured sale by rising 2% to Rs500 ($11.1) during early trading but then closed weaker at Rs480 ($10.7) when late session profit-taking took its toll. The broader market closed at 10,162.

Observers have been waiting for news on Goldman Sachs plans for Indian since the firm announced it was opting out of its joint venture with Kotak in March this year. At the time Goldman Sachs had reiterated its interest in India and stated its intent to invest $1 billion in principal businesses in the country.
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