Sebi directs NSE to divest entire 37% stake in CAMS

The market regulator has asked the National Stock Exchange ( NSE ) to divest its complete stake in its associate company Computer Age Management Systems ( CAMS ), said two people privy to the development.In a letter dated February 4, Securities and Exchange Board of India ( Sebi ) observed that NSE failed to obtain prior regulatory approval while buying a stake in CAMS during FY13-14 and hence the investment is in violation of the rules for market intermediary institutions (MIIs).NSE currently owns a little over 37% stake in CAMS through one of its subsidiaries, NSE Investments Limited (NSEIL). The development could impact the upcoming IPO plans of CAMS which filed the draft prospectus with Sebi last month, people cited above said.CAMS is the largest share registrar and transfer agent in the Indian markets with a market share of more than 60% in several segments. The company is promoted by global private equity fund Warburg Pincus and has several marquee institutions, including HDFC Bank and Faering Capital, as shareholders.NSE didn’t respond to queries.“Sebi has directed NSE to divest its stake in CAMS within a period of one year including certain restrictive directions in relation to the said stake in CAMS. The company is doing the needful in this regard,” said a disclosure by NSE during the December quarter earnings.A person cited above said the Sebi order could also impact the IPO plans of CAMS where other investors including Warburg Pincus and HDFC Bank are looking to sell stake. As per the offer document, existing shareholders are planning to sell 1.20000000 shares of CAMS through the offering, of which around 6000000 shares would come from NSE while Warburg Pincus will offload up to 4000000 shares.The rest of the shares would be offloaded by other investors. To comply with the Sebi order, NSE will have to sell entire 1.80000000 shares it currently owns.As per rules, Sebi approval is mandatory if an exchange plans to buy any new companies. Also, an approval is required if any of the new investors are buying over 2% stake in an exchange.“The order has come at a tricky time since NSE will not able to offload its complete stake through IPO. “There is also the question of demand since nearly 50% of the CAMS stake could hit the market (NSE’s 37% along with other shareholders proposed offloading of shares in the IPO), which could impact the demand for the stock.”The company is valued around Rs 6,0000000000 implying that NSE’s stake could be valued around Rs 2,000-2,2000000000.“This is a legacy issue and NSE has made all the disclosures as required and has also assured Sebi that it will comply with the instructions,” said another source cited above. “NSE is planning to honour its commitments pertaining to CAMS IPO since the issue also involves other shareholders as well.”