MCX Announces New Investment in Associate Company IIBH

Multi Commodity Exchange of India Limited (MCX) announced in a stock exchange filing that its Board of Directors, during a meeting on July 27, 2024, approved further investment in its associate company, India International Bullion Holding IFSC Ltd (IIBH).

MCX will subscribe to the Rights Issue of 20 crore equity shares at ₹1 each, totalling ₹20 crore. This investment is capped at a maximum of 20% of the paid-up capital of IIBH and is contingent upon receiving approval from the Securities and Exchange Board of India (SEBI).

IIBH is an unlisted public company with a turnover of ₹22,95,66,610 as of March 31, 2024. It serves as a holding company with two wholly owned subsidiaries, both of which are Market Infrastructure Institutions (MIIs) regulated by the International Financial Services Centres Authority (IFSCA) and based in GIFT City, Gujarat. These subsidiaries are India International Bullion Exchange IFSC Ltd (IIBX) and India International Depository IFSC Ltd (IIDI). IIBX functions as both an exchange and clearing corporation, while IIDI operates as a depository.

The current investment is considered a transaction with related parties and is conducted at arm’s length. Notably, MCX does not have any promoter or promoter group. The primary objective of this investment is to enhance MCX’s position in the bullion derivatives market, where it holds the largest market share in both futures and options. MCX prices are widely used as a national reference for transactions within the bullion value chain, providing a hedge against international price movements, currency rate fluctuations, and changes in duty tariffs.

MCX’s futures contracts, which mandate compulsory delivery, have facilitated the delivery of 140 MT of gold and over 4000 MT of silver since inception, creating a seamless linkage between spot and futures markets. This integration has become a standard practice within the bullion ecosystem. Globally, successful examples of spot exchanges for gold include the Shanghai Gold Exchange (SGE) in China and Borsa Istanbul in Turkey. Given India’s position as the second-largest gold consumer globally, India has a strategic need to play a significant role in domestic price discovery.

The presence of IIBX, a bullion spot exchange, alongside MCX, is expected to bring synergies and improve market efficiencies for the bullion and jewellery value chain in India. SEBI approved the investment on July 25, 2024, and the allotment is expected to be completed by August 13, 2024. The cost of acquisition is 20 crore equity shares at ₹1 each, with MCX’s shareholding post-acquisition not exceeding 20%.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.