Norwest Venture Partners (NVP) is to acquire a 2.11 percent stake in the National Stock Exchange of India (NSE) from IL&FS Securities Services for approximately INR2.5 billion ($53 million; €37 million).
The transaction values the stock exchange at more than INR120 billion. The NSE’s board of directors have approved the sale, which is expected to close within next week.
The investment is a levered play on the Indian growth story.
Based in Mumbai, the NSE is India’s largest exchange and is ranked third in the world by number of trades in the equities market.
“We think the investment is a levered play on the Indian growth story. The reason is because the revenues from the stock market are directly linked to Indian economy. Also, because of the fixed cost nature of the business model, incremental revenues drop straight to the bottom line,” Sohil Chand, managing director of NVP India, said in an interview. The investment was made out of NVP No. 10, the firm’s $650 million global fund, he added.
The acquisition follows a clarification made by India’s Ministry of Finance in November 2008, which said that foreign institutional investors could hold up to 23 percent of the equity in an Indian exchange, even if the exchange was unlisted.
In October 2008, NVP appointed Chand, a former Goldman Sachs executive director, to make growth equity investments in Indian companies. The firm typically invests up to $50 million in growth equity opportunities and up to $15 million in early to mid-stage Indian companies.
In 2007, a group of investors comprising General Atlantic, Goldman Sachs, Softbank Asian Infrastructure Fund and the NYSE Group each acquired a 5 percent stake in the NSE. Then, NYSE, the parent company of the New York Stock Exchange, disclosed that it paid $115 million for its stake, valuing the NSE at approximately $2.3 billion at the time.