Reliance Money Plans to Start Stock Exchange with FTIL

Anil Dhirubhai Ambani Group firm Reliance Money has set its eyes on giving competition to the two premier stock exchanges in the country, viz. Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE). Reliance Money in collaboration with Financial Technologies India Ltd (FTIL) plans to start its own stock exchange.

Reliance Money has the monetary backing of R-ADAG group; it is also a prominent player in commodity market after picking 10% stake in the National Multi Commodity Exchange (NMCE). The company wants to increase its holding to 26% in near future. Reliance Money’s spot exchange for agriculture commodities is also expected to early 2009. The FTIL group has interests in a currency futures exchange, commodity futures, power exchange and spot exchange for agricultural commodities and plans to set up an exchange for SMEs. It has also set up exchanges overseas.

There is tremendous scope for equity stock exchange in the country that has only 5% of its households investing in equities compared to the global average of around 50%. The equity derivative segment has the biggest scope, with the NSE enjoying a virtual monopoly in the segment with an average daily volume of around Rs 40,000 cr. The spot equity market average turnover doesn’t even match up to half of the NSE derivate average, with the BSE having a daily average volume of Rs 4,000 cr and the NSE having daily average volumes at Rs 10,000 crore in the spot segment.

Any aspirant in the stock exchange segment will however need approval from the Reserve Bank of India (RBI). For FTIL, the equity exchange would be an extension of MCX-SX, its currency trading exchange, which was launched under a subsidiary. Reliance Money will have to set up a new company. Another issue could be equity holding, SEBI has recently decided to allow a single shareholder to hold a maximum of 15% in stock exchanges, but has not notified this yet. The aspirant companies’ track record will also be key factor in getting regulatory approval. If approved, this will be the first stock exchange after 1994, when the NSE was set up

Even though both sources have not confirmed the development, both are eyeing the possibility of an exchange for small and medium-sized (SME) enterprises, an area which is beleaguered with several failed attempts. Earlier ventures such as the Indo Next under the BSE trading platform, Over the Counter Exchange of India (OTCEI) and Inter-Connected Stock Exchange of India had failed to take off.

Worldwide SME exchanges are flourishing. LSE's Alternative Investment Market (AIM) was established in 1995 to nourish young entrepreneurial British firms. AIM is home to over 1,500 firms of which close to 250 are listings of firms based outside Britain. Obviously, one of the attractions for overseas firms is the laidback regulatory regime.

R-ADAG looks to buy AIG’s life insurance business in Asia

R-ADAG has set its eyes on acquiring the life insurance business of AIG in Asia (ex-India); this comes close after Group Company Reliance Money acquiring 15% stake in Hong Kong Mercantile Exchange, which came on the back of a partnership with local firm Goldride Securities, for distributing financial products and services. Rumors have it that Citibank, acting on behalf of AIA, has approached ADAG to buy out AIA. ADAG is likely to be one of several bidders looking to buy these AIG businesses The AIG deal if goes through, could well be the second-largest overseas buyout by an Indian firm pegged at an asking price of around $10 bn, ADAG however is valuing between $5-6 bn. This deal would also make Reliance the largest life insurer in South-East Asia.

AIG has been going through tough times in recent times, last month, the US nationalised AIG, which was on the brink of collapse by acquiring 80% in the insurance giant with an $85 bn loan and restructured its top management. AIG, which had assets in excess of $1 trillion in 2007, has been looking to sell parts of its businesses and assets and focus on the core general insurance business. Globally, AIG operates majorly as AIA while in some markets like Australia and New Zealand, it functions as AIG. AIG’s move to sell AIA is at variance with its earlier statement to retain a continuing ownership interest in its foreign life insurance operations. Life insurance and retirement services business is the largest revenue generator for AIG. Out of the total revenues of $110 b in 2007, life insurance generated $53.6 bon and general insurance $51.7 bn. Asset management and other financial services are comparatively smaller business areas of AIG globally.

Meanwhile R-ADAG already has a life insurance company venture in India, viz Reliance Life Insurance. It is an associate company of Reliance Capital, the flagship financial services firm of the group, which has interests in asset management, stock broking, insurance, proprietary investments, private equity and other activities in financial services. In India, AIG has a 24:76 life insurance JV. This business is unlikely to be part of the proposed deal with Reliance-ADAG, as the Tatas may have a right of first refusal in any sale by AIG.

Reliance Big Entertainment hits it BIG

R-ADAG's Reliance Big Entertainment has clinched a $1.2 bn deal with Hollywood’s leading director Steven Spielberg, to finance the director’s future projects. Reliance will invest $500 mn and provide another $700 mn in debt through JPMorgan Chase & Co. Thirty films are likely to emanate from Reliance's co-financing and 10 will go into production soon. The deal will split the long standing tie-up between DreamWorks and Paramount Pictures, which bought the production house for $1.6 bn in 2006.

DreamWorks SKG was founded in 1994 by Spielberg, Jeffrey Katzenberg and David Geffen. Spielberg retains the rights to the name DreamWorks and is expected to affix it to the new entity. Some hit movies produced while DreamWorks was housed at Paramount including the Will Ferrell comedy "Blades of Glory," "Transformers" and "Sweeney Todd: The Demon Barber of Fleet Street." The deal is expected to save Paramount overhead costs by cutting loose the high-priced director. Frictions emerged due to the cost of keeping between Paramount and DreamWorks. Paramount could however still be involved in distributing films made by the group, including jointly produced movies such as the upcoming sequel "Transformers: Revenge of the Fallen." Meanwhile Spielberg is expected to continue to direct "Indiana Jones" sequels with Paramount and Lucasfilm as production companies.

Earlier in the year, Reliance Big Entertainment had announced during the Cannes Film Festival in May, that it would invest $1 bn to develop and co-produce movies with Hollywood stars George Clooney, Brad Pitt, Tom Hanks and Nicholas Cage and filmmaker Chris Columbus' 1492 Pictures. Reliance Entertainment has as many as 100 films in production and development in India, and Reliance Big Entertainment, a subsidiary, is focused on striking cross-border collaborations involving gaming, movies, online, animation and music.

Privatisation of Pension Funds picks up; Reliance ADAG beneftis

In a major boost to pension reforms, that would chalk the path for the future, the government finalized four private asset management companies to manage the funds of the Employees’ Provident Fund Organisation (EPFO), its largest pension fund from September. The chosen four are HSBC AMC, ICICI Prudential AMC, the already shortlisted SBI AMC and a last minute entrant in the group Reliance AMC. The decision ends the 56-year monopoly of the SBI as the sole EPFO fund manager. Around 4.5 cr workers are expected to gain from their asset management expertise on their retirement savings from September 1. The move will also save the fund Rs 2.5 cr per annum in fund management fees. At present, EPFO pays Rs 5 cr to SBI. But the new fund managers have quoted lower fees. While HSBC AMC quoted an asset management fee of 0.00063%, ICICI’s fee was 0.00075%. Both SBI and Reliance Capital quoted 0.01%.

Reliance AMC, was not among the managers shortlisted by the Finance and Investment Committee (FIC) earlier. More so, as SBI scored over Reliance on technical grounds. It was also decided to keep only a minimum three companies were to be finalised to replace SBI. However, Central Board of Trustees of EPFO decoded the rules to appoint four.
The four finalised AMCs will, however, only manage the annual incremental funds of around Rs 30,000 cr. They will also render custodial services for maintaining the previous investments, currently held by SBI. The allocation of fund for the management to the successful bidders, based on the asset management fee, will be decided by the EPFO's finance and investment committee. The funds will however, continue to be managed as per the existing norms, which allow up to 5% equity investment. Currently, EPFO does not invest in the stock market, though there is a proposal to allow the fund to invest up to 10% of its corpus in equity. This plan has been however, intensely resisted by trade union representatives on the CBT.