Financial Technologies chief Jignesh Shah defended his firm, which has been accused by a special audit of indulging in several wrongdoings when it controlled MCX , and questioned why the report was released just as FTIL was about to divest its stake in the commodities exchange.
In an interview with CNBC-TV18's Sajeet Manghat, Shah said transactions between the two firms were in consonance with law and denied the contention that as a promoter firm, FTIL had taken undue advantage of MCX, as alleged by the audit that was carried out by PricewaterhouseCoopers at the behest of the Forward Markets Commission.
FTIL has been asked to divest most of the 26 percent stake it holds in MCX by regulator FMC after a Rs 5,600-crore scam broke out last year at National Spot Exchange, a wholly-owned subsidiary of FTIL.
Also read: Pwc audit of MCX: IPO document had warned investors of risk
A summary of the audit was released in the public domain yesterday aftter interested investors had asked the new management of MCX to release key findings of the report, as they believed it may contain price-sensitive information.
The audit, among several other instances, says that despite being a significant customer for FTIL (which provides technology solutions to financial-services firms), MCX did not appear to "enjoy adequate bargaining power" and in most cases, the amounts billed by FTIL were not "commensurate" with the services offered to MCX on a time-and-material basis.
But Shah said such one should look beyond traditional payment models such as dollar-per-hour or number-of-engineers-deployed, and that transactions such as the ones entered into by FTIL were commonplace for technology companies. "Several technology deals, especially where there is significant capex deployed, work on revenue-sharing or pay-for basis," he said.
The report also said contracts signed between the two firms ranged for "unprecedented long tenures of between 33 and 50 years", to which Shah said there was nothing abnormal about such contracts and that when FTIL was to be listed, global investors had insisted on seeing "certainty of continuity of revenue" [and hence the nature of long-term contracts]. "They understand these businesses."
On the point why MCX was not offered the right to exit the contract without paying a penalty while FTIL was, as pointed out in the report, Shah was evasive, and said all agreements transparently-disclosed in the red-herring prospectuses when the two firms were listed, were agreed upon by boards of both companies and "vetted by reputed law firms" and that he would see if the charge stood up in a court of law.
While questioning the timing of the release just as the FMC deadline (April 30) for FTIL to divest its MCX stake hovers over it, he said he was confident the process would not be derailed.
"I am yet to speak with JM (underwriters to the stake sale) after the release of the report. Bidders will see the report and get back to us and the MCX management if they have questions."
Several entities such as Reliance Capital and Kotak Group had earlier put in non-binding bids to buy the FTIL stake but had expressed reservations about concerns raised by PwC and wanted to have the report released before taking a call on the issue.
Financial Tech stock price
On April 30, 2014, at 14:29 hrs Financial Technologies was quoting at Rs 316.35, down Rs 16, or 4.81 percent. The 52-week high of the share was Rs 870.30 and the 52-week low was Rs 102.05.
The company's trailing 12-month (TTM) EPS was at Rs 50.03 per share as per the quarter ended December 2013. The stock's price-to-earnings (P/E) ratio was 6.32. The latest book value of the company is Rs 580.93 per share. At current value, the price-to-book value of the company is 0.54.
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