Financial Technologies Crashes 20% Again, Recovers

Financial Technologies shares fell another 20 per cent before making a strong recovery on Wednesday. The stock had closed 20 per cent lower on Tuesday after the government ordered the merger of the company with its subsidiary National Spot Exchange Ltd (NSEL).

Financial Technologies owned 99.9 per cent in commodities exchange NSEL, which shut down last year after defaulting on obligations to counter-parties amounting to around Rs 5,500 crore. NSEL has since faced legal cases from traders in the exchange after failing to settle outstanding contracts.  (Read)

Once the merger is done, Jignesh Shah-promoted Financial Technologies will have to fully absorb the outstanding liabilities of NSEL. The possibility of such a huge hit to FTIL balance sheet has unnerved investors. FTIL had just Rs 120 crore of cash and bank balance as of March 31, 2014. (Read)

The government invoked a rarely used legal clause that allows it to order a merger between two companies if deemed in the public interest. Merging NSEL into Financial Tech would transfer any liabilities from the exchange to the trading software provider.

"It will be essential public interest to amalgamate NSEL and FTIL (Financial Tech)," the corporate affairs ministry said in the written order.

The Ministry of Corporate Affairs argued merging the two companies would combine assets and capital and could allow the "satisfactory settlement of rights and liabilities of stakeholders and creditors of NSEL".

In a statement to the stock exchange, Financial Tech said it is "taking appropriate steps in the matter in consultation with the legal counsel of the company".

Financial Tech and its founder Jignesh Shah are being investigated by the Mumbai police's economic offences wing over its potential role in the defaults at NSEL.

Both the company and Shah have denied knowledge of any wrongdoing at NSEL.

The ministry asked the shareholders and creditors of NSEL and Financial Tech to respond within two months to any objections to the merger.

As of 12.55 p.m., Financial Tech shares traded 7 per cent higher at Rs 181.50 on the NSE.

(With inputs from Reuters)