GS plans to expand into commodities in India

By agencies   |   Friday, 30 June 2006, 07:00 Hrs
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BANGALORE: Goldman Sachs Group, the large U.S. securities firm, plans to buy a stake in the National Commodity & Derivatives Exchange, reflecting growing interest in the surge in commodity trading in India.

Describing the deal as strategic, P.H. Ravi Kumar, managing director and chief executive of the exchange, said "Goldman Sachs is a formidable name in commodities trading globally and we believe that they will bring these skills to our exchange."

Goldman Sachs will pay $330 million for a 7 percent stake in the exchange from ICICI Bank, India's largest private bank. ICICI Bank, which owns 15 percent of the exchange, is selling less than half its stake to Goldman Sachs.

This would be Goldman Sachs's biggest investment in India to date. "The Indian market represents tremendous growth and opportunity," L.Brooks Entwistle, the chief executive of Goldman Sachs (India), was quoted as saying this year.

The exchange, which is just two and a half years old, is Asia's third-largest commodities exchange after Tokyo and Shanghai and the 14th-largest in the world. It is unlisted and trades $1.2 billion worth of products daily.

Among its institutional shareholders are four state-owned companies, the National Stock Exchange, ICICI Bank and Crisil, a rating agency.

Strong economic growth and rising income levels in India have bolstered investments in commodities, making the country attractive for investors in the trading exchanges.

About 80 percent of the trades in the National Commodity & Derivatives Exchange are currently in agricultural commodities like sugar, wheat and vegetables. But the share of energy commodities, like Brent blend crude oil, natural gas, coal and electricity is rising significantly.

With India one of the world's largest consumers of energy, the rising energy commodities trade has undoubtedly been an attraction for Goldman Sachs. There is also significant potential in bullion. India is the world's largest consumer of gold and is expected to soon turn into a price-setter in the commodity.

Currently, foreign investors and overseas institutions are not allowed to trade on the commodities exchanges but there are indications that regulators might relax the rules for some commodities.

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