HKEx must wait to celebrate a London marriage
Hong Kong Exchanges and Clearing is likely to be the final bidder for the London Metal Exchange, but it is too soon to declare victory.
In London, LME members may not be ready to say 'yes, I do' to the proposed marriage. On the Hong Kong side, analysts and shareholders wonder if HKEx will pay what is expected to be a high price. After several rounds of submissions since December, HKEx has emerged as one of two remaining bidders. The LME board on Thursday is expected to choose.
HKEx chief executive Charles Li Xiaojia is in London to use the 'China card' to win the hearts of LME members and shareholders. Should HKEx win the bid, it can help the London exchange expand in China. The London bourse trades metals such as copper and aluminium and has a worldwide network of warehouses, but mainland China has not yet opened up for it. HKEx's China card looks attractive.
If HKEx is to be chosen, it will need to offer more of a business plan - it needs to the support of 75 per cent of shareholders and 50 per cent of members to secure victory. The LME is owned by 70 of its 94 members, including Goldman Sachs, JPMorgan Chase and Citigroup.
The membership vote may be the key. It is similar to the headcount vote required for privatisation deals in Hong Kong, meaning brokers holding a few shares can work together to block the deal. To win their hearts, Li may need to promise that their current 'lifestyle', such as their trading method, would be retained. The LME uses open outcry to trade, with its brokers sitting in a circle, called 'the ring', to strike deals in five-minute bursts of trading.
Keeping the ring may be easy, but for HKEx to promise no changes at all after the acquisition would be difficult. HKEx was demutualised 12 years ago and is now a company aimed at making a profit. However, LME is still owned by members. It is not geared to making a profit; rather, its rules are aimed at making sure members are happy.
If Li promises not to make changes to the LME, how can it be transformed into a profit- making machine? And if it is not making a profit, why bother to pay more than ?1 billion (HK$12.1 billion) to buy it?
In January, Li vowed to lead HKEx beyond equities, and expand into commodities. The LME deal is a golden opportunity to achieve that goal, but ensuring the deal can also bring profit to HKEx shareholders is not an easy task.
The city's bean counters now have a closer link with their British counterparts.
The Hong Kong Institute of Certified Public Accountants yesterday signed a memorandum of understanding with the Institute of Chartered Accountants in England and Wales to boost co-operation between professionals in the two places.
The MOU extends the scope of membership and co-operation agreement between the two institutes.
They previously signed agreements to allow Hong Kong institute members who passed through its qualification programme to apply to become members of the England and Wales body. Yesterday's signing widens that scope to allow all other Hong Kong institute members to become members of the England and Wales institute.