HKEx joins London Metal's suitors

PUBLISHED : Saturday, 18 February, 2012, 12:00am
UPDATED : Saturday, 18 February, 2012, 12:00am


Hong Kong Exchanges and Clearing, operator of the local stock market, is among the bidders lining up to buy the London Metal Exchange as part of a plan to expand into commodities trading, according to two people familiar with the situation.

'The HKEx has been very successful in equities trading but it has to go beyond equities. A takeover of the London Metal Exchange would suit its plans to expand into commodities trading,' one of the sources told the South China Morning Post.

HKEx chief executive Charles Li Xiaojia said last month the bourse wanted to go beyond its current core business of initial public offerings and equities trading. The next expansion plan would be to launch yuan-denominated commodities futures trading, and Li said he would not rule out such an expansion by way of establishing an alliance or mergers.

The HKEx has been the world's largest IPO market worldwide over the past three years in terms of funds raised, but its only commodities trading is in gold futures.

The sources did not disclose the HKEx bid price, but brokers believe it may be up to GBP1 billion (HK$12.2 billion) to compete with other bidders who include the New York Stock Exchange, Euronext, CME and Intercontinental Exchange.

Another person familiar with the situation said the HKEx had put in a high bid, but it was difficult to predict the outcome.

'The LME may have other considerations and the HKEx will also need to consider if it can keep the members and the key employees of the LME after an acquisition. It is just too early to say if a deal will be sealed,' the person said.

The HKEx spokesman did not comment about the proposal.

The London Metal Exchange is the world's largest metals futures market and is owned by its members who include Goldman Sachs, Barclays and Citi. It handles about 80 per cent of global trade in metal futures and the bull run in commodities prices in recent years boosted turnover, to US$15.4 trillion worth of contracts last year and led to the bids.

London Metal Exchange started trading tin and copper in 1877 before it expanding into aluminium, nickel, zinc and lead, and minor metals including cobalt and steel contracts. The LME members will meet next week to consider offers.

Chim Pui-chung, financial services sector legislator, urged HKEx to think carefully about the proposal.

'There are not really so many commodities traders in Hong Kong. Many investors do not understand the products and the risks are very high,' he said.

Former futures exchanges had launched a number of commodities futures contracts which were later cancelled due to lack of trading and even an acquisition may not ensure that HKEx could establish a market in Hong Kong overnight, Chim added.

'As such, the HKEx had better not waste a huge amount of money on an acquisition which may bring little good,' he said.