HKEx chief defends offer of £1.39b to buy London Metal Exchange

PUBLISHED : Thursday, 16 August, 2012, 12:00am
UPDATED : Thursday, 16 August, 2012, 3:54am

Hong Kong stock exchange chief executive Charles Li Xiaojia has rejected claims that the the offer it made for the London Metal Exchange was too high and said the deal was needed for the bourse to diversify its businesses and reduce reliance on market turnover.

After a long bidding war, Hong Kong Exchanges and Clearing in June offered to pay £1.39 billion (HK$16.92 billion) for the LME, the world's largest metal exchange.

Analysts, however, have expressed concern that the steep price tag may hurt the HKEx's profit in the near term. The acquisition price is 180 times the LME profit made last year.

"Any transaction needs to pay a price and involves taking some risks," Li said. "However, the deal may prove to be value for money in the long term. The biggest risk for the HKEx is for us to sit there and do nothing."

He said buying the LME would allow the exchange to diversify its income sources and cut reliance on stock market transactions.

Last week, the exchange reported a disappointing second-quarter result, with a profit decline of 21 per cent due to low market turnover and fewer initial public offerings.

More than 70 per cent of the HKEx's income is related to the stock market, such as trading fees paid by investors on each shares transaction and listing fees paid by listed companies. "The present business model … relies heavily on average daily turnover," Li said. "After taking over the LME, we can develop a new business model to have income from both equities and commodities trading.

"With the LME platform, we can launch more yuan products. We can also lobby mainland authorities to allow mainland investors to trade in the Hong Kong market."

Li also said he wanted to keep all the 100 or so members of the LME management team. "We will study new incentives for the LME staff to stay on," he said.

To finance the deal, he said, the HKEx would arrange bank loans and issue bonds or equities. He stressed that the bourse would not change its dividend payout policy, which is equal to 90 per cent of its profit.

The deal has gained approval from shareholders of the commodities exchange but is awaiting the nod from British regulators in November.

Separately, printing firm A.Plus Financial Press, confirming a South China Morning Post report on Tuesday, said it was the victim of an alleged hacking attack on its computer system on Sunday that led to four company announcements being mixed up upon release on the HKEx website. It has made a police report.

Li said all listed firms had a duty to monitor their printers and ensured the right files were uploaded to the HKEx website. "[They] need to have appropriate internal controls to ensure [there would be] no problems."