International man of mergers

As chairman of HKEx, Chow Chung-kong is putting his acquisitions experience to good use as he oversees the bourse's merger with LME

PUBLISHED : Monday, 18 February, 2013, 12:00am
UPDATED : Monday, 18 February, 2013, 4:10am

Chow Chung-kong, the chairman of Hong Kong Exchanges and Clearing, is hard-pressed to remember the first shares he purchased as a teenage investor.

But the 62-year-old chairman has keener memories of his 39-year career, which has included a spectacular portfolio in terms of companies as well as their locations. Dubbed by analysts as one of Hong Kong's most successful executives on the world stage, Chow spent 25 years working in the United States, Britain, Japan and Australia before returning to Hong Kong to become chief executive of MTR Corp between 2003 and 2011.

Chow says all his past experiences have helped him perform in his current role as chairman of HKEx, a position he has held since April last year.

"Past experience helps to shape an individual's vision. It is not just what you have gone through, but what you see from what you have gone through," said the chairman, who was all smiles during an interview at the HKEx offices in Central.

This is the first time he has been chairman of a listed company. Previously, he held chief executive positions and acted as non-executive chairman of Standard Chartered Bank (Hong Kong), a private arm of the British lender.

"Being a chairman, I have to lead the board to practise good governance and set strategy, and make sure I give sufficient room for chief executive Charles Li Xiaojia to manage the business," he said.

When Chow was appointed as chairman, brokers and even some HKEx staff members raised concerns that he had no experience in broking or exchange matters. Nine months on, however, Chow has shown he is the man best suited for the role. His past international experience in handling cross-border mergers was found to be most useful as he led HKEx into its first overseas acquisition.

Two months after he became chairman, the exchange beat rival bidders with its £1.39 billion (HK$16.94 billion) takeover offer for the London Metal Exchange (LME), the world's largest base metals exchange. When the deal was completed in December, Chow flew to London to meet LME staff members in the first step to merge the two bourses.

Chow admits he favours expanding businesses by way of acquisition, a strategy he applied during his career as a chief executive.

"A merger, if you can handle it properly, is a useful tool for business success," he said. "The LME has over 130 years of history and it has the systems and platform to set the price and standard of commodities trading. It has the global warehouse network to do physical delivery. Buying the LME allowed HKEx to own the world's largest metal exchange overnight, which is an important step forward for the development of HKEx."

The deal is an important step in diversifying HKEx's business as it battles falling turnover and fewer initial public offerings (IPOs) due to economic uncertainties in the US and Europe.

Total IPO funds raised last year dropped 65.43 per cent from 2011 to HK$89.82 billion. Hong Kong was the world's fourth-largest IPO market last year, after holding the No1 spot from 2009 to 2011. Average daily turnover stood at HK$53.85 billion, down 22.77 per cent.

Chow is not worried about the decline. "What is more important is to maintain the quality of our market. The Securities and Futures Commission this year will introduce measures to tighten regulation of listing sponsors. When the market quality is good, the international companies that want to raise their profile in Asia would like to come and list here," he said.

Chow, who was born and grew up in Hong Kong, loves history and literature. But he feared those subjects would be difficult to study in the West, so he opted to study chemical engineering at the Universities of Wisconsin and California. History remains his personal interest, and he now reads historical books to relax.

After he graduated, he had a brief stint as a research engineer in the US before coming back to Hong Kong in 1975 to join Hong Kong Oxygen and Acetylene, a joint venture of British Oxygen and a French company, which provides oxygen for medical use and for other industrial gases. He became managing director in 1984, was made head of British Oxygen's Japanese arm in 1986, and then relocated to London to lead the company's gases division, where he had his first taste of running an international firm.

Recruited to be the head of British engineering giant GKN in 1996, Chow found his situation to be similar to what he sees today at HKEx. GKN, a 250-year-old firm, had a strong traditional business in vehicle, aerospace and industrial services. Chow restructured the portfolio to create three world-class firms. The expansion took the company to new heights and Chow received a knighthood in recognition of his work.

But mergers may not always be successful. His stewardship of a merger in 2001 between a GKN unit and Brambles, its Australian joint-venture partner, did not turn out well, with shares of the consolidated firm diving by as much as 60 per cent during his two-year tenure at the helm.

His next merger was a success. After coming back to Hong Kong to become chief executive of MTR in 2003, he handled the merger of MTR with Kowloon-Canton Railway Corporation in 2007. He expanded MTR's income sources by building five new railways, growing its non-fare businesses through stations and shopping malls as well as taking the company international with projects in Beijing, Shenzhen, Stockholm, London and Melbourne.

Chow said that regardless of the industry, the key to success could be similar.

"Any company, including HKEx, has to seek new revenue and new development. This is the only way to face the challenges and capture new opportunities," he said.

"HKEx is doing very well in its IPO business but now we have to expand into commodities. China is the biggest commodities consumer and that is the new business opportunity we need to capture."