HKEx's takeover of LME is 'risky bet' that could yet pay off
While the HKEx has been busy getting into bed with former rival Shanghai to develop cross-trading of stocks, some brokers wonder whether the local bourse was wise to cut a big cheque to buy the London Metal Exchange.
While the Hong Kong Exchanges and Clearing has been busy getting into bed with former rival Shanghai to develop cross-trading of stocks, some brokers wonder whether the local bourse was wise to cut a big cheque to buy the London Metal Exchange.
"It is hard for the HKEx to break even by paying such a high price to buy the LME. The takeover is a short cut for the HKEx to expand into commodity trading but the high price means it is a risky bet," said Joseph Tong Tang, executive director of Sun Hung Kai Financial.
HKEx spent £1.39 billion (HK$18.41 billion) in 2012 to buy the LME as the local bourse wanted to cut its reliance on initial public offerings and stock turnover, which have both been slipping over the past few years.
The price represents 180 times the post-tax profit of the LME in 2011.
The LME deal has also added costs for the Hong Kong exchange. In the first quarter, HKEx had to make provisions for £200,000 in legal costs due to the pending case between the LME and Russian aluminium giant Rusal over the exchange's plan to reform its warehouse policy.
Legal fees by HKEx rose 170 per cent last year to HK$146 million, partly because LME is facing 26 lawsuits in the US for alleged anti-competitive and monopolistic behaviour. LME denied the allegations.