Hong Kong Exchanges and Clearing is making its first share offering since it was listed, aiming to raise US$800 million following the British regulator's approval yesterday for HKEx's takeover of the London Metal Exchange.
The Financial Services Authority gave the go-ahead for HKEx's £1.39 billion (HK$17.24 billion) bid for the LME, the world's biggest metal exchange.
The deal will now need the sanction of the High Court of England and Wales, due on Wednesday, to become unconditional and effective. But brokers said the FSA's approval was the last major hurdle, so they considered the deal as done.
HKEx plans to sell new shares to fund part of its payment for the LME, the first such offering since its listing in 2000. A term sheet seen by the South China Morning Post shows the bourse aims to raise US$800 million.
The shares will be priced in an indicative range of HK$116.10-HK$119, translating into a discount of between 4.7 per cent and 7 per cent to yesterday's closing price of HK$124.80. Buyers of the new shares will be subject to a 90-day lock-up period.
"About 90 per cent of the overall deal was covered before the market close," said a syndicate banker who declined to be named, because the deal is private.
Joseph Tong Tang, executive director of Sun Hung Kai Financial, said the new share offering was popular.
"The HKEx offering … comes at the right time, as stock market sentiment has been good recently. Many fund managers are interested in taking up the new shares," Tong said. "Also, both HKEx and the LME are established exchanges, and so investors have confidence in buying shares that the HKEx can finance its deal to take over the LME."
A source close to the HKEx said that after the US$800 million share sale and its US$500 million convertible bond issue two months ago, HKEx would be under no pressure to issue more new shares in the near future.
Tong said while HKEx had no problem financing the LME takeover, it would have to expend a lot of effort to combine the two entities. "Brokers and investors who trade stocks are very different from those who trade commodities," Tong said. "HKEx would need to do a lot of promotion and education to encourage Hong Kong investors to develop an interest in commodities trading."
HKEx chief executive Charles Li Xiaojia wants to use the mega takeover of the LME, which is the first overseas acquisition by the local bourse, to diversify its business and avoid relying too much on stock trading and IPOs.
The LME deal comes as the exchange struggles with low turnover, and new listings have fallen this year, resulting in a 19 per cent drop in third-quarter profit and a 16 per cent drop in profit for the first nine months, compared with the same periods last year.