Hong Kong Exchanges and Clearing has agreed to pay GBP1.39 billion (HK$16.67 billion) for the London Metal Exchange, the world's largest metals marketplace, marking the local bourse's first overseas acquisition.
The price represents 180 times LME's profit last year of GBP7.68 million, which is too high, according to Hong Kong brokers, who are shareholders in local exchange.
But local government officials threw their weight behind the deal because they say it helps achieve the city's plan to develop commodities trading as part of the mainland's 12th five-year plan. The government is the largest single shareholder of the HKEx, holding a 5.88 per cent stake.
Charles Li Xiaojia, the exchange's chief executive, yesterday afternoon announced that an agreement has been signed with LME directors. The deal is subject to the approval of LME shareholders, who are set to vote before the end of July. It also needs British financial regulatory approval, with the whole process expected to be completed in the fourth quarter.
Li described the deal as a milestone to turn the local exchange into 'a real international bourse operator'' and said it is a major step towards diversifying its business from equities to commodities trading. In January Li said he wanted the exchange to be less dependent on equities trading and develop into a commodities market.
'We should not look at the acquisition price based on the past record of the LME as right now it is an exchange owned by its members and not aimed at making a profit,'' Li said in an interview. 'After the acquisition, the LME will be restructured and reformed as a profit-making entity' and deliver profit in the third year.
'The price is to pay for a future strong growth story,' he added. 'We will use the LME as a platform to expand into international commodities markets, to establish warehouses in mainland China and establish its clearing house services.'