HKEx in US$1b placement to finance LME buyout

Hong Kong Exchanges & Clearing, the world’s No 2 bourse operator by market value, is selling US$1 billion in new shares to fund its purchase of the London Metal Exchange, approved on Thursday by the British regulator.

The Hong Kong company plans to raise HK$7.75 billion (US$1 billion) selling shares at HK$118 each, a 5.5 per cent discount to Thursday’s closing price of HK$124.80, according to a statement from the bourse today.

Deutsche Bank, HSBC and UBS will manage the sales, it said. The exchange sold US$500 million in convertible bonds in September for the deal. They have an initial conversion price of HK$160 a share. The stock fell 1.5 per cent to HK$122.90 at 9:42am (HK time) on Friday.

The Financial Services Agency yesterday approved Hong Kong’s takeover of the LME, which handles more than 80 per cent of metals trading. Hong Kong Exchanges, which lost its place as the world’s biggest exchange operator by market value to CME Group, is seeking to broaden its business as the pipeline of large initial public offerings from China slows and equity volumes fall.

“If they financed the acquisition completely by debt then they would run a risk if interest rate picks up,” said Jonas Kan, a Hong Kong-based analyst at Daiwa Securities Capital Markets. Financing the acquisition with the combination of debt, convertible bonds and shares is “more financially sound. It cleared uncertainties for Hong Kong Exchanges.”

The acquisition still needs approval of the High Court of England and Wales, with a hearing set December 5, The transaction will take effect on or around December 6, the LME said in a separate statement.

“This is what we’ve been waiting on,” Thomas Monaco, an analyst at Mizuho Securities Asia in Hong Kong, said in a telephone interview. “It’s a little later than we would have thought, probably about a month or so.”