Hong Kong-listed wine firm Madison eyes cryptocurrency trading, to buy US$30 million stake in Japanese platform
- Madison Lab, a subsidiary, to acquire 67.2 per cent of BitOcean
- Deal part of company’s diversification strategy, says chairman
Madison Holdings Group, which is listed on the GEM board of the Hong Kong stock exchange, and is otherwise best known for trading in fine French wine, plans to buy a stake in BitOcean, a Japanese cryptocurrency trading platform.
In a filing to the secondary board of the Hong Kong bourse this month, the company said Madison Lab, a subsidiary, is to acquire 67.2 per cent of BitOcean from independent third parties for 1.68 billion yen (US$15.12 million), plus about another US$15 million in various fees. The platform is one of 16 operators currently registered with Japan’s Financial Services Agency, but has not started trading yet.
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Meanwhile, HDR Cadenza Management, a subsidiary of Seychelles headquartered HDR Global Trading that owns the cryptocurrency trading platform BitMEX, is considering a US$17.14 million, 51 per cent stake in a joint venture with Madison Labs. The deal has not been finalised, HDR said in a statement last week. The deal for BitOcean has also not been completed.
Raymond Ting Pang-wan, the chairman at Madison, said the deal for BitOcean was part of the company’s diversification strategy, and a partnership with BitMEX would help it develop its virtual currency trading platform.
“Our wine business is stable and profitable, but then it is small. It is hard to make wine trading into a very big business. This is why we have to diversify into financial technology and the cryptocurrency business – to achieve a better return for our shareholders,” Ting said in an interview.
“Virtual currencies and blockchain are getting more popular. Investing in the virtual currency sector will expand our income source,” he said.
But the deal comes at a time when the price of bitcoin has slumped, from a high of US$20,000 last December to about US$3,000 now. Ting, however, said it was the right time to enter the business. “Bitcoin is cheap, which has created a good opportunity for us to enter the market. We are eyeing the long term, so we are not worried about short-term volatility,” he said.
Madison has opted for a stake in BitOcean because virtual currency trading is active in Japan, and the country has a comprehensive regulatory system in place. “Japan represents about 20 per cent of bitcoin trading worldwide. Japan and the US are the only two markets that have a licensing system for such trading platforms. We wanted to invest in a platform that was under proper regulation,” said Ting.
Hong Kong’s Securities and Futures Commission announced in October it would introduce a sandbox, or a space where software or new technology can be tried out in a test environment, in which it would look at regulation of cryptocurrency trading platforms. But no details were given about licences.
Kenneth Leung Kai-cheong, a Hong Kong lawmaker, said: “Madison has built up its reputation through trade in fine wines, it is a newcomer to the virtual currency business. Investors need to pay attention to the risks involved when a company operates in two separate business lines.”
Gary Cheung Wai-kwok, chairman of the Hong Kong Securities Association, however, said: “This is a small investment for the company, so it will not take too big a risk. It makes sense for the company to diversify its business to achieve higher income.” He pointed out that the acquisition of BitOcean stake was small when compared with Madison’s market capitalisation, which stood at HK$4.19 billion (US$534.96 million) on Monday, December 17.
BitOcean will not be Madison’s first foray into diversification. Last year, it acquired a majority stake in securities and asset management business Eternal Pearl Securities, as well as shares in CVP Capital and CVP Asset Management. These acquisitions will help Madison move into the brokerage and asset management business in the region covered by Beijing’s “Greater Bay Area” initiative, according to Ting.