Hong Kong bourse operator studies making bid for LME

Hong Kong Exchanges & Clearing Ltd, Asia's largest bourse operator, said it is studying a bid for the London Metal Exchange as growth slows and it seeks to build up a commodities business.

It said on Monday that it was "one of a number of interested parties" studying the opportunity to buy the LME, the world's largest metals trading platform. The bourse will consider additional financing if needed, it said.

An acquisition of the 135-year-old metal bourse could help jump-start Hong Kong Exchanges' overseas expansion after it was surpassed this year as the world's largest market company by CME Group Inc as large initial public offerings from the mainland slow.

Hong Kong Exchanges is seeking an acquisition loan of as much as $3 billion to back a possible bid for the LME, two people familiar with the matter said on April 12.

"This opportunity isn't going to wait for them," said Sam Hilton, a Hong Kong-based analyst at Keefe Bruyette & Woods Asia whose coverage includes Asian exchange companies.

"Hong Kong Exchanges' cash equities business is a mature business and that's the reason why they're moving into new asset classes."

Shares of Hong Kong Exchanges are unchanged this year, compared with a 9.3 percent gain in Singapore Exchange Ltd. Chicago-based CME has advanced 8.9 percent this year.

Scott Sapp, a Hong Kong Exchanges spokesman, declined to comment further. LME spokeswoman Miriam Heywood declined to comment.

Bidding deadline

LME handles more than 80 percent of global trade in metal futures and reported a record volume of $15.4 trillion last year. It is being advised on the sale process by Moelis & Co. LME may be valued at about $1.3 billion, according to Equity Research Desk, a hedge-fund adviser in Greenwich, Connecticut.

LME said on March 29 it is answering questions from bidders, which must submit offers by next Monday. LME received preliminary bids from CME, NYSE Euronext and IntercontinentalExchange Inc, three people with direct knowledge of the matter said in February.

"On 19 Dec 2011, the LME announced it was considering its future strategy as an independent entity or as part of a larger group," Hong Kong Exchanges said in the statement.

"HKEx continues to participate in that process and understands it is one of a number of interested parties studying this opportunity."

'Urgent action'

"Urgent action" is required to build its businesses in financial derivatives and commodities to meet its goal of being a comprehensive financial center for China, the bourse said in its earnings statement on Feb 29. Growth slowed at the company as it reported a 1 percent increase for its 2011 net income, down from a 7 percent gain in 2010.

At $17.3 billion, Hong Kong Exchanges' market value is second in the Bloomberg World Exchanges index behind CME Group, which is valued at $17.8 billion. The derivatives venue became the biggest exchange company on March 19, data compiled by Bloomberg show.

Chow Chung-kong, former chief executive officer of subway operator MTR Corp, was named chairman of the Hong Kong bourse on April 24 and confirmed to the role by the government three days later.

"The future of Hong Kong, and the exchange lies in the combination of the Chinese mainland's high growth and rising economic power and Hong Kong's long history of international connection," Chow said on April 12. "That's the combination that will propel the city forward."

New chairman

During Chow's tenure at the MTR, the company merged with another Hong Kong railway operator and started work on a HK$66.9 billion ($8.62 billion) connection to the mainland's high-speed rail network. MTR also expanded operations to London, Stockholm and Melbourne, and reported a 21 percent increase in underlying profit for 2011 from a year earlier.