Hong Kong Bourse Studies Making Bid for London Metal Exchange

Hong Kong Exchanges & Clearing Ltd. (388), Asia’s largest bourse operator, said it’s studying a bid for the London Metal Exchange as growth slows and it seeks to build up a commodities business.

The exchange said yesterday that it was “one of a number of interested parties” studying the opportunity to buy 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 topped this year as the world’s largest market company by CME Group Inc. (CME) as large initial public offerings from China slow. Hong Kong Exchanges is seeking an acquisition loan of as much as $3 billion to back a possible bid for the London Metal Exchange, or LME as it is known, two people familiar with the matter said 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. (SGX) Chicago-based CME has advanced 8.9 percent this year.

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

Bidding Deadline

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

The LME said on March 29 it is in the process of answering questions from bidders, which must submit offers by May 7. The LME received preliminary bids from CME, NYSE Euronext and IntercontinentalExchange Inc., three people with direct knowledge of the matter said in February.

“On 19 December 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’

An “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 China’s high growth and rising economic power and Hong Kong’s long history of international connection,” Chow said 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 China’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.

LME strengthened its ties to China last week when a Bank of China Ltd. unit became the first Chinese company member of the bourse. BOCI Global Commodities (U.K.) Ltd. was approved as a category 2 member, giving it the right to trade by phone and electronically, the LME wrote in a notice after an April 24 board meeting.

To contact the reporters on this story: Eleni Himaras in Hong Kong at ehimaras@bloomberg.net; Jonathan Burgos in Singapore at jburgos4@bloomberg.net

To contact the editor responsible for this story: Nick Gentle at ngentle2@bloomberg.net

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