April 23 (Bloomberg) -- Hong Kong Exchanges & Clearing Ltd., surpassed by CME Group Inc. as the world’s biggest bourse by market value, will fall behind others if it’s not vigilant, said Ronald Arculli, who stepped down as chairman today.
“It doesn’t matter if it’s the Cambodian or the Laotian exchange, somebody could overtake us,” Arculli said in an April 12 interview. “You’ve just got to be totally vigilant all the time and not take life for granted. To be international, you’ve got to work very hard at it, as you’ve got to work very hard at being local as well.”
Board members, half appointed by the government and half elected by shareholders, are scheduled to choose a replacement for Arculli tomorrow after the 73-year-old led efforts to attract international listings. Chow Chung-Kong, the former chief executive officer of subway operator MTR Corp., is the government’s pick, the South China Morning Post said April 11.
Competition for stock offerings among operators of equity markets has increased globally amid declining profits on trading. The Chinese city has accounted for 5.5 percent of global initial public offerings this year compared with 13 percent in 2011 and 18 percent in 2010, according to data compiled by Bloomberg.
The rise of alternative trading venues at the expense of traditional bourses such as the New York and London stock exchanges is “a salutary reminder that we are in a very competitive scenario,” said Arculli, who is also chairman of the World Federation of Exchanges.
At $17.9 billion, Hong Kong Exchanges’ market value is second in the Bloomberg World Exchanges index behind CME Group, which is valued at $18.1 billion. The Chicago-based derivatives venue became the biggest exchange company on March 19, data compiled by Bloomberg show.
The former chairman of Hong Kong’s Jockey Club was behind attracting companies from Prada SpA to L’Occitane International SA and resource giants Vale SA and Glencore International Plc. Since Arculli, whose family has been in Hong Kong for more than a century, assumed his position in April 2006, the company has more than doubled in value.
“The biggest contribution of Ron was that he brought the international into the arena,” said Vincent Lee, chairman of Tung Tai Securities Co. and a board member of Hong Kong Exchanges since 2000. “This is really down to his efforts. By bringing in all these big names, it really put us on a different plateau.”
China IPO Pipeline
The exchange is seeking an acquisition loan to back a possible bid for the London Metal Exchange, two people familiar with the matter said on April 12. Arculli declined to comment when asked if the bourse is bidding for overseas exchanges at the annual general meeting today.
The overseas push has had its controversy. The January 2010 IPO of Russian aluminum producer United Co. Rusal attracted a flood of criticism after regulators blocked the listing from being marketed to retail investors, citing the riskiness of the issue. The stock has since fallen 40 percent compared with a 4.4 percent advance by the benchmark Hang Seng Index.
The city’s securities regulator yesterday said it stripped Mega Capital (Asia) Co. of its corporate finance license for failing to highlight misleading information in the share sale prospectus of Hontex International Holdings Co.
Arculli today said the exchange wants quality listings, and is working with the regulator to ensure the best regulations.
Hong Kong’s $3.18 trillion market capitalization is more than 14 times the former British colony’s annual gross domestic product, according to calculations by Bloomberg. The next highest ratio among the world’s five biggest equity markets is the U.K., at 1.5 times. China’s is the lowest of the five, at 0.5 times the size of its economy.
Arculli was re-appointed this month as one of six directors of the bourse that are chosen by the city’s government. Two were re-elected today. Shareholders today also approved a plan to raise the pay of the chairman to HK$900,000 a year from HK$550,000, as well as raising the pay of directors and members serving on committees.
Chief Executive Officer Charles Li, a former China chairman of JPMorgan Chase & Co. and one-time editor at the state-controlled China Daily newspaper, will run the meeting to elect the board head tomorrow.
Li’s China Vision
With close connections to mainland China and experience as an investment banker, Li, who worked on China’s first international bond sale in 1994, has been an advocate for making the Hong Kong bourse a testing ground yuan-denominated assets. He has provided a counterpoint for Arculli’s ties to the local government and efforts to promote the bourse company overseas.
“Charles Li has been in the investment banking for a quite long time, he has a good relationship among the Chinese enterprises, so this helped him get more China enterprises listed in Hong Kong,” said Steven Leung, director of institutional sales at UOB-Kay Hian Ltd., a Singapore-based brokerage. “Arculli’s not really in the industry but he has a good relationship with the Hong Kong government, and has the ability to manage a type of government-owned institution. He’s a good person to play the management role.”
Arculli has been a non-official member of Hong Kong’s Executive Council, which acts as the city’s cabinet, since 2005.
Mainland IPO Pipeline
Hong Kong is seeking listings from more overseas companies as the pipeline of large IPOs from China slows. Companies from the mainland accounted for 58 percent of Hong Kong’s market capitalization at the end of March, according to the exchange.
“If you look back to the early 1990s when the first mainland company -- Tsingtao Brewery -- was listed in HK and what has occurred from that time onwards, we have obviously been quite fortunate,” Arculli said. “We can say with some pride that in terms of a platform for capital formation, both mainland enterprises and the Hong Kong exchange have done well for each other.”
A lawyer by training, Arculli set up his own law firm in 2000 with a Sydney-based partner. He is currently a non-executive director of at least eight listed companies including Sino Land Co., Hang Lung Properties Ltd. and SCMP Group Ltd.
Born to a mainland Chinese mother and a father of Indian descent, Arculli has been involved in many public service areas as well, including the Health and Medical Development Advisory Committee and the Hong Kong Award and West Kowloon Cultural District Authority.
“This exchange is not an easy exchange,” said Lee. “This is an extremely difficult board and to be chair of this board is no easy job. Ron does have a strong sense of determination. When he wants something done, he gets it done.”
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