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Hong Kong’s LME Purchase Helps in Bargaining With China, Li Says

Hong Kong Exchanges and Clearing Ltd. CEO Charles Li
Charles Li, chief executive officer of Hong Kong Exchanges and Clearing Ltd. Photographer: Jerome Favre/Bloomberg

Hong Kong Exchanges & Clearing Ltd.’s $2.2 billion purchase of the London Metal Exchange may help the bourse operator in its negotiations with China, said Chief Executive Officer Charles Li.

The LME “will deliver substantial strategic collateral benefit in order for us to position ourselves to renegotiate a grand bargain with China Inc.,” Li told a conference today in Hong Kong. “Whatever we paid, ultimately it’s going to be a great bargain if you look at it a few years from now.”

The takeover of the U.K. exchange, completed in December, is at 180 times trailing net income and the most expensive merger over $1 billion in Bloomberg data going back to 2000. The price was “hefty,” Li said.

Sitting next to the world’s largest consumer of everything from coal to copper and zinc, Hong Kong’s acquisition of the LME endowed the bourse overnight with the top metals exchange operator. The trading value of contracts on the LME reached a record $15.4 trillion in 2011.

China, the world’s largest economy after the U.S., will open its markets and allow its currency to float within five years, Li said March 14. By 2015, a third of China’s cross-border trade will be settled in yuan, making the currency one of the three most-used in global trade along with the dollar and euro, HSBC Holdings Plc forecast in a March 11 report.

The country’s regulators have expanded a program allowing institutions to raise yuan offshore for investment in the mainland, a step that moves the nation closer to a freely traded currency. The move was posted on the China Securities Regulatory Commission’s website on March 6.

“We want to be the global exchange of choice for China clients and we want to be the exchange of choice for international clients wanting to have a China exposure,” Li said today.

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