Infinity Studying Failed Hong Kong Mercantile Exchange

A private equity firm backed by the China Development Bank Corp. is studying the Hong Kong Mercantile Exchange Ltd., a commodities market that suspended operations this year, for investment opportunities.

“I’m going in as a director to simply get an understanding,” said Jianrui Xiong, a Hong Kong-based venture partner at Infinity Group, which manages 10 billion yuan ($1.6 billion) in assets. “I want to understand whether this company can solve its previous issues and whether it’ll be a clean company going forward. If it is clean, then we may have some investment opportunities.”

An investment by Infinity could help revive the exchange, which surrendered its trading license in May after failing to attract enough revenue to support operations. Barry Cheung, the largest shareholder and chairman, is seeking to raise funds to repay debts and unpaid wages.

Police investigated Hong Kong Mercantile Exchange, also known as HKMEx, after the regulator said it found suspected financial irregularities. Cheung said the bourse is a victim, having been provided with financial documents it didn’t know were false.

Legal Proceedings

Cheung didn’t return calls for comment on Infinity today. He earlier declined to comment on how many employees remained at the exchange, any legal proceedings or plans for the business, which had traded gold futures and silver contracts.

Infinity’s Xiong was appointed director on Oct. 21, according to a company filing. In addition to China Development Bank, which is a state-owned policy lender, Infinity is backed by Clal Industries, an investment company based in Israel.

Stephen Yiu Keung Liu, a managing director in corporate restructuring and insolvency at Ernst & Young Transactions Ltd. in Hong Kong, was appointed a director on the same day as Xiong, according to company filings. Liu confirmed his appointment and declined further comment, saying the company would “make the appropriate announcement when necessary.”

HKMEx began trading gold futures in May 2011 and silver contracts in July that year, both denominated in U.S. dollars. Revenue wasn’t sufficient to cover the company’s costs, the exchange said in a May 18 statement.

Commodities Competition

The exchange had struggled to get a foothold in the Asian commodities market, which is dominated by regional exchanges and the London Metal Exchange. IntercontinentalExchange Group Inc. this month agreed to buy Singapore Mercantile Exchange Pte for $150 million. Like its Hong Kong counterpart, the Singapore Mercantile Exchange lists futures of gold and silver, and was loss-making.

A comeback by the HKMEx “depends on the products,” said Felix Man, a Hong Kong-based director at Huatai Financial Holdings Hong Kong Ltd., as previous offerings weren’t tailored for the global financial markets. “It’s still quite difficult for companies from mainland China to do hedges in Hong Kong or overseas. Even when they do, they would still go to bigger, more liquid markets such as the LME in London.”

The HKMEx’s landlord said last month that unpaid rent had been settled, allowing it to remain in its offices. Data service provider Equinix Hong Kong Ltd. has also sued the exchange in Hong Kong for $1 million for non-payment of services rendered, according to court documents.

William Barkshire, who quit as co-president of the Hong Kong Mercantile Exchange in August and is now managing director at consultancy Agora Partners Ltd., said he won a HK$3.3 million ($430,000) Hong Kong Labour Tribunal award for unpaid salary and expenses last week.

“I expect Barry Cheung to honor all his significant debts,” Barkshire said.

Cheung said he hoped to be able to pay off his remaining debts within a few weeks, the South China Morning Post reported Oct. 30.

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