A historic deal will see Hong Kong Exchanges and Clearing Ltd attain a long-sought aim of diversifying into commodities.
HKEx on June 15 agreed to pay 1.4 billion pounds (US$2.15 billion) to buy the London Metal Exchange (LME), the world's largest market in options and futures contracts on base and other metals. The deal will be the first overseas acquisition for HKEx.
It gives the Hong Kong Stock Exchange, Asia's largest bourse, a much needed entry into a commodity trading platform. It also brings LME members closer to China, the world's biggest metals buyer.
The offer must now be approved by the LME board. Completion of the deal is expected by the fourth quarter of this year.
HKEx will finance its acquisition of LME through existing funds and with a 1.1 billion pound bank loan. The deal will help HKEx maximise commodity trading opportunities across Asia. The bourse has previously been mostly geared towards equity markets.
HKEx CEO Charles Li said his company believes the combination will allow the LME and its members to significantly increase trading volumes through improved access to China, and form the foundation for the growth of its commodities platform.
HKEx, the world's second-most valuable stock exchange, said the acquisition will add to its earnings from the third year after completion.
HKEx competed with several exchanges to win the auction, including the InterContinental Exchange, a U.S. commodities exchange. HKEx had previously ignored a wave of consolidation among exchanges early last year.
In 2011, LME reported a 19% fall in net income to 7.68 million pounds even as revenue rose 21% to 61.2 million pounds.
LME offers futures and options contracts for aluminum, aluminum alloy, NASAAC (North American Special Aluminum Alloy), cobalt, copper, lead, molybdenum, nickel, steel billet, tin and zinc.
Do you know more about this story? Contact us anonymously through this link.