While there are talks about takeover bids for the world's largest metal exchange, it might be safe say that the Hong Kong Exchange Ltd might turn out to be a winner among those bidding for the bourse.
The London Metal Exchange, the world's premier non-ferrous metals market, was expected to review takeover bids from various exchange houses on Monday. LME has invited binding bids from HKEx, CME Group Inc, NYSE Euronext and InterContinental Exchange Inc. LME handles about 80% of global metal futures trading.
The exchange might be approximately valued at an estimated $1,6 billion,
While it is still too soon to say anything, there are certain factors that portray HKEx as the forerunner in the bids.
As May 7, as the deadline for bids arrived, LME Chief, Martin Abbott said that he was expecting multiple bids for the exchange. However, this would not necessarily prompt shareholders to sell. What would, in fact, tempt them to sell their stake is the price they are offered and if a long term advantage is seen in takeover by a particular company, a Bloomberg report said.
Hong Kong Exchanges and Clearing Ltd, the world's second largest exchange, which posted a seven percent drop in its quarterly profits, last week said that it was studying the bid.
Despite a fall in earnings, the HKEx CEO Charles Li seems undeterred in his decision of bidding for LME, the 135-year old exchange. "HKEx's core strength is developing the China markets ... if there is any business involving any opportunity to enhance our ability in this regard we will consider it," said Li, adding the exchange operator would consider issuing new shares if needed, a Reuters report said.
However, out of all the exchanges bidding for a takeover, what would work in HKEx's favor is the fact that the bourse operates from China, Asia.
LME has been looking to bring the exchange closer to China, the world's largest consumer of most base metals and other commodity consuming counties in Asia. The exchange's Chief, Martin Abbott had recently revealed plans of opening exchange-traded warehouses in China, which accounts for around 60% of LME's trading volume.
Abbott,on Friday, said that the exchange has plans to invest into Asia attracted by China's economic growth and development.
HKEx's ownership would bring the LME closer to China, the largest exporter of base metals lead by copper.
There is news that copper inventories in Chinese-bonded warehouses, ie all warehouses including Shanghai Futures Exchange warehouses are estimated to be around a high of 1 million tonne.
While, the maximum fall on LME copper stockpiles is seen from US and European warehouses of the exchange, there is speculation in the market that most of the inventories have moved there after demand in China picked up.
Chinese demand for the red metal was fuelled by better-than-expected economic data released in March-April, which portrayed a stabilizing economy, Kotak Commodity Services told Business Standard today.
This only goes to portray the demand for copper in the country, despite global crisis cues weighing on most economies in the world.
HKEx would also stand to advantage from this move, as LME takeover could reduce HKEx's reliance on cash trading, one of the main factors weighing on earnings.
A HKEx/LME tie-up would maximise opportunities across commodity-consuming giant Asia, and the runaway success of Shanghai's copper futures contract. Li, further added that the exchange operator would consider issuing new shares if needed, in a Reuters report.
The LME, in 2011, had touched record volumes with 146.6 million lots, equivalent to $15.4 trillion annually and $61 billion in an average business day.
