Left Menu
Development News Edition

UPDATE 5-Political risks of Hong Kong exchange's $39 bln LSE approach takes toll on shares

Reuters | Hong Kong | Updated: 12-09-2019 15:17 IST | Created: 12-09-2019 14:26 IST
UPDATE 5-Political risks of Hong Kong exchange's $39 bln LSE approach takes toll on shares
Image Credit: pixbay.com

Hong Kong stock exchange shares fell more than 3% on Thursday as investors raised concerns about the political and regulatory risks involved in its $39 billion approaches to take over the London Stock Exchange (LSE).

The proposed deal aims to create an exchange powerhouse spanning Asia and Europe which would be better able to compete with U.S. rivals such as Intercontinental Exchange Inc and CME Group inc. Hong Kong Exchanges and Clearing's (HKEX) indicative offer, made public after the close of the city's markets on Wednesday, also got a cool response in London, where LSE shares finished up 5.9%, far short of the implied premium.

Tough political and technical challenges to the deal have already surfaced and HKEX shares were off 3.3% in Hong Kong, underperforming the blue-chip Hang Seng Index. HKEX's proposal is conditional on LSE abandoning a $27 billion acquisition of financial information provider Refinitiv from U.S. private equity firm Blackstone and Thomson Reuters, the parent of Reuters News.

That deal, which went public in late July, caused LSE's shares to leap 15% on hopes Refinitiv's financial data business would boost its long-term profitability. LSE said in a statement on Wednesday that it remained committed to the Refinitiv deal. HKEX has 28 days to make a firm bid for the LSE, whose shares were down 0.2% at 7,194 pence at 0809 GMT on Thursday, or walk away for six months.

A source close to the LSE said HKEX executives met with LSE Chief Executive David Schwimmer in London on Monday, just two days before they made the proposal public. The LSE board will meet within days to decide if it will engage with HKEX and thereby effectively ditch the Refinitiv takeover, the source added.

An LSE spokeswoman had no comment on Thursday. Analysts said the perception of Beijing's growing influence over Hong Kong could become a key sticking point for an LSE takeover given the government's close links with the HKEX.

Fitch Ratings said that "increasing control by Chinese authorities over Hong Kong" could raise regulatory concerns in Britain and the United States about data and information security. Hong Kong is entering the fourth month of sometimes violent protests sparked by legislation that would have drawn the former British colony closer to the Chinese legal system.

The government's handling of the protests has been criticized internationally, as has the political pressure applied by Beijing to Hong Kong companies not to support the pro-democracy movement. Cathay Pacific Airways was ordered to suspend staff who were involved in or supported the demonstrations.

The Hong Kong government holds a 6% stake in the HKEX, approves six of the 13 board members and can also stop any other shareholding rising above 5%. "The transaction will require various regulatory approvals, which will stress-test the world's understanding of Hong Kong's 'one country, two systems' constitution," said David Blennerhassett, an independent analyst writing on the SmartKarma research platform.

"It will be politically tough now and in the near-term to get this through various regulatory channels," he added. HKEX DOWNGRADE

Analysts said HKEX's share price fall reflected investor concern about the dilutive impact of the cash-and-shares offer, and skepticism the offer would succeed. "If the market thought the deal was going to go ahead, I would have expected the shares to have fallen by more than 3%, typically that's what we'd expect for an acquirer in a deal like this," said Michael Wu, an analyst at Morningstar.

Under the terms of the offer, LSE shareholders would receive 2,045 pence in cash and 2.495 newly issued HKEX shares. HKEX said it intended to apply for a secondary listing of its shares on the LSE if the deal went through. Citigroup downgraded HKEX to 'sell' from 'buy', saying the acquisition price was high and could "add downward pressure" to the exchange's shares and valuation. Regulatory hurdles for the deal were also high, it said in its research note.

Analysts, however, said they could see strategic logic in HKEX's move. "We believe that bringing the largest listed exchanges in Asia and Europe together could create new revenue streams and a lot depends on how well HKEX can capitalize on this," Daiwa Capital Markets analyst Jonas Kan wrote in a research report.

Also Read: Hong Kong Exchanges bids $39 bln to take over London Stock Exchange


TRENDING

OPINION / BLOG / INTERVIEW

South Africa's COVID-19 response: Surprising outcomes or just poor data management?

South Africa has been committed to improving its health information system and shows that a robust digital has considerable scope to improve healthcare for the entire population. But the COVID-19 pandemic has highlighted that significant ga...

Post-COVID-19 Nigeria needs a robust Health Management Information System to handle high disease burden

Nigeria is among a few countries that conceptualised a health management information system HMIS in the early 90s but implementation has been a challenge till date. Besides COVID-19, the country has a huge burden of communicable and non-com...

Morocco COVID-19 response: A fragile health system and the deteriorating situation

Learning from its European neighbors, Morocco imposed drastic measures from the initial stages of the COVID-19 outbreak to try to contain its spread. The strategy worked for a few months but the cases have surged after mid-June. In this sit...

COVID-19: Argentina’s health system inefficiencies exaggerate flaws of health information system

You can recover from a drop in the GDP, but you cant recover from death, was the straightforward mindset of Argentinas President Alberto Fernndez and defined the countrys response to COVID-19. The South American nation imposed a strict...

Videos

Latest News

Reuters People News Summary

Following is a summary of current people news briefs. David Attenborough leads call for world to invest 500 billion a year to protect natureBritish broadcaster David Attenborough on Wednesday led a campaign by conservation groups for the wo...

Reuters Science News Summary

Following is a summary of current science news briefs. David Attenborough leads call for world to invest 500 billion a year to protect natureBritish broadcaster David Attenborough on Wednesday led a campaign by conservation groups for the w...

Funds flow to Biden and Democrats after debate, boosting cash advantage

Money cascaded into presidential nominee Joe Bidens campaign and his Democratic Party on the heels of his rancorous debate with President Donald Trump, potentially widening Bidens financial edge as the White House race enters its final mont...

Soccer-Bayern ride luck to win Super Cup and fifth title of year

Bayern Munich wasted a two-goal lead and needed a lucky 82nd- minute winner from Joshua Kimmich to beat Borussia Dortmund 3-2 in Germanys Super Cup on Wednesday and secure their fifth title of the year.Midfielder Kimmich snatched the ball i...

Give Feedback