(Updates with comments from CEO Charles Li and details starting in seventh paragraph.)
June 10 (Bloomberg) -- Hong Kong Exchanges & Clearing Ltd., the largest bourse operator by market value, has no immediate plans to buy a rival, said Romnesh Lamba, an executive vice president.
About $30 billion of industry bids have been announced worldwide since October, including Frankfurt-based Deutsche Boerse AG’s deal to purchase NYSE Euronext of New York, creating the world’s largest exchange operator.
“We don’t want to do M&A for the purpose of consolidation,” Lamba, executive vice president and head of the market development division at Hong Kong Exchanges, said today at the Sandler O’Neill Global Exchange and Brokerage Conference in New York. “Our story is very China-oriented.”
Joint ventures with other exchanges are more likely than acquisitions as the company seeks expertise in areas such as financial and commodity derivatives to cater to demand for risk management, he said. The Hong Kong-based company, which has a market value of $23.3 billion, runs the city’s securities and derivatives markets.
It’s only a matter of time before companies in Asia decide they want regional benchmark gauges to manage the risk of price movements in fixed-income products and commodities such as oil and natural gas, Lamba said. Although the company’s current “skill set” in financial and commodity derivatives is “close to zero,” Hong Kong plans to develop products that companies in China and other Asian countries can use to manage risk, he said.
In equities, Hong Kong’s “organic growth potential is higher than any other exchange,” Lamba said. The company is focused on preparing to attract Chinese investors as the government changes rules limiting their activity, he said. A merger would “drive down our growth rate.”
A series of international exchange deals has put pressure on market operators to consider acquisitions to grow their business. The deals began in October, when Singapore Exchange Ltd. bid A$8.35 billion ($8.3 billion) for ASX Ltd. of Sydney. London Stock Exchange Group Plc agreed to buy TMX Group Inc. for about $3.1 billion on Feb. 9, and Frankfurt-based Deutsche Boerse AG followed with its $9.5 billion takeover of NYSE.
Hong Kong Exchanges will continue to build its corporate listings business and attract foreign companies seeking initial public offerings, said Chief Executive Officer Charles Li, who spoke at today’s conference. The move will diversify the company away from being primarily a “China play” in that business, he said. He added that the exchange will improve its trading platform, computer infrastructure and market rules to increase its transaction volume and the number of users.
“We are not a modern market yet,” compared with rival exchanges, Li said. “Our infrastructure is not up to speed. We are a monopoly so we are not under pressure.”
The exchange plans to reduce the time to buy or sell shares on the system by investing in technology and altering trading rules, Li said. The company is also building a data center and system for market data to meet the needs of customers, he said.
Hong Kong Exchanges raised HK$122.5 billion for companies through IPOs in the first five months of this year, up 164 percent from the same period last year, the company said in a statement on June 7. The exchange operator will seek to help companies raise money in the Asian markets as that region grows in importance to foreign issuers, Li said.
Companies such as Vale SA, based in Rio de Janeiro, or Armonk, New York-based International Business Machines Corp. “may very well go to Shanghai” to raise money, Lamba said, referring to the Shanghai Stock Exchange. “They’re coming to Asia for branding, strategic reasons,” and want to appeal to Chinese customers. In contrast, companies like Prada Holding SpA seeking to raise money through an IPO are “unlikely to list in China anytime soon” because of limits on foreign investments, he said. Prada’s IPO on Li’s venue will occur next week.
Li said Hong Kong Exchange’s expansion in the next few years will extend beyond equities, its traditional business, as the company pursues its goal of becoming “China’s offshore capital-markets center.” He said the exchange is focused on catering to the investment needs of Chinese as “China Inc. is finally emerging.”
The company is building a clearinghouse to process over- the-counter trades in anticipation of a growing Asian market, he said, and plans to combine the three clearinghouses it operates. Clearinghouses reduce the risk of trading for firms by becoming the buyer to every seller and the seller to every buyer, reducing the impact on users if a clearing member defaults.
“Today we are largely a cash equities business,” Li said. The potential convertibility of the renminbi “presents itself with lot of credit opportunities,” he added. “A lot of the financial derivatives products will become very, very big.”
--With assistance from Stephanie Tong in Hong Kong. Editor: Joanna Ossinger
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