Singapore Makes Bid for Baltic Exchange


By MarEx 2016-02-26 11:12:01

Singapore Exchange Ltd (SGX) said it was in talks to buy the Baltic Exchange, the hub of the global shipping market, a purchase aimed at shoring up the Southeast Asian exchange operator's derivatives business.

In a statement on Friday, SGX said it had submitted a non-binding bid for the acquisition of the Baltic, which sources had earlier estimated could be worth some 84 million pounds ($117 million)

"SGX wishes to emphasize that as discussions are still preliminary, there is no certainty or assurance that the possible transaction will materialize or that any definitive or binding agreement will result from such discussions," it said.

Other potential bidders include CME Group, ICE and Platts, sources have said. CME, ICE and Platts declined to comment, as did Baltic Exchange Chief Executive Jeremy Penn when contacted on Thursday. It was unclear whether the talks had been initiated by the Baltic or its suitors.

The deal would the first major outbound investment by SGX since Chief Executive Loh Boon Chye took over in mid-July with a brief to revive a company that is strong in derivatives, but which has struggled to attract large initial public offerings and generate significant daily stock turnover.

“Definitely good news, but a little too early to start counting your chickens,” says June Ho, a Partner at Wikborg Rein in Singapore. “For Singapore, looking for new ways to cement the country's position as a maritime hub is vital. With the proposed sale of NOL/APL, perhaps the future is in trading and ports rather than blue water operations.”

The deal is also SGX's most high-profile deal since 2011, when its $8 billion offer for Australian exchange operator ASX Ltd was rebuffed by the Australian government on national interest grounds.

"This deal could complement SGX's current derivatives business, especially freight derivatives," said Carmen Lee, an analyst at OCBC Investment Research.

Clearing houses and exchanges are all looking for an edge to give them a profitability boost amid growing regulatory scrutiny and weak commodities markets.

While the shipping market is currently suffering from overcapacity and sluggish global trade, the Baltic has carved out an industry-leading position in freight derivatives including through its Baltex platform.

Based on the LME's potential bid, the Baltic exchange could be valued at roughly three times its net asset value, or some 84 million pounds.

SGX was working with investment bank Jefferies on the potential deal, another source said. SGX and Jefferies declined to comment.

The Baltic produces daily benchmark rates and indices that are used across the world to trade and settle freight contracts.

Three sources said Japan's biggest investment bank Nomura Holdings Inc had been appointed as the Baltic's adviser for a possible sale. Nomura declined to comment.

Sources said there had also been contact between the Baltic, which is owned by around 380 shareholders, many from the shipping industry, and the London Stock Exchange, which has a majority stake in clearing house LCH.Clearnet.

This, though, is unlikely to progress given the possible merger between Deutsche Boerse and the LSE announced this week.

The Baltic, founded in 1744, had previously rebuffed approaches from the LME.