China Merchants Group Joins Race to Buy Baltic Exchange
By Jonathan Saul
LONDON, March 16 (Reuters) – State-run conglomerate China Merchants Group has made a casual bid to purchase London’s Baltic Exchange, changing into the most recent contender for the enterprise that has been the hub of the worldwide delivery marketplace for centuries, two sources instructed Reuters.
The strategy was made by the group’s subsidiary China Merchants Securities, based on the sources, who declined to be recognized because the matter is just not public. “They are the latest (suitor) and certainly, with such a massive group, it shows how this is heating up,” one supply stated.
An acquisition of the Baltic, which was based in 1744, would give the Chinese conglomerate possession of the business’s benchmark indices – which may very well be additional commercialized – and larger entry to the multi-billion greenback freight derivatives market.
It is the most recent Chinese firm to have a look at delivery and commodities targets in Europe, aiming to reap the benefits of a market downturn that has pushed down valuations of some corporations.
China Merchants Securities, which is listed in Shanghai , didn’t reply to repeated requests for remark.
A spokesman for China Merchants Group within the Chinese metropolis of Shenzhen stated on Wednesday he was not conscious of any bid for the Baltic Exchange, including if there was a bid it might be processed by one of many group’s models, that are listed in varied areas comparable to Shanghai, Hong Kong and Singapore.
A Baltic spokesman stated the change “to date hasn’t commented on the identity of anyone involved in the process and declines to comment on whether or not the Baltic is in discussion with CMG (China Merchants Group).”
On Feb. 26 the privately held Baltic Exchange confirmed it had obtained numerous “exploratory approaches” after the Singapore Exchange Ltd (SGX) revealed it was in search of to purchase the enterprise.
Both statements got here a day after Reuters solely reported the Baltic had held talks with SGX and different potential patrons together with CME Group, ICE and Platts. Last October, sources stated the London Metal Exchange (LME) had made an strategy to purchase the Baltic.
Clearing homes and exchanges are all on the lookout for a option to distinguish themselves at a time of rising regulatory scrutiny and weak commodities markets. Buying the Baltic would permit any of these entities to diversify their actions into freight.
China Merchants Group is among the many nation’s largest conglomerates, with pursuits spanning ports, delivery and monetary providers.
In December, Chinese authorities accredited its acquisition of state-run logistics group Sinotrans & CSC Holdings Co, a part of efforts by Beijing to make sprawling government-controlled corporations extra environment friendly as financial progress slows.
That deal positioned China Merchants’ estimated property price 624 billion yuan ($96 billion) and Sinotrans & CSC property of about 109 billion yuan underneath one roof.
The two sources stated China Merchants Securities was keen to pay a premium above different bidders to accumulate the Baltic.
Separate sources had beforehand estimated the deal may very well be price about 84 million kilos ($118 million).
Other Chinese corporations targets in Europe embody COSCO, final month named by Greece as the popular bidder for its largest port, Piraeus. Since then, COSCO has merged with fellow state agency China Shipping Group to create one of many world’s largest industrial delivery firms, China Cosco Shipping Corporation.
COMPETITION
China Merchants nonetheless faces competitors from SGX and others such because the LME, which was purchased by Hong Kong Exchanges and Clearing in 2012 for $2.2 billion.
The Baltic is owned by round 380 shareholders, many from the delivery business. It produces day by day benchmark charges and indices which are used the world over to commerce and settle freight contracts.
Last month Baltic Exchange chairman Guy Campbell wrote to the corporate’s wider members, comprising round 650 firms that embody the shareholders, and stated no formal supply had been obtained, including that discussions “may very well lead nowhere.”
In 2011, the Baltic – through an entirely owned subsidiary -launched the primary central freight derivatives platform, referred to as Baltex. Freight derivatives, which permit traders to take positions on freight charges sooner or later, are a multi-billion greenback area of interest market which is seen as one other attraction.
Any acquisition of the Baltic may face opposition from freight brokers who would concern some lack of their enterprise.
John Banaszkiewicz, who runs freight derivatives dealer FIS, wrote to fellow brokers after the Baltic announcement to focus on his worries over a sale.
“My concern is that a sale to an overseas exchange, which seems the most likely outcome, is followed by a more restrictive and probably more expensive agreement on the use of the indices for trading and settlement,” Banaszkiewicz wrote in a letter seen by Reuters.
“It seems to me that to sell the Baltic in a private bidding contest, while in some shareholders’ interest, fails to recognize the effect on wider stakeholders such as physical and FFA (freight derivatives) brokers whose shareholdings do not put them in line for a windfall but whose business could be affected dramatically.”
In the Baltic’s final annual report within the 12 months to end-March 2015 it recorded an after-tax revenue of 1.3 million kilos versus 901,809 kilos in 2014. Shipping business sources say it may improve profitability, partly by charging extra to knowledge customers.
($1 = 6.5189 Chinese yuan renminbi; $1 = 0.7095 kilos) (Additional reporting by Polly Yam in Hong Kong; Editing by Veronica Brown and Pravin Char)