SHARES in Hong Kong Exchanges and Clearing (HKEx) fell by the most in two weeks yesterday on concerns the stock exchange operator overpaid in its $2.2bn deal for the London Metal Exchange (LME).
In the first session since the acquisition was announced late on Friday, HKEx shares slipped as much as 4.5 per cent to an intraday low of HK$107.30, their biggest percentage fall since 4 June. The benchmark Hang Seng Index was up 1.6 per cent.
HKEx, the world’s second-biggest bourse by market value, is paying 58 times LME’s adjusted 2011 earnings to get access to the commodities trading platform, which it sees as key for fuelling future growth as the pace of IPOs slows. This compares with a price-to-earnings (PE) average of 37.4 for similar deals in the past, according to Credit Suisse estimates.
The LME made a net profit of just £7.7m last year due to its constrained-profit model.
“The question is: have you seen a successful merger of exchanges before. I haven’t. Not to mention at 58 times FY11 PE ratio (paid),” said one HKEx shareholder, who declined to be identified because of the sensitivity of the issue.
Meanwhile, China Development Bank (CDB) emerged yesterday as the surprise bankroller behind the £1.4bn bid, according to reports in IFR, which said CDB had leant $1.8bn to HKEx through a three-year bilateral facility.
The loan is expected to replace a bridge facility provided by a consortium including Deutsche Bank, HSBC and UBS.
City A.M. Reporter