* HKEx offers new shares at discount of up to 7 pct to
* Two more hurdles for HKEx proposed $2.2 bln LME purchase
* Deal expected to become effective around Dec. 6
By Fiona Lau and Denny Thomas
HONG KONG, Nov 29 Hong Kong Exchanges and
Clearing Ltd is raising about $800 million to fund its
takeover of the London Metal Exchange (LME), tapping equity
markets minutes after receiving approval on Thursday from
Britain's Financial Services Authority for the acquisition.
The proposed $2.2 billion takeover of the LME marks the
biggest foray for HKEx, the world's No.2 exchange operator by
market value, as it looks to expand beyond its traditional
business in stock trading.
Approval from the British regulator leaves HKEx with only
two more hurdles to closing the transaction. HKEx said in a
securities filing a court hearing to approve the deal and
confirm capital reduction were expected on Dec. 5, after which
it would become unconditional and take effect the next day.
To fund part of the acquisition, HKEx is offering new shares
in a range of HK$116.1-HK$119 each, IFR, a Thomson Reuters
publication, reported, citing a term sheet of the deal. The
price is equivalent to a discount of up to 7 percent to
Thursday's close of HK$124.80.
Deutsche Bank AG, HSBC, UBS AG
were hired to manage the share sale, IFR added.
The acquisition has been hailed by HKEx Chief Executive
Charles Li as "transformational", giving the Hong Kong bourse
operator access to the 135-year-old LME, where trading of
copper, aluminium, nickel and other metals is still conducted
with arcane hand gestures and screaming traders.
Li, the former JPMorgan China chairman, said last month he
wants to expand the LME's product offering beyond base metals to
iron ore, coking coal and iron ore shipping.
Another ambition will be opening LME warehousing in China,
the world's top consumer of copper, which Li hopes will be
achieved in the context of China's efforts to open its capital
markets, including paving the way for international use of the
He has acknowledged that metals warehousing was a thorny
issue and that he wanted to "get his arms" around a problem that
has dogged the LME in recent years.
LME regulations allow companies operating warehouses in the
global network registered by the exchange to release only a
fraction of their inventories each day.
This, along with financing deals, results in long queues for
metal and an artificial tightness in immediate supply that has
pushed up premiums, the amount paid above the spot price to
secure physical delivery, infuriating metals consumers.
On the 135-year old institution's structure Li has said a
new users committee will be created, involving senior figures
from the manufacturing sector including fabricators.
That committee will report directly to the new LME board,
which should come into effect next week, depending on the final
"Of course I'm nostalgic about this changing. But we close
one door and open another one, a very exciting one," said Sucden
Financial Chief Executive Michael Overlander, who began his
career on the LME in 1971, and joined Sucden two years later.
"This is a win win situation for everybody. The shareholders
have been dealt with very fairly, all the employees of the
exchange have been looked after and a new era is starting," said
Overlander, who will step down as an LME board member, as will
the other industry practitioner board members.
The new LME board will comprise five directors, including
one executive director and four non-executive directors. Two of
the non-executive directors, including the chairman, will be
independent and two will be current senior HKEx management.
The five directors will also sit on the board of LME
Limited, which will remain a recognised investment exchange
based in London and supervised by the FSA.
Some analysts had voiced concern HKEx may be over-paying for
the LME, which made a net profit of just 7.7 million pounds last
year due to the constrained-profit model treasured by the metals
plants and traders who make up the smaller shareholders.
Concerns about the big price tag had weighed on the
company's share price earlier this year, but they have risen
around 24 percent since early September, outperforming a 14
percent rise in the benchmark Hang Seng share index.
HKEx stock ended up 0.4 percent at HK$124,800.