Friday, April 8, 2011

Singapore Exchange ends ASX bid after Australia govt rebuff

SYDNEY/SINGAPORE: Singapore Exchange Ltd has terminated its US$8 billion bid for Australia's ASX Ltd after the Australian government formally rejected the offer on national interest grounds and said changes to the country's financial systems were needed before the bourse could be bought by foreigners.

It was the first time the Australia government has rejected a major foreign takeover on national interest grounds since 2001 when Royal Dutch Shell's bid for Woodside Petroleum was blocked.

SGX said on Friday it would pursue other strategic growth opportunities in the region and continue talks with ASX about other forms of cooperation.

The government's rejection, partly due to fears about losing control of Australia's clearing and settlement systems, effectively closes the door on SGX or any other party making a revamped offer for ASX for the time being.

Analysts say SGX may become a target itself or look at partnerships with other bourses.

"The SGX management would continue to look for other growth initiatives, which could come in the form of cooperation on other levels with ASX, set up more cross-listing platforms with other exchanges or attract a deeper pool of regional companies to list in Singapore," said James Koh, an analyst at Kim Eng Securities in Singapore.

Australian Treasurer Wayne Swan said the deal would have diminished Australia's economic and regulatory sovereignty, presented material risks and supervisory issues due to ASX's dominance over clearing and settlement and failed to boost access to capital for Australian businesses.

"It's not the right deal for Australia if we want to enhance our links into global capital markets. It's not the right deal for Australia if we want to grow our role as a financial services hub in Asia," Swan told reporters on Friday.

Exchanges around the world are chasing cross-border deals to build scale and cut costs amid increasing competition from alternative trading platforms such as dark pools.

The Tokyo and Osaka exchanges are in talks, Deutsche Boerse is competing with a partnership of Nasdaq OMX Group and InterncontinentalExchange to buy NYSE Euronext and the London Stock Exchange is looking to combine with Canada's TMX Group .

SGX and ASX announced the deal's demise five months after the two bourses announced they were in talks.

"As Asia's most international exchange, we will continue to pursue organic as well as other strategic growth opportunities, including further dialogue with ASX on other forms of cooperation," SGX said in a statement.

SGX shares were trading more than 2 percent higher on Friday at S$8.35, while ASX shares slipped 0.4 percent to A$33.35.

With concerns focused on clearing and settlement issues, Swan flagged an overhaul of the country's financial systems that analysts said could result in ASX being forced to spin-off some systems.

"A lot of exchanges across the world do not own the clearing and settlement systems. There is a lot of speculation about the need for the Australian government to step in, in times of crisis. Apparently the government does not have that ability now," said Mark Nathan, portfolio manager at Arnhem Investment Management in Australia.

Swan said he was concerned Australian capital and jobs would move to Singapore under the deal and rejected suggestions the deal would provide a gateway to Asian capital flows.

However, he said Australia was not closed to other offers, provided reforms to clearing and settlement systems were carried out.

"I remain open to the right deal for Australia if it comes along. And that is of course why I have asked the council of Australian regulators to advise me on how we can continue to ensure the strength and stability of Australia's financial system if there was a fresh application."

Investors had considered the deal all but dead after the government said earlier in the week it was inclined to reject the bid. SGX had said it had no current plans to amend its offer, but submitted additional information to FIRB on Thursday.

ASX said in a statement it still wanted to join the stock exchange consolidation sweeping the globe and would work with the government on any reform process.

Swan defended the decision, which sparked criticism from business leaders and many commentators in Australia, saying the country was still open for business.

Financial regulators are expected to establish a working group to consider reforms to the financial markets infrastructure. Swan was concerned ASX was the sole operator of the nation's clearing and settlement systems.

Swan said he would not oppose future deals if they protected Australia's financial architecture, enhanced the country's standing as a financial services centre in Asia, boosted access to capital for Australian businesses and supported growth in high-quality financial services jobs. ' Reuters

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