Hong Kong alters exchange landscape with stunning move to buy LME
First Published 15th June 2012
In an audacious move that shifts the exchange landscape, Hong Kong Exchanges said it would buy the LME for 1.4 billion pounds
Martin Abbott, Chief Executive, LME
"This proposed combination will secure the future of the LME for its next 135 years."
Hong Kong/London - Hong Kong Exchanges & Clearing (HKEx) said it has agreed to buy LME Holdings, which trades about 80 percent of the world's base metal futures and options contracts, for 1.4 billion pounds as part of a strategy to develop commodity offerings and diversify revenue sources.
Financing the deal from existing cash resources and a new bank facility of 1.1 billion pounds, Hong Kong Exchanges said the LME brand will be preserved.
"The acquisition of LME Holdings represents a unique opportunity for us to acquire in one stroke a position of global leadership in the commodities market," said Charles Li, Chief Executive of HKEx. "This is consistent with our strategy to expand beyond equities and equity derivatives and offers significant opportunities for revenue growth."
He added that HKEx would help LME expand its business in China in particular.
Martin Abbott, Chief Executive of the LME, said the deal marked a major milestone: "This proposed combination will secure the future of the LME for its next 135 years."
HKEx said it and the LME will focus on preserving and enhancing the LME's existing business model, expanding the presence of the LME in Asia and China, and developing the LME over time in accordance with the needs of its members and market participants.
HKEx said the move proved a "platform for significant long term growth through the expansion of the LME's business and operations in Asia and the Chinese market by leveraging HKEx's resources, infrastructure and network in the region".
The LME's business model will remain, it added. That includes the operation of open outcry trading, prompt date structure, existing membership structure and capacity for warehousing and physical delivery. The LME will be able to leverage HKEx's IT expertise, infrastructure and resources to enhance its current IT platform.
HKEx, with a market capitalisation of 9.8 billion pounds as of June 14, operates two exchanges and three clearing houses covering both cash and derivatives markets.
LME trading volumes have grown by 12.1 per cent per annum over the past five years.
Currently, all LME Exchange Contracts are cleared through an external clearing house. LME Holdings has announced plans to become a self-clearing exchange group by 2014 through the development of LME Clear.