Source: Global Times Published: 2019-9-29
Hong Kong Exchanges and Clearing Limited (HKEX) is reportedly seeking a $9.8 billion loan to back up its proposed acquisition of the London Stock Exchange (LSE) which had previously been rejected.
Experts expressed reservations to the development of the deal and noted that it will be difficult to reach one in short term.
HKEX is considering borrowing up to $9.8 billion from several banks, and its executives were in London to meet with LSE shareholders during the week to convince them to accept the offer, Bloomberg reported over the weekend, citing an anonymous source familiar with the matter.
"The mega acquisition proposal involves multiple parties and complex considerations, not only economic factors, but also matters of financial security and other issues," Li Daxiao, chief economist at Shenzhen-based Yingda Securities, told the Global Times on Sunday.
There are multiple barriers before HKEX, including LSE's shareholders and supervision departments, Li said, noting that any forecast of the result will be uncertain.
It is normal to employ various financing measures during acquisition bids, and $9.8 billion is not a large amount for such types of transnational deals, Dong Shaopeng, an adviser for the China Securities Regulatory Commission, told the Global Times on Sunday.
In light of technical aspects and marketability, the acquisition is deemed as a good move, and HKEX and LSE both possess advantages and disadvantages regarding any deal, Dong said.
For starters, the Greater China region maintains abundant listed-company resources with capital rapidly accelerating, which is an advantage for HKEX, Dong noted, adding that LSE, as a traditional bourse and financial center of Europe, has superiorities in its legal and trading systems, as well as its talent reserve.
However, both bourses are facing unstable external environments, with Brexit in the UK and ongoing unrest in the Hong Kong Special Administrative Region, both of which have cast a shadow on the acquisition, Dong said.
HKEX announced the takeover plan on September 11 with a proposed transaction value of roughly 29.6 billion pounds ($36.4 billion).
"The proposed combination could build up connectivity between the capital markets of China and Europe, which would be a win-win strategy for both sides' listed companies and their investors," Dong Dengxin, director of the Financial Securities Institute at the Wuhan University of Science and Technology, said on Sunday.
However, the offer soon received a resounding rejection from the LSE's board on September 13, citing price and strategic reasons, and it ruled out further engagement.
HKEX Chief Executive Charles Li Xiaojia said that rejections are very normal for international merger and acquisition deals, and he stressed that the merger would generate huge strategic effect and that the company will continue its efforts, according to media reports.
"The proposal must have been planned for a long time, though multiple difficulties exist, including unrest in Hong Kong which will damage the financial sector if the situation persists," Li Daxiao said, adding that industry practitioners should step in to condemn violence and help the city to restore order.
HKEX had not replied to the Global Times' request for comment as of press time.
Dong Shaopeng is senior fellow of Chongyang Institute for Financial Studies at Renmin University of China.