Baltic purchase wise, but long haul ahead for SGX

THE purchase of Baltic Exchange by the Singapore Exchange (SGX) creates unique strategic opportunities on the derivatives front for the local bourse operator, but the benefits could take time to be realised.

SGX is currently awaiting regulatory clearance to complete its purchase of the Baltic, the foremost provider of data used to price freight and freight derivatives worldwide. The price that SGX is paying is £77.6 million (S$131.7 million), which is about 80 times the Baltic's net profit of £968,570 for the year ended March 2016. That is quite a steep price to pay, even after accounting for the fact that SGX will own the Baltic's London building at 38 St Mary Axe, which was valued at about £25.9 million as at Jan 29, 2016.

The high valuation rests on two key assumptions. First, SGX believes that being the owner of the world's main supplier of seaborne-freight pricing data, as opposed to being a consumer of that data, moves it upstream on the chain of freight data. This would fundamentally change the nature of SGX's exposure to the freight pricing data universe, so that it now stands to benefit from the growth of the global seaborne-freight derivatives market as opposed to merely the portion that clears through Singapore.