SGX formal offer for Baltic Exchange could be in soon

Singapore

THE Singapore Exchange (SGX) is reportedly preparing a formal offer to buy London's Baltic Exchange and The Business Times understands that any formal offer by SGX would be submitted by Aug 31.

This latest development follows months of discussions that resulted in exclusive talks between both parties, according to a Reuters report on Wednesday Singapore time that cited "sources familiar with the matter".

The sources said both parties had reached key milestones for a deal to proceed and that SGX was getting ready to make a formal offer, Reuters reported. The potential deal could be valued at between US$80 million and US$120 million, according to news reports.

An SGX spokesman told BT on Wednesday that the bourse declined to comment and "will make the necessary announcements when appropriate".

Reuters said the Baltic Exchange declined to comment and that when it contacted SGX, a spokeswoman referred to a May statement where it said both exchanges would benefit from new growth opportunities. Reuters added that one anonymous source told it: "There are certain elements of continuity and commitment that are important to ensure that the deal is on track."

SGX's bid for the Baltic Exchange, a venerated British institution that dates back to 1744, comes as the bourse works to grow products adjacent to its successful iron-ore contracts, though some commentators have pointed out that the rumoured price tag appears substantial in light of the £1.3 million (S$2.64 million) that the Baltic made in profit after tax in 2015.

The Baltic Exchange, which is privately owned, is more an information provider than a real exchange. It is known for compiling the Baltic Dry Index, a prominent benchmark that tracks the cost of transporting commodities such as iron ore, coal and grain globally and is often used as a proxy for the global commodity trade.

SGX and the Baltic Exchange said in May this year that SGX was in exclusive talks to buy the Baltic, with the period of exclusivity lasting until June 30. The talks were later extended until Aug 31.

Other potentially interested buyers included The London Metal Exchange, CME Group, ICE (Intercontinental Exchange), state-run conglomerate China Merchants Group and Platts, according to a Reuters report earlier this year.

SGX said in May that it intends to keep the Baltic Exchange's headquarters in St Mary Axe in London, and also plans to maintain the existing market benchmark production and governance model along with the Baltic's multiple-clearing-house model.

It added that if the acquisition goes through, SGX will keep the end-user data fees charged by the Baltic Exchange at the same level for at least five years, and will also keep unchanged during that period the fee that SGX charges brokers to clear freight derivatives.

The bourse, which recently drew criticism after another trading disruption in July this year, also said in May that it will work to enhance the relationship between the Baltic Exchange and its contributing panellists and will commit not to undertake activities that would undercut the businesses of freight derivative brokers.

The Baltic is owned by about 380 shareholders, many from the shipping industry and a majority will need to approve any acquisition, Reuters said, adding that their shares are estimated by market sources to be at least 10 times higher than they were a year ago.