Singapore Exchange has a potential billion-dollar war chest to explore deals: analysts

Singapore

SINGAPORE Exchange Ltd can explore a billion dollar's worth of deals should it go ahead with a plan to tap debt for the first time since its initial public offering in 2000.

The bourse is expected to set aside between S$1 billion and S$1.5 billion for potential acquisitions, according to estimates by CGS-CIMB Securities SP and Phillip Securities. The funding will likely come via a mix of cash on company books, which totalled S$787 million as at Sept 30, and the exchange's new multicurrency debt issuance programme, according to some analysts.

SGX said in October it can raise S$1.5 billion via various debt instruments to fund its investments. This comes as the exchange eyes potential acquisitions and aims to double the revenues of its fixed income, currencies and commodities unit as well as the data, connectivity and index arm over the next five years.

SGX "will continue to grow our asset classes across geographies," a spokeswoman said in response to Bloomberg queries on what it could use the fundraising for. The debt programme "provides us with the added flexibility to make bolt-on acquisitions to further scale our business if opportunities arise, while allowing us to actively manage our balance sheet".

Michael Syn, its equities head, said last month the trading venue is eyeing acquisitions in financial technology and firms that complement its existing capabilities. The strategy is in contrast to its A$8.4 billion bid for Australia's ASX Ltd in 2010, and Hong Kong Exchanges and Clearing Ltd's unsuccessful attempt to take over its London counterpart recently.

In line with this guidance, analysts expect SGX to spend on bolt-on acquisitions and diversify its revenue streams into other areas of derivatives and data. This could include investments in foreign exchange or index businesses in particular, said Rui Wen Lim, an analyst at DBS Bank Ltd.

The bourse has spent US$355 million on announced deals over the past 12 years, the largest being the US$114 million acquisition of the Baltic Exchange Ltd in 2016, according to data compiled by Bloomberg. Shares of SGX, which has a market capitalisation of S$9.6 billion, gained 0.7 per cent on Friday after rising more than 25 per cent this year.

Any deal "war chest" will likely comprise about S$500 million from the cash on the company's balance sheet and a similar amount from the debt issuance programme, said CGS-CIMB Securities analyst Ngoh Yi Sin. Using more debt to finance acquisitions will help to optimise the bourse's balance sheet for better return on equity, she said.

"Bite-sized, accretive acquisitions could re-rate the stock," Ms Ngoh said.

Other analysts expect the new facility to be the main component in the capital pool for acquisitions. Of the total balance-sheet cash, the company potentially has only up to S$250 million available for deals, with the rest going to a clearing fund and working capital among other commitments, according to Jefferies Inc analyst Krishna Guha.

SGX may also tap solely debt capital for any new deals in order to maintain its annual dividend payouts of at least S$300 million, said Paul Chew, Singapore head of research at Phillip Securities. BLOOMBERG