ASX/SGX tie-up pressures western bourses to up Asia exposure: Moody's

Tuesday 2nd November 2010

Singapore Exchange’s A$8.1 billion tilt at ASX will up the ante for Western bourses to lift their Asian exposure, Moody’s Investors Service said.

The merger, which faces an uphill battle getting regulatory approval in both Singapore and Australia, underlines the “strategic imperative of participating in Asia’s long-term growth” by the world’s major players, said senior analyst Alexander Yavorsky.

He doesn’t expect large-scale acquisitions.

“The valuations and price-earnings multiples of Asia exchanges make stock-based deals highly dilutive” and “debt-financed deals would take the acquirers well beyond their leverage capacity,” Yavorsky said. “We expect a more deliberate approach centred on technology sales, dual listings and cross marketing and trading connectivity with foreign exchanges.”

A merged ASX/SGX is expected to make life tougher for the local NZX, which will remain relatively illiquid as more companies are drawn to a larger pool of capital. Chief executive Mark Weldon has talked down the threat, saying small and medium-sized companies need a local exchange to raise funds.

Shares in NZX were unchanged at $1.57 in trading today, and have gained 2 cents since the deal was announced.

If the SGX wins approval, it will be the first stock exchange consolidation involving an Asian bourse operator, creating an entity with a market cap of more than US$12 billion.

The proposal comes as the ASX faces competition for market services, a goal of the Australian government, after the Australian Securities & Investments Commission assumed supervision of the capital markets. Japanese investment bank Nomura Holdings’ electronic trading platform Chi-X Global Inc. plans to open in Australia in March.

Moody’s’ Yavorsky said rival bourses will “chip away at ASX’s market share and pricing power” though probably won’t enjoy as much success as it has in Europe and Canada, where it operates with a quicker response time and lower costs than the incumbents.

Businesswire.co.nz

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