Asian Stock Exchanges Consolidation to Pick Up
Byline: Nisha Gopalan
HONG KONG (Dow Jones) -- As transatlantic consolidation opportunities for exchanges steadily dwindle, many believe the merger action will shift to Asia's fast-growing markets even though regulatory barriers make dealmaking tough.
But although some exchanges, such as Singapore's and Tokyo's may seek partners, most deals will likely involve minority-stake buying for now, say analysts. The exceptions may be India and Taiwan, but buyers in the latter will have to weigh stakes against Chinese opposition.
"Governments see these exchanges as national institutions, so they won't want to give up their sovereignty over them," said Neil Katkov, Tokyo-based Asia research manager at financial services research firm Celent.
"But we will see this frenzy for minority stakes picking up, because exchanges see this as an exploratory move towards possible future mergers," he added.
In Asia, exchanges often play the role of regulators, making an acquisition difficult. On top of that, the small handful of listed bourses that can be bought have ownership limits. No single entity can own more than 5 percent of Hong Kong Exchanges & Clearing Ltd., or HKEx, or the Singapore Exchange Ltd. or 15 percent of the Australian Stock Exchange without government approval.
But within those limits, activity has been intense.
"As majority stakes are often not available, you start with what you can to get a foothold in that exchange," said JP Morgan analyst Harsh Modi in Singapore. "The exchange invested in benefits from management and technology expertise; the investor has access to different products flow."
India, home to 22 stock exchanges, and Taiwan may be the few places in Asia that are open to offering majority stakes. The Bombay Stock Exchange Ltd. has sold 10 percent in two 5 percent-lots to the Singapore Exchange and Deutsche Boerse AG; while India's National Stock Exchange has sold 20 percent to a group led by NYSE and including Goldman Sachs and the Calcutta Stock Exchange has invited strategic investors to buy 51 percent in it.
Taiwan's stock exchange is seeking foreign investors to buy stakes in a new company that will be created from the merger of its four exchanges next year. Taiwan Stock Exchange Executive Vice President Michael Lin said Monday that the exchange is in preliminary talks to sell up to 25 percent of its equity to NYSE Euronext, Deutsche Boerse and Nasdaq. However, a person familiar with the situation told Dow Jones recently that Nasdaq may avoid investing in the Taiwan Stock Exchange if that would upset its relationship with China.
China and Taiwan split amid civil war in 1949, but Beijing continues to regard Taiwan as part of its territory.
But the exchanges that are likely to be in the spotlight in Asia are mainly Singapore, Tokyo, Hong Kong and Korea.
"Western suitors would probably look for scale in volume rather than bottom-line profit -- so in equities, that makes Tokyo and Singapore attractive, accounting for 7 percent and 5 percent of global equity volumes. …