Baltic Exchange Mulls Sale

Posted by Joseph Keefe February 26, 2016

Baltic says holding discussions with several parties.

The Baltic Exchange confirmed on Friday it had received a number of "exploratory approaches" after the Singapore Exchange Ltd revealed it was seeking to buy the business which has been the hub of the global shipping market for centuries.

Reuters exclusively reported on Thursday that the Baltic Exchange had held talks with SGX and other potential buyers, months after sources had said the London Metals Exchange (LME) made an approach to buy it.

"The Baltic Exchange confirms that it has received a number of exploratory approaches and that it is now in confidential discussions with selected third parties regarding its future strategy and ownership," it said in a statement.

"There can be no certainty that an offer will be made or the terms on which any offer might be made."

SGX said in a statement on Friday that it had submitted a non-binding bid for the acquisition of the Baltic, which sources had previously estimated could be worth some 84 million pounds ($117 million). Talks were in a preliminary stage, SGX said.

A possible purchase by SGX would shore up the Southeast Asian exchange operator's derivatives business.

The Baltic, founded in 1744, is owned by around 380 shareholders, many from the shipping industry. It produces daily benchmark rates and indices that are used across the world to trade and settle freight contracts.

"At this stage, no formal offer has been received, but when considering any approach the board will first carefully consider the views and interests of all its stakeholders," Baltic Exchange chairman Guy Campbell said in the statement.

Campbell wrote separately to the Baltic's wider members, comprising around 650 companies that include the shareholders, and apologised for not communicating with them sooner.

"Although we have received expressions of interest, I must make it quite clear that the discussions may very well lead nowhere, in which case we shall continue with business as usual," Campbell wrote in an open letter on Friday.

"We have most certainly not sought to create this situation, but we must now deal with it in a professional manner, as you would expect."

Clearing houses and exchanges are all looking for a way to become more profitable at a time of growing regulatory scrutiny and weak commodities markets.

Analysts said a deal would be a good fit for SGX, which has struggled to attract large IPOs and boost daily stock turnover but has a fast-growing derivatives business.

"In our view, the rationale for owning the information and key index provider in the shipping market makes sense especially given Singapore's position as a trading hub, SGX's dominance of the iron ore contract and efforts to develop LNG trading," Morgan Stanley analysts said in a report.

"We see the potential for SGX to develop more products if it were to own Baltic Exchange," they said.

Other potential bidders for the Baltic include CME Group , ICE and Platts, sources told Reuters earlier. All three declined to comment. It was unclear who had initiated the talks.

There had also been contact between the Baltic and the London Stock Exchange, which has a majority stake in clearing house LCH.Clearnet, sources said this week.

This is unlikely to progress given the possible merger between Deutsche Boerse and the LSE announced this week, however.

The LSE declined to comment. The Baltic had previously rebuffed approaches from the LME.

FAILED ASX DEAL
This would be the first purchase since chief executive Loh Boon Chye took the helm of SGX last year and it would also be the exchange's most high-profile deal since 2011, when its $8 billion offer for Australia's ASX was rebuffed by the Australian government on grounds of national interest.

SGX's derivatives revenue grew 29 percent in the first half to Dec 31, contributing nearly 41 percent to SGX's total revenue, while securities revenue inched up 2 percent.

"Having the control of such an icon shipping institution as the Baltic Exchange moving from London to Singapore would further prove how the center of gravity of shipping is moving east," said Ralph Leszczynski, head of research in Singapore for Italian ship broker Banchero Costa.

While the shipping market is suffering from overcapacity and sluggish global trade, the Baltic has carved out an industry-leading position in freight derivatives including through its Baltex platform.

The exchange has been located in the heart of the City of London since its founding in a coffee house. Its later flagship building was blown up in a 1992 attack by the Irish Republican Army and the Gherkin tower now stands on the site.

SGX is working with investment bank Jefferies on the potential deal, another source said. SGX and Jefferies declined to comment.

The Baltic confirmed Japan's Nomura Holdings had been appointed as the Baltic's adviser for a possible sale, which Reuters had earlier reported.