Comment: Obstacles abound for SGX-ASX deal

Robert Elstone and Magnus Böcker, the respective chiefs of the Australian Stock Exchange (ASX) and Singapore Exchange (SGX), looked uncomfortable during the press conference at which they proposed the merger of their businesses.

Perhaps they were tired: Elstone told the audience, gathered in ASX’s Sydney auditorium, that he and Böcker hadn’t slept much over the prior weekend, as the two sides thrashed out a deal.

Or perhaps they felt unnerved by the hard work yet to come. Elstone said he expected five or six months of hard graft before the deal could finally be put to shareholders, given the substantial regulatory and political hurdles it must first pass in Singapore and, more significantly, Australia.

The deal, which would produce Asia’s second-largest exchange by number of listings, has been approved by each exchange’s board, but faces a number of other obstacles. Chief among these is the rule that no foreign investor can own more than 15 percent of ASX, a limit set up following the exchange’s demutualization in 1998.

This rule would have to be waived by Australian Treasurer Wayne Swan if the deal is to go through, allowing SGX to buy up all the shares of ASX and create the new group. Swan will need to decide whether the tie-up is in Australia’s national interest.

Australia’s Green Party, led by Bob Brown, has kicked off opposition to the bid, criticizing Singapore’s human rights record and saying it didn’t see an advantage to having the Australian market controlled from Singapore.

As Elstone explained at the conference, however, the 15 percent limit was set in place many years ago, and the two exchanges are looking for a way to secure their future place as players in Asia’s fast-growing – and increasingly international – capital markets.

Over the last year, the M&A market has been the scene of a number of clashes between national and business interests – for example, in BHP Billiton’s pursuit of Canadian firm PotashCorp, and Kraft’s capture of British confectioner Cadbury. Here now is a similar question for Australia, as once again questions of business expediency spill over into the political sphere.

Number of listings by Asia-Pacific exchanges

Source: World Federation of Exchanges, as of September 30, 2010