Singapore Exchange’s $8 billion bid to takeover the ASX has raised eyebrows in the Western Australian investment community, which has flourished in recent years by listing high volumes of mining companies with relatively small market capitalisations.
Singapore Exchange’s $8 billion bid to takeover the ASX has raised eyebrows in the Western Australian investment community, which has flourished in recent years by listing high volumes of mining companies with relatively small market capitalisations.
The key question being asked is whether the high liquidity, efficiency and transparency offered to mining stocks by the ASX can be matched if a new owner seeks to create a regional powerhouse by directly linking business of the Singapore bourse with its much larger takeover target.
WA is headquarters to about one third of ASX listed companies but by market capitalisation it represents a much smaller proportion of the market.
In a politically tough environment the deal will need to win the blessing of the federal Treasurer Wayne Swan before it can be successful.
A 2001 bid by Singapore’s SingTel to buy Australia’s second biggest telco Optus did win approval under a Liberal government, but the sensitivity of selling strategic assets to companies in an island nation known for strong government control over industry was an issue. At the time of the Optus deal, WA media magnate Kerry Stokes spoke out about concerns regarding national security.
Patersons Securities executive chairman Michael Manford said the ASX deal was vexing and had significant national interest ramifications.
Mr Manford said that the ASX had been successful in keeping costs low and liquidity high for the mid-cap sector, which included many Perth-based mining players.
In addition, he said, the Australian market had proved adept at attracting foreign capital. In contrast, Australian investors had found offshore markets expensive to enter and local companies had struggled to find the same levels of support in overseas exchanges.
“Any mechanism that precluded an Australian component of an Asian exchange being able to set up regulations and trading requirements that matched local requirements for local companies would be detrimental to Australian business interests,” Mr Manford said.
Nevertheless, the Patersons boss said there could be benefits in attracting further capital for Australia stocks if a merger of the markets could be conducted in a way that provided suitable flexibility for the special needs of the local market.
Another benefit could be cheaper access to foreign markets for Australian investors.
And Mr Manford noted there was significant resistance to the 1990s merger of the five regional exchanges to create the ASX, a move that has significantly benefitted all investors and WA companies.
University of Western Australia business academic Professor Raymond da Silva Rosa was also concerned about the deal, believing that the interests of the state’s business community could be overlooked.
Professor da Silva Rosa said the combination of the Singaporean and Australia share markets would most likely create a more stringent set of rules for listed companies reducing flexibility that has helped Perth-based companies, especially resources stocks.
“That will be a setback for WA’s small stocks,” he said.
“There are people that will benefit through it but those people will benefit from trading in large pools.
“There are some cost savings but for the wider community the benefits are not that obvious.”
Professor da Silva Rosa also compared the success of Australian companies foreign markets, highlighting that BHP Billiton shares trade lower in London than the ASX, where it is dual listed, because it is better known in Australia.
