28 October 2016
Models of cargo ships are displayed at the Baltic Exchange in London. Photo: Reuters
Models of cargo ships are displayed at the Baltic Exchange in London. Photo: Reuters

China Merchants joins race for Baltic Exchange: Reuters

State-run conglomerate China Merchants Group has made an informal bid to buy London’s Baltic Exchange, becoming the latest contender for the business that has been the hub of the global shipping market for centuries, Reuters reported, citing sources.

The approach was made by the group’s subsidiary China Merchants Securities (600999.CN), according to the sources, who declined to be identified as the matter is not public.

“They are the latest [suitor] and certainly, with such a massive group, it shows how this is heating up,” one source said.

An acquisition of the Baltic, which was founded in 1744, would give the Chinese conglomerate ownership of the industry’s benchmark indices – which could be further commercialized – and greater access to the multibillion-dollar freight derivatives market, the news agency said.

It is the latest Chinese company to look at shipping and commodities targets in Europe, aiming to take advantage of a market downturn that has pushed down valuations of some firms.

A spokesman for China Merchants Group in Shenzhen said on Wednesday he was not aware of any bid for the Baltic Exchange, adding if there was a bid it would be processed by one of the group’s units, which are listed in various locations such as Shanghai, Hong Kong and Singapore.

On Feb. 26 the privately held Baltic Exchange confirmed it had received a number of “exploratory approaches” after the Singapore Exchange Ltd. (SGX) revealed it was seeking to buy the business.

Reuters earlier reported the Baltic had held talks with SGX and other potential buyers including CME Group, ICE and Platts. Last October, sources said the London Metal Exchange (LME) had made an approach to buy the Baltic.

Clearing houses and exchanges are all looking for a way to distinguish themselves at a time of growing regulatory scrutiny and weak commodities markets. Buying the Baltic would allow any of those entities to diversify their activities into freight.

China Merchants Group is among the country’s biggest conglomerates, with interests spanning ports, shipping and financial services.

In December, Chinese authorities approved its acquisition of state-run logistics group Sinotrans & CSC Holdings Co., part of efforts by Beijing to make sprawling government-controlled firms more efficient as economic growth slows.

That deal placed China Merchants’ estimated assets worth 624 billion yuan (US$96 billion) and Sinotrans & CSC assets of about 109 billion yuan under one roof.

The two sources said China Merchants Securities was willing to pay a premium above other bidders to acquire the Baltic.

Separate sources had previously estimated the deal could be worth about 84 million pounds (US$118 million).

Other Chinese firms looking at targets in Europe include COSCO, last month named by Greece as the preferred bidder for its biggest port, Piraeus.

Since then, COSCO has merged with fellow state firm China Shipping Group to create one of the world’s biggest commercial shipping companies, China Cosco Shipping Corp.

China Merchants still faces competition from SGX and others such as the LME, which was bought by Hong Kong Exchanges and Clearing (0388.HK) in 2012 for US$2.2 billion.

The Baltic 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.

In its last annual report in the year to end-March 2015, the Baltic recorded an after-tax profit of 1.3 million pounds versus 901,809 pounds in 2014.

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