The Man Behind an Audacious Bid for the London Stock Exchange Isn't Giving Up
Charles Li is at it again.
(Bloomberg) -- Charles Li is at it again: trying to persuade doubters that a one-time oil rigger who grew up on the fringes of the Gobi desert is the right buyer for a centuries-old British institution.
The Hong Kong Exchanges & Clearing Ltd. chief executive officer succeeded the first time, when the Asian bourse bought the London Metal Exchange in 2012. As with that deal, the odds are stacked against him following the initial rebuff by the London Stock Exchange Group Plc to his $36.6 billion offer and questioning by China’s state media.
But that could suit the style of the first Chinese national to run the exchange. Having earned the nickname “Mr. China” for tying the company closer to the mainland, Li is described by current and former colleagues as relentless and with little tolerance for naysayers. He has dispatched senior HKEX officials, including co-president Romnesh Lamba, to meet LSE shareholders in London and New York, according to people with knowledge of the matter. An HKEX spokeswoman declined to comment.
Li is “a typical investment banker, hungry for money and opportunities,” said Stephen Hui, a former HKEX board member. “He works with a can-do attitude, and will not stop until he absolutely tries everything.”
The formula has worked for years, for both the exchange and its 58-year-old CEO. Now, after a firm refusal from LSE’s management, it may be up against its toughest test yet.
Thinking Ahead
Born in Beijing, Li grew up in the northwestern Gansu province during the Cultural Revolution. He worked on an oil rig before studying English Literature at Xiamen University. A short stint as a journalist led him to the U.S., where he earned a Columbia University law degree. A few years working at law firms, including Davis Polk & Wardell were followed by 16 years in banking: first Merrill Lynch & Co. and then JPMorgan Chase & Co., where he was China chairman when he joined HKEX in 2009.
Taking over as CEO in 2010, Li had a plan to diversify the business and to do so with acquisitions, said Cecelia Zhong, a former HKEX executive. HKEX revenue has doubled to HK$14.3 billion ($1.8 billion) since Li took over in 2010, and its shares have outperformed the benchmark Hang Seng Index.
“He’s ambitious, has vision and thinks 10 years ahead,” said Zhong, who’s now CEO of Guojin Resources Ltd., a Hong Kong-based commodities trading platform.
Li has transformed a bastion of the Hong Kong business world into a global player with trading venues in the U.K. and mainland China. The city owns 6% of HKEX and appoints six of the company’s directors.
At the same time, Li sought to elevate HKEX’s global profile, a strategy reflected in his top aides. The company’s heads of listings, group strategy and markets have all worked at Wall Street firms.
In meetings with senior stakeholders, Li would often present ideas that seemed to come out of nowhere, said a person with knowledge of the matter, and each proposal had a detailed analysis of risk and return. Linking HKEX with exchanges in Shanghai and Shenzhen -- an idea that eventually became the stock connect program that now covers more than 2,000 equities -- was one of those, the person said.
“Our teams worked for years to overcome what many felt was ‘mission impossible’: finding a way to open up the mainland market as much as possible while minimizing the risks of an uncontrolled flow of capital,” Li wrote on the HKEX website in December 2017. “No exchange had ever done anything like Stock Connect before.”
HKEX’s shares have dropped 8.7% since the LSE bid was made public. The stock was down 0.8% at 10:25 a.m. local time Tuesday.
Dual-Class Push
One former colleague pointed to Li’s push for weighted-voting rights in Hong Kong --to allow companies with different share classes to go public in the city -- as an example of his approach.
Li first mooted the idea in 2013 as a way to lure big tech companies to the city but was denied by the regulator in 2015. He finally got his way last year. Xiaomi Corp. and Meituan Dianping have gone public under the new rules, and Alibaba Group Holding Ltd. is expected to list in Hong Kong later this year in what will likely be one of the biggest ever share sales.
“I have seen him fight hard battles, like introducing dual-class shares to the market against all odds,” said Mike Wong, CEO of the Chamber of Hong Kong Listed Companies. “He has a full plan forward, and thinks years ahead -- but also knows when to advance and when to leave.”
Not every idea has worked, especially when it comes to China. While HKEX has also started a bond link with the mainland, Li had often talked about a suite of connections, including one for exchange-traded funds and one that would allow Chinese investors to buy Hong Kong listing debuts. They haven’t happened, and public comments about the plans have died away. Futures contracts in Hong Kong based on Chinese government bonds were launched, but shelved after a few months.
Those setbacks may have played a role in the LSE bid. At corporate strategy meetings held in September 2018, Li and other senior HKEX executives spoke about the need to diversify away from China, said one of the people.
The response so far from the LSE suggests Li will have to look elsewhere.
LSE CEO David Schwimmer last week reaffirmed his plans to combine with data provider Refinitiv and reject the HKEX bid. The London bourse and many of its investors view that $27 billion push into financial data as more promising than a multi-continental combination of exchanges.
For now, HKEX is trying to win over other LSE investors, and a hostile bid hasn’t been ruled out. Former HKEX Chairman Ron Arculli said on Bloomberg Television that observers shouldn’t dismiss Li’s ability to overcome opposition and complete the deal.
“He knows how to navigate his way around the regulatory circles, and indeed the financial circles, in London,” he said.
--With assistance from Evelyn Yu.
To contact the reporters on this story: Viren Vaghela in London at vvaghela1@bloomberg.net;Kiuyan Wong in Hong Kong at kwong739@bloomberg.net;Benjamin Robertson in Hong Kong at brobertson29@bloomberg.net
To contact the editors responsible for this story: Candice Zachariahs at czachariahs2@bloomberg.net, ;Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net, Sam Mamudi, James Hertling
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