ADVERTISEMENT

Singapore Exchange Has Potential Billion-Dollar-Deal War Chest

Singapore Exchange Has Potential Billion-Dollar-Deal War Chest

(Bloomberg) -- Singapore Exchange Ltd. can explore a billion dollar’s worth of deals should it go ahead with a plan to tap debt for the first time since its initial public offering in 2000.

The bourse is expected to set aside between S$1 billion ($734 million) and S$1.5 billion for potential acquisitions, according to estimates by CGS-CIMB Securities SP Pte. and Phillip Securities Pte. The funding will likely come via a mix of cash on company books, which totaled S$787 million as of Sept. 30, and the exchange’s new multicurrency debt issuance program, according to some analysts.

SGX said in October it can raise S$1.5 billion via various debt instruments to fund its investments. This comes as the exchange eyes potential acquisitions and aims to double the revenues of its fixed income, currencies and commodities unit as well as the data, connectivity and index arm over the next five years.

SGX “will continue to grow our asset classes across geographies,” a spokeswoman said in response to Bloomberg queries on what it could use the fundraising for. The debt program “provides us with the added flexibility to make bolt-on acquisitions to further scale our business if opportunities arise, while allowing us to actively manage our balance sheet.”

Michael Syn, its equities head, said last month the trading venue is eyeing acquisitions in financial technology and firms that complement its existing capabilities. The strategy is in contrast to its A$8.4 billion bid for Australia’s ASX Ltd. in 2010, and Hong Kong Exchanges and Clearing Ltd.’s unsuccessful attempt to takeover its London counterpart recently.

In line with this guidance, analysts expect SGX to spend on bolt-on acquisitions and diversify its revenue streams into other areas of derivatives and data. This could include investments in foreign exchange or index businesses in particular, said Rui Wen Lim, an analyst at DBS Bank Ltd.

Singapore Exchange Has Potential Billion-Dollar-Deal War Chest

The bourse has spent $355 million on announced deals over the past 12 years, the largest being the $114 million acquisition of the Baltic Exchange Ltd. in 2016, according to data compiled by Bloomberg. Shares of SGX, which has a market capitalization of S$9.6 billion, gained 0.7% Friday after rising more than 25% this year.

Debt Facility

Any deal “war chest” will likely comprise about S$500 million from the cash on the company’s balance sheet and a similar amount from the debt issuance program, said CGS-CIMB Securities analyst Ngoh Yi Sin. Using more debt to finance acquisitions will help to optimize the bourse’s balance sheet for better return on equity, she said.

“Bite-sized, accretive acquisitions could re-rate the stock,” Ngoh said.

Other analysts expect the new facility to be the main component in the capital pool for acquisitions. Of the total balance-sheet cash, the company potentially has only up to S$250 million available for deals, with the rest going to a clearing fund and working capital among other commitments, according to Jefferies Inc. analyst Krishna Guha.

SGX may also tap solely on debt capital for any new deals in order to maintain its annual dividend payouts of at least S$300 million, said Paul Chew, Singapore head of research at Phillip Securities.

To contact the reporters on this story: Ishika Mookerjee in Singapore at imookerjee@bloomberg.net;Abhishek Vishnoi in Singapore at avishnoi4@bloomberg.net

To contact the editors responsible for this story: Lianting Tu at ltu4@bloomberg.net, Joyce Koh, Teo Chian Wei

©2019 Bloomberg L.P.