SGX makes bid for Baltic Exchange

3 min read
Helen Bartholomew

Singapore Exchange SGX has made an offer to acquire the Baltic Exchange in a deal that values the London-based shipping bourse at £87m, subject to shareholder support.

SGX is offering £160.41 per share in cash, while Baltic Exchange shareholders will also receive a minimum of £18.80 per share as a final dividend, conditional on the acquisition proceeding.

London-based Baltic Exchange is planning to consult with key shareholders to secure support for the acquisition. Subject to that support and an endorsement from the Baltic Exchange board, the acquisition terms will be presented to shareholders for a vote at a general meeting.

The Baltic Exchange is privately owned by almost 400 of its 600 members that include shipowners, charter firms and brokers. The largest shareholders include Royal Bank of Scotland, containership and dry cargo broker Howe Robinson, Embiricos Shipbrokers and charter firm Furness Withy.

The Baltic Exchange, which was founded in 1744 by a group of merchants and shipowners, publishes the Baltic Dry Index as well as a range of alternative international shipping rates. It is also home to an array of freight derivatives, which are dominated by forward freight agreements, a form of fixed-to-floating swap that enables ship owners and charterers to hedge against moves in shipping rates.

The contracts are cleared through designated clearinghouses including LCH, SGX and CME.

The exchange also operates Baltex, a regulated multilateral trading facility for block trading in freight and commodity derivatives. The platform, which is supported by a range of FFA brokers including GFI and ICAP, reported almost 500,000 lots during 2015, representing almost 40% of all dry FFA volume.

The acquisition would bolster SGX’s ambitions to become a pan-Asian derivatives hub. The exchange already offers a wide range of listed products across equities, commodities and foreign exchange and also clears over-the-counter interest rate and commodity swaps through its SGX-DC clearinghouse.

A tie-up could present growth opportunities for both parties, according to SGX, with plans for the development of new shipping benchmarks and clearing services.

SGX entered into exclusive discussions with the Baltic Exchange in May following a series of rival approaches. As part of the offer, SGX proposes that the Baltic’s headquarters will remain in London but the existing Asian presence will be broadened through SGX’s regional distribution network.

SGX also committed to preserving the Baltic’s current ethos as a membership organisation whose activities are governed by the Baltic Code.

Clearing fees for FFA contracts and membership fees would be frozen for at least five years as part of the offer.

Nomura and Norton Rose Fulbright are advising the Baltic Exchange.

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