Friday 08 Oct 2021 | 01:03 | SYDNEY
Friday 08 Oct 2021 | 01:03 | SYDNEY

SGX-ASX: A no brainer


Stephen Grenville

11 April 2011 10:54

The SGX take-over of ASX has been rejected on 'national interest' grounds. It was, as the Treasurer said, a 'no brainer'. The great puzzle is that the ASX Board ever thought that it would get a tick.

It would have required special legislation to change the normal 15 per cent limit on a single owner of a financial institution. It would have meant more nice white-collar jobs would shift to Singapore (the 'Adelaide problem').

It would have made it abundantly clear (if this were not already apparent) that Australia had given up on its hope of being an international financial centre.

It would have been another example of foreigners benefiting from a moment of market weakness in prime Australian assets to 'buy up the farm', following the example of the BHP/Billiton merger, the take-over of MIM by Xstrata and the near-miss with Rio.

But above all it had the wrong relativities between the parties. Were we ready to have our stock exchange taken over by a rival exchange whose capitalisation of listed stocks is half that of the ASX'

A rival whose capitalisation is high only because it operates as a protected monopoly, with government-dominated ownership and whose operating methods are so leisurely that until recently it closed up at lunch-time so that the traders could go out to have a bowl of laksa'

Of course none of this can be put forward officially as reasons for rejection. Many in the business community are 'outraged' and are demanding technical reasons as to why the market was not free to do what it wanted to do. They are totally out of touch with the politics (or have they forgotten that we live in a democracy, where the public view is less fixated by the bottom-line).

Malcolm Turnbull got it right when he said that it would have looked quite different if it had been a merger of equals. Sure, opposition politicians are taking the opportunity to criticise the Treasurer over the decision, but none of them is suggesting that the outcome was wrong.

All this leaves the ASX in an awkward position. The failure has left the brand as 'damaged goods', at a time when it is in an awkward transition to a new CEO (a fact that may have influenced the timing of the SGX bid). Worldwide, exchanges are merging to spread fixed costs, even when there are no natural synergies for customers or commonality in the transactions.

The SGX was not a perfect partner (it has not succeeded in breaking into the China market and Singapore is widely disliked among its regional neighbours). But it is a link to Asia and to the embryonic plan to merge South-East Asian exchanges. There might have been enough common interests to justify a merger of equal partners. But not a take-over.

Having forced the issue at this time, with all the contrived ambiguity over the rejection, the ASX Board will have a tough time explaining to possible suitors that it is still available for marriage.

The bigger issue is how Australia should handle a world where we have assets which are very attractive to foreign countries with longer investment horizons than our own short-term-focused funds managers have. Are we going to sell a few more national icons, every time the vagaries of our equity markets present some cut-price opportunities, just to show that we are good global citizens' 

The previous Treasurer's decision in blocking the Shell take-over of Woodside has no critics now. It's hard to see that this latest rejection has done any harm to our global reputation (as argued by ANZ's Mike Smith). Hamish McDonald gets it right. Have we already forgotten that Canada (surely a serious country) knocked back BHP's potash bid'

With our dollar well over parity, we're not scratching around for capital inflow. And as far as our reputation in the region goes, China and Singapore both understand very well that you don't just leave foreign investment up to the free market.

After all, they certainly don't do this for foreign investors in their own economies.

 Photo by Flickr user jason.kuffer.