April 6, 2011 / 1:19 AM / 9 years ago

Australia defends blocking ASX-SGX deal

SYDNEY/MELBOURNE (Reuters) - Australia defended its preliminary decision to block Singapore Exchange’s (SGXL.SI) $7.8 billion bid for Australia’s ASX Ltd (ASX.AX), rejecting criticism it would hurt the nation’s standing with foreign investors.

Treasurer Wayne Swan, speaking a day after saying he intended to block the deal on unspecified national-interest grounds, said Australia continued to welcome foreign investment and described the approval process as fair and transparent.

“I welcome foreign investment but ultimately all foreign investment proposals have to be in the national interest,” he told ABC radio on Wednesday.

Swan declined to spell out his reasons for initially blocking the deal, which was agreed by the two exchanges to cut costs, combat alternative trading platforms and avoid being overtaken by North American and European exchange mergers.

The treasurer said he was obliged to give the SGX an opportunity to respond to the government’s concerns before finalizing his decision. Only then would he publish the reasons for his decision.

Sources said SGX expected to talk to the Foreign Investment Review Board before the board made its recommendation on April 11. SGX had no plans to withdraw its bid before then, said the sources, who were not authorized to talk publicly about the deal.

DEAL ALL BUT DEAD

The Singapore government’s indirect 23 percent stake in SGX is seen as the main stumbling block to Australian regulatory and political approval.

Australia’s foreign-investment approval process has been criticized for decades as being opaque and unpredictable, but two clear trends have emerged: the vast majority of applications are uncontentious and approved, but problems are likely to arise when state-linked investors look to take control of a strategic business.

In 2009, China Non-Ferrous Metal Mining Co was blocked from buying a controlling stake in rare earths miner Lynas Corp (LYC.AX). Australia also blocked state-linked China’s Minmetals (1208.HK) bid for OZ Minerals (OZL.AX), saying its Prominent Hill mine was too close to a rocket testing range.

Robert Tobias, an M&A lawyer at DLA Phillips Fox in Sydney, said he did not see any major fallout for foreign M&A in Australia.

“Unless there’s something extraordinary about your deal I don’t see why they wouldn’t be approved in the normal course,” he said. “The stock exchange is not classified as a sensitive industry under the foreign investment guidelines but clearly it is a sensitive institution in the Australian context and that clearly had an impact on the government’s thinking.”

Investors believe the deal is all but dead, with the SGX saying it had no current plans to amend its ASX bid.

“The announcement yesterday clearly takes the deal off the table,” said Matthew Williams, Australian equities manager at Perpetual Investments (PPT.AX), ASX’s top shareholder, with a 4.9 percent stake, according to Thomson Reuters data.

“It’s added a lot of uncertainty to where ASX can potentially deal themselves into a more globalize platform,” he said.

While its offshore competitors are planning to merge, with the London Stock Exchange (LSE.L) proposing to take over Toronto Stock Exchange owner TMX Group (X.TO), ASX also faces competition later this year from a new trading platform in Australia due to be launched by Nomura’s (8604.T) Chi-X.

“(ASX’s) share price has got to face those two headwinds,” said Williams.

ASX shares were flat on Wednesday at A$33.70 following a 3.3 percent drop on Tuesday after SGX and ASX said the deal was about to be blocked by Swan. SGX shares edged up 0.6 percent after a 4.5 percent rise on Tuesday.

Additional reporting by Sonali Paul in Melbourne, Mark Bendeich in Sydney and Rachel Armstrong in Singapore; Editing by Balazs Koranyi and Lincoln Feast

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