272-Year Old Shipping Exchange Gets Acquisition Offer from Singapore

Patrick T. Fallon/Bloomberg News

Singapore Exchange is seeking to buy Baltic Exchange, the 272-year-old London-based provider of information on global shipping costs.

SGX has made a nonbinding bid for the Baltic, Southeast Asia’s biggest bourse operator said in a statement Feb. 26 after Reuters reported that talks were taking place. Discussions are preliminary, SGX said.

The Baltic Exchange confirmed in an e-mail that it has received multiple approaches and is in talks with several firms. Reuters earlier said the Baltic Exchange had held talks with London Metal Exchange, CME Group Inc., Intercontinental Exchange Inc. and Platts. The agency’s report cited unidentified people familiar with the matter.

News of the offer comes days after London Stock Exchange Group and Deutsche Boerse AG said they were in merger talks, potentially igniting a new round of merger-and-acquisition activity between exchanges. For SGX, contracts using the Baltic’s freight-rate data are an appealing target.

“This acquisition will help SGX strengthen their derivatives business,” Bernard Aw, a strategist at IG Asia in Singapore, said by phone. “Their derivatives business has been doing quite well. If equity trading continues to stagnate, derivatives will become increasingly dominant.”

Derivatives accounted for about 40% of SGX’s most recent quarterly revenue as demand grows for contracts tied to equities and commodities, including iron ore. The exchange also offers freight contracts tied to shipping costs compiled by the Baltic Exchange.

The Baltic, which publishes benchmark freight rates, is one of the City of London’s most famous trading names. Like insurance market Lloyd’s of London, it grew out of 18th-century coffeehouses, where ship owners and merchants matched vessels with cargoes such as grain. Its name is derived from the trade in tallow, used to make candles and soap, and other goods that originated from the Baltic states.

The company is owned by its bulk shipping industry members, according to its website, one of the last member-owned exchanges in an age of for-profit businesses. London Metal Exchange surrendered its member-owned status after it was bought by Hong Kong Exchanges & Clearing Ltd. in 2012. The Baltic rejected a proposal from LME in 2010 to cooperate on starting a freight derivatives exchange.

The company has 30 staff in London, Athens, Singapore and Shanghai. It reported net income of 1.34 million pounds ($1.88 million) in the year ended March 31, 2015 and revenue of 6 million pounds, according to its website.

SGX has been developing its derivatives business to offset lackluster equity trading volume in the city state. While the average daily value of shares traded in the Singapore market increased 5.1% to S$1.1 billion ($785 million) in 2015, it remains well below the S$1.7 billion that changed hands every day before the global financial crisis, data compiled by Bloomberg show.

“Singapore Exchange has quite poor home liquidity,” said Tony Tanaka, a Tokyo-based analyst at Haitong International. “They have to expand liquidity, they have to expand outside Singapore. It has always been a focus for them.”

SGX in 2011 failed to purchase ASX Ltd., Australia’s main exchange operator, after the country’s government blocked the bid citing national interests. Loh Boon Chye, who became SGX CEO last year, said in July that the bourse is open to making acquisitions.

“SGX wishes to emphasize that as discussions are still preliminary, there is no certainty or assurance that the possible transaction will materialize or that any definitive or binding agreement will result from such discussions,” the exchange said in an e-mailed statement.

The Baltic Exchange has appointed Nomura Holdings Inc. and Norton Rose Fulbright as advisers.