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SGX acquires Baltic Exchange

Tue 21 Mar 2017 by Steve Matthews

SGX acquires Baltic Exchange
Singapore Exchange is looking for more maritime business

Completion of the acquisition by Singapore Exchange of the London-based Baltic Exchange is a huge feather in its cap for Singapore in enhancing its credentials as a major global shipping business hub

When talks about the take-over of the Baltic Exchange by Singapore Exhange (SGX) were first revealed in early 2016, Espen Poulsson, president of the Singapore Shipping Association, and since June 2016 also chairman of the International Chamber of Shipping, commented: “Any development that promotes Singapore’s position as a leading international maritime centre and enhances its status as an international financial centre, is to be welcomed.”

The Baltic Exchange has been in London since 1744 since when it has been the global centre for shipowners and charterers and their respective brokers to seal deals. In recent years most of its business has been conducted electronically and it has overseen the growth of freight derivatives trading. The Baltic Exchange provides the definitive benchmark indices for the settlement of such deals.

Singapore and SGX have been seeking to promote this type of business, and SGX has developed as a significant provider of the clearing and settlement of freight derivatives. While the Baltic Exchange headquarters will remain in London as the main location for its traditional business, SGX sees opportunities from its ownership in terms of synergies with its own activities and to add value, such as contributing panellists. It will also retain a multiple clearing house model and has made commitments with regard to the future business of freight derivative brokers.

SGX made an initial bid in February 2016, and by May 2016 matters had progressed sufficiently for an exclusivity agreement to be signed for discussions on SGX’s 100 per cent cash offer to acquire the Baltic Exchange.

At that time SGX said that the acquisition would “bring together the complementary strengths of Singapore and London, two of the world’s most important maritime hubs. Both SGX and the Baltic Exchange would also benefit from new growth opportunities, including potential new shipping benchmarks and clearing solutions that meet the market’s evolving needs for data and trading.” Promoting freight derivatives activity in Asia is one of the key aims of SGX in acquiring the Baltic Exchange. According to SGX, it handles about 40 per cent of the global dry bulk freight derivatives market, although its efforts to develop tanker derivatives business have yielded more mixed results.

SGX chief executive Loh Boon Chye said: “We recognise the integral role the [Baltic] Exchange plays within the global shipping community, which we hope to develop for the benefit of the industry as a whole.”

Negotiations were constructive and positive and in September 2016 the proposal won approval from Baltic Exchange shareholders. In October the deal was cleared by the UK regulator, the Financial Conduct Authority, and in early November 2016 the proposed deal crossed its crucial and final hurdle when it gained formal court approval in London. This approval was followed swiftly by formal completion of the acquisition, which was valued at about £87 million.