SGX makes non-binding offer for Baltic Exchange, compiler of the Baltic Dry Index

SGX Centre 1 (left) at Shenton Way Road.
SGX Centre 1 (left) at Shenton Way Road. PHOTO: ST FILE

SINGAPORE - The Singapore Exchange (SGX) has submitted a non-binding offer to acquire global shipping market hub The Baltic Exchange, it announced on Friday (Feb 26).

In a statement in reponse to a Reuters article, SGX said that as "discussions are still preliminary, there is no certainty or assurance that the possible transaction will materialise or that any definitive or binding agreement will result from such discussions".

It added that it will "comply with the listing rules of the Singapore Exchange Securities Trading Limited, and will promptly disclose any material developments in regard to the Possible Transaction by way of public announcement."

Reuters reported on Thursday that the privately-owned Baltic Exchange had held talks with potential buyers, including SGX, months after the London Metal Exchange made an approach to buy it. CME Group, ICE and Platts reportedly also expressed interest.

The London-based Baltic Exchange produces daily benchmark rates and indices that are used across the world to trade and settle freight contracts.

It compiles the famous Baltic Dry Index, which measures changes in the cost to transport raw materials such as metals, grains and fossil fuels. This gives investors insight into global supply and demand trends, so the measure is used as an indicator of future economic growth.

SGX has been hit by falling stock trading volume and a plunge in initial public offerings and the bid for the Baltic Exchange is seen as SGC looking to expand its derivatives business.

"The SGX is likely looking to strengthen its derivative businesses, and probably complement its iron ore swaps and futures business," said Bernard Aw, market strategist with brokerage IG.

Investors seemed to welcome the news with SGX shares trading up 8 cents, or 1.1 per cent, at S$7.09 as of 10:23 am. The stock lost 4 per cent in the first four days of the week.

The deal would the first major foreign investment by SGX under the watch of chief executive Loh Boon Chye who took over from Magnus Bocker in mid-July.

It is also SGX's most major deal since 2011 when its US$8 billion bid for Australian exchange operator ASX Ltd was rejected by the Australian government on the grounds of national interest.

Clearing houses and exchanges are all looking for an edge to give them a profitability boost amid growing regulatory scrutiny and weak commodities markets, said Reuters.

While the shipping market is currently suffering from overcapacity and sluggish global trade, the Baltic Exchange has carved out an industry-leading position in freight derivatives including through its Baltex platform, said Reuters.

The deal would also be a good fit for SGX as Singapore looks to bolster its role as a maritime hub, sources told Reuters.

Founded in 1744, the Baltic Exchange is owned by 380 shareholders, most of them bulk shipping industry members, according to its website.