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 |  Subject: Hong Kong as World-Beater Forged in London Metal  Mon Apr 01, 2013 11:13 pm | |
| Charles Li, the chief executive officer of Hong Kong Exchanges & Clearing Ltd., put on a tuxedo for the first time and stood before a crowd of 2,000 metals professionals at London’s Grosvenor House Hotel in October, capping an impromptu speech with a couple minutes of Mandarin.
That a quarter of the guests assembled for the annual dinner of the 136-year-old London Metal Exchange were Chinese bankers or traders who understood him underscored the new order at the venue Li would soon acquire.
The Gansu-raised former chairman of JPMorgan Chase & Co. in China paid $2.2 billion for the LME. At 180 times trailing income, the deal, announced June 15 and completed Dec. 6, is the most expensive bourse acquisition over $1 billion since at least 2000, according to data compiled by Bloomberg. The price was justified because the world’s second-biggest economy accounts for as much as 44 percent of global consumption of aluminum and copper, Li said.
“I didn’t go to London to do this to make history,” Li said in a February interview at his 12th floor office with a view beyond Victoria Harbor to the mainland. “More importantly for us is to really use the LME as a catalyst to achieve a breakthrough in the barrier between China and the rest of the world.”
Li is taking over LME at time when most metals and energy trading in Asia is done through contracts anchored in Europe and the U.S. Besides LME’s 80 percent share of global industrial- metals, the benchmarks for oil, West Texas Intermediate and Brent, are settled in New York and London. Global benchmarks for everything from corn to wheat to soybeans are set in Chicago.
Iron, Coal
The Hong Kong bourse’s all-cash offer beat Intercontinental Exchange Inc. to win control of LME. CME Group Inc. (CME), which vies with Hong Kong Exchanges for the title of world’s biggest bourse company by value, had dropped out of the bidding earlier.
With the LME behind it, Hong Kong plans a venue for its own products in iron ore, coking coal and crops, and will expand the LME’s network of warehouses for storing physical commodities into China, Li said. That will give Hong Kong Exchanges a chance to capture the yuan-denominated commodities trade, valued at a combined 95.3 trillion yuan ($15.35 trillion) in 2012, which is now confined to three Chinese exchanges that restrict foreigners, according to the China Futures Exchange Association. Those venues are in Shanghai, the northern port city of Dalian and Zhengzhou, capital of Henan province.
Hong Kong can provide a “demilitarized zone” where domestic consumers and foreign suppliers establish prices using indexes, futures and physical delivery contracts, Li said.
Three Leaders
“With a strong suite of listed products consisting of equities, commodities, fixed income and currencies, I see HKEx joining CME and ICE as one of the three leading exchanges in the world in five to 10 years,” Eric Shi, global commodities head of BOC International, the investment-banking unit of Bank of China Ltd. wrote in an e-mail Feb. 26. “There are still many hurdles for HKEx/LME to be successful, particularly in the short term, given the complexities of China.”
Li said the opening of the Chinese economy echoes his own journey from growing up in a rural territory bordering Mongolia to speaking at the London LME dinner. He wants to cement Hong Kong’s position as China’s outward-facing financial center rooted in every asset class.
“What influenced my life and the life of my generation is this great wave of change of China, in the short space of 15 years that allowed my generation to experience something that other people hadn’t experienced over 20, 30, 40, 50, 60 years, because of the change in China from nobody to the second-largest economy,” he said.
http://www.bloomberg.com/news/2013-04-01/hong-kong-as-world-beater-forged-in-london-metal-by-mandarin-li.html |
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