HKEx shares drop; concern it's paying too much for LME

(Adds details, analysts comments)

* HKEx drops as much as 4.5 pct lagging Hang Seng

* HKEx overpaid for LME - analysts

* Analysts trim earnings estimates

HONG KONG, June 18 (Reuters) - Shares in Hong Kong Exchanges and Clearing Ltd (HKEx) (0388.HK) fell by the most in two weeks early on Monday on concern the stock exchange operator overpaid in its $2.2 billion buy of the London Metal Exchange (LME).

HKEx shares slipped as much as 4.5 percent to an intraday low of HK$107.30, its biggest percentage fall since June 4. The benchmark Hang Seng Index .HSI was up 1.6 percent.

HKEx, which runs Asia's largest bourse, is paying 58 times LME's adjusted 2011 earnings to get access to the commodities trading platform, which it sees as key for fuelling future growth as the pace of IPOs slows. This compares with a price-to-earnings average of 37.4 for similar deals in the past, according to Credit Suisse estimates.

"We think the exchange overpaid for a business it has very little experience running," said Edmond Law, an analyst at UOB Kay Hian in Hong Kong. "The execution risk on this deal is very high, and returns may only come in the very long term."

Other analysts including those from Credit Suisse, Merrill Lynch, CLSA and Macquarie maintained their 'underperform' or 'cut' ratings on HKEx, with Merrill saying the high price paid for the LME would make delivering attractive returns difficult.

HKEx beat major global exchange operators, including IntercontinetalExchange Inc (ICE.N) and CME Group Inc (CME.O), to win the LME, the world's biggest marketplace for industrial metals. HKEx's mainstay business of cash equities trading is going through a dry patch.

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

Stories on the LME bidding [ID:nL5E8G8GFF]

HKEx agrees to buy LME [ID:nL3E8HF31V]

HKEx confident of LME approval [ID:nL5E8HFBT3]

History of the LME [ID:nL5E8HFB1K]

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

The exchange was listed in 2000 and is run by CEO Charles Li, a journalist turned lawyer turned JP Morgan banker. It is also semi-government run, with the Hong Kong government appointing six of the company's 13 board directors and holding 5.8 percent of its shares.

(Reporting by Denny Thomas and Kelvin Soh; Editing by Ian Geoghegan)

((kelvin.soh@thomsonreuters.com)(+852-6113-0928)(Reuters Messaging: kelvin.soh.reuters.com@reuters.net)) Keywords: LME HKEX/SHARES/

(C) Reuters 2012. All rights reserved. Republication or redistribution of Reuters content, including by caching, framing, or similar means, is expressly prohibited without the prior written consent of Reuters. Reuters and the Reuters sphere logo are registered trademarks and trademarks of the Reuters group of companies around the world.

• Tweet this
• Link this
• Share this
• Digg this
• Email
• Reprints

Comments (0)

This discussion is now closed. We welcome comments on our articles for a limited period after their publication.