The Hong Kong stock exchange could find the London stock exchange “potentially unaffordable,” according to one bank’s chief strategist.
Hong Kong Exchanges and Clearing Limited (HKEX) said Wednesday it made a proposal to the board of London Stock Exchange Group (LSE) to “combine the two companies” in a deal which values the LSE at about £29.6 billion ($36.6 billion).
But the size of the deal also makes it “more expensive and potentially unaffordable” for the HKEX, Bank of Communications (BOCOM) International’s Hao Hong told CNBC’s “Squawk Box” on Thursday.
“It’s not the cheapest deal,” he said. “I think it could put this merger, if (it) goes through, to be … one of the more expensive exchanges in the world.”
“One would expect that the price tag could go up as negotiation progresses,” Hong told CNBC by email, in response to a follow-up question. “The Hkex doesn’t have any debt. It’s unclear how willing the shareholders would be to assume more leverage to consummate the deal.”
HKEX did not immediately respond to a CNBC request for comment.
HKEX proposed £20.45 a share in cash, as well as 2.495 newly issued HKEX shares. It said the deal would be funded by a combination of existing cash and a new credit facility.
It cautioned, however, that its statement to the market should be considered an announcement to make a possible offer, rather than as confirmation of a firm intention to bid.
Additionally, Hong said that the HKEX would have to meet “many conditions.”
“It’s a challenge for Charles, obviously,” Hong said, referring to HKEX CEO Charles Li.
Complication from LSE’s Refinitiv deal
One of the biggest challenges HKEX would face is from LSE’s recent $27 billion deal to acquire financial data services firm Refinitiv, said Hong.
The HKEX deal “was announced soon after the Refinitiv deal, so you know, there’s quite a bit of legal complication and also political overlays on top of the deal in terms of the timing, because of the situation here in Hong Kong as well,” Hong added, in reference to months of protests in the city.
For its part, the HKEX has said the proposed deal would only go ahead if LSE backs down from its plan to buy Refinitiv, while the London Stock Exchange said it was committed to and continued to make progress on the planned acquisition of the data firm.
Strengths at HKEX and LSE
If a deal was reached, however, there are potential benefits, Hong said.
It would allow for 18 continuous hours of trading, he said. Furthermore, he argued, each exchange brings its own strengths to the table.
“The London exchange is very strong at (fixed income, currencies and commodities) while … Hong Kong is one of the biggest IPO markets in the world,” Hong said.
— CNBC’s David Reid contributed to this report.
OPEC supply cut not timed for Aramco listing
Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman told CNBC that an agreement to further trim global oil supply wasn’t intentionally timed to coincide with the initial public offering (IPO) of state-owned energy company Saudi Aramco.
On Thursday, Aramco priced its IPO at 32 riyals per share ($8.53), putting it on track to raise $25.6 billion in what would be the largest IPO ever conducted.
On Friday, OPEC and its allies — a wider grouping termed OPEC+ — agreed to cut an extra 500,000 barrels per day (bpd) of their oil production during the first three months of 2020.
Following the announcement, Abdulaziz told CNBC’s Hadley Gamble that the two events weren’t linked. “The fact that they coincided, people try to draw a correlation between the two. Some media outlets tried to use that as a way to explain what we are trying to do at this meeting,” he said.
Abdulaziz said Saudi Aramco’s value couldn’t be evaluated by “a tweak here or a tweak there” in the oil supply. He said that the list of institutional investors for Aramco signaled that organizations were keen to back the firm for the long term.
A small portion of Saudi Aramco will start trading on the local stock exchange on Wednesday, December 11. He described the decision to list locally as the “brightest day of his life,” as the benefit of the listing would go, first and foremost, to “our people” and to others who “believe in Saudi Arabia.”
The prince said he believes those who choose not to take part in the listing will soon be “chewing their thumb” with regret.
Saudi Minister of Energy Prince Abdulaziz bin Salman al-Saud arrives for the 177th Organization Of Petroleum Exporting Countries (OPEC) meeting in Vienna, Austria, on December 5, 2019.
JOE KLAMAR | AFP | Getty Images
OPEC moves oil price
Oil prices moved around 2% higher on Friday, after OPEC and other producing countries agreed the new production limit that will hold back around 1.7 million barrels per day. Saudi Arabia has said it will extend its voluntary restriction of 400,000 barrels to take the aggregate global production curb to 2.1 million barrels per day.
The agreement was provisionally put in place Thursday but needed the acceptance of non-OPEC members, particularly that of oil-producing giant, Russia.
At around 3 p.m. in London, Brent futures were $1.14 cents, or 1.8% higher, at $64.53. West Texas Intermediate oil futures rose 97 cents, or 1.66%, to $59.40 a barrel.
OPEC+ had already reduced output by 1.2 million b/d since the beginning of the year. The current deal, which runs through to March 2020, replaced a previous round of production cuts that began in January 2017.
The energy alliance was prompted to act after global oil prices tumbled in mid-2014 due to an oversupply, but U.S. shale producers are not a part of the deal and shale oil supply has grown exponentially.
The U.S. is now the world’s largest oil producer hitting 12.3 million b/d in 2019, according to the U.S. Energy Information Administration, up from 11 million b/d in 2018.
— CNBC’s Holly Ellyatt and Sam Meredith contributed to this report.
Bank of Canada Governor Stephen Poloz to step down in June 2020
Carolyn Wilkins, senior deputy governor of the Bank of Canada, left, and Stephen Poloz, governor of the Bank of Canada, leave the Bank of Canada building for a press conference in Ottawa, Ontario, Canada, on Wednesday, Oct. 24, 2018.
Justin Tang | Bloomberg | Getty Images
Bank of Canada Governor Stephen Poloz will step down when his mandate expires next June, the bank said on Friday, and the front-runner in the race to take his place could become the first woman to head the country’s central bank.
Many economists and market strategists surveyed by Reuters this week said Senior Deputy Governor Carolyn Wilkins could be his successor.
Poloz, who is in the final year of a seven-year term, will not seek a reappointment and a process to select the next governor has begun, the bank’s board of directors said in a statement.
The board of directors oversees the selection process of a new governor, but the finance minister and the prime minister have the final say.
Poloz said that during his tenure the bank had “created the conditions for steady economic growth, low unemployment, and inflation close to target through very challenging times,” according to the statement.
Unlike some of its global peers, Canada’s inflation rate is near the central bank’s 2% target. The Bank of Canada has held its overnight interest rate steady since October 2018, even as several of its counterparts, including the U.S. Federal Reserve, have eased.
Kudlow says a trade deal with China is ‘close’ amid ‘intense’ talks
Larry Kudlow, White House National Economic Council director, said the U.S. and China are “close” to a trade deal but that the administration was prepared to walk away if it did not get the terms they wanted.
“The president has said many times if the deal is no good, if the assurances with respects to preventing future thefts, if the enforcement procedure is no good he has said we will not go for it. We will walk away,” Kudlow said on CNBC’s “Squawk on the Street” on Friday. “The president has said that if we can not get the enforcement and the assurances, then we will not go forward.”
The two countries are in talks to finalize a so-called phase one trade deal as 15% tariffs on $165 billion in Chinese imports are set to kick in Dec. 15. Kudlow said the two sides are moving closer to a deal.
“The deal is close. It’s probably even closer than in mid-November,” Kudlow said. “Deputy level met again … The reality is constructive talks, almost daily talks. We are in fact close…There’s no arbitrary deadlines, but the fact remains December 15 is a very important date with respect to a no go or go on tariffs.”
Kudlow characterized the recent talks between the world’s two largest economies as “intense.”
“I say intense because this is a very important matter,” Kudlow said. “There’s so much at stakes here when you go through the various categories… We can’t afford, we must not permit any country, China or whoever, to willy nilly steal our breakthroughs in technology and advanced micro-processing related to 5G.”
Trump said on Thursday that trade talks with Beijing were going “very well.” He added that something could happen regarding those tariffs that are set to be imposed in less than 10 days, but added they are not discussing that yet.
The Wall Street Journal reported on Thursday the U.S. and China still haven’t reached a consensus on the amount of agriculture goods that China would buy.
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