x Abu Dhabi, UAEFriday 19 January 2018

Dubai mulls selling down stake in LSE over merger

Dubai Borse is considering the sale of part of its stake in the London Stock Exchange

Borse Dubai is considering selling down its stake in the London Stock Exchange as Canada expressed concern over a deal between the LSE and its Toronto counterpart. AFP PHOTO/Shaun Curry
Borse Dubai is considering selling down its stake in the London Stock Exchange as Canada expressed concern over a deal between the LSE and its Toronto counterpart. AFP PHOTO/Shaun Curry

Borse Dubai is willing to consider selling some of its 20 per cent stake in the London Stock Exchange in the face of mounting opposition to the UK bourse's US$3.2 billion (Dh11.75bn) proposed merger with the Toronto exchange operator TMX.

Under the proposals to merge the London Stock Exchange (LSE) and TMX, Borse Dubai's stake would be watered down to 11.3 per cent, still above the 10 per cent threshold that triggers the involvement of Canadian regulators.

Any stake over 10 per cent has to be approved by state and federal authorities.

Although the proposed deal is market-sensitive and still faces significant regulatory hurdles, a senior Borse Dubai official, who wished to remain anonymous, said the company would consider reducing its stake in the LSE further.

"If we wanted the deal to go through, we would go below 10 per cent," he said.


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However, Borse Dubai executives are said to be privately sceptical that the deal will deliver long-term value, and are not happy at the lack of detailed financial information they were provided with before the proposal was announced last week.

"We didn't have enough detail of revenue and cost synergies. London wanted a statement of support, and of course we welcome anything that enhances the value of our shares, but it was pretty lukewarm," said an exchange executive, who also requested anonymity.

"We're not going to sell down just to make it easier for Xavier Rolet [the LSE chief executive] to do the deal. If we find a strategic buyer for, say, 5 per cent of our holding at the right price, that would make sense for us."

Dubai exchange officials have also been unnerved by the critical reception the proposed deal has received in Canada.

Dwight Duncan, Ontario's finance minister, said he would not be happy to see a "strategic" asset such as the Toronto exchange even partially owned by a foreign entity such as Borse Dubai.


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Canadian opponents of the deal also argue that the new holding company structure - 55 per cent owned by LSE and with a majority of London board members - gives London too much influence at the expense of Toronto.

Borse Dubai has in the past sold strategic assets to bloster its finances, and exchange officials suggest a sale of LSE shares would consistent with its strategy.

In December, Borse Dubai raised almost $500m by selling shares in Nasdaq OMX, the New York exchange with which it has a partnership in the local exchange Nasdaq Dubai.

It also secured a three-year loan of $1.1bn to replace existing debts.

"Borse Dubai does not need to sell to get the cash. It will be a strategic decision based on shareholder value considerations," said the executive.

Exchange officials in Dubai argue Canada may be using the company's holding in the LSE as an excuse to back out of the merger.

"The problem is not with Borse Dubai, it depends on how they [Canada] see London," the senior Borse Dubai official said.

The company finds itself in a strong position to influence the outcome of the proposed merger. It could sell some or all of its stake to a rival exchange that could use it as a platform for a competing bid.

The Qatar Investment Authority has a 15 per cent stake in the LSE, which would be diluted to 7 per cent by the Canadian merger.

Global stock exchanges are consolidating at a rapid rate. Last week NYSE Euronext and Deutsche Borse announced a merger plan, and Hong Kong Exchanges and Clearing said it, too, would be seeking partners to create a global exchange.

Canadian opposition to the merger is the latest twist in a long-running diplomatic spat between the UAE and Canada, sparked by the North American country's refusal to grant more landing rights to the UAE carriers Etihad Airways and Emirates Airline.

Borse Dubai welcomed the announcement of the proposed deal, which increased the value of its holding by some $25m the day it was revealed.

Yesterday, Essa Kazim, the chief executive of Borse Dubai, repeated the company's position. "We've been supportive of management at the LSE as long as it creates shareholder value," Mr Kazim said.