Saturday, September 6, 2008

Rel Money eyes stake in HK Mercantile Exchange

NEW DELHI: Reliance Money, the retail brokerage and distribution arm of Reliance Capital, is close to signing a deal to acquire 15-26% in Hong Kong Mercantile Exchange (HKMEx). It is learnt that discussions are at an advanced stage and the deal could be signed as early as next week. The deal will value the exchange at $200 million.

HKMEx, which has been formed recently is looking to tap China’s oil market, the world’s second-largest consumer of oil. Currently, New York and London are the two key oil futures market and global prices move in tandem with trading on these two locations.

Sources informed ET that while talks are on to dilute as much as 26% in HKMEx to the Indian brokerage house, the final deal could involve Reliance Money picking around 10-15% through fresh issue of shares. Even with this holding, Reliance Money, will be the second-largest shareholder in the commodity exchange and will have a board membership.

When contacted, Reliance Money CEO Sudip Bandyopadhyay declined to comment on the developments.

Promoted by the Hong Kong government, HKMEx is also believed to have attracted investments from some large global financial majors such as Merrill Lynch, Lehman Brothers, Goldman Sachs and Morgan Stanley, but none of them hold more than 10%.

Even as Asia has emerged as a key market for global commodities due to the turbo charged manufacturing and construction activity in India and China, the region does not have a strong commodity exchange. While both India and China have local bourses, there are curbs on participation of foreign investors besides sensitivity towards certain commodities. Chinese exchanges, in particular, focus more on metals and agri commodities and Shanghai exchange which does offer oil trading is not linked to international pricing.

The other two financial centres in Asia, Singapore and Tokyo haven’t been able to emerge as a big base for commodity trading for the region. Sources say Reliance Money is eyeing a strategic stake in HKMEx to capitalise on the Chinese demand for commodities. However, the going won’t be easy for HKMEx as other established exchange houses are also eyeing a piece of China’s commodity demand. Recently, Chicago Mercantile Exchange opened its Asia Pacific headquarters in Hong Kong.

HKMEx is proposed to start trading in the first quarter of 2009 and will kick-start its operations by offering dollar-denominated oil contracts. It would also diversify into other commodities going forward.

The deal would mean an expansion of operations in Hong Kong for the Indian firm. Reliance Money had recently formed a partnership with local firm Goldride Securities headed by the former Hong Kong Stockbrokers Association chairman Anthony Espina for distributing financial products and services.

The plan to look for overseas ventures is part of Reliance Money’s strategy to generate 50% of its revenue overseas by 2013. It is in the process of starting a full-fledged financial services operations through a JV in Saudi Arabia and has plans to expand its business in over 15 countries across Europe, North Africa, the Middle East and South East Asia by March 2009. It already has operations in the UAE, Oman and Hong Kong.

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