Why Singapore wants our ASX
by Michael Collins, Investment Commentator at Fidelity, November 2010
A city-state of five million people with no natural resources is bound to put more effort into achieving its goal to be a region’s financial hub than a resource-rich, island continent of 22 million people enjoying a commodities boom.
Therein lies one explanation why the government-backed Singapore Exchange is attempting to take over Australia’s main stock exchange, rather than perhaps the reverse.
Australian politicians, like their Singapore counterparts, have long touted a desire to promote Sydney as a regional financial centre over Hong Kong and Singapore. In 1999, prime minster John Howard and NSW premier Bob Carr led a delegation to New York to publicise Sydney’s credentials (skilled population, first centre open in the region thanks to its time zone and developed financial sector).
Only two years ago, NSW premier Morris Iemma spoke of making Sydney the “hub of hubs”, while the then federal assistant treasurer Chris Bowen said he would lead an “Olympics-style push” to promote Sydney.1 Last year’s Johnson report, or more formally, the report by the Australian Financial Centre Forum, shows that these efforts persist.2
But the better-located Singapore seems to have done more to make it happen. And a successful takeover of the ASX would probably give it an unbeatable lead over Sydney in the hub race that Hong Kong leads anyway.
Singapore’s first significant steps to become a regional financial centre took place in 1997-98 when the city-state liberalised key financial industries including retail banking, insurance and stockbroking. Around the same time, the island’s central bank, the Monetary Authority of Singapore, established a department with offices in London and New York to promote the island as a finance hub.
In 2002, a government committee released a strategic review that identified four niches upon which to build Singapore’s hub credentials. These were wealth management, processing, risk management and “an attractive business environment“ – which stood for, among other things, making Singapore a low-tax country with the necessary infrastructure and a skilled population to attract foreign businesses and finance.3
The result is that Singapore is now a flourishing centre of finance. More than 300 of the 740 companies listed on the Singapore Stock Exchange are foreign ones,4 whereas only about 70 foreign companies are among the more than 2,100 listings on the Australian Securities Exchange and this number includes ones from Papua New Guinea and New Zealand and Australian-born companies such as ResMed, Rupert Murdoch’s News Corp. (twice) and James Hardie Industries.5 In October, the Singapore Stock Exchange began trading in American depositary receipts of 19 Chinese companies. It plans to quote similar instruments for India, South Korean and Taiwan companies next year.
Singapore is the largest real estate investment trust market in Asia ex-Japan and one of the top five most-active foreign exchange trading centres in the world (despite having a controlled exchange rate). Singapore is the second largest over-the-counter derivatives trading centre in Asia, and a leading commodities derivatives trading hub. Its wealth-management industry controls about S$1 trillion (A$770 billion).6
The pivotal play
And now Singapore Exchange has launched the bid that could catapult Singapore ahead as the region’s hub for equities. That campaign is not without its problems though.
The facts of the bid are that on October 25, Singapore Exchange launched a cash-and-stock offer for ASX that valued the target at $8.4 billion. If approved in Singapore and Australia, the deal would be the first Asian cross-border merger of an exchange operator.
Since the Singapore Exchange is 23.5% owned, and effectively controlled, by the Singapore government, it can count on that approval. The problem is that in Australia the deal needs government and, most likely, parliamentary approval.
The Labor government has the right to block foreign takeovers in the “national interest”. The Foreign Investment Review Board has up to 120 days to make a recommendation to the government. More problematic is that the government will probably need to gain parliamentary approval to lift the 15% ownership cap on the ASX stipulated in the Corporations Act. (Two lower house members or one senator can force a vote by challenging the government’s right to amend this stipulation.)
Within days of the bid Green, Coalition and independent MPs and senators expressed concern that the takeover would damage Australia’s ability to be a regional financial centre. The Coalition could help the government pass any motion though.
Whatever the outcome of the bid for the ASX, it’s worth pondering how Singapore’s government would react if someone tried to take over the Singapore Exchange and disrupt Singapore’s goal to be the region’s premier place for finance.
1 The Sydney Morning Herald. “Another short at making city a financial hub”. 1 August 2008
2 Australia as a financial centre. Building on our strengths. Report by the Australian Financial Centre Forum. November 2009. http://www.treasury.gov.au/afcf/content/final_report.asp
3 Economic Review Committee. Sub-committee on Services Industries. Financial Services Working Group. Op Cit
4 Wikipedia. en.wikipedia.org/wiki/Singapore_Exchange
6 Monetary Authority of Singapore. http://www.mas.gov.sg/fin_development/Singapore_International_Financial_Centre.html#
References to specific securities should not be taken as recommendations.