Three things that could help offset negativity Down Under to the SGX-ASX deal
by Simon Tay and Nicholas Fang
TODAY 11 Nov 2010
The bid by the Singapore Exchange (SGX) to merge with the Australian Securities Exchange (ASX) has attracted a lot of attention, not all positive. Beyond the business sense of the deal, some politicians have suggested that the ASX should not be sold to their Singaporean counterparts at any price.
"I do not wish to live in a country of serfs working for foreign landlords," said Mr Bob Katter, an independent parliamentarian from rural Queensland. Beyond nationalist sentiments, there have also been aspersions against Singapore's democracy with Greens leader Bob Brown launching a scathing attack.
These sentiments should not be mistaken to represent the full range of opinion in Australia. Nor, as Premier Julia Gillard has warned, should we prejudge the outcome when the Foreign Investment Review Board examines the offer and makes its official recommendation.
This is an unusual time in Australian politics. The country's recent elections have resulted in something of a stalemate, and voices that would be peripheral when there is clear government mandate find themselves with a louder say in the coalition politics.
But the debate does hold the elements of politics and public opinion that need to be considered by businesses doing deals between Australia and Singapore. The issues are not, moreover, limited to Australia's Asian neighbours. Their own mining giant BHP Billiton, has met with Canadian government resistance to a takeover bid for fertiliser group Potash Corporation.
A high-profile deal like the SGX-ASX merger could become victim to political football as nationalistic sentiment fuels Australian public debate. Three things might help minimise negative impacts.
First, Australians who wish more broadly to engage Singapore and the region should support the deal. Some Australian businesses have the scale to compete across the region on their own, such as resource industries. In other areas like services, there are good reasons to seek partners from other countries.
Note that at the same time SGX has made the offer, Asia is witnessing what will likely be the world's third largest listing, by the insurers AIA - but in Hong Kong, not Singapore nor Sydney. This signals that both need to step up, if they are to compete. In the post-crisis world, more are looking to Asia to pull the global economy forward, and more companies may consider listings in Asia.
Second, assurances need to continue that the business deal is indeed just business. While the Singapore Government has a 23.5-per-cent stake in SGX, this is through a special purpose vehicle and Temasek Holdings has no vote in SGX matters. The professionalism of Singapore as an investor has to be underlined.
In this context, accusations by some Australian voices about democracy and human rights in Singapore should be seen as being overbroad. Parties need not be exactly the same in order to do business. This is critical to understand and accept if Australians are to do business with the diverse Asian region, and vice versa.
The Australian and Singapore governments have very good ties and share many common positions. There are strong ties at the people-to-people level and many interlinkages between the economies, surpassed only perhaps by Australia-New Zealand ties.
If the two countries cannot deal with each other, who can?
POTENTIALLY A GAME-CHANGER
Third, some suggest that the terms of the deal may need to better accommodate Australian concerns. The offer is a merger but with the Singapore side proposing to take a larger say in the new arrangements. Some suggest that giving more Australian representation on the board might help garner more acceptance for the deal.
But there are caveats to how far this can go. One limit is the price, which offers a healthy premium to ASX for SGX to have more say. The second and related caveat is that other deals among regional exchanges, like cross holdings and other agreements, have failed to trigger the kind of synergies that this deal seeks.
More people now see that a regional exchange with sufficient sophistication and size is needed. Several exchanges want to expand and gain scale beyond their national markets.
But the moves to date have been insufficiently bold to generate attention and momentum. Instead, a number of promising Asian companies have chosen to list outside the region, in New York and London.
An SGX-ASX deal, if it goes through, could be a game-changer and, potentially, lead other exchanges to look at coalescing.
In this merger, the Australian entity would not be the leader. Perhaps this is what really might stick for some. Terms of engagement with Asia will not always see Australia take a leading role.
A give and take attitude is needed in linking across borders and seizing opportunities in Asia. Australia has previously accepted Singaporean investors in the telecoms, power and property sectors. Australian professionals and businesses are plentiful and visible in Singapore as a hub to Asia.
A partnership can make sense to both parties.