HKEx gets go-ahead to acquire London Metal Exchange

52-54m shares will be placed.

According to Maybank Kim Eng, HKEx announced that the UK Financial Services Authority (FSA) has approved its proposed acquisition of London Metal Exchange (LME).

Here's more from Maybank Kim Eng:

The acquisition is now remain conditional only on the court hearing, which will take place on 5th Dec. In order to finance the deal, HKEx announced to place 52-54m shares, at the range of HKD116.1-119, to raise HKD6.24b.

Deutsche Bank and UBS were handling the deal. According to media reports, the offer was well received. 

The new shares issue is well expected, the timing (we expected Dec12) and price (we expected HKD118.8) are close to our expectation as well. Note that under the current mandate, HKEx can still issue ~30m shares (after the previous CB issue and the latest new share issue).

We expect HKEx to issue these new shares in 1Q13. The details and timing of new share issue are well expected by the market, significant revision by the street looks unlikely to us.

The potential EPS dilution (~5%) is well expected also. Note that short selling accounted for 45% of HKEx’s total turnover yesterday; there may be some short covering today.

For HKEx’s core operations, ADT in Nov12 was HKD54b, slightly higher than Oct12 (HKD52b), but lower than our expectation (HKD58b). Despite the market rally these days (with HSI near year high), ADT only picked up slightly.

As our last report suggested, the impact of QE3 on ADT seems smaller than expected. We cut our FY12 ADT estimates slightly, from HKD54b to HKD53b. We keep our ADT estimates for FY13 (HKD60b) and FY14 (65b) unchanged. Overall the revisions in earnings are minimal, and we keep our HOLD rating, with TP unchanged at HKD120. This TP is equivalent to 29x FY13E earnings, close to HKEx’s historical average forward PER.