Hong Kong’s uphill fight

THE £32bn tilt at the London Stock Exchange (LSE) by Hong Kong Exchanges and Clearing (HKEX) is not without its merit.

It has its attractions at a time when there is a drought of sizeable new issues in the City, and the HKEX vies with New York for initial public offerings.

It would also offer the UK a post-Brexit window on Asia. British financial services already are highly valued in the region, with HSBC, Standard Chartered and the Prudential all respected players.

But the current deal is fraught with problems. The LSE prefers to make a big bet on data with its £22bn offer for Refinitiv, which controls the former Reuters financial platform. However, there is a view that the LSE is overpaying and gifting too much upside to private equity owner Blackstone.

The HKEX offer is badly structured. If it were 75pc cash and 25pc paper, rather than the other way round, it might be more seductive. The over-riding issues are regulatory and political.

One of the LSE’s biggest money-spinners is the London Clearing House. As one of the world’s largest derivative exchanges, the UK Treasury has national security and economic qualms about it falling into Chinesedominated hands, even if it is one step removed from Beijing.

Then there is the attitude of the mainland Chinese. As Beijing struggles to tame the independence of Hong Kong it will not want to strengthen the territory’s financial pull.

So it is not surprising the Communist party-controlled People’s Daily news operation praised the LSE’s current reciprocal arrangements with the Shanghai exchange as preferable to HKEX.

Indeed, China looks determined that the mainland should become a magnet for investment banking.

Goldman Sachs has applied for a majority stake in its Chinese joint venture and signals are that it may get it. The human rights pitfalls of doing business in China are no secret. In the current tumultuous circumstances, the Goldman route might be a safer path to exposure than Hong Kong.

Natural selection

PRIVATE equity rightly takes huge flak for its opportunistic and ruthless approach to companies it has bought. It claims that by working behind closed doors, without market scrutiny, it builds up enterprises.

Mining for natural resources, because of its long-term commitment, might not be ideal. But with shares of Sirius Minerals down more than 50pc, after a failed bond issue, and 85,000 private investors caught in the crossfire, here is a wonderful opportunity for private equity to do some good.

The geological works are done and management is in place. Mining may not be the most politically correct activity, but high safety standards, modern tunnelling techniques and a useful product in the shape of polyhalite, a naturally occurring fertiliser, makes Sirius attractive.

It would also provide jobs and bring industrial life back to Redcar where the mineral processing plant would be. To think Blackstone, Advent or another private equity firm might step in is wishful thinking.

Ready-made enterprises with established markets and cutting-edge technology, such as aerospace group Cobham, are more their thing. Sirius might have benefited from investment from the Green Investment Bank, which was set up by Vince Cable during the coalition government and sold to Aussie sharpshooters Macquarie by a shortsighted Tory administration.

It could also receive the backing of the British Business Bank, as a significant Northern Powerhouse project.

In Germany, Sirius is the kind of enterprise which would receive backing (in the form of loans or guarantees) from stateowned development bank KfW.

The lack of new financing for Sirius is the kind of market failure which can only provide fodder for Labour critics of capitalism.

Right Now

WHEN America’s Comcast paid £30.4bn for control of Sky a year ago, the cable group’s chief executive Brian Roberts said he had been attracted to the British company by its slick technology.

True to his word, Comcast has poached Gidon Katz, the brains behind Sky’s streaming service Now TV, to replicate the Sky technology in the US, where media competition is rapidly shifting from cable and terrestrial television to online, driven by Netflix, Amazon et al.

Another feather in the cap for creative Britain and its technology.