Australia's stock exchange owner and operator ASX (ASX: ASX) seems to be up to something more than its stated objective with its surprise $553 million renounceable rights issue. Just what that is has become the source of much speculation among analysts and the media, and it's going to be very interesting to eventually find out.
Certainly current shareholders have not been that well served with the rights move so far. When the stock resumed trading a week ago it fell 6.1% — and that came on top of a 2.3% decline the day before. Its chart has looked exceedingly ugly since a few weeks ago when it seemed to be closing in on its 52-week high near $40. But interestingly, it fared better than most when our market was battered at the end of the week.
What could happen further down the track though is tantalising. Investors are hanging in. The 2 for 19 rights to $30 shares are being thinly traded at a rather poor price. With the market tanking after Wall Street and the stock trading under $33 Friday, the buyers are starting to come out.
It's not so much what the ASX will do with the money raised that is in question. It has said all but about $100 million will be used to retire debt and meet the expected increased costs of new capital standards for international clearing. It is positioning itself with such a healthy balance sheet that's leading to the speculation. And the most obvious guess from analysts and commentators is that the ASX will revisit its proposal to merge or acquire offshore. That prospect becomes shorter odds with a change of government in September.
It was in April 2011 that Treasurer Wayne Swan finally rejected the ASX's proposal to "merge' with the smaller capitalised Singapore Stock Exchange (SGX), saying it was not in the national interest. Shadow Treasurer Joe Hockey criticised the assessment process but did not actually indicate the Coalition's policy on the proposal. It, or something similar, could be in the cards again.
There have been successful exchange mergers elsewhere and the Australian Stock Exchange could probably now argue a better case for no loss of regulatory authority. However, revisiting a Singapore Exchange merger per se may not be the actual game plan. With global markets and their products becoming more complicated, there are more opportunities for synergies between businesses now, even after just a couple of years, than straight-out mergers or, in what was more likely the SGX-ASX case, takeovers.
The ASX itself has hinted as such a couple of times. Here are two examples:
A few months after his April 2011 appointment as ASX chief executive officer, Elmer Funke Kupper said in the Listed @ ASX newsletter it was one of his priorities to "better link ASX to global capital markets over time. Collaboration with other exchanges may also help to improve liquidity, reduce costs and broaden the products available to our customers."
And in a talk on the future of Australia's capital markets published as a video by The Australian Financial Review on May 30, Kupper stressed how much ASX could learn from Singapore, praising its stock exchange for the consistency it managed between stakeholders.
Kupper made no mention of any corporate moves, of course, but he made a point about the opportunities of looking over the horizon:
"If you look at Singapore, for example, what you have to admire is the consistency between the government, the regulators, the exchange, the banks, the brokers, the investment community, the tax office and everybody else in determining what's important and they develop a 10-20 year vision for their markets… (They are) sort of very externally focused … and I think we still sometimes spend, you know, too much time with ourselves. I think that's changing …"
The take-home message from that is anyone's guess, except that we can expect some major changes. With the ASX's price currently under so much pressure, there's a lot of upside in there for a company with a good plan.
Foolish takeaway
The ASX has something up its sleeve other than a lot of cash. Current shareholders have little choice at the moment but to go along for the ride. Those with faith in the future of our bourse and overall economy should consider getting on board if they can get what looks like a cheap ticket.
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Motley Fool contributor Andrew Ballard does not own shares in any company mentioned.
