The bosses of the Hong Kong and London stock exchanges got into a war of words on Tuesday when fate brought them together at the same event in the midst of a bitter takeover battle.
Less than two weeks after the London Stock Exchange (LSE) issued a stern rebuttal of Hong Kong's unexpected US$36.6 billion bid, the two men clashed during back-to-back sessions at a financial conference in the British capital.
At issue were Hong Kong's status as a financial gateway to China and whether Beijing's tight control over money leaving the country " something Hong Kong's role relies on " will soon be a thing of the past.
Speaking first at the Sibos 2019 event, David Schwimmer, chief executive of the London Stock Exchange, continued where a rejection letter penned by the LSE chairman left off. He reiterated the UK exchange's preference for Shanghai over Hong Kong as a partner providing access to Chinese markets.
"For the long term? For the financial centre of China? We view Shanghai as the financial centre of China," Schwimmer said. "We value that partnership with the Shanghai Stock Exchange, we think it's mutually beneficial. In June we launched Shanghai-London Stock Connect, the first of its kind."
The stock connect scheme allows China's domestic shares to list in the form of global deposit receipts on LSE and raise capital in international markets.
"We view the capital controls around the Chinese market as constantly evolving, and the trend is that they are slowly but surely being removed," Schwimmer said.
Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing Limited (HKEX), speaks on August 19. Photo: Jonathan Wong alt=Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing Limited (HKEX), speaks on August 19. Photo: Jonathan Wong
Beijing's strict capital controls enable Hong Kong, which allows free flow of capital, to act as a gateway for foreign investment to enter into the mainland market.
Charles Li Xiaojia, chief executive of Hong Kong Exchanges and Clearing, the operator of Asia's third-largest stock exchange, spoke immediately after Schwimmer, in a separate session at the event attended by some 8,000 delegates.
He responded by dismissing his counterpart's optimism about capital controls, and reaffirmed his belief that Hong Kong can continue in its role as gateway to China.
"The idea China will relax controls ... we will still be talking about it for 20 years. Capital controls will be with us for our generation," Li said.
He highlighted the fact Hong Kong's stock market has acted as a hub for Chinese companies to raise funds for far longer than London has.
"I wish we had patented the word 'connect' when we did it. We did that 25 years ago, today we have 500 massive Chinese companies listed in Hong Kong," he said, referring to the H-shares programme started in July 1993 for mainland companies raise funds in Hong Kong.
HKEX started the Hong Kong-Shanghai stock connect in November 2014 and expanded the concept to Shenzhen two years later. The schemes allow cross-border trading of over 2,000 stocks from the three markets.
Schwimmer, on the other hand, disclosed that one Chinese company had joined the London-Shanghai connect so far, with another one "in the pipeline".
China Pacific Insurance on Tuesday said it planned to list on LSE at an undisclosed time, becoming the second company listed under the connect scheme, after Huatai Securities' flotation in June.
On September 11, HKEX surprised the market by making an unsolicited takeover bid for LSE, offering US$36.6 billion for the centuries-old exchange.
LSE's board of directors rejected it two days later. But HKEX is not giving up and has hired investment banks UBS and HSBC to lobby shareholders of LSE to accept the offer, according to a Bloomberg report.
David Schwimmer, chief executive officer of London Stock Exchange Group (centre) pictured in October last year. Photo: Bloomberg alt=David Schwimmer, chief executive officer of London Stock Exchange Group (centre) pictured in October last year. Photo: Bloomberg
Li said at the event on Tuesday that it was the "best time" to combine with the LSE, though he recognised the improbability of the deal.
"If I stand in David's shoes, I will reject Charles Li," Li said, striking a humorous tone.
"We think it's time to think big. This is the time in our view when the world is becoming more polarised from east to west. We need to have an unrivalled global financial infrastructure across all global currencies and all time zones."
If it were to go through, the HKEX-LSE deal would need approval from shareholders of both exchanges as well as regulators in the UK, the US, and Europe. The structure of HKEX, over which the Hong Kong government has a strong influence, is a key concern.
Hong Kong government is the largest shareholder, with a 6 per cent stake. Half of the board is appointed by the government, while the shareholders select the rest.
"We have a slightly unusual governance structure. Today if this transaction is approved, we would have created a global company. The structure could have been completely different. Everything is open to discussion," Li said.
Hong Kong Exchanges and Clearing's unsolicited takeover bid for the London Stock Exchange Group was met with a stern rebuttal. Photo: Paul Yeung/Bloomberg alt=Hong Kong Exchanges and Clearing's unsolicited takeover bid for the London Stock Exchange Group was met with a stern rebuttal. Photo: Paul Yeung/Bloomberg
While many attempts at cooperation between American and European exchanges had failed to work, Li said the key difference was that in those cases the opportunity was not incrementally increasing.
"Synergy can only go so far. But here we are talking about unlocking a frontier [between London and Hong Kong]," Li said.
The HKEX's unsolicited offer required LSE to give up its US$27 billion offer to buy data company Refinitiv. But Schwimmer is sticking with that deal.
"The Refinitiv transaction is very helpful for us in Asia in China specifically. Refinitiv is in 190 countries, it has a substantial presence in China, but also operates in many other countries. So with the transaction we will transform into a truly global market including a very strong presence in serving customers in China," he said.
