Defeat of ASX takeover bad news for SMEs looking to list or raise money: Expert

The likely rejection of Singapore Exchange’s $8 billion bid for the Australian Securities Exchange is expected to exacerbate the troubles for small companies looking to raise money or do a sharemarket listing, an expert says.

Reuben Buchanan, executive director of Wholesale Investor, says the Government has done little to support emerging companies in Australia, and yesterday’s announcement from Treasurer Wayne Swan that he would accept the Foreign Investment Review Board’s rejection of the bid did not help.

“Outside of the top 300, the ASX is not working that well in terms of liquidity, spread, doing future capital raisings and so on,” Buchanan, who helps connect high net worth and professional investors with private, pre-IPO and small cap ASX-listed investments, tells SmartCompany.

“If the ASX was such a good place to raise money, why are so many ASX-listed companies having a hard time getting funds?” he asks, highlighting the number of Australian companies already listed in Europe, particularly the AIM market in London.

“It’s because there’s not enough money.”

According to Buchanan, of the 2,300 listed companies in Australia, the bottom 1,000 struggle to get broker recognition and experience trouble raising money.

Yesterday, Wayne Swan said while he had not yet made a final decision on the bid, he had “serious concerns” about it, and intended to “accept unanimous FIRB [Foreign Investment Review Board] advice that the takeover would not be in the national interest.”

This morning he rejected comments on ABC Radio that he was standing “King Canute-like” in the face of global consolidation.

“There are serious issues here. There is no doubt that consolidation is going on in the world. Australia is very open to the world and the world is very open to us, but ultimately on these proposals I have to give thorough consideration and come to a decision in the national interest.”

FIRB has told the Singapore Exchange that the decision was based on the “importance to Australia and its long-term economic wellbeing of the development of the ASX as the primary equities and derivative exchange and sole clearing house.”

The bid, unveiled five months ago, was marketed as a merger and valued ASX at $43 per share.

Public criticism of the deal prompted the Singapore Exchange to sweeten the offer in February, boosting the number of Australians on the board, with five members each from the Australian and Singaporean bourses, plus three international appointments.

The ASX says it still believes in the need to participate in “regional and global exchange consolidation,” and it will “continue to evaluate strategic growth opportunities.”

The plan to create the world’s fifth-largest stock exchange comes amid rapid consolidation in bourses worldwide, with NYSE Euronext receiving offers from Deutsche Boerse, and a joint bid from Nasdaq OMX and the Interncontinental Exchange.

The London Stock Exchange has a $7 billion bid on the table for Toronto Exchange operator, Canada’s TMX group. Supporters of the deal also point out that the ASX will be pressured this year when rival exchange operator Chi-X enters the Australian market.

But it may always have been a tough ask, seeing it required the starkly divided Parliament to lift the 15% foreign ownership cap placed on the ASX.

Buchanan says going it alone could leave the ASX vulnerable to mega-exchanges aggressively targeting local companies.

He says that while there are legitimate concerns about a takeover, a merger of equals would allow the nation to tap into the significant funds available in Asia, and would enable more capital to flow through to small and microcap companies.

“A small Australian company could have raised significant money through Singapore,” Buchanan says.

“In three or four years from now, if the ASX doesn’t move with the times, they might find that companies move to other exchanges, and new listings don’t come to them.”