HEX offers to buy Riga Stock Exchange

  • 2002-03-21
  • J. Michael Lyons
RIGA

The Helsinki Stock Exchange took another step this week to corral the three Baltic bourses under its trading system when it announced plans to acquire a majority share in the Riga Stock Exchange.

The HEX Group, the parent company of the Helsinki exchange, said it would acquire at least 75 percent of the Riga bourse in an arrangement similar to its buyout of the Tallinn Stock Exchange last March.

Riga Stock Exchange President Guntars Kokorevics confirmed that a tentative agreement had been reached.

The proposed takeover will create a "well-functioning Latvian securities market infrastructure and increase the visibility of Latvian companies and the liquidity of their shares," the HEX Group said in a statement.

Under the agreement, the Latvian bourse must acquire shares in Latvia's central security depository. It currently holds 27 percent of the depository's shares.

The HEX Group would then acquire the bourse and the depository.

Riga's bourse is currently owned by a consortium of local banks.

The financial details of the proposed deal were not released and it is still subject to regulatory approval, which is expected by July.

Kokorevics said the agreement ended the bourse's search for a strategic investor that could provide long-term security for Latvia's fledgling equity and securities markets.

"We have been shopping around for a while and HEX is the best partner we could have hoped for," he said.

Operational integration of the Riga exchange into the HEX system will begin as soon as the ownership transfer is completed.

It took the Tallinn Stock Exchange 10 months to complete the integration process before it went online using the HEX system last month.

Riga's exchange had been actively looking for an investor in recent years.

In mid-1999 all three Baltic exchanges opened talks with the NOREX stock market alliance, which unites the bourses of Norway, Sweden and Denmark.

The talks later stalled.

The agreement with HEX couldn't have come at a better time for the exchange, which has lost trading turnover in recent months thanks to a couple of high-profile delistings.

Unibanka, one of the most heavily traded shares, delisted last year after it was acquired by the Swedish bank Swedbank.

The stock market's equity trading now relies on lumbering privatized companies like the oil shipping company Ventspils Nafta and the state-owned natural gas utility Latvijas Gaze.

The average daily equity trading volume on the Riga Stock Exchange last week was about $11,000, a fraction of even the Tallinn exchange's average daily turnover.

The Helsinki Stock Exchange posted an average daily turnover last year of 814 million euros ($700 million).

There are currently 13 companies traded on the equity market in Riga.

In addition to its equity sector, the Riga bourse includes the Baltics largest securities trading market. It deals in treasury bills and government and corporate bonds.

Uldis Cerps, chairman of Latvia's Finance and Capital Market Commission and the former president of the Riga Stock Exchange, said the sale of the exchange, which opened in 1995, was an obvious one.

"You're going to have at least 8 million more people who are your potential customers," he said. "It's a bet on Latvia's future and fortunately HEX made it."

Cerps said he did not expect a drastic turnaround on the shares market here yet.

"The equity market will take more time to develop because of corporate governance issues that are always present on emerging markets," he said.

HEX Group President Juuka Ruuska said buyout talks were continuing with Lithuania's National Stock Exchange.

HEX officials recently visited Lithuania's Finance Ministry, according to Dalia Jasulaiyte, vice president of the national stock exchange.

The Finance Ministry owns 44 percent of the exchange. A group of about 90 individuals and entities own the rest.

Jasulaiyte said HEX was interested in acquiring the exchange and is awaiting a governmental decision to privatize it.

She said a deal this year was unlikely.

Lithuania's bourse signed a cooperation memorandum with the Warsaw Stock Exchange last August and has not ruled out a merger deal with it.

"Since August we have carried out a feasibility study on how we could technically link into their trading system and how much it would cost," Jasulaiyte said. "But that all has to be reviewed again as Warsaw looks set to join the Eurotext system by the end of this year."