The Baltic Exchange confirmed it is in “confidential discussions with selected third parties regarding its future strategy and ownership,” and Singapore Exchange has reportedly submitted a non-binding bid for the creator of a leading industry indicator.
A storied part of English shipping history may be in play.
The Baltic Exchange on Friday confirmed it “has received a number of exploratory approaches and that it is now in confidential discussions with selected third parties regarding its future strategy and ownership. There can be no certainty that an offer will be made or the terms on which any offer might be made.”
A Reuters report said the Singapore Exchange Ltd. (SGX) “said in a statement on Friday that it had submitted a
non-binding bid for the acquisition of the Baltic” and cited sources as estimating it being worth $117 million.
“At this stage, no formal offer has been received, but when considering any approach the board will first carefully consider the views and interests of all its stakeholders,” Guy Campbell, chairman of the Baltic Exchange said in a statement. “Should we receive an offer, we will only recommend an offer that meets not only the interests of shareholders, but also the interests of ordinary Baltic members, index panel members, the users of Baltic Exchange freight market information and the principals and brokers who trade in the FFA (forward freight agreement) market.”
In a recent blog entry, Campbell told his members “discussions arise from approaches we have received as a result of the financial success of the Baltic and our enviable global reputation. We have most certainly not sought to create this situation, but we must now deal with it in a professional manner, as you would expect.”
“If in the end we recommend any offer which may be forthcoming, you can be confident that it will be in the belief that on balance the Company as a whole will be best served by accepting the offer, and we shall not hesitate to reject an offer which does not meet that overarching criterion,” he added
The Baltic Exchange has appointed Nomura International PLC and Norton Rose Fulbright LLP as advisors.
The Baltic Exchange was founded in 1744 in a London coffee house. In 1903, it moved to a new purpose-built exchange at 30 St. Mary Axe in the City of London. Ship brokers would come in person to its trading floor where the representative of shippers and shipowners would fix ships..
In 1985, it launched the first in a series of freight market indexes in 1985. In 1992 a Irish Republican Army terrorist bomb destroyed the exchange building and in 1995 new permanent premises were found at an adjacent building at 38 St. Mary Axe. The old site is where one of London’s most distinctive new skyscrapers is located, the so-called “Gherkin.”
The Baltic Exchange has about 650 companies as members – a a mix of shipowners, ship brokers, charterers , freight deriviative traders.
The main role of the Baltic, spokesman Bill Lines, explained, is two-fold.
One is to provide freight indices for both the dry bulk and tanker markets. Those indexes are used to settle derivative trades but they are also used in floating time charter agreements and for benchmarking. The rates underlying those indexes are created by a panel of independent ship brokers. About 50 companies that provide details on ship fixtures, and a team of freight
market analysts from the Baltic Exchange “take the numbers, average them out, query them,
beat up the panelists a little bit and make sure they’re putting in the
right returns.”
The panelists are asked to give a professional assessment of what a particular type of vessel, trading on a particular route, might expect to be earning in today’s market, Lines explained. “With every ship being different, every port being different, etc. it is ultimately a professional judgment. What the Baltic has done is make freight a commodity.”
While the Baltic is primarily concerned with dry bulk ships and tankers, last fall it took a very tentative step into the container industry, agreeing to publish on a weekly basis the Ningbo Containerized Freight Index on its website.
The Baltic Exchange described said “The move is part of a drive by the Baltic Exchange, the leading provider of independent bulk shipping benchmarks, to promote its services for the Chinese market.”
A second function of the Baltic Exchange is to provide a code of conduct, summed up by its motto: “Our word, our bond.”
Lines explains that ship brokering is an unregulated market, but to be a member of the Baltic Exchange you have to demonstrate certain degree of quality, certain ethics in undertaking ship brokering activities.
“It all goes to that sort of 18th century coffeehouse ideal, and in a world where deals are done on the phone, where you make a commitment, “yeah I’ll fix that ship for x rate today and then you get a better offer, you know you go with the first offer…Principals know that they’re dealing with a Baltic Exchange broker brings a certain degree of quality to the deal.”
The Baltic’s best known index is the Baltic Dry Index, which give daily snapshot of the cost of chartering ships used to carry iron ore, coal, grain and other dry bulk commodities.
The BDI “has long attracted the attention of commentators hoping to take the pulse of world trade,” noted the Economist magazine last year. But the magazine noted it is somewhat flawed in that regard since “it is a measure both of demand for shipping and of the supply of vessels. Sliding charter rates are more a reflection of the eternal optimism of shipowners than a calamitous foundering of the world economy.”
The BDI plunged to a record low of 290 earlier this month and was at 327 on Friday, down from a 52 week high of 1,222. It’s all time high of 11,793 was reached on May 20, 2008.
SGX offers to buy Baltic Exchange
