SYDNEY, April 5 (Reuters) - The Australian government's intention to block the Singapore Exchange's $7.8 billion takeover of Australian stock-exchange operator ASX could be a watershed moment for foreign investors in Australia.
Here are some immediate implications and concerns that are likely to arise after Treasurer Wayne Swan said he intended to reject the deal on national interest grounds:
* A rejection of the deal would effectively rule out any foreign bid for the ASX. It robs the stock of a takeover premium and limits its options strategically.
The ASX is well regarded by investors but its strong support for a tie-up with SGX had betrayed its conviction that consolidation held the key to its future.
The ASX's strong attraction as a place to list mining-sector capital is under global threat, with the Hong Kong exchange pushing into that area and the London Stock Exchange looking to tie up with Canadian exchange operator TMX Group .
The ASX could still pursue joint ventures, but without being able to fold its business into a larger, global player, it could be left tactically disadvantaged in the global exchange dating game. The ASX could choose to be a predator rather than prey, but its own shareholders may not be so enthusiastic about a potentially expensive offshore acquisition.
* Overall, a rejection of the deal would cement Australia's reputation as a sometime fickle recipient of foreign capital and could raise its sovereign risk profile -- something the nation can ill afford given it runs a chronic current-account deficit and needs foreign capital to develop its huge resources sector.
Australia has already sullied its welcome mat in the past 12 to 18 months with some erratic policy changes, including plans to slap a profits tax on mining operations and fumbled attempts to introduce a polluter-pays scheme to cut carbon emissions.
* Rejection could also damage Australia's ambitions to become an Asia-Pacific financial hub. ASX and SGX lobbyists had portrayed the takeover as a step along the path toward this objective. Many politicians felt this was overstating the case, but there could be some unforeseen consequences of snubbing the Singapore financial establishment.
For example, Australia has targeted Singapore as a key market for the expansion of its enormous funds industry into Asia. Australia has one of the world's five largest pools of private pension savings, worth more than $1 trillion, and is keen to develop the notion of an "Asian funds passport", which would enable an Australian fund to automatically market its products in other countries. But will Singapore be keen on this idea now?
* Canberra now has a major challenge to persuade foreign investors that it has a fair and transparent process for dealing with major investment proposals, especially given that it has declined for now to spell out how the ASX-SGX deal would have offended the "national interest".
Still, many politicians believe the failure of the deal reflects more on SGX's efforts to lobby politicians than on any new mood of nationalism or xenophobia in Canberra. The government has made clear it prefers mergers of equals or minority stakes rather than outright foreign takeovers such as the SGX proposal, and its record consistently shows this. (Reporting by Sonali Paul in MELBOURNE, Rob Taylor in CANBERRA and Mark Bendeich in SYDNEY; Editing by Neil Fullick)