Singapore Exchange, which agreed yesterday to buy Australia’s main stock-exchange operator, had its investment rating cut by brokerages including JPMorgan Chase & Co., Credit Suisse Group AG and Deutsche Bank AG.

JPMorgan downgraded SGX to “neutral” from “overweight” citing the vulnerability of its share price to regulatory issues related to the bid for ASX Ltd., and higher indebtedness that would result. Credit Suisse cut its rating to “underperform” from “outperform,” saying ASX’s growth profile makes it unappealing.

 

“We expect SGX to trade on ebb and flow of regulatory stance on merger rather than volumes traded,” the JPMorgan analysts led by Harsh Wardhan Modi wrote in their research note. “Despite accretive bottom-line on debt-funded deal, we expect the stock to decline.”

 

The rationale for SGX’s bid, valued at A$8.4 billion ($10.7 billion) when it was announced, is “unconvincing,” according to Credit Suisse analysts led by Anand Swaminathan. “ASX is not attractive in terms of profitability and growth profile. It is also set to face stiff margin pressure due to competition.”

 

SGX shares fell 2.6% to S$8.72 today as of 9:41 a.m. Singapore time, extending their 6.2% drop yesterday when the deal was announced. ASX shares fell 5.5%, paring yesterday’s 19% jump.