Singapore Exchange’s (SGXL.SI) agreed $7.9 billion ($10.2 billion) takeover of Australia’s ASX (ASX.AX) faced a new hurdle after key political leaders voiced concern over the deal, sending ASX shares down 5.5%.

Australia’s Greens Party, an influential bloc in the upper house Senate, said on Tuesday it had strong concerns about the deal to create Asia’s fourth-largest stock exchange while the main conservative opposition also questioned the deal.

 

Political support for the transaction is necessary as Parliament needs to lift ASX’s 15% voting cap for the deal to go through.

 

“It is too early to make that assumption that it is sort of a done deal,” said Matthew Smith, a Singapore-based analyst at Macquarie.

 

“The ASX shares had priced in a 60% probability of the deal being done yesterday. Now it is trading at a deeper discount. So it looks 50:50 for the deal,” he said.

 

The stream of political comments sent ASX shares down as much as 8.6% on Tuesday after Monday’s 19.4% rise. By 0240 GMT, the shares were 5.2% lower at A$39.6, 13% below the value of SGX’s offer. 

 

Although opposition by the Greens is a setback for the deal, the ruling Labor and the conservative opposition have enough votes to remove the shareholder cap and allow the deal. 

 

The conservatives expressed concern about the deal on Tuesday but stopped short of rejecting it and in 2001, while in power, the party did not oppose SingTel’s (STEL.SI) takeover of Australia’s second-largest telecoms firm Optus.

 

The two bourse operators will need to persuade politicians  the merger will benefit Australia.

 

A key benefit highlighted by ASX and SGX officials on Monday was that the merger would give Australian resources companies a bigger market to tap for much needed capital.

 

SGX has offered a combination of A$22.00 in cash plus 3.473 of its own shares per ASX share, valuing the Australian operator at A$8.0 billion ($7.9 billion) on Tuesday’s trade.

 

The companies said they hoped to close the deal, aimed at cutting costs and fighting growing competition, in the second quarter of next year.

 

The key test for the deal will be winning the support Labor and the opposition conservatives, which raised the issue of the Singapore government’s stake in SGX.

 

“The ASX is effectively a monopoly and therefore as a monopoly, is it in our national interest to have not only a foreign exchange owner, but a foreign exchange with a substantial shareholding from its own government?” conservative Treasury Spokesman Joe Hockey told Australian radio.

 

The takeover could dent Australia’s ambitions to become an Asian financial hub, if the ASX became subordinate to the Singapore exchange, but SGX and ASX chiefs argued the linkage would boost the clout of both exchanges in global equity markets.

 

The companies do not expect the same level of outrage against the exchanges’ merger as national airline Qantas (QAN.AX) encountered when it welcomed a takeover offer from private equity firms, a person close to the deal said.

 

“Who is going to get emotional about the exchange? It’s not like you fly the exchange to a holiday destination the way there is with Qantas,” the person said.

 

“It is not like you use it every day unless you are in the industry, and I suspect most of the people who use it daily are probably less emotional about that sort of stuff because they are buying and selling things most of the time,” said the person close to the deal.

 

A bid for a holding of more than 15% in the ASX by a foreign entity would require Treasurer Wayne Swan’s approval under the Financial Acquisition and Takeovers Act following a screening process by Australia’s Foreign Investment Review Board.

 

The government has the power to block the proposal if it is determined to be contrary to the national interest or to impose conditions. 

 

If the Treasurer decides to waive the 15% shareholder cap, parliament has the power to block the proposal if anyone calls for a vote on his decision.

 

“Certainly the regulatory issues are going to be a hurdle for the deal,” said Macquarie’s Smith.