Singapore Exchange (SGX) (SGXL.SI) said it was on track to complete a $7.8 billion ($10.1 billion) takeover of Australian bourse operator ASX (ASX.AX) in 2011, but political obstacles to Asia-Pacific’s first major merger of exchanges remain a challenge.

The comments on Tuesday came after SGX missed expectations for its second-quarter profit on higher costs for technology and transactions linked to the bid for ASX.

SGX, Asia’s second-biggest listed bourse operator after rival Hong Kong Exchanges and Clearing (0388.HK), reported an adjusted 14% rise in October-December profit and said it would benefit from higher securities and derivatives turnover.

 

The bid to take over ASX overcame a hurdle last month when it was cleared by the Australian competition regulator.

 

Yet analysts are mixed about the outcome of the deal, which  still needs the approval of Australia’s parliament. Some members of parliament have expressed concern that a foreign takeover would not be in Australia’s interest.

    

“We believe the deal will probably go through. But even if it goes through it will take a huge amount of management bandwidth, which probably could have been used for turning day-to-day operations of the business,” said Sachin Nikhare, a research analyst with Indian brokerage firm IIFL in Singapore.

 

“The management will have to address concerns about sovereign issues and national interest.”

 

SGX, which is 23% owned by a state-backed fund, has to convince Australia’s Foreign Investment Review Board that the deal is in the country’s interest.

 

The deal is expected to go before Australia’s parliament for approval following the Board’s decision.

 

SGX said the regulatory process related to its merger with ASX was proceeding as planned.

 

“We continue to work with the relevant stakeholders, including (Australia’s) Foreign Investment Review Board, with the aim of completing the proposed combination in 2011,” SGX CEO Magnus Bocker said in a statement.

 

Tom Elliott, managing director at MM&E Capital in Melbourne, said SGX was likely to make concessions, such as offering a couple of board seats, to make the bid more favourable to ASX shareholders.

 

“Australian shareholders will be happy with the deal, the bigger issue will be getting the Treasurer over the line,” said Elliott. “There’s enough elements in this minority government, so that if it looks too difficult they’ll just say no. And there’ll be a big Foreign Investment Review Board enquiry.”