LONDON (Reuters) - Some London Stock Exchange investors have told Hong Kong Exchanges and Clearing (HKEX) that any bid must contain more cash and be up to 20% higher to persuade them to engage, three shareholders and a banking source close to the deal said.

FILE PHOTO: The name of Hong Kong Exchanges and Clearing Limited is displayed at the entrance in Hong Kong, China January 24, 2018. REUTERS/Bobby Yip/File Photo

The three investors, who own a combined 3% of LSE, said HKEX has been lobbying them to back a potential $39 billion cash and share offer for the London exchange after it made a surprise approach last month.

LSE LSE.L quickly rejected HKEX's initial approach, saying it faced regulatory hurdles and did not make strategic sense.

The London exchange has already agreed a separate $27billion deal to buy data provider Refinitiv, in which professional information company and Reuters News parent ThomsonReuters holds a 45% stake.

HKEX now has until Oct. 9 to make a formal bid or walkaway, and its executives have been meeting LSE’s top shareholders to garner their support.

Guy de Blonay, manager of the Jupiter FinancialOpportunities Fund, who met with HKEX co-president Romnesh Lamba, said HKEX would have to increase the per share price to between 90 and 100 pounds, up from the initial approach of around 83.61 pounds for shareholders to take it seriously.

De Blonay said it would also need to increase the cash component. The initial proposal was around 25% cash, with the rest in HKEX stock.

A banking source close to the deal said that 90 to 100pounds was ‘what most investors asked for’. The Asian exchange has been looking for financing to see if it can meet a higher bid price, the source close to the deal said.

A bid in this range could prompt the LSE board to ask for an extension to the October deadline, De Blonay said, and move HKEX towards creating a powerhouse spanning Asia, Europe and the United States and better able to compete with U.S. rivals.

“(HKEX Chief Executive) Charles Li knows this is a one-off opportunity, and I would expect him to carry on fighting,” deBlonay said, pointing to considerable political hurdles and a possible backlash among HKEX’s own shareholders that could still scupper a higher recommended bid.

Two other LSE shareholders told Reuters they too expected HKEX to lift the headline price of its offer. The investors, who declined to be named, were however skeptical that a deal would pass regulatory muster, saying a bigger price-tag may still not be enough to land Li his prize.

HKEX declined to comment on its plans on Thursday. LSE also declined to comment.

Reuters was not able to ascertain the views of some of LSE’s largest shareholders, including those who also hold a stake in the Asian bourse.

Li has been vocal in highlighting the long-term benefits of his deal versus the “short-term” earnings boost of the LSE-Refinitiv tie-up.

Li, a former offshore oil worker, lawyer, journalist and investment banker, has overseen HKEX’s transformation into the world’s largest capital-raising venue in five of the past 10years.

Last week Li said that his team had been working on a takeover approach for a long time, but uncertainty aroundBritain’s exit from the European Union had any delayed action until the LSE announced its plan to buy Refinitiv in August.

The LSE board has so far stood by its deal with Refinitiv, which the HKEX proposal requires its London rival to abandon.

REGULATION

HKEX’s proposed deal is widely expected to draw regulatory scrutiny in Britain, Italy and the United States, which is locked in a trade war with China, if it proceeds.

Several “big bang” exchange mergers have failed in recent years, opposed by politicians and regulators and the LSE bid has raised concerns that China would have undue influence because some HKEX board members are appointed by Hong Kong’s government.

Li has said he is open to review governance.

As it gears up to push ahead with an offer, HKEX’s Lamba has met investors and hedge funds in the United States over the past two weeks, two sources said.

It has also added HSBC and UBS to its financing advisory line-up over the past two weeks, regulatory filings show.

The HKEX deal has been orchestrated with the help of U.S. advisory firm Moelis, whose lead banker Caroline Silver is one of the most prominent exchange bankers.