Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Zhejiang New Century Hotel Management / Event-Driven

Zhejiang New Century Hotel Management (1158 HK)

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<p>After <a href="https://www.smartkarma.com/entities/zhejiang-new-century-hotel-management-group" target="_blank" data-smartkarma-citation="entities:27944:1" rel="noopener">Zhejiang New Century Hotel Management Group (1158 HK)</a>'s (ZNCH) shares were <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0119/2021011900019.pdf" target="_blank" rel="noopener">suspended</a> ahead of trading on the 19 January "<em>pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company</em>", ZNCH has now <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0120/2021012000655.pdf" target="_blank" rel="noopener">announced</a> a pre-conditional Offer from a vehicle co-owned by Sequoia China and Ocean Link.</p>
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<p>The Offer price is HK$18.15/share, a 23.9% premium to last close, and a 20.8% premium to the average closing price over the previous 30 trading days. The Offer price will not be increased. A concurrent Offer for ZNCH's domestic shares at RMB15.018066/share is also tabled.</p>
<p>ZNCH is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via a Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). Additionally, as this is a "voluntary conditional offer", a tendering condition of 90% is also present.</p>
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<p>ZNCH has 280mn shares out, comprising 70,000,000 H shares (25% of shares out), 159,659,640 domestic shares (57% of shares out), and 50,340,360 unlisted foreign shares (18% of shares out). Sequoia China/Ocean Link currently hold no shares. </p>
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<p>CTrip, a pre-IPO investor, with 14.83mn H shares, has given an irrevocable <em>supporting</em> the Offer, but will NOT tender. On account of a special shareholder arrangement, CTrip is deemed to be an Offeror Concert Party and therefore does not form part of the Independent H Shareholders. </p>
<p>GreenTree, a pre-IPO investor, with 13.87mn H shares has given an irrevocable supporting the Offer and will also tender. GreenTree forms part of the Independent H Shareholders. </p>
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<p>The pre-conditions, which cannot be waived, include approvals from an anti-trust review under the Anti-Monopoly Law of the PRC, and SAMR.</p>
<p>This appears an <em>okay</em> deal. The Pre-Conditional Long Stop date is the 31 May 2021, but these approvals should be completed well before. Merger by Absorption transactions are typically wrapped up in around four months.</p>
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<p>As always, more below the fold.</p>
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After Zhejiang New Century Hotel Management Group (1158 HK)'s (ZNCH) shares were suspended ahead of trading on the 19 January "pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company", ZNCH has now announced a pre-conditional Offer from a vehicle co-owned by Sequoia China and Ocean Link.


The Offer price is HK$18.15/share, a 23.9% premium to last close, and a 20.8% premium to the average closing price over the previous 30 trading days. The Offer price will not be increased. A concurrent Offer for ZNCH's domestic shares at RMB15.018066/share is also tabled.
ZNCH is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via a Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). Additionally, as this is a "voluntary conditional offer", a tendering condition of 90% is also present.


ZNCH has 280mn shares out, comprising 70,000,000 H shares (25% of shares out), 159,659,640 domestic shares (57% of shares out), and 50,340,360 unlisted foreign shares (18% of shares out). Sequoia China/Ocean Link currently hold no shares. 


CTrip, a pre-IPO investor, with 14.83mn H shares, has given an irrevocable supporting the Offer, but will NOT tender. On account of a special shareholder arrangement, CTrip is deemed to be an Offeror Concert Party and therefore does not form part of the Independent H Shareholders. 
GreenTree, a pre-IPO investor, with 13.87mn H shares has given an irrevocable supporting the Offer and will also tender. GreenTree forms part of the Independent H Shareholders. 


The pre-conditions, which cannot be waived, include approvals from an anti-trust review under the Anti-Monopoly Law of the PRC, and SAMR.
This appears an okay deal. The Pre-Conditional Long Stop date is the 31 May 2021, but these approvals should be completed well before. Merger by Absorption transactions are typically wrapped up in around four months.


As always, more below the fold.


Zhejiang New Century (1158 HK): Pre-Conditional Offer

China Machinery Engineering / Event-Driven

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<p>After <a href="https://www.smartkarma.com/entities/china-machinery-engineering-corp" target="_blank" data-smartkarma-citation="entities:10998:1" rel="noopener">China Machinery Engineering (1829 HK)</a>'s (CMEC) shares were <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0108/2021010701436.pdf" target="_blank" rel="noopener">suspended</a> ahead of trading on the 8 January  "<em>pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company</em>", CMEC has now <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0113/2021011300422.pdf" target="_blank" rel="noopener">announced</a> a pre-conditional Offer from its controlling shareholder, state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH.</p>
<p>The Offer price is HK$3.70/share, a 45.10% premium to last close, and a 118.93% premium to the average closing price over the previous 30 trading days. The Offer price will not be increased. A concurrent Offer for CMEC's domestic shares at RMB3.082692/share is also tabled.</p>
<p>CMEC has 4,125,700,000 shares out, comprising 908,270,000 H shares and 3,217,430,000 domestic shares.</p>
<p>SINOMACH holds 3.185bn domestic shares directly, and 32.174mn shares indirectly via China United. Together this totals 77.99% of the total voting interest in CNEC. </p>
<p>SINOMACH does not hold any H  shares.</p>
<p>The pre-conditions, which cannot be waived, include approvals from NDRC, MoC, and SAFE.</p>
<p>As CMEC is PRC incorporated, this delisting proposal is by way of a Merger by Absorption, which involves a Scheme-like vote from disinterested shareholders. There is no tendering acceptance condition attached to this delisting.</p>
<p>This appears a relatively clean deal. The Long Stop date is the 13 January 2022, but this should be completed well before. Merger by Absorption transactions are typically wrapped up in around four months.</p>
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<p>More below the fold.</p>
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After China Machinery Engineering (1829 HK)'s (CMEC) shares were suspended ahead of trading on the 8 January  "pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company", CMEC has now announced a pre-conditional Offer from its controlling shareholder, state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH.
The Offer price is HK$3.70/share, a 45.10% premium to last close, and a 118.93% premium to the average closing price over the previous 30 trading days. The Offer price will not be increased. A concurrent Offer for CMEC's domestic shares at RMB3.082692/share is also tabled.
CMEC has 4,125,700,000 shares out, comprising 908,270,000 H shares and 3,217,430,000 domestic shares.
SINOMACH holds 3.185bn domestic shares directly, and 32.174mn shares indirectly via China United. Together this totals 77.99% of the total voting interest in CNEC. 
SINOMACH does not hold any H  shares.
The pre-conditions, which cannot be waived, include approvals from NDRC, MoC, and SAFE.
As CMEC is PRC incorporated, this delisting proposal is by way of a Merger by Absorption, which involves a Scheme-like vote from disinterested shareholders. There is no tendering acceptance condition attached to this delisting.
This appears a relatively clean deal. The Long Stop date is the 13 January 2022, but this should be completed well before. Merger by Absorption transactions are typically wrapped up in around four months.


More below the fold.


China Machinery Engineering (1829 HK): Delisting Offer From Parent

<p><a href="https://www.smartkarma.com/entities/china-machinery-engineering-corp" target="_blank" data-smartkarma-citation="entities:10998:1" rel="noopener">China Machinery Engineering (1829 HK)</a>'s (CMEC) shares were <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0108/2021010701436.pdf" target="_blank" rel="noopener">suspended</a> ahead of trading this morning  "<em>pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company</em>".</p>
<p>CMEC is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against) for the H shares. Such an Offer may or may not require an additional tendering acceptance condition.</p>
<p>CMEC's ultimate controlling shareholder is state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH, which holds 77.99% of shares out, via CMEC's domestic shares. SINOMACH holds no H shares. </p>
<p>CMEC is up 56.4% since the 29 December, on larger-than-average volume.</p>
<p>Funny that.</p>
<p>The most interesting facet attached to CMEC is that it has (adjusted) net cash of HK$8.8bn as at 30 June 2020, compared to market cap of HK$10.5bn.  Should a firm offer unfold, it is doubtful it will fully reflect the underlying business in addition to that cash pile.</p>
<p>More below the fold.</p>

China Machinery Engineering (1829 HK)'s (CMEC) shares were suspended ahead of trading this morning  "pursuant to The Codes on Takeovers and Mergers which constitute inside information of the Company".
CMEC is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against) for the H shares. Such an Offer may or may not require an additional tendering acceptance condition.
CMEC's ultimate controlling shareholder is state-owned Chinese National Machinery Industry Corporation, also known as SINOMACH, which holds 77.99% of shares out, via CMEC's domestic shares. SINOMACH holds no H shares. 
CMEC is up 56.4% since the 29 December, on larger-than-average volume.
Funny that.
The most interesting facet attached to CMEC is that it has (adjusted) net cash of HK$8.8bn as at 30 June 2020, compared to market cap of HK$10.5bn.  Should a firm offer unfold, it is doubtful it will fully reflect the underlying business in addition to that cash pile.
More below the fold.

China Machinery Engineering (1829 HK): Possible Offer

Beijing Jingneng Clean Energy / Event-Driven

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<p>Following a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0703/2020070300108.pdf" target="_blank" rel="noopener">suspension</a> on the 3 July this year pursuant to the Code on Takeovers and Mergers, <a href="https://www.smartkarma.com/entities/beijing-jingneng-clean-energy-co-ltd" target="_blank" data-smartkarma-citation="entities:16316:1" rel="noopener">Beijing Jingneng Clean Energy (579 HK)</a>, an SOE utility, subsequently <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0706/2020070602025.pdf" target="_blank" rel="noopener">announced</a> it had received a letter from Beijing Energy Holdings (BEH), its controlling shareholder, of an intention to make a Conditional General Offer.</p>
<p>Late last night, a voluntary conditional offer was <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1117/2020111701054.pdf" target="_blank" rel="noopener">announced</a> at HK$2.70/share, a 70.89% premium to the undisturbed price. The Offer price is final. No dividends are expected during the Offer period.</p>
<p>Jingneng is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via a <em>Merger by Absorption</em>, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). Additionally, as this is a "voluntary conditional offer", a tendering condition of 90% is also present.</p>
<p>This looks done. There is just a question mark over timing.</p>
<p>More below the fold.</p>
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Following a suspension on the 3 July this year pursuant to the Code on Takeovers and Mergers, Beijing Jingneng Clean Energy (579 HK), an SOE utility, subsequently announced it had received a letter from Beijing Energy Holdings (BEH), its controlling shareholder, of an intention to make a Conditional General Offer.
Late last night, a voluntary conditional offer was announced at HK$2.70/share, a 70.89% premium to the undisturbed price. The Offer price is final. No dividends are expected during the Offer period.
Jingneng is incorporated in the PRC, and as such, there are no rights to compulsorily acquire shares or to require an Offeror do so. The only mechanism available to privatise is via a Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). Additionally, as this is a "voluntary conditional offer", a tendering condition of 90% is also present.
This looks done. There is just a question mark over timing.
More below the fold.


Beijing Jingneng (579 HK): Privatisation Offer From Parent

AviChina Industry & Technology / Event-Driven

<p>Civil-aviation and defense play <a href="https://www.smartkarma.com/entities/avichina-industry-tech-h" target="_blank" data-smartkarma-citation="entities:16315:1" rel="noopener">Avichina Industry &amp; Tech H (2357 HK)</a> is trading at a steep 68% discount to NAV. The implied stub, netting off listed holdings, is also at a multi-year low.</p>
<p>In the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0918/2020091800348.pdf" target="_blank" rel="noopener">2020 interim report</a>, AviChina stated:</p>
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<p>During the first half of 2020, with the strategic goal of building an aviation power in the new era in all respects, the Company has been dedicated to becoming a flagship company to provide high-tech aviation products and services for both military and civil purposes.</p>
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<h3>The Fifth Plenum</h3>
<p data-v-d6b361f8="" data-v-e1aeccf8="">China concluded a four-day meeting, known as the fifth plenum, on the 29th October, in which the 14th five-year plan and the development goals for 2035 were discussed.</p>
<p data-v-d6b361f8="" data-v-e1aeccf8="">One of the key goals from the communique of the plenum was to turn the People‘s Liberation Army into a modern military force (one on par with the US) by 2027 - in time to mark the centennial founding of the PLA. </p>
<p data-v-d6b361f8="" data-v-e1aeccf8="">Concurrent with China's "dual circularity" development - discussed in <em><a href="https://skr.ma/ANkER" target="_blank" rel="noopener">China's Dual Circulation: Hedged Integration</a></em> - wherein China will primarily depend on “domestic circulation” buttressed by external resources or “international circulation”, timing appears favourable for Chinese defense stocks.</p>
<p data-v-d6b361f8="" data-v-e1aeccf8="">Put another way: why provide spending transparency in a sensitive industry via a listed vehicle? At this multiyear low discount to NAV, AviChina is cheap on a standalone basis. And potentially a take-private candidate. </p>
<p data-v-d6b361f8="" data-v-e1aeccf8="">More below the fold.</p>
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Civil-aviation and defense play Avichina Industry &amp; Tech H (2357 HK) is trading at a steep 68% discount to NAV. The implied stub, netting off listed holdings, is also at a multi-year low.
In the 2020 interim report, AviChina stated:

During the first half of 2020, with the strategic goal of building an aviation power in the new era in all respects, the Company has been dedicated to becoming a flagship company to provide high-tech aviation products and services for both military and civil purposes.


The Fifth Plenum
China concluded a four-day meeting, known as the fifth plenum, on the 29th October, in which the 14th five-year plan and the development goals for 2035 were discussed.
One of the key goals from the communique of the plenum was to turn the People‘s Liberation Army into a modern military force (one on par with the US) by 2027 - in time to mark the centennial founding of the PLA. 
Concurrent with China's "dual circularity" development - discussed in China's Dual Circulation: Hedged Integration - wherein China will primarily depend on “domestic circulation” buttressed by external resources or “international circulation”, timing appears favourable for Chinese defense stocks.
Put another way: why provide spending transparency in a sensitive industry via a listed vehicle? At this multiyear low discount to NAV, AviChina is cheap on a standalone basis. And potentially a take-private candidate. 
More below the fold.


AviChina (2357 HK): Buy The Modern Army Narrative

China

Advanced Semiconductor Manufacturing is a large-scale integrated circuit (IC) chip manufacturer, operating as a dedicated analog foundry. It primarily focuses on manufacturing analog IC and power discrete chips, as well as 5-inch, 6-inch, and 8-inch semiconductor wafers and Micro-Electro-Mechanical Systems (MEMS) chips for various applications including automotive electronics and power management. The company was founded in 1988 and is headquartered in Shanghai, China.

Advanced Semiconductor Manufacturing (ASM HK)

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Advanced Semiconductor Manufacturing (ASM HK)

Zhejiang New Century (1158 HK): Pre-Conditional Offer

Assuming payment late-May, I would expect ZNCH to trade around $17/share, or a 6-7% gross spread, and a ~22% annualised spread. Buy around $17...

David Blennerhassett

China Machinery Engineering (1829 HK): Delisting Offer From Parent

Expect CMEC to trade around $3.45-3.50, or a 6-7% gross spread, and an 18-23% annualised. This is still being done too cheaply, given the large...

David Blennerhassett

China Machinery Engineering (1829 HK): Possible Offer

Shares are suspended so there is nothing to do here. I think the Offer needs to be pitched closer to $4/share to dislodge Cape Ann. It will still...

David Blennerhassett

Beijing Jingneng (579 HK): Privatisation Offer From Parent

Currently trading at a gross/annualised spread of 7.6%/18.9%, assuming the transaction takes five and a half months to complete. This appears a...

David Blennerhassett

AviChina (2357 HK): Buy The Modern Army Narrative

One would think the "modern army" maxim will catalyse companies such as AviChina (2357 HK). That is positive. But why subject capex to outside...

David Blennerhassett

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