Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
<p>Back on the 13 November MBK <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1113/2020111301538.pdf" target="_blank" rel="noopener">tabled</a> a pre-conditional general cash Offer of $4.00/share for <a href="https://www.smartkarma.com/entities/car-inc" target="_blank" data-smartkarma-citation="entities:942:1" rel="noopener">Car Inc (699 HK)</a>, a 17.99% premium to last close.  This was discussed in <em><a href="https://skr.ma/4TZfG" target="_blank" rel="noopener">Car Inc (699 HK): MBK's Firm Offer</a></em>.</p>
<p>On the 25 November, China's State Administration for Market Regulation (SAMR) <a href="http://www.samr.gov.cn/fldj/ajgs/jzjyajgs/202011/t20201125_323881.html" target="_blank" rel="noopener">announced</a> it was reviewing the MBK/CAR deal as a simple case. Under the simplified procedure, SAMR generally grants clearance in 30 days.  Two months elapsed. For some investors, 'it as preferable to buy this d rather buy this mid $3.80's after SAMR signing offer rather than second guess the regulatory process and a consistent seller (Warburg/Amber).</p>
<p>Last night, Car <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0125/2021012501159.pdf" target="_blank" rel="noopener">announced</a> the pre-conditions have been fulfilled and the Composite Document will be despatched on or before 29 January. </p>
<p>The Offer is subject to a 50% tendering condition - with MBK holding 47.41% at the completion of its SPA with UCAR, together with irrevocables. This is done.</p>
<p>More thoughts below the fold.</p>
</div>


Back on the 13 November MBK tabled a pre-conditional general cash Offer of $4.00/share for Car Inc (699 HK), a 17.99% premium to last close.  This was discussed in Car Inc (699 HK): MBK's Firm Offer.
On the 25 November, China's State Administration for Market Regulation (SAMR) announced it was reviewing the MBK/CAR deal as a simple case. Under the simplified procedure, SAMR generally grants clearance in 30 days.  Two months elapsed. For some investors, 'it as preferable to buy this d rather buy this mid $3.80's after SAMR signing offer rather than second guess the regulatory process and a consistent seller (Warburg/Amber).
Last night, Car announced the pre-conditions have been fulfilled and the Composite Document will be despatched on or before 29 January. 
The Offer is subject to a 50% tendering condition - with MBK holding 47.41% at the completion of its SPA with UCAR, together with irrevocables. This is done.
More thoughts below the fold.


Car Inc (699 HK):  No, We Are Not Missing Anything

<div>
<p>Following the <a href="https://www.smartkarma.com/entities/luckin-coffee-inc" target="_blank" data-smartkarma-citation="entities:28046:1" rel="noopener">Luckin Coffee (LK US)</a> debacle and the ensuing fallout (discussed in <em><a href="https://skr.ma/p7ikw" target="_blank" rel="noopener">Car Inc (699 HK) - Needs A Hire Purpose</a></em> and <em><a href="https://skr.ma/4TZfG" target="_blank" rel="noopener">Car Inc (699 HK): MBK's Firm Offer</a></em>), on the 13 November MBK <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1113/2020111301538.pdf" target="_blank" rel="noopener">tabled</a> a pre-conditional general cash Offer of $4.00/share for <a href="https://www.smartkarma.com/entities/car-inc" target="_blank" data-smartkarma-citation="entities:942:1" rel="noopener">Car Inc (699 HK)</a>, a 17.99% premium to last close.  </p>
<p>A truncated summary of the announcements below brings you up to date.:</p>
</div>
<div>
<div>
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 115.258px;">
<h3>Date</h3>
</td>
<td style="width: 588.274px;">
<h3>Data in the Date</h3>
</td>
</tr>
<tr>
<td style="width: 115.258px;">9-Apr-20</td>
<td style="width: 588.274px;">Car's largest shareholder, <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0409/2020040900021.pdf" target="_blank" rel="noopener">sold</a> 44.666mn shares, or 2.11% of shares out, on the day Car's shares collapsed. NOT a good look. UCAR held ~27.65% of shares out in Car after the sale. Lu is the controller of UCAR with a 39.94% stake.<br><br>UCAR <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0512/2020051201219.pdf" target="_blank" rel="noopener">sold</a> a further 100k shares (0.0047% of shares out) on the 11 May, and <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0623/2020062301508.pdf" target="_blank" rel="noopener">7.085mn</a> shares (0.33%) between the 12 May and 22 June.</td>
</tr>
<tr>
<td style="width: 115.258px;">16-Apr-20</td>
<td style="width: 588.274px;">
<p>Amber Gem <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0416/2020041601733.pdf" target="_blank" rel="noopener">entered</a> into a SPA with UCAR to acquire 98.6mn shares (4.65% of shares out - known as the first tranche) from UCAR at HK$2.30/share; and 264.08mn shares (12.46% of shares out - the second tranche) at HK$3.40/share. This works out to an average price of $3.10/share.</p>
<p></p>
<p>At the time of the SPA, Amber Gem held 10.11%. According to the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0401/2020040101309.pdf" target="_blank" rel="noopener">2019 annual report</a> (page 49), Warburg Pincus holds a 60.47% stake in Amber Gem. </p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">1-Jun-20</td>
<td style="width: 588.274px;">
<p>Car <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0601/2020060100013.pdf" target="_blank" rel="noopener">announced</a> Amber Gem and UCAR had terminated their second tranche. The first tranche <a href="https://di.hkex.com.hk/di/NSNoticePersonList.aspx?sa2=np&amp;scpid1=69816&amp;scpid3=0&amp;scpid2=109421&amp;sa1=pl&amp;scsd=21%2f07%2f2019&amp;sced=21%2f07%2f2020&amp;pn=Amber+Gem&amp;src=MAIN&amp;lang=EN&amp;" target="_blank" rel="noopener">appears</a> to have been completed on the 30 May, lifting Amber Gem's stake to 14.76%.</p>
<p></p>
<p>Separately  UCAR and BAIC Group <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0601/2020060100013.pdf" target="_blank" rel="noopener">entered</a> into a non-legally binding strategic cooperation agreement, such that BAIC would acquire 450.79mn shares in Car, or 21.26% of shares out, from UCAR.</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">9-Jun-20</td>
<td style="width: 588.274px;">Lu <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0610/2020061000043.pdf" target="_blank" rel="noopener">resigned</a> as Chairman and NED, with effect from June 9 (i.e. immediate).</td>
</tr>
<tr>
<td style="width: 115.258px;">2-Jul-20</td>
<td style="width: 588.274px;">
<p>Car announced UCAR had entered into an offer letter with <a href="https://www.smartkarma.com/entities/saic-motor-corp-ltd-a" target="_blank" data-smartkarma-citation="entities:20833:1" rel="noopener">SAIC Motor (600104 CH)</a> such that SAIC will acquire UCAR's 20.87% stake in Car at HK$3.10.</p>
<p></p>
<p>Separately, SAIC entered into an offer letter with Amber Gem to acquire an 8.05% stake in Car, also at HK$3.10/share.  The completion of these Offer letters would result in SAIC holding 28.92%, below the 30% mandatory general offer threshold.</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">20-Jul-20</td>
<td style="width: 588.274px;">
<p>Car announced that UCAR has terminated its agreement with SAIC; and that UCAR had now entered into a SPA with Jinggangshan BAIC to acquire its 20.87% stake in Car at HK$3.10/share. Jinggangshan BAIC also signed an offer letter with Amber Gem to acquire an 8.04% of shares out (@ HK$3.10/share) - to collectively give Jinggangshan BAIC 28.91%. Amber Gem would be left holding 6.7% of shares out. </p>
<p></p>
<p>Car <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0720/2020072001067.pdf" target="_blank" rel="noopener">announced</a> that it has been informed that "UCAR has received a notice from the China Securities Regulatory Commission (and that the) CSRC has initiated an investigation on UCAR in connection with suspected violations of information disclosure laws and regulations by UCAR". </p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">24-Jul-20</td>
<td style="width: 588.274px;">
<p>Profit warning. Car expects a net loss n the 1H20 vs. net profit of RMB279mn in 1H19. Looking at impairment charges with respect to is vehicle fleet of RMB2.5bn-3RMBbn. </p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">26-Jul-20</td>
<td style="width: 588.274px;">
<p>Amber Gem and Jinggangshan BAIC <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0726/2020072600011.pdf" target="_blank" rel="noopener">entered</a> into a SPA such that BAIC acquires 170.72mn shares (8.05% of shares out) from Amber at $3.10/share.</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">3-Aug-20</td>
<td style="width: 588.274px;">
<p>Xiaogeng Li, an NED, <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0803/2020080300015.pdf" target="_blank" rel="noopener">resigned</a>, ceasing her membership of the audit and compliance committee</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">3-Aug-20</td>
<td style="width: 588.274px;">
<p>The CSRC <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0803/2020080300019.pdf" target="_blank" rel="noopener">completed</a> its (two-week) investigation and dished out some fines to UCAR and certain directors/senior management. </p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">20-Aug-20</td>
<td style="width: 588.274px;">
<p>A Reuters article suggests MBK is kicking tyres</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">10-Nov-20</td>
<td style="width: 588.274px;">
<p><a href="https://www.smartkarma.com/entities/car-inc" target="_blank" data-smartkarma-citation="entities:942:1" rel="noopener">Car Inc (699 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1110/2020111001297.pdf" target="_blank" rel="noopener">announced</a> the S&amp;P with UCAR, BAIC is terminated. MBK Partners to acquire ~20.86% of shares in Car for HK$1.77bn ($4/share).</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">13-Nov-20</td>
<td style="width: 588.274px;">
<p>MBK's <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1113/2020111301538.pdf" target="_blank" rel="noopener">firm Offer</a></p>
</td>
</tr>
<tr>
<td colspan="2" style="width: 115.258px;"><em>Source: mainly HKEx announcements</em></td>
</tr>
</tbody>
</table>
<p>The pre-conditions to the Offer may be waived, either in whole or in part; the Offer is subject to only a simple merger case by SAMR; the UCAR SPA has now completed; and the Offer is subject to a 50% tendering condition - with MBK holding 47.41% at the completion of a SPA with UCAR, together with irrevocables. </p>
<p>This looks done.</p>
<p>Yet, the gross spread has steadily widened since the 28 December. What gives? </p>
<p>More thoughts below the fold.</p>
<p></p>
</div>
</div>


Following the Luckin Coffee (LK US) debacle and the ensuing fallout (discussed in Car Inc (699 HK) - Needs A Hire Purpose and Car Inc (699 HK): MBK's Firm Offer), on the 13 November MBK tabled a pre-conditional general cash Offer of $4.00/share for Car Inc (699 HK), a 17.99% premium to last close.  
A truncated summary of the announcements below brings you up to date.:







Date


Data in the Date



9-Apr-20
Car's largest shareholder, sold 44.666mn shares, or 2.11% of shares out, on the day Car's shares collapsed. NOT a good look. UCAR held ~27.65% of shares out in Car after the sale. Lu is the controller of UCAR with a 39.94% stake.  UCAR sold a further 100k shares (0.0047% of shares out) on the 11 May, and 7.085mn shares (0.33%) between the 12 May and 22 June.


16-Apr-20

Amber Gem entered into a SPA with UCAR to acquire 98.6mn shares (4.65% of shares out - known as the first tranche) from UCAR at HK$2.30/share; and 264.08mn shares (12.46% of shares out - the second tranche) at HK$3.40/share. This works out to an average price of $3.10/share.

At the time of the SPA, Amber Gem held 10.11%. According to the 2019 annual report (page 49), Warburg Pincus holds a 60.47% stake in Amber Gem. 



1-Jun-20

Car announced Amber Gem and UCAR had terminated their second tranche. The first tranche appears to have been completed on the 30 May, lifting Amber Gem's stake to 14.76%.

Separately  UCAR and BAIC Group entered into a non-legally binding strategic cooperation agreement, such that BAIC would acquire 450.79mn shares in Car, or 21.26% of shares out, from UCAR.



9-Jun-20
Lu resigned as Chairman and NED, with effect from June 9 (i.e. immediate).


2-Jul-20

Car announced UCAR had entered into an offer letter with SAIC Motor (600104 CH) such that SAIC will acquire UCAR's 20.87% stake in Car at HK$3.10.

Separately, SAIC entered into an offer letter with Amber Gem to acquire an 8.05% stake in Car, also at HK$3.10/share.  The completion of these Offer letters would result in SAIC holding 28.92%, below the 30% mandatory general offer threshold.



20-Jul-20

Car announced that UCAR has terminated its agreement with SAIC; and that UCAR had now entered into a SPA with Jinggangshan BAIC to acquire its 20.87% stake in Car at HK$3.10/share. Jinggangshan BAIC also signed an offer letter with Amber Gem to acquire an 8.04% of shares out (@ HK$3.10/share) - to collectively give Jinggangshan BAIC 28.91%. Amber Gem would be left holding 6.7% of shares out. 

Car announced that it has been informed that "UCAR has received a notice from the China Securities Regulatory Commission (and that the) CSRC has initiated an investigation on UCAR in connection with suspected violations of information disclosure laws and regulations by UCAR". 



24-Jul-20

Profit warning. Car expects a net loss n the 1H20 vs. net profit of RMB279mn in 1H19. Looking at impairment charges with respect to is vehicle fleet of RMB2.5bn-3RMBbn. 



26-Jul-20

Amber Gem and Jinggangshan BAIC entered into a SPA such that BAIC acquires 170.72mn shares (8.05% of shares out) from Amber at $3.10/share.



3-Aug-20

Xiaogeng Li, an NED, resigned, ceasing her membership of the audit and compliance committee



3-Aug-20

The CSRC completed its (two-week) investigation and dished out some fines to UCAR and certain directors/senior management. 



20-Aug-20

A Reuters article suggests MBK is kicking tyres



10-Nov-20

Car Inc (699 HK) announced the S&amp;P with UCAR, BAIC is terminated. MBK Partners to acquire ~20.86% of shares in Car for HK$1.77bn ($4/share).



13-Nov-20

MBK's firm Offer



Source: mainly HKEx announcements



The pre-conditions to the Offer may be waived, either in whole or in part; the Offer is subject to only a simple merger case by SAMR; the UCAR SPA has now completed; and the Offer is subject to a 50% tendering condition - with MBK holding 47.41% at the completion of a SPA with UCAR, together with irrevocables. 
This looks done.
Yet, the gross spread has steadily widened since the 28 December. What gives? 
More thoughts below the fold.




Car Inc (699 HK):  Are We Missing Anything?

<div>
<p><a href="https://www.smartkarma.com/entities/car-inc" target="_blank" data-smartkarma-citation="entities:942:1" rel="noopener">Car Inc (699 HK)</a>'s cratered 54% on the 3 April before being suspended, given the management crossover with scandal-hit <a href="https://www.smartkarma.com/entities/luckin-coffee-inc" target="_blank" data-smartkarma-citation="entities:28046:1" rel="noopener">Luckin Coffee (LK US)</a>. Charles Zhengyao Lu, the largest shareholder in Luckin, was also a major (indirect) shareholder and chairman in Car.</p>
<p>Car <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0407/2020040700005.pdf" target="_blank" rel="noopener">qualified</a> that while Lu was a shareholder and chairman of Luckin Coffee, "<em>he resigned from the role of Chief Executive Officer and became a Non-executive Director of Car in April 2016</em>" and "<em>has not been involved in the Group’s day-to-day management since then</em>". In addition, Jian Liu, COO of Luckin and widely understood to be the orchestrator of Luckin's internal issues, "<em>ceased his employment as a department director" with Car in 2015.</em>" </p>
</div>
<div>
<p>A detailed rundown of these events can be found in <em><a href="https://skr.ma/p7ikw" target="_blank" rel="noopener">Car Inc (699 HK) - Needs A Hire Purpose</a></em>.</p>
<p>According to a <a href="https://www.reuters.com/article/us-car-inc-mbk-partners-m-a-exclusive/exclusive-mbk-partners-leads-group-in-talks-to-take-hk-listed-car-inc-private-idUSKCN25G0JX" target="_blank" rel="noopener">Reuters</a>' article on the 20 August, an MBK consortium had been in negotiations with SOE Jinggangshan BAIC with respect to its ~29% stake in Car, with a possible view to taking Car private. This was discussed in <em><a href="https://skr.ma/WyCdw" target="_blank" rel="noopener">Car Inc (699 HK): MBK Takes A Turn At The Wheel</a></em>. A HKEx disclosure filing on the 24 July showed BAIC with <a href="https://di.hkex.com.hk/di/NSForm2.aspx?fn=CS20200727E00205&amp;sa2=np&amp;scpid1=99615&amp;scpid3=0&amp;scpid2=109421&amp;sa1=pl&amp;scsd=21%2f08%2f2017&amp;sced=21%2f08%2f2020&amp;pn=Beijing+Automotive+Group&amp;src=MAIN&amp;lang=EN&amp;" target="_blank" rel="noopener">28.92%</a>, given the SPAs with UCAR &amp; Warburg Pincus/Amber.</p>
<p>On the 10 November, Car <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1110/2020111001297.pdf" target="_blank" rel="noopener">announced</a> the SPA between UCAR and BAIC had terminated. Separately, MBK Partners had entered into a SPA to acquire ~20.86% of shares in Car for HK$1.77bn ($4.00/share) from UCAR.</p>
</div>
<div>
<p>A summary of announcements below brings you up to date.:</p>
</div>
<div>
<div>
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 115.258px;">
<h3>Date</h3>
</td>
<td style="width: 588.274px;">
<h3>Data in the Date</h3>
</td>
</tr>
<tr>
<td style="width: 115.258px;">9-Apr-20</td>
<td style="width: 588.274px;">Car's largest shareholder, <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0409/2020040900021.pdf" target="_blank" rel="noopener">sold</a> 44.666mn shares, or 2.11% of shares out, on the day Car's shares collapsed. NOT a good look. UCAR held ~27.65% of shares out in Car after the sale. Lu is the controller of UCAR with a 39.94% stake.<br><br>UCAR <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0512/2020051201219.pdf" target="_blank" rel="noopener">sold</a> a further 100k shares (0.0047% of shares out) on the 11 May, and <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0623/2020062301508.pdf" target="_blank" rel="noopener">7.085mn</a> shares (0.33%) between the 12 May and 22 June.</td>
</tr>
<tr>
<td style="width: 115.258px;">16-Apr-20</td>
<td style="width: 588.274px;">
<p>Amber Gem <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0416/2020041601733.pdf" target="_blank" rel="noopener">entered</a> into a SPA with UCAR to acquire 98.6mn shares (4.65% of shares out - known as the first tranche) from UCAR at HK$2.30/share; and 264.08mn shares (12.46% of shares out - the second tranche) at HK$3.40/share. This works out to an average price of $3.10/share.</p>
<p></p>
<p>At the time of the SPA, Amber Gem held 10.11%. According to the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0401/2020040101309.pdf" target="_blank" rel="noopener">2019 annual report</a> (page 49), Warburg Pincus holds a 60.47% stake in Amber Gem. </p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">1-Jun-20</td>
<td style="width: 588.274px;">
<p>Car <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0601/2020060100013.pdf" target="_blank" rel="noopener">announced</a> Amber Gem and UCAR had terminated their second tranche. The first tranche <a href="https://di.hkex.com.hk/di/NSNoticePersonList.aspx?sa2=np&amp;scpid1=69816&amp;scpid3=0&amp;scpid2=109421&amp;sa1=pl&amp;scsd=21%2f07%2f2019&amp;sced=21%2f07%2f2020&amp;pn=Amber+Gem&amp;src=MAIN&amp;lang=EN&amp;" target="_blank" rel="noopener">appears</a> to have been completed on the 30 May, lifting Amber Gem's stake to 14.76%.</p>
<p></p>
<p>Separately  UCAR and BAIC Group <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0601/2020060100013.pdf" target="_blank" rel="noopener">entered</a> into a non-legally binding strategic cooperation agreement, such that BAIC would acquire 450.79mn shares in Car, or 21.26% of shares out, from UCAR.</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">9-Jun-20</td>
<td style="width: 588.274px;">Lu <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0610/2020061000043.pdf" target="_blank" rel="noopener">resigned</a> as Chairman and NED, with effect from June 9 (i.e. immediate).</td>
</tr>
<tr>
<td style="width: 115.258px;">2-Jul-20</td>
<td style="width: 588.274px;">
<p>Car announced UCAR had entered into an offer letter with <a href="https://www.smartkarma.com/entities/saic-motor-corp-ltd-a" target="_blank" data-smartkarma-citation="entities:20833:1" rel="noopener">SAIC Motor (600104 CH)</a> such that SAIC will acquire UCAR's 20.87% stake in Car at HK$3.10.</p>
<p></p>
<p>Separately, SAIC entered into an offer letter with Amber Gem to acquire an 8.05% stake in Car, also at HK$3.10/share.  The completion of these Offer letters would result in SAIC holding 28.92%, below the 30% mandatory general offer threshold.</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">20-Jul-20</td>
<td style="width: 588.274px;">
<p>Car announced that UCAR has terminated its agreement with SAIC; and that UCAR had now entered into a SPA with Jinggangshan BAIC to acquire its 20.87% stake in Car at HK$3.10/share. Jinggangshan BAIC also signed an offer letter with Amber Gem to acquire an 8.04% of shares out (@ HK$3.10/share) - to collectively give Jinggangshan BAIC 28.91%. Amber Gem would be left holding 6.7% of shares out. </p>
<p></p>
<p>Car <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0720/2020072001067.pdf" target="_blank" rel="noopener">announced</a> that it has been informed that "UCAR has received a notice from the China Securities Regulatory Commission (and that the) CSRC has initiated an investigation on UCAR in connection with suspected violations of information disclosure laws and regulations by UCAR". </p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">24-Jul-20</td>
<td style="width: 588.274px;">
<p>Profit warning. Car expects a net loss n the 1H20 vs. net profit of RMB279mn in 1H19. Looking at impairment charges with respect to is vehicle fleet of RMB2.5bn-3RMBbn. </p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">26-Jul-20</td>
<td style="width: 588.274px;">
<p>Amber Gem and Jinggangshan BAIC <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0726/2020072600011.pdf" target="_blank" rel="noopener">entered</a> into a SPA such that BAIC acquires 170.72mn shares (8.05% of shares out) from Amber at $3.10/share.</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">3-Aug-20</td>
<td style="width: 588.274px;">
<p>Xiaogeng Li, an NED, <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0803/2020080300015.pdf" target="_blank" rel="noopener">resigned</a>, ceasing her membership of the audit and compliance committee</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">3-Aug-20</td>
<td style="width: 588.274px;">
<p>The CSRC <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0803/2020080300019.pdf" target="_blank" rel="noopener">completed</a> its (two-week) investigation and dished out some fines to UCAR and certain directors/senior management. </p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">20-Aug-20</td>
<td style="width: 588.274px;">
<p>A Reuters article suggests MBK is kicking tyres</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">10-Nov-20</td>
<td style="width: 588.274px;">
<p><a href="https://www.smartkarma.com/entities/car-inc" target="_blank" data-smartkarma-citation="entities:942:1" rel="noopener">Car Inc (699 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1110/2020111001297.pdf" target="_blank" rel="noopener">announced</a> the S&amp;P with UCAR, BAIC is terminated. MBK Partners to acquire ~20.86% of shares in Car for HK$1.77bn ($4/share).</p>
</td>
</tr>
</tbody>
</table>
</div>
</div>
<div>
<div class="content-caption">
<p style="text-align: left;">Source: HKEx filings</p>
</div>
</div>
<div>
<h3>The NEW News</h3>
</div>
<div>
<p>MBK has now <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1113/2020111301538.pdf" target="_blank" rel="noopener">tabled</a> a pre-conditional general cash Offer of $4.00/share, a 17.99% premium to last close. There are no outstanding dividends and no dividends are expected to be declared or paid during the Offer.</p>
<p>Pre-conditions include anti-trust approval, no default on any bonds or debt; and the Offer not triggering a "change of control" in the bond/debt instruments. Interestingly, all pre-conditions can be waived by MBK. </p>
<p>The Offer is conditional on MBK holding 50% of the voting rights in Car. Irrevocables (namely Legend Holdings) holding 26.55% have agreed to tender into the Offer. Together with the 20.86% from the SPA with UCAR, MBK will hold a minimum of 47.41% of shares out. Clearing the 50% looks like a lock.</p>
<p>MBK intends to maintain Car's listing.</p>
</div>
<div>
<p>More below the fold.</p>
</div>


Car Inc (699 HK)'s cratered 54% on the 3 April before being suspended, given the management crossover with scandal-hit Luckin Coffee (LK US). Charles Zhengyao Lu, the largest shareholder in Luckin, was also a major (indirect) shareholder and chairman in Car.
Car qualified that while Lu was a shareholder and chairman of Luckin Coffee, "he resigned from the role of Chief Executive Officer and became a Non-executive Director of Car in April 2016" and "has not been involved in the Group’s day-to-day management since then". In addition, Jian Liu, COO of Luckin and widely understood to be the orchestrator of Luckin's internal issues, "ceased his employment as a department director" with Car in 2015." 


A detailed rundown of these events can be found in Car Inc (699 HK) - Needs A Hire Purpose.
According to a Reuters' article on the 20 August, an MBK consortium had been in negotiations with SOE Jinggangshan BAIC with respect to its ~29% stake in Car, with a possible view to taking Car private. This was discussed in Car Inc (699 HK): MBK Takes A Turn At The Wheel. A HKEx disclosure filing on the 24 July showed BAIC with 28.92%, given the SPAs with UCAR &amp; Warburg Pincus/Amber.
On the 10 November, Car announced the SPA between UCAR and BAIC had terminated. Separately, MBK Partners had entered into a SPA to acquire ~20.86% of shares in Car for HK$1.77bn ($4.00/share) from UCAR.


A summary of announcements below brings you up to date.:







Date


Data in the Date



9-Apr-20
Car's largest shareholder, sold 44.666mn shares, or 2.11% of shares out, on the day Car's shares collapsed. NOT a good look. UCAR held ~27.65% of shares out in Car after the sale. Lu is the controller of UCAR with a 39.94% stake.  UCAR sold a further 100k shares (0.0047% of shares out) on the 11 May, and 7.085mn shares (0.33%) between the 12 May and 22 June.


16-Apr-20

Amber Gem entered into a SPA with UCAR to acquire 98.6mn shares (4.65% of shares out - known as the first tranche) from UCAR at HK$2.30/share; and 264.08mn shares (12.46% of shares out - the second tranche) at HK$3.40/share. This works out to an average price of $3.10/share.

At the time of the SPA, Amber Gem held 10.11%. According to the 2019 annual report (page 49), Warburg Pincus holds a 60.47% stake in Amber Gem. 



1-Jun-20

Car announced Amber Gem and UCAR had terminated their second tranche. The first tranche appears to have been completed on the 30 May, lifting Amber Gem's stake to 14.76%.

Separately  UCAR and BAIC Group entered into a non-legally binding strategic cooperation agreement, such that BAIC would acquire 450.79mn shares in Car, or 21.26% of shares out, from UCAR.



9-Jun-20
Lu resigned as Chairman and NED, with effect from June 9 (i.e. immediate).


2-Jul-20

Car announced UCAR had entered into an offer letter with SAIC Motor (600104 CH) such that SAIC will acquire UCAR's 20.87% stake in Car at HK$3.10.

Separately, SAIC entered into an offer letter with Amber Gem to acquire an 8.05% stake in Car, also at HK$3.10/share.  The completion of these Offer letters would result in SAIC holding 28.92%, below the 30% mandatory general offer threshold.



20-Jul-20

Car announced that UCAR has terminated its agreement with SAIC; and that UCAR had now entered into a SPA with Jinggangshan BAIC to acquire its 20.87% stake in Car at HK$3.10/share. Jinggangshan BAIC also signed an offer letter with Amber Gem to acquire an 8.04% of shares out (@ HK$3.10/share) - to collectively give Jinggangshan BAIC 28.91%. Amber Gem would be left holding 6.7% of shares out. 

Car announced that it has been informed that "UCAR has received a notice from the China Securities Regulatory Commission (and that the) CSRC has initiated an investigation on UCAR in connection with suspected violations of information disclosure laws and regulations by UCAR". 



24-Jul-20

Profit warning. Car expects a net loss n the 1H20 vs. net profit of RMB279mn in 1H19. Looking at impairment charges with respect to is vehicle fleet of RMB2.5bn-3RMBbn. 



26-Jul-20

Amber Gem and Jinggangshan BAIC entered into a SPA such that BAIC acquires 170.72mn shares (8.05% of shares out) from Amber at $3.10/share.



3-Aug-20

Xiaogeng Li, an NED, resigned, ceasing her membership of the audit and compliance committee



3-Aug-20

The CSRC completed its (two-week) investigation and dished out some fines to UCAR and certain directors/senior management. 



20-Aug-20

A Reuters article suggests MBK is kicking tyres



10-Nov-20

Car Inc (699 HK) announced the S&amp;P with UCAR, BAIC is terminated. MBK Partners to acquire ~20.86% of shares in Car for HK$1.77bn ($4/share).








Source: HKEx filings



The NEW News


MBK has now tabled a pre-conditional general cash Offer of $4.00/share, a 17.99% premium to last close. There are no outstanding dividends and no dividends are expected to be declared or paid during the Offer.
Pre-conditions include anti-trust approval, no default on any bonds or debt; and the Offer not triggering a "change of control" in the bond/debt instruments. Interestingly, all pre-conditions can be waived by MBK. 
The Offer is conditional on MBK holding 50% of the voting rights in Car. Irrevocables (namely Legend Holdings) holding 26.55% have agreed to tender into the Offer. Together with the 20.86% from the SPA with UCAR, MBK will hold a minimum of 47.41% of shares out. Clearing the 50% looks like a lock.
MBK intends to maintain Car's listing.


More below the fold.


Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

MSCI Emerging Markets Index / Technical Analysis

<p style="text-align: justify;">Emerging markets (EEM-US) are breaking above major $46.30 resistance to hit highs not seen since June 2018. Additionally, RS on EEM-US is near 1-year highs -- a positive risk-on signal. Stocks doing business in <strong>China, India, Taiwan</strong>, and <strong>South Korea </strong>continue to be a major focus when it comes to individual stock recommendations.</p>

Emerging markets (EEM-US) are breaking above major $46.30 resistance to hit highs not seen since June 2018. Additionally, RS on EEM-US is near 1-year highs -- a positive risk-on signal. Stocks doing business in China, India, Taiwan, and South Korea continue to be a major focus when it comes to individual stock recommendations.

Equity Analyst, LightStream Research

Aqila Ali

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Equity Capital Markets

<p>In <a href="https://www.smartkarma.com/insights/xpeng-following-lixiang-s-ipo-plan" target="_blank" data-smartkarma-citation="insights:41747" rel="noopener">Xpeng: Following Lixiang’s IPO Plan</a>, we covered Xpeng’’s background, its business model, growth prospects, comparing it with peers Tesla, Nio and Li. In <a href="https://www.smartkarma.com/insights/xpeng-ipo-financial-analysis-more-products-than-li-but-generates-a-gross-loss-and-wider-net-loss" target="_blank" data-smartkarma-citation="insights:42182" rel="noopener">Xpeng IPO (Financial Analysis): More Products Than Li, But Generates A Gross Loss and Wider Net Loss</a>, we looked at the company’s financial performance in comparison to its peers. We concluded that Xpeng’s business model and the product development plan is better than Lixiang’s. However, we noted that relatively low delivery growth rates and consumer concerns regarding Xpeng’s products are potential red flags and that the company’s financial performance is not better than peers.</p><p>According to the latest filings, Xpeng aims to raise around $972m or more, offering 85 million American depositary shares (one ADS represents two ordinary shares), at an IPO price range of $11-$13 per ADS.  This insight covers Xpeng’s valuation based on two possible scenarios, comparing it with closest peers. Our key points:</p><ul>
<li>The company looks expensive on a moderate growth case, thus, we did not look at a possible low growth scenario.</li>
<li>High growth case, which assumes revenue  CAGR of 133% through FY2019-2021 is challenging but not entirely impossible for Xpeng to achieve. In this scenario, IPO price range implies  FY2EV/sales of 3.3-3.9x, below Tesla’s (6.8x) but above Nio’s (1.6x). Thus, Xpeng could see a potential upside if it can extract a multiple similar to Tesla’s.</li>
<li>The IPO price range implies 9.3-10.8x FY2 EV/sales under our moderate growth assumptions, where the company is expected to enjoy 75% revenue CAGR through FY2019-2021. Under our base-case assumptions, the company looks overvalued at a c.47% premium to Tesla’s FY2 EV/Sales and c.528% premium to Nio’s.</li>
<li>That said, Xpeng shares could pop anyway due to the positive sentiment on EVs.</li>
<li>Overall, risks rewards are not attractive for a buy recommendation.</li>
</ul><div><div></div></div>

In Xpeng: Following Lixiang’s IPO Plan, we covered Xpeng’’s background, its business model, growth prospects, comparing it with peers Tesla, Nio and Li. In Xpeng IPO (Financial Analysis): More Products Than Li, But Generates A Gross Loss and Wider Net Loss, we looked at the company’s financial performance in comparison to its peers. We concluded that Xpeng’s business model and the product development plan is better than Lixiang’s. However, we noted that relatively low delivery growth rates and consumer concerns regarding Xpeng’s products are potential red flags and that the company’s financial performance is not better than peers.According to the latest filings, Xpeng aims to raise around $972m or more, offering 85 million American depositary shares (one ADS represents two ordinary shares), at an IPO price range of $11-$13 per ADS.  This insight covers Xpeng’s valuation based on two possible scenarios, comparing it with closest peers. Our key points:
The company looks expensive on a moderate growth case, thus, we did not look at a possible low growth scenario.
High growth case, which assumes revenue  CAGR of 133% through FY2019-2021 is challenging but not entirely impossible for Xpeng to achieve. In this scenario, IPO price range implies  FY2EV/sales of 3.3-3.9x, below Tesla’s (6.8x) but above Nio’s (1.6x). Thus, Xpeng could see a potential upside if it can extract a multiple similar to Tesla’s.
The IPO price range implies 9.3-10.8x FY2 EV/sales under our moderate growth assumptions, where the company is expected to enjoy 75% revenue CAGR through FY2019-2021. Under our base-case assumptions, the company looks overvalued at a c.47% premium to Tesla’s FY2 EV/Sales and c.528% premium to Nio’s.
That said, Xpeng shares could pop anyway due to the positive sentiment on EVs.
Overall, risks rewards are not attractive for a buy recommendation.


Xpeng IPO (Valuation): Positive EV Momentum But Priced High

China

SAIC Motor Corporation Ltd., through joint ventures, manufactures and markets automobiles and related parts and accessories.

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SAIC Motor (600104 CH)

Car Inc (699 HK): No, We Are Not Missing Anything

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David Blennerhassett

Car Inc (699 HK): Are We Missing Anything?

I believe this deal remains on track to complete, and well ahead of the pre-con long stop date. MBK also has an excellent completion rate on firm...

David Blennerhassett

Car Inc (699 HK): MBK's Firm Offer

This transaction is all wrapped up. This may trade tight, if not through terms now that a clean slate is put in motion, and $4.00/share is below...

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Emerging Markets Breaking Out

Emerging markets (EEM-US) are breaking above major $46.30 resistance to hit highs not seen since June 2018. Additionally, RS on EEM-US is near 1...

Vermilion Research

Xpeng IPO (Valuation): Positive EV Momentum But Priced High

In Xpeng: Following Lixiang’s IPO Plan, we covered Xpeng’’s background, its business model, growth prospects, comparing it with peers Tesla, Nio...

Aqila Ali

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