IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

ZTO Express Cayman  / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/zto-express" target="_blank" data-smartkarma-citation="entities:23628:1" rel="noopener">ZTO Express (ZTO US)</a> has launched a $1.6 billion secondary listing in Hong Kong. We previously <a href="https://www.smartkarma.com/insights/zto-express-secondary-listing-home-delivery" target="_blank" rel="noopener">outlined our views</a> on ZTO Express’ fundamentals and valuation. The H shares will be priced on 22 September (Tuesday) and are scheduled for listing on 29 September.  </p><div class="content-highlight"><p>In this note, we will look at ZTO Express’ potential HK-ADS premium/(discount). ZTO Express will price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that ZTO Express pricing its H-shares around a 3% discount to its ADSs will be reasonable.</p></div>

ZTO Express (ZTO US) has launched a $1.6 billion secondary listing in Hong Kong. We previously outlined our views on ZTO Express’ fundamentals and valuation. The H shares will be priced on 22 September (Tuesday) and are scheduled for listing on 29 September.  In this note, we will look at ZTO Express’ potential HK-ADS premium/(discount). ZTO Express will price its H-shares at a discount to its ADSs to entice investors to participate in the secondary listing. Overall, we think that ZTO Express pricing its H-shares around a 3% discount to its ADSs will be reasonable.

ZTO Express Secondary Listing: HK-ADS Premium/​(Discount) Views

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<div><p><a href="https://www.smartkarma.com/entities/baozun-inc" target="_blank" data-smartkarma-citation="entities:24184:1" rel="noopener">Baozun Inc. (BZUN US)</a> plans to raise around US$490m in its secondary listing in Hong Kong.</p></div><div>
<p>The company was said to have won approval for listing last week along with <a href="https://www.smartkarma.com/entities/zto-express" target="_blank" data-smartkarma-citation="entities:23628:1" rel="noopener">ZTO Express (ZTO US)</a> and <a href="https://www.smartkarma.com/entities/zai-lab-ltd" target="_blank" data-smartkarma-citation="entities:25877:1" rel="noopener">Zai Lab Ltd (ZLAB US)</a> however, it filed its PHIP only yesterday and launched its deal today.</p>
<p>In this insight, I'll talk about the deal dynamics and what to do with the ADR during the book build.</p>
<p></p>
</div><div><h2>Links to my previous notes on the topic on Secondary listings:</h2></div><ul>
<li><a href="https://www.smartkarma.com/insights/zai-lab-hk-secondary-listing-large-deal-to-digest-but-past-deals-have-done-well" target="_blank" rel="noopener">Zai Lab HK Secondary Listing - Large Deal to Digest but past Deals Have Done Well</a></li>
<li><a href="https://www.smartkarma.com/insights/zto-express-secondary-listing-fast-growth-but-it-hasn-t-been-flowing-down-to-earnings" target="_blank" rel="noopener">ZTO Express Secondary Listing - Fast Growth but It Hasn’t Been Flowing Down to Earnings</a></li>
<li><a href="https://www.smartkarma.com/insights/huazhu-hk-secondary-listing-early-look-needs-the-cash-more-than-most-secondary-candidates" target="_blank" rel="noopener">Huazhu HK Secondary Listing - Early Look - Needs the Cash More than Most Secondary Candidates</a></li>
</ul><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/huazhu-hk-secondary-listing-early-look-needs-the-cash-more-than-most-secondary-candidates" target="_blank" rel="noopener">Huazhu HK Secondary Listing - Early Look - Needs the Cash More than Most Secondary Candidates</a></li>
<li><a href="https://www.smartkarma.com/insights/yum-china-hk-ipo-trading-index-flows-to-the-rescue" target="_blank" rel="noopener">Yum China HK IPO Trading - Index Flows to the Rescue</a></li>
</ul></div><div><ul style="list-style-type: disc;">
<li>
<a href="https://www.smartkarma.com/insights/yum-china-hk-listing-relatively-bigger-should-offer-a-bigger-discount" target="_blank" rel="noopener">Yum China HK Listing - Relatively Bigger, Should Offer a Bigger Discount</a>.</li>
<li><a href="https://www.smartkarma.com/insights/yum-china-hk-listing-early-look-relatively-bigger-deal-should-have-a-relatively-bigger-impact" target="_blank" rel="noopener">Yum China HK Listing - Early Look - Relatively Bigger Deal Should Have a Relatively Bigger Impact</a></li>
</ul></div><div><ul style="list-style-type: disc;"><li><a href="https://www.smartkarma.com/insights/jd-netease-secondary-listings-what-to-do-with-the-adr-lessons-from-baba" target="_blank" rel="noopener">JD &amp; NetEase Secondary Listings - What to Do with the ADR? Lessons from Baba</a></li></ul></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/jd-netease-and-other-secondary-listing-index-ftse-msci-hsi-and-hscei-impact" target="_blank" rel="noopener">JD, NetEase and Other Secondary Listing - Index (FTSE, MSCI, HSI And HSCEI) Impact</a></li>
<li><a href="https://www.smartkarma.com/insights/jd-com-hk-listing-early-look-getting-the-ball-rolling" target="_blank" rel="noopener">JD.com HK Listing - Early Look - Getting the Ball Rolling</a></li>
</ul></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/jd-secondary-listing-early-to-file-but-late-to-launch-puts-it-in-a-peculiar-position" target="_blank" rel="noopener">JD Secondary Listing - Early to File but Late to Launch Puts It in a Peculiar Position</a></li>
<li><a href="https://www.smartkarma.com/insights/jd-secondary-listing-behaving-better-than-netease-so-far" target="_blank" rel="noopener">JD Secondary Listing - Behaving Better than NetEase, so Far</a></li>
</ul></div><div><ul style="list-style-type: disc;"><li><a href="https://www.smartkarma.com/insights/jd-secondary-trading-update-strong-demand-but-won-t-have-any-index-flows" target="_blank" rel="noopener">JD Secondary Trading Update - Strong Demand but Won’t Have Any Index Flows</a></li></ul></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/netease-hk-listing-early-look-follow-the-leader" target="_blank" rel="noopener">NetEase HK Listing - Early Look - Follow the Leader</a></li>
<li><a href="https://www.smartkarma.com/insights/netease-secondary-listing-relatively-bigger-than-baba-should-offer-relatively-bigger-discount" target="_blank" rel="noopener">NetEase Secondary Listing - Relatively Bigger than Baba, Should Offer Relatively Bigger Discount</a></li>
<li><a href="https://www.smartkarma.com/insights/netease-secondary-listing-doing-a-beigene-rather-than-a-baba-risk-reward-shifting" target="_blank" rel="noopener">NetEase Secondary Listing - Doing a BeiGene Rather than a Baba, Risk Reward Shifting</a></li>
</ul></div><div><ul style="list-style-type: disc;"><li><a href="https://www.smartkarma.com/insights/netease-secondary-trading-update-index-flows-to-provide-near-term-support" target="_blank" rel="noopener">NetEase Secondary Trading Update - Index Flows to Provide near Term Support</a></li></ul></div><div><ul style="list-style-type: disc;"><li><a href="https://www.smartkarma.com/insights/alibaba-ipo-secondary-listing-the-real-ipo-only-begins-on-the-11th-day-post-listing" target="_blank" rel="noopener">Alibaba IPO/​Secondary Listing - The Real IPO Only Begins on the 11th Day Post Listing</a></li></ul></div><div><ul style="list-style-type: disc;">
<li dir="ltr"><p><a href="https://www.smartkarma.com/insights/alibaba-ipo-secondary-listing-proposed-stock-connect-changes-might-throw-a-spanner-in-the-works" target="_blank" rel="noopener">Alibaba IPO/​Secondary Listing - Proposed Stock Connect Changes Might Throw a Spanner in the Works</a></p></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/alibaba-ipo-secondary-listing-what-to-do-with-the-us-adr-while-waiting-for-the-hk-listing" target="_blank" rel="noopener">Alibaba IPO/​​Secondary Listing - What to Do with the US ADR While Waiting for the HK Listing?</a></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/alibaba-ipo-secondary-listing-not-good-for-the-adr-should-have-put-a-price-range-to-it" target="_blank" rel="noopener">Alibaba IPO/​​​Secondary Listing -  Not Good for the ADR, Should Have Put a Price Range to It</a></li>
<li dir="ltr"><a href="https://www.smartkarma.com/insights/alibaba-ipo-secondary-neither-here-not-there-index-announcements-comparison-to-other-deals" target="_blank" rel="noopener">Alibaba IPO/​​​​Secondary -  Neither Here Nor There - Index Announcements, Comparison to Other Deals</a></li>
</ul></div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/alibaba-ipo-secondary-listing-trading-time-to-converge-that-s-it" target="_blank" rel="noopener">Alibaba IPO/​​​​​Secondary Listing Trading - Time to Converge, That’s It</a></li>
<li><a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-deep-dive-yin-and-yang" target="_blank" rel="noopener">China ADRs Secondary Listing Deep-Dive: Yin and Yang</a></li>
<li><a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-holding-foreign-companies-accountable-act-i-m-coming-home" target="_blank" rel="noopener">China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home</a></li>
<li><a href="https://www.smartkarma.com/insights/china-adrs-secondary-listing-covid-19-has-increased-the-tension-but-narrowed-the-short-list" target="_blank" rel="noopener">China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List</a></li>
</ul></div>

Baozun Inc. (BZUN US) plans to raise around US$490m in its secondary listing in Hong Kong.
The company was said to have won approval for listing last week along with ZTO Express (ZTO US) and Zai Lab Ltd (ZLAB US) however, it filed its PHIP only yesterday and launched its deal today.
In this insight, I'll talk about the deal dynamics and what to do with the ADR during the book build.

Links to my previous notes on the topic on Secondary listings:
Zai Lab HK Secondary Listing - Large Deal to Digest but past Deals Have Done Well
ZTO Express Secondary Listing - Fast Growth but It Hasn’t Been Flowing Down to Earnings
Huazhu HK Secondary Listing - Early Look - Needs the Cash More than Most Secondary Candidates

Huazhu HK Secondary Listing - Early Look - Needs the Cash More than Most Secondary Candidates
Yum China HK IPO Trading - Index Flows to the Rescue


Yum China HK Listing - Relatively Bigger, Should Offer a Bigger Discount.
Yum China HK Listing - Early Look - Relatively Bigger Deal Should Have a Relatively Bigger Impact
JD &amp; NetEase Secondary Listings - What to Do with the ADR? Lessons from Baba
JD, NetEase and Other Secondary Listing - Index (FTSE, MSCI, HSI And HSCEI) Impact
JD.com HK Listing - Early Look - Getting the Ball Rolling

JD Secondary Listing - Early to File but Late to Launch Puts It in a Peculiar Position
JD Secondary Listing - Behaving Better than NetEase, so Far
JD Secondary Trading Update - Strong Demand but Won’t Have Any Index Flows
NetEase HK Listing - Early Look - Follow the Leader
NetEase Secondary Listing - Relatively Bigger than Baba, Should Offer Relatively Bigger Discount
NetEase Secondary Listing - Doing a BeiGene Rather than a Baba, Risk Reward Shifting
NetEase Secondary Trading Update - Index Flows to Provide near Term SupportAlibaba IPO/​Secondary Listing - The Real IPO Only Begins on the 11th Day Post Listing
Alibaba IPO/​Secondary Listing - Proposed Stock Connect Changes Might Throw a Spanner in the Works
Alibaba IPO/​​Secondary Listing - What to Do with the US ADR While Waiting for the HK Listing?
Alibaba IPO/​​​Secondary Listing -  Not Good for the ADR, Should Have Put a Price Range to It
Alibaba IPO/​​​​Secondary -  Neither Here Nor There - Index Announcements, Comparison to Other Deals

Alibaba IPO/​​​​​Secondary Listing Trading - Time to Converge, That’s It
China ADRs Secondary Listing Deep-Dive: Yin and Yang
China ADRs Secondary Listing - Holding Foreign Companies Accountable Act - I’m Coming Home
China ADRs Secondary Listing: COVID-19 Has Increased the Tension but Narrowed the Short List


Baozun HK Secondary Listing - Large Dilution Needs a Large Correction

Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

Haidilao International Holding / Index Rebalance

<p>The Hang Seng Indexes Company Limited (HSIL) should announce the results of the 2020 Q3 review of the Hang Seng Family of Indexes on 6 November. The constituent changes will be effective after the close of trading on 4 December.</p><p>With only 3 changes permitted in the September <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a> review post the methodology change that included WVR securities and Secondary Listings in the eligible Universe, there could be as many as 9 changes in the December review.</p><p>We see a high probability of <a href="https://www.smartkarma.com/entities/china-overseas-land-invest" target="_blank" data-smartkarma-citation="entities:419:1" rel="noopener">China Overseas Land &amp; Investment Ltd (688 HK)</a>, <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (HK) (9618 HK)</a>, <a href="https://www.smartkarma.com/entities/alibaba-health-information-technology-ltd" target="_blank" data-smartkarma-citation="entities:453:1" rel="noopener">Alibaba Health Information Technology (241 HK)</a>, <a href="https://www.smartkarma.com/entities/haidilao-international-holding-ltd" target="_blank" data-smartkarma-citation="entities:27044:1" rel="noopener">Haidilao (6862 HK)</a>, <a href="https://www.smartkarma.com/entities/china-feihe-ltd" target="_blank" data-smartkarma-citation="entities:24413:1" rel="noopener">China Feihe (6186 HK)</a>, <a href="https://www.smartkarma.com/entities/semiconductor-manufacturing" target="_blank" data-smartkarma-citation="entities:14231:1" rel="noopener">Semiconductor Manufacturing (981 HK)</a> and <a href="https://www.smartkarma.com/entities/evergrande-real-estate-group-limited" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> being included in the <a href="https://www.smartkarma.com/entities/hang-seng-china-enterprises-index" target="_blank" data-smartkarma-citation="entities:22900:1" rel="noopener">Hang Seng China Enterprises Index (HSCEI INDEX)</a>, and of <a href="https://www.smartkarma.com/entities/china-taiping-insurance-hldgs-co-ltd" target="_blank" data-smartkarma-citation="entities:489:1" rel="noopener">China Taiping Insurance Hldgs (966 HK)</a>, <a href="https://www.smartkarma.com/entities/china-telecom-corp-ltd-h" target="_blank" data-smartkarma-citation="entities:1015:1" rel="noopener">China Telecom Corp Ltd (H) (728 HK)</a>, <a href="https://www.smartkarma.com/entities/china-minsheng-banking-h" target="_blank" data-smartkarma-citation="entities:8983:1" rel="noopener">China Minsheng Banking H (1988 HK)</a>, <a href="https://www.smartkarma.com/entities/china-vanke-co-ltd-h" target="_blank" data-smartkarma-citation="entities:18368:1" rel="noopener">China Vanke Co Ltd (H) (2202 HK)</a>, <a href="https://www.smartkarma.com/entities/fosun-international-ltd" target="_blank" data-smartkarma-citation="entities:433:1" rel="noopener">Fosun International (656 HK)</a>, <a href="https://www.smartkarma.com/entities/china-citic-bank-corp-ltd-ea6c25fd-4b20-45cb-a4a6-df7a60136f03" target="_blank" data-smartkarma-citation="entities:653:1" rel="noopener">China Citic Bank Corp Ltd H (998 HK)</a> and <a href="https://www.smartkarma.com/entities/china-shenhua-energy-co-h" target="_blank" data-smartkarma-citation="entities:382:1" rel="noopener">China Shenhua Energy Co H (1088 HK)</a> being deleted from the index.</p><p>Depending on price movements between now and 30 September, <a href="https://www.smartkarma.com/entities/netease" target="_blank" data-smartkarma-citation="entities:29030:1" rel="noopener">NetEase (9999 HK)</a> and <a href="https://www.smartkarma.com/entities/hansoh-pharmaceutical-group" target="_blank" data-smartkarma-citation="entities:23675:1" rel="noopener">Hansoh Pharmaceutical (3692 HK)</a> could be included in the index, which would see <a href="https://www.smartkarma.com/entities/want-want-china-holdings-ltd" target="_blank" data-smartkarma-citation="entities:355:1" rel="noopener">Want Want (151 HK)</a> and <a href="https://www.smartkarma.com/entities/picc-property-casualty-h" target="_blank" data-smartkarma-citation="entities:350:1" rel="noopener">PICC Property &amp; Casualty H (2328 HK)</a> being deleted.</p><p>Estimated one-way turnover for the rebalance is 9.63% which is lower than the turnover at the September rebalance, but significant nonetheless.</p><p>The expected review changes will alter the sectoral composition of the index with an increase in the weight of the Consumer Discretionary, Information Technology and Health Care sectors at the expense of Financials and Energy. There will also be an impact on the HSCEI 2021 dividend futures, a large part of which has already been discounted by the market.</p>

The Hang Seng Indexes Company Limited (HSIL) should announce the results of the 2020 Q3 review of the Hang Seng Family of Indexes on 6 November. The constituent changes will be effective after the close of trading on 4 December.With only 3 changes permitted in the September Hang Seng China Enterprises Index (HSCEI INDEX) review post the methodology change that included WVR securities and Secondary Listings in the eligible Universe, there could be as many as 9 changes in the December review.We see a high probability of China Overseas Land &amp; Investment Ltd (688 HK), JD.com (HK) (9618 HK), Alibaba Health Information Technology (241 HK), Haidilao (6862 HK), China Feihe (6186 HK), Semiconductor Manufacturing (981 HK) and Evergrande Real Estate Group (3333 HK) being included in the Hang Seng China Enterprises Index (HSCEI INDEX), and of China Taiping Insurance Hldgs (966 HK), China Telecom Corp Ltd (H) (728 HK), China Minsheng Banking H (1988 HK), China Vanke Co Ltd (H) (2202 HK), Fosun International (656 HK), China Citic Bank Corp Ltd H (998 HK) and China Shenhua Energy Co H (1088 HK) being deleted from the index.Depending on price movements between now and 30 September, NetEase (9999 HK) and Hansoh Pharmaceutical (3692 HK) could be included in the index, which would see Want Want (151 HK) and PICC Property &amp; Casualty H (2328 HK) being deleted.Estimated one-way turnover for the rebalance is 9.63% which is lower than the turnover at the September rebalance, but significant nonetheless.The expected review changes will alter the sectoral composition of the index with an increase in the weight of the Consumer Discretionary, Information Technology and Health Care sectors at the expense of Financials and Energy. There will also be an impact on the HSCEI 2021 dividend futures, a large part of which has already been discounted by the market.

HSCEI Index Rebalance Preview - December 2020: HUGE Number of Changes and Turnover Expected

Asia Pac IPO & Placement Research, China biotech, Aequitas Research

Ke Yan, CFA, FRM

Asia Pac IPO & Placement Research, China biotech

<p>Ant Group plans to raise up to USD 30bn via a dual listing in both Hong Kong Exchange and Shanghai STAR board. </p><p>We have provided our early thoughts of Ant Group as early as 2018.  Ant Group the largest third-party payment player in China, it is also the No.1 independent player in each of the three non-payment segments by key operating metrics. Given that Ant has superior growth and margin vs global fintech peer, we would put it at a premium to global fintech players.</p><p>PBOC and State Council announced official rules on financial holding companies which will put Ant Group under marginally tighter regulations. We believe the short term impact on the company is minimal as the cost for setting up the financial holding company is manageable based on Ant's balance sheet. However, there are on-going uncertainties of whether the regulator will continue to place more restrictions on Ant Group which remains to be seen.</p><h3>Our previous coverage on Ant Group</h3><ul>
<li dir="ltr"><p>Ant Financial IPO Early Thought: Understand the Fintech Empire, Growth and Risk Factors</p></li>
<li dir="ltr"><p>Ant Financial (蚂蚁金服) IPO Early Thought: What’s New About the Listing News</p></li>
<li dir="ltr"><p>Ant Group (蚂蚁集团) IPO First-take: No. 1 fintech from all angles</p></li>
<li dir="ltr"><p>Ant Group (蚂蚁集团) IPO: Numbers suggest it’s more tech than financials</p></li>
<li dir="ltr"><p>Ant Group (蚂蚁集团) Pre-IPO: Dual listing makes early index inclusion tricky</p></li>
<li dir="ltr"><p>Ant Group (蚂蚁集团) Pre-IPO: Things to clarify/questions to ask</p></li>
<li dir="ltr"><p>Ant Group (蚂蚁集团) Running Neck and Neck with Tencent in Direct Financial Services</p></li>
<li dir="ltr"><p>AliPay’s Advantage over WeChat Pay in Physical Stores</p></li>
</ul>

Ant Group plans to raise up to USD 30bn via a dual listing in both Hong Kong Exchange and Shanghai STAR board. We have provided our early thoughts of Ant Group as early as 2018.  Ant Group the largest third-party payment player in China, it is also the No.1 independent player in each of the three non-payment segments by key operating metrics. Given that Ant has superior growth and margin vs global fintech peer, we would put it at a premium to global fintech players.PBOC and State Council announced official rules on financial holding companies which will put Ant Group under marginally tighter regulations. We believe the short term impact on the company is minimal as the cost for setting up the financial holding company is manageable based on Ant's balance sheet. However, there are on-going uncertainties of whether the regulator will continue to place more restrictions on Ant Group which remains to be seen.Our previous coverage on Ant Group
Ant Financial IPO Early Thought: Understand the Fintech Empire, Growth and Risk Factors
Ant Financial (蚂蚁金服) IPO Early Thought: What’s New About the Listing News
Ant Group (蚂蚁集团) IPO First-take: No. 1 fintech from all angles
Ant Group (蚂蚁集团) IPO: Numbers suggest it’s more tech than financials
Ant Group (蚂蚁集团) Pre-IPO: Dual listing makes early index inclusion tricky
Ant Group (蚂蚁集团) Pre-IPO: Things to clarify/questions to ask
Ant Group (蚂蚁集团) Running Neck and Neck with Tencent in Direct Financial Services
AliPay’s Advantage over WeChat Pay in Physical Stores


Ant Group (蚂蚁集团) Pre-IPO: Impact Assessment of the New Rule for Financial Holding Companies

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>On 20 May 2020, the US Senate passed the <a href="https://www.congress.gov/bill/116th-congress/senate-bill/945/text#:~:text=To%20amend%20the%20Sarbanes%2DOxley,Act%2C%20and%20for%20other%20purposes.&amp;text=SEC." target="_blank" rel="noopener"> S. 945 the Holding Foreign Companies Accountable Act</a>, an act which could force the delisting of US-listed Chinese companies should they be in noncompliance with US accounting standards. Shortly after, the U.S. House of Representatives introduced its version of the Bill which has yet to pass.</p>
<blockquote>
<p>This bill requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the Public Company Accounting Oversight Board (PCAOB) is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the board. Furthermore, if the board is unable to inspect the issuer's public accounting firm for <strong>three consecutive years</strong>, the issuer's securities are banned from trade on a national exchange or through other methods. </p>
</blockquote>
<p>This creates a conundrum, if not an impossibility, as Chinese regulators forbid foreign regulatory bodies, such as the PCAOB, from inspecting accounting firms based in China. </p>
<p>The Act, which is still to be ratified by the House, reconciled with the Senate bill, and approved by President Trump, provides even greater impetus for “take private” transactions (often expecting to re-list elsewhere at higher valuations) and secondary listings in markets outside of the United States, such as Hong Kong and Shanghai.</p>
<p>Hong Kong is laying out the welcome mat. First the HKEx amended its listing rules in April 2018 to allow companies with multiple classes of shares with individual-controlled voting rights to sell shares in Hong Kong. This new listing regime enabled secondary listings for the likes of <a href="https://www.smartkarma.com/entities/jd-com-inc-adr" target="_blank" data-smartkarma-citation="entities:446:1" rel="noopener">JD.com Inc (ADR) (JD US)</a> / <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com (HK) (9618 HK)</a> and <a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a> / <a href="https://www.smartkarma.com/entities/alibaba-group" target="_blank" data-smartkarma-citation="entities:28434:1" rel="noopener">Alibaba Group (9988 HK)</a>. Further changes to the Listing Rules are anticipated to accommodate companies with corporate shareholders with weighted voting rights - such as <a href="https://www.smartkarma.com/entities/tencent-music-entertainment" target="_blank" data-smartkarma-citation="entities:27255:1" rel="noopener">Tencent Music (TME US)</a>.</p>
<p>But on occasion, the consideration paid under these take-private "homecoming" transactions are not always considered fair by the investment community.</p>
<p>The recently completed <a href="https://www.smartkarma.com/entities/58-com-inc-adr" target="_blank" data-smartkarma-citation="entities:2563:1" rel="noopener">58.Com Inc Adr (WUBA US)</a> (<em><a href="https://skr.ma/a5HCn" target="_blank" rel="noopener">58.com: Foregone Conclusion Amidst Proxy Advisor Pushback</a></em>) faced considerable proxy advisor backlash. Similarly, <a href="https://www.smartkarma.com/entities/sina-corp-china" target="_blank" data-smartkarma-citation="entities:22691:1" rel="noopener">Sina Corp (Class A) (SINA US)</a>'s preliminary non-binding “going private” <a href="http://ir.sina.com/index.php/static-files/69e95aee-2729-457f-be56-73628090b8ea" target="_blank" rel="noopener">proposal</a> from its chairman/CEO,  is widely viewed as a low-balled, opportunistic Offer (<em><a href="https://skr.ma/3BBxi" target="_blank" rel="noopener">Sina Corp: Management Buyout Offer</a></em>). </p>
<p>For Cayman Islands incorporated companies, such as SINA and 58.com, Section 238 of the <a href="https://www.cima.ky/upimages/commonfiles/CompaniesLaw2020Revision_1579811065.pdf" target="_blank" rel="noopener">Companies Law (2020 Revision)</a><em> may</em> provide scope for dissenting shareholders to a merger/take-private transaction to have the Grand Court determine the fair value of their shares.</p>
<p>That right to dissent also hinges off how these take-private transactions are undertaken,</p>
<p>As of today, four cases have resulted in final judgments handed down by the Grand Court of Cayman - Integra Group, <a href="https://www.smartkarma.com/entities/shanda-games-ltd-spons-adr" target="_blank" data-smartkarma-citation="entities:8686:1" rel="noopener">Shanda Games Ltd Spons Adr (GAME US)</a>, <a href="https://www.smartkarma.com/entities/qunar-cayman-islands-ltd" target="_blank" data-smartkarma-citation="entities:7357:1" rel="noopener">Qunar Cayman Islands (QUNR US)</a>, and most recently, <a href="https://www.smartkarma.com/entities/nord-anglia-education-inc" target="_blank" data-smartkarma-citation="entities:24132:1" rel="noopener">Nord Anglia Education (NORD US)</a>.</p>
<hr>
<div class="content-highlight">
<h2>What's Original?</h2>
<p>This insight explores the mechanics of Section 238 of the Cayman Companies Law, the case history of four appraisal rights judgments, and what dissenting shareholders may expect when taking their merger objections to Court.</p>
</div>

On 20 May 2020, the US Senate passed the  S. 945 the Holding Foreign Companies Accountable Act, an act which could force the delisting of US-listed Chinese companies should they be in noncompliance with US accounting standards. Shortly after, the U.S. House of Representatives introduced its version of the Bill which has yet to pass.

This bill requires certain issuers of securities to establish that they are not owned or controlled by a foreign government. Specifically, an issuer must make this certification if the Public Company Accounting Oversight Board (PCAOB) is unable to audit specified reports because the issuer has retained a foreign public accounting firm not subject to inspection by the board. Furthermore, if the board is unable to inspect the issuer's public accounting firm for three consecutive years, the issuer's securities are banned from trade on a national exchange or through other methods. 

This creates a conundrum, if not an impossibility, as Chinese regulators forbid foreign regulatory bodies, such as the PCAOB, from inspecting accounting firms based in China. 
The Act, which is still to be ratified by the House, reconciled with the Senate bill, and approved by President Trump, provides even greater impetus for “take private” transactions (often expecting to re-list elsewhere at higher valuations) and secondary listings in markets outside of the United States, such as Hong Kong and Shanghai.
Hong Kong is laying out the welcome mat. First the HKEx amended its listing rules in April 2018 to allow companies with multiple classes of shares with individual-controlled voting rights to sell shares in Hong Kong. This new listing regime enabled secondary listings for the likes of JD.com Inc (ADR) (JD US) / JD.com (HK) (9618 HK) and Alibaba Group (BABA US) / Alibaba Group (9988 HK). Further changes to the Listing Rules are anticipated to accommodate companies with corporate shareholders with weighted voting rights - such as Tencent Music (TME US).
But on occasion, the consideration paid under these take-private "homecoming" transactions are not always considered fair by the investment community.
The recently completed 58.Com Inc Adr (WUBA US) (58.com: Foregone Conclusion Amidst Proxy Advisor Pushback) faced considerable proxy advisor backlash. Similarly, Sina Corp (Class A) (SINA US)'s preliminary non-binding “going private” proposal from its chairman/CEO,  is widely viewed as a low-balled, opportunistic Offer (Sina Corp: Management Buyout Offer). 
For Cayman Islands incorporated companies, such as SINA and 58.com, Section 238 of the Companies Law (2020 Revision) may provide scope for dissenting shareholders to a merger/take-private transaction to have the Grand Court determine the fair value of their shares.
That right to dissent also hinges off how these take-private transactions are undertaken,
As of today, four cases have resulted in final judgments handed down by the Grand Court of Cayman - Integra Group, Shanda Games Ltd Spons Adr (GAME US), Qunar Cayman Islands (QUNR US), and most recently, Nord Anglia Education (NORD US).


What's Original?
This insight explores the mechanics of Section 238 of the Cayman Companies Law, the case history of four appraisal rights judgments, and what dissenting shareholders may expect when taking their merger objections to Court.


Homecoming For Chinese Companies: Appraisal Rights & Fair Value

China

Alibaba Group Holding Limited provides online sales services. The Company provides internet infrastructure, electronic commerce, online financial, and internet content services through its subsidiaries. Alibaba Group Holding offers its products and services worldwide.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Alibaba (BABA US)

ZTO Express Secondary Listing: HK-ADS Premium/(Discount) Views

ZTO Express (ZTO US) has launched a $1.6 billion secondary listing in Hong Kong. We previously outlined our views on ZTO Express’ fundamentals and...

Arun George

Baozun HK Secondary Listing - Large Dilution Needs a Large Correction

Zai Lab Ltd (ZLAB US) plans to raise around US$1bn in its secondary listing in Hong Kong. We have covered the company's listing and some of its...

Sumeet Singh

HSCEI Index Rebalance Preview - December 2020: HUGE Number of Changes and Turnover Expected

The Hang Seng Indexes Company Limited (HSIL) will announce the results of the 2020 Q2 review of the Hang Seng Family of Indexes in mid August. The...

Brian Freitas

Ant Group (蚂蚁集团) Pre-IPO: Impact Assessment of the New Rule for Financial Holding Companies

Ant Group plans to raise up to USD 30bn via a dual listing in both Hong Kong Exchange and Shanghai STAR board. We have provided our early thoughts...

Ke Yan, CFA, FRM

Homecoming For Chinese Companies: Appraisal Rights & Fair Value

On 20 May 2020, the US Senate passed the S. 945 the Holding Foreign Companies Accountable Act, an act which could force the delisting of US-listed...

David Blennerhassett

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

ZTO Express Secondary Listing: HK-ADS Premium/​(Discount) Views

ZTO Express (ZTO US) has launched a $1.6 billion secondary listing in Hong Kong. We previously outlined our views on ZTO Express’ fundamentals and...

Arun George

Baozun HK Secondary Listing - Large Dilution Needs a Large Correction

Zai Lab Ltd (ZLAB US) plans to raise around US$1bn in its secondary listing in Hong Kong. We have covered the company's listing and some of its...

Sumeet Singh

HSCEI Index Rebalance Preview - December 2020: HUGE Number of Changes and Turnover Expected

The Hang Seng Indexes Company Limited (HSIL) will announce the results of the 2020 Q2 review of the Hang Seng Family of Indexes in mid August. The...

Brian Freitas

Ant Group (蚂蚁集团) Pre-IPO: Impact Assessment of the New Rule for Financial Holding Companies

Ant Group plans to raise up to USD 30bn via a dual listing in both Hong Kong Exchange and Shanghai STAR board. We have provided our early thoughts...

Ke Yan, CFA, FRM

Homecoming For Chinese Companies: Appraisal Rights & Fair Value

On 20 May 2020, the US Senate passed the S. 945 the Holding Foreign Companies Accountable Act, an act which could force the delisting of US-listed...

David Blennerhassett

ZTO Express Secondary Listing: HK-ADS Premium/(Discount) Views