Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Sichuan Languang Justbon Services / Event-Driven

Sichuan Languang Justbon Services (2606 HK)

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<p>Back on the 25 February, property management service provider <a href="https://www.smartkarma.com/entities/sichuan-languang-justbon-service-group-co-ltd-h" target="_blank" data-smartkarma-citation="entities:28337:1" rel="noopener">Sichuan Languang Justbon Service Group (2606 HK)</a> ("SLJS") <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0225/2021022500961.pdf" target="_blank" rel="noopener">announced</a> its major shareholder had entered into a MOU with <a href="https://www.smartkarma.com/entities/country-garden-services-holdings-company-limited" target="_blank" data-smartkarma-citation="entities:27343:1" rel="noopener">Country Garden Services Holdings (6098 HK)</a> (CGS) to sell 115,090,200 H-shares or a 64.62% stake. The seller is Languang Hejun, a wholly-owned entity of <a href="https://www.smartkarma.com/entities/sichuan-languang-development-co-ltd" target="_blank" data-smartkarma-citation="entities:7403:1" rel="noopener">Sichuan Languang Development (600466 CH)</a>. Terms under the MOU were RMB42.1105/share. No HK$-equivalent figure was quoted, but at the prevailing exchange rate, this was roughly ~HK$50.61/share, or a ~30% premium to last close.</p>
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<p>On the 11 March, SLJS <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0311/2021031101126.pdf" target="_blank" rel="noopener">announced</a> some subtle changes to the MOU, such that shares to be acquired include 115,090,200 H shares AND 750,000 domestic shares or 65.04% of shares out. The price per H shares was also revised up to RMB42.8546/share.</p>
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<h3>The New News</h3>
<p>Late last night SLJS <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0322/2021032201066.pdf" target="_blank" rel="noopener">announced</a> a possible unconditional mandatory general Offer (MGO) from CGS for the H shares (at HK$51.0571/share) and domestic shares (at RMB42.8547/share).</p>
<p>CGS has also proposed a voluntary delisting, and if the delisting resolution is approved by independent H-shareholders and the listing acceptance condition (yep, one with an infamous 90% handle) is satisfied, H-shareholders will receive HK$54.30/share and domestic shareholders RMB45.5768/share.</p>
<p>The MGO appears a lock, so you have an effective floor of HK$51.0571. The question, therefore, is: do you chase the delisting bump?</p>
<p>More below the fold.</p>


Back on the 25 February, property management service provider Sichuan Languang Justbon Service Group (2606 HK) ("SLJS") announced its major shareholder had entered into a MOU with Country Garden Services Holdings (6098 HK) (CGS) to sell 115,090,200 H-shares or a 64.62% stake. The seller is Languang Hejun, a wholly-owned entity of Sichuan Languang Development (600466 CH). Terms under the MOU were RMB42.1105/share. No HK$-equivalent figure was quoted, but at the prevailing exchange rate, this was roughly ~HK$50.61/share, or a ~30% premium to last close.


On the 11 March, SLJS announced some subtle changes to the MOU, such that shares to be acquired include 115,090,200 H shares AND 750,000 domestic shares or 65.04% of shares out. The price per H shares was also revised up to RMB42.8546/share.

The New News
Late last night SLJS announced a possible unconditional mandatory general Offer (MGO) from CGS for the H shares (at HK$51.0571/share) and domestic shares (at RMB42.8547/share).
CGS has also proposed a voluntary delisting, and if the delisting resolution is approved by independent H-shareholders and the listing acceptance condition (yep, one with an infamous 90% handle) is satisfied, H-shareholders will receive HK$54.30/share and domestic shareholders RMB45.5768/share.
The MGO appears a lock, so you have an effective floor of HK$51.0571. The question, therefore, is: do you chase the delisting bump?
More below the fold.

Languang Justbon (2606 HK): Be Wary Of Chasing The Delisting Bump

Beijing Jingneng Clean Energy / Event-Driven

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<p>Back on the 17 November, <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> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1117/2020111701054.pdf" target="_blank" rel="noopener">announced</a> a voluntary conditional offer at HK$2.70/share, a 70.89% premium to the undisturbed price. </p>
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<p>As Jingneng is PRC-incorporated, which confers no rights to the Bidder/Owner to compulsorily acquire shares, or to residual shareholders to require a buyout, the two-step Offer comprises a Scheme-like vote (≥ 75% for, ≤10% against) and a 90% tendering condition.</p>
<p>The <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1231/2020123100105.pdf" target="_blank" rel="noopener">Composite Document</a> was despatched on the 31 December, and the EGM and H-share class meetings were held on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0219/2021021900730.pdf" target="_blank" rel="noopener">19 February</a>. All resolutions were passed. For the H-share class meeting, 97.9% of shares in attendance voted for the Offer.</p>
<p>The vote was not seen as a risk to the deal. Yet shares are off 4.3% as I type. The low turn-out at the meeting (38.21% of H-shareholders) is likely the cause of today's move. 61.79% of shareholders didn't bother to cast a vote - does that apathy to the Offer make it harder for the bankers to rustle up the necessary 90% to tender shares?</p>
<p>More below the fold.</p>
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Back on the 17 November, Beijing Jingneng Clean Energy (579 HK) announced a voluntary conditional offer at HK$2.70/share, a 70.89% premium to the undisturbed price. 


As Jingneng is PRC-incorporated, which confers no rights to the Bidder/Owner to compulsorily acquire shares, or to residual shareholders to require a buyout, the two-step Offer comprises a Scheme-like vote (≥ 75% for, ≤10% against) and a 90% tendering condition.
The Composite Document was despatched on the 31 December, and the EGM and H-share class meetings were held on the 19 February. All resolutions were passed. For the H-share class meeting, 97.9% of shares in attendance voted for the Offer.
The vote was not seen as a risk to the deal. Yet shares are off 4.3% as I type. The low turn-out at the meeting (38.21% of H-shareholders) is likely the cause of today's move. 61.79% of shareholders didn't bother to cast a vote - does that apathy to the Offer make it harder for the bankers to rustle up the necessary 90% to tender shares?
More below the fold.


Beijing Jingneng (579 HK): Low Voter Turn-Out Sees Spread Widening

<p>I've analysed 14 Merger by Absorption deals over the last 16 years. These unique privatisation Offers address the peculiarities of acquiring PRC-incorporated companies listed in Hong Kong.</p>
<p>There are no rights under the laws of the PRC and the Articles of Association of a PRC-incorporated company to compulsorily acquire its H Shares that are not tendered for acceptance pursuant to any H Share Offer.</p>
<p>The only mechanism available to <em>fully</em> privatise is via a Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). A tendering condition of 90% <em>may</em> also be present.</p>
<p>Of these 14 transactions, 10 have been successfully privatised, three remain ongoing, plus we have one ignominious failure for <a href="https://www.smartkarma.com/entities/harbin-electric-co-ltd-h" target="_blank" data-smartkarma-citation="entities:11116:1" rel="noopener">Harbin Electric Co Ltd H (1133 HK)</a>.</p>
<p>As always, more below the fold. </p>

I've analysed 14 Merger by Absorption deals over the last 16 years. These unique privatisation Offers address the peculiarities of acquiring PRC-incorporated companies listed in Hong Kong.
There are no rights under the laws of the PRC and the Articles of Association of a PRC-incorporated company to compulsorily acquire its H Shares that are not tendered for acceptance pursuant to any H Share Offer.
The only mechanism available to fully privatise is via a Merger by Absorption, incorporating a Scheme-like vote (≥ 75% for, ≤10% against). A tendering condition of 90% may also be present.
Of these 14 transactions, 10 have been successfully privatised, three remain ongoing, plus we have one ignominious failure for Harbin Electric Co Ltd H (1133 HK).
As always, more below the fold. 

Quiddity M&A : A Guide To Mergers By Absorption

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

China

AVIC International Holdings Limited is a Hong Kong-based investment holding company primarily engaged in the manufacture of electronic products, including liquid crystal displays (LCD) and printed circuit boards (PCB). The company also operates in retail and consumer products, trading and logistics, and real estate development. It is headquartered in Hong Kong.

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AVIC International (161 HK)

Languang Justbon (2606 HK): Be Wary Of Chasing The Delisting Bump

The MGO price is all but assured. The delisting offer price less so. But it does avail investors to a possible free option. This is a buy in the...

David Blennerhassett

Beijing Jingneng (579 HK): Low Voter Turn-Out Sees Spread Widening

Currently trading at a massive gross spread of 11%, the widest since the deal was announced. This is in effect, a binary deal. I still believe this...

David Blennerhassett

Quiddity M&A : A Guide To Mergers By Absorption

Beijing Jingneng's effective tender rate is the highest of all Merger by Absorptions. However, bankers have lifted the tendering rate efficiency in...

David Blennerhassett

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

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