Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Zhejiang Cangnan Instrument / Event-Driven

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<p>Back on the 5 February, gas meter manufacturer <a href="https://www.smartkarma.com/entities/zhejiang-cangnan-h" target="_blank" data-smartkarma-citation="entities:27212:1" rel="noopener">Zhejiang Cangnan Instrument (1743 HK)</a>  <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0205/2021020501022.pdf" target="_blank" rel="noopener">announced</a> the board of directors had resolved to repurchase all the issued H shares in the company at a minimum price of HK$22.00/share, a 15.18% premium to last close. The buyback was subject to approval from the local bureau of the State Administration of Foreign Exchange.</p>
<p>This was followed by a conditional cash offer on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0312/2021031201722.pdf" target="_blank" rel="noopener">12 March</a>. The Offer is a "Merger by Absorption", incorporating a Scheme-like vote (≥ 75% for, ≤10% against); and a tendering condition of 90%. All H-shares are subject to the buy-back and the effective tendering % is 90%.</p>
<p>The Offer Document has been despatched with the IFA <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0401/2021040100071.pdf" target="_blank" rel="noopener">concluding</a> the Offer price to be fair and reasonable.</p>
<p>The EGM will take place on the 17 May and the first closing date is the 31 May.</p>
<p>Trading at a gross/annualised spread of 7.3%/57.2%. But the thorny issue is the 90% tendering condition.</p>
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<p>More below the fold.</p>
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Back on the 5 February, gas meter manufacturer Zhejiang Cangnan Instrument (1743 HK)  announced the board of directors had resolved to repurchase all the issued H shares in the company at a minimum price of HK$22.00/share, a 15.18% premium to last close. The buyback was subject to approval from the local bureau of the State Administration of Foreign Exchange.
This was followed by a conditional cash offer on the 12 March. The Offer is a "Merger by Absorption", incorporating a Scheme-like vote (≥ 75% for, ≤10% against); and a tendering condition of 90%. All H-shares are subject to the buy-back and the effective tendering % is 90%.
The Offer Document has been despatched with the IFA concluding the Offer price to be fair and reasonable.
The EGM will take place on the 17 May and the first closing date is the 31 May.
Trading at a gross/annualised spread of 7.3%/57.2%. But the thorny issue is the 90% tendering condition.


More below the fold.


Zhejiang Cangnan (1743 HK): H-Share Buyback

Thematic (Sector/Industry)

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<p>This revised guide is part of a series of M&amp;A guides that our Quiddity* team (see our profiles or the footnote below) are publishing to aid investors in understanding the rules, parameters, possibilities, and processes when companies conduct mergers and acquisitions. </p>
<p>The initial guide - <em><a href="https://skr.ma/7bVPk" target="_blank" rel="noopener">Quiddity Hong Kong M&amp;A Guide 2019</a></em> - was published in April 2019. Since that time, there have been various new developments, many of which pertain to PRC-incorporated companies being taken private. This is an update.</p>
<p><em>These insights are designed to be used as a reference. They are not actionable.</em></p>
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This revised guide is part of a series of M&amp;A guides that our Quiddity* team (see our profiles or the footnote below) are publishing to aid investors in understanding the rules, parameters, possibilities, and processes when companies conduct mergers and acquisitions. 
The initial guide - Quiddity Hong Kong M&amp;A Guide 2019 - was published in April 2019. Since that time, there have been various new developments, many of which pertain to PRC-incorporated companies being taken private. This is an update.
These insights are designed to be used as a reference. They are not actionable.









Sichuan Languang Justbon Service Group / Event-Driven

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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

Travis Lundy

Equity Bottom-Up

<p>The mythical Shangri-la from the book <em>Lost Horizon</em> has never truly been found. Those who have done work on stduying the influences of James' Hilton's book suggest it might be Shambhala from the Tibetan Buddhist tradition, written in the Shambhala Sutra by the Sixth Panchen Lama of Tashihunpo Monastery in Tibet. The Shambhala ideal is one of a realm apart from 'the world' -  a place of timelessness and harmony between man and nature. The Sutra describes parts of Shambhala in Ngari, once part of the kingdom of Guge in western Tibet, and part of the Kunlun mountain range is within Ngari. Other suggestions include parts of Yunnan.</p><p>Getting to Shangri-la for Robert Conway, the protagonist in the book and movie, was somewhat unpleasant. I won't give away the whole book (or movie), but he had to crash a plane to be found, so that he could go on to "find" Shangri-la. </p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/301/original/Lost-Horizon-1937-A.png?1615732511" class="editor-image img-responsive" data-smartkarma-image-id="194301"></figure><p></p></section><p>Eventually, going over the mountains... </p><section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/304/original/losthorizonovermountain.jpeg?1615733006" class="editor-image img-responsive" data-smartkarma-image-id="194304"></figure></section></section><p>...while wearing cool hats...</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/303/original/losthorizon+funny+hats.jpeg?1615732715" class="editor-image img-responsive" data-smartkarma-image-id="194303"></figure></section><p>before arriving in Shangri-La.</p><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/194/305/original/lost-horizon-shangri-la.jpeg?1615733024" class="editor-image img-responsive" data-smartkarma-image-id="194305"></figure></section><hr><h3>Investors seeking Shangri-la by approaching Kunlun from outside will have an easier approach.</h3><h3>It's a Different Kunlun. </h3><ol>
<li>Start by reading <a href="https://www.smartkarma.com/insights/will-investors-find-shangri-la-in-kunlun" target="_blank" data-smartkarma-citation="insights:48113" rel="noopener">Will Investors Find Shangri-La in Kunlun?</a> if you haven't already,</li>
<li>Read the rest of this insight below the fold,</li>
<li>Know that Kunlun shareholders overwhelmingly approved the asset disposal Friday.</li>
<li>Know what the future dividend looks like (it should be just under HK$2.50/share).</li>
<li>Know what the future company looks like <em>ex-dividen</em>d.</li>
<li>Calculate what your equity risk is if you buy the stock (right now it is equity + future cash) today. </li>
</ol><p>The rest is below the fold. </p>

The mythical Shangri-la from the book Lost Horizon has never truly been found. Those who have done work on stduying the influences of James' Hilton's book suggest it might be Shambhala from the Tibetan Buddhist tradition, written in the Shambhala Sutra by the Sixth Panchen Lama of Tashihunpo Monastery in Tibet. The Shambhala ideal is one of a realm apart from 'the world' -  a place of timelessness and harmony between man and nature. The Sutra describes parts of Shambhala in Ngari, once part of the kingdom of Guge in western Tibet, and part of the Kunlun mountain range is within Ngari. Other suggestions include parts of Yunnan.Getting to Shangri-la for Robert Conway, the protagonist in the book and movie, was somewhat unpleasant. I won't give away the whole book (or movie), but he had to crash a plane to be found, so that he could go on to "find" Shangri-la. Eventually, going over the mountains... ...while wearing cool hats...before arriving in Shangri-La.Investors seeking Shangri-la by approaching Kunlun from outside will have an easier approach.It's a Different Kunlun. 
Start by reading Will Investors Find Shangri-La in Kunlun? if you haven't already,
Read the rest of this insight below the fold,
Know that Kunlun shareholders overwhelmingly approved the asset disposal Friday.
Know what the future dividend looks like (it should be just under HK$2.50/share).
Know what the future company looks like ex-dividend.
Calculate what your equity risk is if you buy the stock (right now it is equity + future cash) today. 
The rest is below the fold. 

Kunlun Energy (135 HK): It's Different Than You Think

Beijing Jingneng Clean Energy / Event-Driven

<p><strong>80.22%</strong>. That's the only figure that matters.</p>
<p><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> joins <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> as the second Merger by Absorption transaction to <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0301/2021030103095.pdf" target="_blank" rel="noopener">fail</a> on account of the tendering condition.</p>
<p>1,207,310,872 H Shares, or 80.22% of the total issued H Shares held by the Independent H Shareholders, tendered. </p>
<p><a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0520/ltn20190520874.pdf" target="_blank" rel="noopener">85.8%</a> of independent shares tendered into the Harbin Offer by the 60th day, and the Offer was subsequently, and unprecedently, extended (&amp; then failed). <a href="https://www.smartkarma.com/entities/huaneng-renewables-corp-h" target="_blank" data-smartkarma-citation="entities:7542:1" rel="noopener">Huaneng Renewables Corp H (958 HK)</a> received <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0120/2020012000919.pdf" target="_blank" rel="noopener">90.8%</a> on the 60th day - therefore the Offer was declared unconditional as to <em>acceptances - </em>but the Offer was still subject to approvals from NDRC and MOFCOM, and the registration of SAFE approval - and was also granted an extension by the SFC.</p>
<p>With less than 90% tendered AND with approvals/registration with Beijing SASAC, NDRC, and BAFE outstanding, the Offer for Jingneng was not extended.</p>
<p>Share tendered will be returned "<em>as soon as possible but in any event within ten days</em>".</p>
<p>More below the fold.</p>

80.22%. That's the only figure that matters.
Beijing Jingneng Clean Energy (579 HK) joins Harbin Electric Co Ltd H (1133 HK) as the second Merger by Absorption transaction to fail on account of the tendering condition.
1,207,310,872 H Shares, or 80.22% of the total issued H Shares held by the Independent H Shareholders, tendered. 
85.8% of independent shares tendered into the Harbin Offer by the 60th day, and the Offer was subsequently, and unprecedently, extended (&amp; then failed). Huaneng Renewables Corp H (958 HK) received 90.8% on the 60th day - therefore the Offer was declared unconditional as to acceptances - but the Offer was still subject to approvals from NDRC and MOFCOM, and the registration of SAFE approval - and was also granted an extension by the SFC.
With less than 90% tendered AND with approvals/registration with Beijing SASAC, NDRC, and BAFE outstanding, the Offer for Jingneng was not extended.
Share tendered will be returned "as soon as possible but in any event within ten days".
More below the fold.

Beijing Jingneng (579 HK): And That's a Fail

China

Beijing Jingneng Clean Energy Co, Ltd. provides clean energy in China.  The Company offers gas-fired power, heat energy, wind power, small to medium hydropower, and other clean energy projects.  Beijing Jingneng Clean Energy owns and operates various energy plants.

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Beijing Jingneng Clean Energy (579 HK)

Quiddity M&A Guide 2021: Hong Kong

This revised guide is part of a series of M&A guides to aid investors in understanding the rules, parameters, possibilities, and processes when...

David Blennerhassett

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

Kunlun Energy (135 HK): It's Different Than You Think

One step closer to being a new company. The asset disposal was approved Friday. Earnings are next week. Deal close in 16 days. Big special div in 2...

Travis Lundy

Beijing Jingneng (579 HK): And That's a Fail

There will be selling pressure on the stock, in two phases - tomorrow, and when shares are returned. However, Jingneng is trading cheap. This is a...

David Blennerhassett

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Zhejiang Cangnan (1743 HK): H-Share Buyback

Given the company's dubious price action and shareholder concentration, I would normally give this stock a wide birth. Bit it is precisely this...

David Blennerhassett

Quiddity M&A Guide 2021: Hong Kong

This revised guide is part of a series of M&A guides to aid investors in understanding the rules, parameters, possibilities, and processes when...

David Blennerhassett

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

Kunlun Energy (135 HK): It's Different Than You Think

One step closer to being a new company. The asset disposal was approved Friday. Earnings are next week. Deal close in 16 days. Big special div in 2...

Travis Lundy

Beijing Jingneng (579 HK): And That's a Fail

There will be selling pressure on the stock, in two phases - tomorrow, and when shares are returned. However, Jingneng is trading cheap. This is a...

David Blennerhassett