Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

China Evergrande New Energy Vehicle / Equity Bottom-Up

China Evergrande New Energy Vehicle (708 HK)

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<p>This week in StubWorld ...</p>
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<p><a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a> plumbs a new discount to NAV low after <a href="https://www.smartkarma.com/entities/china-evergrande-new-energy-vehicle-group-ltd" target="_blank" data-smartkarma-citation="entities:713:1" rel="noopener">Evergrande Auto (708 HK)</a>'s meteoric post-placement gain; <a href="https://www.smartkarma.com/entities/pccw-ltd" target="_blank" data-smartkarma-citation="entities:873:1" rel="noopener">PCCW Ltd (8 HK)</a> discount to NAV retraces, as expected; and <a href="https://www.smartkarma.com/entities/lg-corp" target="_blank" data-smartkarma-citation="entities:6653:1" rel="noopener">LG Corp (003550 KS)</a> still look cheap versus its sum of parts.</p>
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<p>Preceding my comments on these holdcos are the weekly setup/unwind tables for Asia-Pacific Holdcos.</p>
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<p>These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.</p>
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This week in StubWorld ...

Evergrande Real Estate Group (3333 HK) plumbs a new discount to NAV low after Evergrande Auto (708 HK)'s meteoric post-placement gain; PCCW Ltd (8 HK) discount to NAV retraces, as expected; and LG Corp (003550 KS) still look cheap versus its sum of parts.




Preceding my comments on these holdcos are the weekly setup/unwind tables for Asia-Pacific Holdcos.


These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold - the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent - of at least 20%.


StubWorld: Evergrande Auto, PCCW, LG Corp

<p>On the 9 November 2018, <a href="https://www.smartkarma.com/entities/tianneng-power-intl-ltd" target="_blank" data-smartkarma-citation="entities:18978:1" rel="noopener">Tianneng Power Intl (819 HK)</a> ("TPI") <a href="http://www3.hkexnews.hk/listedco/listconews/SEHK/2018/1109/LTN201811091011.pdf" target="_blank" rel="noopener">announced</a> the possible spin-off and separate listing of Tianneng Battery Group ("TBG"). This is the same entity TPI attempted to list back in <a href="http://www3.hkexnews.hk/listedco/listconews/SEHK/2015/1123/LTN20151123195.pdf" target="_blank" rel="noopener">November 2015</a>. </p>
<p>Further announcements followed, culminating in a circular to shareholders on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0624/ltn201906241058.pdf" target="_blank" rel="noopener">24 June 2019</a> seeking shareholder approval to list TBG on the Science and Technology Innovation Board of the Shanghai Stock Exchange - better known as the Star Market. That approval was received at an EGM on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0712/ltn20190712674.pdf" target="_blank" rel="noopener">12 July 2019</a>. </p>
<p>A <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2019/1230/2019123001609.pdf" target="_blank" rel="noopener">December 2019</a> announcement discussed the potential to raise RMB3.6bn from the listing. </p>
<p>Finally, on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0706/2020070602268.pdf" target="_blank" rel="noopener">6 July</a>, the Star Market listing committee approved the listing. This week, TPI announced that proposed A-share listing on the Star Board has been <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1215/2020121501202.pdf" target="_blank" rel="noopener">approved</a> by the CSRC.</p>
<p>The majority of TPI's assets and earnings are sourced from TBG. Shares gained 17% on the CSRC approval news and are now up 180% in the past 12 months. Is there more left in the tank?</p>
<p>More below the fold.</p>

On the 9 November 2018, Tianneng Power Intl (819 HK) ("TPI") announced the possible spin-off and separate listing of Tianneng Battery Group ("TBG"). This is the same entity TPI attempted to list back in November 2015. 
Further announcements followed, culminating in a circular to shareholders on the 24 June 2019 seeking shareholder approval to list TBG on the Science and Technology Innovation Board of the Shanghai Stock Exchange - better known as the Star Market. That approval was received at an EGM on the 12 July 2019. 
A December 2019 announcement discussed the potential to raise RMB3.6bn from the listing. 
Finally, on the 6 July, the Star Market listing committee approved the listing. This week, TPI announced that proposed A-share listing on the Star Board has been approved by the CSRC.
The majority of TPI's assets and earnings are sourced from TBG. Shares gained 17% on the CSRC approval news and are now up 180% in the past 12 months. Is there more left in the tank?
More below the fold.

Tianneng (819 HK): Battery Spin-Off And The Tesla Effect

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

Evergrande Property Services Group / Equity Capital Markets

Evergrande Property Services Group (6666 HK)

<p><a href="https://www.smartkarma.com/entities/evergrande-property-services" target="_blank" data-smartkarma-citation="entities:30921:1" rel="noopener">Evergrande Services (EGS HK)</a> is a Chinese property management provider. Evergrande ranked fourth in GFA under management, among the Top 100 property management companies in China in 2019, according to CIA. The controlling shareholder is <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a>. Evergrande is joining the ever-expanding list of property management IPOs by seeking to raise $2 billion, according to press reports.  </p><div class="content-highlight"><p>Property developers continue to spin-off their property management arms due to tight credit conditions. However, investors are spoiled for choice due to the plethora of opportunities to gain exposure to the Chinese property management sector through listed companies and a healthy queue of IPO hopefuls. An IPO hopeful needs to offer a combination of strong fundamentals and/or attractive valuation to grab attention. Overall, Evergrande’s fundamentals are attractive, in our view. </p></div>

Evergrande Services (EGS HK) is a Chinese property management provider. Evergrande ranked fourth in GFA under management, among the Top 100 property management companies in China in 2019, according to CIA. The controlling shareholder is Evergrande Real Estate Group (3333 HK). Evergrande is joining the ever-expanding list of property management IPOs by seeking to raise $2 billion, according to press reports.  Property developers continue to spin-off their property management arms due to tight credit conditions. However, investors are spoiled for choice due to the plethora of opportunities to gain exposure to the Chinese property management sector through listed companies and a healthy queue of IPO hopefuls. An IPO hopeful needs to offer a combination of strong fundamentals and/or attractive valuation to grab attention. Overall, Evergrande’s fundamentals are attractive, in our view. 

Evergrande Property Services IPO Initiation: Standing Out

Travis Lundy

China Evergrande / Equity Capital Markets

<p>Media reports from Bloomberg and other sources suggest that <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> has launched an equity placement - a so-called top-up placement - for 490 million shares at a price of HK$16.50-17.20, or an 11.1-14.7% discount to the last traded price of $19.34/share. There is apparently an upsize option of an additional 120mm shares.</p><p>This offer appears scheduled to raise up to US$1.043-1.087bn in funds with US$255mm more from the upsize option if done at the lower end of the range. </p><p>The news surrounding Evergrande recently has been less than salutary for investors. Despite highly bullish commentary around unofficial and unaudited figures in early July which appeared to have sent the shares soaring nearly 40% in 3 days to HK$28/share, several weeks later on 16 August the company released a profit warning and results came out the 31st of August. On the 13th Evergrande had sold a US$3bn stake in its property management vehicle, sold another block in <a href="https://www.smartkarma.com/entities/china-evergrande-new-energy-vehicle-group-ltd" target="_blank" data-smartkarma-citation="entities:713:1" rel="noopener">Evergrande Auto (708 HK)</a>, was preparing a near-term listing of its property management entity and was looking to conduct a large offering for Evergrande Auto on the Star Board.  </p><p>Hints of further ugliness came out in the last days of August and early days of September when it was reported that a dozen real estate developers had been called into a meeting 20 August to let them know they had been chosen to participate (participation not optional) in a pilot programme which restricted lending growth to companies which did not cross Three Red Lines which were...</p><ol style="list-style-type: decimal;">
<li>a liability-to-asset ratio (excluding pre-sales) of 70%,</li>
<li>a net debt-to-equity ratio of 100%, and</li>
<li>cash holdings equal to 100% of short-term debt.</li>
</ol><p>Evergrande handily beats all three and therefore would be restricted from new borrowings (including increase outstanding debt to pay the coupons on existing debt). This means that Evergrande needs to de-lever. It reportedly has started doing so since earlier this year but it is not clear what the necessary reference points are and where Evergrande stands in relation to those reference points in terms of showing that it is making progress (if it doesn't meet the Three Red Lines thresholds, it needs to show it is making progress towards doing so in future). </p><p>The last straw was the <a href="https://uk.reuters.com/article/china-evergrande/chinas-no-2-developer-evergrande-pleads-for-government-support-to-avoid-cash-crunch-idINL3N2GL2H9" target="_blank" rel="noopener">reported</a> letter (which Evergrande <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0924/2020092401313.pdf" target="_blank" rel="noopener">denied existed</a>) which had asked the Guangdong government for assistance in aligning its debt obligations and repayment schedule so that unwanted disruption and confusion in the marketplace did not occur (those tracking this story may have a slightly more blunt way of phrasing this). There was also the matter of the 3yr expiry of the Hengda equity putback coming in January 2021 if that business were not listed. This too caused consternation in the market. All of this was discussed in <a href="https://www.smartkarma.com/insights/evergrande-may-be-facing-a-funding-squeeze" target="_blank" data-smartkarma-citation="insights:43592" rel="noopener">Evergrande May Be Facing a Funding Squeeze</a> on 27 September.</p><p>Following the news coverage, shares dropped sharply, the bonds traded weaker, but a few days later Evergrande somehow <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0929/2020092900829.pdf" target="_blank" rel="noopener">managed to convince</a> a large chunk of the equity financiers of Hengda to roll their ownership/funding for another year. That helped keep the wolves at bay for Jan 2021 but Evergrande still has a long way to go to be able to cross the Three Red Lines in the other direction. Asset sales and equitization are paramount, and along those lines, on 29 September Evergrande <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0929/2020092901436.pdf" target="_blank" rel="noopener">submitted its listing application</a> to the Hong Kong Stock Exchange to list Evergrande Property Services Group. More money is on the way. </p><h2>Today's NEW News</h2><p>Evergrande has announced an equity offering to raise cash for "refinancing and working capital." The thing is, US$1.1bn or even US$1.35bn won't cut it. Evergrande has RMB 820+bn of short-term and long-term interest-bearing debt, extended accounts payable, and the Hengda contingent liability floating around. This is nothing. </p><p>So why are they doing it?</p><p>That's the thing. There IS a reason. It appears obvious to me. And it doesn't make the stock more investible. </p><p>More below the fold. </p>

Media reports from Bloomberg and other sources suggest that Evergrande Real Estate Group (3333 HK) has launched an equity placement - a so-called top-up placement - for 490 million shares at a price of HK$16.50-17.20, or an 11.1-14.7% discount to the last traded price of $19.34/share. There is apparently an upsize option of an additional 120mm shares.This offer appears scheduled to raise up to US$1.043-1.087bn in funds with US$255mm more from the upsize option if done at the lower end of the range. The news surrounding Evergrande recently has been less than salutary for investors. Despite highly bullish commentary around unofficial and unaudited figures in early July which appeared to have sent the shares soaring nearly 40% in 3 days to HK$28/share, several weeks later on 16 August the company released a profit warning and results came out the 31st of August. On the 13th Evergrande had sold a US$3bn stake in its property management vehicle, sold another block in Evergrande Auto (708 HK), was preparing a near-term listing of its property management entity and was looking to conduct a large offering for Evergrande Auto on the Star Board.  Hints of further ugliness came out in the last days of August and early days of September when it was reported that a dozen real estate developers had been called into a meeting 20 August to let them know they had been chosen to participate (participation not optional) in a pilot programme which restricted lending growth to companies which did not cross Three Red Lines which were...
a liability-to-asset ratio (excluding pre-sales) of 70%,
a net debt-to-equity ratio of 100%, and
cash holdings equal to 100% of short-term debt.
Evergrande handily beats all three and therefore would be restricted from new borrowings (including increase outstanding debt to pay the coupons on existing debt). This means that Evergrande needs to de-lever. It reportedly has started doing so since earlier this year but it is not clear what the necessary reference points are and where Evergrande stands in relation to those reference points in terms of showing that it is making progress (if it doesn't meet the Three Red Lines thresholds, it needs to show it is making progress towards doing so in future). The last straw was the reported letter (which Evergrande denied existed) which had asked the Guangdong government for assistance in aligning its debt obligations and repayment schedule so that unwanted disruption and confusion in the marketplace did not occur (those tracking this story may have a slightly more blunt way of phrasing this). There was also the matter of the 3yr expiry of the Hengda equity putback coming in January 2021 if that business were not listed. This too caused consternation in the market. All of this was discussed in Evergrande May Be Facing a Funding Squeeze on 27 September.Following the news coverage, shares dropped sharply, the bonds traded weaker, but a few days later Evergrande somehow managed to convince a large chunk of the equity financiers of Hengda to roll their ownership/funding for another year. That helped keep the wolves at bay for Jan 2021 but Evergrande still has a long way to go to be able to cross the Three Red Lines in the other direction. Asset sales and equitization are paramount, and along those lines, on 29 September Evergrande submitted its listing application to the Hong Kong Stock Exchange to list Evergrande Property Services Group. More money is on the way. Today's NEW NewsEvergrande has announced an equity offering to raise cash for "refinancing and working capital." The thing is, US$1.1bn or even US$1.35bn won't cut it. Evergrande has RMB 820+bn of short-term and long-term interest-bearing debt, extended accounts payable, and the Hengda contingent liability floating around. This is nothing. So why are they doing it?That's the thing. There IS a reason. It appears obvious to me. And it doesn't make the stock more investible. More below the fold. 

Evergrande Equity Placement - Musical Shares

Event-Driven

Last Week in Event SPACE: NTT Docomo, Evergrande Properties/Auto, Wilmar, Swire, Immunomedics

China

China Evergrande New Energy Vehicle Group Ltd. is primarily engaged in the research, development, production, and sales of new energy vehicles, including lithium batteries and automotive components. Its main vehicle brand is Hengchi, with the Hengchi 5 being its first mass-produced model. The company's registered office is in Hong Kong, and its new energy vehicle business was founded in 2019.

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China Evergrande New Energy Vehicle (708 HK)

StubWorld: Evergrande Auto, PCCW, LG Corp

Chine Evergrande (3333 HK) looks "cheap" and Evergrande Auto (708 HK) frothy, suggesting a set-up here. Personally, I would avoid both.

David Blennerhassett

Tianneng (819 HK): Battery Spin-Off And The Tesla Effect

The Star Market will welcome another battery manufacturer, one that is an up & coming supplier of lithium batteries, and one that promotes and...

David Blennerhassett

Evergrande Property Services IPO Initiation: Standing Out

Evergrande is joining the ever-expanding list of property management IPOs by seeking to raise $2 billion, according to press reports. Overall,...

Arun George

Evergrande Equity Placement - Musical Shares

Media reports say Evergrande launched an Equity Offering to raise US$1.1bn. This is not enough to pay down RMB 450bn in debt overall or pay back...

Travis Lundy

Last Week in Event SPACE: NTT Docomo, Evergrande Properties/Auto, Wilmar, Swire, Immunomedics

Last Week in Event SPACE ... Plus, other events, CCASS movements and Mood Spins. (This insight covers specific insights & comments...

David Blennerhassett

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