Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Capital Markets

Hygeia Healthcare / Equity Capital Markets

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<p>For primary listings in Hong Kong, there are standard rules as to the lock-up duration. There are exceptions - lock-ups can be entered into and negotiated with underwriters, as is often the case for secondary listings.</p>
<p>There are other quirks such as specific lock-ups with respect to share incentive schemes, such as in <a href="https://www.smartkarma.com/entities/shenzhen-hepalink-pharmaceutical-h" target="_blank" data-smartkarma-citation="entities:29142:1" rel="noopener">Shenzhen HepaLink Pharmaceutical (H) (9989 HK)</a>, which have their own unique lock-up period - although in this case, the % of shares out (0.31%) affected  is largely immaterial. </p>
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<p>According to <a href="https://en-rules.hkex.com.hk/rulebook/1007-0" target="_blank" rel="noopener">Main Board Rule 10.07(1)</a> (or <a href="https://en-rules.hkex.com.hk/rulebook/1316a" target="_blank" rel="noopener">GEM rule 13.16A(1)</a>), if a person/group of persons is/are listed as the controlling shareholder(s) of the issuer's listing application, they must adhere to a 6-month lock-up from the date of listing.</p>
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<p>For cornerstone investors, the following is often stated in the share offer document:</p>
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<p>Each of the Cornerstone Investors has agreed that it will not, whether directly or indirectly, at any time during the period of six months from and including the Listing Date (the “Lock-up Period”), dispose of any of the Offer Shares they have purchased pursuant to the relevant Cornerstone Investment Agreements, save for certain limited circumstances ... <br>Hepalink's <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0624/2020062400097.pdf" target="_blank" rel="noopener">Global Offering Doc</a> (page 403)</p>
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<p>Every week in my <a href="https://www.smartkarma.com/compose/insight/46538/Last%20Week%20in%20Event%20SPACE:%20Japan%20Post,%20JD.com,%20Toyota,%20NTT,%20Jardines,%20Indices/Exec.%20Orders,%20Tianneng.%20Read%20more:%20https:/skr.ma/vhr6W" target="_blank" rel="noopener">Event SPACE</a> wrap, I flag large moves (~10%) in CCASS holdings over the past week or so, moves that are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. </p>
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<p>Large movement(s) concerning recently listed companies are likely lock-up related. </p>
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<p>This monthly insight looks at companies that have been listed for around six months, as a guide to when insiders/controlling shareholders are permitted to sell, potentially creating an overhang which could depress prices.</p>
<p>I've also constructed a chart highlighting the performance of IPOs leading up to their lock-up, and compared this to the HSI index. The results are interesting. Spoiler - recent IPOs underperform. </p>
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<p>A summary of Main Board listings in 2020 is also attached at the bottom of this insight.</p>
<p>More below the fold.</p>
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For primary listings in Hong Kong, there are standard rules as to the lock-up duration. There are exceptions - lock-ups can be entered into and negotiated with underwriters, as is often the case for secondary listings.
There are other quirks such as specific lock-ups with respect to share incentive schemes, such as in Shenzhen HepaLink Pharmaceutical (H) (9989 HK), which have their own unique lock-up period - although in this case, the % of shares out (0.31%) affected  is largely immaterial. 


According to Main Board Rule 10.07(1) (or GEM rule 13.16A(1)), if a person/group of persons is/are listed as the controlling shareholder(s) of the issuer's listing application, they must adhere to a 6-month lock-up from the date of listing.


For cornerstone investors, the following is often stated in the share offer document:



Each of the Cornerstone Investors has agreed that it will not, whether directly or indirectly, at any time during the period of six months from and including the Listing Date (the “Lock-up Period”), dispose of any of the Offer Shares they have purchased pursuant to the relevant Cornerstone Investment Agreements, save for certain limited circumstances ...  Hepalink's Global Offering Doc (page 403)



Every week in my Event SPACE wrap, I flag large moves (~10%) in CCASS holdings over the past week or so, moves that are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 


Large movement(s) concerning recently listed companies are likely lock-up related. 


This monthly insight looks at companies that have been listed for around six months, as a guide to when insiders/controlling shareholders are permitted to sell, potentially creating an overhang which could depress prices.
I've also constructed a chart highlighting the performance of IPOs leading up to their lock-up, and compared this to the HSI index. The results are interesting. Spoiler - recent IPOs underperform. 


A summary of Main Board listings in 2020 is also attached at the bottom of this insight.
More below the fold.


Hong Kong IPOs: Lock-Up Expiries (December 2020 Edition)

APAC IPOs & Placements

Zhen Zhou, Toh

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.

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<p><a href="https://www.smartkarma.com/entities/joy-spreader-interactive-technology" target="_blank" data-smartkarma-citation="entities:29271:1" rel="noopener">Joy Spreader Interactive Technology (6988 HK)</a> (JST) raised US$202m in its Hong Kong IPO at HK$2.88 per share, slightly above the midpoint of its price range.</p>
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<p>JST is a performance-based we-media marketing service provider in China. JST connects marketers and we-media publishers via its technology and platforms. The services provided to marketers include analyzing and distributing their products on the we-media network which will help marketers acquire users.</p>
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<p>In this note, we will look at the deal dynamics and provide a table with implied valuation at different share price levels.</p>
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<p>Our previous coverage of the IPO:</p>
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<ul style="list-style-type: disc;">
<li dir="ltr">
<p><a href="https://www.smartkarma.com/insights/joy-spreader-pre-ipo-found-a-niche-in-games-but-still-just-a-middleman" target="_blank" data-smartkarma-citation="insights:43073" rel="noopener">Joy Spreader (乐享互动) Pre-IPO - Found a Niche in Games but Still Just a Middleman</a> </p>
</li>
<li dir="ltr">
<a href="https://www.smartkarma.com/insights/joy-spreader-ipo-fairly-valued-at-best" target="_blank" data-smartkarma-citation="insights:43139" rel="noopener">Joy Spreader (乐享互动) IPO - Fairly Valued at Best</a> </li>
</ul>
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Joy Spreader Interactive Technology (6988 HK) (JST) raised US$202m in its Hong Kong IPO at HK$2.88 per share, slightly above the midpoint of its price range.


JST is a performance-based we-media marketing service provider in China. JST connects marketers and we-media publishers via its technology and platforms. The services provided to marketers include analyzing and distributing their products on the we-media network which will help marketers acquire users.


In this note, we will look at the deal dynamics and provide a table with implied valuation at different share price levels.


Our previous coverage of the IPO:




Joy Spreader (乐享互动) Pre-IPO - Found a Niche in Games but Still Just a Middleman 


Joy Spreader (乐享互动) IPO - Fairly Valued at Best 



Joy Spreader (乐享互动) Trading - Retail Frenzy Triggers Max Clawback

Event-Driven

Last Week in Event SPACE: Vedanta, Cardinal Res., Japan Retail Fund, HSBC, Opticomm, Tiffany/LVMH

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<p>The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 14 August. The constituent changes will be effective from 7 September 2020 and the rebalancing trades will need to be done at the closing auction on 4 September 2020.</p><p>There are 32 inclusions and 23 exclusions for the Hang Seng Composite Index (HSCI). Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program could see large inflows from mainland investors.</p><p>In this Insight, we take a look at the exclusion names that have high Southbound shareholdings and could see some selling ahead of the move to a 'sell-only' Southbound list, and at inclusion names that could see Southbound inflows over the weeks after inclusion into the Stock Connect buy/sell list.</p>

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 14 August. The constituent changes will be effective from 7 September 2020 and the rebalancing trades will need to be done at the closing auction on 4 September 2020.There are 32 inclusions and 23 exclusions for the Hang Seng Composite Index (HSCI). Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program could see large inflows from mainland investors.In this Insight, we take a look at the exclusion names that have high Southbound shareholdings and could see some selling ahead of the move to a 'sell-only' Southbound list, and at inclusion names that could see Southbound inflows over the weeks after inclusion into the Stock Connect buy/sell list.

HSCI Index Rebalance - Stock Connect Flows Coming Up

<p>Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June. The review announcement for the September 2020 review will be made on 14 August and will be effective after the close of trading on 4 September.</p><p>Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors.</p><p>From the upcoming review, Biotech companies listed under Chapter 18A of the HKEX Main Board listing rules will be eligible for inclusion in the HSCI. This is a huge change given that Biotech is a big investment theme in the current environment and mainland investors could come rushing into these names.</p><p>We see 22 possible inclusions in the HSCI (and consequently becoming eligible for Stock Connect) and 10 deletions (which will take the stocks off the eligible buy list and make them eligible for sell-only via Stock Connect).</p>

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September with data cut-off dates as of the end of December and June. The review announcement for the September 2020 review will be made on 14 August and will be effective after the close of trading on 4 September.Although there are almost no assets indexed to the HSCI, the index forms the basis of stocks that are eligible for Southbound Stock Connect. Stocks that are included in the HSCI and subsequently included in the Stock Connect program get inflows from mainland investors.From the upcoming review, Biotech companies listed under Chapter 18A of the HKEX Main Board listing rules will be eligible for inclusion in the HSCI. This is a huge change given that Biotech is a big investment theme in the current environment and mainland investors could come rushing into these names.We see 22 possible inclusions in the HSCI (and consequently becoming eligible for Stock Connect) and 10 deletions (which will take the stocks off the eligible buy list and make them eligible for sell-only via Stock Connect).

HSCI and Stock Connect - Biotech Stocks Now Eligible; Inclusion & Exclusion Possibilities

China

Kangji Medical designs, develops, manufactures, and sells a comprehensive suite of minimally invasive surgical instruments and accessories (MISIA). Its product portfolio includes disposable trocars, polymer ligation clips, ultrasonic scalpels, and reusable 4K endoscopic camera systems. The company also provides integrated operating room systems, surgical tables, and medical pendants. Kangji Medical was founded in 2004 and is headquartered in Hangzhou, Zhejiang Province, China.

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Kangji Medical (KMHLF US)

Hong Kong IPOs: Lock-Up Expiries (December 2020 Edition)

There exist the "moral hazard" around the expiry of lock-up periods. In 2020, IPO's have on average underperformed the HSI heading into the lock...

David Blennerhassett

Joy Spreader (乐享互动) Trading - Retail Frenzy Triggers Max Clawback

Joy Spreader Interactive Technology (6988 HK) (JST) is looking to raise up to US$225m in its upcoming Hong Kong IPO. JST is a performance-based...

Zhen Zhou, Toh

Last Week in Event SPACE: Vedanta, Cardinal Res., Japan Retail Fund, HSBC, Opticomm, Tiffany/LVMH

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

David Blennerhassett

HSCI Index Rebalance - Stock Connect Flows Coming Up

The Hang Seng Indexes Company Limited (HSIL) announced the results of its review of the Hang Seng Family of Indexes post market close on 14 August....

Brian Freitas

HSCI and Stock Connect - Biotech Stocks Now Eligible; Inclusion & Exclusion Possibilities

Hang Seng Indexes Company (HSIL) reviews the constituents of the Hang Seng Composite Index (HSCI) on a half yearly basis in March and September...

Brian Freitas

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