Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>On 31 May I wrote about the proposal from the <a href="https://www.smartkarma.com/entities/adani-power-ltd" target="_blank" data-smartkarma-citation="entities:247:1" rel="noopener">Adani Power Ltd (ADANI IN)</a> promoter group to take the Company private through a Delisting Offer, a measure that obtained shareholder approval, as expected, on 25 June.</p><p>While the eventually unsuccessful delisting offer of <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> and the eventually successful delisting offer for <a href="https://www.smartkarma.com/entities/hexaware-technologies-ltd" target="_blank" data-smartkarma-citation="entities:7882:1" rel="noopener">Hexaware Technologies (HEXW IN)</a> took the spotlight, Adani Power effectively languished for months. </p><p>I had, interestingly enough, been talking about this to people who would listen. It has been something of a no-brainer to me because...</p><ol style="list-style-type: lower-alpha;">
<li>As it was trading in the INR 35-36 area in July and August, then again in September to early November, it was trading VERY cheap on an option basis. With such a very high debt/EBITDA ratio, buying the company at a premium to then-current EV/EBITDA multiple required a large jump in price. </li>
<li>There was no premium being applied despite improvements in the positioning of IPPs in India. </li>
</ol><p>When <a href="https://www.adanipower.com/newsroom/media-releases/Adani-Power-announces-Q2-FY21-results" target="_blank" rel="noopener">Q2 Results</a> came out on 5 November (<a href="https://www1.nseindia.com/corporate/ADANIPOWER_06112020195030_Intimation06112020.pdf" target="_blank" rel="noopener">Q2 presentation 6 Nov</a>) much better than the market expected (revenues +29%yoy, consolidated EBITDA +126%yoy, PBT up 18-fold), the stock got a pop.  But it did not last long. The one-off nature of the regulatory (Appellate Tribunal Of Electricity (APTEL)) approvals of Adani Power Maharashtra Ltd’s claims for coal shortfall compensation and carrying costs meant the company's Q2 profits were less than exciting on their own, despite signs of stronger Average Plant Load Factor levels ahead. </p><p>On a media call early Thursday 6 November, the MD and CEO of Adani Transmission and the MD of Thermal Power at Adani Power said that the delisting process "is in process", saying they have approval from six lenders, and other lenders would also like to approve. </p><p>But the stock did not move much.</p><h3>Then Things Changed</h3><p>Things have been somewhat quiet since then, but this past week, things got exciting. The company won a short-term contract to supply 6,100MW of electricity to the Punjab Govt.</p><div class="content-highlight"><p><strong>And....   Adani Power shares rose 54.8% this past week (in four trading days), in fabulous volumes.</strong></p></div><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/176/665/original/Screenshot%202020-12-06%20at%2012.33.14%20PM.png?1607229262" class="editor-image img-responsive" data-smartkarma-image-id="176665"></figure></section><div class="content-highlight">
<p>That leaves us with questions about the Delisting Offer Reverse Book Build to come.</p>
<p>And given the shareholder structure, the questions are understandable. </p>
</div><p>More discussion below.</p>

On 31 May I wrote about the proposal from the Adani Power Ltd (ADANI IN) promoter group to take the Company private through a Delisting Offer, a measure that obtained shareholder approval, as expected, on 25 June.While the eventually unsuccessful delisting offer of Vedanta Ltd (VEDL IN) and the eventually successful delisting offer for Hexaware Technologies (HEXW IN) took the spotlight, Adani Power effectively languished for months. I had, interestingly enough, been talking about this to people who would listen. It has been something of a no-brainer to me because...
As it was trading in the INR 35-36 area in July and August, then again in September to early November, it was trading VERY cheap on an option basis. With such a very high debt/EBITDA ratio, buying the company at a premium to then-current EV/EBITDA multiple required a large jump in price. 
There was no premium being applied despite improvements in the positioning of IPPs in India. 
When Q2 Results came out on 5 November (Q2 presentation 6 Nov) much better than the market expected (revenues +29%yoy, consolidated EBITDA +126%yoy, PBT up 18-fold), the stock got a pop.  But it did not last long. The one-off nature of the regulatory (Appellate Tribunal Of Electricity (APTEL)) approvals of Adani Power Maharashtra Ltd’s claims for coal shortfall compensation and carrying costs meant the company's Q2 profits were less than exciting on their own, despite signs of stronger Average Plant Load Factor levels ahead. On a media call early Thursday 6 November, the MD and CEO of Adani Transmission and the MD of Thermal Power at Adani Power said that the delisting process "is in process", saying they have approval from six lenders, and other lenders would also like to approve. But the stock did not move much.Then Things ChangedThings have been somewhat quiet since then, but this past week, things got exciting. The company won a short-term contract to supply 6,100MW of electricity to the Punjab Govt.And....   Adani Power shares rose 54.8% this past week (in four trading days), in fabulous volumes.
That leaves us with questions about the Delisting Offer Reverse Book Build to come.
And given the shareholder structure, the questions are understandable. 
More discussion below.

ADANI POWER On the Move - Fundamentals Better and Delisting Offer Imminent But... There Are RISKS...

Equity Analyst, Event-driven, Quiddity Advisors

Janaghan Jeyakumar, CFA

Equity Analyst, Event-driven

<p>On 24th August 2020, India-based integrated logistics company <a href="https://www.smartkarma.com/entities/allcargo-logistics-ltd" target="_blank" data-smartkarma-citation="entities:10602:1" rel="noopener">Allcargo Logistics (AGLL IN)</a> announced they had received a “<a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/9bf60829-9be9-4e37-b6c2-234cc3203040.pdf" target="_blank" rel="noopener">Delisting Proposal Letter</a>" from members of its Promoter Group (Shashi Kiran Shetty and Talentos Entertainment Private Limited). </p><p>A board meeting was convened on 27th August and a Merchant Banker (Inga Ventures) was appointed to carry out due diligence. On 5th September, the board approved the Offer after reviewing the Merchant Banker's due diligence report. These events were discussed in my previous insight <a href="https://www.smartkarma.com/insights/allcargo-logistics-agll-in-indian-delisting-offer-trading-cheap" target="_blank" data-smartkarma-citation="insights:43137" rel="noopener">Allcargo Logistics (AGLL IN): Indian Delisting Offer Trading Cheap</a>. </p><p>After market-close on 22nd October, the company <a href="https://www.bseindia.com/stock-share-price/allcargo-logistics-ltd/allcargo/532749/voting-results/" target="_blank" rel="noopener">announced</a> the voting results for the delisting offer which confirmed that the shareholders have approved the transaction. </p><p>Below is a closer look at the voting results and their potential implications regarding the probability of Deal Completion. </p>

On 24th August 2020, India-based integrated logistics company Allcargo Logistics (AGLL IN) announced they had received a “Delisting Proposal Letter" from members of its Promoter Group (Shashi Kiran Shetty and Talentos Entertainment Private Limited). A board meeting was convened on 27th August and a Merchant Banker (Inga Ventures) was appointed to carry out due diligence. On 5th September, the board approved the Offer after reviewing the Merchant Banker's due diligence report. These events were discussed in my previous insight Allcargo Logistics (AGLL IN): Indian Delisting Offer Trading Cheap. After market-close on 22nd October, the company announced the voting results for the delisting offer which confirmed that the shareholders have approved the transaction. Below is a closer look at the voting results and their potential implications regarding the probability of Deal Completion. 

Allcargo Logistics (AGLL IN): Shareholder Vote Encouraging. Buying Opportunity.

<p>This morning, Baring - the Bidder for <a href="https://www.smartkarma.com/entities/hexaware-technologies-ltd" target="_blank" data-smartkarma-citation="entities:7882:1" rel="noopener">Hexaware Technologies (HEXW IN)</a> (also known as HT Global IT Solutions Holdings Limited) announced that they had accepted the Discovered Price of Rs. 475/share. </p><div class="content-remarks"><p>Those who followed Smartkarma advice and bought the week after shares jumped to limit up on Day1 earned a return of about 50% in USD terms (48% in INR terms and about 2.5% in the FX cross).</p></div><p>The Acquirer will now purchase 87,286,523 shares - 91.16% of the fully paid up capital - which is the number of shares validly tendered at or below the Discovered Price in the Reverse Book Build portion of the Delisting Offer. Shares accepted will have the consideration paid on or before 30 September 2020. Section 20 of the <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/486ec4be-8eea-4549-8302-90ab70254072.pdf" target="_blank" rel="noopener">Letter of Offer</a> published on 6 September suggests payment on 29 September 2020 though the amended schedule published 15 September makes it 30 September. </p><p>Those shares which have not been taken up, which should amount to just under 2.3mm shares, will be returned to shareholders as per Paragraph 17 of the <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/486ec4be-8eea-4549-8302-90ab70254072.pdf" target="_blank" rel="noopener">Letter of Offer</a> published on 6 September, and Section 20 of the same document, <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/D937142A-F84B-40FD-83B4-92443D696743-202611.pdf" target="_blank" rel="noopener">as amended on 15 September</a>, suggests that shares will be returned to investors on the 30th. </p><p>That leaves 8.84% of the company in limbo. </p><p>The shares will be delisted on a date to be announced later. Expect it to be in the not distant future. There will be a process for a subsequent Exit Offer.  </p><p>That means there will be a residual opportunity to trade the risk arb for about 26.5mm shares worth about US$170mm at terms.</p><p>More below the fold.</p>

This morning, Baring - the Bidder for Hexaware Technologies (HEXW IN) (also known as HT Global IT Solutions Holdings Limited) announced that they had accepted the Discovered Price of Rs. 475/share. Those who followed Smartkarma advice and bought the week after shares jumped to limit up on Day1 earned a return of about 50% in USD terms (48% in INR terms and about 2.5% in the FX cross).The Acquirer will now purchase 87,286,523 shares - 91.16% of the fully paid up capital - which is the number of shares validly tendered at or below the Discovered Price in the Reverse Book Build portion of the Delisting Offer. Shares accepted will have the consideration paid on or before 30 September 2020. Section 20 of the Letter of Offer published on 6 September suggests payment on 29 September 2020 though the amended schedule published 15 September makes it 30 September. Those shares which have not been taken up, which should amount to just under 2.3mm shares, will be returned to shareholders as per Paragraph 17 of the Letter of Offer published on 6 September, and Section 20 of the same document, as amended on 15 September, suggests that shares will be returned to investors on the 30th. That leaves 8.84% of the company in limbo. The shares will be delisted on a date to be announced later. Expect it to be in the not distant future. There will be a process for a subsequent Exit Offer.  That means there will be a residual opportunity to trade the risk arb for about 26.5mm shares worth about US$170mm at terms.More below the fold.

Hexaware Tech Done at INR 475. Now For The Residual

<p><a href="https://www.smartkarma.com/entities/hexaware-technologies-ltd" target="_blank" data-smartkarma-citation="entities:7882:1" rel="noopener">Hexaware Technologies (HEXW IN)</a> took it down to the wire. The Reverse Book Build got to the 90.0% threshold at a little past 2:30pm local time, and small shareholders continued putting in offers until 5pm local time. </p><p>It looks, from a combination of the <a href="https://www.bseindia.com/markets/publicIssues/BSEBidDetails_ACQ.aspx?flag=ec&amp;Scripcode=5222" target="_blank" rel="noopener">BSE data</a> and <a href="https://www.nseindia.com/market-data/tender-issue-information?symbol=HEXAWARE&amp;type=Active" target="_blank" rel="noopener">NSE data</a> that we have a Discovered Price. </p><p>Now we wait. </p><p>More comment below the fold. </p>

Hexaware Technologies (HEXW IN) took it down to the wire. The Reverse Book Build got to the 90.0% threshold at a little past 2:30pm local time, and small shareholders continued putting in offers until 5pm local time. It looks, from a combination of the BSE data and NSE data that we have a Discovered Price. Now we wait. More comment below the fold. 

Hexaware Exit Offer Reverse Book Build Gets 90% & Discovered Price - Now We Wait

<p>On Thursday 3 September at mid-day, <a href="https://www.smartkarma.com/entities/hexaware-technologies-ltd" target="_blank" data-smartkarma-citation="entities:7882:1" rel="noopener">Hexaware Technologies (HEXW IN)</a> announced that the Exchange had granted <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/5ee986c3-fb2e-479d-bf32-3bbdde0f94c4.pdf" target="_blank" rel="noopener">In-Principle Approval</a> the day before. Hexaware's <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/5ee986c3-fb2e-479d-bf32-3bbdde0f94c4.pdf" target="_blank" rel="noopener">Public Announcement</a> went out on the 3rd. </p>
<p>The completion of the <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/486ec4be-8eea-4549-8302-90ab70254072.pdf" target="_blank" rel="noopener">Despatch of the Offer Letter</a> was announced on 6 September.</p>
<p>The Reverse Book Build Auction will open on the 9th of September and close on the 15th.  The last possible day to announce a counter-offer would be the 17th of September. Settlement would be expected to be the 29 September. </p>
<p>It's on. </p>
<p>I see Mooar Gainz here.</p>
<hr>
<table class="table table-striped">
<tbody>
<tr>
<td colspan="3" style="width: 724.8px;">
<h3>Relevant Insights To Date</h3>
</td>
</tr>
<tr>
<td style="width: 72px;"><strong>Date</strong></td>
<td style="width: 134.4px;"><strong>Theme or Ticker</strong></td>
<td style="width: 476.8px;"><strong>Insight Title</strong></td>
</tr>
<tr>
<td style="width: 72px;">2019</td>
<td style="width: 134.4px;">Indian M&amp;A Guide</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/quiddity-india-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:30885" rel="noopener">Quiddity India M&amp;A Guide 2019</a> </td>
</tr>
<tr>
<td style="width: 72px;">24 May 2020</td>
<td style="width: 134.4px;">Delisting Offers</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/indian-delisting-exit-offers-know-your-process-and-the-games-played" target="_blank" data-smartkarma-citation="insights:39683" rel="noopener">Indian Delisting/Exit Offers - Know Your Process and The Games Played</a> </td>
</tr>
<tr>
<td style="width: 72px;">19 Jun 2020</td>
<td style="width: 134.4px;">Failed Exit Offers</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/failed-exit-offers-in-india-lessons-for-vedl-adani-and-hexw" target="_blank" data-smartkarma-citation="insights:40492" rel="noopener">Failed Exit Offers in India: Lessons for VEDL, ADANI, and HEXW?</a> </td>
</tr>
<tr>
<td style="width: 72px;">8 Jun 2020</td>
<td style="width: 134.4px;">Hexaware Tech</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/hexaware-delisting-proposal-this-could-go-higher" target="_blank" data-smartkarma-citation="insights:40116" rel="noopener">Hexaware Delisting Proposal - This Could Go Higher</a> </td>
</tr>
<tr>
<td style="width: 72px;">11 Jun 2020</td>
<td style="width: 134.4px;">Hexaware Tech</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/hexaware-dips-and-doodles-in-the-delisting-proposal-process" target="_blank" data-smartkarma-citation="insights:40219" rel="noopener">Hexaware:  Dips and Doodles in the Delisting Proposal Process</a> </td>
</tr>
</tbody>
</table>

On Thursday 3 September at mid-day, Hexaware Technologies (HEXW IN) announced that the Exchange had granted In-Principle Approval the day before. Hexaware's Public Announcement went out on the 3rd. 
The completion of the Despatch of the Offer Letter was announced on 6 September.
The Reverse Book Build Auction will open on the 9th of September and close on the 15th.  The last possible day to announce a counter-offer would be the 17th of September. Settlement would be expected to be the 29 September. 
It's on. 
I see Mooar Gainz here.





Relevant Insights To Date



Date
Theme or Ticker
Insight Title


2019
Indian M&amp;A Guide

Quiddity India M&amp;A Guide 2019 


24 May 2020
Delisting Offers

Indian Delisting/Exit Offers - Know Your Process and The Games Played 


19 Jun 2020
Failed Exit Offers

Failed Exit Offers in India: Lessons for VEDL, ADANI, and HEXW? 


8 Jun 2020
Hexaware Tech

Hexaware Delisting Proposal - This Could Go Higher 


11 Jun 2020
Hexaware Tech

Hexaware:  Dips and Doodles in the Delisting Proposal Process 




Hexaware Technologies Reverse Book Build Auction - It's On

India

Hexaware Technologies Limited specializes in providing its clients with management and technology solutions in the enterprise applications software area. The Company also operates as an offshore-based vendor for the ERP and CRM software products of PeopleSoft, Inc. of U.S.A.

Hexaware Technologies (HEXW IN)

ADANI POWER On the Move - Fundamentals Better and Delisting Offer Imminent But... There Are RISKS...

The ADANI POWER Delisting Offer process is set to end soon. The CFO suggested the RBB might be announced by year-end. The big price jump last week...

Travis Lundy

Allcargo Logistics (AGLL IN): Shareholder Vote Encouraging. Buying Opportunity.

The Allcargo Logistics Delisting Proposal has passed its shareholder vote and appears on track. Timing from now could be a few months to longer....

Janaghan Jeyakumar, CFA

Hexaware Tech Done at INR 475. Now For The Residual

This morning, The Bidder for Hexaware Technologies (HEXW IN)

Travis Lundy

Hexaware Exit Offer Reverse Book Build Gets 90% & Discovered Price - Now We Wait

Hexaware Technologies (HEXW IN) took it down to the

Travis Lundy

Hexaware Technologies Reverse Book Build Auction - It's On

On Thu

Travis Lundy