Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Late last night India time and into this morning HKT, Vedanta Resources <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/4f8390e6-f5a9-4fe2-8827-9b2f68c7c667.pdf" target="_blank" rel="noopener">announced</a> an Announcement cum Corrigendum to Public Announcement, Detailed Public Statement and the Draft Letter of Offer which will be published today.On December 23, less than two weeks after the CEO said on public TV they had no plans to buy any more 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>, Vedanta Resources bought 4.98% 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> in a block at Rs. 160/share. That capped what they could buy during the fiscal year under the creeper rule. On January 9, Vedanta Resources announced an Open Offer to buy 371,750,500 shares at Rs 160.00 apiece. Shares were already 10+% higher and commodity prices were soaring so it was likely they would need to pay up as discussed in several insights since. Just over two weeks ago, Vedanta Resources issued US$1.2bn of a bond designed where use of proceeds included paying for the Open Offer and other things. That US$1.2bn converted to rupees, if completely spent on VEDL shares would mean Rs 235.00.Last weekend I wrote that I didn't expect them to go that high, so upside from here was less event-y and more commodity-y.[Narrator:  They went that high]<h3>The NEW News</h3>Late last night, in its new announcement amending the Draft Letter of Offer, Vedanta Resources upped the size of its offer from 371.75mm shares (10.00%) to 651mm shares (17.51%) and raised the price from Rs 160/share to Rs 235/share which means a total payment of Rs 152.985 billion, which is US$2.11bn.It's on. The change in price is big. The change in size changes the risk parameters.Much more discussion below.

Late last night India time and into this morning HKT, Vedanta Resources announced an Announcement cum Corrigendum to Public Announcement, Detailed Public Statement and the Draft Letter of Offer which will be published today.On December 23, less than two weeks after the CEO said on public TV they had no plans to buy any more of Vedanta Ltd (VEDL IN), Vedanta Resources bought 4.98% of Vedanta Ltd (VEDL IN) in a block at Rs. 160/share. That capped what they could buy during the fiscal year under the creeper rule. On January 9, Vedanta Resources announced an Open Offer to buy 371,750,500 shares at Rs 160.00 apiece. Shares were already 10+% higher and commodity prices were soaring so it was likely they would need to pay up as discussed in several insights since. Just over two weeks ago, Vedanta Resources issued US$1.2bn of a bond designed where use of proceeds included paying for the Open Offer and other things. That US$1.2bn converted to rupees, if completely spent on VEDL shares would mean Rs 235.00.Last weekend I wrote that I didn't expect them to go that high, so upside from here was less event-y and more commodity-y.[Narrator:  They went that high]The NEW NewsLate last night, in its new announcement amending the Draft Letter of Offer, Vedanta Resources upped the size of its offer from 371.75mm shares (10.00%) to 651mm shares (17.51%) and raised the price from Rs 160/share to Rs 235/share which means a total payment of Rs 152.985 billion, which is US$2.11bn.It's on. The change in price is big. The change in size changes the risk parameters.Much more discussion below.

Vedanta (VEDL) Open Offer Raised in Price and Size!

Three weeks ago <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> reached new two-year highs reaching to INR 195.00/share. I wrote in <a href="https://www.smartkarma.com/insights/vedanta-soars-beyond-indicative-open-offer-level-not-expensive" target="_blank" data-smartkarma-citation="insights:48342" rel="noopener">Vedanta Soars Beyond Indicative Open Offer Level. Not Expensive</a> that the stock was indeed quite a bit higher than the Indicative Open Offer level of INR160 - above which it had traded since December - but that it was not expensive. 
Q3 earnings had turned out to be quite respectable (there is a recap in that insight linked above), the stock was iterating towards the end of the year when the "cutoff" for the official Dividend Distribution Policy would be implemented (or ignored/dismissed), and if implemented, would mean a large dividend to VEDL shareholders, and because commodity prices continued to rise along with demand, the prospect of Q4 earnings being quite strong was certainly on the table. 
Since then, oil, iron ore, aluminum, copper are all up, and zinc and silver are down slightly. Theoretically, the combination of all these factors should mean VEDL would outperform its <a href="https://www.smartkarma.com/entities/hindustan-zinc-ltd" target="_blank" data-smartkarma-citation="entities:8688:1" rel="noopener">Hindustan Zinc (HZ IN)</a> subsidiary in the short term, and indeed that has been the case. 
There is new news in the past two weeks which has caused further speculation, and the shares have risen 15% from that insight through the 10 March close. Importantly, in that same period, the Peer Basket has not moved one iota.
As a result, the VEDL vs Peers or VEDL vs HZ+Peers Price Ratio has now risen to the highest level since the covid-crash selloff and is shouting distance from the average level for all of 2019.
More comments follow.

Three weeks ago Vedanta Ltd (VEDL IN) reached new two-year highs reaching to INR 195.00/share. I wrote in Vedanta Soars Beyond Indicative Open Offer Level. Not Expensive that the stock was indeed quite a bit higher than the Indicative Open Offer level of INR160 - above which it had traded since December - but that it was not expensive. 
Q3 earnings had turned out to be quite respectable (there is a recap in that insight linked above), the stock was iterating towards the end of the year when the "cutoff" for the official Dividend Distribution Policy would be implemented (or ignored/dismissed), and if implemented, would mean a large dividend to VEDL shareholders, and because commodity prices continued to rise along with demand, the prospect of Q4 earnings being quite strong was certainly on the table. 
Since then, oil, iron ore, aluminum, copper are all up, and zinc and silver are down slightly. Theoretically, the combination of all these factors should mean VEDL would outperform its Hindustan Zinc (HZ IN) subsidiary in the short term, and indeed that has been the case. 
There is new news in the past two weeks which has caused further speculation, and the shares have risen 15% from that insight through the 10 March close. Importantly, in that same period, the Peer Basket has not moved one iota.
As a result, the VEDL vs Peers or VEDL vs HZ+Peers Price Ratio has now risen to the highest level since the covid-crash selloff and is shouting distance from the average level for all of 2019.
More comments follow.

Vedanta (VEDL) Awaits Open Offer Revision. Now Less Event-y More Commodity-y

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

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

Last evening, the Index Maintenance Sub-Committee (IMSC) of NSE Indices announced the results of the March index review for the <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a>. The rebalance will be effective after the close of trading on 30 March and passive funds will need to trade at the close (VWAP over the last 30 minutes of trading) on the day.<a href="https://www.smartkarma.com/entities/tata-consumer-products" target="_blank" data-smartkarma-citation="entities:258:1" rel="noopener">Tata Consumer Products (TATACONS IN)</a> has been included in the index and replaces <a href="https://www.smartkarma.com/entities/gail-india-ltd" target="_blank" data-smartkarma-citation="entities:15263:1" rel="noopener">Gail India Ltd (GAIL IN)</a>. This is in line with what we expected and makes <a href="https://www.smartkarma.com/entities/tata-consumer-products" target="_blank" data-smartkarma-citation="entities:258:1" rel="noopener">Tata Consumer Products (TATACONS IN)</a> the fifth Tata group company to be included in the index.NSE indices have also announced a number of changes to other indices. There are 7 changes to the NIFTY Next 50 (which together with the NIFTY 50 makes up the NIFTY 100) with <a href="https://www.smartkarma.com/entities/adani-enterprises-ltd" target="_blank" data-smartkarma-citation="entities:245:1" rel="noopener">Adani Enterprises (ADE IN)</a>, <a href="https://www.smartkarma.com/entities/apollo-hospitals-enterprise" target="_blank" data-smartkarma-citation="entities:880:1" rel="noopener">Apollo Hospitals Enterprise (APHS IN)</a>, <a href="https://www.smartkarma.com/entities/gail-india-ltd" target="_blank" data-smartkarma-citation="entities:15263:1" rel="noopener">Gail India Ltd (GAIL IN)</a>, <a href="https://www.smartkarma.com/entities/jubilant-foodworks-ltd" target="_blank" data-smartkarma-citation="entities:986:1" rel="noopener">Jubilant Foodworks (JUBI IN)</a>, <a href="https://www.smartkarma.com/entities/mrf-ltd" target="_blank" data-smartkarma-citation="entities:2930:1" rel="noopener">Mrf Ltd (MRF IN)</a>, <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 <a href="https://www.smartkarma.com/entities/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">Yes Bank (YES IN)</a> replacing <a href="https://www.smartkarma.com/entities/bank-of-baroda" target="_blank" data-smartkarma-citation="entities:545:1" rel="noopener">Bank Of Baroda (BOB IN)</a>, <a href="https://www.smartkarma.com/entities/container-corp-of-india-ltd" target="_blank" data-smartkarma-citation="entities:17912:1" rel="noopener">Container Corp of India (CCRI IN)</a>, <a href="https://www.smartkarma.com/entities/general-ins-corp-of-india" target="_blank" data-smartkarma-citation="entities:25944:1" rel="noopener">General Insurance Corp Of India (GICRE IN)</a>, <a href="https://www.smartkarma.com/entities/hindustan-zinc-ltd" target="_blank" data-smartkarma-citation="entities:8688:1" rel="noopener">Hindustan Zinc (HZ IN)</a>, <a href="https://www.smartkarma.com/entities/oracle-financial-services" target="_blank" data-smartkarma-citation="entities:7775:1" rel="noopener">Oracle Financial Services (OFSS IN)</a>, <a href="https://www.smartkarma.com/entities/power-finance-corporation" target="_blank" data-smartkarma-citation="entities:13579:1" rel="noopener">Power Finance (POWF IN)</a> and <a href="https://www.smartkarma.com/entities/tata-consumer-products" target="_blank" data-smartkarma-citation="entities:258:1" rel="noopener">Tata Consumer Products (TATACONS IN)</a>.Changes have also been made to the index methodology. The main change from the perspective of the <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a> is that the index reviews will be effective after the close on the second last working day of the review month. The existing methodology specifies that the index review will be effective after the close on the F&amp;O expiry day (last Thursday) of the review month.<div class="content-highlight">This Insight has been marked as Bullish since TATACONS could outperform its peers in the near term.</div>

Last evening, the Index Maintenance Sub-Committee (IMSC) of NSE Indices announced the results of the March index review for the NIFTY Index (NIFTY INDEX). The rebalance will be effective after the close of trading on 30 March and passive funds will need to trade at the close (VWAP over the last 30 minutes of trading) on the day.Tata Consumer Products (TATACONS IN) has been included in the index and replaces Gail India Ltd (GAIL IN). This is in line with what we expected and makes Tata Consumer Products (TATACONS IN) the fifth Tata group company to be included in the index.NSE indices have also announced a number of changes to other indices. There are 7 changes to the NIFTY Next 50 (which together with the NIFTY 50 makes up the NIFTY 100) with Adani Enterprises (ADE IN), Apollo Hospitals Enterprise (APHS IN), Gail India Ltd (GAIL IN), Jubilant Foodworks (JUBI IN), Mrf Ltd (MRF IN), Vedanta Ltd (VEDL IN) and Yes Bank (YES IN) replacing Bank Of Baroda (BOB IN), Container Corp of India (CCRI IN), General Insurance Corp Of India (GICRE IN), Hindustan Zinc (HZ IN), Oracle Financial Services (OFSS IN), Power Finance (POWF IN) and Tata Consumer Products (TATACONS IN).Changes have also been made to the index methodology. The main change from the perspective of the NIFTY Index (NIFTY INDEX) is that the index reviews will be effective after the close on the second last working day of the review month. The existing methodology specifies that the index review will be effective after the close on the F&amp;O expiry day (last Thursday) of the review month.This Insight has been marked as Bullish since TATACONS could outperform its peers in the near term.

NIFTY50 Index Rebalance: TATACONS In, GAIL Out; Methodology Changes Too

Equity Bottom-Up

In mid-December, eight trading days after Vedanta promotor Anil Agarwal said the promoter (Vedanta Resources, himself, the associated companies) had no plans at all to increase their stake in <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 no plans to make an Open Offer, the promoter launched a block bid to buy 4.98% in a post-market trade. The shares had climbed more than 50% in the previous two months to Rs 150/share, but the deal got done at Rs 160/share.Less than three weeks later, two entities controlled by <a href="https://www.smartkarma.com/entities/vedanta-resources-limited" target="_blank" data-smartkarma-citation="entities:22202:1" rel="noopener">Vedanta Resources (VED LN)</a> announced an intention to conduct an Open Offer to buy another 10% of its main Indian-listed asset, VEDL at the same Rs. 160/share price as the clearing price. But by that time (9 January), the price had risen past Rs. 180/share as global market movements had propelled gains in cyclicals and commodity markets had propelled the underlying products.But even then, VEDL was quite cheap on a relative basis. The question was about the nature of the Open Offer. Was it a real Open Offer?  Or was it designed for another purpose in mind? We still do not know the answer, but on 18 February the stock reached a new 2-year intraday high, closing at Rs. 195+/share. And VEDL is still not expensive vs peers. Q3 results at both HZ and at VEDL ex-HZ were great. VEDL ex-HZ Operating Income was the highest since March 2014, and VEDL ex-HZ Net Income in Q3 was the second highest non-accounting gimmick Net Income ever?Looking forward, consensus on VEDL is stale. It shows the largest negative number for VEDL ex-HZ OP in the modern VEDL era in Q4 this year despite strong commodity pricing.And VEDL still owes a lot of back dividends to its shareholders. And we await the Open Offer details.This and a lot more below.

In mid-December, eight trading days after Vedanta promotor Anil Agarwal said the promoter (Vedanta Resources, himself, the associated companies) had no plans at all to increase their stake in Vedanta Ltd (VEDL IN) and no plans to make an Open Offer, the promoter launched a block bid to buy 4.98% in a post-market trade. The shares had climbed more than 50% in the previous two months to Rs 150/share, but the deal got done at Rs 160/share.Less than three weeks later, two entities controlled by Vedanta Resources (VED LN) announced an intention to conduct an Open Offer to buy another 10% of its main Indian-listed asset, VEDL at the same Rs. 160/share price as the clearing price. But by that time (9 January), the price had risen past Rs. 180/share as global market movements had propelled gains in cyclicals and commodity markets had propelled the underlying products.But even then, VEDL was quite cheap on a relative basis. The question was about the nature of the Open Offer. Was it a real Open Offer?  Or was it designed for another purpose in mind? We still do not know the answer, but on 18 February the stock reached a new 2-year intraday high, closing at Rs. 195+/share. And VEDL is still not expensive vs peers. Q3 results at both HZ and at VEDL ex-HZ were great. VEDL ex-HZ Operating Income was the highest since March 2014, and VEDL ex-HZ Net Income in Q3 was the second highest non-accounting gimmick Net Income ever?Looking forward, consensus on VEDL is stale. It shows the largest negative number for VEDL ex-HZ OP in the modern VEDL era in Q4 this year despite strong commodity pricing.And VEDL still owes a lot of back dividends to its shareholders. And we await the Open Offer details.This and a lot more below.

Vedanta Soars Beyond Indicative Open Offer Level. Not Expensive

Just over four weeks ago on 8 December 2020, <a href="https://www.smartkarma.com/entities/vedanta-resources-limited" target="_blank" data-smartkarma-citation="entities:22202:1" rel="noopener">Vedanta Resources (VED LN)</a> promoter Anil Agarwal was on <a href="https://www.moneycontrol.com/news/business/india-will-grow-phenomenally-well-hereon-says-vedantas-anil-agarwal-6208991.html" target="_blank" rel="noopener">CNBC-TV18 in India saying</a> that the promoter (Vedanta Resources, himself, the associated companies) had no plans at all to increase their stake in VEDL and no plans to make an open offer. He said the same in an <a href="https://www.timesnownews.com/business-economy/companies/article/no-plans-to-increase-stake-in-vedanta-currently-anil-agarwal/693270" target="_blank" rel="noopener">interview</a> with ETNow on 10-11 December. <section class="figure"><section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/181/867/original/Screenshot+2021-01-11+at+11.32.36+AM.png?1610336005" class="editor-image img-responsive" data-smartkarma-image-id="181867"></figure></section>Eight trading days later, they launched an off-market purchase to buy 4.98% of shares outstanding - the effective limit in any given fiscal year - to buy shares at a price between INR 150.45-160.00. This was discussed in <a href="https://www.smartkarma.com/insights/vedanta-promoter-launches-offer-to-buy-4-98" target="_blank" data-smartkarma-citation="insights:46600" rel="noopener">Vedanta Promoter Launches Offer to Buy 4.98%</a>. Early reports were they got less than 5%, and had to pay the top price to get that bit, but the 13D filed on 24 December suggests they got to 2,048,458,132 shares which is 55.1% which was what they were looking to do.
Then the shares went up some more. They immediately went above INR 160, then went higher. 
<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/181/879/original/Screenshot+2021-01-11+at+1.57.17+PM.png?1610345200" class="editor-image img-responsive" data-smartkarma-image-id="181879"></figure></section></section>Less than a week after making that purchase, local media (Economic Times and others) were mentioning the possibility (from "sources") that Vedanta Resources might come back with an Open Offer for another 10%. Since the new year, the shares have popped further, likely in response to sharply higher commodity prices and a sharply higher share price for <a href="https://www.smartkarma.com/entities/hindustan-zinc-ltd" target="_blank" data-smartkarma-citation="entities:8688:1" rel="noopener">Hindustan Zinc (HZ IN)</a>, which rallied from Rs 240/share at year-end to above Rs 300/share in the first week of the year. <div class="content-highlight">
<h2>The NEW News</h2>
On 9 January 2021, <a href="https://www.smartkarma.com/entities/vedanta-resources-limited" target="_blank" data-smartkarma-citation="entities:22202:1" rel="noopener">Vedanta Resources (VED LN)</a> released an <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/B5B266CE-05B4-4E0B-9498-F913F67903B3-191702.pdf" target="_blank" rel="noopener">announcement</a> that it would launch a Voluntary Open Offer to purchase an additional 371,750,500 shares (10% of shares out) 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> at Rs. 160/share, spending about US$800mm to get there. 
</div>A Detailed Public Statement ("DPS") will be released on or about 15 January. This starts a two-month-plus process leading to a two-week Open Offer, likely to take place starting in the second half of March. More on what this means, how it could play out, etc, below the fold.

Just over four weeks ago on 8 December 2020, Vedanta Resources (VED LN) promoter Anil Agarwal was on CNBC-TV18 in India saying that the promoter (Vedanta Resources, himself, the associated companies) had no plans at all to increase their stake in VEDL and no plans to make an open offer. He said the same in an interview with ETNow on 10-11 December. Eight trading days later, they launched an off-market purchase to buy 4.98% of shares outstanding - the effective limit in any given fiscal year - to buy shares at a price between INR 150.45-160.00. This was discussed in Vedanta Promoter Launches Offer to Buy 4.98%. Early reports were they got less than 5%, and had to pay the top price to get that bit, but the 13D filed on 24 December suggests they got to 2,048,458,132 shares which is 55.1% which was what they were looking to do.
Then the shares went up some more. They immediately went above INR 160, then went higher. 
Less than a week after making that purchase, local media (Economic Times and others) were mentioning the possibility (from "sources") that Vedanta Resources might come back with an Open Offer for another 10%. Since the new year, the shares have popped further, likely in response to sharply higher commodity prices and a sharply higher share price for Hindustan Zinc (HZ IN), which rallied from Rs 240/share at year-end to above Rs 300/share in the first week of the year. 
The NEW News
On 9 January 2021, Vedanta Resources (VED LN) released an announcement that it would launch a Voluntary Open Offer to purchase an additional 371,750,500 shares (10% of shares out) of Vedanta Ltd (VEDL IN) at Rs. 160/share, spending about US$800mm to get there. 
A Detailed Public Statement ("DPS") will be released on or about 15 January. This starts a two-month-plus process leading to a two-week Open Offer, likely to take place starting in the second half of March. More on what this means, how it could play out, etc, below the fold. 

Vedanta (VEDL IN) Promoter To Launch an Open Offer To Buy More

India

Hindustan Zinc is an Indian integrated mining and resources producer, specializing in zinc, lead, and silver, and is the world's second-largest zinc producer and among the top five silver producers globally. The company also engages in captive power generation and manufactures phosphatic fertilizers. Hindustan Zinc is headquartered in Udaipur, Rajasthan, India, and was founded in 1966.

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Hindustan Zinc (HZ IN)

Vedanta (VEDL) Open Offer Raised in Price and Size!

Vedanta Resources has raised its Open Offer Price (235 vs 160) and size (17.5 vs 10%). This is likely to get done to the full extent or close to...

Travis Lundy

Vedanta (VEDL) Awaits Open Offer Revision. Now Less Event-y More Commodity-y

2 weeks ago, Vedanta Resources raised US$1.2bn to provide funding for its bid for another 10% of Vedanta Ltd (VEDL). They will need to revise the...

Travis Lundy

NIFTY50 Index Rebalance: TATACONS In, GAIL Out; Methodology Changes Too

TATACONS has been added to the NIFTY50 replacing GAIL. There are changes to a bunch of other indices too and methodology changes which shift the...

Brian Freitas

Vedanta Soars Beyond Indicative Open Offer Level. Not Expensive

VEDL is STILL cheap to peers relative, on a stub basis, on a fundamental basis using current or forward EV/consensus EBIT or EBITDA. We await the...

Travis Lundy

Vedanta (VEDL IN) Promoter To Launch an Open Offer To Buy More

Vedanta Resources just bought 5% of VEDL at INR 160. They are now going for another 10% at INR 160/share. VEDL Investors are long a virtual put,...

Travis Lundy

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