Silver Point

Thomas J. Monaco

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Third Indian Bank Failure In 15 Months: For the third time in 15 months, the Reserve Bank of India (RBI) took over a failing regional bank - announcing that it would limit deposit withdrawals and replace the board of directors at Lakshm Vilas Bank (LVB.IN) due to a "serious deterioration" in its finances. After the failure of Punjab and Maharashtra Co-operative Bank and Yes Bank (YES.IN); and 12 consecutive quarters of posting losses it should come as no surprise that the RBI placed LVB under moratorium through December 16, 2020; and*Not Letting Cash Burn A Hole In Its Pocket: On Novenber 17, 2020, the RBI also announced a draft scheme to merge LVB with DBS Bank India Limited, the 100%-owned subsidiary of DBS Bank Holdings (DBS.SP), which will infuse INR 25 bn into its subsidiary to absorb and recapitalize LVB. This transaction is riddled with problems and will certainly cost DBS far greater than its initial investment.

*Third Indian Bank Failure In 15 Months: For the third time in 15 months, the Reserve Bank of India (RBI) took over a failing regional bank - announcing that it would limit deposit withdrawals and replace the board of directors at Lakshm Vilas Bank (LVB.IN) due to a "serious deterioration" in its finances. After the failure of Punjab and Maharashtra Co-operative Bank and Yes Bank (YES.IN); and 12 consecutive quarters of posting losses it should come as no surprise that the RBI placed LVB under moratorium through December 16, 2020; and*Not Letting Cash Burn A Hole In Its Pocket: On Novenber 17, 2020, the RBI also announced a draft scheme to merge LVB with DBS Bank India Limited, the 100%-owned subsidiary of DBS Bank Holdings (DBS.SP), which will infuse INR 25 bn into its subsidiary to absorb and recapitalize LVB. This transaction is riddled with problems and will certainly cost DBS far greater than its initial investment.  

*More Transformation To Come: What a magnificent amazing six months this has been for Tencent Holding’s (700.HK) [Tencent] Afterpay Touch (APT.AU) [Afterpay]. Afterpay provided positive commentary at its Annual General Meeting (AGM) where the next six months look to be even more transformational with operations beginning in the European Union, launches of banking products, and potentially the launch of the business in Asia (likely under the tutelage of Tencent); and*More Magic Fairy Dust: Tencent continues to hit it out of the park with its Afterpay stake. In addition to a superb return on investment of 394% over the past five plus months since the stake announcement, this alliance with Australia’s premier financial technology Buy Now Pay Later (BNPL) company is paying dividends to Tencent in numerous other ways.

*More Transformation To Come: What a magnificent amazing six months this has been for Tencent Holding’s (700.HK) [Tencent] Afterpay Touch (APT.AU) [Afterpay]. Afterpay provided positive commentary at its Annual General Meeting (AGM) where the next six months look to be even more transformational with operations beginning in the European Union, launches of banking products, and potentially the launch of the business in Asia (likely under the tutelage of Tencent); and*More Magic Fairy Dust: Tencent continues to hit it out of the park with its Afterpay stake. In addition to a superb return on investment of 394% over the past five plus months since the stake announcement, this alliance with Australia’s premier financial technology Buy Now Pay Later (BNPL) company is paying dividends to Tencent in numerous other ways.

*Potential Deal For Tahoe Life: According to a Bloomberg report, Ping An Insurance (2318.HK) [Ping An] (along with Sunshine Insurance Group in Beijing] is a finalist to acquire Tahoe Life, the Hong Kong-based life insurance subsidiary of Tahoe Investment, for over USD 1 bn; and*Other Goodies May Come Along With Deal: In addition to Tahoe Life, Tahoe Investment is a founding shareholder of Haixia Life Insurance and a major shareholder of Fujian Haixia Bank, Rural Credit Bank of Fuzhou, and Dongxing Securities. Given the financial troubles of Tahoe, we would have to imagine the sale of these businesses would also be on the table for Ping An and Sunshine as well.

*Potential Deal For Tahoe Life: According to a Bloomberg report, Ping An Insurance (2318.HK) [Ping An] (along with Sunshine Insurance Group in Beijing] is a finalist to acquire Tahoe Life, the Hong Kong-based life insurance subsidiary of Tahoe Investment, for over USD 1 bn; and*Other Goodies May Come Along With Deal: In addition to Tahoe Life, Tahoe Investment is a founding shareholder of Haixia Life Insurance and a major shareholder of Fujian Haixia Bank, Rural Credit Bank of Fuzhou, and Dongxing Securities. Given the financial troubles of Tahoe, we would have to imagine the sale of these businesses would also be on the table for Ping An and Sunshine as well.

Ping An Insurance – Where There Is Smoke...

Hong Kong Exchanges and Clearing / Equity Bottom-Up

Hong Kong Exchanges and Clearing (388 HK)

*Solid Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and** Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV.

*Solid Quarter: Hong Kong Exchanges &amp; Clearing (388.HK) [HKEX] reported 3Q20 earnings of HKD 3.3 bn, improving HKD 376 mn (12.7%) linked quarter. Results were even more impressive when we exclude investment income (declined HKD 206 mn or 23.2% linked quarter) – increasing HKD 582 mn (28.0%) to HKD 2.7 bn; and** Peak Value: So much value has been derived on hope for the shares of HKEx, which included that on: southbound connect, futures markets,  structural reforms, and the change in CEO. As such, we have witnessed HKEx’s 2020 share performance of 44.4% that has resulted in a global exchange leading valuation of 10.4x P/BV.

Hong Kong Exchanges & Clearing – Strong Quarter, But Can It Continue?

*Another Weak Set Of Metrics: Link REIT (823.HK) [Link REIT] reported negative FY 1H21 bottom-line results of HKD 4.1 bn. While still a loss, this figure represents about 17.2% of losses (HKD 23.9 bn) posted in FY 2H20. Losses in both periods were attributed to negative fair value marks of HKD 7.3 bn and HKD 27.6 bn, respectively. While results on an operating basis were positive, the trend unfortunately remains negative for Link REIT – declining HKD 564 mn (15.1%). The poor operating results were driven by weaker Hong Kong rental income which declined HKD 186 mn (5.4%) HOH; and a HKD 55 mn (9.8%) decline in mainland Chinese property-related revenues;*Worries Abound: Weaker than expected Hong Kong retail operations leading to lower level of rental reversions; and continued negative revaluation of property due to lower rents and/or higher cap rates remain long-term risks; and*Poor Capital Management: On July 26, 2020, Link announced its proposed acquisition of a Grade A office building, The Cabot at 25 Cabot Square at Canary Wharf in London. This transaction makes little sense for Link REIT on a number of levels. Management also reiterated its 2025 target, suggesting that intends to add to the existing "core" portfolio while adding "core-plus" and "value-add" assets, which would include mainland Chinese Tier-1 cities, the United Kingdom, Australia, Singapore and Japan. Link REIT has also completed the 60 mn share buyback. Instead of weighing a buybacks return versus new investment ROI, management views share buybacks as a mechanism to defend its shares against short-selling.

*Another Weak Set Of Metrics: Link REIT (823.HK) [Link REIT] reported negative FY 1H21 bottom-line results of HKD 4.1 bn. While still a loss, this figure represents about 17.2% of losses (HKD 23.9 bn) posted in FY 2H20. Losses in both periods were attributed to negative fair value marks of HKD 7.3 bn and HKD 27.6 bn, respectively. While results on an operating basis were positive, the trend unfortunately remains negative for Link REIT – declining HKD 564 mn (15.1%). The poor operating results were driven by weaker Hong Kong rental income which declined HKD 186 mn (5.4%) HOH; and a HKD 55 mn (9.8%) decline in mainland Chinese property-related revenues;*Worries Abound: Weaker than expected Hong Kong retail operations leading to lower level of rental reversions; and continued negative revaluation of property due to lower rents and/or higher cap rates remain long-term risks; and*Poor Capital Management: On July 26, 2020, Link announced its proposed acquisition of a Grade A office building, The Cabot at 25 Cabot Square at Canary Wharf in London. This transaction makes little sense for Link REIT on a number of levels. Management also reiterated its 2025 target, suggesting that intends to add to the existing "core" portfolio while adding "core-plus" and "value-add" assets, which would include mainland Chinese Tier-1 cities, the United Kingdom, Australia, Singapore and Japan. Link REIT has also completed the 60 mn share buyback. Instead of weighing a buybacks return versus new investment ROI, management views share buybacks as a mechanism to defend its shares against short-selling.

Hong Kong

iShares MSCI Hong Kong ETF is an exchange-traded fund incorporated in the USA. The ETF's objective seeks to provide investment results that correspond to the performance of publicly traded securities in the Hong Kong market, as measured by the MSCI Hong Kong Index. The ETF invests in a representative sample of index stocks using a "portfolio sampling" technique.

iShares MSCI Hong Kong ETF (EWH US)

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Hong Kong Exchanges & Clearing – Strong Quarter, But Can It Continue?

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Link REIT – Bread and Butter Melting

LINK REIT: Almost Nothing Is Going Right For Link REIT. Rental Reversion Rates Weakening In Hong Kong; FV Marks Remain Negative; and Capital...

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