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.

Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/yancoal-australia-ltd" target="_blank" data-smartkarma-citation="entities:4145:1" rel="noopener">Yancoal Australia (YAL AU)</a>’s independent board committee unanimously concluded that <a href="https://www.smartkarma.com/entities/yankuang-energy-group" target="_blank" data-smartkarma-citation="entities:384:1" rel="noopener">Yankuang Energy Group (1171 HK)</a>’s H-Share CBs offer is not in the best interests of Yancoal’s minority shareholders. </li>
<li>Yankuang is open to continuing its discussions with <a href="https://www.smartkarma.com/entities/yancoal-australia" target="_blank" data-smartkarma-citation="entities:8427:1" rel="noopener">Yancoal Australia (3668 HK)</a> but maintains that the offer was based on long-term factors including expectations of future coal prices.</li>
<li>Overall, the wording of Yankuang’s response suggests that it is more inclined to bide its time rather than return with a better offer. Required FIRB approval remains an overhang.</li>
</ul>



Yancoal Australia (YAL AU)’s independent board committee unanimously concluded that Yankuang Energy Group (1171 HK)’s H-Share CBs offer is not in the best interests of Yancoal’s minority shareholders. 
Yankuang is open to continuing its discussions with Yancoal Australia (3668 HK) but maintains that the offer was based on long-term factors including expectations of future coal prices.
Overall, the wording of Yankuang’s response suggests that it is more inclined to bide its time rather than return with a better offer. Required FIRB approval remains an overhang.


Yankuang’s Response Suggests that It Rather Wait than Improve Its Offer for Yancoal

<ul>
<li>
<a href="https://www.smartkarma.com/entities/glencore-plc" target="_blank" data-smartkarma-citation="entities:764:1" rel="noopener">Glencore Plc (GLEN LN)</a> is likely to reject <a href="https://www.smartkarma.com/entities/yanzhou-coal-mining-company-limited-h" target="_blank" data-smartkarma-citation="entities:384:1" rel="noopener">Yanzhou Coal Mining Company Limited H (1171 HK)</a>’s H-Share CBs of US$3.60 (HK$28.26/A$5.07) per <a href="https://www.smartkarma.com/entities/yancoal-australia-ltd" target="_blank" data-smartkarma-citation="entities:4145:1" rel="noopener">Yancoal Australia (YAL AU)</a> share, <a href="https://www.reuters.com/markets/europe/glencore-reject-offer-yancoal-australia-stake-too-low-sources-2022-06-02/" target="_blank" rel="noopener">according to Reuters</a>.</li>
<li>If the privatisation succeeds, we estimate that Yankuang’s additional claim on <a href="https://www.smartkarma.com/entities/yancoal-australia" target="_blank" data-smartkarma-citation="entities:8427:1" rel="noopener">Yancoal Australia (3668 HK)</a>’s three-year FCF would broadly cover the total potential consideration of US$1,794 million.</li>
<li>The fixed coupon on the CBs would likely need to match the foregone dividend yield. We think it challenging for Yankuang to bridge the gap to Glencore’s “right price”. </li>
</ul>



Glencore Plc (GLEN LN) is likely to reject Yanzhou Coal Mining Company Limited H (1171 HK)’s H-Share CBs of US$3.60 (HK$28.26/A$5.07) per Yancoal Australia (YAL AU) share, according to Reuters.
If the privatisation succeeds, we estimate that Yankuang’s additional claim on Yancoal Australia (3668 HK)’s three-year FCF would broadly cover the total potential consideration of US$1,794 million.
The fixed coupon on the CBs would likely need to match the foregone dividend yield. We think it challenging for Yankuang to bridge the gap to Glencore’s “right price”. 


Glencore and Yankuang’s Disparate Valuations of Yancoal

<ul>
<li>
<a href="https://www.smartkarma.com/entities/yanzhou-coal-mining-company-limited-h" target="_blank" data-smartkarma-citation="entities:384:1" rel="noopener">Yanzhou Coal Mining Company Limited H (1171 HK)</a>/Yankuang, a 62.26% shareholder, aims to offer H Share convertible bonds for US$3.60 (HK$28.26 or A$5.07) per <a href="https://www.smartkarma.com/entities/yancoal-australia-ltd" target="_blank" data-smartkarma-citation="entities:4145:1" rel="noopener">Yancoal Australia (YAL AU)</a> share.</li>
<li>Yankuang’s implied offer price is -16.6% and -14.5% below the last close price on the ASX and HKEx, respectively. At first glance, the offer seems to be a non-starter.  </li>
<li>Yankuang’s end game is likely to provide large shareholders with a liquidity event to hit the 90% compulsory acquisition threshold. This ploy could work subject to FIRB approval. </li>
</ul>



Yanzhou Coal Mining Company Limited H (1171 HK)/Yankuang, a 62.26% shareholder, aims to offer H Share convertible bonds for US$3.60 (HK$28.26 or A$5.07) per Yancoal Australia (YAL AU) share.
Yankuang’s implied offer price is -16.6% and -14.5% below the last close price on the ASX and HKEx, respectively. At first glance, the offer seems to be a non-starter.  
Yankuang’s end game is likely to provide large shareholders with a liquidity event to hit the 90% compulsory acquisition threshold. This ploy could work subject to FIRB approval. 


Yancoal’s Unusual Low Bid from Yankuang Energy

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Energy Select Sector SPDR Fund / Technical Analysis

<ul>
<li>We still see signs suggesting a test of the lows or a break to new lows is increasingly likely on the S&amp;P 500, Nasdaq 100 (QQQ), and Russell 2000 (IWM).</li>
<li>One of those signs is the fact that defensives (Utilities, Staples, pharma, Real Estate) remain at new RS highs.</li>
<li>Meanwhile, WTI crude oil and the Bloomberg Commodity index (DJP) are breaking out from 1-month consolidations, signaling upside continuation. Stick with the commodity and defensive Sectors.</li>
</ul>


We still see signs suggesting a test of the lows or a break to new lows is increasingly likely on the S&amp;P 500, Nasdaq 100 (QQQ), and Russell 2000 (IWM).
One of those signs is the fact that defensives (Utilities, Staples, pharma, Real Estate) remain at new RS highs.
Meanwhile, WTI crude oil and the Bloomberg Commodity index (DJP) are breaking out from 1-month consolidations, signaling upside continuation. Stick with the commodity and defensive Sectors.


Sticking With Commodity and Defensive Sectors; Buying Coal, Steel, Gold Stocks

iShares Russell 2000 ETF / Technical Analysis

<ul>
<li>The market continues to send mixed signals - some neutral or healthy signals but some risk-off signals as well.</li>
<li>As long as the Russell 2000 index (IWM) is above $208, Russell Micro Cap index (IWC) is above $134-$135, and the S&amp;P 500 is above 4495, we cannot be bearish.</li>
<li>Treasury yields are not breaking down below 1.40%-1.45% support on the 10-year Treasury yield and 1.76% support on the 30-year Treasury yield.</li>
</ul>


The market continues to send mixed signals - some neutral or healthy signals but some risk-off signals as well.
As long as the Russell 2000 index (IWM) is above $208, Russell Micro Cap index (IWC) is above $134-$135, and the S&amp;P 500 is above 4495, we cannot be bearish.
Treasury yields are not breaking down below 1.40%-1.45% support on the 10-year Treasury yield and 1.76% support on the 30-year Treasury yield.


Continued Absence Of Breakdowns Is A Positive Sign; Many Bottoms-Up Stock Recommendations

United States

Peabody Energy Corporation mines and markets low sulfur coal, primarily for use by electric utilities. The Company also trades coal and emission allowances. Peabody owns and operates mines in Arizona, Colorado, New Mexico and Wyoming, Illinois, Indiana, and Australia.

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Peabody Energy (BTU US)

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Yancoal unsurprisingly batted away Yankuang's low-ball offer. The wording in Yankuang's response suggests that it is unlikely to offer improved...

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Glencore and Yankuang’s Disparate Valuations of Yancoal

Glencore is likely to reject Yankuang’s offer, according to Reuters. While Glencore is said to be a willing seller, we think that Yankuang will...

Arun George

Yancoal’s Unusual Low Bid from Yankuang Energy

Yankuang’s implied offer price is materially below the last close price on both the ASX and HKEx. The strategy is likely to secure large...

Arun George

Sticking With Commodity and Defensive Sectors; Buying Coal, Steel, Gold Stocks

Crude oil and the Bloomberg Commodity index $DJP are breaking out from 1-month consolidations, signaling upside continuation. Stick with the...

Vermilion Research

Continued Absence Of Breakdowns Is A Positive Sign; Many Bottoms-Up Stock Recommendations

As long as the Russell 2000 index (IWM) is above $208, the Russell Micro Caps index (IWC) is above $134-$135, and the S&P 500 is above 4495, we...

Vermilion Research

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