Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

Nature Home Holding Company / Event-Driven

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<p>Back on the 27 July, wood flooring manufacturer <a href="https://www.smartkarma.com/entities/nature-home-holding-company" target="_blank" data-smartkarma-citation="entities:20543:1" rel="noopener">Nature Home Holding Company (2083 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0727/2021072701813.pdf" target="_blank" rel="noopener">announced</a> an Offer from its founding shareholders, by way of a Scheme, at HK$1.70/share. The Offer Price will not be increased. <a href="https://www.smartkarma.com/entities/dehua-tb-new-decoration-a" target="_blank" data-smartkarma-citation="entities:4444:1" rel="noopener">Dehua Tb New Decoration A (002043 CH)</a> has given an irrevocable rollover undertaking for its 19.6% stake. </p>
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<p>The Scheme Document was <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0913/2021091301428.pdf" target="_blank" rel="noopener">despatched</a> on the 14 September with the Court Meeting scheduled for the 6 October. Provided all resolutions pass, cheques are expected to be despatched on or before the 26 October.</p>
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<p>The Offer looked done and the gross/annualised spread tightened into 2%/26.5% on the 19 September.</p>
<p>Then the wheels fell off, with the gross spread widening out to 38% as I type, and trading well below the undisturbed price.</p>
<p>Nature Homes had previously flagged concerns with outstanding trade receivables with <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande Real Estate Group (3333 HK)</a>, and potentially the ubiquitous negative news surrounding China's second-largest developer is having a knock-on-affect. Plus there are a number of other factors at work that <em>could</em> be bucketed under buyer's remorse.</p>
<p>But the Offeror &amp; concert parties cannot simply walk away from this deal. Not without breaching the Takeover's Code. And which shareholder will <em>not</em> vote this through given where it is trading? </p>
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<p>More below the fold.</p>
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Back on the 27 July, wood flooring manufacturer Nature Home Holding Company (2083 HK) announced an Offer from its founding shareholders, by way of a Scheme, at HK$1.70/share. The Offer Price will not be increased. Dehua Tb New Decoration A (002043 CH) has given an irrevocable rollover undertaking for its 19.6% stake. 


The Scheme Document was despatched on the 14 September with the Court Meeting scheduled for the 6 October. Provided all resolutions pass, cheques are expected to be despatched on or before the 26 October.


The Offer looked done and the gross/annualised spread tightened into 2%/26.5% on the 19 September.
Then the wheels fell off, with the gross spread widening out to 38% as I type, and trading well below the undisturbed price.
Nature Homes had previously flagged concerns with outstanding trade receivables with Evergrande Real Estate Group (3333 HK), and potentially the ubiquitous negative news surrounding China's second-largest developer is having a knock-on-affect. Plus there are a number of other factors at work that could be bucketed under buyer's remorse.
But the Offeror &amp; concert parties cannot simply walk away from this deal. Not without breaching the Takeover's Code. And which shareholder will not vote this through given where it is trading? 


More below the fold.


Nature Home (2083 HK): Risk Aversity Sees Spread Blow Out

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<p>This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks.</p>
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<p>I number 37, mostly firm, deals around the region.</p>
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<p>More below the fold.</p>
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This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks.


I number 37, mostly firm, deals around the region.


More below the fold.


Asia-Pac Weekly Risk Arb Summary: Shinsei Bank, Soho China, Nippo Corp, Rhipe, Oil Search/Santos

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.

<p><a href="https://www.smartkarma.com/entities/soho-china-ltd" target="_blank" data-smartkarma-citation="entities:4123:1" rel="noopener">Soho China Ltd (410 HK)</a> is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. On Friday after market close, SOHO China announced that <a href="https://www.smartkarma.com/entities/blackstone-group-inc" target="_blank" data-smartkarma-citation="entities:27166:1" rel="noopener">Blackstone Group (BX US)</a> has withdrawn its pre-conditional voluntary conditional cash offer of HK$5.00 per share. </p><p>The key pre-condition was SAMR anti-trust approval. On 2 August, the SOHO China/Blackstone case was accepted for SAMR review by normal procedure rather than a simplified procedure which can take 180 days. On 6 September, SOHO China noted that Blackstone has provided further documents in response to the SAMR’s requests for additional information. Blackstone had received further requests to provide additional information by SAMR and the statement noted that it remains uncertain when the review process will be completed. </p><p>We previously argued in <a href="https://www.smartkarma.com/insights/soho-china-s-spread-risk-reward-update" target="_blank" data-smartkarma-citation="insights:56578" rel="noopener">SOHO China's Spread Risk/Reward Update</a> that SAMR approval should be forthcoming due to Blackstone’s prior experience in securing SAMR approval for real estate deals, SOHO China will continue to be listed and the deal will not lead to a material increase in market concentration. </p><p>Four days later 10 September, Blackstone and Pan Shiyi mutually agreed to terminate the offer as they concluded that the pre-condition (SAMR antitrust approval) will be unlikely to be satisfied on or before the Long Stop date (31 December 2021). Revealingly, the parties also agreed that there will be no extension to the Long Stop date suggesting that recent interactions with SAMR had headed downhill.  </p><p>We think that Blackstone decided to walk away as it was unwilling to expend all its political goodwill to complete a single transaction. The transaction had caused disquiet in China with several Chinese press and social media posts urging SAMR to block the transaction due to the premise that the deal is unpatriotic for reasons highlighted in <a href="https://www.smartkarma.com/insights/soho-china-s-spread-risk-reward-update" target="_blank" data-smartkarma-citation="insights:56578" rel="noopener">SOHO China's Spread Risk/Reward Update</a>. While we previously argued that the rationale presented in these articles for blocking the deal is poor, a SAMR antitrust approval would also not sit well with President Xi Jinping’s recent calls for wealth redistribution.</p><p>On the other hand, Pan Shiyi is stuck between a rock and a hard place. The publicity from the pulled transaction means that potential buyers will stay away in the short term. When the dust settles, Pan Shiyi can pursue selling individual assets or sell his stake to a domestic private equity bidder or real estate firm. Long-term, we see a limited rationale for SOHO China to remain publicly listed.   </p><div class="content-highlight"><p>With the offer terminated, the immediate focus turns to the extent of the share price drop on Monday. Our analysis suggests that the share price could fall between HK$2.45-3.25 per share range. At the last close price of HK$3.50 per share, our share price range represents a decline of -30% to -7%. </p></div>

Soho China Ltd (410 HK) is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. On Friday after market close, SOHO China announced that Blackstone Group (BX US) has withdrawn its pre-conditional voluntary conditional cash offer of HK$5.00 per share. The key pre-condition was SAMR anti-trust approval. On 2 August, the SOHO China/Blackstone case was accepted for SAMR review by normal procedure rather than a simplified procedure which can take 180 days. On 6 September, SOHO China noted that Blackstone has provided further documents in response to the SAMR’s requests for additional information. Blackstone had received further requests to provide additional information by SAMR and the statement noted that it remains uncertain when the review process will be completed. We previously argued in SOHO China's Spread Risk/Reward Update that SAMR approval should be forthcoming due to Blackstone’s prior experience in securing SAMR approval for real estate deals, SOHO China will continue to be listed and the deal will not lead to a material increase in market concentration. Four days later 10 September, Blackstone and Pan Shiyi mutually agreed to terminate the offer as they concluded that the pre-condition (SAMR antitrust approval) will be unlikely to be satisfied on or before the Long Stop date (31 December 2021). Revealingly, the parties also agreed that there will be no extension to the Long Stop date suggesting that recent interactions with SAMR had headed downhill.  We think that Blackstone decided to walk away as it was unwilling to expend all its political goodwill to complete a single transaction. The transaction had caused disquiet in China with several Chinese press and social media posts urging SAMR to block the transaction due to the premise that the deal is unpatriotic for reasons highlighted in SOHO China's Spread Risk/Reward Update. While we previously argued that the rationale presented in these articles for blocking the deal is poor, a SAMR antitrust approval would also not sit well with President Xi Jinping’s recent calls for wealth redistribution.On the other hand, Pan Shiyi is stuck between a rock and a hard place. The publicity from the pulled transaction means that potential buyers will stay away in the short term. When the dust settles, Pan Shiyi can pursue selling individual assets or sell his stake to a domestic private equity bidder or real estate firm. Long-term, we see a limited rationale for SOHO China to remain publicly listed.   With the offer terminated, the immediate focus turns to the extent of the share price drop on Monday. Our analysis suggests that the share price could fall between HK$2.45-3.25 per share range. At the last close price of HK$3.50 per share, our share price range represents a decline of -30% to -7%. 

<p>Perhaps my last <a href="https://www.smartkarma.com/compose/insight/57498/SOHO%20China%20(410%20HK):%20At%20Least%20There%20Is%20Dialogue.%20Read%20more:%20https:/skr.ma/2qN2b" target="_blank" rel="noopener">insight</a> should have been titled: <em>SOHO China (410 HK): At Least There <strong>WAS </strong>Dialogue<strong>. </strong></em></p>
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<p>On the 6 September, <a href="https://www.smartkarma.com/entities/soho-china-ltd" target="_blank" data-smartkarma-citation="entities:4123:1" rel="noopener">Soho China Ltd (410 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0906/2021090600341.pdf" target="_blank" rel="noopener">announced</a> its SAMR application was still ongoing, and that the "<em>Offeror has received further requests to provide additional information for the regulators’ review. It is uncertain when the review process will be completed</em>."</p>
<p>Four days later, and in "<em>light of the lack of sufficient progress in satisfying the Pre-Conditions</em>" - the Offer was conditional on approval from China's competition authorities -  Blackstone and Pan Shiyi <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0910/2021091000324.pdf" target="_blank" rel="noopener">pulled</a> the transaction.</p>
<p>With over three and half months left on the clock to the expiry of the long-stop date... what happened?</p>
<p>Evidently, Beijing tapped Pan Shiyi on the shoulder that this deal is not going to happen, and all parties saved face by simply pulling the transaction.</p>
<p>But was the decision predicated on the ensuing backlash from Pan Shiyi son's <a href="https://skr.ma/nQLF3" target="_blank" rel="noopener">comments</a> last year?</p>
<p>Or has Pan Shiyi fallen victim to China's common-prosperity strategy, which calls for China's citizens to share in the opportunity to be wealthy?</p>
<p>From the onset, this property deal faced domestic online criticism that Pan Shiyi and his wife Zhang Xin were cashing out of the business they set up over two decades ago, and taking the proceeds offshore. Perhaps not the poster children for this shared prosperity drive.</p>
<p>So what now - how do the Pans move forward?</p>
<p>The right trade would appear to one of selling their assets piecemeal, then paying out dividends. But that scenario would see cash returned to the vendor anyway, which only serves to circumvent this failed offer. </p>
<p>The big question now is where this will trade on Monday, and who - apart from those who are short - will be buying from arb investors now that the company is certifiably toxic.</p>
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<p>More below the fold. </p>

Perhaps my last insight should have been titled: SOHO China (410 HK): At Least There WAS Dialogue. 

On the 6 September, Soho China Ltd (410 HK) announced its SAMR application was still ongoing, and that the "Offeror has received further requests to provide additional information for the regulators’ review. It is uncertain when the review process will be completed."
Four days later, and in "light of the lack of sufficient progress in satisfying the Pre-Conditions" - the Offer was conditional on approval from China's competition authorities -  Blackstone and Pan Shiyi pulled the transaction.
With over three and half months left on the clock to the expiry of the long-stop date... what happened?
Evidently, Beijing tapped Pan Shiyi on the shoulder that this deal is not going to happen, and all parties saved face by simply pulling the transaction.
But was the decision predicated on the ensuing backlash from Pan Shiyi son's comments last year?
Or has Pan Shiyi fallen victim to China's common-prosperity strategy, which calls for China's citizens to share in the opportunity to be wealthy?
From the onset, this property deal faced domestic online criticism that Pan Shiyi and his wife Zhang Xin were cashing out of the business they set up over two decades ago, and taking the proceeds offshore. Perhaps not the poster children for this shared prosperity drive.
So what now - how do the Pans move forward?
The right trade would appear to one of selling their assets piecemeal, then paying out dividends. But that scenario would see cash returned to the vendor anyway, which only serves to circumvent this failed offer. 
The big question now is where this will trade on Monday, and who - apart from those who are short - will be buying from arb investors now that the company is certifiably toxic.

More below the fold. 

SOHO China (410 HK): The Tap On The Shoulder

<p>The speculation and conjecture continues in the takeover of <a href="https://www.smartkarma.com/entities/soho-china-ltd" target="_blank" data-smartkarma-citation="entities:4123:1" rel="noopener">Soho China Ltd (410 HK)</a>'s tier-1 property assets.</p>
<p>The last piece of positive news occurred on the 3 August 2021, when Blackstone received a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0806/2021080600685.pdf" target="_blank" rel="noopener">notice</a> from SAMR dated 2 August that the case concerning its notification under the PRC Anti-Monopoly Law (AML) had been formally accepted by SAMR for review. </p>
<p>The announcement, however, stopped short of stating the review was simplified, and simply said the application has been formally accepted, and "<em>notwithstanding such formal acceptance, the Offeror and the Company may still be requested to provide further information and materials for the regulators’ review</em>".</p>
<p>In 2020, simple cases took 14 days on average to process. By the middle of last month, you knew you were in for the long haul, and the 30-day Phase 1 period expired on the 1 September.</p>
<p>I'm not aware an official announcement occurs when the review spills into Phase 2 (ostensibly another 90 calendar days); but Blackstone/SOHO were expected to clarify proceedings in its monthly update announcement.</p>
<p>On the 6 September, SOHO <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0906/2021090600341.pdf" target="_blank" rel="noopener">announced</a> its SAMR application was still ongoing, and that...</p>
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<p>The Offeror has received further requests to provide additional information for the regulators’ review. It is uncertain when the review process will be completed.</p>
</blockquote>
<p>The Composite Document is now expected to be dispatched on or before the 31 December 2021. </p>
<p>Without either party expounding on the situation, the application now moves into Phase II.</p>
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<div>China's AML provides the following periods for review:</div>
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<div>Phase I. The initial review period is for 30 calendar days. Under the simplified procedure, SAMR generally grants clearance in Phase I.</div>
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<div>Phase II. If necessary, the Phase I period will be followed by an additional 90-calendar day review period</div>
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<div>Phase III review period. The review period may then be extended for a further 60 calendar days if need be.</div>
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<p>Additional information? One media source reckoned this was in regards to Blackstone providing more details  - such as GFA - on its property interests.</p>
<p>This is doubtful - SAMR would likely know Blackstone's property exposure, right down to the last wastepaper basket.</p>
<p>More likely the "additional info" concerns the seller, although pertaining to what, it's unclear. Cue all the rumours and the ensuing backlash from Pan Shiyi son's comments last year (see <a href="https://skr.ma/nQLF3" target="_blank" rel="noopener">here</a> for more detail). </p>
<p>The takeaways from all of this? At the very least, there is a modicum of dialogue between the parties and the regulator. Often the clock runs down on the review process with little to no information made public, before a deal is blocked/prohibited.</p>
<p>Perhaps there are alternative means to lock-up the proceeds to Pan in escrow - sort of like an elevated withholding tax applied in the <a href="https://www.smartkarma.com/entities/baoxin-auto-group-ltd" target="_blank" data-smartkarma-citation="entities:20829:1" rel="noopener">Grand Baoxin Auto (1293 HK)</a> case (see further details below) - so as to progress the deal.</p>
<p>The negatives, apart from the extended review process over property assets, which historically have not triggered similar treatment - SOHO sold Sky SOHO to Gaw Capital Partners in <a href="https://www.mingtiandi.com/real-estate/finance-real-estate/gaw-closes-on-798m-purchase-of-sky-soho-in-shanghai/" target="_blank" rel="noopener">2018</a> for RMB5bn, plus entered into an <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0930/ltn20190930413.pdf" target="_blank" rel="noopener">agreement</a> to sell car parking spaces for RMB761mn, none of which attracted security concerns - is that the clock does indeed run down to the long-stop date (31 December 2021), and both parties agree to terminate negotiations.</p>
<p>But I'd be surprised to see Blackstone walk. The underlying assets on a stand-alone basis are worth considerably more, potentially &gt;HK$8/share by some asset valuation models. </p>
<div class="content-highlight">
<p><strong>The Trade?</strong> I still like SOHO here - a high probability of a break is already priced in. I just don't see Beijing setting a precedent and outright blocking the deal on anti-trust grounds.</p>
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<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/229/063/original/image_47029318541631239524443.png?1631239525" class="editor-image img-responsive" data-smartkarma-image-id="229063"></figure>

The speculation and conjecture continues in the takeover of Soho China Ltd (410 HK)'s tier-1 property assets.
The last piece of positive news occurred on the 3 August 2021, when Blackstone received a notice from SAMR dated 2 August that the case concerning its notification under the PRC Anti-Monopoly Law (AML) had been formally accepted by SAMR for review. 
The announcement, however, stopped short of stating the review was simplified, and simply said the application has been formally accepted, and "notwithstanding such formal acceptance, the Offeror and the Company may still be requested to provide further information and materials for the regulators’ review".
In 2020, simple cases took 14 days on average to process. By the middle of last month, you knew you were in for the long haul, and the 30-day Phase 1 period expired on the 1 September.
I'm not aware an official announcement occurs when the review spills into Phase 2 (ostensibly another 90 calendar days); but Blackstone/SOHO were expected to clarify proceedings in its monthly update announcement.
On the 6 September, SOHO announced its SAMR application was still ongoing, and that...

The Offeror has received further requests to provide additional information for the regulators’ review. It is uncertain when the review process will be completed.

The Composite Document is now expected to be dispatched on or before the 31 December 2021. 
Without either party expounding on the situation, the application now moves into Phase II.

China's AML provides the following periods for review:






Phase I. The initial review period is for 30 calendar days. Under the simplified procedure, SAMR generally grants clearance in Phase I.






Phase II. If necessary, the Phase I period will be followed by an additional 90-calendar day review period






Phase III review period. The review period may then be extended for a further 60 calendar days if need be.





Additional information? One media source reckoned this was in regards to Blackstone providing more details  - such as GFA - on its property interests.
This is doubtful - SAMR would likely know Blackstone's property exposure, right down to the last wastepaper basket.
More likely the "additional info" concerns the seller, although pertaining to what, it's unclear. Cue all the rumours and the ensuing backlash from Pan Shiyi son's comments last year (see here for more detail). 
The takeaways from all of this? At the very least, there is a modicum of dialogue between the parties and the regulator. Often the clock runs down on the review process with little to no information made public, before a deal is blocked/prohibited.
Perhaps there are alternative means to lock-up the proceeds to Pan in escrow - sort of like an elevated withholding tax applied in the Grand Baoxin Auto (1293 HK) case (see further details below) - so as to progress the deal.
The negatives, apart from the extended review process over property assets, which historically have not triggered similar treatment - SOHO sold Sky SOHO to Gaw Capital Partners in 2018 for RMB5bn, plus entered into an agreement to sell car parking spaces for RMB761mn, none of which attracted security concerns - is that the clock does indeed run down to the long-stop date (31 December 2021), and both parties agree to terminate negotiations.
But I'd be surprised to see Blackstone walk. The underlying assets on a stand-alone basis are worth considerably more, potentially &gt;HK$8/share by some asset valuation models. 

The Trade? I still like SOHO here - a high probability of a break is already priced in. I just don't see Beijing setting a precedent and outright blocking the deal on anti-trust grounds.



SOHO China (410 HK): At Least There Is Dialogue

China

Soho China Ltd. is a property developer. The Company develops properties in central Beijing and Shanghai. Soho China collaborates with internationally recognized architects, translating their designs into real estate which possesses strong appeal to property investors and the local businesses and customer bases they serve.

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Soho China (410 HK)

Nature Home (2083 HK): Risk Aversity Sees Spread Blow Out

Given HK events have been a bloodbath this year, I thought this may trade wide. But not this wide. If you have the risk appetite, then get involved...

David Blennerhassett

Asia-Pac Weekly Risk Arb Summary: Shinsei Bank, Soho China, Nippo Corp, Rhipe, Oil Search/Santos

This insight provides a summary of gross/annualised spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and...

David Blennerhassett

SOHO China: Blackstone Walks Away

With the offer terminated, the immediate focus turns to the extent of the share price drop on Monday. Our analysis suggests that the share price...

Arun George

SOHO China (410 HK): The Tap On The Shoulder

The pre-announcement price was HK$2.98, however, I think the unaffected price is more like HK$2.25/share. But with SOHO firmly in the crosshairs,...

David Blennerhassett

SOHO China (410 HK): At Least There Is Dialogue

I still like SOHO here - a high probability of a break is already priced in. I just don't see Beijing setting a precedent and outright blocking the...

David Blennerhassett

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