Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Uncertainty at <a href="https://www.smartkarma.com/entities/china-huarong-asset-manageme" target="_blank" data-smartkarma-citation="entities:28089:1" rel="noopener">China Huarong Asset Management (HUAZ CH)</a>, China’s largest distressed debt manager is causing ripples throughout Asia’s credit markets. More broadly, China’s <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent Holdings (700 HK)</a> cancelled a US$4 billion bond sale due to market conditions. Specifically, Huarong contagion steepened the credit curve of China’s other asset management companies (AMCs).
At issue here are the Keepwell provisions which enable China’s banks, and non-bank finance companies to access foreign currency financing in the global bond markets. Essentially, a Keepwell provision is a pledge, not a guaranty, to keep an offshore subsidiary which issues the bonds solvent in the event of distress.
The immediate risk is that Huarong’s offshore issuance vehicles are not supported in any restructuring. Orphaning the Keepwell provisions would destroy an important component of AMC funding. The damage here would extend beyond AMCs to other non-bank finance companies, including leasing companies and other entities owned by China’s banks. Not supporting these securities could all but eliminate China Inc.’s access to the global bond markets.
Concurrently, price action in the bond market suggests concern with the long-term viability of the AMC model rather than jump to default risk. We are not convinced this is appropriate and recommend Overweighting other AMC bonds.
Although the former top executive was put to death, Huarong bondholders need not be. Nonetheless, the walk to the gallows can be harrowing and uncertainty is high. There is likely more than meets the eye in this story. It is conceivable that we never see a 2020 year-end report for this state-owned enterprise. Therefore, having a strong conviction on Huarong means undertaking a leap of faith. As such, we suggest a way to trade Huarong  such that downside is limited; however, our preference is to trade the contagion.

Uncertainty at China Huarong Asset Management (HUAZ CH), China’s largest distressed debt manager is causing ripples throughout Asia’s credit markets. More broadly, China’s Tencent Holdings (700 HK) cancelled a US$4 billion bond sale due to market conditions. Specifically, Huarong contagion steepened the credit curve of China’s other asset management companies (AMCs).
At issue here are the Keepwell provisions which enable China’s banks, and non-bank finance companies to access foreign currency financing in the global bond markets. Essentially, a Keepwell provision is a pledge, not a guaranty, to keep an offshore subsidiary which issues the bonds solvent in the event of distress.
The immediate risk is that Huarong’s offshore issuance vehicles are not supported in any restructuring. Orphaning the Keepwell provisions would destroy an important component of AMC funding. The damage here would extend beyond AMCs to other non-bank finance companies, including leasing companies and other entities owned by China’s banks. Not supporting these securities could all but eliminate China Inc.’s access to the global bond markets.
Concurrently, price action in the bond market suggests concern with the long-term viability of the AMC model rather than jump to default risk. We are not convinced this is appropriate and recommend Overweighting other AMC bonds.
Although the former top executive was put to death, Huarong bondholders need not be. Nonetheless, the walk to the gallows can be harrowing and uncertainty is high. There is likely more than meets the eye in this story. It is conceivable that we never see a 2020 year-end report for this state-owned enterprise. Therefore, having a strong conviction on Huarong means undertaking a leap of faith. As such, we suggest a way to trade Huarong  such that downside is limited; however, our preference is to trade the contagion.

China Huarong: Contagion Creates Opportunity

Equity Research in HK and Mainland China

Li Tang

Equity Bottom-Up

The PBOC, CBIRC, CSRC, and SAFE summoned Ant Group for a second joint meeting, ordering the fintech giant to rectify its business operations so that it is compliant with regulations and law. This also includes serving the real economy and supporting national development strategies.

The PBOC, CBIRC, CSRC, and SAFE summoned Ant Group for a second joint meeting, ordering the fintech giant to rectify its business operations so that it is compliant with regulations and law. This also includes serving the real economy and supporting national development strategies.

PBOC Summon Ant Group On Restructuring Once More

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Capital Markets

Priced at ~2x Uber on a forward EV/Revenue metric.
That was my immediate takeaway from <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP)</a>'s <a href="https://www.grab.com/sg/press/others/grab-go-public-in-partnership-with-altimeter/" target="_blank" rel="noopener">announcement</a> it intends to go public in the U.S. in partnership with SPAC <a href="https://www.smartkarma.com/entities/altimeter-growth-corp" target="_blank" data-smartkarma-citation="entities:33007:1" rel="noopener">Altimeter Growth Corp (AGC US)</a>. 
The proposed transaction represents an expected equity value of US$39.55bn and EV of US$30.36bn, with cash proceeds of US$4.54bn.
In past insights on SPACs, beginning with <a href="https://skr.ma/5UGLq" target="_blank" rel="noopener">Virtual IPOs/Direct Listings: Uninhibited Price Discovery</a>, one issue for SPACs is their overabundance in the market today, targeting popular private companies. As such, popular private companies can tee up “SPAC-offs,” where various SPACs pitch their deal, competing (mostly) on price.  The higher the acquisition price, the lower the future return for SPAC investors.
And Grab has competition. Its main rival is Indonesia's <a href="https://www.smartkarma.com/entities/gojek" target="_blank" data-smartkarma-citation="entities:25976:1" rel="noopener">Gojek (1379371D IJ)</a>, and the two courted each other around February last year before irreconcilable differences led to them parting ways in January this year.
There is talk Gojek will merge with e-commerce payer Tokopedia and similarly seek a US listing.
Mobile gaming and online shopping platform player <a href="https://www.smartkarma.com/entities/sea-ltd" target="_blank" data-smartkarma-citation="entities:8509:1" rel="noopener">Sea Ltd (SE US)</a> is also in the mix, and currently boasts a non-insignificant market cap of US$125bn.
The merger is slated for closing in July this year.
More below the fold.

Priced at ~2x Uber on a forward EV/Revenue metric.
That was my immediate takeaway from Grab (0967655D SP)'s announcement it intends to go public in the U.S. in partnership with SPAC Altimeter Growth Corp (AGC US). 
The proposed transaction represents an expected equity value of US$39.55bn and EV of US$30.36bn, with cash proceeds of US$4.54bn.
In past insights on SPACs, beginning with Virtual IPOs/Direct Listings: Uninhibited Price Discovery, one issue for SPACs is their overabundance in the market today, targeting popular private companies. As such, popular private companies can tee up “SPAC-offs,” where various SPACs pitch their deal, competing (mostly) on price.  The higher the acquisition price, the lower the future return for SPAC investors.
And Grab has competition. Its main rival is Indonesia's Gojek (1379371D IJ), and the two courted each other around February last year before irreconcilable differences led to them parting ways in January this year.
There is talk Gojek will merge with e-commerce payer Tokopedia and similarly seek a US listing.
Mobile gaming and online shopping platform player Sea Ltd (SE US) is also in the mix, and currently boasts a non-insignificant market cap of US$125bn.
The merger is slated for closing in July this year.
More below the fold.

Equity Analyst, LightStream Research

Shifara Samsudeen, FCMA, CGMA

Equity Analyst

Long-Short Analysis on Japan, Asia and the World

LightStream Research

LightStream conducts quantitatively rigorous and data-driven analysis with a focus on Japan and Asia.

We consistently cover the Tech, Consumer and Industrial sectors, and provide ECM and Events coverage more broadly.

We supplement traditional qualitative insights from company relationships with a robust quantitative foundation that examines as much historical data as is available.
We further refine the accuracy of our insights and calls through the use of alternative data to flesh out current trends, and through a valuation framework that emphasises non-superficial peer group selection and a proper attempt to understand the metrics and changes that have driven security valuations in the past.

Event-Driven

The ride-hailing giant <a href="https://www.smartkarma.com/entities/grabtaxi-holdings-pte-ltd" target="_blank" data-smartkarma-citation="entities:26950:1" rel="noopener">Grab (0967655D SP)</a>  announced on Tuesday (13th April 2021) that it plans to go public in the US via a SPAC merger with <a href="https://www.smartkarma.com/entities/altimeter-growth-corp" target="_blank" data-smartkarma-citation="entities:33007:1" rel="noopener">Altimeter Growth Corp (AGC US)</a>  at a proposed valuation (pro-forma) of approx. US$39.6bn.As per the proposed transaction, Altimeter Growth and Grab will become wholly-owned subsidiaries of a new holding company and the combined company will have an equity-value of approx. US$39.6bn on a pro-forma basis.Grab will receive about US$4.5bn in cash, including more than US$4.0bn from a fully committed PIPE (private investment in public equity arrangement) offering that will be managed by BlackRock, Counterpoint Global, T.Rowe Price Associates, Fidelity International, Fidelity Management and Research, Mubadala, Temasek and several others.<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/200/522/original/image_77815607321618386359074.png?1618386363" class="editor-image img-responsive" data-smartkarma-image-id="200522"></figure><div style="text-align: left;" class="content-caption">Source: Company disclosures</div>Altimeter Capital has committed to US$750m to the PIPE Financing and also also has committed to a 3-year lock-up period for its sponsor promote shares offering investors confidence over Grab’s future prospects.

The ride-hailing giant Grab (0967655D SP)  announced on Tuesday (13th April 2021) that it plans to go public in the US via a SPAC merger with Altimeter Growth Corp (AGC US)  at a proposed valuation (pro-forma) of approx. US$39.6bn.As per the proposed transaction, Altimeter Growth and Grab will become wholly-owned subsidiaries of a new holding company and the combined company will have an equity-value of approx. US$39.6bn on a pro-forma basis.Grab will receive about US$4.5bn in cash, including more than US$4.0bn from a fully committed PIPE (private investment in public equity arrangement) offering that will be managed by BlackRock, Counterpoint Global, T.Rowe Price Associates, Fidelity International, Fidelity Management and Research, Mubadala, Temasek and several others.Source: Company disclosuresAltimeter Capital has committed to US$750m to the PIPE Financing and also also has committed to a 3-year lock-up period for its sponsor promote shares offering investors confidence over Grab’s future prospects.

Grab Goes Public: Expanding Top Line but No Profits; Proposed Valuation Seems Excessively Ambitious

Overseas Chinese Equities, Aequitas Research

Ming Lu

Overseas Chinese Equities

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

<ul>
<li>Tencent raised its online TV subscription fees by 17%~50%.</li>
<li>The fundamental cause is the loss in online TV, but the direct cause is competitor iQiyi raised the fees last November.</li>
<li>We believe Tencent’s operating margin will improve slightly in 2021.</li>
<li>We also believe the stock price will have an upside of 19% by the end of 2021.</li>
</ul>
Our previous coverage on Tencent:
<ul>
<li><a href="https://www.smartkarma.com/insights/tencent-700-hk-q4-promising-in-all-businesses-price-down-upgrade-to-buy-again" target="_blank" data-smartkarma-citation="insights:49622" rel="noopener">Tencent (700 HK): Q4, Promising in All Businesses, Price Down, Upgrade to Buy Again</a></li>
<li>
<a href="https://www.smartkarma.com/insights/tencent-700-hk-price-surged-time-to-look-at-negative-industry-data" target="_blank" data-smartkarma-citation="insights:48272" rel="noopener"></a><a href="https://www.smartkarma.com/insights/2021-high-conviction-long-tencent-as-all-competitors-are-in-trouble" target="_blank" data-smartkarma-citation="insights:46087" rel="noopener">2021 High Conviction: Long Tencent as All Competitors Are in Trouble</a>
</li>
</ul>


Tencent raised its online TV subscription fees by 17%~50%.
The fundamental cause is the loss in online TV, but the direct cause is competitor iQiyi raised the fees last November.
We believe Tencent’s operating margin will improve slightly in 2021.
We also believe the stock price will have an upside of 19% by the end of 2021.

Our previous coverage on Tencent:

Tencent (700 HK): Q4, Promising in All Businesses, Price Down, Upgrade to Buy Again

2021 High Conviction: Long Tencent as All Competitors Are in Trouble



Tencent (700 HK): Raises Subscription Fees for Online TV

China

Tencent Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides Internet and mobile value-added services (VAS), online advertising, and e-commerce transactions. Tencent Holdings offers services to users worldwide.

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Tencent Holdings (ADR) (TCEHY US)

China Huarong: Contagion Creates Opportunity

Trade the contagion from China Huarong uncertainty. Although the former top executive was put to death, bondholders need not be. However, having a...

Hank Calenti, CFA

PBOC Summon Ant Group On Restructuring Once More

The regulators' tone suggests they have been unhappy with progress made since their first joint meeting in January.This time the regulators were...

Li Tang

SPAC Grab ... At 2x Uber

There are 650mn consumers in Southeast Asia, worth an estimated US$2.8tn. This is not a winner takes all maker. If anything, it's a three-way "grab".

David Blennerhassett

Grab Goes Public: Expanding Top Line but No Profits; Proposed Valuation Seems Excessively Ambitious

Grab announced on Tuesday that it plans to go public in the US via a SPAC merger with Altimeter Growth Corp. at a proposed valuation (pro-forma) of...

Shifara Samsudeen, FCMA, CGMA

Tencent (700 HK): Raises Subscription Fees for Online TV

Tencent raised its online TV subscription fees by 17%~50%. The fundamental cause is the loss in online TV, but the direct cause is competitor iQiyi...

Ming Lu

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