Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Equity Bottom-Up

Traditionally, telecom companies in mature markets are "easy."  Infrastructure is basically built, but there is always maintenance and capex to upgrade throughput. Churn is low. Customers occasionally add on new services. They are generally cash machines. Comparing telcos is often reasonably easy. Mostly it comes down to how aggressively the company prices to customers, how it seeks non-standard revenue off its infrastructure and sales base, or how it returns capital to shareholders. <div class="content-highlight">Every now and then, a telecom company gets complicated. <a href="https://www.smartkarma.com/entities/softbank-corp" target="_blank" data-smartkarma-citation="entities:27445:1" rel="noopener">Softbank Corp (9434 JP)</a> is now one of those companies.</div>The issue is now significant enough that one should avoid using EBIT or EBITDA (or EBITDA less capex) for Softbank Corp as a comparative tool to <a href="https://www.smartkarma.com/entities/nippon-telegraph-telephone-corporation" target="_blank" data-smartkarma-citation="entities:623:1" rel="noopener">NTT (Nippon Telegraph &amp; Telephone) (9432 JP)</a> and <a href="https://www.smartkarma.com/entities/kddi-corp" target="_blank" data-smartkarma-citation="entities:639:1" rel="noopener">KDDI Corp (9433 JP)</a> without more clarity. There is recently a new kicker involved too, which means one should probably consider Softbank Corp differently than the other two for OTHER reasons too.

Traditionally, telecom companies in mature markets are "easy."  Infrastructure is basically built, but there is always maintenance and capex to upgrade throughput. Churn is low. Customers occasionally add on new services. They are generally cash machines. Comparing telcos is often reasonably easy. Mostly it comes down to how aggressively the company prices to customers, how it seeks non-standard revenue off its infrastructure and sales base, or how it returns capital to shareholders. Every now and then, a telecom company gets complicated. Softbank Corp (9434 JP) is now one of those companies.The issue is now significant enough that one should avoid using EBIT or EBITDA (or EBITDA less capex) for Softbank Corp as a comparative tool to NTT (Nippon Telegraph &amp; Telephone) (9432 JP) and KDDI Corp (9433 JP) without more clarity. There is recently a new kicker involved too, which means one should probably consider Softbank Corp differently than the other two for OTHER reasons too. 

Softbank Corp - Accounting for The Accounting Is Complicated

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

*Greensill Bankruptcy: Greensill Capital (Greensill) has filed for insolvency in the United Kingdom today after Apollo Global Management’s (APO.US) [Apollo] walked away from this deal. Lawyers for Greensill cited Greensill’s inability to repay a USD 140 mn bridge loan provided by Credit Suisse Group (CSGN.VX) [Credit Suisse]. In addition, Greensill allegedly has USD 5 bn in risk outstanding to  GFG Alliance Group (GFG) – a company owned by Sanjeev Gupta, who appears to be at the center of this debacle; and*Further Tail Risk: Credit Suisse , GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst others are likely to see additional weakness given the growing uncertainties with Greemsill and GFG Alliance. In particular, the allegations of fraud by Bafin and the British Business Bank removing UK government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk. With the UK and European Central Bank (ECB) asking their institutions for their Greensill and GFG exposures, no doubt the hit parade will continue.

*Greensill Bankruptcy: Greensill Capital (Greensill) has filed for insolvency in the United Kingdom today after Apollo Global Management’s (APO.US) [Apollo] walked away from this deal. Lawyers for Greensill cited Greensill’s inability to repay a USD 140 mn bridge loan provided by Credit Suisse Group (CSGN.VX) [Credit Suisse]. In addition, Greensill allegedly has USD 5 bn in risk outstanding to  GFG Alliance Group (GFG) – a company owned by Sanjeev Gupta, who appears to be at the center of this debacle; and*Further Tail Risk: Credit Suisse , GAM Holdings (GAM.VX), Tokio Marine Holdings (8766.JP), SoftBank Group (9984.JP) amongst others are likely to see additional weakness given the growing uncertainties with Greemsill and GFG Alliance. In particular, the allegations of fraud by Bafin and the British Business Bank removing UK government guarantee on COVID-19 lending highlight the increased likelihood of substantially higher losses and other tail risk. With the UK and European Central Bank (ECB) asking their institutions for their Greensill and GFG exposures, no doubt the hit parade will continue.

David Blennerhassett

Event-Driven

<a href="https://www.smartkarma.com/entities/ck-hutchison-holdings-ltd" target="_blank" data-smartkarma-citation="entities:132:1" rel="noopener">CK Hutchison Holdings (1 HK)</a> has <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1104/2020110400676.pdf" target="_blank" rel="noopener">announced</a> it is at an advanced stage of negotiations with <a href="https://www.smartkarma.com/entities/cellnex-telecom-sau" target="_blank" data-smartkarma-citation="entities:21258:1" rel="noopener">Cellnex Telecom Sau (CLNX SM)</a> for the disposals of its telecommunications infrastructure assets in Europe.
Subject to the finalisation of definitive documentation, total proceeds on completion of the transactions are ~€10.0bn, including minority partners’ share. The headline transaction price mirrors that rumoured a week ago in the media, and accounts for ~24% of CKH's NAV.
The announcement follows the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1026/2020102600071.pdf" target="_blank" rel="noopener">news</a> last week that CKH will reduce its exposure to <a href="https://www.smartkarma.com/entities/husky-energy" target="_blank" data-smartkarma-citation="entities:22923:1" rel="noopener">Husky Energy (HSE CN)</a> in a deal with <a href="https://www.smartkarma.com/entities/cenovus-energy-inc" target="_blank" data-smartkarma-citation="entities:24253:1" rel="noopener">Cenovus Energy Inc (CVE CN)</a>.
CKH is trading cheap at a 46% discount to NAV after this morning's ~8.9% share price gain. The implied stub, net of all listed holdings, remains near the -2STD level, based on share prices since the reorganisation of Cheung Kong in <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2015/0603/ltn20150603277.pdf" target="_blank" rel="noopener">June 2015</a>.
For those waiting for a catalyst to enhance/unlock shareholder value, this is it.

CK Hutchison Holdings (1 HK) has announced it is at an advanced stage of negotiations with Cellnex Telecom Sau (CLNX SM) for the disposals of its telecommunications infrastructure assets in Europe.
Subject to the finalisation of definitive documentation, total proceeds on completion of the transactions are ~€10.0bn, including minority partners’ share. The headline transaction price mirrors that rumoured a week ago in the media, and accounts for ~24% of CKH's NAV.
The announcement follows the news last week that CKH will reduce its exposure to Husky Energy (HSE CN) in a deal with Cenovus Energy Inc (CVE CN).
CKH is trading cheap at a 46% discount to NAV after this morning's ~8.9% share price gain. The implied stub, net of all listed holdings, remains near the -2STD level, based on share prices since the reorganisation of Cheung Kong in June 2015.
For those waiting for a catalyst to enhance/unlock shareholder value, this is it. 

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

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.

Equity Capital Markets

Bharti Telecom, the promoter of <a href="https://www.smartkarma.com/entities/bharti-airtel-ltd" target="_blank" data-smartkarma-citation="entities:953:1" rel="noopener">Bharti Airtel (BHARTI IN)</a> plans to raise up US$1.1bn via selling a 2.7% stake in Bharti.Given the rough few years that the stock has gone through, add to it that it's the promoter selling and the stock is trading at an all-time high, thus it's no surprise that the deal doesn't score very well on our framework. Nonetheless, the telecom sector in India is shaping up to be a duoploy and recent competitive pressures have been easing. Add to it the fact that Bharti's recent results were strong and things don't look too bad from a long-term perspective.

Bharti Telecom, the promoter of Bharti Airtel (BHARTI IN) plans to raise up US$1.1bn via selling a 2.7% stake in Bharti.Given the rough few years that the stock has gone through, add to it that it's the promoter selling and the stock is trading at an all-time high, thus it's no surprise that the deal doesn't score very well on our framework. Nonetheless, the telecom sector in India is shaping up to be a duoploy and recent competitive pressures have been easing. Add to it the fact that Bharti's recent results were strong and things don't look too bad from a long-term perspective.

Bharti Airtel - Promoter Selling so It's Not Going to Fly but It's a Good Long Term Bet

European Event-Driven Analyst

Patryk Basiewicz

PGB Research

<ul>
<li>
<a href="https://www.smartkarma.com/entities/telefonica-sa" target="_blank" data-smartkarma-citation="entities:21299:1" rel="noopener">Telefonica SA (TEF SM)</a> and <a href="https://www.smartkarma.com/entities/liberty-global-plc-a" target="_blank" data-smartkarma-citation="entities:15261:1" rel="noopener">Liberty Global Plc A (LBTYA US)</a> are in talks to merge their UK operations. We do not know what will happen to the Irish bit</li>
<li>The street, as do I, assume this will be a 50:50 JV, similar to the deal Liberty did with <a href="https://www.smartkarma.com/entities/vodafone-group-plc" target="_blank" data-smartkarma-citation="entities:22204:1" rel="noopener">Vodafone (VOD LN)</a> in the Netherlands. </li>
<li>
This transaction will fundamentally, perhaps, permanently, and, perhaps, conclusively reshape the UK telco market. Clearly other market players are currently considering their options with regards to both O2 UK and Liberty as a whole, or the Virgin Media (VMed) part.
</li>
<li>
Ultimately, both Telefonica and Liberty Global want to sell those assets too. In my view, this transaction is made with a view to IPO the JV in 2-3 years. This view also informs how we should look at value creation in the deal.
</li>
</ul>



Telefonica SA (TEF SM) and Liberty Global Plc A (LBTYA US) are in talks to merge their UK operations. We do not know what will happen to the Irish bit
The street, as do I, assume this will be a 50:50 JV, similar to the deal Liberty did with Vodafone (VOD LN) in the Netherlands. 

This transaction will fundamentally, perhaps, permanently, and, perhaps, conclusively reshape the UK telco market. Clearly other market players are currently considering their options with regards to both O2 UK and Liberty as a whole, or the Virgin Media (VMed) part.


Ultimately, both Telefonica and Liberty Global want to sell those assets too. In my view, this transaction is made with a view to IPO the JV in 2-3 years. This view also informs how we should look at value creation in the deal.



O2 UK / Telefonica (TEF SM) / Liberty (LBTYA): Can You Create Value from Assets that Nobody Wants?

United States

Vodafone Group Plc provides a range of mobile telecommunications services, including voice and data communications.  Vodafone has equity interests in 28 countries and Partner Networks in a further 7 countries with almost all the Group's mobile subsidiaries operating principally under the brand name Vodafone. In the United States their associated undertaking operates as Verizon Wireless.

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Vodafone Group Plc Sp Adr (VOD US)

Softbank Corp - Accounting for The Accounting Is Complicated

Softbank Corporation is more expensive than it appears when one uses traditional telco metrics such as EV/EBITDA or EV/OP multiples. It's all in...

Travis Lundy

Credit Suisse – Greensill Goes BK

CREDIT SUISSE: Greensill has filed for insolvency. Lawyers for Greensill cited its inability to repay a USD 140 mn bridge loan from Credit Suisse...

Thomas J. Monaco

CK Hutch: Here's Your Re-Rating Catalyst

CK Hutchison closes in on a Eur10bn tower sale to Spain's Cellnex, which would unlock 24% of NAV and 32% of the unlisted stub value.

David Blennerhassett

Bharti Airtel - Promoter Selling so It's Not Going to Fly but It's a Good Long Term Bet

Bharti Telecom, the promoter of Bharti Airtel (BHARTI IN) plans to raise up US$1.1bn via selling a 2.7% stake in Bharti.Given the rough few years...

Sumeet Singh

O2 UK / Telefonica (TEF SM) / Liberty (LBTYA): Can You Create Value from Assets that Nobody Wants?

Telefonica SA (TEF SM) and Liberty Global Plc A (LBTYA US) are in talks to merge their UK operations. We do not know what will happen to the...

Patryk Basiewicz

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