Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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<p>On the 12 August last year, <a href="https://www.smartkarma.com/entities/qilu-expressway-co-ltd" target="_blank" data-smartkarma-citation="entities:27431:1" rel="noopener">Qilu Expressway Co Ltd (1576 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0812/2020081201368.pdf" target="_blank" rel="noopener">announced</a> its largest shareholder Qilu Transportation would be merged and absorbed by Shandong Hi-Speed Group (SHSG). The absorption simplified the holdings of Shandong SASAC, the ultimate parent of both Qilu Transportation and SHSG, into Qilu.</p>
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<p>The restructuring triggered an obligation for SHSG to make a mandatory general offer for all shares not owned, and SHSG and Qilu Transportation jointly made an application to the SFC to waive this obligation, which was granted on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0821/2020082100191.pdf" target="_blank" rel="noopener">20 August</a>. </p>
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<p>There was also the issue over the resulting free float, as the public float would fall below the minimum prescribed percentage of 25% under the restructuring. The restructuring was completed on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1117/2020111700550.pdf" target="_blank" rel="noopener">17 November</a> and an application for a  "<em>waiver from strict compliance</em>" with the public float was concurrently lodged, and subsequently granted on the 20 November, with an <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0504/2021050400876.pdf" target="_blank" rel="noopener">extension granted</a> to the 30 June 2021 in which to comply.</p>
<h3>The New News</h3>
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<p>Qilu has now <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0513/2021051300351.pdf" target="_blank" rel="noopener">announced</a> SHSG  plans to inject 778.5mn domestics shares, or 38.93% of Qilu, into Shandong Hi-Speed, an entity 70.91% controlled by SHSG.</p>
<p>The completion of this restructuring also triggers an MGO - unless a waiver is granted. </p>
<p>This all looks like history repeating itself. Don't expect an MGO to unfold.</p>
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<p>More below the fold.</p>
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On the 12 August last year, Qilu Expressway Co Ltd (1576 HK) announced its largest shareholder Qilu Transportation would be merged and absorbed by Shandong Hi-Speed Group (SHSG). The absorption simplified the holdings of Shandong SASAC, the ultimate parent of both Qilu Transportation and SHSG, into Qilu.


The restructuring triggered an obligation for SHSG to make a mandatory general offer for all shares not owned, and SHSG and Qilu Transportation jointly made an application to the SFC to waive this obligation, which was granted on the 20 August. 


There was also the issue over the resulting free float, as the public float would fall below the minimum prescribed percentage of 25% under the restructuring. The restructuring was completed on the 17 November and an application for a  "waiver from strict compliance" with the public float was concurrently lodged, and subsequently granted on the 20 November, with an extension granted to the 30 June 2021 in which to comply.
The New News


Qilu has now announced SHSG  plans to inject 778.5mn domestics shares, or 38.93% of Qilu, into Shandong Hi-Speed, an entity 70.91% controlled by SHSG.
The completion of this restructuring also triggers an MGO - unless a waiver is granted. 
This all looks like history repeating itself. Don't expect an MGO to unfold.


More below the fold.


Qilu Expressway (1576 HK): Deja Vu All Over Again

HK/China Equity Long-Short

Osbert Tang, CFA

Equity Bottom-Up

<p>Recovery of toll road business, sustained operating momentum of securities division and its first-mover issuance of public infrastructure REIT are the key catalysts for the share price of <a href="https://www.smartkarma.com/entities/zhejiang-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2178:1" rel="noopener">Zhejiang Expressway Co H (576 HK)</a> (ZJEC). Its existing operations have already seen a powerful turnaround in 1Q21 - net profit reached Rmb1.2bn, against losses of Rmb11m a year ago, with most of the strength driven by the toll road segment while profit from <a href="https://www.smartkarma.com/entities/zheshang-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:29981:1" rel="noopener">Zheshang Securities Co Ltd (601878 CH)</a> was up 32.9%. </p><p>ZJEC has its Hanghui Expressway as the underlying asset in the pioneer public infrastructure REIT issuance currently reviewed by the Shanghai Stock Exchange. To the earliest, the dedicated public investment fund investing in the REIT can be listed in mid-Jun, bringing in a HK$0.45 enhancement to its book value as Hanghui is revalued. This should add to the undemanding 5.4x PER, 0.95x P/B and attractive 9% dividend yield for FY21F as key attractions of the stock.  </p>

Recovery of toll road business, sustained operating momentum of securities division and its first-mover issuance of public infrastructure REIT are the key catalysts for the share price of Zhejiang Expressway Co H (576 HK) (ZJEC). Its existing operations have already seen a powerful turnaround in 1Q21 - net profit reached Rmb1.2bn, against losses of Rmb11m a year ago, with most of the strength driven by the toll road segment while profit from Zheshang Securities Co Ltd (601878 CH) was up 32.9%. ZJEC has its Hanghui Expressway as the underlying asset in the pioneer public infrastructure REIT issuance currently reviewed by the Shanghai Stock Exchange. To the earliest, the dedicated public investment fund investing in the REIT can be listed in mid-Jun, bringing in a HK$0.45 enhancement to its book value as Hanghui is revalued. This should add to the undemanding 5.4x PER, 0.95x P/B and attractive 9% dividend yield for FY21F as key attractions of the stock.  

Zhejiang Expressway (576 HK): Reversion to Growth and Kick-Off of REIT Are Clear Positives

<p><a href="https://www.smartkarma.com/entities/zhejiang-expressway-co-h" target="_blank" data-smartkarma-citation="entities:2178:1" rel="noopener">Zhejiang Expressway Co H (576 HK)</a>'s (ZJEC) subsidiary <a href="https://www.smartkarma.com/entities/zheshang-securities-co-ltd" target="_blank" data-smartkarma-citation="entities:29981:1" rel="noopener">Zheshang Securities Co Ltd (601878 CH)</a> pre-announced a set of solid FY20 result on 26 Jan. With the current strength of the A-share market, we believe this business will add to the recovery of toll road business in FY21, driving encouraging momentum for ZJEC.</p><p>Focusing back to the core toll road business, both traffic and toll revenue are showing positive YoY growth in Dec 2020, suggesting good recovery pace. ZJEC is also progressing ahead with the plan to list the toll collection rights of Hanghui Expressway as a public infrastructure REIT. We think these factors are important catalysts for ZJEC in this year. Its 5.9x PER and 0.86x P/B for 12-month forward are undemanding and its ROE vs. P/B is also inexpensive in the sector.  </p>

Zhejiang Expressway Co H (576 HK)'s (ZJEC) subsidiary Zheshang Securities Co Ltd (601878 CH) pre-announced a set of solid FY20 result on 26 Jan. With the current strength of the A-share market, we believe this business will add to the recovery of toll road business in FY21, driving encouraging momentum for ZJEC.Focusing back to the core toll road business, both traffic and toll revenue are showing positive YoY growth in Dec 2020, suggesting good recovery pace. ZJEC is also progressing ahead with the plan to list the toll collection rights of Hanghui Expressway as a public infrastructure REIT. We think these factors are important catalysts for ZJEC in this year. Its 5.9x PER and 0.86x P/B for 12-month forward are undemanding and its ROE vs. P/B is also inexpensive in the sector.  

Zhejiang Expressway (576 HK): Gaining from Both Growth and Stable Business Exposures

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<p>After <a href="https://www.smartkarma.com/entities/qilu-expressway-co-ltd" target="_blank" data-smartkarma-citation="entities:27431:1" rel="noopener">Qilu Expressway Co Ltd (1576 HK)</a> was <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0812/2020081200112.pdf" target="_blank" rel="noopener">suspended</a> yesterday <em>"pursuant to the Code on Takeovers and Mergers</em>", it appeared the shareholder restructuring was the likely rationale.</p>
<p>This was confirmed last night after Qilu <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0812/2020081201368.pdf" target="_blank" rel="noopener">announced</a> its largest shareholder Qilu Transportation shall be merged and absorbed by Shandong Hi-Speed Group (SHSG).</p>
<p>The absorption simplifies the holding of Shandong SASAC, the ultimate parent of both Qilu Transportation and SHSG, into Qilu.</p>
<p>The restructuring <em>may</em> trigger an obligation for SHSG to make a mandatory general offer for all shares not owned. SHSG and Qilu Transportation will jointly make an application to the SFC to waive this obligation.  </p>
<p>There is also the issue over the resulting free float - as the public float falls below the minimum prescribed percentage of 25% under the restructuring, before any MGO.</p>
<p>But even if the SFC forces an MGO, expect a nil premium. </p>
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<p>More below the fold.</p>
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<p><em>This is a brief insight to discuss the updated announcement. For a more detailed overview of Qilu,  please refer to <a href="https://skr.ma/XZPiJ" target="_blank" rel="noopener">Qilu Expressway: C-REIT Pilot Or Restructuring?</a>.</em></p>
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After Qilu Expressway Co Ltd (1576 HK) was suspended yesterday "pursuant to the Code on Takeovers and Mergers", it appeared the shareholder restructuring was the likely rationale.
This was confirmed last night after Qilu announced its largest shareholder Qilu Transportation shall be merged and absorbed by Shandong Hi-Speed Group (SHSG).
The absorption simplifies the holding of Shandong SASAC, the ultimate parent of both Qilu Transportation and SHSG, into Qilu.
The restructuring may trigger an obligation for SHSG to make a mandatory general offer for all shares not owned. SHSG and Qilu Transportation will jointly make an application to the SFC to waive this obligation.  
There is also the issue over the resulting free float - as the public float falls below the minimum prescribed percentage of 25% under the restructuring, before any MGO.
But even if the SFC forces an MGO, expect a nil premium. 


More below the fold.

This is a brief insight to discuss the updated announcement. For a more detailed overview of Qilu,  please refer to Qilu Expressway: C-REIT Pilot Or Restructuring?.


<p><a href="https://www.smartkarma.com/entities/qilu-expressway-co-ltd" target="_blank" data-smartkarma-citation="entities:27431:1" rel="noopener">Qilu Expressway Co Ltd (1576 HK)</a> is currently <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0812/2020081200112.pdf" target="_blank" rel="noopener">suspended</a> "<em>pursuant to the Code on Takeovers and Mergers</em>".</p>
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<p>Back on the 30 April, the China Securities Regulatory Commission (CSRC) and the National Development and Reform Commission (NDRC) jointly <a href="http://www.csrc.gov.cn/pub/zjhpublic/zjh/202004/t20200430_374847.htm" target="_blank" rel="noopener">announced</a> a new pilot for Chinese infrastructure real estate investment trusts (or C-REITs), a directive to fund infrastructure projects such as highways and airports.</p>
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<p>In my insight <em><a href="https://skr.ma/z1xjh" target="_blank" rel="noopener">Chinese Expressways: A Step In The REIT Direction</a></em>, I discussed the nine toll roads listed in Hong Kong, including Qilu, to ascertain which company may pilot this new policy.  </p>
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<p>Located in East China and operational for 3+ years, Qilu ticks the location box and operational duration policy focus under the NDRC/CSRC directive. Is this the first "REIT" candidate?</p>
<p>Or is the suspension due to a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0713/2020071300003.pdf" target="_blank" rel="noopener">restructuring</a> with the Shandong Hi-Speed Group?</p>
<p>More below the fold.</p>

Qilu Expressway Co Ltd (1576 HK) is currently suspended "pursuant to the Code on Takeovers and Mergers".

Back on the 30 April, the China Securities Regulatory Commission (CSRC) and the National Development and Reform Commission (NDRC) jointly announced a new pilot for Chinese infrastructure real estate investment trusts (or C-REITs), a directive to fund infrastructure projects such as highways and airports.


In my insight Chinese Expressways: A Step In The REIT Direction, I discussed the nine toll roads listed in Hong Kong, including Qilu, to ascertain which company may pilot this new policy.  

Located in East China and operational for 3+ years, Qilu ticks the location box and operational duration policy focus under the NDRC/CSRC directive. Is this the first "REIT" candidate?
Or is the suspension due to a restructuring with the Shandong Hi-Speed Group?
More below the fold.

Qilu Expressway: C-REIT Pilot Or Restructuring?

China

Zhejiang Expressway Co., Ltd. is an investment holding company primarily engaged in the design, construction, operation, maintenance, and management of high-grade roads. It also operates a securities business offering broking, asset management, and other financial services. The company was founded on March 1, 1997, and is headquartered in Hangzhou, China.

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Zhejiang Expressway (576 HK)

Qilu Expressway (1576 HK): Deja Vu All Over Again

Qilu has announced another restructuring that could trigger an MGO - unless a waiver is granted. This all looks like history repeating itself....

David Blennerhassett