This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. On Headlines that Hynix Will Fully Block ADR Conversion
- Seoul Economic Daily flagged senior sourced messaging. Points to Hynix running TSMC style setup, capping usable pool near 2.5 percent and scaling ADR only via secondary issuance.
- Worst case for arb. Strong incentive to capture ADR premium as funding. Hard to directly link to recent drawdown, though buyback plus secondary timing could support it.
- Market still anchors 2Q reset on utilization shifts under US regulatory pressure, so coordinated ADR setup is a stretch. Base case is downside from arb shutdown, watching for TSMC-style execution.
2. Zhongji Innolight (3308 HK): (Fast) Global Index Inclusions Post H-Share Listing
- Zhongji Innolight (300308 CH) could raise up to US$8.1bn in its H-share listing if the Overallotment Option is exercised. The H-shares are offered at a 23.3% discount to the A-shares.
- There is a big allocation to cornerstone investors with a 6-month lockup. Fast Entry to global indices is still high probability, though early exercise of overallotment will help.
- The H-shares should be added to Southbound Stock Connect from the open of trading on 27 August following the end of the Price Stabilisation period.
3. KSD Confirms Hynix ADR 2.5% Hard Cap, Only Hynix Can Expand It. Outlook on the Actual Playbook
- KSD CEO confirms 2.5%t hard cap on ADR conversion despite 25% SEC headroom. Two way conversion starts July 29, but scaling the cap is fully Hynix call.
- Hynix not pushing 2.5% cap hike, instead engaging FSC on ADR registration including third-party conversions. Market confused as past exemptions existed, raising questions on intent and signaling possible hidden agenda.
- Market suspects Hynix may limit ADR pool expansion to capture premium, using FSC registration talks as cover. Base case is gradual pool opening with controlled conversion flow.
4. StubWorld: Prosus Is A Buy Here
- Prosus NV (PRX NA) is coming up “cheap” on my monitor versus Tencent (700 HK). And Naspers (NPN SJ) “rich” to Prosus.
- Preceding my comments on Prosus/Tencent/Naspers are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
5. [Japan Activism/Value] – Mitsui Matsushima (1518) Raises; Low PER, High ROE/Growth (Still), Now Div!
- Today, Mitsui Matsushima (1518 JP) upped full-year guidance, lifting revenue by 4.4%, OP by 3%, and NP by 21% (at earnings, they guided revenue +3.9%yoy, NP +5.7%yoy after decent beats.
- Today, they announced the purchase of an asset-rich q-tip maker with 10% OPMs and NPMs >OPMs on ¥3.6bn revenue the last 3yrs. Deal closes August. We’ll know more in September.
- The earnings uplift is frankly not that impressive. There were stock sale gains, and the uplift in consolidated numbers from the buy. But the dividend hike is REALLY impressive.
6. [Japan M&A] EQT+DG Up Their Kakaku.com (2371 JP) TOB Price by 15% to ¥3450; Bain Needs To Bump
- On Friday 17 July, EQT and DG announced their consortium would lift their Tender Offer Price to ¥3,450/share, up 15% from their previously-announced ¥3,000/share, already extended.
- This is a pre-emptive official response to the legally-binding offer made to Kakaku by the Bain/LY consortium earlier this month at ¥3384 (¥3500 if KDDI agree).
- This “obstructs” the Bain/LY deal, slightly, for the moment, but there are nuances within. I still think Bain/LY come over the top.
7. Guotai Junan International (1788 HK): Privatisation by Guotai Haitong Securities?
- Guotai Junan International (1788 HK)/GJTAI is in a trading halt “pending the issuance of an announcement pursuant to the Code on Takeovers and Mergers.”
- It is likely that Guotai Haitong Securities (2611 HK) is seeking to privatise GJTAI. The timing would be opportunistic, as GJTAI has underperformed its peers over the last 12 months.
- I use three methods to triangulate the likely offer price. My methods suggest a price range of HK$2.80 to HK$3.50 per share, a 34.6%-68.3% premium to the last close.
8. A Partial Tender Offer of Gabia by Macquarie
- On 20 July, Macquarie Korea Opportunities Private Equity Fund No. 6, managed by Macquarie Asset Management announced that it is conducting a tender offer for Gabia Inc (079940 KS) shares.
- The tender offer price is 48,000 won per share and the tender offer period lasts from 20 July to 17 September. Post tender offer, Macquarie plans to delist Gabia.
- I believe this partial tender offer of Gabia by Macquarie could trigger a potential M&A fight for the control of the company, leading to much higher share price.
9. StubWorld: Legend’s Bifurcation To Lenovo Is Unsustainable
- A double dose of StubWorld this week: Legend Holdings (3396 HK)‘s implied stub and simple ratio (Legend/Lenovo (992 HK)) are both around multi-year lows.
- Preceding my comments on Legend and Lenovo are the current setup/unwind tables for Asia-Pacific Holdcos.
- These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.
10. Merger Arb Mondays (20 Jul) – Kakaku, Shinko Shoji, Get Nice, Shengmu, Skyworth, Steadfast, Vault
- I summarise the latest spreads and newsflow for the merger arb situations covered across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, the Philippines, Thailand, and Chinese ADRs.
- Highest spreads: Skyworth (751 HK), Changhong Jiahua (3991 HK), Atlantic Lithium (A11 AU), Cygnus Metals (CY5 AU), Tourism Holdings (THL NZ), Continental Aerospace Technologies (232 HK).
- Lowest spreads: Accent Group (AX1 AU), Kakaku.com Inc (2371 JP), Australian Strategic Materials (ASM AU), Shinko Shoji (8141 JP), Taiyo Holdings (4626 JP), J.S.B (3480 JP).
