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. Alibaba (9988 HK): Index Implications for US$10bn Placement
- Alibaba (9988 HK) / Alibaba (BABA US) has announced a placement of HK$80bn (US$10.2bn) to invest in its full stack AI capabilities and to expand and enhance its AI infrastructure.
- The shares are being offered at HK$112.7/share, an 8.4% discount to the Alibaba (9988 HK) close and a 3.6% discount to the Alibaba (BABA US) close.
- There will be passive buying from trackers of one global index later this week, while trackers of the other global index will buy in November. No impact for local indices.
2. Dynamics Between Hynix’s Buyback Pace and Opening up ADR Fungibility
- Hynix has bought back 3.25mn shares, or 13.5%, in six days. At the current 650K daily pace, it should finish October 19, a month ahead of the November 19 deadline.
- The early buyback finish is not unusual, but its timing near the October 8 ADR lockup expiry revives chatter around a potential follow on ADR issuance.
- Square could sell the 68bp stake via a secondary ADR, potentially funding a special dividend for Chey’s ₩1T divorce settlement. Watch September filings for fungibility signals and ADR arb timing.
3. [Japan M&A] Bain Lets 5-Day Overbid Chance Lapse, Will Wait for EQT Tender To Finish
- On Friday after the close, Kakaku.com Inc (2371 JP) announced that Bain would not respond to EQT+DG/Kamgras1’s bid bump to ¥3,570 which meant Bain’s ¥3,640 was just 1.96% higher.
- This means Bain will simply let EQT’s current ¥3,570 bid close on 27 August. If the minimum threshold is met, EQT wins. If not, presumably Bain will launch.
- On 18 August, Oasis Management with 19.5% said it did not support a Tender Offer below ¥3,640/share. This, and the market price, may have emboldened Bain. What next?
4. SHEIN Global (625 HK): Delayed Index Inclusions; Stock Connect Next September
- SHEIN Global Holdings (625 HK) could raise up to US$2bn in its IPO if the overallotment option is exercised, valuing the company at HK$212bn (US$27bn).
- Cornerstone investors will take up between 21.7-22.6% of the base offering and those shares will be locked up for 6 months from listing date.
- Fast Entry inclusion in the HSCI is likely but Southbound Stock Connect could take over a year from listing date. Earliest global index inclusion in March.
5. India: Key CAS Test on Monday as Global Index Rebalances
- The Closing Auction Session (CAS) kicked off on 3 August for Indian stocks that are part of the Futures & Options (F&O) segment of the market.
- Daily total turnover in CAS since launch has averaged around US$128m. In comparison, global passives will need to trade around US$4bn of F&O stocks at the CAS on 31 August.
- There could be large moves in affected stocks in the lead up to the CAS on Monday, followed by more large moves at CAS, and a potential reversal on Tuesday.
6. Samsung’s Remaining Return Mix and Two Yearend Trades
- Samsung’s remaining KRW 70 to 80tn return package looks set at KRW 60tn dividends and KRW 10 to 20tn buybacks, with KRW 40tn a hard dividend floor and potential upside.
- Samsung’s KRW 10 to 20tn buyback could skew heavily toward prefs due to Samsung Life’s 10% constraint, implying potentially 6.7% prefs cancellation versus 0.7% common.
- Samsung offers two yearend trades: pref discount compression with 6.8% yield versus 5.1% common, and dividend arb with 3.3% yield, potentially higher amid continued memory sector vol.
7. Why Samsung Electronics Should Buyback and Cancel At Least 10% of Its Preferred Shares
- In this insight, I argue why Samsung Electronics should buyback and cancel at least 10% of its preferred shares.
- Clearly, many shareholders have been disappointed with lack of buybacks/cancellations with the recent 30 trillion won dividend program.
- In order to appease many disappointed investors in Samsung Electronics, the company should significantly increase the buybacks/cancellation portion of the remaining shareholder returns, especially for the preferred shares.
8. SK Innovation Announces a Merger With SK IET (Before New Regulation Kicks In)
- On 25 August, SK Innovation (096770 KS) announced a merger with SK IE Technology (361610 KS) (SK IET).
- I believe this will have a negative impact on SK Innovation and a neutral impact on SK IET.
- The biggest concern is the fact that SK IET has been generating continued net losses in the past several years and this could negatively impact SK Innovations’ financial structure.
9. Dentsu Soken (4812 JP): Oasis’s Presence Results in Itochu’s Rumoured Generous Offer
- Nikkei reported that Dentsu Inc (4324 JP) and Itochu Corp (8001 JP) will privatise Dentsu Soken (4812 JP) at a total cost of around JPY250 billion.
- The rumoured JPY250 billion valuation for the 38.12% stake not owned by Dentsu suggests an offer of JPY3,360 per share, a 22.7% premium to the last close.
- Oasis’s emergence as a substantial shareholder ensured a generous offer. The rumoured offer represents an all-time high and is attractive compared to precedent transactions and peer multiples.
10. Kakaku.com (2371 JP): Bain/LY Hold Firm as EQT/DG Face a Dilemma
- Bain/LY (4689 JP) have kept their Kakaku.com Inc (2371 JP) offer unchanged and have decided to wait for the EQT/Digital Garage (4819 JP) offer to close, convinced that it will fail.
- Minorities have a free option on the higher Bain/LY offer. In the worst case, the EQT/DG offer succeeds, and in the best-case, it fails, and minorities get the Bain/LY offer.
- The success of the EQT/DG offer relies heavily on KDDI’s support, which remains uncertain. It is very likely that EQT/DG will at least match Bain/LY’s JPY3,640 offer.
