Category

Event-Driven

Brief Event-Driven: SINA’s Opportunistic Privatisation Bid and more

By | Daily Briefs, Event-Driven

In this briefing:

  1. SINA’s Opportunistic Privatisation Bid
  2. O-Net Tech (877 HK): Tripping The Light Fantastic
  3. Sina Corp: Management Buyout Offer
  4. Smartkarma Webinar
  5. Leyou – Is Sony Targeting Splash Damage as Microsoft Targets Warner Brothers Interactive

1. SINA’s Opportunistic Privatisation Bid

Val

On 6 July, Sina Corp (Class A) (SINA US) announced a non-binding privatisation proposal from New Wave MMXV Limited, which is controlled by Mr Charles Chao (Chairman and CEO of SINA). The bid of $41.00 per ordinary share values SINA at a market cap of $2.7 billion. The proposal represents a premium of 11.8% to the undisturbed price on 2 July and a premium of 20% to the average closing price of the ordinary shares during the last 30 trading days.

New Wave currently owns ordinary shares and Class A preference shares representing 58.0% of the aggregate voting power. To reach the two-thirds voting power threshold, New Wave would need shareholders holding a combined 8.6% of the voting power (18.1% of ordinary shares) to support the privatisation. While the privatisation is likely to succeed, the privatisation smacks of opportunism and a poor deal for long-term shareholders, in our view.

2. O-Net Tech (877 HK): Tripping The Light Fantastic

Image 75024117241594114142921

O-Net Technologies (Group) (877 HK), a leader in the provision of high-technology products and optical networking components, is currently suspended pursuant to the Code on Takeovers and Mergers.

Its two major shareholders collectively hold 48.31%, down from 72.69% at the time of O-Net’s listing in 2010. O-Net is Cayman incorporated. If a firm Offer is tabled by way of a Scheme, the headcount test applies.

O-Net is up 27% YTD, and just ~3.5% below the recent June high, which was also a two-year high.

As always, more below the fold.

3. Sina Corp: Management Buyout Offer

Image 74183586921594086827843

Sina Corp (Class A) (SINA US) looks sets to join the growing list of Chinese companies seeking to delist in the US and relist, ostensibly in Hong Kong.

Yesterday, Sina announced the receipt of a preliminary non-binding “going private” proposal
from New Wave – a company controlled by its chairman/CEO Charles Chao – at US$41/share,  a ~20% premium to the average closing price during the 30 trading days prior to the announcement.

SINA’s key earnings driver is microblogger Weibo Corp (Adr) (WB US) – China’s Twitter Inc (TWTR US) equivalent – in which it holds a ~45% equity stake but controls ~71% of the vote.

This is, by no stretch, a slam dunk proposal. Optically, the indicative Offer price is highly opportunistic.  However, Chao controls ~58% of the voting power, and an Offer, should one unfold, requires two-thirds approval.

This remains a non-binding proposal. 

As always, more below the fold.

4. Smartkarma Webinar

In this Smartkarma Webinar, David Blennerhassett will discuss the hostile situation between Cromwell Property (CMW AU) and ARA Asset Management, further described in Cromwell/ARA: A Festering Relationship.

The webinar will be hosted on Wednesday, 15/July/2020, 5.00pm SGT/HKT.



David is a highly experienced analyst with more than 20 years covering Asia Pacific equities, the past 13 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.

5. Leyou – Is Sony Targeting Splash Damage as Microsoft Targets Warner Brothers Interactive

Image 57102638821594082983102

In our previous note on Leyou we noted that the company was in a good position strategically despite our scepticism about the longevity of its key profit driver, Digital Extreme’s Warframe. That has not changed greatly and Sony’s reported interest in the company is highly credible in our opinion. Against the backdrop of Microsoft’s reported interest in acquiring Warner Brothers Interactive Entertainment, we feel the move would make sense as both players move to strengthen 1st party development capabilities.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Event-Driven: BBL / KBANK : BBL NVDR Issuance Limit Extended to December, Possible MSCI Inclusion & Trade Unwind and more

By | Daily Briefs, Event-Driven

In this briefing:

  1. BBL / KBANK : BBL NVDR Issuance Limit Extended to December, Possible MSCI Inclusion & Trade Unwind
  2. Hexaware Delisting Proposal – This Could Go Higher

1. BBL / KBANK : BBL NVDR Issuance Limit Extended to December, Possible MSCI Inclusion & Trade Unwind

Image

On 27 May, the Thai NVDR Company announced that the Bank of Thailand had extended the approval for the Thai NVDR Co. to hold Bangkok Bank Public (BBL TB) shares up to 35% of the paid-up capital. The new limit extension runs to 23 December 2020.

This was surprising since the NVDR limit for Kasikornbank PCL (KBANK TB) had been reduced from 35% to 25% of paid up capital with effect from 23 January, and the holding on Bangkok Bank Public (BBL TB)‘s NVDRs on 27 May was 23.89%.

MSCI decided not to add Bangkok Bank Public (BBL TB) to the Standard indices in the May SAIR since the 35% NVDR issuance limit extension was due to expire in June and MSCI wanted to avoid potential reverse turnover in case the limit extension was not granted. There is a possibility that Bangkok Bank Public (BBL TB) is added to the MSCI indices in the August QIR, though there is still the overhang of the limit extension expiring in December.

Since our last Insight recommendation, Kasikornbank PCL (KBANK TB) has outperformed Bangkok Bank Public (BBL TB) by 14% on a total return basis and we recommend taking profit at these levels.

2. Hexaware Delisting Proposal – This Could Go Higher

Screenshot%202020 06 07%20at%201.00.04%20pm

On Friday morning, 5 June 2020, just around the open (but posted to the BSE site at 9:34 local time), Hexaware Technologies (HEXW IN) announced it had received a Delisting Proposal from the Promoter and 62.4% owner HT Global IT Solutions Holdings Limited (an entity owned by a Barings Private Equity Asia fund) the day before.

The Delisting Proposal Letter proposed an Indicative Offer Price of Rs.285/share “as a price at which the Promoter / Promoter Group will be willing to accept Equity Shares in the Delisting Proposal” (though the Letter also says any mention of such a price, or indeed any price higher and lower, is not binding on the Promoter). The Rs.285 price (the yellow line) is where the stock bounced to in April, and below where it spent the two years to March. 

source: tradingview.com, Quiddity

The yellow line is obviously not where the remaining 37.6% of shareholders will care to sell. 

The share price quickly shot up, and shares were limit up at Rs311.40 at 9:41am and after a bit of jostling, stayed at limit up from 9:51am onwards.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Event-Driven: O-Net Tech (877 HK): Tripping The Light Fantastic and more

By | Daily Briefs, Event-Driven

In this briefing:

  1. O-Net Tech (877 HK): Tripping The Light Fantastic
  2. Sina Corp: Management Buyout Offer
  3. Smartkarma Webinar
  4. Leyou – Is Sony Targeting Splash Damage as Microsoft Targets Warner Brothers Interactive
  5. Beijing Jingneng Clean Energy’s Potential Privatisation Bid

1. O-Net Tech (877 HK): Tripping The Light Fantastic

Image 93926438831594113153507

O-Net Technologies (Group) (877 HK), a leader in the provision of high-technology products and optical networking components, is currently suspended pursuant to the Code on Takeovers and Mergers.

Its two major shareholders collectively hold 48.31%, down from 72.69% at the time of O-Net’s listing in 2010. O-Net is Cayman incorporated. If a firm Offer is tabled by way of a Scheme, the headcount test applies.

O-Net is up 27% YTD, and just ~3.5% below the recent June high, which was also a two-year high.

As always, more below the fold.

2. Sina Corp: Management Buyout Offer

Image 74183586921594086827843

Sina Corp (Class A) (SINA US) looks sets to join the growing list of Chinese companies seeking to delist in the US and relist, ostensibly in Hong Kong.

Yesterday, Sina announced the receipt of a preliminary non-binding “going private” proposal
from New Wave – a company controlled by its chairman/CEO Charles Chao – at US$41/share,  a ~20% premium to the average closing price during the 30 trading days prior to the announcement.

SINA’s key earnings driver is microblogger Weibo Corp (Adr) (WB US) – China’s Twitter Inc (TWTR US) equivalent – in which it holds a ~45% equity stake but controls ~71% of the vote.

This is, by no stretch, a slam dunk proposal. Optically, the indicative Offer price is highly opportunistic.  However, Chao controls ~58% of the voting power, and an Offer, should one unfold, requires two-thirds approval.

This remains a non-binding proposal. 

As always, more below the fold.

3. Smartkarma Webinar

In this Smartkarma Webinar, David Blennerhassett will discuss the hostile situation between Cromwell Property (CMW AU) and ARA Asset Management, further described in Cromwell/ARA: A Festering Relationship.

The webinar will be hosted on Wednesday, 15/July/2020, 5.00pm SGT/HKT.



David is a highly experienced analyst with more than 20 years covering Asia Pacific equities, the past 13 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.

4. Leyou – Is Sony Targeting Splash Damage as Microsoft Targets Warner Brothers Interactive

Image 57102638821594082983102

In our previous note on Leyou we noted that the company was in a good position strategically despite our scepticism about the longevity of its key profit driver, Digital Extreme’s Warframe. That has not changed greatly and Sony’s reported interest in the company is highly credible in our opinion. Against the backdrop of Microsoft’s reported interest in acquiring Warner Brothers Interactive Entertainment, we feel the move would make sense as both players move to strengthen 1st party development capabilities.

5. Beijing Jingneng Clean Energy’s Potential Privatisation Bid

Val

Beijing Jingneng Clean Energy (579 HK)/BJCE is the largest gas-fired heat and power supplier in Beijing and the leading wind power operator in China. On 6 July, it announced a possible privatisation bid from Beijing Energy Holding through a conditional voluntary cash general offer. Beijing Energy Holding and concert parties have a combined 71.40% stake (100% of domestic shares and 16.7% of H-shares). This potential privatisation joins a list of recent SOE privatisations of clean energy companies – Huadian Fuxin Energy Corp (816 HK),  Huaneng Renewables Corp H (958 HK) and CP Clean Energy and the potential privatisation of CGN New Energy Holdings (1811 HK).

The offer if forthcoming could lead to the privatisation and delisting of BJCE. As the potential privatisation is structured as a conditional voluntary cash general offer, the two key conditions will be the approval by at least 75% disinterested H-shareholders (<10% of all disinterested H-shareholders rejection) and a minimum tendering acceptance condition. While the details and terms of the possible offer remain under wraps, we estimate a privatisation price of around HK$2.56 per share. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Event-Driven: Hexaware Delisting Proposal – This Could Go Higher and more

By | Daily Briefs, Event-Driven

In this briefing:

  1. Hexaware Delisting Proposal – This Could Go Higher

1. Hexaware Delisting Proposal – This Could Go Higher

Screenshot%202020 06 07%20at%201.00.04%20pm

On Friday morning, 5 June 2020, just around the open (but posted to the BSE site at 9:34 local time), Hexaware Technologies (HEXW IN) announced it had received a Delisting Proposal from the Promoter and 62.4% owner HT Global IT Solutions Holdings Limited (an entity owned by a Barings Private Equity Asia fund) the day before.

The Delisting Proposal Letter proposed an Indicative Offer Price of Rs.285/share “as a price at which the Promoter / Promoter Group will be willing to accept Equity Shares in the Delisting Proposal” (though the Letter also says any mention of such a price, or indeed any price higher and lower, is not binding on the Promoter). The Rs.285 price (the yellow line) is where the stock bounced to in April, and below where it spent the two years to March. 

source: tradingview.com, Quiddity

The yellow line is obviously not where the remaining 37.6% of shareholders will care to sell. 

The share price quickly shot up, and shares were limit up at Rs311.40 at 9:41am and after a bit of jostling, stayed at limit up from 9:51am onwards.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Event-Driven: Sina Corp: Management Buyout Offer and more

By | Daily Briefs, Event-Driven

In this briefing:

  1. Sina Corp: Management Buyout Offer
  2. Smartkarma Webinar
  3. Leyou – Is Sony Targeting Splash Damage as Microsoft Targets Warner Brothers Interactive
  4. Beijing Jingneng Clean Energy’s Potential Privatisation Bid
  5. Metlifecare Is Back in EQT’s Crosshairs

1. Sina Corp: Management Buyout Offer

Image 74183586921594086827843

Sina Corp (Class A) (SINA US) looks sets to join the growing list of Chinese companies seeking to delist in the US and relist, ostensibly in Hong Kong.

Yesterday, Sina announced the receipt of a preliminary non-binding “going private” proposal
from New Wave – a company controlled by its chairman/CEO Charles Chao – at US$41/share,  a ~20% premium to the average closing price during the 30 trading days prior to the announcement.

SINA’s key earnings driver is microblogger Weibo Corp (Adr) (WB US) – China’s Twitter Inc (TWTR US) equivalent – in which it holds a ~45% equity stake but controls ~71% of the vote.

This is, by no stretch, a slam dunk proposal. Optically, the indicative Offer price is highly opportunistic.  However, Chao controls ~58% of the voting power, and an Offer, should one unfold, requires two-thirds approval.

This remains a non-binding proposal. 

As always, more below the fold.

2. Smartkarma Webinar

In this Smartkarma Webinar, David Blennerhassett will discuss the hostile situation between Cromwell Property (CMW AU) and ARA Asset Management, further described in Cromwell/ARA: A Festering Relationship.

The webinar will be hosted on Wednesday, 15/July/2020, 5.00pm SGT/HKT.



David is a highly experienced analyst with more than 20 years covering Asia Pacific equities, the past 13 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.

3. Leyou – Is Sony Targeting Splash Damage as Microsoft Targets Warner Brothers Interactive

Image 57102638821594082983102

In our previous note on Leyou we noted that the company was in a good position strategically despite our scepticism about the longevity of its key profit driver, Digital Extreme’s Warframe. That has not changed greatly and Sony’s reported interest in the company is highly credible in our opinion. Against the backdrop of Microsoft’s reported interest in acquiring Warner Brothers Interactive Entertainment, we feel the move would make sense as both players move to strengthen 1st party development capabilities.

4. Beijing Jingneng Clean Energy’s Potential Privatisation Bid

Val

Beijing Jingneng Clean Energy (579 HK)/BJCE is the largest gas-fired heat and power supplier in Beijing and the leading wind power operator in China. On 6 July, it announced a possible privatisation bid from Beijing Energy Holding through a conditional voluntary cash general offer. Beijing Energy Holding and concert parties have a combined 71.40% stake (100% of domestic shares and 16.7% of H-shares). This potential privatisation joins a list of recent SOE privatisations of clean energy companies – Huadian Fuxin Energy Corp (816 HK),  Huaneng Renewables Corp H (958 HK) and CP Clean Energy and the potential privatisation of CGN New Energy Holdings (1811 HK).

The offer if forthcoming could lead to the privatisation and delisting of BJCE. As the potential privatisation is structured as a conditional voluntary cash general offer, the two key conditions will be the approval by at least 75% disinterested H-shareholders (<10% of all disinterested H-shareholders rejection) and a minimum tendering acceptance condition. While the details and terms of the possible offer remain under wraps, we estimate a privatisation price of around HK$2.56 per share. 

5. Metlifecare Is Back in EQT’s Crosshairs

Val

Metlifecare Ltd (MET NZ) owns and operates a portfolio of 25 retirement villages and related care facilities, which are predominantly located in the upper North Island of New Zealand. Metlifecare revealed a new lower non-binding indicative offer from Asia Pacific Village Group (APVG), a unit of EQT, at NZ$6.00 cash per share under a Scheme of Arrangement. The new indicative offer is NZ$1 less (14% less) than EQT’s original offer of NZ$7.00 per share.

Recently, certain shareholders have been agitating for Metlifecare to re-engage with EQT, drop the litigation and agree on a takeover offer at a lower price, according to press reports. The Board will assess the new indicative offer and canvass the views of shareholders. On balance, we believe that the revised lower offer is reasonable and will likely get broad shareholder support. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Event-Driven: Smartkarma Webinar and more

By | Daily Briefs, Event-Driven

In this briefing:

  1. Smartkarma Webinar
  2. Leyou – Is Sony Targeting Splash Damage as Microsoft Targets Warner Brothers Interactive
  3. Beijing Jingneng Clean Energy’s Potential Privatisation Bid
  4. Metlifecare Is Back in EQT’s Crosshairs
  5. FTSE Taiwan50 Index Rebalance Preview – First Look Sees Two Changes

1. Smartkarma Webinar

In this Smartkarma Webinar, David Blennerhassett will discuss the hostile situation between Cromwell Property (CMW AU) and ARA Asset Management, further described in Cromwell/ARA: A Festering Relationship.

The webinar will be hosted on Wednesday, 15/July/2020, 5.00pm SGT/HKT.



David is a highly experienced analyst with more than 20 years covering Asia Pacific equities, the past 13 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.

2. Leyou – Is Sony Targeting Splash Damage as Microsoft Targets Warner Brothers Interactive

Image 57102638821594082983102

In our previous note on Leyou we noted that the company was in a good position strategically despite our scepticism about the longevity of its key profit driver, Digital Extreme’s Warframe. That has not changed greatly and Sony’s reported interest in the company is highly credible in our opinion. Against the backdrop of Microsoft’s reported interest in acquiring Warner Brothers Interactive Entertainment, we feel the move would make sense as both players move to strengthen 1st party development capabilities.

3. Beijing Jingneng Clean Energy’s Potential Privatisation Bid

Val

Beijing Jingneng Clean Energy (579 HK)/BJCE is the largest gas-fired heat and power supplier in Beijing and the leading wind power operator in China. On 6 July, it announced a possible privatisation bid from Beijing Energy Holding through a conditional voluntary cash general offer. Beijing Energy Holding and concert parties have a combined 71.40% stake (100% of domestic shares and 16.7% of H-shares). This potential privatisation joins a list of recent SOE privatisations of clean energy companies – Huadian Fuxin Energy Corp (816 HK),  Huaneng Renewables Corp H (958 HK) and CP Clean Energy and the potential privatisation of CGN New Energy Holdings (1811 HK).

The offer if forthcoming could lead to the privatisation and delisting of BJCE. As the potential privatisation is structured as a conditional voluntary cash general offer, the two key conditions will be the approval by at least 75% disinterested H-shareholders (<10% of all disinterested H-shareholders rejection) and a minimum tendering acceptance condition. While the details and terms of the possible offer remain under wraps, we estimate a privatisation price of around HK$2.56 per share. 

4. Metlifecare Is Back in EQT’s Crosshairs

Val

Metlifecare Ltd (MET NZ) owns and operates a portfolio of 25 retirement villages and related care facilities, which are predominantly located in the upper North Island of New Zealand. Metlifecare revealed a new lower non-binding indicative offer from Asia Pacific Village Group (APVG), a unit of EQT, at NZ$6.00 cash per share under a Scheme of Arrangement. The new indicative offer is NZ$1 less (14% less) than EQT’s original offer of NZ$7.00 per share.

Recently, certain shareholders have been agitating for Metlifecare to re-engage with EQT, drop the litigation and agree on a takeover offer at a lower price, according to press reports. The Board will assess the new indicative offer and canvass the views of shareholders. On balance, we believe that the revised lower offer is reasonable and will likely get broad shareholder support. 

5. FTSE Taiwan50 Index Rebalance Preview – First Look Sees Two Changes

Image 60994456221593996157750

The FTSE Taiwan 50 Index is a market cap weighted index adjusted for free float and Foreign Ownership Limits and is designed to represent the performance of 50 of the largest and most liquid stocks that trade on the Taiwan stock market.

The next quarterly rebalance will be effective 21 September and the changes will be announced on 4 September. Passive funds will need to trade at the close on 18 September. The data used to determine changes to the index will use the closing prices on 24 August.

At the current time, we see two potential inclusions/exclusions from the index. Silergy Corp (6415 TT) and Realtek Semiconductor (2379 TT) are potential additions and would replace China Life Insurance (2823 TT) and Lite On Technology (2301 TT)

In this Insight, we take a look at the inclusion eligibility criteria, possible changes and their impact, and propose a couple of trade ideas.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Event-Driven: NIIT Technologies Tender Buyback – Offer If You Can and more

By | Daily Briefs, Event-Driven

In this briefing:

  1. NIIT Technologies Tender Buyback – Offer If You Can
  2. BBL / KBANK : BBL NVDR Issuance Limit Extended to December, Possible MSCI Inclusion & Trade Unwind
  3. Hexaware Delisting Proposal – This Could Go Higher

1. NIIT Technologies Tender Buyback – Offer If You Can

Screenshot%202020 06 08%20at%2010.29.28%20am

Niit Technologies (NITEC IN) announced a 3.13% Buyback Offer at a premium (INR 1725/share) had been approved in December 2019. Shares popped and traded in larger volume. This was a good signal from the management and promoter.

Foreigners ended up increasing their stake in the first quarter as retail and some local mutual funds sold the pop. 

COVID-19 measures and lockdowns meant a delay in SEBI approval, which was further extended. Finally in mid-May, SEBI arranged for some temporary relaxation of regulations, which meant NIIT Technologies could proceed more quickly. It launched the buyback three weeks ago with an Offer Period starting 29 May and closing on 11 June. Paperwork is due 13 June. But this works if you owned the shares as of Record Date 12 March 2020. 

If you owned the shares at the time, this is worth a look. 

2. BBL / KBANK : BBL NVDR Issuance Limit Extended to December, Possible MSCI Inclusion & Trade Unwind

Image

On 27 May, the Thai NVDR Company announced that the Bank of Thailand had extended the approval for the Thai NVDR Co. to hold Bangkok Bank Public (BBL TB) shares up to 35% of the paid-up capital. The new limit extension runs to 23 December 2020.

This was surprising since the NVDR limit for Kasikornbank PCL (KBANK TB) had been reduced from 35% to 25% of paid up capital with effect from 23 January, and the holding on Bangkok Bank Public (BBL TB)‘s NVDRs on 27 May was 23.89%.

MSCI decided not to add Bangkok Bank Public (BBL TB) to the Standard indices in the May SAIR since the 35% NVDR issuance limit extension was due to expire in June and MSCI wanted to avoid potential reverse turnover in case the limit extension was not granted. There is a possibility that Bangkok Bank Public (BBL TB) is added to the MSCI indices in the August QIR, though there is still the overhang of the limit extension expiring in December.

Since our last Insight recommendation, Kasikornbank PCL (KBANK TB) has outperformed Bangkok Bank Public (BBL TB) by 14% on a total return basis and we recommend taking profit at these levels.

3. Hexaware Delisting Proposal – This Could Go Higher

Screenshot%202020 06 07%20at%201.00.04%20pm

On Friday morning, 5 June 2020, just around the open (but posted to the BSE site at 9:34 local time), Hexaware Technologies (HEXW IN) announced it had received a Delisting Proposal from the Promoter and 62.4% owner HT Global IT Solutions Holdings Limited (an entity owned by a Barings Private Equity Asia fund) the day before.

The Delisting Proposal Letter proposed an Indicative Offer Price of Rs.285/share “as a price at which the Promoter / Promoter Group will be willing to accept Equity Shares in the Delisting Proposal” (though the Letter also says any mention of such a price, or indeed any price higher and lower, is not binding on the Promoter). The Rs.285 price (the yellow line) is where the stock bounced to in April, and below where it spent the two years to March. 

source: tradingview.com, Quiddity

The yellow line is obviously not where the remaining 37.6% of shareholders will care to sell. 

The share price quickly shot up, and shares were limit up at Rs311.40 at 9:41am and after a bit of jostling, stayed at limit up from 9:51am onwards.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Event-Driven: Beijing Jingneng Clean Energy’s Potential Privatisation Bid and more

By | Daily Briefs, Event-Driven

In this briefing:

  1. Beijing Jingneng Clean Energy’s Potential Privatisation Bid
  2. Metlifecare Is Back in EQT’s Crosshairs
  3. FTSE Taiwan50 Index Rebalance Preview – First Look Sees Two Changes
  4. Metlifecare: EQT Blinks And Tables A Revised Offer
  5. SK Biopharmaceuticals: MSCI Korea Index Inclusion Event

1. Beijing Jingneng Clean Energy’s Potential Privatisation Bid

Val

Beijing Jingneng Clean Energy (579 HK)/BJCE is the largest gas-fired heat and power supplier in Beijing and the leading wind power operator in China. On 6 July, it announced a possible privatisation bid from Beijing Energy Holding through a conditional voluntary cash general offer. Beijing Energy Holding and concert parties have a combined 71.40% stake (100% of domestic shares and 16.7% of H-shares). This potential privatisation joins a list of recent SOE privatisations of clean energy companies – Huadian Fuxin Energy Corp (816 HK),  Huaneng Renewables Corp H (958 HK) and CP Clean Energy and the potential privatisation of CGN New Energy Holdings (1811 HK).

The offer if forthcoming could lead to the privatisation and delisting of BJCE. As the potential privatisation is structured as a conditional voluntary cash general offer, the two key conditions will be the approval by at least 75% disinterested H-shareholders (<10% of all disinterested H-shareholders rejection) and a minimum tendering acceptance condition. While the details and terms of the possible offer remain under wraps, we estimate a privatisation price of around HK$2.56 per share. 

2. Metlifecare Is Back in EQT’s Crosshairs

Val

Metlifecare Ltd (MET NZ) owns and operates a portfolio of 25 retirement villages and related care facilities, which are predominantly located in the upper North Island of New Zealand. Metlifecare revealed a new lower non-binding indicative offer from Asia Pacific Village Group (APVG), a unit of EQT, at NZ$6.00 cash per share under a Scheme of Arrangement. The new indicative offer is NZ$1 less (14% less) than EQT’s original offer of NZ$7.00 per share.

Recently, certain shareholders have been agitating for Metlifecare to re-engage with EQT, drop the litigation and agree on a takeover offer at a lower price, according to press reports. The Board will assess the new indicative offer and canvass the views of shareholders. On balance, we believe that the revised lower offer is reasonable and will likely get broad shareholder support. 

3. FTSE Taiwan50 Index Rebalance Preview – First Look Sees Two Changes

Image 75890436441593996335905

The FTSE Taiwan 50 Index is a market cap weighted index adjusted for free float and Foreign Ownership Limits and is designed to represent the performance of 50 of the largest and most liquid stocks that trade on the Taiwan stock market.

The next quarterly rebalance will be effective 21 September and the changes will be announced on 4 September. Passive funds will need to trade at the close on 18 September. The data used to determine changes to the index will use the closing prices on 24 August.

At the current time, we see two potential inclusions/exclusions from the index. Silergy Corp (6415 TT) and Realtek Semiconductor (2379 TT) are potential additions and would replace China Life Insurance (2823 TT) and Lite On Technology (2301 TT)

In this Insight, we take a look at the inclusion eligibility criteria, possible changes and their impact, and propose a couple of trade ideas.

4. Metlifecare: EQT Blinks And Tables A Revised Offer

Image 40520850231593998869283

Ahead of Metlifecare Ltd (MET NZ)‘s 10 July meeting to seek shareholder support to continue litigation against AVPG and EQT over their decision to terminate the original SIA, EQT/QVPG have pitched a non-binding indicative offer to acquire all MET shares for NZ$6.00/share under a Scheme of Arrangement. This compares to the original Scheme consideration of NZ$7.00 per share in cash.

Consequently, the July meeting has been deferred. “Shareholders do not need to take any action at this time. A further update will be provided when the Metlifecare Board has further assessed the NBIO and canvassed the views of shareholders.”

This would appear a decent compromise for all parties. MET can avoid protracted litigation, which is expected to spill over into 1Q21. EQT saves face via reloading an Offer, and one that is 14.3% below its initial bid, and a 25.5% premium to the undisturbed price back in December.

As always, more below the fold.

5. SK Biopharmaceuticals: MSCI Korea Index Inclusion Event

14

SK Biopharm had a ceiling hitting in two consecutive trading days since the market debut.

And today?

Well, I guess I don’t even need to mention it.

Another ceiling hitting day, and trading volume? Yes, as of now (11:15 AM), it already reached 7M shares, nearly ten times the entire day’s TV in the previous session.

It now sports a market cap of ₩16.7tril, which puts it in the 17th place among the KOSPI heavyweights. The price is up 335% from the IPO price.

Now, the question is the timing of our cashing-in.

For this, we have two events that we need to follow carefully:

  1. KOSPI 200
  2. MSCI Korea Index

KOSPI 200 inclusion is practically a done deal.

Now, let’s examine the other one, the MSCI Korea Index.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Event-Driven: BBL / KBANK : BBL NVDR Issuance Limit Extended to December, Possible MSCI Inclusion & Trade Unwind and more

By | Daily Briefs, Event-Driven

In this briefing:

  1. BBL / KBANK : BBL NVDR Issuance Limit Extended to December, Possible MSCI Inclusion & Trade Unwind
  2. Hexaware Delisting Proposal – This Could Go Higher
  3. FTSE TWSE Taiwan 50 Index Review – Expensive Inclusion, Cheap Exclusion
  4. Last Week in Event SPACE: Infigen, Huadian Fuxin, Melco, Evergrande, Hitachi, Sing Air, DP World

1. BBL / KBANK : BBL NVDR Issuance Limit Extended to December, Possible MSCI Inclusion & Trade Unwind

Image

On 27 May, the Thai NVDR Company announced that the Bank of Thailand had extended the approval for the Thai NVDR Co. to hold Bangkok Bank Public (BBL TB) shares up to 35% of the paid-up capital. The new limit extension runs to 23 December 2020.

This was surprising since the NVDR limit for Kasikornbank PCL (KBANK TB) had been reduced from 35% to 25% of paid up capital with effect from 23 January, and the holding on Bangkok Bank Public (BBL TB)‘s NVDRs on 27 May was 23.89%.

MSCI decided not to add Bangkok Bank Public (BBL TB) to the Standard indices in the May SAIR since the 35% NVDR issuance limit extension was due to expire in June and MSCI wanted to avoid potential reverse turnover in case the limit extension was not granted. There is a possibility that Bangkok Bank Public (BBL TB) is added to the MSCI indices in the August QIR, though there is still the overhang of the limit extension expiring in December.

Since our last Insight recommendation, Kasikornbank PCL (KBANK TB) has outperformed Bangkok Bank Public (BBL TB) by 14% on a total return basis and we recommend taking profit at these levels.

2. Hexaware Delisting Proposal – This Could Go Higher

Screenshot%202020 06 07%20at%201.00.04%20pm

On Friday morning, 5 June 2020, just around the open (but posted to the BSE site at 9:34 local time), Hexaware Technologies (HEXW IN) announced it had received a Delisting Proposal from the Promoter and 62.4% owner HT Global IT Solutions Holdings Limited (an entity owned by a Barings Private Equity Asia fund) the day before.

The Delisting Proposal Letter proposed an Indicative Offer Price of Rs.285/share “as a price at which the Promoter / Promoter Group will be willing to accept Equity Shares in the Delisting Proposal” (though the Letter also says any mention of such a price, or indeed any price higher and lower, is not binding on the Promoter). The Rs.285 price (the yellow line) is where the stock bounced to in April, and below where it spent the two years to March. 

source: tradingview.com, Quiddity

The yellow line is obviously not where the remaining 37.6% of shareholders will care to sell. 

The share price quickly shot up, and shares were limit up at Rs311.40 at 9:41am and after a bit of jostling, stayed at limit up from 9:51am onwards.

3. FTSE TWSE Taiwan 50 Index Review – Expensive Inclusion, Cheap Exclusion

Image

FTSE Russell has announced the results of the June index review for the FTSE TWSE Taiwan 50 Index. The next rebalance will be effective 22 June and passive funds will need to trade at the close on 19 June.

As we expected, there is one addition Wiwynn Corp (6669 TT) and one deletion Pou Chen (9904 TT) in the review.

We estimate 0.24 days of ADV to buy on Wiwynn Corp (6669 TT) and 0.88 days of ADV to sell on Pou Chen (9904 TT). Short interest has been rising on both stocks, though short interest is 4% of free float on Wiwynn Corp (6669 TT)

4. Last Week in Event SPACE: Infigen, Huadian Fuxin, Melco, Evergrande, Hitachi, Sing Air, DP World

Image?1591332840

Last Week in Event SPACE …

  • Plus, other events, CCASS movements and Mood Spins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events – or SPACE – in the past week)


M&A – ASIA

Infigen Energy (IFN AU) (Mkt Cap: $0.5bn; Liquidity: $2mn)

UAC Energy (75% owned by AC Energy, which is a wholly-owned subsidiary of Ayala Corporation (AC PM), and 25% owned by UPC Renewableshas launched a Takeover Bid on an unsolicited basis for Infigen at A$0.80/stapled security. The stake claimed and filed is 12.82% which is 9.9% outright and a Total Return Swap of 2.92%. Interestingly, The Children’s Investment Fund (TCI) announced earlier the same day of the Offer that it had raised its stake to 33.09% from 32.62%. TCI was, according to the AFR yesterday, widely tipped to be a seller at the right price. 

  • This is a starting salvo. How power/energy markets, rates, volatility, politics evolve may determine whether there is market appetite to push it near-term. Travis expects this goes to FIRB first, and takes six months. I expect that any negotiation which happens between UAC and Infigen management will be slow-walked because there is no need to get agreement at A$0.90 before FIRB comes out. 
  • This asset is sub-scale, and sub-scale assets trade cheaper than large scale assets. This could be an attractive target for someone like Shell to bolt on to their Erm Power Ltd (EPW AU) acquisition of late 2019. They want “green cred” and adding this would give it some.  Brookfield sold in February at a price 10% lower. That suggests that after two years, they could not get traction with management, or did not feel a bid was likely to be successful. Travis expects they were low-balling their bid.
  • This stock may be “dead money” near-term, but on the whole Travis would rather be long than not.

Huadian Fuxin Energy Corp (816 HK) (Mkt Cap: $2.6bn; Liquidity: $3mn)

Following the suspension of its shares on the 28 May, HEFC announced its major shareholder, Huadian with 62.76% – via wholly-owned listed vehicle Fujian Huadian Furui (the Offeror) – has tabled a privatisation Offer by way of a Merger by Absorption. The Offer price of $2.50/share, is a 65.56% premium to last close and 85.34% premium to the average closing for the 90 days prior to the Offer announcement. The Offer Price is Final. A final dividend of RMB0.054/share (~HK$0.0587/share) will also be added to the consideration price. Unlike recent merger by absorptions, there is no tendering condition. I have no idea why.

  • If simply pegging to windpower and clean energy peers, HFEC’s Offer price is fair. The pushback is that the entire peer basket is off 12% YTD.  Dissension rights are discussed in HFEC’s AoA. However, there is no administrative guidance on the substantive as well as procedural rules as to how the “fair price” will be determined under PRC Laws. 
  • Note – there are pre-conditions with respect to approvals from NDRC, Ministry of Commerce and SAFE. The ultimate Offeror is Huadian, an SOE controlled by SASAC. Apart from possible timing delays, these approvals should all be forthcoming. 

Hitachi Ltd (6501 JP) (Mkt Cap: $33bn; Liquidity: $130mn)

After the close on Friday, Hitachi released its full-year earnings (with a news releasepresentation, and supplemental materials). It also released an update on Progress of the Mid-Term Management Plan, with a webcast and a presentation deck. The contents surprised even Travis. He did not expect to be so underwhelmed.

  • There was no comment about Hitachi Transport System (9086 JP) or Hitachi Capital (8586 JP) and there are ongoing investor questions about the former. 
  • It is at least a year, and probably more like three, given that the COVID-19 situation will effectively contaminate this year, and to some extent the following year, before a really solid sale process can start for the two remaining listed subs. 
  • If indeed the two consolidated listed subs end up for sale, Travis would expect a beauty contest for buyers like occurred for Hitachi Chemical, Hitachi Koki, and others. And those sale processes got great results for both Hitachi and minorities. For that, even if a sale is a few years down the road, any deep dip on the two stocks due to market selloff or flow patterns would be an opportunity to buy the dip. I have my doubts that they will both be world-beating enterprises by the time they are let free from the Hitachi name, but Travis expects they will be worthwhile enough that buyers will compete, especially for HCM.

Zenith Energy Ltd/AU (ZEN AU) (Mkt Cap: $0.1bn; Liquidity: $1mn)

Back on the 6 March, remote power generator Zenith Energy announced an Offer, by way of a Scheme, from Elemental Infrastructure BidCo, a Pacific Equity Partners (PEP) entity, at $1.01/share in cash, a 45.3% premium to last close.  The Offer had been unanimously recommended by Zenith’s board of directors, and valued Zenith’s equity at ~A$150mn (US$98mn) and an enterprise value of ~$250mn.

  • On the 6 April, an initial substantial shareholder announcement (15.45%) was made by Apex Opportunities, an entity controlled by Infrastructure Specialist Asset Management, a trustee of Diversified Infrastructure Trust/Infrastructure Capital Group (ICG) and OPSEU Pension Plant Trust Fund (OPTrust). This stake was bumped to 17.61% on the 22 April.
  • On the 6 May, PEP noted Apex’s holding, and that it would be challenging to implement the Scheme if Apex were to vote against the resolutions. So PEP reached out to Apex such that Apex’s consortium members could take an equity position in the Elemental/PEP group holding structure. If an agreement could be reached, a revised proposal would be tabled.
  • And so it was on the 29 May, Zenith announced Apex had joined PEP/Elemental’s proposed Scheme. There are no other material changes to the Scheme implementation deed announced on the 6 March. This was previously viewed as a clean takeover situation. You have an agreed deal, a solid premium to last close, together with major shareholders support – albeit with a rollover for key shareholders. I expect this deal to get up. But it is not a particularly liquid arb situation.

Onevue Holdings (OVH AU) (Mkt Cap: $0.1bn; Liquidity: <$1mn)

On 1st June 2020, Australian financial markets software company Iress Ltd (IRE AU) signed an scheme implementation agreement to acquire 100% of OneVue valuing the company at a market cap of A$107mn.  The Acquirer announced they will also be simultaneously raising AS$170mn of equity but the OneVue Deal will not be conditional on financing.  The Deal currently requires approvals from Target Shareholders and regulatory authorities.  The Offer Price is A$0.40/share and the consideration will be in the form of cash.

  • In 2019, OneVue sold its trustee business Diversa to financial technology and infrastructure company Sargon for a consideration of $43mn. Out of this, A$31mn was to be settled by Nov 2019 but Sargon failed to make this payment. In January 2019, Sargon went into receivership forcing OneVue to write down a significant portion of the money owed to them by Sargon. 
  • This Deal comes at a premium of 66.7% to the pre-announcement closing price of A$0.24. It is also 281.0% higher than the all-time low of A$0.11 reached in March 2020.  There is some uncertainty regarding the potential recovery of Sargon receivables and the restriction on dividends/buybacks makes it unattractive to hold the stock.  However, the Deal requires approval from at least 75% of votes cast. Janaghan Jeyakumar feels the outcome of the shareholder vote may depend somewhat on the progress in recovering the Sargon receivables between now and the Scheme Meeting in early-September. 
  • This is not a large deal. ADV is about US$300k which is actually on the high side given how private the shareholder register appears to be. The spread is wide and the deal timeline is short but there is some uncertainty to this deal because of the low price. Janaghan expects this to trade with a lot of noise until there is more clarity on the Sargon Receivables. Until then, we recommend avoiding this situation considering the large gap risk (~35% fall to pre-announcement close). 
(link to Janaghan’s insight: OneVue-Iress: Australian Deal Trading Wide)

Metlifecare Ltd (MET NZ) (Mkt Cap: $0.6bn; Liquidity: $4mn)

The  High Court of New Zealand passed down its decision, clarifying the dispute regarding the validity of the notice to terminate the Scheme Implementation Agreement entered with Asia Pacific Village Group Limited (APVG/EQT) should be resolved before MET shareholders vote on the Scheme plan.  The High Court decision provides no insight or context as to whether the termination of the SIA was valid/correct, or not, in the eyes of law. This decision by the judge is purely a judgment on whether the Scheme meeting should be held before the outcome of the litigation.

  • In the interim, MET will hold a shareholder meeting mid-July to seek a formal endorsement from shareholders on whether to continue, or not, with its legal action challenging APVG’s termination of the SIA. MET anticipates dispatching the Notice of Meeting next week. This meeting is MET’s own doing, not a requirement from the Court. The endorsement may require a special resolution – i.e. a 75% approval – for the litigation to continue. No doubt shareholders will overwhelmingly support the litigation – and why wouldn’t they, given the substantial premium over the price at which the company’s shares are currently trading at.
  • Separately, and as previously noted, MET had filed a Statement of Claim in the High Court on the 15 May, seeking orders to compel APVG/EQT to fulfill their contractual obligations under the SIA, The High Court has set an expedited court timetable for the dispute, with the trial scheduled to commence on 23 November 2020. A decision may be available in late January 2021.  I argued (so far, unsuccessfully to date) it would be challenging for EQT to get out of the MAC carve-out. I expect the judge’s final decision to side with MET and therefore, move to put the Scheme to a shareholder vote.
  • Seeking endorsement from shareholders on whether to proceed with litigation may have a small net negative impact. Given this is a long-dated deal, some active investors may trim positions. It is possible APVG/EQT may face reputational damage dragging out this process, and potentially seek a compromise.  I remain positive this deal will get up.

Kingswood Enterprise Co., Ltd. (600255 CH) (Mkt Cap: $0.3bn; Liquidity: $6mn)

Wuhu Chuheng Investment, the second-largest shareholder in Kingswood with 2.30% of shares out, is seeking to raise its stake to 15.00% via a partial Tender Offer, in an RMB269.6mn (~US$38mn) transaction. The Tender Offer is RMB1.20/share, a ~13% premium to the undisturbed close. The minimum pro-ration is 13.05%.  Sans a punchy premium, the low pro-ration appears unattractive.  However, recent partial Offers in China have shown remarkably high pro-rations. That’s worth a second look.  And Kingswood is relatively liquid.

STUBS

I see Melco’s discount to NAV at ~28%, bang in line with its 12-month average. But it’s Lawrence Ho’s insider buying that is worthy of a discussion. According to the HKEx, Lawrence has added 2.06% in Melco or 31.5mn shares year-to-date, taking his direct take in Melco to 57.95% and elevating his look-thru stake in MLCO to 33%. Technically, >30% gives a shareholder “control” in the company – largely premised on the fact 30% is the takeover trigger threshold, and is sufficient to block an unsolicited takeover offer. Therefore, Lawrence could collapse the Melco Holdco structure and maintain control. 

  • As discussed in StubWorld: Melco Steps Back From Crown; Ayala Hands Over Control Of Manila Water, Melco stub ops are largely inconsequential/immaterial, encompassing various “perpetual” trademarks and goodwill (after Melco gained control of MLCO), the Jumbo restaurant in Aberdeen (est. at $370mn for its 86.678% stake – perhaps a lot less since the restaurant is currently closed),  and slot machines and a social gaming developer Entertainment Gaming Asia (implied value of HK$265mn).
  • Collapsing the Holdco structure? Not dissimilar to my Hang Lung (10 HK) commentary last week (StubWorld: Hang Lung Group (10 HK) Is A Buy), this could be achieved via a takeover of Melco (giving Lawrence majority control), in-specie-ing MLCO (giving Lawrence 33% direct into MLCO) or a reverse takeover of Melco by MLCO, perhaps by a scrip/cash offer, wherein Lawrence would opt for the scrip only. This may give Lawrence a higher direct % into MLCO, depending on the scrip ration and who takes up the scrip/cash option. Lawrence would need to abstain from voting in a takeover of Melco – and more likely abstain in a reverse takeover.
  • I would take advantage of any weakness in Melco to build a position. Lawrence was okay with buying at a more expensive implied stub than where it is now. It is worth noting the acquisition of shares Melco by Lawrence this year was primarily done at an implied stub higher the current level.

EVENTS

Evergrande Real Estate Group (3333 HK)  (Mkt Cap: $30bn; Liquidity: $38mn)

Evergrande commenced buying back stock for the first time in two years on 4 May 2020. At the time, because of various options which had been exercised before their expiry (since the end of the buyback in 2018), they had the ability to buy a certain number of shares. The shareholder permission granting of a general mandate to the Directors to “repurchase Shares not exceeding 10% of the existing issued share capital of the Company at the date of passing this resolution.”

  • But that wasn’t the actual flexibility. The actual limit was closer to 208mm shares because of the Exchange rule limiting them to a float of 22.04% or more. As of the previous Friday’s close, that room to repurchase shares was halved at 103mm shares. The first half took 17 trading days out of the 18 since they started buying back shares. The pace slowed a bit after the initial flurry of larger orders, but even if they average 5 million shares/day, they will reach their limit by end-June.  
  • Travis expects shorting near the tail end of the buyback is worthwhile as I expect property stimulus may remain a zone where China policymakers don’t yet want to go because of the ease in which it expands debt, household leverage, and high interest rate equity check borrowing, which causes financial hardship unless property prices go up forever.
  • This insight is labelled BEARISH because I expect sometime in the next two weeks will be the time to sell one’s long and/or short the shares. I believe there is still a little room for the company to push before those who would short will be happy to add marginal risk. 

(link to Travis’ insight: Evergrande (3333 HK) Buyback Half Done)


Singapore Airlines (SIA SP)  (Mkt Cap: $3.7bn; Liquidity: $35mn)

SIA has now announced the distribution of the rights and the rights not taken up. A surprising number of rights were NOT taken up. The announcement does not say the division of the distribution between those who will be allocated the excess rights in order to cover oddlots and those which will be distributed to Excess Rights Applications. The likelihood of another 14% gain on SIA shares is now sharply diminished. This is because there is no V-shaped recovery in the shares to come. Arithmetically, with 150% more shares, EPS will fall 60% on a pro-forma basis. That is not a recipe for seeing the shares at their old price. People looking at charts need to not look at stock price but look at EV “price”. Another 10% higher on the shares would get Forward EV to the same level as calendar Q4 2019.

  • Near-term? there may be selling pressure. If you have shares or borrow and are inclined to sell to buy back, Travis expect there is an opportunity to do so on 3-5 June. Long-term? there should be no V-shaped rebound. The shares are substantially de-levered from before. That means a lot less EPS and theoretically, a lot lower capital structure volatility on a gross basis (shares should be less volatile than before. Medium-term? Travis would not be surprised to see the shares run a bit too far because float is small, there are still shorts, borrow will become easier next week again, and coming out of lockdown will mean people will feel better about doing things.
  • Comparatively? Cathay Pacific Airways (293 HK) and others which have not raised capital are still operating under the old share price paradigm. Theoretically, their shares should be more volatile than SIA’s. That introduces theoretical beta vs realised beta problems for those who manage risk. Cathay still needs capital. SIA doesn’t, and can get another S$6+bn from Temasek over the next year in the form of MCBs. And Cathay still needs capital and will likely still get diluted from here. 
  • And about the MCBs? Something of a disaster of an offering. Out of S$3.496bn, only S$145mm will be tradable. It is possible that these have a very lonely life on the exchange. It also means that aggressive market-makers will be able to trade these at the bond equivalent spread of 10 cents on exchange.

(link to Travis’ insight: Singapore Air – The Rights Distribution – Vol Is Your Friend)


China Pacific Insurance (2601 HK) (Mkt Cap: $3.7bn; Liquidity: $35mn)

CPI released an announcement that it had received permission from the China Securities Regulatory Commission (CSRC) to issue up to but not more than 125,734,000 GDRs which corresponds to a newly issued number of A-Shares of China Pacific Insurance (Group) Co., (601601 CH) (CPIC) of not more than 628,670,000. That comes to an underlying value of US$2.5bn or so, though one might expect a decent discount at issue. The company also announced a cornerstone agreement with Swiss Re agreeing to buy a number of shares which would not exceed 1.5% of the resulting post-offering outstanding number of shares. Required remaining approvals are the FCA and the London Stock Exchange. 

  • The Trade? Bid for and get LSE-listed GDRs of CPIC, then sell the A-share equivalent (GDR ratio-adjusted) of what you can buy on Shanghai.  If you did not get enough, buy more on the market on the LSE once they start trading, then sell a commensurate quantity in Shanghai. If your A-share portfolio is 3% CPIC, and you can buy at a 15% discount, you will earn 45bp outperformance on your entire portfolio just from this trade. There is no other FX to hedge. It is a USD-denominated A-share. It will deliver an amount in RMB equal to the CPIC share price. 
  • At the end of 120 days when the GDRs become fungible, check with your broker how they will be converted (the brokers will probably either sell A-shares VWAP or something similar, but check the method they will “price” your GDRs at), and then do the opposite. If the broker sells the A-shares VWAP on Day X, then you should buy A-shares on Day X, VWAP. The reason you do this is that the conversion the broker will do is not a ‘real’ conversion. You don’t get A-shares. You get the money from them selling A-shares on your behalf. To keep the exposure, you need to buy A-shares while they are selling them. 
  • The other trade? If you are a hedge fund and want to buy a large block of stock cheap, and you like the insurance sector as a whole, buy a block and you are long a slow-rolling block trade where the discount will shrink over the next four months, but you may not make anything just from your long position in the GDR. But you have a bigger buffer against loss. It is effectively a “cornerstone” buy of a block of A-shares where you are locked up for just over four months. But it’s a big enough discount to care.

(link to Travis’ insight: CPIC (601601 SH / 2601 HK) – GDR Issuance Incoming!)


SK Biopharmaceuticals (BIO SK) could reopen the Korean IPO market with its listing that is expected later this month. With 19.58m shares being offered in the IPO at a price range of KRW 36,000 – KRW 49,000 per share, there is a possibility that the stock could get fast entry into the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and other global indices bringing in passive flows and supporting the stock price. In SK Biopharmaceuticals – Fast Index Entry Possibilities, Brian Freitas takes a look at a few details of the IPO and assesses the likelihood of the stock getting fast entry into indices that have significant assets benchmarked to them.

M&A – EUROPE

Masmovil Ibercom (MAS SM) (Mkt Cap: $3.4bn; Liquidity: $17mn)

A trio of PE funds – KKR, Cinven, and Providence – have launched a takeover bid to acquire a majority stake in Spanish telecom operator MásMóvil Ibercom, S.A. If the Deal goes through, all three PE firms will hold an equal stake in the company. The Offer Price is EUR22.50/share (20.2% premium to the undisturbed) valuing the company at a market cap of ~EUR3.0bn and an enterprise value of EUR 5.011bn. Providence is currently the second-largest shareholder with (9.16%) and including them, shareholders collectively holding 29.56% have agreed to sell. 

  • MásMóvil has been a unique success story in an over-saturated and fiercely competitive European Telecom Industry. The company has disrupted larger competitors by providing low-cost bundles of mobile phone and internet services and also has inorganically strengthened its market position by acquiring brands such as Yoigo, Pepephone, Lyca and Lebara in the last few years. However, the company will need more financial resources to remain competitive against the other local players such as Telefónica, Orange, Vodafone, and Euskaltel. This Deal will probably give them that financial backing. 
  • The Deal has a minimum acceptance condition of 50% and MásMóvil’s shares are currently trading above terms at EUR23.18.  Janaghan feels there is some fundamental backing for an improvement to the current offer – either in the form of a bump from the current bidders or an overbid from other competitive bidders who could potentially be one of MásMóvil’s rivals. MásMóvil has a wholesale agreement with Orange to resell services using Orange’s Spanish network and this can probably attract strategic buyers who could be interested in unlocking synergies. Janaghan recommends buying in the low EUR 23s.
  • Separately Jesus Rodriguez Aguilar has a target price of EUR 26.

M&A – NORTH AMERICA

Cineplex Inc (CGX CN) (Mkt Cap: $0.7bn; Liquidity: $8mn)

On June 1st, Cineplex provided an update on the status of Investment Canada review in connection to the Cineplex-Cineworld Deal – officially, the Deal is still alive. With less than a month to the Outside Date (30th June), the Deal remains conditional mainly on the ICA Approval, fulfilment of certain covenants in the arrangement agreement (SEDAR link), and Cineplex maintaining its debt level under C$725mn (the “Debt Condition”). 
  • Janaghan feels the ICA approval might depend on Cineworld coming to terms with the competition authority on certain matters. The reason for extension of the ICA approval deadline from June 1st to June 15th is not explicitly stated on Cineplex’s announcement. We feel that this could be related to concern of potential closure of screens and the consequent loss of employment that could result from this transaction.
  • With shareholders of both companies having voted in favour of the Deal, the Cineworld’s board of directors is bound by their good faith obligations in the Arrangement Agreement which means IF ICA Approval is granted AND all other conditions including the Debt Condition is met, we feel that it will be highly unlikely for Cineworld to be able to walk away without having to face a lawsuit and discovery. 
  • If ICA Approval is granted on time, there could possibly be some short-lived excitement around the share price. This presents some trading opportunities for punters in the run up to the ICA Approval deadline – June 15th. If you expect short-lived excitement, but eventual deal break, you could make a quick bet on buying to the upside, or you could borrow shares and wait for the stock to pop then short-sell it, but if you do the latter, you should be very sure this deal does not get renegotiated. For fundamental bets on the recovery of Cineplex, wait for the Deal to break and if it does break, buy if the shares fall well below the estimated range for the theoretical break price. 
(link to Janaghan’s insight: Cineplex-Cineworld: The Final Countdown

M&A – MIDDLE EAST

DP World (DPW DU)  (Mkt Cap: $13bn; Liquidity: $11mn)
DP World announced that it had received a Court Date for the hearing to sanction the Scheme. That court date is 16 June.  There are no market holidays between here and there. This remains the easiest short-term risk arb deal in the world right now. Travis doesn’t understand why more people haven’t been doing this trade. There is still juice. If you buy Sunday at the closing offer, and pay 15bp commission, the return is 127bp for less than a month in USD. Easy money is not always easy to find. Get involved.

(link to Travis’ insight: DP World – Ticking Down To The Last Trade)

INDEX RE-BALS

The Stock Exchange of Thailand (SET) will announce the results of the semi-annual review of the SET50 index in June and the changes will be effective from 1 July 2020. Passive funds and index arb desks will need to trade at (or by) the close on 30 June 2020. In SET50 Rebalance Preview: The Final Cut, Brian expects TTW Pcl (TTW TB) and Banpu Power PCL (BPP TB) will be included in the SET50 index replacing Banpu Public (BANPU TB) and WHA Corp Pcl (WHA TB).


STOXX Ltd., the operator of Qontigo’s index business has announced the changes to the STOXX Europe 600 index for the upcoming review. The rebalance will be effective as of the opening of European markets on 22 June and passive funds will need to trade at the close on 19 June. There are 21 inclusions and exclusions in this review. As discussed by Brian in STOXX Europe 600 Index Review: Adds Outperforming Deletes, based on passive assets tracking the STOXX Europe 600 index and the associated size and sector indices, there is significant volume to trade on quite a few stocks. The adds have significantly outperformed the deletes over the last year, with the bulk of the outperformance coming over the last few months


FTSE Russell has just announced the results of the June index review for the FTSE China A50 Index (XIN9I INDEX). The next rebalance will be effective 22 June and passive funds will need to trade at the close on 19 June. As discussed by Brian in FTSE China A50 Index Review – Couple of Changes, there are 2 additions and 2 deletions in the June review. The additions are Beijing-Shanghai High Speed Railway (601816 CH) and WuXi AppTec Co Ltd (603259 CH) and the deletions are 360 Security Technology Inc. (601360 CH) and Boe Technology Group (000725 CH).


For FTSE China 50 index, as discussed by Brian in FTSE China 50 Index Review – Alibaba, Hansoh Pharma, Alibaba Health Included, there are 3 additions and 3 deletions in the June review. The additions are Alibaba Group (9988 HK)Alibaba Health Information Technology (241 HK) and Hansoh Pharmaceutical (3692 HK), while the deletions are Shenzhou Intl Group Holdings (2313 HK)New China Life Insurance (1336 HK) and China Communications Construction (1800 HK).


For the FTSE Straits Times Index (STI) (STI INDEX), as discussed by Brian in STI Index Review – And Ironic It Is!, there is 1 addition Mapletree Industrial Trust (MINT SP) and 1 deletion Singapore Press Holdings (SPH SP) in this review. Brian estimates more than 1.5 days of ADV to buy on MINT and around 0.9 days of ‘normal’ ADV to sell on SPH.


For the  Kuala Lumpur Composite Index (Klci) (FBMKLCI INDEX), as discussed by Brian in KLCI Index Review – Liquidity Play, there are 2 additions, Telekom Malaysia (T MK) and KLCCP Stapled (KLCCSS MK), and 2 deletions Malaysia Airports Hldgs (MAHB MK) and Ammb Holdings (AMM MK) in this review. There are significant days to trade on KLCCP and AMMB and the stocks could move from now to implementation day.


STOXX announced the results of the Deutscher Aktienindex (DAX) index review. The constituent changes will be effective from 22 June and the rebalancing trades will need to be done at the close on 19 June. As discussed by Brian in DAX Index Review – BIG Impact on Deutsche Wohnen, as expectedDeutsche Wohnen Ag (DWNI GR) has been included in the index and Deutsche Lufthansa Ag (LHA GR) has been excluded. This marks the end of a 32 year stay in the index Deutsche Lufthansa – the stock was part of the initial DAX index composition from 30 December 1987.

OTHER M&A & EVENT UPDATES

CCASS

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

%chg

Into

Out of

51.05%
Excel
Pacific Found
UTS (6113 HK)
14.62%
Citi
RHB
62.65%
HSBC
Outside CCASS
Wine’s Link (8509 HK)
42.00%
HSBC
BNP
AL Group (8360 HK)
24.20%
Chaoshang
Outside CCASS
32.01%
HSBC
Outside CCASS
Kingland (1751 HK)
18.75%
Gransing
Outside CCASS
Grater Bay Ara (1189 HK)
18.71%
Satinu
Get Nice
18.77%
HSBC
Outside CCASS
13.19%
EFG
Easy One
11.70%
JPM
Outside CCASS
34.39%
CLSA
Outside CCASS
22.76%
UBS
Prime
11.70%
Elstone
Outside CCASS
Source: HKEx

The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Name

% chg

Into

Out of

Contel (1912 HK)
15.63%
HSBC
Outside CCASS
57.82%
CMB
Outside CCASS
Source: HKEx

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Event-Driven: MásMóvil – Lorca Capital: Summer Lull and more

By | Daily Briefs, Event-Driven

In this briefing:

  1. MásMóvil – Lorca Capital: Summer Lull
  2. Market Is Pricing a LINE Bump – Should It?
  3. Major Accordia Golf Trust Shareholder Has Issues With Price & Process
  4. J.B.Chemicals (JBCP IN): Partial Tender Offer by KKR
  5. Beijing Jingneng (579 HK): The Latest Clean Energy Privatisation?

1. MásMóvil – Lorca Capital: Summer Lull

Activist Polygon (1.025% stake in MásMóvil, worth c. EUR 31 mn) has sent a letter to the CNMV (Securities Market National Commission, the Spanish market watchdog) regarding the terms of the Lorca Telecom (KKR, Cinven and Providence funds) voluntary takeover bid for MásMóvil. The letter analyses the following points:

  • Equitable price
  • Competing bids
  • Board of Directors report and “passivity duties”
  • Break-up fees payable by MasMóvil to the consortium bidder

The letter provides reasons (summarised in the note) why the current offer (specially the irrevocable undertakings) seems unfair for the minority shareholders.

Polygon also states that the CNMV should consider, in any fairness opinion, two relevant facts the relevant information disclosed by Masmóvil on:

  • 12 June 2020, binding bid by an infrastructure fund for part of the company’s network, which will generate a “very substantial” net cash flow of EUR 215-245 mn.
  • 22 June 2020, agreements reached with Telefónica for mobile and fixed access, which will, according to Masmóvil, create savings of EUR 28 million, an increase of 6% vs. 2019 EBITDA 2019.

According to El Confidencial, MásMóvil was interested in acquiring Vodafone Spain for an amount of nearly EUR 6 bn (financed through a combination of a rights issue and debt, arranged by Goldman Sachs). This could be what the private equity bidders have in mind after the acquisition of MásMóvil. There is scope for cost-cutting inside Vodafone Spain and the synergies could reach EUR 2 bn.

There are three possible scenarios, in my view:

  1. A counterbid by other private equity firms, such as Carlyle or CVC (who have mulled a bid for MásMóvil in the past).
  2. One of the incumbents —Telefónica, Vodafone or Orange— counteroffers at a higher price. This seems difficult (see further in the note),
  3. Lorca Capital does not get the 90% acceptance required to squeeze out and delist MásMóvil, so the current shareholders share in the possible upside of a hypothetical Vodafone Spain acquisition.

My recommendation is LONG MásMóvil: the downside risk at the last close (EUR 22.68 vs a bid of EUR 22.50) is low and there are reasons to hold for an improved bid. The Domínguez de Gor family (8% stake) has already said that it will not consider the bid unless there is an improved price of EUR 24 per share. The acceptance period of the Lorca Capital bid should start in September.

MásMóvil is trading at 8.2x forward EBITDA vs. 8.5x for Euskaltel SA (EKT SM) (which may well be another company to be acquired in the consolidation round). This seems to suggest that the current offer price may be low.

2. Market Is Pricing a LINE Bump – Should It?

Screenshot%202020 07 05%20at%208.08.27%20pm

Seven and a half months ago, the Nikkei carried an article titled ヤフーとLINE、経営統合へ which translates to “Yahoo and LINE, Towards a Merger.”

The article itself engendered some confusion but this was mostly a misunderstanding among investors about what the structural possibilities were. The Nikkei article diagram required a LOT of cash which the parties involved did not have so it made sense to have it be done with a non-cash or low-cash option. Indeed a couple of days later we got announcements from Softbank Corp (9434 JP) and Naver Corp (035420 KS) as to what the idea was. 

That involved a Tender Offer for the minorities of LINE Corp (3938 JP) by a combination of Softbank Corp and Naver, followed by a merger between Softbank Corp’s holding entity of its stake in Z Holdings (4689 JP) (which it has now created – a company called Shiodome Z Holdings) and a merger of privatized LINE with Shiodome Z with transfer payments in the background so that the ownership of that NEW SHIODOME Z entity is 50/50 between Softbank Corp and Naver. It is convoluted but it gets the job done. 

The initial proposal was that the LINE Tender Offer would be at ¥5200 and that the NEWCO would own 65.8% of Z Holdings, which itself would own all of what it currently owns, plus LINE. That was a deal which still needed to be confirmed, but they indicated a deal would be signed by year-end.

Just before Christmas, the entities came out with documents outlining a definitive deal which put a bit more meat on the process bones and raised the Tender Offer price for minorities of LINE to ¥5380/share. 

The shares traded just below terms for a couple of months until the covid-19 market swoon in March caused shares to fall sharply to the ¥5000/share area, but shares climbed back slowly as the market did. 

source: tradingview.com, Quiddity

On the 24th of June, LINE shares closed above terms for only the second time since early January, and unlike the previous two times, the next day it stayed above. On 26 June, in what was a not terribly high-volume day at 347,000 shares, the stock closed more than one tick above at ¥5430/share. Since then, the shares have not closed below ¥5400. I am aware there may be some people suggesting a write-in campaign to urge the independent committee to reconsider terms.

I note that this is a low-cost option to see a bump. I note also that the tender could see exactly one share tender, be “successful” then LINE could proceed with a squeezeout. 

The NEW News

On the 30 June after the close, LINE, Z Holdings, Softbank Corp, and Z Holdings (“the Relevant Parties”) announced that the deal would likely not complete by the originally scheduled October 1st deadline, saying…

The Relevant Parties have worked diligently with each competition authority to make progress with respect to the procedures required to implement the Business Integration and the Joint Tender Offer. However, the Relevant Parties hereby announce that as of today, due in part to the impact of the global spread of COVID- 19, the procedures and measures under the competition laws of some of the countries have not been completed.

Further, no change is currently anticipated to the tender offer prices for the Joint Tender Offer or the terms and conditions to, or form of, the Business Integration, including the exchange ratio for the share exchange between ZHD and the successor company to LINE’s business (LINE’s wholly-owned subsidiary to which LINE’s entire business is to be transferred by way of an absorption-type corporate demerger). The Relevant Parties will continue to make their utmost efforts for an early realization of the Business Integration, with the aim that the post-Business Integration ZHD (the listed integrated company) will take a great leap forward to become “the AI tech company that leads the world from Japan and Asia.”

So while the official word is there is no anticipated change to terms (a reference to the way shares were trading through terms at the time), shares trade higher. 

Below we take a look at the terms, the independent committee valuation process, whether a revisit to the valuation is warranted, and what constitutes a good deal.


Relevant Insights
DateAuthorTitle
About Cashless Payments
13 Mar 2019 Michael Causton  Loyalty Points In Japan: More Loyalty, More Points and the Conduit to Cashless Payments 
2 Apr 2019 Mio Kato, CFA  Mercari: Why Mercari Is Likely to Be a Winner in the Cashless Wars 
28 Jun 2019 Supun Walpola  Paying with PayPay: A Deep Dive into Yahoo! Japan’s Mobile Payment Business 
6 Jan 2020 Michael Causton  Lawson and KDDI Join Forces in Cashless Payments War 
24 Jan 2020 Michael Causton  Mercari – Merpay Acquisition of Origami Pay Continues Cashless Consolidation 
15 Feb 2020 Michael Causton  Japan Payment Wars: NTT Docomo and Merpay/Origami to Attempt Catch up with PayPay and Rakuten 
20 Mar 2020 Michael Causton  Some Resistance to Cashless Payments in Japan 
28 Apr 2020 Michael Causton  Z Holdings and Yamato Create Fulfilment Service for All to Rival Rakuten and Amazon 
About This Deal
14 Nov 2019Travis Lundy Z and LINE, Sitting in a Tree… M.E.R.G.I.N… G…? 
18 Nov 2019Travis Lundy LINE and Z, Sitting in a Tree… M.E.R.G.I.N.G! And a Tender Offer! 
26 Dec 2019Travis LundyNEW Deal for LINE (A Lot Like the Old Deal)

3. Major Accordia Golf Trust Shareholder Has Issues With Price & Process

Screenshot%202020 07 05%20at%201.41.04%20pm

On Friday 3 July after the close, Hibiki Path Advisors – the second largest shareholder in Accordia Golf Trust (AGT SP) and one who has been noisy on behalf of all shareholders – issued a Press Release which started noting the 29 June announcement of a Board-supported deal by saying…

We would like to publicly announce that we are disappointed with this price which is unarguably low based on our understanding. We are hoping that all independent unitholders agree that this price does not provide “reasonable” premium to fully take over a publicly traded entity generating a significantly attractive cashflow. We will be voting against the proposed divestment in the case the price is not revised higher. As the leading minority unitholder, we are also open for constructive negotiation with the bidder.    [I added the bold]

This comes after a public letter to the board from 15 June shared to fellow unit-holders more recently, and at least one earlier letter to the board. 

There are numerous issues mentioned, some of which have been noted by the Board in the deal announcement. 

It is worth a discussion. 

4. J.B.Chemicals (JBCP IN): Partial Tender Offer by KKR

Screenshot%202020 07 05%20at%203.57.28%20pm

The Promoters of J.B. Chemicals & Pharma (JBCP IN)announced on 3rd July they had signed an SPA with KKR & Co Inc (KKR US) to sell up to 54% of the company’s total shares from their holdings. Pursuant to SEBI Regulations, this triggered the obligation for the Acquirer to launch a Mandatory Open Offer to buy shares from Public Shareholders at similar Terms. 

To fulfil this requirement, the Acquirer has launched a Partial Tender Offer to buy up to 26% of the company’s total shares from non-promoter shareholders at a cash price of INR745.00/share. 

In recent months, we have witnessed a few deals involving Foreign PE players acquiring stakes in Indian pharmaceutical companies. Most recently, I published an insight on Partial Tender Offer for Sequent Scientific where I discussed a similar deal where The Carlyle Group acquired a majority stake in India’s largest pure-play animal healthcare company Sequent Scientific (SEQ IN)

On 27th June, The Carlyle Group agreed to acquire a 20% stake in the Pharma business of Piramal Enterprises (PIEL IN) for a consideration of ~US$490mn. Previously, press reports suggested that KKR and TPG were also involved in this race. 

In this insight, we take a look at the potential trading opportunities arising from KKR’s Partial Tender Offer for J.B. Chemicals & Pharma (JBCP IN)

As usual, there is more below the fold. 

5. Beijing Jingneng (579 HK): The Latest Clean Energy Privatisation?

Image 13411387621593827706009

Beijing Jingneng Clean Energy (579 HK), an SOE utility, was suspended Friday morning pursuant to the Code on Takeovers and Mergers. Should an Offer be tabled, this would be the fourth Hong Kong-listed, clean-energy company subject to a privatisation or change of control in a little over a year – and sixth in which interested parties have been circling:

An Offer, should one unfold, would continue a clear directive to privatise clean energy plays. Now is the time to run a ruler over other peers, in addition to other SOE-controlled entities, potentially subject to a delisting proposal.

As always, more below the fold.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.