Category

Event-Driven

Daily Brief Event-Driven: Itochu Keeps Buying Fuji Oil and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Itochu Keeps Buying Fuji Oil, Takeover Offer Could Be Possible With Shares Near The Cyclical Bottom
  • Hang Seng Indexes: Rebalances Today; Recent Trading Data
  • Carbon Revolution: SPACed & Smacked
  • Expect Bigtincan To Reject SQN’s Proposal

Itochu Keeps Buying Fuji Oil, Takeover Offer Could Be Possible With Shares Near The Cyclical Bottom

By Oshadhi Kumarasiri

  • Itochu Corp (8001 JP) has restarted accumulating Fuji Oil Holdings (2607 JP) shares, with an acquisition of 3.5m shares during the last-quarter to take its ownership percentage in Fuji-Oil to 44%.
  • With both earnings and valuations at a cyclical bottom, Itochu could be encouraged to accumulate more Fuji Oil shares in the short term, resulting in Fuji Oil outperforming its peers.
  • We think even a takeover offer could be possible while the share price is hovering near the cyclical bottom.

Hang Seng Indexes: Rebalances Today; Recent Trading Data

By Brian Freitas

  • The December rebalance of the HSI INDEX, HSCEI INDEX and HSTECH INDEX takes place at the close today. One-way flow is estimated at HK$8.4bn.
  • There are 3 adds for the HSI INDEX and 4 adds/ 4 deletes for the HSCEI INDEX. There are float changes for a few stocks as well as capping changes. 
  • There is excess volume on most adds/deletes post announcement and short interest has also picked up significantly.

Carbon Revolution: SPACed & Smacked

By David Blennerhassett

  • Following a one-month suspension, carbon-fibre wheel maker Carbon Revolution Ltd (CBR AU) announced it will merge (and delist from the ASX) with Twin Ridge Capital, a US-listed SPAC.
  • CBR said it also requires upward of A$30mn in bridging finance to fund near-term costs (through to June 2023). The share price promptly tanked 50% upon the resumption of trading. 
  • It’s an intriguing situation with an implied notional share price of A$1.49/share under the merger, versus the current price of A$0.15. So I dig a little deeper.

Expect Bigtincan To Reject SQN’s Proposal

By David Blennerhassett

  • Software provider Bigtincan Holdings Ltd (BTH AU) has announced an indicative proposal, by way of Scheme, from PE outfit SQN Investors at A$0.80/share, a 17.6% premium to last close.
  • Due diligence has not yet been afforded. SQN currently holds a 13.6% stake.
  • BTH also highlighted it has had preliminary discussions with other interested parties. Expect BTH’s board not to engage with SQN at this price. 

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Daily Brief Event-Driven: FTSE China 50 Index Rebalance: JD Health and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • FTSE China 50 Index Rebalance: JD Health, Yum China IN; Longfor, Xpeng OUT
  • CES China Semiconductor Chips Index Rebalance: Four Changes in December
  • Toyo Construction (1890) – Creeping Up On The Next “Tender Offer Start Date”….. Uh…. Maybe
  • FTSE EPRA Nareit Index Rebalance: One Deletion for Australia
  • Appier (4180) Nearing A TSE Prime (And TOPIX) Announcement?
  • End of Mandatory Lock-Up Periods for 58 Companies in Korea in December 2022
  • CSI KRX China-Korea: Rebalancing Results from KRX & Flow Trading Considerations
  • FTSE UK Dec 22 Rebal: Quiddity Announcement Day Thoughts
  • Reinhart Edges Stokes In Tussle For Warrego Energy
  • EQD | FXI (FXI US): – Could Chinese Equities Lead the Way Higher? Use Options for Delta-Revisited

FTSE China 50 Index Rebalance: JD Health, Yum China IN; Longfor, Xpeng OUT

By Brian Freitas


CES China Semiconductor Chips Index Rebalance: Four Changes in December

By Brian Freitas


Toyo Construction (1890) – Creeping Up On The Next “Tender Offer Start Date”….. Uh…. Maybe

By Travis Lundy

  • In March 2022, Toyo Construction (1890 JP) agreed to be taken over by equity affiliate stake owner INFRONEER Holdings (5076 JP) at what was a low price.
  • Nintendo Founder Family Office “YFO” objected, and bought 25+% of the company, then offered to buy it out 30% higher. Toyo Construction objected.
  • Four months later they finally signed an NDA and then started negotiating. Early in November the target date for a Tender Offer start by YFO was pushed to early December.

FTSE EPRA Nareit Index Rebalance: One Deletion for Australia

By Brian Freitas

  • There are no adds for the FTSE EPRA Nareit Developed Asia Index in December. The only deletion is Home Consortium Ltd (HMC AU)
  • Passive trackers are estimated to sell 12x ADV on Home Consortium Ltd at the close 16 December. Short interest is nearly the same and there could be some covering.
  • Home Consortium Ltd (HMC AU) has underperformed its peers over the last 12 months and still trades more expensive to its peer group.

Appier (4180) Nearing A TSE Prime (And TOPIX) Announcement?

By Travis Lundy

  • On 17 Feb 2022, Janaghan Jeyakumar, CFA wrote about Appier Group (4180 JP) suggesting it was a TOPIX inclusion candidate in the not-distant future.
  • In mid-August 2022, he reiterated his opinion. Three days later, the company said they had applied for TSE Prime membership. We are coming up on the timing for an announcement.
  • It would mean buying, but the shareholder structure is interesting, and intentions are not easy to read. But if they announce imminently, the calendar makes the event even more interesting.

End of Mandatory Lock-Up Periods for 58 Companies in Korea in December 2022

By Douglas Kim

  • We discuss end of the mandatory lock-up periods for 58 stocks in Korea in December 2022, among which 9 are in KOSPI and 49 are in KOSDAQ.
  • These 58 stocks on average could be subject to further selling pressures in December and could underperform relative to the market. 
  • Among these 58 stocks, the top 5 market cap stocks include HYBE, Kakao Games, WCP, Sillajen, and Duksan Neolux. 

CSI KRX China-Korea: Rebalancing Results from KRX & Flow Trading Considerations

By Sanghyun Park

  • KRX unveiled the rebalancing results of the CSI KRX China-Korea indices for Korean constituents yesterday.
  • There is still insufficient evidence data to estimate specific passive impact. The previous rebalancing in June showed no clear correlation between constituent changes and price impact.
  • Although it may be risky to trade on this rebalancing, monitoring the correlation of their passive impact at this point, one year after the release, seems worthwhile.

FTSE UK Dec 22 Rebal: Quiddity Announcement Day Thoughts

By Janaghan Jeyakumar, CFA

  • The December 2022 Rebalance of the FTSE UK Index series will be based on the closing prices of 29th November 2022. 
  • The results will be announced after market close later today (30th November 2022).
  • Below are Quiddity’s final expectations for index changes and flow parameters for the December 2022 Rebalance event. You have the day to trade this.

Reinhart Edges Stokes In Tussle For Warrego Energy

By David Blennerhassett

  • Gina Rinehart’s Hancock Prospecting has joined the bidding war for Warrego Energy (WGO AU) with a A$0.23/share, all cash, off-market Offer versus Beach Energy (BPT AU)‘s management-backed A$0.20/share Scheme Offer.
  • Hancock has already lodged the Bidder’s Statement. There is no minimum acceptance condition attached to  this offer.
  • Warrego currently recommends Beach’s Offer, subject to no superior proposal emerging. Beach has matching rights under the SID entered into on the 14 November. 

EQD | FXI (FXI US): – Could Chinese Equities Lead the Way Higher? Use Options for Delta-Revisited

By Simon Harris

  • Chinese equities have been on a volatile path but are finally gaining some upside momentum
  • Dollar seems to have peaked and USDCNH is retreating with renewed optimism for the Chinese economy reopening. 
  • We revisit the trade and look at potential restructuring options

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Daily Brief Event-Driven: HSI and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • HSI, HSCEI, HSTECH: Rebalance Flows Post Capping (Dec 2022)
  • JPX-Nikkei 400 Rebal 2023: End-Nov 2022
  • StubWorld: Iljin Holdings – Discounts On Discounts
  • Doosan Bobcat Block Deal Sale – Overhang Remains
  • Sunshine Insurance (6963 HK) IPO – Index Inclusion Timeline
  • Philip Morris/​​Swedish Match: Squeeze-Out

HSI, HSCEI, HSTECH: Rebalance Flows Post Capping (Dec 2022)

By Brian Freitas


JPX-Nikkei 400 Rebal 2023: End-Nov 2022

By Janaghan Jeyakumar, CFA

  • JPX-Nikkei 400 is composed of common stocks listed on the Tokyo Stock Exchange. It is a free-float-adjusted market-value-weighted (capped) index composed of 400 constituents.
  • A periodic review is conducted by the Index providers, the JPX Group and Nikkei Inc, in August every year. We look at the potential forward inclusions and removals every month.
  • Below is a look at potential Inclusions and Removals for the JPX-Nikkei 400 Rebalance to come in August 2023 based on trading data as of end-November 2022.

StubWorld: Iljin Holdings – Discounts On Discounts

By David Blennerhassett

  • Iljin Holdings (015860 KS)‘s implied stub is around levels just prior to the onset of Covid, despite strong subsequent deconsolidated earnings. 50.1%-held Iljin Diamond (081000 KS) is itself heavily discounted. 
  • Preceding my comments on Iljin 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%.

Doosan Bobcat Block Deal Sale – Overhang Remains

By Douglas Kim

  • Doosan Bobcat Inc (241560 KS) announced a block deal sale of 5 million shares. representing 5% of outstanding shares.
  • There are three major reasons why we have a negative view of the block deal sale and on Doosan Bobcat. 
  • Two of these reasons include an overhang associated with remaining shares which could be sold as well as a potential downturn in construction markets in North America and Europe. 

Sunshine Insurance (6963 HK) IPO – Index Inclusion Timeline

By Brian Freitas

  • Sunshine Insurance (SUN HK) is looking to raise between US$859m-US$950m by selling 1.15bn shares in its IPO. At the top end, the company will be valued at HK$74bn.
  • All of the pre-IPO shares are Domestic Shares and there appear to be no immediate plans to convert them to H-shares. The only H-shares will be the IPO shares.
  • MSCI China inclusion requires a higher stock price or conversion of Domestic Shares to H-shares; FTSE inclusion is likely in June; HSCI and Stock Connect inclusion is expected in March.

Philip Morris/​​Swedish Match: Squeeze-Out

By Jesus Rodriguez Aguilar

  • At the end of the further extended acceptance period, PMHH owns 93.11% of the shares of Swedish Match (obtained both through shares tendered and market purchases).
  • PMHH intends to initiate compulsory redemption under the Swedish Companies Act to acquire all remaining shares in Swedish Match and request delisting from Nasdaq Stockholm. PMI wins again.
  • Although the shares are still liquid, gross spread is 2 bps, and therefore there is no trade worth considering, in my view.

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Daily Brief Event-Driven: Korea FSC: Major Changes in Foreign Investor Registration & IPO Pricing and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Korea FSC: Major Changes in Foreign Investor Registration & IPO Pricing
  • ChiNext/​ChiNext 50 Index Rebalance: Materials & Industrials Take Spots from IT, Health Care
  • SZSE1000 Index Rebalance: Changes & Potential MSCI/​FTSE Inclusions & Exclusions
  • Hankook Tire & Chosun Refractories Enter M&A Fight for Korea Zinc: [Young Poong’s Cheap NAV]
  • Thailand SET50 Quiddity Dec 22 Final Expectations: DTAC-TRUE Delay Could Cause RATCH-IRPC Surprise
  • Samsung Electronics: Likely Focus on Inheritance Taxes Again in 1Q 2023
  • EQD | HSBA Vs ICBC (5 HK,1398 HK): Trade a Relative Value Vol Spread -Revisited
  • NewMed Energy/​Capricorn: Positive Spread

Korea FSC: Major Changes in Foreign Investor Registration & IPO Pricing

By Sanghyun Park

  • FSC’s unveiled measures: 1. declare a dividend before determining which shareholder to receive, 2. scrap foreign investor ID, & 3. widen price limit on a listing day & allow “test-the-waters”
  • These are still drafts, but since they have already been coordinated with the Yoon administration, it is highly likely that they will be implemented in the not-too-distant future.
  • FSC will disclose detailed plans next month. We should rush to prepare for them, which significantly impacts the increase in foreign investors’ trading volume and the IPO pricing.

ChiNext/​ChiNext 50 Index Rebalance: Materials & Industrials Take Spots from IT, Health Care

By Brian Freitas

  • There will be 10 changes for the Chinext Price Index and 5 changes for the ChiNext 50 Index. Implementation is at the close on 9 December.
  • One surprise is the inclusion of Hunan Zhongke Electric Co,Ltd. (300035 CH) in both indices. Four stocks are adds to both indices while two stocks are deletes from both indices.
  • The adds have outperformed the deletes over the last 8 months but have given up some of the gains over the last month. There is a big sector skew.

SZSE1000 Index Rebalance: Changes & Potential MSCI/​FTSE Inclusions & Exclusions

By Brian Freitas

  • There are 47 changes for the SZSE 1000 index that will be implemented at the close of trading on 9 December.
  • We see 51 stocks being added to Shenzhen Stock Connect (47 index adds + 4 existing constituents) and 83 deletions from Stock Connect (15 index adds + 68 existing constituents).
  • There could be 4 adds to the MSCI China in February and 11 adds to the FTSE All-World/All-Cap in March. Plus a bunch of deletes at the close 9 December.

Hankook Tire & Chosun Refractories Enter M&A Fight for Korea Zinc: [Young Poong’s Cheap NAV]

By Douglas Kim

  • There are increasing evidence that suggests that the M&A fight Korea Zinc (010130 KS) between the Jang and Choi families is becoming more heightened.
  • The family of the owners of Hankook Tire and Chosun Refractories have a close relationship with Korea Zinc Vice Chairman Choi and they have become friendly shareholders to Choi.
  • Our NAV valuation of Young Poong (000670 KS) suggests NAV of 2.2 trillion won or NAV per share of 1,210,644, which represents a 61% upside from current levels.

Thailand SET50 Quiddity Dec 22 Final Expectations: DTAC-TRUE Delay Could Cause RATCH-IRPC Surprise

By Janaghan Jeyakumar, CFA


Samsung Electronics: Likely Focus on Inheritance Taxes Again in 1Q 2023

By Douglas Kim

  • One of the key events for Samsung Electronics in 1Q 2023 could be additional selling by Lee Jae-Yong and his family members to pay for inheritance taxes.
  • Samsung Electronics underperformed significantly versus KOSPI in the first quarter in the past two years.
  • As the negative issue of inheritance taxes becomes highlighted once again, this could further negatively impact Samsung Electronics and other Samsung affiliate shares. 

EQD | HSBA Vs ICBC (5 HK,1398 HK): Trade a Relative Value Vol Spread -Revisited

By Simon Harris

  • On October 6th we suggested selling HSBC vol vs buying ICBC vol
  • We look at the trade performance both in terms of realised and implied vols
  • We consider the trading options given the convergence in vols

NewMed Energy/​Capricorn: Positive Spread

By Jesus Rodriguez Aguilar

  • The NewMed/Capricorn reverse takeover should be approved at an EGM. Investors opposing the deal (mainly event-driven funds) hold in aggregate at least c. 33.6% of cash-rich Capricorn. 
  • The approval threshold is 50% (vs. 75% in Tullow’s merger), which should favour the approval. But the +6.9% spread (as of 28 November), reveals it’ll be challenging.
  • First Tullow sought CNE’s cash pile, now NewMed seeks CNE’s Middle East assets and a coveted London listing. Unless NewMed sweetens the terms, this deal may not happen either.

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Daily Brief Event-Driven: CSI 500 Index Rebalance: 50 Changes a Side Leads to 12%+ One-Way Turnover and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • CSI 500 Index Rebalance: 50 Changes a Side Leads to 12%+ One-Way Turnover
  • Sembcorp Marine Takeover of Keppel O&M – Almost There
  • SSE180/​​​SSE380 Index Rebalance: Changes & Potential MSCI/FTSE Inclusions & Exclusions
  • KOSPI 200 Sector/Size & KRX 300 Sector: Constituent Changes & Trading Points
  • Merger Arb Mondays (28 Nov) – Yashili, Perpetual/Pendal, Nitro, Warrego, Chip Eng Seng

CSI 500 Index Rebalance: 50 Changes a Side Leads to 12%+ One-Way Turnover

By Brian Freitas

  • There are 50 changes a side for the CSI 500 Index at the upcoming rebalance that will be implemented at the close of trading on 9 December.
  • One-Way turnover at the rebalance is estimated at 12.64% leading to a one-way trade of CNY 9.3bn. The Materials, Information Technology and Consumer Discretionary sectors are net gainers.
  • 9 adds to the CSI 500 Index are deletes from the CSI 300 Index while 7 deletes from the CSI 500 Index are adds to the CSI 300 Index.

Sembcorp Marine Takeover of Keppel O&M – Almost There

By Travis Lundy

  • Last Wednesday, Keppel Corp (KEP SP) announced 8 Dec as the EGM date for shareholders to approve the AssetCo Transfer, the Keppel O&M/SMM combo, and the distribution of SMM shares.
  • This should probably sail through. Investors who want to submit questions in advance can email [email protected] by 3pm 30 Nov.
  • I still like Keppel. I think investors will find it attractive post-spin.

SSE180/​​​SSE380 Index Rebalance: Changes & Potential MSCI/FTSE Inclusions & Exclusions

By Brian Freitas

  • There are 18 changes to the SSE180 Index and 38 changes to the SSE380 Index that will be implemented at the close of trading on 9 December.
  • There will be 10 deletions from the MSCI Standard Index and 26 deletions from the FTSE All-World/All-Cap indices at the close on 9 December.
  • Currently, 8 stocks meet the threshold/are close for inclusion in the MSCI China Index while there are 21 stocks that meet the threshold for inclusion in the FTSE All-World/All-Cap indices.

KOSPI 200 Sector/Size & KRX 300 Sector: Constituent Changes & Trading Points

By Sanghyun Park

  • The additional Lotte Confectionery/Samyang Holdings flow will come from K200/KRX 300 Consumer Staples, K200 MidSmallCap, and K200 Ex-Top. However, the actual flow impact wouldn’t be significant.
  • From a flow trading standpoint, the KOSPI 50’s HMM/Hanon System probably deserves our attention because additional inflows come from the pensions that account for more than half of local PASSIVE.
  • Since their rebalancing trading tends to be somewhat dispersed, the return rate was the best when the position holding period was from T-3 to the effective date.

Merger Arb Mondays (28 Nov) – Yashili, Perpetual/Pendal, Nitro, Warrego, Chip Eng Seng

By Arun George


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Daily Brief Event-Driven: CSI300 Index Rebalance: The Surprises Could Outperform and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • CSI300 Index Rebalance: The Surprises Could Outperform
  • STAR50 Index Rebalance: Adds Outperform Deletes in the Last Week
  • Index Rebalance & ETF Flow Recap: NKY, FTSE AW/CH50/TW50/Div+, Sensex, KLCI, SET50, HSTECH, Huarong
  • SSE50 Index Rebalance: In Line with Forecasts; Trades Performing Well
  • JAFCO (8595) Yields to Murakami Greenmail – Big Asset Sale, Big Buyback
  • EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades
  • Socionext (6526 JP) TOPIX Inclusion – Great Performer Deserves Profit-Taking
  • Last Week in Event SPACE: Meituan, Link Admin/Pexa, DTAC/True, Medley
  • (Mostly) Asia-Pac Weekly Risk Arb Wrap: Chip Eng Seng, Mori Trust, Pendal/Pendal, DTAC/True
  • Hong Kong CEO & Director Dealings (25 Nov): JL Mag Rare Earth, Joinn Laboratories, Hopefluent

CSI300 Index Rebalance: The Surprises Could Outperform

By Brian Freitas

  • There are 15 changes for the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) at the upcoming rebalance that will be implemented at the close of trading on 9 December.
  • While most of the deletions are in line with forecasts, there are a few differences on the inclusions as the index committee has used its discretion to overlook some names.
  • The Industrials, Materials and Utilities sectors gain index spots at the expense of Health Care, Financials, Consumer Staples and Consumer Discretionary.

STAR50 Index Rebalance: Adds Outperform Deletes in the Last Week

By Brian Freitas

  • The index committee has continued to use a 6-month minimum listing history leading to five changes to the SSE STAR50 (STAR50 INDEX) in December.
  • All changes are in line with our forecasts and there appears to be some pre-positioning over the last week as the deletes have sold off hard.
  • One-Way turnover is estimated at 5.34% and will result in a one-way trade of CNY 3,766m. The estimated impact on the deletes is higher than that on the adds.

Index Rebalance & ETF Flow Recap: NKY, FTSE AW/CH50/TW50/Div+, Sensex, KLCI, SET50, HSTECH, Huarong

By Brian Freitas


SSE50 Index Rebalance: In Line with Forecasts; Trades Performing Well

By Brian Freitas

  • There are 5 changes for the SSE50 Index that will be implemented at the close on 9 December. Passive selling on a few deletions is pretty large.
  • We estimate a one-way turnover of 4.07% at the December rebalance leading to a one-way trade of CNY 3.36bn. Index arb activity could add to the impact on the stocks.
  • The adds have dropped over the last few months while the deletes have moved higher. There could be a reversion of that trend till implementation of the changes.

JAFCO (8595) Yields to Murakami Greenmail – Big Asset Sale, Big Buyback

By Travis Lundy

  • Jafco Co Ltd (8595 JP) has long been known as a “cheap” listed “venture fund” because of its additional large (for it) holding in Nomura Research Institute Ltd (4307 JP).
  • Well-Known Japanese activist Yoshiaki MURAKAMI and his related companies bought a stake. JAFCO responded with a “Policy” (poison pill). Murakami-san ducked and dodged then bought more. Now the exit. 
  • JAFCO will sell its Nomura Research shares in a Secondary Offering, and conduct a large buyback via tender offer. Like other Murakami exits, this one is not designed for you. 

EQD | Volatility Update: Weekly Review of Vol Changes and Best Trades

By Simon Harris

  • Weekly summary of vol changes and moves across Global Markets
  • Analysing ATM volatility and skew changes over the last 5 days
  • We suggest a few trades to take advantage of the implied vol surfaces

Socionext (6526 JP) TOPIX Inclusion – Great Performer Deserves Profit-Taking

By Travis Lundy

  • Socionext (6526 JP) was offered in a range of ¥3,480-3,650, oversubscribed, IPOed at ¥3,650 and closed ¥4200 on Day 1. We can assume that was the “right price.” 
  • Since then, while peers are up 19.8% in the 6 weeks since then, Socionext is up 66%. This year’s biggest Japan IPO has been a big winner.
  • The TOPIX inclusion is on Tuesday at the close. Beware, you don’t know who is in the stock and who is not.

Last Week in Event SPACE: Meituan, Link Admin/Pexa, DTAC/True, Medley

By David Blennerhassett

  • You could imagine people covering their short in Meituan (3690 HK) now. The Hang Seng sell flow on 4 January 2023 is insignificant. But there will be more overhang later. 
  • If you buy Link Administration (LNK AU) outright, you are buying a package of three potential future takeout targets.
  • It’s not certain the scrip terms will continue as stated in the DTAC /True merger, but if they change at all, that would almost certainly require a new shareholder meeting.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Chip Eng Seng, Mori Trust, Pendal/Pendal, DTAC/True

By David Blennerhassett


Hong Kong CEO & Director Dealings (25 Nov): JL Mag Rare Earth, Joinn Laboratories, Hopefluent

By David Blennerhassett

  • The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
  • Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. However, such disclosures are by no means an absolute. 
  • These insights may flag those companies where shares have been pledged. Stocks mentioned include JL Mag Rare Earth (6680 HK), Joinn Laboratories (6127 HK), and Hopefluent Group (733 HK).

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Daily Brief Event-Driven: Chip Eng Seng: Low-Balled MBO At $0.72/Share and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Chip Eng Seng: Low-Balled MBO At $0.72/Share
  • Trading Considerations on the OCI Demerger
  • OCI Spin-Off: Trade Opportunities Post Relisting, Valuations, & Impact on KOSPI 200
  • Shanghai/​​​​​​​​​​​​​​​​​​​​​​Shenzhen Southbound Connect: Weekly Moves (25 November 2022)
  • Shanghai/​​​​​​​​​​​​​​​​​​​​​​Shenzhen Northbound Connect: Weekly Moves (25 November 2022)

Chip Eng Seng: Low-Balled MBO At $0.72/Share

By David Blennerhassett

  • Conglomerate Chip Eng Seng Corp (CHIP SP) (CES) has announced a voluntary Offer of S$0.72/share from a Tang family-owned entity. The price is a 1.4% premium to last close.
  • The Tang’s hold 38.23% and the Offer is conditional on a 50% acceptance condition. 
  • The Offer price is a 27.3% discount to CES’ NAV as of 30 June 2022 – no such mention in the announcement. The Offer price has not been declared final.

Trading Considerations on the OCI Demerger

By Sanghyun Park

  • Value accretion by unlocking the voting eligibility of treasury shares won’t happen as the company holds no treasury share.
  • But KOSPI 200 passive flows will pose a noteworthy trading point. PASSIVE’s selling outflow will be about 700-800K shares, 1.6x ADTV.
  • Market cap imbalance, primarily driven by the tender offer dynamic and the split ratio that is excessively focused on Holdco, will likely exacerbate Holdco → Opco migration after re-listing.

OCI Spin-Off: Trade Opportunities Post Relisting, Valuations, & Impact on KOSPI 200

By Douglas Kim

  • After the spin-off and relisting of holdco/opco shares, we believe that there is a greater probability of OCI Co (opco) shares outperforming OCI Holdings (holdco).
  • However, the degree of outperformance of OCI Co vs OCI Holdings is not likely to be similar to other recent spin-offs such as F&F Co and F&F Holdings.
  • We have a long-term bullish view of OCI over the next one to two years. It is trading at P/E of 3.1x and P/B of 0.6x based 2022 earnings estimates.

Shanghai/​​​​​​​​​​​​​​​​​​​​​​Shenzhen Southbound Connect: Weekly Moves (25 November 2022)

By David Blennerhassett


Shanghai/​​​​​​​​​​​​​​​​​​​​​​Shenzhen Northbound Connect: Weekly Moves (25 November 2022)

By David Blennerhassett


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Daily Brief Event-Driven: Meituan Index Flows Clarifications on the Tencent Distribution; Prosus Comments on Its Holdings and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Meituan Index Flows Clarifications on the Tencent Distribution; Prosus Comments on Its Holdings
  • Adani Enterprises – A Record Follow-On Public Offering May Be in the Works
  • Straits Times Index Quiddity Leaderboard Mar 23: SMM Index Treatment Clearer Under New Terms
  • Korea Zinc: Treasury Shares Swap with LG Chem & Hanwha Corp + Treasury Share Sale
  • EQD | TSMC (TSM US): Buffet Is Betting on Long Term Upside – We Look at the Options Market for Ideas
  • Chip Eng Seng (CHIP SP)’s S$0.72 VGO from the Tangs
  • Lygend (2245 HK) IPO: No Index Inclusions Expected
  • MergerTalk:Why Broadcom’s Pursuit of VMware Will Fare Better Than Nvidia’s Doomed Bid For ARM

Meituan Index Flows Clarifications on the Tencent Distribution; Prosus Comments on Its Holdings

By Travis Lundy

  • Days after the Tencent (700 HK) announcement about its planned distribution of the bulk of the Meituan (3690 HK) shares it owns, the Hang Seng Index team clarified index treatment.
  • It will be treated in HS Indices as a “listed non-cash distribution” for Tencent. There is theoretically wiggle room on the Meituan side, but it appears it will follow JD.com.
  • That means Meituan selling on 4 January at the close, limbo for two months, then Meituan buying. Full model below.

Adani Enterprises – A Record Follow-On Public Offering May Be in the Works

By Travis Lundy

  • Adani Enterprises (ADE IN) (“ADL”) on Tuesday announced a Board Meeting for Friday to consider capital raising options. Multiple media sources suggest a record Indian Follow-on Public Offering of INR200bn.
  • The company has bid for/bought multiple assets recently, and proposed investments plan of up to US$150bn in 10yrs in renewables, cement, airports, healthcare to aim at a US$1trln valuation.
  • This will get complicated, interesting, and is not necessarily going to come out well.

Straits Times Index Quiddity Leaderboard Mar 23: SMM Index Treatment Clearer Under New Terms

By Janaghan Jeyakumar, CFA


Korea Zinc: Treasury Shares Swap with LG Chem & Hanwha Corp + Treasury Share Sale

By Douglas Kim

  • On 23 November, Korea Zinc announced that it will swap its treasury shares with LG Chem and Hanwha Corp and sell part of its treasury shares to other investors.
  • Korea Zinc could gain additional dividend payments by exchanging part of its treasury shares with shares of LG Chem and Hanwha Corp. 
  • Potential separation of Young Poong and Korea Zinc between the Choi and Jang families is likely to be an on-going process, although it is difficult to tell the exact timing. 

EQD | TSMC (TSM US): Buffet Is Betting on Long Term Upside – We Look at the Options Market for Ideas

By Simon Harris

  • Stock has suffered this year (-47% YTD) with rising geopolitcal tensions and slowing global economy
  • Berkshire Hathaway is betting on a recovery in the stock with their $4.1bn stake
  • We look at the options market to identify some trades

Chip Eng Seng (CHIP SP)’s S$0.72 VGO from the Tangs

By Arun George

  • Chip Eng Seng Corp (CHIP SP) disclosed a conditional VGO from the Tangs at S$0.720, a 6.7% premium to the undisturbed price (6 September). The price is not declared final. 
  • Irrevocables and family represent 41.44% of outstanding shares. The VGO has a 50%+ minimum acceptance condition which requires around a 15% minorities acceptance rate.
  • While the last close is in line with the offer, it is attractive in the context of historical prices/multiples. Therefore, there is a good chance of hitting the 50% threshold.

Lygend (2245 HK) IPO: No Index Inclusions Expected

By Brian Freitas

  • Media reports indicate that Lygend Resources & Technology (2245 HK) has priced its IPO near the low end of the range at HK$15.80/share and will raise HK$3.67bn (US$470m).
  • Most of the cornerstone investors will be classified as non-float and the stock will not be included in the MSCI or FTSE indices due to low float market cap.
  • Importantly, Lygend Resources & Technology (2245 HK) will not meet the threshold for inclusion in the HSCI which means no inclusion to Southbound Stock Connect and no mainland flows.

MergerTalk:Why Broadcom’s Pursuit of VMware Will Fare Better Than Nvidia’s Doomed Bid For ARM

By Robert Sassoon

  • While the size of the $61BN Broadcom/VMware deal has naturally attracted the scrutiny of regulators, the transaction’s regulatory obstacles are far less  onerous than the failed Nvidia/Arm deal
  • Timing risk is a consideration as we can expect a protracted review process 
  • If the regulatory review timeline  does not stretch too far beyond  the end 2023, there are still decent IRRs to be earned by arbs

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Daily Brief Event-Driven: FTSE TWSE Taiwan Div+ Index: Recent Performance & Potential Trades and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • FTSE TWSE Taiwan Div+ Index: Recent Performance & Potential Trades
  • A Guide to Arb Trade in Rights Offer: Feat. HLB & Lotte Chemical
  • Disaster As VTOs Cancelled Under DTAC/True Merger
  • Keppel (KEP SP) Vote on Keppel O&M and Sembcorp Marine Transaction on 8 Dec
  • Mori Trust Sogo – Mori Trust Hotel REIT Merger
  • Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade
  • Link Admin (LNK AU) Sets in Motion a Strategy to Realise Underlying Value
  • Pendal/​Perpetual: 23 Dec Scheme Meeting
  • NIFTY Quiddity Leaderboard Mar 23: Tata Motor DVR Could Be Included in NIFTY 100
  • SM Investments (SM PM): Retail Income Now Exceeds Pre-Covid Levels

FTSE TWSE Taiwan Div+ Index: Recent Performance & Potential Trades

By Brian Freitas

  • The review period for the FTSE TWSE Taiwan Dividend+ index ended Monday, 21 November. We forecast 26 adds/ 5 deletes in December – the flows are huge.
  • Stocks with potential inflows have outperformed stocks with potential outflows over multiple time periods going back a month. Yesterday was an especially good day for the strategy.
  • We expect continued pre-positioning ahead of the passive flows will help the stocks with inflows outperform stocks with outflows. A reversal of performance could come post implementation.

A Guide to Arb Trade in Rights Offer: Feat. HLB & Lotte Chemical

By Sanghyun Park

  • This post will specifically examine arb trade opportunities during the subscription rights trading period, with the recent HLB and Lotte Chemical cases.
  • HLB gave an arb yield of 8%. As for Lotte Chemical, the size (₩1.1T) is much bigger, and it carries single-stock futures, a powerful incentive for arb traders.
  • Another thing for Lotte Chemical is that it is unclear whether the major shareholders will participate in the subscription, which can lead to a widening of our arb spread.

Disaster As VTOs Cancelled Under DTAC/True Merger

By David Blennerhassett

  • The conditions precedent to the VTO have not been satisfied within one year from 22 November 2021 … the parties have declined to carry out the VTO.
  • This statement was lifted from Telenor’s (the major shareholder of Total Access Communication (DTAC TB)) brief announcement. Telenor/CP Group aim to complete the transaction within the first quarter of 2023
  • This appears a cop-out on behalf of both Tender Offerors (Telenor & CP Group), who probably could have pushed for an extension.  And why weren’t the scrip terms addressed?

Keppel (KEP SP) Vote on Keppel O&M and Sembcorp Marine Transaction on 8 Dec

By Arun George

  • Keppel Corp (KEP SP)’s EGM on 8 December requires majority shareholder approval of two ordinary resolutions. The IFA notes that the transaction terms are “not prejudicial” to minorities.
  • Keppel shareholders will be supportive due to attractive terms. The other key conditions precedent is Sembcorp Marine (SMM SP) shareholders and regulatory approvals (SGX-ST and Maritime Port Authority of Singapore). 
  • The deal is expected to close by the end of the year. Our Keppel SoTP valuation is S$8.30 per share, which is 12% above the last close.

Mori Trust Sogo – Mori Trust Hotel REIT Merger

By Travis Lundy

  • Yesterday, Mori Trust Sogo Reit (8961 JP) (MTR) and Mori Trust Hotel Reit (3478 JP) (MTH) announced a merger to be effective 1 March 2023. MTR will be the survivor.
  • The ratio is 1.00 : 0.92 MTR:MTH but MTR will conduct a 2:1 stock split on effective date to make it 1.00 : 1.84 to allow retail to continue holding.
  • This will effectively increase the size of MTR by 35%, and re-distributes earnings structure. There will be index consequences.

Nikkei 225 Index Rebalance Preview (March): Three Potential Changes & Large Funding Trade

By Brian Freitas


Link Admin (LNK AU) Sets in Motion a Strategy to Realise Underlying Value

By Arun George

  • The EGM to approve the PEXA Group (PXA AU) distribution of Link Administration (LNK AU)’s remaining 38.49% stake is on 23 December. Shareholders get one PEXA share per 7.52 Link shares.
  • This marks the latest move to unlock the underlying value by pursuing a breakup strategy. Discussions continue on DND’s acquisition of the CM and the BCM business for A$1.27 billion.  
  • Our base-case SoTP value is A$4.42 per share, which is 28% above the last close. If you haven’t been turned off by the Link saga, it is worth a look.

Pendal/​Perpetual: 23 Dec Scheme Meeting

By David Blennerhassett

  • After the Supreme Court of NSW ruled that Perpetual Ltd (PPT AU) cannot stall the Scheme for Pendal Group (PDL AU), the Scheme Booklet is now out.  
  • Under the revised terms, Pendal shareholders will receive 1 Perpetual (share for every 7 Pendal shares plus $1.65/share cash. The IE concluded the terms are fair and reasonable. 
  • The Scheme Meeting will be held on the 23 December, with an expected implementation date on the 23 January.

NIFTY Quiddity Leaderboard Mar 23: Tata Motor DVR Could Be Included in NIFTY 100

By Janaghan Jeyakumar, CFA

  • In this insight, we take a look at the potential ADDs/DELs for the NIFTY 50, 100, and 500 Indices in the run up to the March 2023 Rebalance.
  • In October 2022, NIFTY Indices Ltd initiated a market consultation recently on the “treatment of merger/demerger in Nifty equity indices” and its outcome has been confirmed now.
  • Separately, Tata Motors DVR (TTMT/A IN) – previously ineligible for NIFTY 100 Inclusion for liquidity reasons – could become eligible for the March 2023 Rebalance event.

SM Investments (SM PM): Retail Income Now Exceeds Pre-Covid Levels

By David Blennerhassett

  • SM Investments (SM PM), the leading Filipino conglomerate, recently announced strong 9M22 earnings, buoyed by increased economic activity and strong consumer sentiment.
  • The standout was the unlisted SM Retail segment which recorded net income of PHP 11.5bn, exceeding 2019 pre-pandemic levels. 
  • The implied stub/share – net of all listcos – of PHP 208/share compares to the five-year average of PHP 273/share, and the two-year average of PHP 252 preceding Covid. 

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Daily Brief Event-Driven: China Huarong (2799 HK): Full Circulation & MSCI/FTSE Index Inclusion and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • China Huarong (2799 HK): Full Circulation & MSCI/FTSE Index Inclusion
  • SET50 Index Rebalance Preview: Four Potential Changes in December
  • Link Admin Is Cheap Amid PEXA In-Specie And Possible BCM/CM Sale
  • DTAC/True Merger to Proceed but Without the VTOs
  • KOSPI 200 Rebalance in 1H 2023 – Five Potential Additions Post Deletions of Meritz Affiliates
  • Pendal (PDL AU)/Perpetual (PPT AU) Scheme Meeting on 23 December
  • GoTo IPO Lockup Expiry – US$13bn Lockup Release or in Other Words, the Real IPO
  • EQD | SX7E (SX7E Index): Relative Value Vol Trade Vs SX5E Index

China Huarong (2799 HK): Full Circulation & MSCI/FTSE Index Inclusion

By Brian Freitas

  • China Huarong Asset Management (2799 HK) has announced the full conversion of 8.358bn Domestic Shares to H-shares. The increased float could help the stock get added to the MSCI/FTSE indices.
  • Depending on when the conversion is completed, the stock could be added to the MSCI China Index at the February QCIR though inclusion in May is more likely.
  • There is a high probability of inclusion in the FTSE indices at the March SAIR – though it remains to be seen if that’s to the All-World or All-Cap Index.

SET50 Index Rebalance Preview: Four Potential Changes in December

By Brian Freitas

  • The market cap review period for the December rebalance of the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) ends in 6 trading days.
  • Following the market consultation and reduction in the turnover ratio, there could be four changes to the index. The DTAC/TRUE merger could result in another inclusion in Q1 2023.
  • Estimated one-way turnover at the December rebalance is 8.1% and will result in a one-way trade of THB 7.4bn. More than 1x ADV to trade on most stocks.

Link Admin Is Cheap Amid PEXA In-Specie And Possible BCM/CM Sale

By David Blennerhassett

  • Link Administration (LNK AU) has released the explanatory memorandum regarding the PEXA Group (PXA AU) in-specie distribution. 
  • Link shareholders will receive one PEXA share for every 7.52 Link shares. Shareholders will vote on the distribution on the 23 December. The IE, rightfully, deemed the process fair.
  • If D&D buys Link’s BCM/CM ops for A$1.27bn, Link would be net cash of ~A$1.40/share versus an ex-entitlement price of ~A$1.58/share. And Link would still hold the lucrative RSS ops. 

DTAC/True Merger to Proceed but Without the VTOs

By Arun George

  • Telenor and CP Group will proceed with the Total Access Communication (DTAC TB)/True Corp Pcl (TRUE TB) merger but without the VTO due to missing the VTO conditions precedent deadline.
  • The likely real reason for the VTO cancellation was the realisation that the VTO prices were too generous, particularly in the context of the NBTC’s harsh conditions.
  • Completion is targeted for 1Q23. The current share price ratio of 8.750x vs the exchange ratio of 10.221x is attractive. Timing and potential tweaks to the exchange ratio are risks. 

KOSPI 200 Rebalance in 1H 2023 – Five Potential Additions Post Deletions of Meritz Affiliates

By Douglas Kim

  • Meritz Financial Group’s decision to delist Meritz Fire & Marine Insurance and Meritz Securities in 1H 2023 will result in at least two new additions to KOSPI 200.
  • We highlight five companies which could be potential additions to KOSPI 200 in 1H 2023.
  • Five potential additions to KOSPI 200 in 1H 2023 include Jb Financial Group, Hyundai Construction Equipment, Dentium, Samyang Foods, and Lotte Rental. 

Pendal (PDL AU)/Perpetual (PPT AU) Scheme Meeting on 23 December

By Arun George

  • The IE considers Perpetual Ltd (PPT AU)‘s cash and scrip offer for Pendal Group (PDL AU) to be fair and reasonable as it is within its valuation range of A$4.87-5.71. 
  • Perpetual shareholders are getting the short end of the stick. While possible, Regal Partners (RPL AU)/BPEA EQT riding to the rescue of Perpetual shareholders is low. 
  • Pendal shareholders, who are the net beneficiaries, will be supportive of the offer. At the last close prices, the gross spread to the offer is 11.3%.

GoTo IPO Lockup Expiry – US$13bn Lockup Release or in Other Words, the Real IPO

By Sumeet Singh

  • In Mar 2022, GoTo raised around US$1bn from what was essentially a domestic Indonesian IPO. Its pre-IPO shareholders will be released from their lockup soon.
  • GoTo was formed in May 2021 as a result of a merger between two of Indonesia’s largest unicorns Gojek, leading player in ride hailing, and Tokopedia, leading e-commerce player.
  • In this note, we will talk about the upcoming lockup expiry.

EQD | SX7E (SX7E Index): Relative Value Vol Trade Vs SX5E Index

By Simon Harris

  • SX7E spot has rallied and vols have sold off significantly
  • The spread between the sector and SX5E Index has converged and there are still many reasons to expect volatility in banking stocks into next year
  • Trade a 6M relative value vol spread to take advantage of the recent vol compression

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