Category

Event-Driven

Event-Driven: Hitachi Transport System, KakaoBank, Roxy Pacific Holdings, LG Energy Solution, Virtus Health, Swire Pacific (A) and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Hitachi Transport System (9086) – Not a Clear Outcome But Interesting Possibilities
  • KOSPI Overhang Stocks: Krafton, Kakao Bank, SKIET, Samsung Elec, & Samsung SDS
  • Roxy-Pacific (ROXY SP): Circular Out. IFA Says Not Fair But Reasonable
  • MSCI Korea: Potential Inclusions & Exclusions in February 2022 Highlighted by Locals
  • Virtus Health (VRT AU): CapVest’s Bid Edges BGH Capital
  • StubWorld: Cathay Pacific – Still Grounded
  • Virtus Receives a Competing Offer from CapVest

Hitachi Transport System (9086) – Not a Clear Outcome But Interesting Possibilities

By Travis Lundy

  • Hitachi is, as the media fuss suggests, in the last stages of its re-formation after ridding itself of nearly two-dozen listed subs over the last decade-plus.
  • Hitachi Transport System (9086) is the last major sub/affiliate without a new home. Hitachi owns just under 40%. SG Holdings (9143 JP) owns just under 10%. Both want to sell.
  • It is not clear HTS wants to be taken private, but there could be an interesting financial engineering solution to suit the sellers. 

KOSPI Overhang Stocks: Krafton, Kakao Bank, SKIET, Samsung Elec, & Samsung SDS

By Sanghyun Park

  • For Kakao Bank, the 6M IPO lockup (2.79%) will hit the market. Also, the possibility that the 4.48% stake held by Anchor/TPG will hit the market should be left open.
  • In Krafton’s case, Tencent is the most notable player, owning 13.56%. It recently suggested a reduction in overseas holdings. So, some of this 13.56% stake should appear in the market.
  • The 4.84% stake held by Premier Superior is available after February 14. Samsung Electronics and Samsung SDS shares by the Samsung family are also likely to take place in February.

Roxy-Pacific (ROXY SP): Circular Out. IFA Says Not Fair But Reasonable

By David Blennerhassett

  • An Offeror consortium, led by Teo Hong Lim, founder of Roxy Pacific (ROXY SP), is offering S$0.485/share, a 19.8% premium to last close. The Offer Price will NOT be increased. 
  • The Circular was dispatched yesterday (the Offer Doc was issued on the 5 January), in which the IFA considered the terms not fair but reasonable). 
  • Trading to terms. The first close is the 3 February. 

MSCI Korea: Potential Inclusions & Exclusions in February 2022 Highlighted by Locals

By Douglas Kim

  • We discuss the potential inclusions and exclusions in the next MSCI Korea Index rebalance announcement (10 February) that are being highlighted by the locals. 
  • The potential candidates for inclusion in the MSCI Korea Index emphasized by locals in February 2022 include Meritz Financial Group, Meritz Fire & Marine Insurance, HHI, and LG Energy Solution. 
  • In our view, if MSCI decides to include LG Energy Solution in the MSCI Korea index in February, this will likely be an extra boost to this stock in February. 

Virtus Health (VRT AU): CapVest’s Bid Edges BGH Capital

By David Blennerhassett

  • UK-Based CapVest Partners is offering A$7.60/share, in cash, for Virtus Health (VRT AU), compared to BGH Capital’s bid last month of A$7.10/share. Virtus has granted exclusive due diligence. 
  • CapVest’s Offer is non-binding. No doubt due to BGH holding 20% of shares out, CapVest will concurrently run an alternate off-market bid with a 50.1% acceptance condition at A$7.50/share. 
  • At a ~5% spread to the indicative Scheme terms, I would look to get involved. 

StubWorld: Cathay Pacific – Still Grounded

By David Blennerhassett

  • Cathay Pacific Airways (293 HK) dangles bonuses for pilots and first officers amid Hong Kong’s stringent crew quarantine requirements. 
  • Preceding my comments on Cathay – and Swire Pacific (A) (19 HK)– 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%.

Virtus Receives a Competing Offer from CapVest

By Arun George

  • Virtus Health (VRT AU) announced an offer from CapVest comprising of A$7.60 per share via a scheme (a 7.0% premium to BGH’s A$7.10 offer) or A$7.50 via an off-market takeover. 
  • CapVest’s offer is contingent on exclusivity and cost recovery protections. The Board will recommend a binding offer of at least A$7.60 via a scheme or A$7.50 via an off-market takeover.
  • Due to the healthy premium to historical multiples and share prices implied by the CapVest offer, it is likely that BGH will be hesitant to start a bidding war.    

Before it’s here, it’s on Smartkarma

Event-Driven: One REIT, HomeCo Daily Needs REIT, Itochu Corp, Bancolombia SA and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • FTSE EPRA Nareit Developed Asia Preview: A Few More Inclusions
  • HDN/AVN Merger & Potential ASX200 Inclusion in March (Or Earlier)
  • Short-Term Itochu Buyback – A Cushion, But Style Bias Matters More
  • Grupo Gilinski Ups the Ante on Grupo Suramericana with Enhanced Bids

FTSE EPRA Nareit Developed Asia Preview: A Few More Inclusions

By Brian Freitas


HDN/AVN Merger & Potential ASX200 Inclusion in March (Or Earlier)

By Brian Freitas


Short-Term Itochu Buyback – A Cushion, But Style Bias Matters More

By Travis Lundy

  • Itochu today announced a buyback program to buy US$500mm+ in the next 10 weeks. 
  • Net income growth, a rising dividend, and balanced risk book help it perform with low beta and medium correlation to peers. 
  • The low volatility-relative multiple is supportive, and the buyback helps, but style bias vs Peers matters more. 

Grupo Gilinski Ups the Ante on Grupo Suramericana with Enhanced Bids

By Victor Galliano

  • Gilinski’s higher price incremental share bids for both Grupo Suramericana and Nutresa are intended to make Gilinski the largest shareholder in Suramericana and the majority shareholder in Nutresa
  • We maintain that this strategy is the next step in Gilinski’s plan to gain control of BanColombia indirectly, and also gain control of Suramericana’s interests in asset management and pensions
  • We see further upside potential for Grupo Suramericana shares, as well as BanColombia shares; the latter are attractively valued versus LatAm peers

Before it’s here, it’s on Smartkarma

Event-Driven: HKEX, Meritz Fire & Marine Insurance, Citic Securities (H), Hongkong & Shanghai Hotels, Vedanta Ltd, Porsche Automobil Holding Se, Activision Blizzard, Netmarble Corporation, Yorkey Optical International Cayman, Banco del Bajio SA and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • CCASS: Why Large Moves Still Mattered in 2021
  • MSCI Korea IR: Rise of Meritz Fire, Wemade Gone, Kakao Pay Still Tricky, & SK Square Certainty
  • The Citic Securities Rights Offering – Dilution Against Timing
  • HK&S Hotels (45 HK): Kadoories Mop Up Someone Else’s Mess
  • Vedanta ADR Clean-Up Offering
  • Porsche Automobil Holding SE: Double Discount
  • Microsoft Got Game! Plans to Buy Activision Blizzard for $95/Share or $68.7 Billion
  • Microsoft to Buy Activision Blizzard for $69 Billion: Impact on NCsoft, Krafton, & Netmarble
  • Yorkey Optical (2788 HK): Court Meeting On 22 Feb. IFA Says Fair
  • Citi’s Mexican Exit; Our Thoughts on “new Banamex”

CCASS: Why Large Moves Still Mattered in 2021

By David Blennerhassett

  • In this latest installment in a series dating back to March 2018, I’ve analysed 4,400 moves over three years inside CCASS, targeting >5% of shares outstanding of individual stocks. 
  • The data continues to bear out the overall underperformance of stocks that exhibit large CCASS moves. 
  • But it also serves to illustrate that when a certain % move takes place in tandem with a certain market capitalisation, there is a tendency for outperformance. 

MSCI Korea IR: Rise of Meritz Fire, Wemade Gone, Kakao Pay Still Tricky, & SK Square Certainty

By Sanghyun Park

  • Additions: Meritz Financial Group and Meritz Fire (with a YTD price gain of over 40%) are very likely, and Kakao Pay is still the trickiest one.
  • Deletions: Shinpoong Pharm is the most likely one, but the others remain a slim possibility.
  • Float rate changes: SK Square is a certainty with the most significant impact, and SKIET and HMM deserve our attention.

The Citic Securities Rights Offering – Dilution Against Timing

By Travis Lundy

  • Citic Securities has launched a Rights Offering for H Shares and A Shares. The price is basically the same, which means a very big discount for A holders.
  • The timing is different, and the H share Rights Issue process is drawn out past Chinese New Year. This may affect takeup rates and bullishness.
  • The difference in capital approach between Dual H/A-share listed SOEs like Citic Securities and like China Mobile is stark. The dichotomy may expand. 

HK&S Hotels (45 HK): Kadoories Mop Up Someone Else’s Mess

By David Blennerhassett

  • The Kadoorie family, Hongkong & Shanghai Hotels (45 HK)‘s major shareholder, is paying HK$2.63bn to increase its holding to 72.43% from 59.98%.
  • The price under the SPA is $12.80/share, a 92.5% premium to the undisturbed price. Shares promptly gained 19.5% yesterday. No Offer was triggered. 
  • What is conveniently left out of the announcement, and in media articles, is the original owner of these shares – Tai United Holdings (718 HK).

Vedanta ADR Clean-Up Offering

By Travis Lundy

  • Vedanta Limited decided to delist its ADRs last autumn. They were delisted but the process of unwinding them comes down to selling the unconverted ADR underlying shares. 
  • Citi is conducting an offering to sell those underlying shares. This will aid in setting the unwind price for existing but unsettled listed ADR derivatives (yay).
  • The offering itself is just over 1% of shares out, 4% of float, and 12% of foreign portfolio investor holdings. Not huge, but the trend vs peers gives one pause.

Porsche Automobil Holding SE: Double Discount

By Jesus Rodriguez Aguilar

  • Porsche Automobil Holding Se (PAH3 GR) is a listed holding company whose main asset is a 53.3% stake of Volkswagen ordinary shares (worth c. €43,243 million).
  • The combination of holding chain and dual-class structure allows the Porsche-Piëch families to control Volkswagen with just a 15.7% economic interest. The discount of Porsche SE is a massive 38.2%.
  • The discount is above the 9-year average, 30.2%. I recommend long 1 PAH3 GR/short 0.5136 VOW GR.

Microsoft Got Game! Plans to Buy Activision Blizzard for $95/Share or $68.7 Billion

By John DeMasi

  • Microsoft’s largest-ever acquisition provides boost for cloud gaming and metaverse ambitions.
  • Deal comes as Activision Blizzard’s been mired in gender pay disparity and sexual harassment storm.
  • Controversial CEO Bobby Kotick to continue in his role as head of Activision Blizzard, though WSJ says otherwise.

Microsoft to Buy Activision Blizzard for $69 Billion: Impact on NCsoft, Krafton, & Netmarble

By Douglas Kim

  • On 18 January, Microsoft Corp (MSFT US) announced that it will acquire Activision Blizzard (ATVI US) for $68.7 billion all-cash deal.
  • The acquisition of Activision Blizzard by Microsoft is likely to have a positive impact on the entire global game sector including in Korea. 
  • This major acquisition of Activision Blizzard by Microsoft could rejuvenate the entire global game sector as it could signal greater M&A interest in high-quality game companies.

Yorkey Optical (2788 HK): Court Meeting On 22 Feb. IFA Says Fair

By David Blennerhassett

  • Yorkey Optical International Cayman (2788 HK)‘s Scheme Document is now out, with the Court Meeting to be held on the 22 February.
  • Asia Optical (3019 TT) is offering HK$0.999/share, a 75.3% premium to the undisturbed close. David Webb has given an irrevocable undertaking to vote his shares in favour of the Scheme 
  • This transaction is all stitched up. The Independent Financial Advisor considers the terms to be fair and reasonable. 

Citi’s Mexican Exit; Our Thoughts on “new Banamex”

By Victor Galliano

  • Citi is to sell its Mexican retail and SME banking operations, which we call new Banamex; it is an attractive banking franchise that needs investment and a focus on costs
  • Based on peer group valuations, and on new Banamex’s disclosed parameters, we estimate that the disposal entity’s valuation range could range from USD7bn to USD10bn, and we identify potential bidders
  • We believe that our new Banamex valuation range emphasizes BanBajio’s attractive valuations, we stick with our positive view on mid-cap BanBajio; we believe that Banorte is fully valued

Before it’s here, it’s on Smartkarma

Event-Driven: AKM Industrial, SK Telecom, China Development Financial, Beazley PLC and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • AKM Industrial (1639 HK): SASAC and Xiamen Government-Backed Pre-Conditional Offer
  • SK Telecom at a 6+% Dividend Yield: Entry Timing Analysis
  • FTSE TWSE Taiwan 50 Index Rebalance Preview: Inclusion Fairly Certain; Close Among the Deletions
  • STOXX Europe Indices: Quiddity Leaderboard for March 2022 Rebalance (And Jan 2022 BHP Replacement)

AKM Industrial (1639 HK): SASAC and Xiamen Government-Backed Pre-Conditional Offer

By David Blennerhassett

  • Flexible printed board player Akm Industrial (1639 HK) has announced a pre-conditional Scheme from Alpha Luck and AKM Meadville at HK$1.82/share. The Offer price will NOT be increased.
  • Alpha Luck is ultimately held by SASAC and AKM Meadville by the government of Haicang District, Xiamen. The two intend to hold 40:60 respectively in the unlisted vehicle. 
  • Various PRC regulatory approvals are required. This appears a transaction geared to complete. Timing is the key risk to the deal.

SK Telecom at a 6+% Dividend Yield: Entry Timing Analysis

By Sanghyun Park

  • Until mid-January each year, local brokerages sell blue-chip stocks as they most aggressively engage in yearend dividend arb plays. They are repeatedly busy closing the arb positions until mid-January.
  • Local pensions’ selling SKT can be interpreted as a preemptive portfolio cleaning to include LG Energy. Compared to other local institutions, pensions often become the first to do cleaning trading.
  • As we are past mid-January, the position closing for the yearend arb play should have been over. So entering SKT now doesn’t seem like a bad idea.

FTSE TWSE Taiwan 50 Index Rebalance Preview: Inclusion Fairly Certain; Close Among the Deletions

By Brian Freitas

  • The next FTSE TWSE Taiwan 50 Index review will use data from 21 February. The changes will be announced on 4 March and implemented at the close on 18 March.
  • China Development Financial (2883 TT) is a potential inclusion following a rally in the stock price and increase in shares outstanding following the acquisition of China Life Insurance (2823 TT)
  • Any one of three stocks could be deleted to keep the number of index constituents at 50. There is 3% difference in market cap, so its very close.

STOXX Europe Indices: Quiddity Leaderboard for March 2022 Rebalance (And Jan 2022 BHP Replacement)

By Janaghan Jeyakumar, CFA

  • The STOXX Europe 600 Index is a benchmark index with a fixed number of 600 components representing large, mid and small capitalization companies across 17 countries of the European region.
  • The EURO STOXX Index is a subset of the STOXX Europe 600 Index and is also the parent index for the widely-tracked EURO STOXX 50 Index.
  • Below is a look at the Potential Adds and Deletes for the STOXX Europe 600 Index and the EURO STOXX Index in the upcoming index review in March 2022.

Before it’s here, it’s on Smartkarma

Event-Driven: Mitsui O.S.K. Lines, BHP Group, Nippon Paint Holdings, Mercari Inc, Hitachi Construction Machinery, Tbea Co Ltd A, Akm Industrial, Volkswagen and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • MSCI Feb 2022 Index Rebalance Preview: Potential Changes as Review Period Starts
  • BHP Unification – Trading and Spread Update
  • Nippon Paint (4612) Secondary Pricing Approaches – Cheaper But…
  • Mercari (4385) Applying for TSE Prime Means TOPIX Inclusion in 4-5 Months
  • Hitachi Construction Machinery Deal To Change “Parent” – There’s Not Much There There
  • CSI300 Index Rebalance Preview (June 2022): Changes Near the Midway Mark
  • AKM Industrial’s Privatisation Bid
  • Liquid Universe of European Ordinary and Preferred Shares: January ’22 Report

MSCI Feb 2022 Index Rebalance Preview: Potential Changes as Review Period Starts

By Brian Freitas

  • With a day to go to the start of the review period, we see 14 inclusions and 6 deletions for Asia. Most of the adds are in China and Korea.
  • There are quite a few adds that will require passive trackers to buy more than 5 days of ADV. Some of the stocks have rallied strongly year to date.
  • We expect large buying on SK Square (402340 KS), JD Health (6618 HK) and Sea Ltd (SE US) at the February QIR due to an increase in the FIF.

BHP Unification – Trading and Spread Update

By Travis Lundy

  • The spread on the BHP PLC/Limited arbitrage has widened as stock borrow on the AU line has dried up ahead of the ex-date for the General Meeting
  • An analysis of the shareholder register of BHP Group PLC suggests that BHP has mis-underestimated the passive ownership of PLC by a lot.
  • All told, on a NET basis, the 28th of January is likely to be a US$40bn index event (two way, both names, both funding trades). Another $10-15bn rolls within index.

Nippon Paint (4612) Secondary Pricing Approaches – Cheaper But…

By Travis Lundy

  • Nippon Paint Holdings (4612 JP) is down nearly 25% in a week after the large non-dilutive Offering which nevertheless increases Foreign Real World Float by 70+%.
  • The ratio of Forward PERe of Nippon Paint vs Peers is as low as it has been in many years, but EV/ForwardEBITDA remains high vs peers.
  • Investors who buy this deal or the Pricing Dip will be getting long next to ¥140-150bn of their closest friends who didn’t own as much NPH one week ago.

Mercari (4385) Applying for TSE Prime Means TOPIX Inclusion in 4-5 Months

By Travis Lundy

  • Mercari was expected to announce at some point that it would attempt to transfer to TSE Prime. They have now announced. 
  • This will end up being a BIG TOPIX inclusion in May or June. 
  • And the changes to the TOPIX Free Float Weight Methodology will mean it is bigger than it would have been under the old regime (despite unchanged FFW).

Hitachi Construction Machinery Deal To Change “Parent” – There’s Not Much There There

By Travis Lundy

  • On Thursday we saw news of a Hitachi sale of half its stake in HCM. Friday the stock traded down hard. Friday night saw news that underwhelmed further. 
  • The deal is big, but it is basically a deal to get Hitachi out as parent. There is no Capital Alliance and there is no Strategic Alliance yet. 
  • There simply is not much there, there yet. And the stock is less liquid than it looks, and that won’t get better any time soon.

CSI300 Index Rebalance Preview (June 2022): Changes Near the Midway Mark

By Brian Freitas

  • Nearly midway through the review period for the June rebalance of the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX), we see 29 potential changes to the index.
  • There are a lot of high and medium probability changes that could result in a one-way turnover of 4.2% and a one-way trade of CNY 10.17bn at the June rebalance.
  • The potential inclusions have underperformed the potential deletions by c.15% over the last month and this provides a good entry point into a long short/trade.

AKM Industrial’s Privatisation Bid

By Arun George

  • Akm Industrial (1639 HK) announced a privatisation offer from Alpha Luck and AKM Meadville at HK$1.82 per scheme share, a 14.47% premium to last full trading day price of HK$1.59. 
  • The key pre-condition is several regulatory approvals which be forthcoming as Alpha Luck is indirectly 100% owned by the SASAC. 
  • The key condition is the scheme approved by at least 75% disinterested shareholders (<10% disinterested shareholders rejection). We think the offer price is reasonable and the scheme will pass. 

Liquid Universe of European Ordinary and Preferred Shares: January ’22 Report

By Jesus Rodriguez Aguilar

  • Spreads have generally tightened across our liquid universe, 450 bps in the case of Volkswagen.
  • Recommendations Long ords / short prefs: Fuchs Petrolub, Henkel, Handelsbanken, Investor AB.
  • Recommendations Long prefs / short ords: BMW, Roche, Schroders, Telecom Italia, Volkswagen.

Before it’s here, it’s on Smartkarma

Event-Driven: LG Energy Solution, BHP Group, Nippon Paint Holdings, Razer Inc and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • LG Energy Solution (373220 KS) IPO: Bookbuilding Results & Implications
  • Last Week in Event SPACE: BHP Group, Crown Resorts, 51job, Hitachi, Razer Inc
  • Index Rebalance & ETF Flow Recap: STI, LQ45, China 50/A50, FTSE, BBIG, BHP, LG Energy, Nippon Paint
  • Asia-Pac Weekly Risk Arb Summary: Razer, Crown Resorts, Katakura, Ausnutria, API, Irongate

LG Energy Solution (373220 KS) IPO: Bookbuilding Results & Implications

By Brian Freitas

  • The LG Energy Solution (373220 KS) IPO was oversubscribed 2,023 times. At the IPO price of KRW 300,000/share, that works out to US$11.92 trillion of bids.
  • Over 77% of the shares bid for by institutions had voluntary lock-ups from 15 days to 6 months. The final allocations could have between 60-65% of the allocation locked up.
  • Fast Entry to the KOSPI2, MSCI Standard and the FTSE All-World Indexes is a near certainty. Around 15% of float will be bought by these passive trackers in Feb/March.

Last Week in Event SPACE: BHP Group, Crown Resorts, 51job, Hitachi, Razer Inc

By David Blennerhassett

  • Crown Resorts (CWN AU) backs Blackstone’s revised Offer of A$13.10/share in cash, from A$12.50 previously, and up from A$11.85/share initially.  
  • The endgame approaches for the BHP (BHP AU) Unification trade. S&P announced the S&P/ASX upweight would be one-shot, as expected. Regulatory approvals are in. SARB has set BHP SJ as “domestic.”
  • The Offeror slashes the Offer price for 51 Job (JOBS US) by 27.6%, however, it’s not clear how the new deal terms sidestep the regulator nor justify a reduction. 

Index Rebalance & ETF Flow Recap: STI, LQ45, China 50/A50, FTSE, BBIG, BHP, LG Energy, Nippon Paint

By Brian Freitas

  • We look at potential changes to the STI, LQ45, FTSE China 50, FTSE AW/AC and KRX New Deal indices at the upcoming rebalances.
  • FTSE has announced a Ground Rule change for the FTSE China A50 Index. S&P DJI announced that the BHP Group (BHP AU) Unification would be implemented in one step.
  • All eyes will be on the LG Energy Solution (373220 KS) IPO for the next couple of weeks and we take a comprehensive look at potential index (fast) entries.

Asia-Pac Weekly Risk Arb Summary: Razer, Crown Resorts, Katakura, Ausnutria, API, Irongate

By David Blennerhassett


Before it’s here, it’s on Smartkarma

Event-Driven: Kweichow Moutai, Kakao Pay, XP Inc and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • FTSE China A50 Index Ground Rule Change: Big Flows & Large Turnover in March
  • End of Lock-Up Periods for Kakao Pay, Kakao Bank, Krafton, HHI, & SD Biosensor in 1Q 2022
  • XP (XP US) – Modal Acquisition Edges the Needle Higher on AuC, but It Is No Bargain

FTSE China A50 Index Ground Rule Change: Big Flows & Large Turnover in March

By Brian Freitas


End of Lock-Up Periods for Kakao Pay, Kakao Bank, Krafton, HHI, & SD Biosensor in 1Q 2022

By Douglas Kim

  • In this insight, we discuss the end of lock-up periods for Kakao Pay, KakaoBank, Hyundai Heavy Industries, Krafton Inc, and SD Biosensor in 1Q 2022.
  • Typically, investors tend to focus on the end of the lock-up periods in Korea about 1-2 months ahead of the actual end of these lock-up periods.
  • Among these five companies, there are relatively large number of shares that could be sold post end of the lock-up periods for Kakao Pay and Kakao Bank in 1Q 2022. 

XP (XP US) – Modal Acquisition Edges the Needle Higher on AuC, but It Is No Bargain

By Victor Galliano

  • XP’s offer for the smaller Modal values it at 10% of assets under custody (AuC) which is just a slight discount to XP’s market value of 11% of AuC
  • The acquisition should add 15% to XP’s active client base, yet it should add a mere 4% to AuC; relative to XP, Modal has 25% of average assets per client
  • We believe that the impact of this bolt-on M&A is marginal at best, given the intense competition from larger wealth managers, such as the wealth arm of BTG Pactual

Before it’s here, it’s on Smartkarma

Event-Driven: LG Energy Solution, Hitachi Construction Machinery, Crown Resorts, 51 Job Inc Adr, LG Chem Ltd, Irongate Group and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • LG Energy Solution (373220 KS) IPO: Comprehensive Index (Fast) Entry List
  • Hitachi Finally Bailing on Hitachi Construction (6305); Too Early To Buy
  • HCM – Hitachi Partial Stake Sale to Itochu
  • Crown Resorts: Blackstone’s Winning Bet
  • 51job (JOB US): 27.6% Reduction In Terms
  • Blackstone’s Fourth Bid for Crown Resorts
  • 51job’s Lowered Privatisation Bid
  • KRX K-New Deal Index Rebalancing: Detailed Methodology & Changes Preview
  • Irongate (IAP AU) Rejects Third Proposal From 360 Capital

LG Energy Solution (373220 KS) IPO: Comprehensive Index (Fast) Entry List

By Brian Freitas

  • The LG Energy Solution (373220 KS) IPO will be the largest ever in Korea and will result in Fast Entry to a lot of local and global indices.
  • A lot of the passive flow will be front loaded across the KOSPI200, local Battery indices, BBIG, MSCI Korea, FTSE All-World with back end flow on global battery indices.
  • Given the passive assets tracking the Battery ETFs locally and globally, a significant portion of LG Energy Solution (373220 KS)‘s float will be locked up in passive products.

Hitachi Finally Bailing on Hitachi Construction (6305); Too Early To Buy

By Travis Lundy

  • An NHK report today post-close said Hitachi Ltd (6501 JP) would sell “about half” its stake in sub Hitachi Construction Machinery (6305 JP) to Itochu and Japan Industrial Partners.
  • That is quite similar to the announcement 15 months ago in the Nikkei which precipitated a large drop. While unconfirmed, it smells like there is fire behind the smoke.
  • The big question is What Next? and What Impact for shareholders? That’s a tough couple of questions. 

HCM – Hitachi Partial Stake Sale to Itochu

By Mio Kato

  • NHK reports that Hitachi will be selling roughly half of its 51% stake in HCM to Itochu and Japan Industrial Partners. 
  • HCM has outperformed Komatsu over the last year and it is possible that some investors were expecting a buyout. 
  • If so, and if there is a negative reaction to this news we would be looking to buy.

Crown Resorts: Blackstone’s Winning Bet

By David Blennerhassett

  • Blackstone and affiliates have increased its Offer for Crown Resorts (CWN AU) to A$13.10/share in cash, from A$12.50 previously, and up from A$11.85/share initially.  
  • The proposal is subject to the same conditions as the Blackstone proposal announced on 19 November, including completing further due diligence, regulatory approvals, and unanimous support from Crown’s Board.
  • Crown will engage further with Blackstone on a non-exclusive basis and its current intention is to recommend that shareholders vote in favour should both parties enter into a binding agreement.

51job (JOB US): 27.6% Reduction In Terms

By David Blennerhassett

  • Not an overreaction after all. After shares closed down 19.2% on the 8 November, 20% adrift of indicative terms, that appeared overdone.
  • Now 51 Job Inc (JOBS US) has announced the Offeror has proposed reducing the merger consideration from US$79.05 in cash per common share to US$57.25.
  • Shares closed up, but still at a 14.5% gross spread to terms. The new construct, and the reasons for doing so, are decidedly baffling.

Blackstone’s Fourth Bid for Crown Resorts

By Arun George

  • Blackstone Group (BX US) has returned for a fourth time with a revised indicative offer of A$13.10 cash per share, a 4.8% bump to its previous offer of A$12.50.
  • The Board intends to recommend a binding offer of no less than A$13.10 per share. CPH, the largest shareholder, is “encouraged by today’s announcement.
  • The Board’s willingness to recommend a binding offer may draw out rival suitors. At the last close of A$12.65, the shares trade at a 3.6% gross spread to the offer.

51job’s Lowered Privatisation Bid

By Arun George

  • The consortium’s updated transaction has lowered the offer price -27.6% to $57.25 in cash per ADS, a 24.92% premium to the last trading price (11 January 2022).
  • The combination of the dramatically lower price, spurious justification for lowering the price and the shares recently trading higher than the revised price is unlikely to win over minorities.
  • Meeting the two-thirds shareholder approval threshold is likely a challenge due to the need to convince around 27% of disinterested shareholders to vote in favour of the transaction. 

KRX K-New Deal Index Rebalancing: Detailed Methodology & Changes Preview

By Sanghyun Park

  • These indices use the GICS for classification. Bio and Internet are very straightforward. But qualitative judgment may be involved in Battery and Game.
  • The passive impact of SoulBrain is estimated to be the largest, and LG Chem wouldn’t be negligible either.
  • If AfreecaTV and Douzon Bizon are swapped, they will experience an impact of +2.0x ADTV and -5.0x ADTV. So they will shine the most if the swap takes place.

Irongate (IAP AU) Rejects Third Proposal From 360 Capital

By David Blennerhassett

  • Property group Irongate Irongate Group (IAP AU) has rejected the third unsolicited offer from 360 Capital (TGP AU) in as many months. 
  • Under the latest proposal, 360 Capital was offering $1.72 /security, a 7.2% increase over the initial approach. 
  • Trading slightly below the rejected terms. Expect 360 Capital to return to the trough. 

Before it’s here, it’s on Smartkarma

Event-Driven: Shinsei Bank, BHP Group, Oracle Corp Japan, Net Protections, Ausnutria Dairy Corp, China Infrastructure & Logistics Group , SM Investments, Razer Inc, Discovery, Inc. and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • TSE Announces Market Structure Revisions: Still Much Ado About Nothing
  • BHP Unification – ASX Upweight in One Shot
  • TOPIX January 2022 FFW Rebalance – Much Nothing To Do
  • TOPIX Inclusion: Net Protections (7383 JP)
  • Ausnutria (1717 HK): MGO Imminent As NDRC Approval Obtained
  • China Infrastructure & Logistics Group (1719 HK): Potential Unconditional MGO
  • FTSE All-World/All-Cap Index Rebalance: Potential Liquidity Deletes in March
  • Razer Inc (1337 HK): SAMR Done. Now For The Vote
  • MergerTalk: Why Playing the Pending Discovery/WarnerMedia Merger Through AT&T Could Pay Dividends

TSE Announces Market Structure Revisions: Still Much Ado About Nothing

By Travis Lundy

  • Today the TSE announced its long-awaited segmentation of the 3,777 stocks listed on the five major venues, and where they will move on 4 April 2022. 
  • TSE1 represented just under 98% of Japan’s float market cap as of today’s close. As some TSE1 members will move to TSE Standard, TSE Prime will represent 97+%. 
  • There are tiny changes to TOPIX because of the moves – roughly 3bp of flow per quarter starting Oct 2022. The FFW Model Revision will be far more interesting.

BHP Unification – ASX Upweight in One Shot

By Brian Freitas

  • As expected, S&P DJI have announced that BHP Group (BHP AU)‘s weight in the S&P/ASX indices will be increased all at once at the close of trading on 28 January. 
  • We estimated passive S&P/ASX trackers will need to buy over A$4bn of BHP Group (BHP AU) leading to a funding sell of that size on the other index constituents.
  • BHP Group (BHP AU) has risen 25% from its lows in November. We expect most UK shareholders have finished selling shares and the one-shot inclusion could take the stock higher.

TOPIX January 2022 FFW Rebalance – Much Nothing To Do

By Travis Lundy

  • The January 2022 FFW rebalance is not very large – about US$225mm a side. 
  • 30% of the interest is in two names – Net Protections (7383 JP) as an add because of its recent IPO and Oracle Corp Japan (4716 JP) as a sell.
  • This event may get overshadowed by the TSE Market Structure revamp announced the same day.

TOPIX Inclusion: Net Protections (7383 JP)

By Janaghan Jeyakumar, CFA

  • Japan-Based Buy-Now-Pay-Later (“BNPL”) service provider Net Protections (7383 JP) (“NPH”) was listed in the First Section of the Tokyo Stock Exchange (TSE) on 15th December 2021.
  • When a company gets listed on the TSE First Section, it subsequently gets included in the TOPIX Index requiring TOPIX-tracking funds to purchase the stock during an Inclusion Event.
  • Usually, this presents interesting trading opportunities to generate sharp market-neutral returns in the space of few trading days. Below is a look at the details for NPH’s Inclusion Event.

Ausnutria (1717 HK): MGO Imminent As NDRC Approval Obtained

By David Blennerhassett

  • China’s NDRC approval, a key condition to the Share Purchase Agreement, has been obtained.  SAMR clearance had previously been fulfilled, leaving MoC and SAFE approvals yet to be secured.
  • The turnout at Ausnutria Dairy Corp (1717 HK)‘s recent EGM would suggest there is a sufficient number of shares for the MGO to turn unconditional. 
  • Provided the Offer becomes unconditional, trading at a gross/annualised spread of 4.4%/22.1%, assuming late 1Q22 completion.

China Infrastructure & Logistics Group (1719 HK): Potential Unconditional MGO

By David Blennerhassett

  • After shares were halted midday on the 30 December pursuant to the Takeovers Code, China Infrastructure & Logistics Group (1719 HK) (“CILG”) has announced a possible MGO from Hubei Ports.
  • Hubei Ports has entered into a SPA with co-chairman Yan Zhi to acquire his 74.81% stake in CILG. Upon completion, this will trigger an unconditional MGO. The price is HK$1.15/share.
  • A key condition to the SPA is approval from SASAC of Wuhan, which is turn controls 82.8571% of Hubei Ports. This transaction is done.

FTSE All-World/All-Cap Index Rebalance: Potential Liquidity Deletes in March

By Brian Freitas


Razer Inc (1337 HK): SAMR Done. Now For The Vote

By David Blennerhassett

  • China’s State Administration for Market Supervision has unconditionally approved Razer Inc (1337 HK)‘s privatisation. 
  • Provided all other regulatory approvals are obtained, the key condition to the Scheme completing is the shareholder vote. 
  • Trading wide to terms on concerns retail investors could disrupt the headcount test.

MergerTalk: Why Playing the Pending Discovery/WarnerMedia Merger Through AT&T Could Pay Dividends

By Robert Sassoon

  • The prospect of significant value creation for Discovery, Inc. (DISCK US) shareholders is much closer to realization with its merger with WarnerMedia  merger on track to complete by for mid-2022.
  • A conservative target share price target of $41 for WBD offers greater than 40% upside from the prevailing share prices of DISCA and DISCK.
  • Purchasing AT&T shares at prevailing levels could effectively give investors a ~65% to 75% cheaper option to purchase WBD shares than currently through DISCK .

Before it’s here, it’s on Smartkarma

Event-Driven: Shinsei Bank, Olam International, Nippon Paint Holdings, China Mobile, Hannover Rueck Se, Meritz Financial Group, SK Square and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Nikkei 225 Deletions/Additions in March(?) 2022 Due to TSE Market Structure Changes
  • STI Index Rebalance Preview (March 2022): Olam Could Replace ComfortDelGro
  • Nippon Paint (4612) – A BIG Secondary Which Is a Tough Sell, with Variable Index Implications
  • China Mobile (600941 CH): Potential Index Fast Entry
  • DAX Index: Quiddity Leaderboard for March 2022
  • MSCI Korea Feb IR: Screening Status, Passive Impact, & Trading Approach
  • SK Square Is Victim of LG Energy IPO-Triggered Market Flow Imbalance, Then Rebound Timing?

Nikkei 225 Deletions/Additions in March(?) 2022 Due to TSE Market Structure Changes

By Travis Lundy

  • The TSE will move to a new cash equity market structure on 4 April 2022. There will be three new sections: TSE Prime, TSE Standard, and TSE Growth.
  • The Nikkei Index Team in July 2021 announced a change to the Nikkei 225 Average Guidebook language which said constituents had to be members of TSE Prime going forward.  
  • At least one Nikkei 225 name and possibly two are headed for TSE Standard when the TSE makes its announcement on 11 January 2022. Suggested treatments are discussed.

STI Index Rebalance Preview (March 2022): Olam Could Replace ComfortDelGro

By Brian Freitas


Nippon Paint (4612) – A BIG Secondary Which Is a Tough Sell, with Variable Index Implications

By Travis Lundy

  • When Wuthelam took control of Asia’s largest coatings business, Nippon Paint Holdings (4612 JP), in August 2020, I was bearish. It was great for the Goh family but minorities lost.
  • At the time, I said “Float is low”, and “There are cross-holders who don’t need to be there. This would be a very good sell for them. “
  • 17 months later, 6 financial institutions will now sell their cross-holdings. There is float impact and some immediate index impact. 

China Mobile (600941 CH): Potential Index Fast Entry

By Brian Freitas


DAX Index: Quiddity Leaderboard for March 2022

By Janaghan Jeyakumar, CFA

  • DAX is a blue-chip index that now tracks the 40 largest companies listed on the Regulated Market of the Frankfurt Stock Exchange. 
  • The DAX Index is reviewed on a quarterly basis in March, June, September, and December. 
  • In this insight, we take a look at the potential constituency changes that can happen in the March 2022 review.

MSCI Korea Feb IR: Screening Status, Passive Impact, & Trading Approach

By Sanghyun Park

  • Meritz Financial (high possibility), Wemade (mid), and Hyundai Heavy (low) are likely candidates for inclusion. On the other hand, Shinpoong Pharma (high) is likely to be deleted.
  • The passive impact of Meritz Financial Group is the most significant (7.70x ADTV). On the other hand, Wemade and Shinpoong are expected to have a passive impact below 1.0x ADTV.
  • Meritz Financial Group should be our primary target. But we may want to wait until the announcement date in early February due to its 50% gain in the past month.

SK Square Is Victim of LG Energy IPO-Triggered Market Flow Imbalance, Then Rebound Timing?

By Sanghyun Park

  • SK Square’s discount to NAV is reaching 68%, pretty close to the deepest end of the local peers.
  • The cause of this price correction can be seen as the collapse of the overall market flow balance due to the LG Energy IPO.
  • Entry timing for MSCI float-rate increase momentum is early February.

Before it’s here, it’s on Smartkarma