Category

Event-Driven

Event-Driven: Toshiba Corp, Adani Transmission Ltd, Orocobre Ltd, HLB Inc, Lawson Inc, SK Bioscience and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • How Much of Toshiba Is Owned By “Activists”?
  • MSCI May 2021 Index Rebalance Preview: Let The Games Begin
  • Orocobre – Galaxy: Merger of Equals
  • KOSDAQ Short/Loan Int: Pearl Abyss on Radar for Recent Bounce & Big Names KOSPI Moving
  • Lawson: Primed for Mitsubishi to Take Full Control
  • SK BioS Lockup Release Today: FO Drop Can Signal a Tight Supply for Passive Mirroring K200

How Much of Toshiba Is Owned By “Activists”?

By Travis Lundy

This should be considered a Big Question in terms of the Power Dynamics of Shareholders vs Management in the last EGM and the upcoming AGM.

It is difficult to know exactly.

It may also be difficult to define.

It is important to note that the Record Date of the recent EGM was 1 February and in the month after that, nearly 10% of shares out will have changed hands from one type of investor to another. 

It is also important to note that Toshiba directors, if they had chosen to know, could have known a few days into April (before the 6 April CVC approach) with some degree of clarity what the shape of the shareholder base looked like as of 31 March. Most of the rest of us have to wait until the yuho is released near end-June. 

This insight takes a look at the Shareholder Structure as of a point in time when we knew it, and compares it to the rest of MSCI Japan and TOPIX. Then we look at what MIGHT HAVE HAPPENED because of recent float ownership changes and whether that changes anything.


MSCI May 2021 Index Rebalance Preview: Let The Games Begin

By Brian Freitas

The MSCI May Semi Annual Index Review (SAIR) will use the price cutoff data from any of the trading days from 19-30 April to determine the list of stocks to be included into/ excluded from the indices.

MSCI is scheduled to announce the results of the May 2021 SAIR on 11 May with the changes implemented after the close of trading on 28 May.

Stocks that are expected to have the largest impact (in terms of ADV) from passive buying are Perennial Energy Holdings Ltd (2798 HK), Lucky Cement (LUCK PA), Tower Bersama Infrastructure (TBIG IJ), Chow Tai Fook Jewellery (1929 HK), Adani Transmission Ltd (ADANIT IN), Chindata Group Holdings-Adr (CD US), Domino’S Pizza Enterprises Ltd (DMP AU), Reece Ltd (REH AU), Powerlong Real Estate Holdings (1238 HK), China Resources Mixc Lifestyle Services (1209 HK), Sany Heavy Equipment Intl (631 HK), SITC International (1308 HK), I-Mab (IMAB US), InnoCare Pharma Ltd (9969 HK), Cholamandalam Investment and Finance (CIFC IN), Shimao Services Holdings Limited (873 HK), Sunac Services Holdings (1516 HK) and Adani Gas Ltd (ADGAS IN).

Stocks that are expected to have the largest impact (in terms of ADV) from passive selling are Kasikornbank PCL (KBANK/F TB), Aboitiz Power (AP PM), Gamuda Bhd (GAM MK), Genting Plantations (GENP MK), Oil & Gas Development (OGDC PA), Samsung Card Co (029780 KS), Puregold Price Club (PGOLD PM), Keihan Electric Railway Co (9045 JP), Ottogi Corporation (007310 KS), Highwealth Construction (2542 TT), Suzuken Co Ltd (9987 JP), TPG Telecom Ltd (TPG AU), PCCW Ltd (8 HK), AMP Ltd (AMP AU), Keikyu Corp (9006 JP), Perusahaan Gas Negara Perser (PGAS IJ), Yamazaki Baking (2212 JP), Air Water Inc (4088 JP), Tokyu Fudosan Holdings (3289 JP), Hyundai Marine & Fire Insurance Co., (001450 KS) and Sega Sammy Holdings (6460 JP).

New listings that did not make the cut for Fast Entry inclusion and could now be included in the index are China Resources Mixc Lifestyle Services (1209 HK), Sunac Services Holdings (1516 HK), Shimao Services Holdings Limited (873 HK), SCG Packaging Public Company Limited (SCGP TB), HYBE (352820 KS) and Kakao Games Corp (293490 KS). Some of these stocks will also be included in the FTSE All-World index at the June QIR.

The May SAIR will also see the start of the tranched inclusion of Sea Ltd (SE US), a possible switch in listing from Alibaba Group (BABA US) to Alibaba Group (9988 HK), a possible halving in the weight of Kasikornbank PCL (KBANK-R TB), the introduction of the ‘light’ rebalancing scenario in case of market stress, and the introduction of the ‘extreme price moves’ scenario for the inclusion of stocks in the Standard index.


Orocobre – Galaxy: Merger of Equals

By Brian Freitas

A short while ago, Orocobre Ltd (ORE AU) and Galaxy Resources (GXY AU) agreed to a proposed A$4bn merger of equals to create the fifth largest global lithium chemicals company, with potential to unlock significant synergies and realise shareholder value.

The Scheme is unanimously recommended by the Board of Galaxy, and endorsed and supported by the Board of Orocobre.

Galaxy Resources (GXY AU) shareholders will receive 0.569 Orocobre Ltd (ORE AU) shares for each share held in Galaxy. Given the historical stock prices, this seems like a good deal for Galaxy Resources (GXY AU) shareholders.

The effective date of the Scheme is expected to be in late July or early August and the implementation date is expected to be in mid August. The merger entity will be rebranded under a new name, the head office will be in Buenos Aires, while the corporate headquarters will be on the Australian East coast.

We expected Orocobre Ltd (ORE AU) to be included in the S&P/ASX 200 (AS51 INDEX) at the June review and the proposed merger should not change that. We do not expect the merged entity to be included in the FTSE All-World or the MSCI Standard indices, though a rally of around 15% could get the merged stock entry into the FTSE All-World index.


KOSDAQ Short/Loan Int: Pearl Abyss on Radar for Recent Bounce & Big Names KOSPI Moving

By Sanghyun Park

KMW and HLB are at the top in both short and loan interests among the KOSDAQ stocks (excluding SillaJen).

KMW has a 4.83% short interest (as a % of SO), closely followed by HLB at 4.57%.

Not much change in their short interest, but KMW had a substantial weekly increase in its loan interest, +18.42% and +2.18%p. Its loan interest now sits at a whopping 18.42% of the SO.

Top 20 short interestTickerK150Short1W Δ1W Δ %pLoan1W Δ1W Δ %p
KMW Co Ltd0325001264.83%-0.10%0.00%p14.02%18.42%2.18%p
HLB Inc028300824.57%1.26%0.06%p10.92%4.51%0.47%p
Apam Corp073070#N/A2.41%0.00%0.00%p4.09%0.00%0.00%p
Sangsangin Co Ltd038540502.08%-4.34%-0.09%p4.11%-0.76%-0.03%p
Toptec Co Ltd1082301372.07%-1.95%-0.04%p4.05%0.60%0.02%p
NatureCell Co Ltd007390191.96%4.13%0.08%p5.31%-0.76%-0.04%p
Kuk Il Paper MFG Co Ltd078130171.92%3.92%0.07%p6.75%1.77%0.12%p
Komipharm International Co., Ltd.0419601281.84%-1.23%-0.02%p4.51%1.30%0.06%p
BH Co Ltd090460451.79%0.30%0.01%p4.90%0.96%0.05%p
Power Logics047310#N/A1.75%-0.12%0.00%p2.85%-7.12%-0.22%p
Innovation For Creative Devices Co Ltd040910#N/A1.73%-0.92%-0.02%p2.83%0.57%0.02%p
Korea Alcohol Industrial017890#N/A1.72%3.37%0.06%p2.99%0.00%0.00%p
Cancer Rop Co Ltd180400#N/A1.67%0.00%0.00%p1.98%-0.12%0.00%p
Curocom Co., Ltd.040350#N/A1.62%3.46%0.05%p2.84%0.00%0.00%p
MS Autotech Co Ltd123040#N/A1.50%0.12%0.00%p2.73%0.00%0.00%p
Hyundai Bioscience Co Ltd0484101481.49%-0.67%-0.01%p4.50%1.37%0.06%p
ACT Co Ltd (Chungcheongbuk-do)138360#N/A1.48%0.00%0.00%p1.98%0.00%0.00%p
Orbitech Co Ltd046120#N/A1.46%-1.78%-0.03%p2.04%0.39%0.01%p
STCube Inc052020781.45%0.82%0.01%p3.62%1.94%0.07%p
Chemtronics Co Ltd089010#N/A1.45%-1.14%-0.02%p3.23%-0.21%-0.01%p
Source: KRX & KOFIA
Top 20 loan balanceTickerK150Short1W Δ1W Δ %pLoan1W Δ1W Δ %p
KMW Co Ltd0325001264.83%-0.10%0.00%p14.02%18.42%2.18%p
HLB Inc028300824.57%1.26%0.06%p10.92%4.51%0.47%p
Easy Holdings Co Ltd0358101130.46%0.58%0.00%p8.08%3.57%0.28%p
Anterogen Co Ltd065660720.59%1.17%0.01%p7.44%-3.19%-0.25%p
Medipost Co Ltd078160420.84%-0.17%0.00%p7.36%1.90%0.14%p
Intops Co Ltd049070#N/A0.07%0.00%0.00%p7.33%-28.64%-2.94%p
Ecopro Co., Ltd.086520860.74%-5.99%-0.05%p7.04%1.68%0.12%p
Kuk Il Paper MFG Co Ltd078130171.92%3.92%0.07%p6.75%1.77%0.12%p
NHN KCP Corp06025090.09%23.86%0.02%p6.72%2.53%0.17%p
Jusung Engineering Co., Ltd.0369301180.42%-9.99%-0.05%p6.52%2.24%0.14%p
PearlAbyss Corp2637501420.43%284.98%0.32%p6.52%394.02%5.20%p
Seegene Inc096530660.67%-2.59%-0.02%p6.16%23.97%1.19%p
PARTRON Co Ltd0917001411.41%-26.86%-0.52%p6.11%12.15%0.66%p
Genic Co Ltd123330#N/A0.33%0.00%0.00%p6.07%-0.13%-0.01%p
TSE Co Ltd131290#N/A0.07%0.00%0.00%p5.88%-11.63%-0.77%p
MedyTox Inc086900410.60%2.17%0.01%p5.86%-0.01%0.00%p
DAWONSYS CO., LTD068240260.76%1.00%0.01%p5.86%-6.62%-0.41%p
JYP Entertainment Corp03590060.57%96.86%0.28%p5.84%-1.89%-0.11%p
Cafe24 Corp0420001231.21%10.81%0.12%p5.59%1.83%0.10%p
L&K Biomed Co Ltd156100#N/A0.05%53.16%0.02%p5.35%-0.79%-0.04%p
Source: KRX & KOFIA

In the run-up to the May 3 short-selling resumption, we should probably focus on gainers in loan interest, which often serves as a leading indicator of short-selling.

Last week, the biggest gainer was Pearl Abyss, with a 5.2%p increase to 6.52% of the SO. Kyhyoung and KMW follow distantly, with 3.24%p and 2.18%p, respectively.

The market seems to be interested in shorting Pearl Abyss on the recent bounce, largely resulting from the stock split event.

Top 20 loan balance gainersTickerK150Short1W Δ1W Δ %pLoan1W Δ1W Δ %p
PearlAbyss Corp2637501420.43%284.98%0.32%p6.52%394.02%5.20%p
Kohyoung Technology Inc098460151.10%387.22%0.87%p4.04%405.32%3.24%p
KMW Co Ltd0325001264.83%-0.10%0.00%p14.02%18.42%2.18%p
Victek Co., Ltd.065450#N/A0.19%-73.11%-0.53%p2.64%132.44%1.51%p
Seegene Inc096530660.67%-2.59%-0.02%p6.16%23.97%1.19%p
Ace Technologies Corp.088800810.82%-0.75%-0.01%p3.67%40.14%1.05%p
HLB Life Science Co Ltd067630831.32%-1.60%-0.02%p4.62%23.87%0.89%p
Bosung Power Technology Co., Ltd.006910#N/A1.05%-0.11%0.00%p2.43%51.56%0.83%p
Alteogen Inc196170740.26%39.89%0.07%p3.20%34.31%0.82%p
Helixmith Co Ltd0849901470.78%-0.71%-0.01%p4.89%15.94%0.67%p
PARTRON Co Ltd0917001411.41%-26.86%-0.52%p6.11%12.15%0.66%p
Deutsch Motors Inc067990#N/A0.89%2.00%0.02%p2.81%29.96%0.65%p
Kakao Games Corp2934901220.00%-100.00%-0.01%p4.08%18.68%0.64%p
Youngsin Metal Industrial007530#N/A0.00%#DIV/0!0.00%p0.98%171.75%0.62%p
Eone Diagnomics Genome Center Co Ltd245620#N/A0.32%127.91%0.18%p1.46%69.18%0.60%p
Huons Global Co Ltd084110#N/A0.08%-10.97%-0.01%p1.23%85.37%0.57%p
FORMETAL CO., LTD.119500#N/A0.00%#DIV/0!0.00%p2.11%36.06%0.56%p
LET Co Ltd297890#N/A0.00%#DIV/0!0.00%p0.52%#DIV/0!0.52%p
HLB Inc028300824.57%1.26%0.06%p10.92%4.51%0.47%p
Fantagio Corp032800#N/A0.31%400.00%0.25%p0.58%307.70%0.44%p
Source: KRX & KOFIA

Lawson: Primed for Mitsubishi to Take Full Control

By Oshadhi Kumarasiri

Mitsubishi Corp (8058 JP) has had a longstanding interest in Japan’s third largest convenience store chain, Lawson Inc (2651 JP), for quite some time, lifting its stake in Lawson to 50.1% from 33.4% in 2016 via a tender offer at ¥8,650 per share.

With Itochu Corp (8001 JP) acquiring 100% of FamilyMart Co Ltd (8028 JP) mid-way through last year and Seven & I Holdings (3382 JP) standing strong on its own, Lawson has become even more important to Mitsubishi’s food processing and distribution businesses. At 1.35x Topix, Lawson is currently trading at a new historical low level relative to the Topix index and could perhaps lure Mitsubishi into taking full control.


SK BioS Lockup Release Today: FO Drop Can Signal a Tight Supply for Passive Mirroring K200

By Sanghyun Park

The second batch of the lockup releases hit the market today on Monday.

3,118,610 shares represent 4.08% of the SO and 24.71% of the offering allocation, bringing up the float total from 12.11% to 16.19%.

This would be the first real overhang test on the price. 

SK BioS lockup expirationsQty% of SO% of allocationAccuDate
1 year5.87%100.00%2022-03-19
6 months3,948,10073.59%31.28%94.13%2021-09-19
3 months3,331,0004.35%26.39%20.54%2021-06-19
1 month3,118,6104.08%24.71%16.19%2021-04-19
15 days364,3800.48%2.89%12.11%2021-04-02
Immediate8,897,51011.63%11.63%2021-03-18
Source: KRX & DART

Before it’s here, it’s on Smartkarma

Event-Driven: Toshiba Corp, LG Chem Ltd, Samsung Electronics, Kasikornbank PCL and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Last Week in Event SPACE: Toshiba, Grab, Huarong, Invesco Office, Intouch, Jardines
  • LG Chem Share Class Arb Presents Another Mid-March-Like Juicy Setup
  • Samsung Inheritance Tax Event: Why Market Being Bearish on Samsung Electronics?
  • Index Rebalance & ETF Flow Recap: GPFG, KBANK, CSI300, Adani, NIFTY50, Taiwan50, ASX200

Last Week in Event SPACE: Toshiba, Grab, Huarong, Invesco Office, Intouch, Jardines

By David Blennerhassett

Last Week in Event SPACE

  • The King Is Dead, Long Live the King: Toshiba Corp (6502 JP) announces Kurumatani-san is out and Tsunakawa-san is in.
  • 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

Toshiba Corp (6502 JP) (Mkt Cap: $19bn; Liquidity: $170mn)

Toshiba’s board supported Kurumatani-san, and has supported his lack of progress and capital plans. It has supported a certain lack of transparency. It supported Kurumatani-san’s objections to the new investigation. But if shareholders don’t trust Kurumatani-san, or the Board’s support of him, and a majority of the senior-most executives distrust the CEO too, then they must distrust the influence he has had on the Board. This cannot be good for the Board and the combination of shareholder activism and senior executive opinion has to be seen as something which could trigger dramatic change. and sure enough, Kurumatani-san is shown the door.

  • The Trade is still to be long. If a PE deal goes through, it should go through well north of ¥5,000/share. While a PE deal seems difficult because of national security concerns, they should be allayed with the right structure and funding. CVC’s talk about involving JIC and DBJ to support funding could lay out a model for KKR and Brookfield  – both rumoured to be kicking tires – to follow.  Fundamentally, there is upside to good execution and good governance. Multiples could definitely rise to match those of rivals which would get the stock well into the ¥6xxx handle. We have multiple private equity funds looking. While a ¥6xxx handle was noted in the press earlier this week, a ¥7xxx handle is appropriate if Kioxia is still part of the asset base being bought. 
  • METI’s involvement in Toshiba’s downfall, while bad, is now overshadowed by METI’s involvement in what are now governance issues. It may be that METI itself would rather see the company taken over and everything cleaned up behind the curtain of private ownership rather than have it play out with public, activist ownership.
  • As Mio Kato has noted repeatedly, the Toshiba Next Plan is not going badly at all. The track Toshiba is on is decent, and if it plays out with better capital allocation that would be all to the good. There is a Kioxia monetisation to wait for. If Coinbase which earns much less than Kioxia as an avatar of technology and the lower cost of fintech disruption of traditional markets can list at US$100bn, then there is money to buy the maker of a scarce commodity.
  • In addition, there is STILL a buy of 15,000,000 shares to complete the TOPIX upweight at the close of 28 April.  If you think that the significant large activists in the stock now will not be sellers because push is coming to shove and they won’t sell before the conclusion, that means the actual float willing to sell is quite a bit smaller than people think it is.

Links to:
Travis Lundy‘s insights: Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast & Toshiba – The King Is Dead, Long Live the King
Mio’s insight: Toshiba – How the Kurumatani Resignation and KKR or Brookfield Bids Could Change Things
David Lepper‘s insight: Toshiba Corp (6502 JP) Chapter 1: CEO Out, Activists up the Game

Invesco Office J Reit (3298 JP)  (Mkt Cap: $1.7bn; Liquidity: $14mn)

Invesco announced that it was asking Starwood Capital Group for an extension of their Tender Offer (launched a week ago) to 60 days. The “problem” is that Starwood is planning on squeezing out minorities in such a way as to not grant them appraisal rights. The concerns are that the squeeze-out will be carried out through procedures that do not give dissenting unitholders an opportunity to express their objections; and that a Mandatory Squeeze-Out is not Anticipated under the Investment Trust Act. The Investment Trust Act does not afford unitholders protections enjoyed by shareholders under the Companies Law, and METI Fair M&A Guidelines are not followed in this case. 

  • The request for an extension is made. It is not, to Travis’ knowledge, absolutely required that the Bidder honour the request for the full 60 days, but he would expect an extension of a certain length. 
  • This is DEFINITELY not a done deal for Starwood. It would make more sense for Invesco J-REIT holders to sell their shares at an uplift in return for shares in another REIT. Travis still thinks Ichigo Office Reit Investment (8975 JP) is the most likely candidate. 
  • Travis would be happy being long here for the short-term, but longer-term, there is a non-negligible possibility that this doesn’t get past the minimum tendering threshold.  At ¥20,840, the shares are 2% through Terms + Dividend. This is somewhat strong for a low-volatility asset in Japan – especially one in uncharted waters. At the end, there could be a game of chicken played between a buyer or buyers and the Bidder.

(link to Travis’ insight: Invesco Office J-REIT Responds to Starwood’s Hostile Offer)

Jardine Matheson Holdings (JM SP) (Mkt Cap: $23bn; Liquidity: $23mn)

The vote at Jardine Strategic Holdings (JS SP)‘s special general meeting was a foregone conclusion. The resolution as set out in the Notice of Special General Meeting contained in the Circular to shareholders on 18 March 2021 was duly passed. 92% of shareholders voted for the resolution. I understand 966.563mn shares voted FOR the resolution, 85.549mn AGAINST, and 55.282mn did nothing. So the turnout was 95%.  Turnout ex-Matheson was ~70%. The maximum dissension is 7.8% of shares out.

  • Collapsing the circularity and removing its quirky complexity may continue to drive interest (from LOs) in Matheson, especially with certain listcos (MAND, HKL, JCNC) trading cheapish.
  • Yet a 14% discount is not particularly attractive for a vast holding company structure. Plus the governance-lacking aspects of the UK’s Standard listing have been laid bare. A derisory offer for Matheson down the track is a real possibility. 

Mainstream Group Holdings Ltd (MAI AU)  (Mkt Cap: $0.2bn; Liquidity: <$1mn)

On 9th March 2021, Australia-based third-party fund administration services provider Mainstream announced they had signed a Scheme Implementation Deed to be acquired by Hong Kong-headquartered Vistra in an all-cash deal that valued the company at a market cap of ~A$170mn. The Offer Price was A$1.20 per share.  MAI has now announced that they had received a superior bid from US-based financial technology company Ss&C Technologies (SSNC US) at an Offer Price of A$2.00/share. 

  • SS&C’s proposal requires the Vistra Scheme Implementation Deed (SID) to be terminated. MAI has notified Vistra about SS&C’s proposal and Vistra has until 16th April 2021 to respond.  Vistra has a matching right and they can decide to match or overbid. If Vistra decide not to exercise their matching right but decide to exercise their call option deeds that Vistra entered into with entities controlled by MAI directors, they will have to vote all shares it received in favour of SS&C’s proposal. Vistra will hold approximately 19.9% as a result of this transaction. 
  • SS&C’s proposal translates to a FY21E EV/EBITDA multiple of 24.2x which is a significant improvement on the EV/EBITDA multiple of 14.2x offered by Vistra. However, it is worth remembering that MAI is a high-growth company with an expected EBITDA CAGR of 28%+ for FY21E-FY23E. If Vistra or another competitive bidder decide to overbid, this situation could become more interesting. 
  • Janaghan Jeyakumar would be long at or below the current trading price. MAI shares are currently at A$1.975 translating to a gross spread of 1.27%. According to the Indicative Timeline provided in the Official Announcement, the Deal is expected to complete in ~3 months. That translates to an annualized spread of 5.1%. In the absence of an overbid by Vistra (or another competitive bidder), Janaghan expects this Deal to complete. 

(link to Janaghan’s insight: Mainstream (MAI AU): Massive Overbid by SS&C, Now Vistra Has to Respond)

Zhejiang Cangnan Instrument (1743 HK)‘s Offer Document has been despatched with the IFA concluding the Offer price to be fair and reasonable. The EGM will take place on the 17 May and the first closing date is the 31 May. As discussed in Zhejiang Cangnan (1743 HK): H-Share Buyback, given the company’s dubious price action last year and shareholder concentration, I would normally give this stock a wide birth. But it is precisely this shareholder concentration that the Offer has an excellent chance of getting up.  Including the 90% tendering condition.

In Square Enix – CTFN Reports M&A Interest, Mio is sceptical as to the CTFN report that Square Enix Holdings (9684 JP) is the subject of M&A interest from a variety of companies. His suspicion is that there are some companies sniffing around Square Enix which would make sense because it is relatively cheap and has some great and unique assets. But he doesn’t think it is available for sale and we do think that Sony could defend it relatively easily.

The share purchase agreement entered into between Zhuhai SASAC and Di Er Ton /Digital Science & Technology, to acquire domestic shares in mobile device manufacturer Beijing Digital Telecom (6188 HK) has now completed. The MGO has subsequently been triggered. The MGO has a 50% tendering condition – attached to ALL voting rights of Beijing Capital. No irrevocables have been received to date. The Composite Document is expected to be despatched by the 16 April, at which time the Offer will be open for acceptances. Link to my insight: Beijing Digital (6188 HK): Zhuhai SASAC’s MGO On Track.

EVENTS

Grab (0967655D SP) 

The proposed transaction with Altimeter Growth Corp (AGC US) represents an expected equity value of US$39.55bn and EV of US$30.36bn, with cash proceeds of US$4.54bn. In past insights on SPACs, beginning with Virtual IPOs/Direct Listings: Uninhibited Price Discovery, one issue for SPACs is their overabundance in the market today, targeting popular private companies. As such, popular private companies can tee up “SPAC-offs,” where various SPACs pitch their deal, competing (mostly) on price.  The higher the acquisition price, the lower the future return for SPAC investors.

  • And Grab has competition. Its main rival is Indonesia’s Gojek (1379371D IJ), and the two courted each other around February last year before irreconcilable differences led to them parting ways in January this year. There is talk Gojek will merge with e-commerce payer Tokopedia and similarly seek a US listing. Mobile gaming and online shopping platform player Sea Ltd (SE US) is also in the mix, and currently boasts a non-insignificant market cap of US$125bn.
  • Pegging the various business ops – mobility, delivery – to peers, one would end up with a lower multiple than what the business is being offered at.

Links to:
Sumeet Singh‘s insight: Grab SPAC Listing – High on Ambition, Very High on Valuation
my insight:  SPAC Grab … At 2x Uber
Shifara Samsudeen‘s insight: Grab: SOTP Suggests Steep Discount to Proposed SPAC Valuation

China Huarong Asset Management (2799 HK)  (Mkt Cap: $5.1bn; Liquidity: $4mn)

Huarong was originally set up in 1999 by Beijing, in response to the Asian financial crisis,  to bail out a State-owned bank – ICBC – before listing. Rumours abound the State may resort to bailing out Huarong or risk a domino effect of losses at other (state-owned) entities which have lent to Huarong. The bailer becomes the bailee?

  • Reportedly a restructuring of Huarong, modeled on the May 2019 government-led bailout of Baoshang Bank, was proposed earlier this year, involving a takeover from a counterparty, and the PBOC opening up the spigots. Part of that plan allegedly involved recovering RMB350bn of Huarong’s outstanding bonds at around par.
  • Alternatively, Huarong is broken up into its securities, banking, trust, and futures divisions – operations deemed “good assets” worth maintaining. And divisions that boast necessary permits. Another asset manager would then step in and take over the running of Huarong as an AMC.
  • With the benefit of the restructuring of Baoshang Bank – and Anbang and Evergrowing Bank – China has developed a mature process to address a situation such as Huarong’s. A more measured de-risking approach is likely here as opposed to a less-than-optimal major debt restructuring, which may result in an unnecessary domino effect for financial companies and creditors of its RMB 350bn of liabilities.
  • I don’t have a strong opinion on Huarong’s equity here, although its P/B of 0.25x compares to its average of 0.5x since listing. But the offshore bonds look like the wrong price.
  • Reuters are now reporting that Chinese regulators have asked banks not to withhold loans to Huarong as part of support measures to stabilize its cash flow. 

(link to my insight: China Huarong Asset Management (2799 HK): This Is Manageable)

In two SCMP articles on the 7 April, PRC media tycoon Li Ruigang, Television Broadcasts (511 HK)‘s largest shareholder (via Young Lion Holdings), discussed his dissatisfaction with TVB’s performance. Unqualified voting controllers – such as Li – at general meetings of TVB are capped at 49%, however, I believe there could be major changes in the Broadcasting Ordinance.  It could be argued that even if that were the case, any reform would occur at a glacial pace – it took the Communications Authority 28 months to review TVB’s shareholding structure. But in TVB (511 HK): Small Screen Saver, I surmise that the accelerated rate at which legislature and reform are occurring in this city, a revamp, should it come, may occur quickly. TVB is very beaten up. Li has a plan, it would seem – one that fits in with CMC’s listing in a couple of years. If he is given the green light, shares will pop, if not on the economics, but at least on sentiment.

A recent internal discussion paper, authored by an executive committee member of the Bauhinia Party – pro-Beijing political party with close links to Beijing’s authorities – refers to the housing issue in Hong Kong, wherein the gap between the rich and poor is widening, causing social unrest to the point of “threatening the security of one country“. The paper indicates the Central government has the right to coordinate the supply of land in Hong Kong. Expropriation would be in flagrant violation of Basic Law protection of private property. But the precision and speed with which legislature and reform are taking place in Hong Kong, such a possibility is all-too-believable. In Hong Kong Property Developers: Eminent Domain I canvass previous attempts to address Hong Kong’s farmland, and see Henderson Land Development (12 HK) has the most to lose from any such extraordinary measure, followed by New World Development (17 HK)

In SK Telecom Equity Spinoff Announcement: Summary, Takeaways, & Price Impact and SK Telecom Officially Announces a Spin-Off to Create a Holding Company Structure, Sanghyun Park and Douglas Kim discuss SK Telecom (017670 KS) finally announced its long-awaited decision to create a new holding company for its non-telecom related subsidiaries

STUBS

I see the discount to NAV at ~12%, versus a one-year average of 21% and a long-term average of more than 25%. By my estimate, the discount to NAV has never been narrower. And the simple ratio (Intouch/Advance) is also at an all-time extreme; with the implied stub around levels only briefly touched previously, before later retracing.

  • Gulf’s holding is problematic and breaks every guideline in corporate governance 101. Intouch is on record that Gulf’s stake in the company is “positive”, reflecting Intouch’s dividend yield and favourable business direction; yet cash outlayed of ~Bt30bn should have been distributed to Gulf shareholders as a dividend – and it is for those shareholders to decide whether to invest in Intouch, not Gulf’s management.
  • Gulf’s buying appears to be done, for now.  I did not expect Gulf to lift its stake from 5% to 10%, then again to 15%, therefore it is difficult to rule out further increases. It is now two and half months since the last stake increase.
  • I’d be shorting Intouch here and buying AIS. I think a more reasonable discount to NAV is >20%. 

M&A – US

Hollysys Automation Technology (HOLI US)  (Mkt Cap: $0.8bn; Liquidity: $5mn)

What a mess. On the 1 February a consortium including co-founder and former Hollysys CEO Baiqing Shao, Ace Funds, and Chinese PE outfit CPE Funds Management bumped its Offer for Hollysys to US$17.10 from US$15.47. Hollysys has yet to make public its opinion on the revised Offer, other than there is no need for shareholders to “take any action at this time”. But the big issue concerns the legal dispute over the beneficial ownership of the Hollysys’ shares held by Ace Lead and the beneficial ownership of the shares of Ace Lead held by Shao, Hollysys announced a legal action had commenced in the Hong Kong High Court against Shao and Ace Lead on March 9, 2021.
  • Cases are ongoing in both Hong Kong and the BVI.  I am no legal expert, and it is not clear how the validity and enforceability of this pans out as to the claims in the BVI – where Hollysys is domiciled – or the Hong Kong Court. Hollysys appears to be claiming the shares held by Ace Lead are held in trust and that Shao is simply not the beneficial owner. Hollysys has also requested that the trial of the lawsuit should take place on an expedited basis in July 2021. Don’t expect any major developments until the conclusion of this trial.
  •  I estimate forward PER/EV-to-EBITDA of 9.0x/2.8x under the indicative proposal, and a PER/EV-to-EBITDA/PBR of 13.1x/3.3x/1.1x on a trailing basis. Before factoring in the large net cash pile –  US$682mn or 88% of the current market cap. Hollysys shares appear substantially undervalued, as does the indicative Offer. 
  • I agree with CPE that the board of Hollysys should convene a shareholder meeting for its shareholders to consider and vote on the consortium’s proposal. It has a fiduciary duty to do this. But such a meeting should only take place once the legal spat has concluded. Shares are cheap here, and may drift cheaper, until a firmer timeline of the legal wrangles unfolds. I suspect CPE will continue to flame the situation with additional press releases in the interim.

On March 26, 2021, MagnaChip Semiconductor Corp (MX US) entered into an agreement to be acquired by Wise Road Capital in all-cash go-private transaction of $29/share. With the prevailing share price of $25.29 as at the close of business on April 12, 2021, the spread at ~15% offers a potentially attractive IRR of between 20% and 32% should the transaction close by the end of December or September. In MergerTalk: Magnachip Semiconductor Corp (MX US)-Wising Up To An Attractive Risk-Arb OpportunityRobert Sassoon lays out why think the spread indicates a rewarding risk-arb opportunity.

M&A – EUROPE

On 13 April, Orange SA (ORA FP) announced that its €22/share offer for Orange Belgium (OBEL BB) was final. The offer price implies 5.1x EV/21E EBITDA (below the median of peers at 5.9x, see table above) and 9.7% 21E FCF yield (source Capital IQ consensus), and 2.2% dividend yield. The market seems to think there are grounds for an improved offer, as the share price is still above the offer price. In Orange Belgium – Orange: Final Offer and Holdouts, Jesus Rodriguez Aguilar recommends buying on any dip below the offer price.

Veolia Environnement SA (VIE FP) has increased its Offer for Suez (SEV FP) from €18 per share to €20.5 per share. The improved offer represents1.5x EV/Fwd revenue, 8.1x EV/EBITDA, 27.4x Fwd P/E, and an implied EV of €25,574 mn and implied equity value of €13,103.6 mn. In Suez – Veolia: Peace Pipe, Jesus reckons this is a rock solid trade, albeit the gross spread is an unexciting 3.2% on a deal that may take up to a year from now to close. Long TP €20.5, and monitor to add on any dip.

SHARE CLASS

In Ping An A/H Premium: Nearing a Discount; Set Up for Expansion, Brian Freitas highlights Ping An A-shares Ping An Insurance Group Co Of China (601318 CH) are trading at parity versus the H-shares Ping An Insurance (H) (2318 HK), suggesting the risk/reward is skewed in favour of buying the A-shares and selling the H-shares.

INDEX REBALS

Kasikornbank PCL (KBANK TB) is included in the MSCI Standard index through its foreign line Kasikornbank PCL (KBANK/F TB) and the NVDR Kasikornbank PCL (KBANK-R TB). In Kasikornbank (KBANK TB) – Double Whammy, Brian sees a high probability of the foreign line being deleted at the upcoming May SAIR since it fails the EM Minimum Liquidity Requirement. There is also a possibility of a reduction in the Foreign Inclusion Factor (FIF) on the Non-Voting Depository Receipt (NVDR) line if the foreign room stays below 15% on the price cutoff date.

China Securities Index Co will announce the changes end May/beginning June and the changes will be effective after the close of trading on 11 June. In CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off, Brian expects 30 changes at the upcoming June 2021 index review – this is the maximum number of changes that are permitted at a single review. Estimated one-way turnover is 4.08% and will result in a one-way trade of CNY 10.8bn.

NIFTY50 Index Rebalance Preview. At more than a third of the way through the review period that runs from February to July, in NIFTY50 Index Rebalance Preview: Info Edge Could Replace IOC Brian sees one possible change to the index with Info Edge India (INFOE IN) replacing Indian Oil Corp (IOCL IN). There could be more changes if some large stocks like Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) are included in the Futures & Options (F&O) segment of the market. Vedanta Ltd (VEDL IN) does not make the cut for index inclusion following the 10% reduction in its free float following the open offer.

FTSE TWSE Taiwan 50 Index Rebalance Preview. The next quarterly rebalance will be effective after the close of trading on 18 June and the changes will be announced on 4 June. Data from close of trading on 24 May will be used to determine the list of inclusions and exclusions. Using data from the close of trading on 15 April, Brian reckons in FTSE TWSE Taiwan 50 Index Rebalance Preview: Price/Volume Surge Brings Three Potential Changes that Evergreen Marine Corp (2603 TT)AU Optronics (2409 TT), and Innolux Corp (3481 TT) will be added to the index at the June review, while the three deletions are Wiwynn Corp (6669 TT)Taishin Financial Holding (2887 TT) and Catcher Technology (2474 TT).

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

Janco (8035 HK)10.00%KingswaySilverbricks
Speed Apparel (3860 HK)75.00%ElstoneOutside CCASS
Anchorstone (1592 HK)64.99%Get NiceYuzhou
Tianyun International Holdings (6836 HK) 27.00%China GalaxyOutside CCASS
K Group (8475 HK)25.02%EasyOutside CCASS
Kinetix (8606 HK)33.75%ZundiaoLee Go
Wang On (1222 HK) 32.36%UBSKingston
Sandmartin Intl Hldgs (482 HK) 25.39%SHKMorton
Source: HKEx

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

Name

% chg

Into

Out of

Mediawelcome (2159 HK)51.76%CitiOutside CCASS
JHBP (Genor) (6998 HK) 11.76%St ChartOutside CCASS
Channel Micron (2115 HK)13.40%MasonOutside CCASS
Source: HKEx

LG Chem Share Class Arb Presents Another Mid-March-Like Juicy Setup

By Sanghyun Park

LG Chem 1P is again at -2σ on a 20D MA relative to Ord. A -2σ level is hit for the first time since mid-March.

1P discount now sits at 54.79%, only 2%p lower than the 1-yr high.

% of sigma
Today-193.39%
T-1-153.34%
T-2-94.57%
T-39.28%
T-486.46%
T-555.98%
Source: KRX
MetricPrice ratio1P discountΔ
Today0.4520654.79%
120D mean0.4707552.92%-3.97%
120D median0.4687953.12%-3.57%
120D high0.5231747.68%-13.59%
120D low0.4321956.78%4.60%
1Y mean0.4840751.59%-6.61%
1Y median0.4833351.67%-6.47%
1Y high0.5763942.36%-21.57%
1Y low0.4321956.78%4.60%
2Y mean0.5078749.21%-10.99%
2Y median0.5054149.46%-10.56%
2Y high0.5825841.74%-22.40%
2Y low0.4253757.46%6.27%
Source: KRX

Samsung Inheritance Tax Event: Why Market Being Bearish on Samsung Electronics?

By Sanghyun Park

The April 30 tax report/payment deadline is around the corner.

The Samsung Lee family must report all of the inheritance tax to the local tax authorities by April 30.

They are also obligated to pay at least one-sixth of the total by then if they opt for a 5-year grace period option, which is very likely at this point.

So, it works like this:

  • One-sixth by April 30
  • The reminder (five-sixth) in 5 annual installments (an equal one-sixth) at an interest rate of 1.8% per annum

Tax amount estimations

Inheritance tax on listed company equity is calculated based on the average of 4-month daily closing prices: 2 months before and 2 months after the passing. The calculation period is August 25 to December 25.

At the 2M average prices, it comes at ₩19.1T.

Lee Kun-hee’s shareholding (₩B)TickerShares%60D avg price on Aug 25~Dec 25Value (₩B)
Samsung Electronics Co Ltd005930249,273,2004.18%₩62,78915,651.7
Samsung Electronics Co Ltd Preference Shares Non Voting005935619,9000.08%₩56,15434.8
Samsung Life Insurance co., Ltd03283041,519,18020.76%₩66,7072,769.6
Samsung C&T Corp0282605,425,7332.90%₩115,208625.1
Samsung SDS Co Ltd0182609,7010.01%₩173,3451.7
– Total19,082.9
Source: KRX

The late Lee’s artwork collection is estimated at ₩2.8T, and his other assets (real-estates and cash) are valued at ₩2T.

All combined, the total gross taxable amount comes at ₩23.9T, which then spits out a total inheritance tax of ₩12T after deductibles and extra charges at a 60% tax rate.

Inheritance tax (₩B)
Total shareholding value19,082.89
Artworks2,800.00
Real-estates & cash2,000.00
Total gross taxable23,882.89
Taxable after various deductibles (70%)16,718.03
20% extra charge (management premium)20,061.63
Inheritance tax at a 60% tax rate12,036.98
Source: KRX FIND, Chosun, & Korean NTS

Unless specified in the will, the inheritance will go at a 1/3 (spouse) to 2/3/N (each child) ratio.

The inheritance tax burden for each family member (₩B)
Total Inheritance tax12,036.98
 – Lee JY (oldest)2,674.88
 – Lee Bu-jin (second)2,674.88
 – Lee Seo-hyun (third)2,674.88
 – Hong Ra-hee (spouse)4,012.33
Source: KRX FIND & Korean NTS

Index Rebalance & ETF Flow Recap: GPFG, KBANK, CSI300, Adani, NIFTY50, Taiwan50, ASX200

By Brian Freitas

In this weeks recap, we look at:

There were large inflows into China focused ETFs with SSE50 Index (SSE50 INDEX) and Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) linked funds taking in the most inflows.

Events this week

Close of

Index

Detail

19 April
FTSE GEIS

Increase in number of shares Trip.com (TCOM US)

19 April
21 April

Before it’s here, it’s on Smartkarma

Event-Driven: Grab, Square Enix Holdings, Hanwha Systems Co Ltd, Hollysys Automation Technolo, Carlsberg A/S, Redbubble Ltd, UniCredit SpA and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Grab: SOTP Suggests Steep Discount to Proposed SPAC Valuation
  • Square Enix – CTFN Reports M&A Interest
  • Hanwha Systems Rights Offer: Outright Trade on Subs Rights Ahead of Ex-Rights
  • Hollysys (HOLI US): CPE Heightens Its Case Amid Shareholding Dispute
  • Liquid Universe of European Ordinary and Preferred Shares: April Report
  • ASX200 Index Rebalance: Redbubble to Replace Coca Cola Amatil; More Changes in June
  • Southern Europe Banks: Focus on Italian Banks M&A

Grab: SOTP Suggests Steep Discount to Proposed SPAC Valuation

By Shifara Samsudeen, ACMA, CGMA

The ride-hailing giant Grab (0967655D SP) announced on Tuesday (13th April 2021) that it plans to go public in the US via a SPAC merger with Altimeter Growth Corp (AGC US)  at a proposed valuation (pro-forma) of approx. US$39.6bn.

In our previous insight on Grab’s SPAC deal, we discussed the company’s growth prospects and its financials. In this insight, we examine the company’s valuation using a SOTP.


Square Enix – CTFN Reports M&A Interest

By Mio Kato

Square Enix is up 13% today as Bloomberg has reported that M&A Reporting company CTFN has said that Square Enix is the subject of M&A interest from a variety of companies, according to two investment banking sources.


Hanwha Systems Rights Offer: Outright Trade on Subs Rights Ahead of Ex-Rights

By Sanghyun Park

We are one trading session before the 1st-round pricing for the Hanwha Systems ₩1.2T offers.

The pricing is next Monday, April 19. 

Timetable
Preliminary pricing2021. 4. 19
Ex-rights date2021. 4. 21
Record date2021. 4. 22
Subscription rights trade beginning2021. 5. 13
Subscription rights trade ending2021. 5. 20
Final pricing2021. 5. 31
Listing2021. 6. 23
Source: DART
Pricing
1st roundRP × (1 – 15%) / [1 + (71.39% × 15%)]
– Reference price (RP)Min [Close, Avg (Close, 1W VWAP, 1M VWAP)]
– Reference date2021. 4. 19
Ex-rights base price[RP + (1st × 71.39%)] / (1 + 71.39%)
– Reference price (RP)Previous close
– Reference date2021. 4. 21
2nd roundRP × (1 – 15%)
– Reference price (RP)Min [Close, Avg (Close, 1W VWAP)]
– Reference date2021. 5. 31
FinalMax [Min (1st, 2nd), 3D VWAP × 60%]
– Reference date2021. 5. 31
Discount rate15.00%
Capital increase rate71.39%
Source: DART

As I’m writing this post, the share price is ₩20,150 with a 1W VWAP of ₩20,120 and a 1M VWAP of ₩20,829, giving a preliminary RP of ₩20,150.

The 1st round offering price then arrives at ₩15,500 at a discount rate of 15% and a capital increase of 71.39%.

1st round pricing
Date2021. 4. 19
Previous close₩20,150
1W VWAP₩20,120
1M VWAP₩20,829
– Average₩20,366
Reference price₩20,150
1st round price₩15,500
Source: DART
Ex-rights base price
Date2021. 4. 21
Previous close₩20,150
1st round₩15,500
Ex-rights base price₩18,300
 – % to close-9.41%
Source: KRX KIND

Hollysys (HOLI US): CPE Heightens Its Case Amid Shareholding Dispute

By David Blennerhassett

On the 7 December, 2020, a consortium including co-founder and former Hollysys Automation Technology (HOLI US) CEO Baiqing Shao, Ace Funds, and Chinese PE outfit CPE Funds Management pitched an unsolicited US$15.47/share cash Offer for Hollysys, a leading automation control system solutions provider in China, which was summarily rejected on the 8 January as the Offer “substantially undervalues the Company and is not in the best interest of the Company’s shareholders …. (and that it) would deprive our shareholders of the value inherent in Hollysys for inadequate consideration.”

Undeterred, the consortium bumped its Offer to acquire the company to US$17.10/share on the 1 February. Hollysys has yet to make public its opinion on the revised Offer, other than there is no need for shareholders to “take any action at this time”.

Concerning the legal dispute over the beneficial ownership of the Hollysys’ shares held by Ace Lead and the beneficial ownership of the shares of Ace Lead held by Shao, Hollysys announced a legal action had commenced in the Hong Kong High Court against Shao and Ace Lead on March 9, 2021.

In a press release on the 14 March, Shao Baiqing and Ace Lead Profits allege they had won a preliminary victory against Hollysys.

Hollysys countered these statements were highly misleading.  The fact is that the Court has yet to adjudicate on the validity of the claim brought by Shao and Ace Lead and the legality of certain amendments to the Memorandum and Articles of Association. 

The New News

CPE has critiqued Hollysys’ 1H21 results (to 31 December 2020), and concluded that:

It is clear that existing management and the board of directors of the Company do not know how to run the business successfully.

Quite the soap opera. Currently trading at a 34% gross spread to terms.

As always, more below the fold.


Liquid Universe of European Ordinary and Preferred Shares: April Report

By Jesus Rodriguez Aguilar

Trends

Discounts have generally tightened across the European space.

Recommended trades

  • Carlsberg A/S (CARLB DC) B shares (with 1/10th of the voting rights of the A shares) are trading at a 25.2% discount (12.5% by mid-March) vs. the A shares, demand for illiquid A shares seems to be the explanation. Maintain LONG B shares/short A shares on.

  • Bayerische Motoren Werke AG (BMW GR) exhibited a trend towards a reduction of the discount of preferred shares, until March 2020. The discount is trading in a range and is now 22.1% (vs. 20.7% by mid-March and 25.2% by mid-December). Maintain long BMW prefs, short common shares on, with a target of a 15% discount.

  • Fuchs Petrolub SE (FPE GR)‘s premium seems to vary within a range, which is probably liquidity related. It is 20.5% (vs. 19.6% by mid-March and down from 29.4% by mid-February and 34.4% in my October report). With over 50% of the ordinary shares, the Fuchs family maintains the majority vote. They have never stated they would consolidate and pride to be the number 1 among the independent suppliers of lubricants.

    Although there is no reason why the voting rights should be specially dear in Fuchs’s case, voting rights are still valuable and neither the dividend advantage of the preferred shares nor their being members of several midcap indexes (Prime Standard/MDAX; STOXX Europe 600; DAXplus Familiy 30) justify the large premium, in my view. Maintain the trade long common/short prefs on, with a 10% target.

  • Henkel AG & Co KGaA (HEN3 GR) shows a long-term trend towards a reduction of the premium of the preferred shares. The premium has recently widened and is now 14.9% (vs. 11.9% by mid-March). Maintain the trade short prefs/long common shares with a 10% premium target.

  • Voting rights are valuable in a company like Volkswagen (VOW GR). Prefs discount had recently widened to erstwhile levels: 16.6% (vs. 31.8% on 18 March, highest since November 2009). Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. That said, the ordinary shares are also liquid. The shareholder structure of Volkswagen is stable, and there seems to be no reason why the discount of the prefs should widen. Preference shares have in the past traded at a premium due to its higher liquidity and inclusion in stock indexes. Recommendation is long prefs/short ords, with the necessary health warning attached to any trading with Volkswagen share classes, as one can never be completely sure of the Porsche/Piech families’ plans. Plus it can be executed in size. The discount tightened since the March 2020 selloff, and has widened again over the last months, for no obvious reason. The only news that might be related is that Volkswagen is considering a separate listing of its Porsche sports car brand in a deal that could boost its valuation, according to Bloomberg.

  • Danieli & C. Officine Meccaniche (DAN IM):  the mandatory conversion and extraordinary dividend were approved on the shareholders meetings on 28 October. The conversion date is yet to be announced but expected soon. Since announcement, the adjusted spread has ranged between -5.48% and 7.69%. It is currently -1.25%. Long Danieli ords/short Danieli savings shares.
  • Telecom Italia Sp A (TIT IM) savings shares are trading at a 6% premium to ordinary shares (vs. a  7.6% premium by mid-March and 10.7% by mid-February). Challenging macro means that the financial privileges of the savings shares count. More importantly, the market may think of a conversion of savings into ords à la Buzzi Unicem or Danieli. Short savings/long ords.
  • Grifols SA (GRF SM) B shares are trading at a 36.1% discount (vs. 33.6% by mid-March and 39.7% by mid-February), there is a trend towards the tightening of this discount since March 2020 lows. The Covid-related antitakeover provisions issued by the Spanish Government mean that the voting rights are less valuable now. Moreover, the by-laws contain a poison pill that should significantly reduce the discount in case of a takeover attempt. Last but no least, “the markets can remain irrational longer than you can remain solvent.” The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares (traded on Nasdaq), short A shares (traded in Madrid). The target is a 27% discount. Please note there is FX risk, which can be hedged.

  • The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares is 13.8% (vs. 14.8% by mid-March). Although there is no catalyst in sight, I recommend setting up Long B shares/short A shares, with a target of >10% discount.

  • The discount in the Telefonaktiebolaget Lm Ericsso (ERICB SS) (Ericsson) B shares has tightened to 1.9% (vs. 4.7% by mid-March and 11% by mid-February). The discount is below my target. I would not be surprised if the B shares started trading at a premium.

  • Other than Industrivärden, the other major shareholder of SSAB AB (SSABA SS) is Solidium Oy (State of Finland). The reversal on the discount from June 2018 has no obvious explanation. The discount has tightened to 6.6% (vs. 7.8% by mid-March, 9.1% by mid-February and 13% by mid-January). I would short B shares and go long A shares.

  • The discount of non-voting Roche Holding AG (ROG SW) shares has widened to 5.1% (vs. 3.9% by mid-March), a level unreached since May 2012. The Hoffman family and related holds 45% of the voting rights (shareholder pooling agreement) whilst Novartis holds 33.3% of the voting rights.

  • The discount in Schroders PLC (SDR LN) has tightened to 27.4% (vs. 30.6% by mid-March and 34.1% by mid-February). I would set up long non-voting/short voting shares.

Please read on for table and charts.


ASX200 Index Rebalance: Redbubble to Replace Coca Cola Amatil; More Changes in June

By Brian Freitas

Post market close on 16 April, S&P Dow Jones Indices announced that Redbubble Ltd (RBL AU) would replace Coca Cola Amatil (CCL AU) in the S&P/ASX 200 (AS51 INDEX) following the shareholders of Amatil voting in favour of the Scheme of Arrangement pursuant to which all the shares held by independent shareholders would be acquired by Coca-Cola European Partners (CCEP US). The index change is subject to final court approval of Coca Cola Amatil (CCL AU)‘s Scheme of Arrangement and will be implemented at the close of trading on 21 April.

FTSE and MSCI have also announced the deletion of Coca Cola Amatil (CCL AU) from the FTSE All-World and MSCI Standard indices with effect from the close of trading on 21 April.

The data cutoff period for the next scheduled review of the S&P/ASX 200 (AS51 INDEX) in June ends on 28 May. S&P DJI will announce the changes on 11 June and the changes will be effective after the close on 18 June.

We see two potential changes currently with Orocobre Ltd (ORE AU) and Chalice Gold Mines (CHN AU) replacing Resolute Mining (RSG AU) and Austal Ltd (ASB AU).

De Grey Mining (DEG AU) is a close add and Perenti Global (PRN AU) is a close delete.


Southern Europe Banks: Focus on Italian Banks M&A

By Victor Galliano

  • CASA’s enhanced offer for Credito Valtellinese SpA (CVAL IM) confirms the appetite for M&A in Southern Europe, and Italy in particular
  • We expect Italian M&A to be largely intra-country, as the key factors driving consolidation is the need for greater domestic scale given the lower for longer interest rates, especially in Europe, as well as the march of digital banking globally
  • After Intesa Sanpaolo (ISP IM)-UBI, and now potentially the conclusion of CASA Italia-CreVal, the focus is on the future of Banca Monte dei Paschi di Siena (BMPS IM) 
  • A combination between Banco BPM SpA (BAMI IM) and BPER Banca S.p.A (BPE IM) now seems less likely; this implies that Banco BPM is a potential contender, once again, to combine with BMPS; the latter has largely de-risked its balance sheet, even if its core capital ratio is low
  • We would see a BPM-BMPS union as a major positive catalyst for a UniCredit SpA (UCG IM)  re-rating; even if Unicredit were to acquire BMPS, we believe that, at current valuations, a lot of the risks are discounted
  • Risks to our positive Unicredit view include Unicredit’s acquisition of BMPS on unfavourable terms, as well as worse than expected organic performance of revenue growth, given the challenging interest rate environment

Before it’s here, it’s on Smartkarma

Event-Driven: Toshiba Corp, Info Edge India, Invesco Office J Reit, LG Corp, Mainstream Group Holdings Ltd, Orange Belgium, Innolux Corp, Pearl Abyss and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Smartkarma Flash Webinar | Toshiba – Change Is Afoot
  • NIFTY50 Index Rebalance Preview: Info Edge Could Replace IOC
  • Invesco Office J-REIT Responds to Starwood’s Hostile Offer
  • LG Corp Split: Major Shareholder Cross Trading Dynamics
  • Mainstream (MAI AU): Massive Overbid by SS&C, Now Vistra Has to Respond
  • Orange Belgium – Orange: Final Offer and Holdouts
  • FTSE TWSE Taiwan 50 Index Rebalance Preview: Price/Volume Surge Brings Three Potential Changes
  • Pearl Abyss Post-Split D-Day Momentum Trading, Reflecting Kakao D-Day Movement

Smartkarma Flash Webinar | Toshiba – Change Is Afoot

By Smartkarma Research

In this flash webinar, Travis Lundy and Mio Kato talk through the recent goings-on at Toshiba Corp (6502 JP) and what it means for investors.

The webinar will be hosted on Thursday, 15/April/2021, 4.00pm SGT/HKT.

Travis Lundy has 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money.

Mio Kato has over 15 years of experience looking at Japanese and Asian cyclically driven sectors. He was previously with FrontPoint Partners LP, Arrowhawk Capital Partners, and Uzabase before founding LightStream Research.


NIFTY50 Index Rebalance Preview: Info Edge Could Replace IOC

By Brian Freitas

The NIFTY Index (NIFTY INDEX) is the flagship index of the National Stock Exchange of India (NSE). The index has 50 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 29 September 2021 and the announcement of the changes will be made four weeks prior to the effective date.

More than a third of the way through the review period that runs from February to July, we see one possible change to the index with Info Edge India (INFOE IN) replacing Indian Oil Corp (IOCL IN). There could be more changes if some large stocks like Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) are included in the Futures & Options (F&O) segment of the market.

Vedanta Ltd (VEDL IN) does not make the cut for index inclusion following the 10% reduction in its free float following the open offer.

Passive funds benchmarked to the NIFTY Index (NIFTY INDEX) will need to trade around 3 days of ADV on Info Edge India (INFOE IN) and Indian Oil Corp (IOCL IN). Plus there will be flow from active funds and from cash and carry baskets on the index.

Info Edge India (INFOE IN) trades at a valuation premium to its regional peers, while Indian Oil Corp (IOCL IN) trades at a discount to its domestic peers.

The big event to watch for is the potential inclusion of Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) in the F&O segment that will open the door for index inclusion.


Invesco Office J-REIT Responds to Starwood’s Hostile Offer

By Travis Lundy

Today after the close, Invesco Office J Reit (3298 JP) announced that it was asking Starwood Capital Group for an extension of their Tender Offer (launched a week ago) to 60 days, made an announcement establishing a Special Committee with appointed committee members and related consultations, and posted a Notice Concerning Statement of Opinion (Opinion Reserved) regarding the Tender Offer by Starwood Capital Group.

The Announcements

Announcement

English

(日本語)

Notice Concerning Announcement of Establishment of Special Committee, Appointment of Committee Members, and Consultation with Special Committee

👹

🤖

Notice Concerning the Request for Extending the Period of Tender Offer by Starwood Capital Group

👹

🤖

Notice concerning the Statement of Opinion (Reservation) on Tender Offer by Starwood Capital Group

👹

🤖

It’s an interesting response. It includes elements I had not expected but which are worthwhile. And the units are now trading 2.15% through Terms+Dividend.


LG Corp Split: Major Shareholder Cross Trading Dynamics

By Sanghyun Park

LG Corp continues to fly high. The share price is now only -7.14% from the 52H set on January 7.

LG Corp
Ticker003550
MC (₩B)19,067.6
DTV (₩B)32.3
Close₩110,500
Δ Daily8.87%
Open4.25%
High-4.74%
Low5.24%
x DTV4.18
TV (₩B)164.4
TV/SO0.86%
x Open10.37%p
52WH-7.14%
– Date1/7/21
52WL90.52%
– Date4/16/20
20D SMA20.23%
20D EMA17.09%
120D SMA24.52%
20D Δ24.86%
20D SD6.22%
120D Δ52.41%
120D SD14.30%
180D Δ52.20%
180D SD13.72%
RSI (14)78.89
%K81.61
%D90.99
Source: KRX

The trend will likely stay until the April 29~May 26 trading suspension unless we face a market systematic risk.

Schedule
Trade suspension begins4/29/21
Trade suspensino ends5/26/21
Re-listing5/27/21
Source: DART

Mainstream (MAI AU): Massive Overbid by SS&C, Now Vistra Has to Respond

By Janaghan Jeyakumar, CFA

On 9th March 2021, Australia-based third party fund administration services provider Mainstream Group Holdings Ltd (MAI AU) announced they had signed a Scheme Implementation Deed to be acquired by Hong Kong-headquartered Vistra in an all-cash deal that valued the company at a market cap of ~A$170mn. The Offer Price was A$1.20 per share. 

I discussed this situation in Mainstream Group (MAI AU): Go-Shop Provision Makes It Interesting argued that the Offer price appeared light on a growth-adjusted basis and that the bump probability was attractive. 

THE TRADE: I would get LONG at or below A$1.23 during the go-shop period. Since the fall to the undisturbed price is not very large and since the Offer Price appears light on a fundamental basis, I would be tempted to play ‘Bumpitrage’ during the go-shop period. (written 9th Mar 2021)

Almost a month later, on 12th April 2021, MAI announced that they had received a superior bid from US-based financial technology company Ss&C Technologies (SSNC US) at an Offer Price of A$2.00/share which translates to a 66.7% increase from Vistra’s original bid of A$1.20. 

More below the fold. 

For more information about M&A rules, regulations, and practices in Australia, please refer to Quiddity Australia M&A Guide 2019 and Quiddity M&A: Australia Foreign Investment Reforms 


Orange Belgium – Orange: Final Offer and Holdouts

By Jesus Rodriguez Aguilar

On 13 April, Orange SA (ORA FP) announced that its €22/share offer for Orange Belgium (OBEL BB) was final.

  • Orange Belgium share price closed 5.1% lower vs. the previous trading session.
  • According to the proposed schedule, the takeover bid offer will be open from 8 April to 23 April inclusive, and the results will be published on 27 April.

Polygon (holder of 5.29%, enough to prevent de-listing) said the offer price “substantially undervalues” the company.

It is difficult to argue that the offer was well-timed, following a period of underperformance from Orange Belgium, as can be seen in the chart below. As mentioned, Orange has a 52.9% stake in Orange. The opportunistic (in my view) bid was launched after a period of underperforming and low valuation (see chart in the Insight).

Analysts have recently been revising upwards the top line and EBITDA estimates of Orange Belgium, as a result of operational momentum and market share gains, especially in broadband. FY2020 EBITDA was c.8% higher vs. FY2019 EBITDA, with c. 230 bps increase in EBITDA margin.

The offer price implies 5.1x EV/21E EBITDA (below the median of peers at 5.9x, see table above) and 9.7% 21E FCF yield (source Capital IQ consensus), and 2.2% dividend yield.

Market seems to think there are grounds for an improved offer, as the share price is still above the offer price.

It is difficult to think of Polygon tendering its stake, it has strategic value and tendering it would hurt Polygon’s activist reputation. A new takeout offer could happen one year after the end of the offer period of the current bid.

Taking the mid point between what Orange Belgium is offering and what I believe would be the minimum acceptable valuation for Polygon, would be a palatable €6.5 raise, or €183 mn extra that Orange would have to spend. That would add to Orange’s leverage (which already is 17% higher than its market cap).

Recommendation is:

  • Fundamental: speculative buy, the offer undervalues Orange Belgium, in my view. Unchanged TP, €35.13.
  • Risk arb: monitor and buy on any dip below the offer price.

Holdouts may end up with a share with lower liquidity, depending on the number of shares tendered.


FTSE TWSE Taiwan 50 Index Rebalance Preview: Price/Volume Surge Brings Three Potential Changes

By Brian Freitas

The FTSE TWSE 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 after the close of trading on 18 June and the changes will be announced on 4 June. Data from close of trading on 24 May will be used to determine the list of inclusions and exclusions.

Using data from the close of trading on 15 April, we see Evergreen Marine Corp (2603 TT), AU Optronics (2409 TT) and Innolux Corp (3481 TT) being added to the index at the June review, while the three deletions are Wiwynn Corp (6669 TT), Taishin Financial Holding (2887 TT) and Catcher Technology (2474 TT).

The estimated passive buying on the potential inclusions is very low given their high trading volumes, but the expected impact on the likely deletions is a lot higher.


Pearl Abyss Post-Split D-Day Momentum Trading, Reflecting Kakao D-Day Movement

By Sanghyun Park

Pearl Abyss resumes trading today after a 3-day suspension due to a 1:5 stock split.

The float is 41.72% at a post-split SO of 65.9M. The FO sits at 23.88% with a DTV of 0.27% SO. 30D avg x Open is 3.64%p.

The base price is ₩67,300 at an MC of ₩4.35T.

PearlAbyss Corp
Ticker263750
Stock split1 to 5
Pre-split SO13,235,600
Post-split SO65,949,250
Float41.72%
FO23.88%30
30D DTV/SO0.27%
30D avg x Open3.64%p
Trading resumption2021. 4. 16
– Suspension period3 sessions
MC (₩B)4,353.8
Base₩67,300
Source: KRX

Reviewing Kakao post-split d-day

Now, look at Kakao’s early morning momentum trading yesterday.

Kakao also underwent a 1:5 stock split only one day ahead of Pearl Abyss.

The float is 71.86% at a post-split SO of 443.8M. The FO sits at 34.15% with a DTV of 0.63% SO.

As can be seen, Kakao is more liquid than Pearl Abyss, but daily price volatility is lower as 30D avg x Open is 2.64%p.

The base price is ₩67,300 at an MC of ₩4.35T.

Kakao Corp
Ticker035720
Stock split1 to 5
Pre-split SO88,704,620
Post-split SO443,809,305
Float71.86%
FO34.15%
30D DTV/SO0.63%
30D avg. x Open2.85%
Trading resumption2021. 4. 15
– Suspension period3 sessions
Source: KRX

The base was ₩112,000 on the post-split d-day, April 15.

The gap was 7.97% from the previous session as the price opened at ₩120,500. It then quickly soared to ₩132,500, a 10% flash gain in the very early morning.

Kakao Corp on post-split d-day (April 15)
Ticker035720
MC (₩B)53,479.0
x DTV6.11x
TV16,940,427.0
TV/SO3.82%
Base₩112,000
Close₩120,500
Open₩120,500
High₩132,500
Low₩118,000
Δ Daily7.97%
Gap7.97%
x Open12.03%p
Open-High9.96%
U Wick-82.76%
Body0.00%
D Wick17.24%
Source: KRX

The benchmark (KOSPI 200) rose 1.51% during the 3-day suspension. Kakao’s 1W and 1M yields were 11.38% and 21.30%, respectively.

The local street consensus on 12M forward PER has risen by 14.29% MoM. 

Kakao Corp
Ticker035720
K200 during the suspension1.51%
52WH₩112,200
– % to current-0.53%
– Date2021. 4. 9
52WL₩31,813
– % to current250.80%
– Date2020. 4. 16
1W yield11.38%
1M yield21.30%
Source: KRX
Kakao Corp2021. 4. 16T-1MT-3MT-6MT-1Y
Sales5,559.35,529.15,354.64,925.64,390.1
OP777.2775.5757.8682.8539.2
NP to controlling stake573.0585.8610.9544.0403.9
EPS (₩)6,4566,6046,9026,1644,644
PER (x)86.4072.8065.4059.8034.30
12M PER (x)75.1065.7163.6362.4642.01
TP (₩)558,364561,208486,240434,583215,174
Source: FnGuide

Before it’s here, it’s on Smartkarma

Event-Driven: Toshiba Corp, Grab, Adani Gas Ltd, HYBE, SK Telecom and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Toshiba – The King Is Dead, Long Live the King
  • Grab Goes Public: Expanding Top Line but No Profits; Proposed Valuation Seems Excessively Ambitious
  • Adani Group – Wealth Creators (For the Few); MSCI Inclusions Coming Up
  • HYBE Sets a Ceiling for Offering Price at a Nicely Discounted Level for Arb Setup
  • SK Telecom Equity Spinoff Announcement: Summary, Takeaways, & Price Impact
  • Grab SPAC Deal: A Sensible Super-App Valuation?
  • SK Telecom Officially Announces a Spin-Off to Create a Holding Company Structure

Toshiba – The King Is Dead, Long Live the King

By Travis Lundy

That famous phrase is not internally contradictory. It announces the death of the late monarch, and announces the ascension of the new monarch to replace him. 

A flurry of articles late last night Japan time – some of them referenced in a few discussion points posted to the most recent insight Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast and others said that Kurumatani-san was going to be dismissed, or resign, at an extraordinary board meeting to be held on the 14th of April. 

The various articles were more or less revealing depending on how much the masthead represents Japan as Japan Inc would have itself represented. Articles from institutions with a more neutral/critical eye were more forthcoming about the turmoil under the surface. 

The phrases from the former were on the order of “it became inevitable that Kurumatani-san would have to resign.” The FT suggested one board member would put forth a motion to dismiss him after the CVC approach last week threw senior management into “civil war.”

Later versions suggested Kurumatani-san would himself resign at the beginning of a meeting, which would forestall an effort to boot him (The King is Dead). Toshiba’s exchange release this morning in response to press coverage all but confirms it.

If Kurumatani-san is going to fall on his sword because of the CVC conflict (and the idea that by getting CVC to bid to distract from the other things going on, he was somehow entrenching himself in ways not befitting Toshiba adherence to the spirit of the Corporate Governance Code), one would expect Fujimori-san may resign as well. 

All the stories suggest the current Chairman and former CEO Tsunakawa-san would take the reins (Long Live the King!) but despite Tsunakawa-san being on friendlier terms with some of the activists, the Board needs to find someone else. I expect there would be shareholder pressure to have that person come from without, but Toshiba is a sensitive asset and there could be considerable pressure to have that person come from within, or if from without, from within the Keidanren. I think investors need to prepare themselves for the possibility that the replacement for Tsunakawa-san may not be the CEO Toshiba needs either, but that may be jumping the gun.

The result is not dissimilar to what Mio Kato and I had suggested was inevitable, but the speed of the unwind may catch people by surprise. I expect that the news reports of the internal survey conducted by the Nomination Committee which showed a majority of senior executives distrusted Kurumatani-san will be viewed as the tipping point…

But investors should note that the results of that survey were known in March, conveyed to Kurumatani-san at end-March, and the Board knew it at end-March – before the CVC bid. The results of that survey were not enough to ask for his head at the time unless the CVC bid was well-and-truly concocted by CVC and Kurumatani-san himself as a way to maintain power. If that is the case, CVC needs to get out in front of it, by being very public in refuting that, and continuing with a bid, even if they bid to lose. 

This whole situation, as I suggested last week, is getting interestinger

And we have toast. Officially, before I even finished this piece, Toshiba is out with a press release saying Kurumatani-san is out and Tsunakawa-san is in. It’s pretty spare, but there is a news conference after the close.

NOW we look at what comes next. With KKR and Brookfield potential bids, and more details about CVC intentions overnight, it’s worth looking at structure. So there’s more below the fold.


Grab Goes Public: Expanding Top Line but No Profits; Proposed Valuation Seems Excessively Ambitious

By Shifara Samsudeen, ACMA, CGMA

The ride-hailing giant Grab (0967655D SP)  announced on Tuesday (13th April 2021) that it plans to go public in the US via a SPAC merger with Altimeter Growth Corp (AGC US)  at a proposed valuation (pro-forma) of approx. US$39.6bn.

As per the proposed transaction, Altimeter Growth and Grab will become wholly-owned subsidiaries of a new holding company and the combined company will have an equity-value of approx. US$39.6bn on a pro-forma basis.

Grab will receive about US$4.5bn in cash, including more than US$4.0bn from a fully committed PIPE (private investment in public equity arrangement) offering that will be managed by BlackRock, Counterpoint Global, T.Rowe Price Associates, Fidelity International, Fidelity Management and Research, Mubadala, Temasek and several others.

Source: Company disclosures

Altimeter Capital has committed to US$750m to the PIPE Financing and also also has committed to a 3-year lock-up period for its sponsor promote shares offering investors confidence over Grab’s future prospects.


Adani Group – Wealth Creators (For the Few); MSCI Inclusions Coming Up

By Brian Freitas

The Adani Group is an Indian conglomerate with six listed companies that have a combined market cap of US$92bn. They are also a well known name in Queensland, Australia with the Carmichael coal mine.

Adani Green Energy Ltd (ADANIGR IN) and Adani Ports & Special Economic Zone (ADSEZ IN) are current members of the MSCI Standard index while Adani Power Ltd (ADANI IN) is a member of the Small Cap index.

Among the inclusions in the Standard Index at the upcoming MSCI May Semi Annual Index Review (SAIR) are three Adani Group companies, Adani Gas Ltd (ADGAS IN), Adani Enterprises (ADE IN) and Adani Transmission Ltd (ADANIT IN). Adani Gas is a current constituent of the Small Cap index and is expected to migrate upwards to the Standard index.

All the six Adani Group companies have soared in price over the last year with gains ranging from 76% to 1067%. However, the public float of five of the six companies is just over 25%, the minimum public shareholding required by the Securities and Exchange Board of India (SEBI).

To go one step further, there are common shareholders among the companies and they along with the promoters hold almost 90% of the shares outstanding in four of the six companies.

While the Adani Group stocks have been rallying, the benefit has been accruing to a select few. While the stocks may run up to the MSCI implementation, they trade much MUCH higher than their global peers and longer term returns may not be worth the risks involved.


HYBE Sets a Ceiling for Offering Price at a Nicely Discounted Level for Arb Setup

By Sanghyun Park

A simple summary of the HYBE classic arb trade is:

  • Long subscription rights and short the underlying during the May 6~12 subscription rights trade window as the current shorting restrictions are lifted as of May 3.
  • The ceiling price (1st round price) will likely be set at a quite favorable level for this setup on April 14 as the major shareholder lockup expiry on April 15.
  • The potential shorting price range will likely be high as that will fall on the May 11 MSCI addition announcement. 

Today is the 1st round pricing for the ongoing rights offer.

Pricing
1st roundRP × (1 – 15%) / [1 + (6.25% × 15%)]
– Reference price (RP)Min [1D VWAP, Avg (1D VWAP, 1W VWAP, 1M VWAP)]
– Reference date2021. 4. 14
Ex-rights base price[RP + (1st × 6.25%)] / (1 + 6.25%)
– Reference price (RP)Previous close
– Reference date2021. 4. 16
2nd roundRP × (1 – 15%)
– Reference price (RP)Min [1D VWAP, Avg (1D VWAP, 1W VWAP)]
– Reference date2021. 5. 27
FinalMax [Min (1st, 2nd), 3D VWAP × 60%]
– Reference date2021. 5. 27
Discount rate15.00%
Capital increase rate6.25%
Source: DART
Timetable
BOD meeting2021. 4. 2
1st round pricing2021. 4. 14
Ex-rights date2021. 4. 16
Record date2021. 4. 19
Subscription rights trade beginning2021. 5. 6
Subscription rights trade ending2021. 5. 12
Final pricing2021. 5. 27
Stockholder subscription2021. 6. 1
Public subscription2021. 6. 4
Payment2021. 6. 9
Listing2021. 6. 22
Source: DART

As I am writing this post (11AM in Korean local time), today’s VWAP is ₩239,250, down 5.24% from the previous session.

So, the 1st round reference price comes at ₩239,250, giving a 1st round offering price of ₩201,500 (a 15% discount).

1st round pricing
DateApril 14, 2021
1D VWAP₩239,250
1W VWAP₩256,962
1M VWAP₩248,439
– Average₩248,217
Reference price₩239,250
1st round price₩201,500
Source: DART & KRX
DateCloseTrade volumeTrade value
2021. 4. 14233,500514,645123,128,797,000
2021. 4. 13252,500320,69581,243,517,500
2021. 4. 12252,500458,542117,110,884,000
2021. 4. 9258,000510,218133,389,937,500
2021. 4. 8267,000633,549171,510,060,000
2021. 4. 7276,0001,032,090280,314,639,000
2021. 4. 6259,000922,890238,993,613,000
2021. 4. 5248,0001,677,346427,107,259,500
2021. 4. 2243,000586,848141,972,011,000
2021. 4. 1239,000281,90367,615,948,500
2021. 3. 31243,000276,93267,919,984,000
2021. 3. 30242,500359,39087,890,364,000
2021. 3. 29236,500225,21353,864,737,500
2021. 3. 26242,000396,51893,967,922,500
2021. 3. 25235,500306,74970,215,445,500
2021. 3. 24219,000144,80431,949,835,000
2021. 3. 23222,000182,93241,093,141,500
2021. 3. 22230,000202,80946,817,896,000
2021. 3. 19226,000211,07047,955,610,000
2021. 3. 18234,000255,29259,507,091,000
2021. 3. 17231,000387,48488,784,601,500
2021. 3. 16219,000181,44639,622,368,500
2021. 3. 15218,000355,51277,966,448,000
1D VWAP239,250514,645123,128,797,000
1W VWAP256,962487,530125,276,639,200
1M VWAP248,439453,256112,606,178,783
Source: KRX

SK Telecom Equity Spinoff Announcement: Summary, Takeaways, & Price Impact

By Sanghyun Park

SK Telecom finally announced its plans for an equity spinoff.

SKT will be split into two companies.

  • The surviving company: tentatively named ‘AI & Digital Infra Company’
  • The newly spun-off company: tentatively named ‘ICT Investment Company’
(Source: SK Telecom)

Here is the regulatory filing at KRX KIND.

Key points in the announcement

  • SKT wants this equity spinoff to unlock the market valuation for the telecom (SKT itself), semiconductor (Hynix), and the remaining ICT businesses (ADT Caps, 11st, etc.).
  • SKT also wants to offer investors two separate investment options: telecom (value and steady) and non-telecom (growth and more volatile).
  • The spinoff company will actively seek investment activities. It plans to invest in both domestic and overseas semiconductor companies.
  • The spinoff company will also promote IPOs of its subsidiaries: ADT Caps, 11st, and T Map Mobility.
  • SKT stated that it has no plans to merge the spinoff company with SK Inc.
  • SKT plans to complete this equity spinoff within this year.

Grab SPAC Deal: A Sensible Super-App Valuation?

By Arun George

Grab (0967655D SP) is Southeast Asia’s leading super-app and the largest online delivery platform, ride-hailing platform and digital wallet payments platform in Southeast Asia, according to Euromonitor. Grab intends to go public in the US through a SPAC merger with Altimeter Growth Corp (AGC US).

In Grab SPAC Deal: Delivering the Goods, we looked at Grab’s fundamentals and management forecasts. We noted that Grab is using its super-app status to deliver high-growth with declining loss margin and cash burn. While certain management forecasts seem bullish, the overall forecasts are not outlandish.  

In this note, we look at the valuation. As a reminder, the deal values Grab at a post-money market cap of $39.6 billion and post-money EV of $31.3 billion. The deal implies 9.6x 2022 EV/Sales based on Grab’s forecasted adjusted net revenue.

At first glance, Grab’s implied multiples are eye-watering in comparison to global peers related to its delivery and mobility businesses. However, we think that judging Grab’s multiples based on such peers is missing the point. Grab’s key competitive advantage and investor pitch is that it can be credibly billed as a super-app rather than just a leading app in a narrow market category.

Super-apps tend to be rare and investors are starved of publicly listed opportunities. With the regulatory heat turned up on the Chinese super-apps, alternative super-app plays in Asia are likely to be in demand. When judged against global super-apps, Grab’s implied multiples seems more justifiable for its forecast growth.  


SK Telecom Officially Announces a Spin-Off to Create a Holding Company Structure

By Douglas Kim

After the market close on 14 April, SK Telecom (017670 KS) finally announced its long awaited decision to create a new holding company for its non-telecom related subsidiaries. The market has been waiting for this decision in the past 5+ years. In the past several weeks, the CEO of SK Telecom has mentioned a very high likelihood of the company announcing a new holdco structure. 


Before it’s here, it’s on Smartkarma

Event-Driven: Grab, Beijing Kingsoft Office Software-A, Toshiba Corp, Television Broadcasts, SK Bioscience, Zhejiang Cangnan Instrument, Hyundai Mobis, Suez and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Grab SPAC Listing – High on Ambition, Very High on Valuation
  • CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off
  • Toshiba – How the Kurumatani Resignation and KKR or Brookfield Bids Could Change Things
  • TVB (511 HK): Small Screen Saver
  • SK Bioscience K200 Entry: Potential Trades Reflecting SK Biopharm’s Passive Inflow Pattern
  • Grab SPAC Deal: Delivering the Goods
  • Zhejiang Cangnan (1743 HK): H-Share Buyback
  • Potential Trades on HMG Stocks Amid Hyundai Eng IPO: Loan/Short Int Flow & 20D MA σ
  • Suez – Veolia: Peace Pipe

Grab SPAC Listing – High on Ambition, Very High on Valuation

By Sumeet Singh

On 13th Apr 2021, Grab (0967655D SP) announced that it plans to go public in the US in partnership with Altimeter Growth Corp (AGC US) at an equity valuation of US$39.6bn. It will raise around US$4.5bn cash through the transaction. 

In this note, I’ll take a quick look at the numbers and implied valuations.


CSI300 Index Rebalance Preview: Recovering from the Growth Sell-Off

By Brian Freitas

We are nearly 95% through the review period for the June review of the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX). With a large AUM in ETFs tracking the index, large open interest on the CFFEX listed futures, and volatile stocks, it could pay to look at the potential changes to the index.

China Securities Index Co (CSI) will announce the changes end May/beginning June and the changes will be effective after the close of trading on 11 June.

We expect 30 changes at the upcoming June 2021 index review – this is the maximum number of changes that are permitted at a single review. Estimated one-way turnover is 4.08% and will result in a one-way trade of CNY 10.8bn.

The expected inclusions have outperformed the Shanghai Shenzhen CSI 300 Index (SHSZ300 INDEX) on a year to date basis even post the momentum selloff that started in February. Buying the inclusion basket vs selling the CSI300 futures as a hedge could provide good market neutral returns over the next few weeks.


Toshiba – How the Kurumatani Resignation and KKR or Brookfield Bids Could Change Things

By Mio Kato

The news flow cycle for Toshiba kicked up again overnight as Travis has pointed out. As Travis and I have suggested would happen, Kurumatani is out and other PE funds have started to circle. The initial reaction here should be positive given that it has been reported that KKR is contemplating a higher bid, however, the long-term outlook becomes a little more complex.


TVB (511 HK): Small Screen Saver

By David Blennerhassett

In two SCMP articles on the 7 April, PRC media tycoon Li Ruigang, Television Broadcasts (511 HK)‘s largest shareholder (via Young Lion Holdings), discussed his dissatisfaction with TVB’s performance, saying:

As a free broadcaster, TVB should be a public open platform welcoming other players in the media and entertainment industry to participate.

Under the broadcasting ordinance in Hong Kong, non-permanent residents – such as Li – cannot apply for a free TV or pay TV licence, and are branded “disqualified persons”. Li added:

We respect the ordinance. In the past five years, CMC was a passive investor. [But] if TVB does not reform now, it will shrink, then perish. I am now trying to bring it out from drowning.

Yesterday, TVB announced Mark Lee Po On, Vice Chairman (since April last year) and Group CEO (since January 2015), had resigned. 

This follows the resignation Charles Chan (then Chairman and NED) in January last year, culminating in the re-oganisation of Young Lion Holding in last August.

One but can’t help but speculate there are more changes afoot, one that may ultimately lead to changes in the ordinance.

More below the fold.


SK Bioscience K200 Entry: Potential Trades Reflecting SK Biopharm’s Passive Inflow Pattern

By Sanghyun Park

Below is the KRX notice on April 9 concerning SK Bioscience’s entry into the KRX indices.

SK BIOSCIENCE (302440) will be added to the corresponding indices since it satisfies the criteria for the fast-entry rule.

KRX 100

  • Addition: SK BIOSCIENCE (302440)
  • Deletion: MedyTox (086900)

Effective Date: 11th June 2021

※ The KRX is now reviewing the entry into the other indices, including KOSPI 200 and KRX 300. So follow up the further notice in May.

The link is here.

Why not announcing now for KOSPI 200 fast entry?

The nearest month KOSPI 200 futures contract that is the first to arrive after the 15 trading sessions falls on the same day as the 1H regular rebalancing.

So, for SK Bioscience, the announcement will be made at the end of May with the other biannual changes.

KOSPI 200 FY2021 1H schedule
Announcement2021-05-31
Effective2021-06-11
Source: KRX

Entry is a done deal.

The 15D daily average MC sits at ₩10.1T.

SK Bioscience in the first 15 trading sessions (₩B)
2021-04-07₩114,500
2021-04-06₩115,500
2021-04-05₩118,000
2021-04-02₩117,500
2021-04-01₩119,000
2021-03-31₩120,500
2021-03-30₩126,500
2021-03-29₩123,500
2021-03-26₩132,000
2021-03-25₩136,000
2021-03-24₩136,500
2021-03-23₩140,500
2021-03-22₩144,000
2021-03-19₩166,500
2021-03-18₩169,000
– Average daily MC10,095.5
Source: KRX

Below are the KOSPI top 50 names by the Mar 18~Apr 7 average daily MC. SK Bioscience comes in at the 32nd between Lotte Chemical and Korean Air. 

KOSPI top 50 by avg daily MC (Mar 18~Apr 7)TickerMC (₩B)Rank
Samsung Electronics Co Ltd005930493,866.81
SK Hynix Inc000660100,363.22
Naver Corp03542063,182.13
LG Chem Ltd05191058,270.14
Samsung Biologics Co Ltd20794048,546.75
Hyundai Motor Co00538048,324.66
Samsung SDI Co Ltd00640044,994.97
Kakao Corp03572044,168.98
Celltrion, Inc.06827038,067.69
Kia Corp00027034,201.410
HYUNDAI MOBIS CO., LTD.01233027,942.911
POSCO00549027,321.012
LG Electronics Inc.06657024,974.513
LG Household & Healthcare Ltd05190024,205.614
Samsung C&T Corp02826023,028.615
KB Financial Group Inc10556021,888.816
SK Telecom Co Ltd01767021,431.317
SK Innovation Co Ltd09677020,224.318
NCSoft Corp03657019,800.119
Shinhan Financial Group Co., Ltd.05555018,719.620
SK Inc03473018,545.821
Samsung Life Insurance co., Ltd03283015,486.722
LG Corp00355015,467.823
Korea Electric Power Corporation01576015,134.324
Amorepacific Corp09043014,713.725
Samsung SDS Co Ltd01826014,622.326
Samsung Electro-Mechanics Co., Ltd.00915014,254.027
Hana Financial Group Inc08679012,467.628
KT&G Corp03378011,103.929
Netmarble Corp25127010,766.430
Lotte Chemical Corp01117010,366.431
Korean Air Lines Co Ltd0034909,626.932
Hanon Systems0188809,569.833
HMM Co Ltd0112009,353.634
Posco Chemical Co Ltd0036709,280.435
S Oil Corp0109509,114.836
Hanwha Solutions Corp0098308,934.837
Samsung Fire & Marine Insurance Co Ltd0008108,903.838
Korea Shipbuilding &Offshore Engn Co Ltd0095408,854.539
SK Biopharmaceuticals Co Ltd3260308,259.940
LG Display Co Ltd0342208,147.341
Korea Zinc Inc0101307,665.442
Kumho Petro Chemical Co Ltd0117807,310.643
Woori Financial Group Inc3161407,287.744
KT Corp0302007,182.845
Hyundai Glovis Co Ltd0862807,140.646
Industrial Bank of Korea0241106,704.647
CJ Cheiljedang Corp0979506,277.248
Mirae Asset Securities Co Ltd0068006,172.149
Hyundai Steel Co0040206,135.250
Source: KRX

Grab SPAC Deal: Delivering the Goods

By Arun George

Grab (0967655D SP) is Southeast Asia’s leading superapp and the largest online delivery platform, ride-hailing platform and digital wallet payments platform in Southeast Asia, according to Euromonitor. Grab is backed by SoftBank Vision Fund (21.7% stake), Uber (UBER US) (16.6%), DiDi Chuxing (1284375D CH) (8.7%) and Toyota Motor (7203 JP) (6.9%). 

Grab intends to go public in the US through a SPAC merger with Altimeter Growth Corp (AGC US). The deal proceeds include more than $4.0 billion of fully committed PIPE led by $750 million from Altimeter Capital Management. Investors in the PIPE include BlackRock, Morgan Stanley Investment Management, Fidelity International, FMR, Janus Henderson Investors, Mubadala, Nuveen, Permodalan Nasional Berhad and Temasek. Altimeter will commit to a three-year lock-up period for its sponsor promote shares. 

The deal values Grab at a post-money market cap of $39.6 billion and post-money EV of $31.3 billion. The deal implies 9.6x 2022 EV/Sales based on Grab’s forecasted adjusted net revenue. Post-close of the transaction, the existing Grab shareholders will represent 87.7% of outstanding shares. 

Over the years, Grab has transformed into a superapp that encompasses transactions related to transportation, eating, shopping, and digital payments. The transactions are high-frequency which tend to increase user stickiness. By spanning several categories, Grab has many opportunities to capture a user’s wallet spend. Grab is using its superapp status to deliver high-growth with declining loss margin and cash burn. While certain management forecasts seem bullish, the overall forecasts are not outlandish. We will look at Grab’s valuation in our next note.


Zhejiang Cangnan (1743 HK): H-Share Buyback

By David Blennerhassett

Back on the 5 February, gas meter manufacturer Zhejiang Cangnan Instrument (1743 HK)  announced the board of directors had resolved to repurchase all the issued H shares in the company at a minimum price of HK$22.00/share, a 15.18% premium to last close. The buyback was subject to approval from the local bureau of the State Administration of Foreign Exchange.

This was followed by a conditional cash offer on the 12 March. The Offer is a “Merger by Absorption”, incorporating a Scheme-like vote (≥ 75% for, ≤10% against); and a tendering condition of 90%. All H-shares are subject to the buy-back and the effective tendering % is 90%.

The Offer Document has been despatched with the IFA concluding the Offer price to be fair and reasonable.

The EGM will take place on the 17 May and the first closing date is the 31 May.

Trading at a gross/annualised spread of 7.3%/57.2%. But the thorny issue is the 90% tendering condition.

More below the fold.


Potential Trades on HMG Stocks Amid Hyundai Eng IPO: Loan/Short Int Flow & 20D MA σ

By Sanghyun Park

Hyundai Engineering Co Ltd (HEC KS) finally embarks on an IPO.

Chung Eui-sun owns an 11.72% stake, while Hyundai E&C retains the major shareholding at 38.62%.

The current OTC MC sits at ₩8T, giving a 1.11x Sales and a 30.92x OP on FY2020. The CES stake is valued at a little less than ₩1T.

The target IPO date is before the end of this year.

Hyundai Engineering shareholding
Hyundai Engineering & Construction Co.38.62%
Chung Eui-sun11.72%
Source: Chosun Biz
Hyundai Engineering valuation (₩B)
OTC MC8,000.0
x Sales1.11
x OP30.92
Chung Eui-sun stake (11.72%)937.6
Source: 38 Communication
Hyundai Engineering financials (₩B)2017201820192020
Sales6,268.26,286.26,801.17,188.4
OP514.4453.7408.1258.7
– OPM8.21%7.22%6.00%3.60%
Source: DART

Suez – Veolia: Peace Pipe

By Jesus Rodriguez Aguilar

Finally, both parties avoided taking the public backlash to new highs (on the Suez AGM). On 12 April, Veolia Environnement SA (VIE FP) and Suez (SEV FP) publicly smoked the peace pipe by announcing an agreement on the key T&Cs of a merger to create the “World Champion of Ecological Transformation” (a global water and waste giant), with aggregate proforma revenues of €37 bn.

  • The offer price is increased from €18 per share to €20.5 per share.

  • Veolia has committed funds to complete the transaction, which will be financed by a bridging loan with a banking syndicate.

  • Both parties have agreed to enter into definitive merger agreements by 14 May.

  • Veolia share price increased by 9.7%, whilst that of Suez increased by 7.7%.

  • Engie, controlled by the French State, will receive compensation for the improvement of the purchase offer.

The improved offer represents:

  • 1.5x EV/Fwd revenue, 8.1x EV/EBITDA and 27.4x Fwd P/E.
  • an implied EV of €25,574 mn and implied equity value of €13,103.6 mn.
  • €3.2 bn more than the first offer; in spite of that, Veolia’s 5-year CDS has barely moved.

To avoid competition problems with regulators, a large part of the French assets-and others in Italy, Asia and Africa will be segregarded in a new society, which will not be part of the resulting group. This new company, whose assets will be acquired by the Galus Funds Ardian and Meridiam, GIP, and the Public Bank Caisse des Dépôts, among others, will have a turnover about €7 bn.

The rationale is of the merger is to create a “super French champion” in rising markets such as recycling or energy production based on waste or water resources (fragmented markets), which will have the economic support of new world plans in infrastructures and the impulse of the energy transition.

Suez has had a good run and I have been long since the outset. Now after two price increases, a PR offensive, and 32% gain over the initial price, this offer should be considered final. 

With this agreement, Veolia culminates an integration plan that it began last summer, when it acquired a 29.9% stake in Suez from Engie (at €15.5, then revised to €18.0) and which, since then, Suez had resisted. The stake of Veolia in Suez bars any interloper attempt.

This is a rock solid trade, albeit the gross spread is an unexciting 3.2% on a deal that may take up to a year from now to close. Long TP €20.5, and monitor to add on any dip.


Before it’s here, it’s on Smartkarma

Event-Driven: Toshiba Corp, Shanghai Henlius Biotech, Jardine Matheson Holdings, Samsung Electronics, Intouch Holdings, Kasikornbank PCL, MagnaChip Semiconductor Corp, ACS, Actividades de Construcción y Servicios, S IMMO AG and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast
  • Norway’s GPFG Could Sell Its Smallest Holdings: Potential Impact on Asian Stocks
  • Jardine Matheson: Strategic Buyout Done
  • Samsung Special Div Payment Event on April 16: What to Expect
  • StubWorld: Reverse Intouch’s Stub; (Potentially) Set Up PICC (1339 HK)’s
  • Kasikornbank (KBANK TB) – Double Whammy
  • MergerTalk: Magnachip Semiconductor Corp (MX US)-Wising Up To An Attractive Risk-Arb Opportunity
  • Atlantia – CDP – ACS: Moving Parts in the Acquisition of ASPI
  • S-Immo Raised Offer, Attractive Spread

Gaming Out a CVC Bid for Toshiba – The Right Noises, The Wrong Price, and Toast

By Travis Lundy

Things are heating up.

Some might say after today that Kurumatani-san is on the hot seat feeling considerably toasty.

Over the weekend, there were more noises as the Nikkei reported that Toshiba would “take the CVC bid seriously”, had set up an internal review committee to be chaired by a Vice President, and that the approvals would be expected by early summer, a Tender Offer would start in July, and if successful, Toshiba would be delisted in October. 

This morning there is a report that the large increase in position by Singapore-based (and as the Nikkei describes them “noisy shareholder” 3D Investment Partners reported in the previous insight was in fact 3D purchasing the stake from Harvard Investment Management. This is important because 3D voted against Kurumatani-san last year as director and later asked the firm to investigate vote-counting irregularities. Harvard,  with 4.7%, abstained, reportedly after former GPIF CIO Hiromichi Mizuno – champion of governance and stewardship while at GPIF and then-special advisor to METI – communicated with Harvard and voiced the possibility that if they voted against Kurumatani-san there could be a probe based on the idea that if shareholders coordinate to vote without declaring joint ownership, there can be issues (Reuters report, FT article).

Now there appears to be no issue of a Harvard abstention and clear increase in voting power for shares held by those who would challenge management (with or without Kurumatani-san) on capital and management policy, but to be clear, votes FOR are measured as a percentage of votes PLUS active abstentions. If Harvard actively abstained (rather than passively not voting), then this won’t change the support ratio (it would just change the optics). IF the 21.4mm share position moved from passive abstention to active opposition, it would have lowered the votes FOR from 57.98% to 54.46%, but Kurumatani-san would have squeaked through still. 

The entire situation is great fun. The situation of Toshiba governance has become something of a governance nightmare and with national security issues at stake for a minority of the business, a potential bureaucratic quagmire. But the company is doing decently well, and is long a desirable asset, and there are LOTS of shareholders who are heavily vested in seeing this through. And it appears with the March EGM result that they have a majority. 

Sitting in the audience, it makes me want to have a squirt gun, rubber gloves, rice, newspaper, and toast. Gotta have toast. 


Norway’s GPFG Could Sell Its Smallest Holdings: Potential Impact on Asian Stocks

By Brian Freitas

Norway’s Government Pension Fund Global (GPFG) is the largest sovereign wealth fund with assets of US$1.3 trillion and holds, on average, 1.4% of all the worlds listed companies. The fund is managed by Norges Bank Investment Management (NBIM) on behalf of Norges Bank.

The benchmark for the equities portfolio is the FTSE Global All Cap index, though the fund also holds positions in companies that are not a part of the benchmark index.

As of 31 December 2020, the fund had equity holdings in 9,123 companies. The Norwegian Government has proposed that no new emerging markets are added to the GPFG equity benchmark and has also proposed a 25-30% reduction in the number of equity holdings in the fund targeting the smallest companies in the benchmark. These proposals have to be approved by the Stortinget (the Norwegian legislature).

In this Insight, we look at the behemoth that is the GPFG, the holdings of the Fund, stocks that could be deleted from the portfolio to meet the new proposals and the impact on the stocks.


Jardine Matheson: Strategic Buyout Done

By David Blennerhassett

Jardine Strategic Holdings (JS SP)‘s special general meeting (SGM) was held a short while ago in Bermuda. The vote was a foregone conclusion, given Jardine Matheson Holdings (JM SP)‘s ability to vote its 84.9% stake.

The resolution as set out in the Notice of Special General Meeting contained in the Circular to shareholders on 18 March 2021 was duly passed.

92% of shareholders voted for the resolution. It is not clear from this link if that is 92% of shareholders present and via proxy, or 92% of outstanding shares.

This is useful in knowing the level of dissension.

More below the fold.


Samsung Special Div Payment Event on April 16: What to Expect

By Sanghyun Park

Samsung’s huge special dividend (+ quarterly div) for FY2020 comes on April 16.

Special dividendOrd1P
Div₩1,932₩1,933
– Quarterly₩354₩355
– Special₩1,578₩1,578
Payment date16/4/2116/4/21
Record date31/12/2031/12/20
Ex rights-1D28/12/2028/12/20
Source: KRX

The total div amounts to ₩13.1T: 2.31% of the Ord SO and 2.57% of the 1P SO.

As a % of DTV, it is 7.6x for Ord and 13.6x for 1P.

Out of ₩13.1T, ₩7.7T (59%) will be going to the foreign shareholders.

Special dividendOrd1P
SO5,969,782,550822,886,700
Total div (₩B)11,533.61,590.6
% of MC2.31%2.58%
% of DTV758.93%1357.75%
FO55.82%82.04%
FO shares3,332,143,450675,105,949
Total div for FO (₩B)6,437.71,305.0
% of MC1.29%2.11%
Source: KRX

StubWorld: Reverse Intouch’s Stub; (Potentially) Set Up PICC (1339 HK)’s

By David Blennerhassett

This week in StubWorld …

Intouch Holdings (INTUCH TB)‘s long-term discount to NAV and the simple ratio (Intouch over Advanced Info Service (ADVANC TB)) are at all-time extremes.  

And People’s Insurance Co (PICC) (1339 HK) is coming up “cheap” after fully correcting last years’ narrowing.

Preceding my comments on Intouch and PICC, are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed in percent – of at least 20%.


Kasikornbank (KBANK TB) – Double Whammy

By Brian Freitas

Kasikornbank PCL (KBANK TB) is included in the MSCI Standard index through its foreign line Kasikornbank PCL (KBANK/F TB) and the NVDR Kasikornbank PCL (KBANK-R TB).

We see a high probability of the foreign line being deleted at the upcoming May SAIR since it fails the EM Minimum Liquidity Requirement. There is also a possibility of a reduction in the Foreign Inclusion Factor (FIF) on the Non Voting Depository Receipt (NVDR) line if the foreign room stays below 15% on the price cutoff date.

Deletion of the foreign line would require passive funds to sell 87m shares of Kasikornbank PCL (KBANK TB) while a reduction in the FIF on the NVDR line would necessitate selling of around 22m shares.

We expect the stock to remain under pressure relative to its peers over the next few weeks as active investors pre-positioning for the passive selling.

In this Insight, we look at the reasons for the index deletion/ weight reduction, the possible impact on the stock and the foreign premium, and trades that could perform well from now to implementation date.


MergerTalk: Magnachip Semiconductor Corp (MX US)-Wising Up To An Attractive Risk-Arb Opportunity

By Robert Sassoon

On March 26, 2021, it was announced that MagnaChip Semiconductor Corp (MX US) had entered into an agreement to be acquired by Wise Road Capital in all cash go-private transaction of $29 per share placing  an equity value of ~$1.4BN on MX. MX is the second largest company in the world after Samsung Electronics in the OLED panel driving chip field, and is listed on the NYSE, while Wise Road Capital is a Chinese owned private equity fund that is focused on investing into high tech companies globally. The transaction is targeted to be completed in the second half of the year.

With the prevailing share price of $25.29 as at the close of business on April 12, 2021, the spread at ~15% offers a potentially attractive IRR of between 20% and 32% should the transaction close by the end of December or September. This insight lays out  why think the spread indicates a rewarding risk-arb opportunity.


Atlantia – CDP – ACS: Moving Parts in the Acquisition of ASPI

By Jesus Rodriguez Aguilar

ACS enters the bid for Autostrade with an offer of €10 bn (4.5x 2019 EBITDA), above the €9.1 offered by the CNP consortium.

  • Both offers are within the range considered by the market €9 bn –  €11 bn, although below the €12 bn that Atlantia believes ASPI is worth.
  • The activist fund TCI, which has 10% of Atlantia argues that the value of ASPI ranges between €11 bn and €12 bn.

Assuming that ACS participates in the acquisition of ASPI by contributing funds equivalent to a percentage of the value of ASPI (88%) similar to its stake in Abertis (30% though ACS and 20% through Hochtief), and assuming a €10 bn valuation (for 100%), the investment would amount to c. €4 bn (vs. c. €5 bn in cash that ACS would receive in Q4 2021 from the industrial services disposal).

  • Proforma net debt/EBITDA above 2x, although CF would gain in visibility and stability, assuming that ACS does not use the proceeds to reduce leverage.
  • Dividends upstreamed to ACS via a potential Abertis/ASPI would increase its FCF (and therefore its dividend payout potential). Depending on how the deal is structured, it could add c. €500 mn to ACS’s FCF.

That said, details on the possible economic offer and the structure of the operation are very limited, therefore it seems difficult to evaluate the impact on TP.

ACS has a 2021e 7% dividend yield (forecasted dividend of €1.93, source Capital IQ consensus), funded by Hochtief and Abertis, so it does not seem at risk. But if the ASPI operation succeeds, ACS will become an infrastructure focused company. Pension funds would be willing to acquire its shares up to a price where dividend yield reaches around 3%, thus meaning a substantial re-rating of ACS.

From my SOTP valuation, on conservative assumptions, there is a 15% upside to ACS, with the optionality of a deal to acquire ASPI as part of a consortium. Recommendation is long ACS, TP €32.6.


S-Immo Raised Offer, Attractive Spread

By Jesus Rodriguez Aguilar

On 25 March, Immofinanz increased the offer price by 23%, to €22.5 per share (less than 4% below my TP).

  • The offer price represents 47.2x EV/Fwd EBITDA,  18.4x P/Fwd E and 1.18x P/Fwd BV.

S Immo shares are currently trading at a 3% FFO yield and offer a 1.9% dividend yield (source: Capital IQ consensus). Diluted EPRA NNNAV per share as of YE 2020 was €20.67 (vs. €20.02 at Q3 2020).

The improved offer price seems fair, but not overly generous, at the same level at which S Immo was trading in December 2019, around €22.5 per share. The market seems happy with this outcome.

Immofinanz quickly improved its opening gambit as S Immo’s shares were trading higher than the initial offer. The improved offer price represents 2.9% 21e FFO yield and almost the same as mean consensus ind. NAVPS.

Recommendation is long, TP €22.5 (around the same level as mean consensus ind NAVPS, supported by FFO/share yield). The shares are trading at a gross spread of 4.4%, c. 9% annualised. Patience may be needed to build a position.


Before it’s here, it’s on Smartkarma

Event-Driven: Ping An Insurance (H), Beijing Digital Telecom, DL Co Ltd, Xiaomi Corp and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Ping An A/H Premium: Nearing a Discount; Set Up for Expansion
  • Beijing Digital (6188 HK): Zhuhai SASAC’s MGO On Track
  • KOSPI Short Int & Loan Balance: Trend/Flow & Stocks on Move (Feat. DL Holdings)
  • Hong Kong Buybacks: Xiaomi Bought Back $1.5bn in past Two Weeks

Ping An A/H Premium: Nearing a Discount; Set Up for Expansion

By Brian Freitas

The Ping An A-shares Ping An Insurance Group Co Of China (601318 CH) are trading at parity versus the H-shares Ping An Insurance (H) (2318 HK). This continues the cycle of premiums and discounts going back to 2015.

The last time the A-shares traded at parity to the H-shares was in July last year. Since then, the premium of A-shares to H-shares touched a high of over 16% before moving lower to trade at parity again.

With the Ping An A-shares trading at parity versus the H-shares, the risk/reward is attractive to setting up a premium expansion trade.

In this Insight, we look at the historical premium for Ping An and compare it to the premium on the AH index and other large caps, and look at some catalysts that could lead to an expansion of the premium.


Beijing Digital (6188 HK): Zhuhai SASAC’s MGO On Track

By David Blennerhassett

Back on the 1 February, Zhuhai Huafa, wholly-owned by Zhuhai SASAC, entered into a share purchase agreement (SPA) to acquire domestic shares in mobile device manufacturer Beijing Digital Telecom (6188 HK) from Di Er Tong and Digital Science & Technology, collectively the controlling shareholders of Beijing Digital.

Upon completion of the SPA, Zhuhai Huafa and concert parties would hold 37.99%, triggering a mandatory general offer (MGO). The Offer price will be HK$3.8429 per H-Share, a premium of 7.04% to last close. A concurrent Offer of RM3.2030/share will be made for the domestic shares.

The New News

The SPA,  which was conditional on, inter alia, SASAC and NDRC approval, together with miscellaneous conditions such as the entering into of loan and concert party agreements, has now completed. The MGO has subsequently been triggered.

The MGO has a 50% tendering condition – attached to ALL voting rights of Beijing Capital. No irrevocables have been received to date.

The Composite Document is expected to be despatched by the 16 April, at which time the Offer will be open for acceptances.

As always, more below the fold. 


KOSPI Short Int & Loan Balance: Trend/Flow & Stocks on Move (Feat. DL Holdings)

By Sanghyun Park

Top 20 short interests: holders & weekly gainers/decliners

Lotte Tour continues to top the list as 6.69% of the SO sits in the short interests, followed by Doosan Infracore at 3.53%, Hotel Shilla at 2.96%, and Celltrion at 2.90%.

Among them, Doosan Infracore and Celltrion have fallen 5.48% and 6.84% WoW, respectively.

As a %p of the SO, the gainers include Jooyon Tech, Noroo Paint, Sunchang, and Gene One Life. The decliners are Hyundai BNG, Samsung Pharm, Tong Yang Mooslan, and Celltrion.

Top 20 short interestTickerK200Apr 7 Short1M1W1W %pApr 9 Loan1M1W1W %p
Lotte Tour Development Co., Ltd.0323501536.69%2.52%0.39%0.03%p8.10%-46.13%2.15%0.17%p
Doosan Infracore Co Ltd042670983.53%-17.90%-5.48%-0.20%p9.24%-52.01%-0.59%-0.06%p
Hotel Shilla Co Ltd008770632.96%-1.53%-0.16%0.00%p8.34%-9.24%-0.74%-0.06%p
Celltrion, Inc.06827052.90%-18.76%-6.84%-0.21%p7.87%4.23%-5.19%-0.43%p
Inscobee Inc006490#N/A2.23%6.08%0.79%0.02%p3.55%-36.46%-0.49%-0.02%p
Hanatour Service Inc039130#N/A2.09%15.68%4.68%0.09%p4.20%-35.24%0.94%0.04%p
Ssangyong Motor Co., Ltd.003620#N/A1.46%0.00%0.00%0.00%p1.75%-30.10%0.16%0.00%p
LG Display Co Ltd034220411.40%-11.22%2.10%0.03%p5.24%-38.96%3.85%0.19%p
Samsung Heavy Industries Co.,Ltd010140541.37%-15.17%6.02%0.08%p4.85%-34.59%-4.10%-0.21%p
Sunny Electronics Co Ltd004770#N/A1.30%-22.38%-3.90%-0.05%p2.96%-33.78%3.84%0.11%p
Paik Kwang Industral Co Ltd001340#N/A1.23%6.80%-8.26%-0.11%p2.38%-29.44%0.09%0.00%p
E Kocref CR-REIT088260#N/A1.19%0.00%0.00%0.00%p2.92%-25.07%7.38%0.20%p
Daewoo Electronic Components Co Ltd009320#N/A1.12%0.02%-0.04%0.00%p1.89%-37.26%4.18%0.08%p
Tongyang Inc001520#N/A1.08%-0.25%-0.89%-0.01%p2.19%-0.70%10.21%0.20%p
Shinsung Tongsang Co., Ltd005390#N/A1.06%9.35%7.57%0.07%p1.85%-23.56%-0.18%0.00%p
Korea Shipbuilding &Offshore Engn Co Ltd009540361.05%4.65%-0.29%0.00%p2.60%-25.98%3.63%0.09%p
Willbes & Co Ltd008600#N/A0.98%-15.82%-14.09%-0.16%p1.67%-4.05%-0.16%0.00%p
ENPlus Co Ltd074610#N/A0.98%20.64%0.01%0.00%p1.96%-25.21%1.11%0.02%p
Monami Co Ltd005360#N/A0.98%28.72%-0.61%-0.01%p1.98%-40.06%0.15%0.00%p
SBW102280#N/A0.95%-3.36%0.08%0.00%p1.55%-31.10%0.00%0.00%p
Source: KRX & KOFIA
Top 20 short interest gainersTickerK200Apr 7 Short1M1W1W %pApr 9 Loan1M1W1W %p
Jooyon Tech Co Ltd044380#N/A0.59%39.10%139.30%0.35%p1.15%-49.81%-4.77%-0.06%
Noroo Paint & Coatings Co Ltd090350#N/A0.30%#DIV/0!122.48%0.17%p1.48%-22.71%1.74%0.03%
Sunchang Corp002820#N/A0.16%#DIV/0!#DIV/0!0.16%p0.56%-51.04%0.00%0.00%
Gene One Life Science Inc011000#N/A0.15%-43.30%#DIV/0!0.15%p0.66%-44.14%24.40%0.13%
Hansol Logistics Co Ltd009180#N/A0.71%3.56%24.45%0.14%p2.42%-33.84%-4.29%-0.11%
Wooridul Huebrain Ltd118000#N/A0.59%6.74%28.68%0.13%p0.87%-43.30%10.77%0.08%
SK Gas Ltd.018670#N/A0.20%#DIV/0!191.56%0.13%p1.43%79.31%-50.69%-1.47%
Union Corp000910#N/A0.12%#DIV/0!#DIV/0!0.12%p0.51%-48.97%0.00%0.00%
Haein Corporation003010#N/A0.52%#DIV/0!28.02%0.11%p1.44%-15.40%-1.61%-0.02%
KEPCO Engineering & Construction Co Inc0526901910.65%11.16%20.06%0.11%p1.37%126.46%0.41%0.01%
Camus Engineering & Construction Inc013700#N/A0.10%-20.33%#DIV/0!0.10%p0.46%-38.64%-36.11%-0.26%
Hanatour Service Inc039130#N/A2.09%15.68%4.68%0.09%p4.20%-35.24%0.94%0.04%
Daelim B&Co Co Ltd005750#N/A0.09%#DIV/0!#DIV/0!0.09%p0.37%-30.41%23.85%0.07%
Sangsangin Investment & Securities CoLtd001290#N/A0.09%#DIV/0!#DIV/0!0.09%p0.21%10.33%-2.06%0.00%
Kolon Industries Inc1201101400.18%59.72%78.57%0.08%p2.77%-14.86%-4.00%-0.12%
Hyungji Elite Inc093240#N/A0.18%70.45%74.81%0.08%p0.50%-45.22%1.52%0.01%
Cosmax Inc1928201440.43%-10.80%22.16%0.08%p2.45%-86.54%-25.21%-0.83%
Samsung Heavy Industries Co.,Ltd010140541.37%-15.17%6.02%0.08%p4.85%-34.59%-4.10%-0.21%
Woori Investment Bank Co Ltd010050#N/A0.24%16.28%46.74%0.08%p0.59%-19.06%0.79%0.00%
Seoyon Co Ltd007860#N/A0.15%-71.04%102.92%0.08%p0.32%-94.35%0.00%0.00%
Source: KRX & KOFIA
Top 20 short interest declinersTickerK200Apr 7 Short1M1W1W %pApr 9 Loan1M1W1W %p
Hyundai BNG Steel Co Ltd004560#N/A0.24%-59.31%-59.64%-0.36%p1.52%-16.81%20.46%0.26%
Samsung Pharm Co Ltd001360#N/A0.58%-41.18%-30.23%-0.25%p2.76%-41.31%2.87%0.08%
Tong Yang Moolsan Co Ltd002900#N/A0.50%-49.21%-31.96%-0.24%p1.80%-26.96%-2.17%-0.04%
Celltrion, Inc.06827052.90%-18.76%-6.84%-0.21%p7.87%4.23%-5.19%-0.43%
Feelux Co Ltd033180#N/A0.52%-6.37%-28.31%-0.21%p0.98%-28.01%0.26%0.00%
Doosan Infracore Co Ltd042670983.53%-17.90%-5.48%-0.20%p9.24%-52.01%-0.59%-0.06%
Taeyang Metal Industrial Co., Ltd.004100#N/A0.00%#DIV/0!-100.00%-0.18%p0.51%-29.75%0.80%0.00%
Bumyang Construction Co Ltd002410#N/A0.00%#DIV/0!-100.00%-0.17%p0.77%-42.12%3.60%0.03%
Willbes & Co Ltd008600#N/A0.98%-15.82%-14.09%-0.16%p1.67%-4.05%-0.16%0.00%
DSR Corp155660#N/A0.00%#DIV/0!-100.00%-0.15%p0.75%-35.86%1.00%0.01%
Daechang Co Ltd012800#N/A0.61%-53.89%-19.53%-0.15%p2.18%-2.11%0.46%0.01%
Samsung Biologics Co Ltd207940180.37%-34.36%-27.37%-0.14%p1.67%-30.70%-6.99%-0.13%
Daeyoung Packaging Co., Ltd.014160#N/A0.42%-10.53%-23.90%-0.13%p1.12%-27.80%-1.63%-0.02%
Intergis Co Ltd129260#N/A0.00%-100.00%-100.00%-0.13%p0.41%-19.99%1.41%0.01%
Comtec Systems Co., Ltd.031820#N/A0.27%-29.95%-30.94%-0.12%p0.85%-45.37%-7.97%-0.07%
DY Power Corp210540#N/A0.16%-45.22%-42.59%-0.12%p0.60%-50.06%0.41%0.00%
Seoul Food Industrial Co Ltd004410#N/A0.46%-17.05%-20.72%-0.12%p0.96%-38.40%-3.44%-0.03%
Paik Kwang Industral Co Ltd001340#N/A1.23%6.80%-8.26%-0.11%p2.38%-29.44%0.09%0.00%
Hyundai Pharmaceutical Co Ltd004310#N/A0.52%-13.27%-15.75%-0.10%p1.09%-43.29%0.05%0.00%
Orient Bio Inc002630#N/A0.22%-26.60%-29.27%-0.09%p0.57%-38.47%-1.45%-0.01%
Source: KRX & KOFIA

Top 20 loan balance: holders & weekly gainers/decliners

Loan balance should be a leading indicator, relative to short interests.

DL Holdings tops the list as 13.99% of the shares are currently being loaned. Doosan Infracore and Hotel Shilla follow DL Holdings, but both of them continue to be on the decline MoM. Lotte Tour gained a bit last week but is still at a 46.13% drop over the last month.

As a %p of the SO, the gainers are GS Retail (+1.00%p), Samwha Capacitor (+0.91%p), & KCTech (+089%p). The decliners include LG HAUSYS (-1.77%p), SK Gas (-1.47%p), and DL E&C (-1.18%p).

Top 20 loan balanceTickerK200Apr 7 Short1M1W1W %pApr 9 Loan1M1W1W %p
DL Holdings Co Ltd000210700.08%0.84%17.50%0.01%p13.99%17.60%-3.15%-0.45%p
Doosan Infracore Co Ltd042670983.53%-17.90%-5.48%-0.20%p9.24%-52.01%-0.59%-0.06%p
Hotel Shilla Co Ltd008770632.96%-1.53%-0.16%0.00%p8.34%-9.24%-0.74%-0.06%p
Kyeryong Construction Industrial Co.013580#N/A0.26%-90.45%0.00%0.00%p8.15%6.73%-0.56%-0.05%p
Lotte Tour Development Co., Ltd.0323501536.69%2.52%0.39%0.03%p8.10%-46.13%2.15%0.17%p
Celltrion, Inc.06827052.90%-18.76%-6.84%-0.21%p7.87%4.23%-5.19%-0.43%p
NS Shopping Co Ltd138250#N/A0.05%9.48%0.00%0.00%p6.79%1.66%-0.49%-0.03%p
GS Retail Co Ltd0070701240.09%3.56%10.10%0.01%p5.90%30.95%20.53%1.00%p
Doosan Heavy Industries Constrctn Co Ltd034020610.52%22.62%1.41%0.01%p5.77%2292.48%8.66%0.46%p
LG Display Co Ltd034220411.40%-11.22%2.10%0.03%p5.24%-38.96%3.85%0.19%p
Hanshin Construction Co., Ltd.004960#N/A0.20%0.00%0.00%0.00%p5.13%3.72%0.00%0.00%p
Kolmar Korea Co Ltd1618901350.16%49.13%4.84%0.01%p5.05%28.26%-1.47%-0.08%p
Samsung Heavy Industries Co.,Ltd010140541.37%-15.17%6.02%0.08%p4.85%-34.59%-4.10%-0.21%p
Cuckoo Homesys Co Ltd2847401900.18%-28.26%-4.01%-0.01%p4.83%41.47%-5.03%-0.26%p
Green Cross Holdings Preference Shares005257#N/A0.00%-100.00%#DIV/0!0.00%p4.75%-0.15%0.00%0.00%p
LG Chem Ltd05191040.26%8.37%0.85%0.00%p4.57%9.03%0.30%0.01%p
Netmarble Corp251270260.66%1126.86%2.29%0.01%p4.34%-18.30%9.85%0.39%p
LG Innotek Co., Ltd.011070680.37%4.66%5.60%0.02%p4.25%190.05%20.29%0.72%p
Hanatour Service Inc039130#N/A2.09%15.68%4.68%0.09%p4.20%-35.24%0.94%0.04%p
Sunjin Co Ltd136490#N/A0.10%-0.94%0.39%0.00%p4.07%2.81%3.29%0.13%p
Source: KRX & KOFIA
Top 20 loan balance gainersTickerK200Apr 7 Short1M1W1W %pApr 9 Loan1M1W1W %p
GS Retail Co Ltd0070701240.09%3.56%10.10%0.01%5.90%30.95%20.53%1.00%p
Samwha Capacitor Co Ltd001820#N/A0.52%-9.05%10.01%0.05%2.24%32.24%68.42%0.91%p
KCTech Co Ltd281820#N/A0.00%#DIV/0!#DIV/0!0.00%1.24%260.48%249.45%0.89%p
Lotte Fine Chemical Co Ltd0040001140.06%-27.69%-11.29%-0.01%1.93%316.83%66.00%0.77%p
LG Innotek Co., Ltd.011070680.37%4.66%5.60%0.02%4.25%190.05%20.29%0.72%p
Doosan Heavy Industries Constrctn Co Ltd034020610.52%22.62%1.41%0.01%5.77%2292.48%8.66%0.46%p
Netmarble Corp251270260.66%1126.86%2.29%0.01%4.34%-18.30%9.85%0.39%p
Sungmoon Electronics Co Ltd014910#N/A0.00%#DIV/0!#DIV/0!0.00%1.45%97.51%36.11%0.38%p
NK Mulsan Co Ltd009810#N/A0.00%#DIV/0!#DIV/0!0.00%2.25%120.48%20.51%0.38%p
HMM Co Ltd011200420.09%-9.74%11.32%0.01%3.52%-47.90%11.22%0.35%p
NCSoft Corp036570110.33%-5.16%2.89%0.01%2.27%-2.19%17.10%0.33%p
Kolon Corp Preference Shares002025#N/A0.00%#DIV/0!#DIV/0!0.00%1.29%-37.05%33.79%0.33%p
LG International Corp0011201510.27%-6.26%3.44%0.01%2.65%-3.71%12.86%0.30%p
Tae Young Engineering&Constructin Co Ltd0094101890.06%-55.37%3.72%0.00%1.25%30.00%29.26%0.28%p
Shinpoong Paper MFG Co Ltd002870#N/A0.00%#DIV/0!#DIV/0!0.00%0.47%311.90%123.41%0.26%p
Hyundai BNG Steel Co Ltd004560#N/A0.24%-59.31%-59.64%-0.36%1.52%-16.81%20.46%0.26%p
Uni CHEM Co., Ltd.011330#N/A0.00%-100.00%#DIV/0!0.00%1.17%-18.02%24.08%0.23%p
Daishin Securities Co., Ltd003540#N/A0.22%-29.16%-8.35%-0.02%2.00%-9.52%11.71%0.21%p
Tongyang Inc001520#N/A1.08%-0.25%-0.89%-0.01%2.19%-0.70%10.21%0.20%p
E Kocref CR-REIT088260#N/A1.19%0.00%0.00%0.00%2.92%-25.07%7.38%0.20%p
Source: KRX & KOFIA
Top 20 loan balance declinersTickerK200Apr 7 Short1M1W1W %pApr 9 Loan1M1W1W %p
LG HAUSYS, LTD.1086701680.16%-20.57%-10.00%-0.02%2.08%-82.75%-46.03%-1.77%p
SK Gas Ltd.018670#N/A0.20%#DIV/0!191.56%0.13%1.43%79.31%-50.69%-1.47%p
DL E&C Ord Shs375500#N/A0.05%-7.09%30.68%0.01%1.73%-39.33%-40.40%-1.18%p
Sungshin Cement Co Ltd004980#N/A0.48%-0.06%0.80%0.00%0.92%-54.05%-48.23%-0.86%p
Cosmax Inc1928201440.43%-10.80%22.16%0.08%2.45%-86.54%-25.21%-0.83%p
Hana Financial Group Inc086790220.26%-16.65%-12.31%-0.04%2.74%-31.64%-18.43%-0.62%p
Hyundai Heavy Industries Holdings Co Ltd267250660.17%-41.32%-3.03%-0.01%1.27%39.99%-30.38%-0.55%p
DL Holdings Co Ltd000210700.08%0.84%17.50%0.01%13.99%17.60%-3.15%-0.45%p
Jahwa Electronics Co Ltd033240#N/A0.20%0.41%0.00%0.00%3.85%-38.52%-10.31%-0.44%p
Hanmi Semiconductor Co Ltd042700#N/A0.13%-0.94%-11.91%-0.02%1.14%-20.64%-27.87%-0.44%p
Celltrion, Inc.06827052.90%-18.76%-6.84%-0.21%7.87%4.23%-5.19%-0.43%p
SK Hynix Inc00066030.07%10880.52%-22.19%-0.02%3.17%7.33%-11.72%-0.42%p
Huneed Technologies005870#N/A0.09%#DIV/0!-0.97%0.00%0.46%-68.16%-46.13%-0.39%p
Hyundai Motor S1 Pref Shs005385#N/A0.01%-22.76%-7.30%0.00%0.82%-32.44%-31.53%-0.38%p
F&F Co., Ltd0077001610.06%-31.02%26.97%0.01%2.93%-20.87%-10.58%-0.35%p
SK Chemicals Co Ltd285130560.04%-27.68%27.51%0.01%1.40%-41.78%-18.58%-0.32%p
Hanshin Machinery Co Ltd011700#N/A0.34%0.00%0.00%0.00%1.35%-29.65%-18.52%-0.31%p
Daesung Holdings Co Ltd016710#N/A0.00%#DIV/0!#DIV/0!0.00%0.54%-28.19%-36.10%-0.31%p
Cs Wind Corp1126101210.06%-30.58%25.81%0.01%0.82%9.23%-26.58%-0.30%p
Dongkuk Steel Mill Co., Ltd0012301570.09%8.86%10.15%0.01%1.25%-25.61%-17.63%-0.27%p
Source: KRX & KOFIA

Hong Kong Buybacks: Xiaomi Bought Back $1.5bn in past Two Weeks

By Ke Yan, CFA, FRM

Hong Kong Exchange publishes share repurchases by listed companies on a daily basis. In our weekly note, we will provide statistics on top repurchases over one week, one month, one quarter and one year periods ended on Apr 09.

In the past 7 days, the top 3 companies that repurchased the most shares from the market were Xiaomi Corp (1810 HK) (HKD 1,199.4 million worth of buybacks), Hengan Intl Group (1044 HK) (HKD 75.9 million worth of buybacks), Fosun International Limited (656 HK) (HKD 33.5 million worth of buybacks).


Before it’s here, it’s on Smartkarma

Event-Driven: HYBE, Tencent Holdings, iSharesGlobal Clean Energy ETF and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • HYBE (Big Hit Ent) Rights Offer Presents a Nice Setup for a Classic Arb Trade
  • Last Week in Event SPACE: Naspers/Tencent, Toshiba, Coca-Cola Amatil, Invesco J-REIT, Tabcorp
  • Index Rebalance & ETF Flow Recap: SK IE Tech, SK Bios, FTSE June, S&P Clean Energy, STI, Tencent

HYBE (Big Hit Ent) Rights Offer Presents a Nice Setup for a Classic Arb Trade

By Sanghyun Park

As a part of the mega acquisition deal, HYBE proceeds with an offering of its own.

The company will offer 2.2 M shares for ₩440B at a capital increase of 6.25% and a shareholding dilution of 5.89%.

It is a 100% stockholder allocation at a per-share allocation of 0.0625383.

Overview
IssuerHYBE (Big Hit Entertainment Co Ltd)
Ticker352820
TargetA public offering of forfeited shares after offering to stockholders
TransferabilityRenounceable
Volume2,227,848
Bonus issue volume0
Preliminary price₩197,500
Preliminary value₩439,999,980,000
Oversubscription privilege20.00%
BankerNH
– Underwriting typeStandby
Source: DART
Allocation
Common35,623,760
Pref (incl. RCPS & CPS)0
Total shares35,623,760
Treasury shares0
Total shares ex treasury shares35,623,760
Offer volume2,227,848
– Common2,227,848
– Pref0
Per-share allocation0.0625383
Capital increase6.25%
Dilution5.89%
Total shares after rights offer37,851,608
– Common37,851,608
– Pref0
ESOP allocation0
– %0.00%
Stockholder allocation2,227,848
– %100.00%
Source: DART

The discount rate is set at 15%, more aggressive than the usual 20%.

Pricing
1st roundRP × (1 – 15%) / [1 + (6.25% × 15%)]
– Reference price (RP)Min [1D VWAP, Avg (1D VWAP, 1W VWAP, 1M VWAP)]
– Reference date2021. 4. 14
Ex-rights base price[RP + (1st × 6.25%)] / (1 + 6.25%)
– Reference price (RP)Previous close
– Reference date2021. 4. 16
2nd roundRP × (1 – 15%)
– Reference price (RP)Min [1D VWAP, Avg (1D VWAP, 1W VWAP)]
– Reference date2021. 5. 27
FinalMax [Min (1st, 2nd), 3D VWAP × 60%]
– Reference date2021. 5. 27
Discount rate15.00%
Capital increase rate6.25%
Source: DART

April 14 is the first-round pricing, followed by the ex-rights on April 16. Subscription rights trading is May 6~12. Then we have the final pricing on June 1.

The subscription is June 1, and the payment will be June 9. The new shares will get listed on June 22.  

Timetable
BOD meeting2021. 4. 2
Preliminary pricing2021. 4. 14
Ex-rights date2021. 4. 16
Record date2021. 4. 19
Subscription rights trade beginning2021. 5. 6
Subscription rights trade ending2021. 5. 12
Final pricing2021. 5. 27
Stockholder subscription2021. 6. 1
Public subscription2021. 6. 4
Payment2021. 6. 9
Listing2021. 6. 22
Source: DART

Last Week in Event SPACE: Naspers/Tencent, Toshiba, Coca-Cola Amatil, Invesco J-REIT, Tabcorp

By David Blennerhassett

Last Week in Event SPACE …

  • We can assume that if the 3-year promise on locking up shares in Tencent Holdings (700 HK) is important to Naspers (NPN SJ), twice, it may be important again.
  • The headline number of ¥5,000/share for Toshiba Corp (6502 JP) is too low, by a fair bit, and there are a lot of hurdles (which are NOT shareholders wanting more) before this could go forward (allowing shareholders to want more).
  • On the 16 April, Coca Cola Amatil (CCL AU)‘s independent shareholders will vote on what should be a pretty straightforward Scheme.
  • Invesco Office J Reit (3298 JP) is a difficult situation to assess.  There is not much information. It was hostile for full takeout. There hasn’t been a similar precedent. 
  • Entain (ENT LN) pushes its case for an outright sale of Tabcorp Ltd (TAH AU)‘s wagering ops, but this would attract a regulatory minefield, plus CGT rollover relief would likely be lost.
  • 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)

STUBS

Naspers (NPN SJ) / Prosus (PRX NA) / Tencent Holdings (700 HK) 

Four years ago – a year before the last block – the Naspers discount to NAV was about 25%. A few years before that and it had been closer to zero. It briefly widened to almost 40% in Q1 2018 prior to the block sale before narrowing to the mid-30s through the block sale. In the past year, the look-through discount narrowed briefly to about 45% after the covid-crash, but then steadily widened to 55% by most of August-September and closing wider than 55% at the end of October.  At that time, Prosus announced a US$5bn buyback. Prosus has now launched another Tencent Offer. This was as expected, but delayed. It is the same 2.0% as before and the price is nearly 50% higher than it was last time, so now it is nearly 50% more money. 

However, the SINGLE MOST IMPORTANT factor to this announcement is that Prosus has committed to not selling more Tencent shares for another three years. That is not positive for Prosus and Naspers investors.  

  • Originally, the selldown was noted as a way to provide more balance and invest more in the other e-commerce businesses to create a group of verticals of best-in-class internet assets.  Since three years ago, there has been some effort to grow them by bolting on some acquisitions, but not a huge amount. And last year Prosus decided that buying its own shares was a better deal than buying external assets to grow inorganically.

  • At this point, it would seem that the most important capital allocation decision would be to see Prosus distribute a large amount of its Tencent shares to its shareholders. That would narrow the dollar discount. Perhaps the shareholders would keep the Tencent and perhaps they would not, but the dollar value of the discount would narrow dramatically.

  • But Travis’ bet is that the existing control group will not decide to give up their control of a US$250bn asset for the sake of good capital management of all its investors. I expect they will simply decide to hold the assets. Even if Tencent were split up into many parts by Chinese regulators I am not sure that Prosus would look to liquidate them for cash.

  • If they liquidated them for cash and ended up with $200bn of cash and $20bn of e-Commerce portfolio, they would almost be obliged to distribute most of the cash. And Travis is not sure they want to give up their hold over the portfolio that size. Simply doing nothing makes them a Very Big Global Investor. Doing something good renders them a lot smaller. 

Links to:
Travis’ insight: Be Careful What You Wish For REDUX – Prosus Selling US$15bn in Tencent
my insight: StubWorld: Naspers/Tencent – And Another Three Years
Brian’s insight: Tencent Placement – Limited Passive Flow; HSI, HSCEI Trackers to Sell in June

Thai Beverage (THBEV SP) 

I currently see ThaiBev’s discount to NAV at ~25% – around its narrowest inside a year. Following the no-objection notice from the SGX on the 4 February concerning its BeerCo IPO, ThaiBev announced that the SGX has issued its conditional eligibility-to-list letter for the potential listing.  

  • ThaiBev’s shares have declined 7% since my last insight. I see perhaps 12% upside from here if assuming a 25% discount to NAV. Given its growth potential, investors may switch out of ThaiBev into BeerCo. That, and comparative liquidity, could push the NAV discount wider. 
  • Using forward EBITDA, my current value for BeerCo of S$10.6bn is 18% below the indicative figure at the time of my last report StubWorld: Double Stub Via ThaiBev’s BeerCo IPO. If extrapolating out the attributable profit in the 1Q21 for the full year and apply a peer multiple of ~26x, you get ~S$8bn. Both this calculation and the material decline in the EBITDA-based value serve to highlight the risks attached to valuing the spin-off. 
  • ThaiBev is trading at 14x trailing EV/EBITDA, compared to its five-year average of 16.5x. The peer average is 12.5x over the same period. But ThaiBev’s forward EV/EBITDA is closer to 20x if you mark the minority interest in Saigon Beer to market.
  • ThaiBev still appears fully priced here. I’d still sell it.

M&A – ASIA

Toshiba Corp (6502 JP) (Mkt Cap: $18.7bn; Liquidity: $120mn)

Exactly one year ago today, Travis Lundy wrote An MBO for Toshiba? Not As Silly As It Sounds after an article in an “investigative” magazine called FACTA (most famous for pre-commenting on the fraud on Olympus nearly a decade ago) put out an article “Toshiba: Kurumatani’s Astonishing MBO Scheme: Will He Be Able to Expel Noisy Shareholders?” Nikkei Asia has now reported that CVC Capital Partners would propose a privatisation of Toshiba valuing the company at $20.8bn or something near ¥5,000/share. CVC will discuss the terms of the deal with management and will also need to win approval from the Finance Ministry. This is not as easy a deal as another deal might be. Toshiba is a FEFTA category 3 stock. It is sensitive enough that there would be global anti-trust concerns

  • ¥5,000/share would be the wrong price. At recently rumored offer valuations and IPO valuations touted in the media, Kioxia shares are worth well upwards of ¥2,000/share to Toshiba. The rest of the business should earn ¥300-350bn in EBITDA according to consensus estimates for 2023-2024. 6x EBITDA would add another ¥3,600-4,400/share. 8x EBITDA for the business would add ¥5,000-5,900/share to the value of Kioxia. ¥6,000/share would probably invite competition. ¥8,000/share would be more appropriate. 
  • Kioxia Timing is Important: The stock price last summer just before a Kioxia IPO was not too dissimilar from the price this past week. But Kioxia is worth more now than it was then given geopolitical concerns, tightness in the chip market, proposed subsidies to capacity buildout, etc. Average FY2022-2023 EBIT and EBITDA forecasts are up slightly since then. And TOPIX investors have bought about 45 million shares and are track to buy another 15mm shares at the end of April. 
  • There is another TOPIX upweight likely at the end of April. This should be known. But it is now more important. It will be another 15mm shares or 3.3% of shares out. It would be more like 5.2% of Real World Float assuming one counts all the Activist Holders now looking at this situation as float. 
  • Travis liked this at ¥3000 in January because of the squeeze to come and the possibility for lack of overhang because of activist action on the EGM and AGM. We have that lack of overhang, and now we have another story. He likes it now at ¥4530 (at the time of his insight). He would not sell or short this at ¥4500-5000/share yet.

Links to 
Travis’ insight: Toshiba – The CEO Gets His MBO Bidder and Toshiba Will Get Interesting
Mio Kato‘s insights: Toshiba – CVC Capital Partners Bid Highlights ValueToshiba – Tsunakawa’s Reappointment as EO Is Probably the End for Kurumatani

Coca Cola Amatil (CCL AU) (Mkt Cap: $7.5bn; Liquidity: $35mn)

Back on the 26 October, Australia’s largest non-alcoholic beverage bottler CCL announced an indicative proposal of A$12.75/share from Coca-Cola European Partners plc (CCEP). A firm Offer was announced on the 4 November. Reports immediately surfaced that some major shareholders considered the proposal inadequate.  Responding to shareholder pushback, CCEP and CCL entered into a Scheme Implementation Deed at A$13.50/share on the 15 February, a 5.9% bump to the firm Offer on the 4 November, and a  25.6% premium to the undisturbed price. The Offer was declared best and final.  Independent CCL shareholders will vote on the proposal at the Scheme Meeting to be held on the 16 April. Coca-Cola Co (KO US) (TCCC) with 30.808% of shares out, will abstain from voting. 

  • The board declared a full-franked dividend of A$0.18/share.  The ex-date/record date is the 16 April/19 April, with payment on the 30 April. The Scheme consideration will be adjusted for this dividend.
  • CCEP has now advised CCL that it has elected to purchase all the remaining shares held by TCCC at the implementation of the Scheme, for cash. TCCC will subsequently cease to be a shareholder of CCL.
  • Trading tight at a gross/annualised spread of ~0.5%/4%. That’s not particularly attractive, although the franking credits attached to the final dividend will represent additional value to those shareholders who are able to realise a tax benefit from those franking credits. Buy on any dips.

(link to my insight: Coca Cola Amatil (CCL AU): This Is It)

Invesco Office J Reit (3298 JP)  (Mkt Cap: $1.6bn; Liquidity: $9mn)

Together with affiliated investors, on Friday Starwood Capital Group filed that it owned just over 5% of Invesco Office and announced its intention to conduct a Tender Offer to buy out minorities. Invesco Office J-REIT, for its part, this morning announced that this was made “unilaterally and with no prior notification.” This classifies the action as hostile. The Tender Offer Price is to be set at JPY 20,000/unit, which is s 13.3% premium to Friday’s close, and a premium of 14.68% and 23.71% to the 1mo and 3mo closing price averages. 

  • The trade is to be long Invesco Office J-REIT at terms or slightly higher. Travis expects that unitholders may tender, but active unitholders may want to sell in the market at a higher price. He expects the Bidder has some flexibility. One’s best and final price is rarely exactly the nearest large rounded number (JPY 20,000/share). 
  • If it comes down to a white knight defense, It may be a tough-run thing. This is a run-off book rather than a growth book. Its assets likely suits a private sale to a re-developer or real estate trader. Starwood fits that bill. Other major office or diversified REITs might not fit that bill. And other non-REIT real estate buyers might balk too.
  • But Ichigo Office Reit Investmen (8975 JP) might fit the bill for a partner pretty well. 
  • The likelihood of Tender Offer success and potential upside from here against the likelihood of failure of this Tender Offer and possible downside to represent an uncomfortable reward/risk situation. 

Think Childcare (TNK AU) (Mkt Cap: $0.1bn; Liquidity: <$1mn)

Although Alceon initially let their matching right lapse, on 24th December 2020, they launched a revised non-binding and indicative proposal for TNK matching that of Busy Bees’ non-binding bid (A$1.75/share) and also announced they had acquired a relevant interest of 19.23% in TNK. Roughly a month later, Busy Bees revised their competitive bid to A$2.10/share –  a 20% bump from the previous bid level. I discussed this situation again in Think Childcare (TNK AU): Bigger Bid by Busy Bees reiterating my bullish stance on the stock. However on 4th March 2021, as the Shares were trading through Terms at A$2.23, considering the deal break risk, Janaghan suggested in Think Childcare (TNK AU): Trading Through Terms. Should You Fold Now? that it might be time to exit.  Turns out he was wrong this time. Busy Bees launched a revised bid at A$3.20.

  • This is still a non-binding proposal and comes with the following key conditions: Completion of satisfactory due diligence; and receipt of any necessary regulatory approvals (eg: FIRB).
  • Alceon, who currently holds 19.21% (11,739,083 shares), has agreed to vote in favour of the transaction in the absence of a superior proposal.  If Alceon, who acquired their stake at ~A$1.75/share roughly 3.5 months ago with a hostile/competitive motive, is willing to accept this Deal, Janaghan expects most of the remaining shareholders will accept this Deal too. 
  • With such a long time til the Scheme meeting (expected Q1 FY2022 which is CQ1 in 2022) and such a large potential gap to the downside, Janaghan expects it to trade wide over time.From a trading perspective however, it is a better reward/risk ratio lower down. 

(link to Janaghan’s insight: Think Childcare (TNK AU): Busy Bees Delivers a Knock-Out Bid)

Jih Sun Financial (5820 TT) (Mkt Cap: $1.7bn; Liquidity: $3mn)

On 23 March, Fubon Financial Holding Co (2881 TT) reported that its Tender Offer for control of Jih Sun was successful.  This was, apparently, possibly a surprise, as local media suggested last week that Shinsei Bank (8303 JP) had received an approach to buy their stake in Jih Sun for NT$15/share – well above the NT$13/share that Fubon had bid.  A day before the close of the Tender Offer, internal directors at Jih Sun were apparently of the opinion Shinsei would not tender, however it appears the NT$13/share in hand was better than the $15/share which was still only indicative, so they sold.  That leaves the squeezeout. 

  • As a risk arb trade, buy NT$12.60 or lower this week.
  • If you can get good leverage, this is a good, quite safe, somewhat high-yielding deal. 
  • If you are a long-only investor and you want a place to “hide out” in Taiwanese financials for whatever reason, this is a good place to do so. It is not likely to be lower (including dividends) in September than here).

(link to Travis’ insight: The Squeezeout of the Remaining 46% of Jih Sun Financial)

The promoter’s Open Offer to buy up to 651mm shares (17.51%) of Vedanta Ltd (VEDL IN) at Rs 235/share is coming to a close.  With two days to go, the shares today closed at Rs. 231.75/share as Hindustan Zinc (HZ IN) closed up 6.07%, briefly touching Rs 300/share intraday. Travis sees no reason why a 100% pro-ration is not possible.  Going forward, float should be substantially smaller. And expect higher volatility. This includes higher outright volatility and higher HZ-relative volatility. Travis sees no particular need to carry a position at the Tender Offer Price. In Vedanta (VEDL) Offer Coming To A Close: Watch For Antics, he would be inclined to buy any large dip in the share price of VEDL.

The Nikkei reported that Bain Capital’s bidding consortium has received preferential negotiating rights from Hitachi Metals (5486 JP). The rumoured valuation is above ¥800bn which would put the premium at just 3.2% above the last close. As Mio said previously, the potential for a large hike to those terms seems limited and better returns may be on offer in trying to identify other potential buyout targets. Link to Mio’s insight: Hitachi Metals – Limited Upside Despite Bain Capital News But Let’s Find the Offshoot Ideas.

The Niit Ltd (NIIT IN) buyback is a decently large Tender Offer Buyback. If everyone tenders to the full extent, pro-ration will be 7.1% for most shareholders. Record Date was 24 February. Those who held then can tender. Those who did not, cannot. Shares have spent most of the last ten years WELL above the Tender Offer Buyback Price. There is a chance that a large number of shareholders do not tender. If one believes only 50% of shareholders are likely to tender, then shareholders should buy 14% of their existing position and tender the shares they held as of 24 February. If the shares go higher than Rs 240 by the end of the Tender Offer, that is a high quality problem and one may sell the 107-114% of the position one had. Link to Travis’ insight: NIIT Limited Buyback – If You Own (Active Or Passive), You Should Read.

EVENTS

Tabcorp Ltd (TAH AU) (Mkt Cap: $8.3bn; Liquidity: $19mn)

TAH merged with Tatts Group Ltd (TTS AU) in November 2017 in an A$11bn transaction. Less than two years later, with the wagering division – which includes the retail betting shops and online betting brands – facing stiff competition on all fronts, and synergistic benefits from the merger not being extracted at expected levels, a demerger was floated. Fast forward another three-plus years: after rejecting a A$3bn offer from Entain (ENT LN) (owner of Ladbrokes) to buy its wagering and media division, Tabcorp said last week it will undertake a strategic review to assess and evaluate all structural and ownership options to maximise value. The strategic review is expected to take between 12 weeks and 13 weeks, the conclusion of which may tie in with the release of the FY21 financials. 

  • A demerger, in Entain’s view, does not address the challenges facing the wagering ops, which needs to recast its agreements with state racing authorities, increase its investment in technology, and introduce innovative products, as it still lags online rivals. TAH’s chairman was less enthusiastic with a sale, as he would prefer shareholders keep as much as they can. Complications involved in separating the lotteries and wagering businesses would also arise, such as certain tax advantages around potential capital gains tax rollover and dividend relief. A demerger would likely enjoy CGT rollover relief that a trade sale would not.
  • It has been argued a demerger – which typically takes 6 to 12 months – is just too long for Tabcorp to get its house in order, and that a sale is a better-fast tacked option. Yet a sale would require approvals from racing regulatory bodies, hotels, pubs and clubs, state governments, the ACCC, and (potentially) FIRB. Changes of control provisions would also be triggered. In addition, probity and regulatory issue may have been ratcheted up in the wake of the Crown Resorts (CWN AU) saga –  Crown Resorts (CWN AU): Blackstone Rolls the Dice.
  • The announcement of a strategic review just three months into Gregg’s tenure as chairman, suggests a sale or demerger may have legs. Especially noting recently departed CEO David Attenborough dismissed the idea of a demerger in August 2019 as “total nonsense“. I’d be picking up shares around here – with 30% upside to my fair value. Currently trading at a 6% premium to its COVID-cliff.

(link to my insight: Tabcorp (TAH AU) – Conscious Uncoupling)

Wakita & Co Ltd (8125 JP)  (Mkt Cap: $0.5bn; Liquidity: $1mn)

Waikita has been a deep value stock for years. It has had deep value investors owning stakes before. However, the company has pretty low ROE based on truly awful capital allocation policy. A very large portion of the long-term assets in the firm are effectively managed by people with little to no experience in the space, in a sub-optimal capital structure. The company has large amounts of net cash, and securities, and more securities and crossholdings. And the entire company is effectively a leasing business with some add-ons, and it finances itself with almost zero debt. While it is dangerous to call a paradigm change on companies where there is a significant corporate cross-holding and significant family holding and control, there are times when the confluence of events make stocks like Wakita worth a deeper look.

  • There is an activist who will push an agenda at the AGM, but who will most likely lose almost all the agenda items. A better bet would have been to push out directors based on bad governance because that would only require 50% support, which even then would have been difficult. 67% for a change in the Articles of Incorporation would be nigh impossible in my opinion. 
  • And the advent of a new version of the Corporate Governance Code would mean pressure on the substantial cross-holding position to unwind itself. There is a non-negligible chance the situation could end up as a possible MBO situation. And if it did, I would expect a fight. And MORE activism than what we have now. IF there is an attempted MBO soonish, Travis would expect it at ¥1500-1600/share. 
  • Big dips should be bought. The company is entirely under-levered which means that owning it using leverage and being “long gamma” market moves is appropriate. 

(link to Travis’ insight: Japan Activism: A Look into Wakita (8125 JP) Potential Pre-Event)

TOPIX Upweights: Big April Basket 2021 Pre-Event Was a WIN

The Tokyo Stock Exchange (TSE) calculates Free-Float Weight (FFW) for each listed company and uses this value as a key component of TOPIX Index Calculation. For companies with “low liquidity” the FFW will be multiplied by a fixed liquidity factor (“LF”) of 0.75 to derive the final FFW used for index calculation. In TOPIX Index Upweights: The Big April Basket 2021, Janaghan Jeyakumar  discussed how the Tokyo Stock Exchange reviews this Liquidity Factor every April and highlighted 50 names (the “Big April Basket 2021”) that could potentially have their liquidity factors removed in this April’s review.

  • Earlier this week, the official review results were announced and 48 out of 50 names in our Big April Basket 2021 were correct translating to a hit ratio of 96%. There were 11 other names added, and two of the names we expected to see the LF lifted did not.
  • As at the close ahead of the announcement, our Big April Basket (equally-weighted) was up +3.61% against the TOPIX Index in 7 trading days (since the close of the day after the insight) and there could be more to come. 
  • Travis chimes in with OTHER names in the TOPIX rebalance for April 2020, including a total of 43 up-weights and 16 down-weights with ~ US$500mm to buy and US$260mm to sell.

Links to:
Janaghan’s insight: TOPIX Upweights: Big April Basket 2021 Pre-Event Is a WIN! Now the Event-Leg!
Travis’ insight: TOPIX April-End Rebalance – The OTHER Trades

M&A – EUROPE

In his previous Insight Creval – Crédit Agricole: Playing Hard to Get, Jesus Rodriguez Aguilar  mentioned that a sweetened bid could come around €12 per share. Whilst that has not yet happened, the Board of Credito Valtellinese Sc (CVAL IM) (CreVal) issued on 29 March a statement that followed the usual script to back the assertion that the offer is “inadequate” on both stand-alone and M&A (developed in the Insight). In CreVal – Crédit Agricole: Grounds for an Improved Offer Jesus reckons Crédit Agricole should be able to increase the offer price to €12.4, for a total cost of c. €117 mn.

PAIRS

Investors unloaded Chinese e-vapor stocks following the announcement of draft amendments to the Tobacco Monopoly Law, if approved could extend the law’s jurisdiction to e-cigarettes. As a result, RLX Technology Inc (RLX US)’s share price fell 48% whileSmoore International (6969 HK)’s (less dependent on China) fell by 23%. Meanwhile, the lock-up period for RLX’s pre-IPO holders’ expiries on 21st July 2021 possibly leading to additional selling pressure in the short term. In Long Smoore/Short RLX: RLX’s Lock-Up Expiry Could Aggravate the Sell-Off, Oshadhi Kumarasiri recommends a Long Smoore/Short RLX pair trade.

ASIAN SPACS

The Singapore Exchange announced a regulatory framework for SPACs to list on the SGX and asked the market for feedback. Subsequent to the feedback phase ending on the 28 April, the framework may be finalised in the middle of this year.  The SGX makes it clear SPACs are susceptible to execution risks where the SPAC is unable to identify a suitable target company or successfully consummate the business combination within the pre-determined period. But given the clear demand for such instruments, the SGX evidently sees the benefits outweigh the risks.

TAKEOVER RULES – THAILAND

This revised guide – Quiddity M&A Guide 2021: Thailand– is part of a series of M&A guides that our Quiddity team are publishing to aid investors in understanding the rules, parameters, possibilities, and processes when companies conduct mergers and acquisitions. 

The initial guide – Quiddity Thailand M&A Guide 2019 – was published in May 2019. Since that time, there have been some new developments/clarifications, many of which relate to voluntary de-listings. This is an update.

M&A – US

The abandonment of its merger transaction with China Oceanwide has freed a financially healthier Genworth Financial Inc Cl A (GNW US) to pursue its revised strategic plan without restrictions and without uncertainty regarding its ultimate ownership. With what had seemingly been a never ending saga now finally over, Robert Sassoon asserts in SpinTalk: How Genworth Financial Holdings (GNW US)Creates More Value Without The Oceanwide Merger that Plan B will likely yield a more beneficial outcome to GNW shareholders than had the Oceanwide transaction moved to completion in the current circumstances.

INDEX REBALS

FTSE GEIS June Index Rebalance Preview. Stocks that could be included in the FTSE All-World index are Evergrande Property Services (6666 HK)China Resources Mixc Lifestyle Services (1209 HK)Pop Mart International Group Limited (9992 HK)Blue Moon Group Holdings (6993 HK)Remegen Co Ltd (9995 HK)Jinke Smart Services (9666 HK)Shimao Services Holdings Limited (873 HK)PTT Oil and Retail (OR TB)Big Hit Entertainment (352820 KS)SCG Packaging Public Company Limited (SCGP TB)MR D.I.Y. Group (MRDIY MK)Gland Pharma Ltd (GLAND IN) and Indian Railway Finance Corporation (IRFC IN). Stocks that could be included in the FTSE All-Country index are Yidu Tech Inc (2158 HK)Everest Medicines (1952 HK)Kerry Express Thailand (KEX TB)Converge ICT Solutions (CNVRG PM)Nanofilm Technologies International (NANO SP), and Roland Corp (7944 JP). Link to Brian’s insight: FTSE GEIS June Index Rebalance Preview: IPOs, J-REITs, India FOL. Read more: FTSE GEIS June Index Rebalance Preview: IPOs, J-REITs, India FOL.

Global Clean Energy Index. The changes to the S&P Global Clean Energy Index have been announced. There are 52 additions to the index to take the number of index constituents up to 82. The changes are effective after the close of trading on 16 April. The 52 additions and capping changes will result in a one-way turnover of close to 55% and will require the ETFs tracking the index to trade US$12bn to rebalance their portfolios. Link to Brian’s insight: Global Clean Energy Index: 52 Adds, 55% Index Turnover, US$12bn to Trade.

Straits Times Index Rebalance Preview. Jardine Strategic Holdings (JS SP) will be deleted from the MSCI and FTSE indices at the close of trading on 12 April. Strategic will also be deleted from the FTSE Straits Times Index (STI) (STI INDEX) at the close of trading on 12 April. The replacement for Strategic in the STI will be determined based on the closing prices on 8 April. Frasers Logistics & Industrial Trust (FLT SP) has a full market cap that is 10.1% higher than Suntec REIT (SUN SP) and is the most likely inclusion in the index with 2 trading days to go before the replacement is chosen. Link to Brian’s insight: Straits Times Index Rebalance Preview: FLT Poised to Replace Jardine Strategic.

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

CTEH (1620 HK)75.00%LegoOutside CCASS
Yunfeng Financial Group (376 HK) 16.13%MSHSBC
Guru (8121 HK)14.40%CelestialOutside CCASS
China International Capital Corporation (3908 HK) 10.90%Std ChartOutside CCASS
Netdragon Websoft (777 HK) 14.51%CitiSt Chart
Pps International Holdings (8201 HK) 64.91%St ChartCTW
Source: HKEx

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

Name

% chg

Into

Out of

Pangaea (1473 HK)44.98HSBCOutside CCASS
Source: HKEx

Index Rebalance & ETF Flow Recap: SK IE Tech, SK Bios, FTSE June, S&P Clean Energy, STI, Tencent

By Brian Freitas

In this weeks recap, we look at:

In the ETF space, the largest inflows went into Nikkei 225 (NKY INDEX) linked ETFs while most of the ETFs with outflows were indexed to the Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX).

Events this week

Close of

Index

Detail

12 April
FTSE AW/ FTSE China 50
Tencent Holdings (700 HK) Investability Weight increase
12 April
STI
16 April
S&P Global Clean Energy

Before it’s here, it’s on Smartkarma

Event-Driven: Toshiba Corp, Niit Ltd, Samsung Electronics, Bilibili Inc and more

By | Daily Briefs, Event-Driven

In today’s briefing:

  • Toshiba – Tsunakawa’s Reappointment as EO Is Probably the End for Kurumatani
  • NIIT Limited Buyback – If You Own (Active Or Passive), You Should Read
  • Korea NPS Local Equity Weight Change: Stocks to Be Affected
  • Bilibili in Talks to Buy 24% Stake in Yoozoo Games to Enhance and Strengthen Content Offerings

Toshiba – Tsunakawa’s Reappointment as EO Is Probably the End for Kurumatani

By Mio Kato

Toshiba was down 5.4% today after its board chair downplayed the possibility of any quick decision on CVC’s preliminary, non-binding offer. It is now down 11.2% from the ¥4,805 high yesterday and is 14.7% below the indicative bid price of ¥5,000 suggesting limited confidence in a bid actually going through. This is not necessarily wrong, but there is much to consider here and some of Toshiba’s moves here are interesting.


NIIT Limited Buyback – If You Own (Active Or Passive), You Should Read

By Travis Lundy

Rarely do I write a title like this. I think it is my first one. But I think it is worthwhile.

In late December 2020, the Board of NIIT Ltd (NIIT IN) met to approve a proposal for a Share Buyback. A Postal Ballot followed and was passed. On 15 February the Public Announcement was made with a Record Date of 24 February. The Buyback was set to open on 12 April 2021 and end on 28 April 2021. 

On 5 April 2021, we got the Letter of Offer.

If you own the stock, in an active or passive portfolio, you should consider the parameters and the possibilities.


Korea NPS Local Equity Weight Change: Stocks to Be Affected

By Sanghyun Park

The Korea NPS made it official that it would increase the SAA tolerable band from ±2.0%p to ±3.0%p but reducing the TAA to ±2.0%p to keep the overall tolerable band at ±5.0%p.

SAA & TAA tolerable bandsSAA (strategic asset allocation)TAA (tactical asset allocation)
Domestic bonds±3.5%p±5.0%p
Overseas bonds±0.5%p±1.0%p
Domestic stocks±3.0%p±2.0%p
Overseas stocks±1.0%p±1.0%p
Alternative±1.2%p±1.2%p
Source: Korea NPS

As of January this year, the actual weight is 21%, 4.2% over the target of 16.8%.

NPS local equity weightFY2020 yearendFY2021 Jan
Target17.30%16.80%
Actual21.20%21.00%
– Excess %3.90%4.20%
Source: SED

It was under SAA ±2.0%p and TAA ±3.0%p.

Assuming the SAA ±2.0%p being filled up, the TAA was filled up at 73% (2.2%p of the 3%p limit).

Now with the SAA extended up to 3%p, 73% of the 2%p room comes at 1.5%p.

Assuming the SAA is filled up and the TAA still stays at the same 73%, the NPS can raise the local equity weight by 0.3%p, which translates into ₩0.5T worth of immediately available funds for additional local equity buying.

* The local equity holding totaled ₩180T as of Jan 2021. The NPS owns 6.95% of KOSPI and KOSDAQ combined and 8.24% of KOSPI.

(₩T) – as of Jan 2021AmountWeight
Total assets855.3100.00%
Financial investment854.199.90%
Domestic equity180.021.00%
Overseas equity201.323.50%
Domestic bonds330.938.70%
Overseas bonds47.65.60%
Alternative92.210.80%
Short-term liquidity2.10.20%
Other1.00.10%
Source: Korea NPS
(₩T)KOSPIKOSDAQ
Number of companies8051,496
Number of constituents9231,499
Market cap2,183.4405.1
Combined2,588.5
Korea NPS-owned local equity180.0
– % of the combined KOSPI and KOSDAQ6.95%
– % of KOSPI8.24%
Source: KRX

Bilibili in Talks to Buy 24% Stake in Yoozoo Games to Enhance and Strengthen Content Offerings

By Shifara Samsudeen, ACMA, CGMA

Several news media outlets reported on Thursday (08th April 2021) that the Chinese mobile games and Video streaming platform Bilibili Inc (BILI US) is in talks to buy a 24% stake in Yoozoo Games.

Yoozoo Games based in China is engaged in the development, distribution, publishing and operation of mobile games and internet games.

In addition to acquiring a 24% stake in Yoozoo Games, Bilibili is said to be in talks to acquire Yoozoo’s headquarters building in Shanghai and also take over nearly RMB700m in debt that is left by the company’s late founder.

A majority of Bilibili’s users are aged below 35 years and the company aims to make use of these young users to tap into the video games market. Bilibili itself offers mobile games that accounted for about 29% of total revenues in 4Q2020. Mobile games used to account for a majority of the company’s revenues, however, with strong growth in revenue from value-added services, the segment’s revenue contribution has declined to about 30%.


Before it’s here, it’s on Smartkarma