Event-Driven

There were a bunch of rebalance announcements last week from FTSE and Nifty, and implementation of changes to the MSCI, JPXNK400 and Hang Seng indexes.
The changes to the Nikkei 225 (NKY INDEX) should be announced early in the coming week and the changes to the SSE STAR50 (STAR50 INDEX) will be implemented on Friday.
There were large inflows to China and Hong Kong focused ETFs during the week.

KOSPI 200 December Rebalancing Safe Play

Although not many, there are strong candidates for a safe play aimed at constituent change. Inclusion: Lotte Confectionery & Exclusion: Samyang Holdings
Lotte Confectionery’s average daily market cap must fall by more than 30% to be pushed out of the borderline. Samyang Holdings’s market cap gap to the second-lowest one is 17%.
The trading volume of these two is so small that a significant passive impact (relative to DTV) will likely occur. We should consider a little more aggressive approach, timing-wise.

Yamada Denki (9831) Buyback Progress Strong But Big Impact To Come

In early May 2022, Yamada Denki (9831 JP) launched a GINORMOUS buyback program. I wrote about it suggesting the company meant business. The stock popped outright and vs Peers.
Then it fell back, and has only recently started moving back up. Surprising given buyback dynamics but it may have been overhang. If so, that overhang should be gone now.
And the stock is cheap, a chunk of the register is sticky, so this could get squeezier now.

Weekly Deals Digest (04 Sep) – Giordano, BYD, Link Net, MACA, Nitro, Nearmap, Leapmotor, Onewo

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – Leapmotor (2007699D HK) and Onewo Space-Tech (ONEWO HK) are pre-marketing a US$1.5 billion and US$2.0 billion HKEx IPO, respectively.
Event-Driven developments – BYD (1211 HK), Giordano International (709 HK), MACA Ltd (MLD AU), Nitro Software Ltd (NTO AU), Link Net (LINK IJ).

Nikkei 225 Sep 2022 Review Update

The Nikkei 225 rebalance will likely be announced this week. I continue to be slightly off-kilter, expecting Nidec, SMC, and Oriental Land to replace Unitika, Oki Electric, and Toho Zinc.
Others would expect Hoya to replace Maruha Nichiro instead of Oriental Land replacing Toho Zinc, but I think it Nikkei Sector balance may matter. It could go either way.
Tactically speaking, cumulative volumes and Real World Float tell you how you might trade this.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Nitro Software, MACA, Giordano, Link Net

There are 49 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
One new deal was discussed this week: Potentia’s rejected proposal for Nitro Software Ltd (NTO AU).
Key updates took place for MACA Ltd (MLD AU), Giordano International (709 HK), and Link Net (LINK IJ).

Last Week in Event SPACE: Kyocera, Hang Lung Group, CSRC/PCAOB Audit Terms, MACA, Nitro Software

Kyocera (6971 JP) is not blowing out the lights versus peers, but it’s relatively inexpensive to its history and peers. If Kazuo Inamori’s shares are sold, Kyocera can buy them.
Hang Lung (10 HK) currently trades at a 62% discount to NAV, a level last seen around the Covid lows in May 2020.
Washington and Beijing reach an agreement allowing US regulators access to audits of Chinese companies listed on American exchanges. However, US regulators remain cautious about the success of the deal.

FTSE TWSE Sep 22 Rebal: 100% Hit Rate, Elan Deletion Confirmed, Significant Flows from Div+ Capping

The index changes for the FTSE TWSE Taiwan 50 and Taiwan Mid-Cap 100 indices for the September 2022 Rebalance were announced after the close on Friday.
There will be one change for the Taiwan 50 Index and five changes for the Taiwan Mid-Cap 100 Index. All changes are exactly in line with our expectations.
In this insight, we take a closer look at our index flow expectations for this Rebalance event and for the Taiwan Dividend + Index Capping Event.

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Sep 03

Daily Brief Event-Driven: FTSE TWSE Taiwan 50/ Div+ Index Rebalance: Sinopac Holdings and Elan Micro To Watch For and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

FTSE TWSE Taiwan 50/ Div+ Index Rebalance: Sinopac Holdings and Elan Micro To Watch For
S&P/ASX Index Rebalance (Sep 2022): Adds, Deletes, Surprises & Pre-Positioning
EURO STOXX 50 Sep 22 Rebal: Massive Flows for Nordea Bank, Nokia, Kone, & Philips
STOXX Europe 600 Sep 2022 Rebal: ADDs Could Outperform DELs for the Next Few Weeks
Shanghai/Shenzhen Northbound Connect: Weekly Moves (2 September 2022)
Shanghai/Shenzhen Southbound Connect: Weekly Moves (2 September 2022)

FTSE TWSE Taiwan 50/ Div+ Index Rebalance: Sinopac Holdings and Elan Micro To Watch For

As expected, SinoPac Holdings (2890 TT) will replace Powerchip Semiconductor Manufacturing Corp (6770 TT) in the FTSE TWSE Taiwan 50 Index at the close on 16 September.
Elan Microelectronics (2458 TT) will be deleted from the Mid-Cap 100 Index and will consequently be deleted from the Dividend+ Index. The Div+ selling will be spread over 16-22 September.
Passives need to buy over 6 days ADV on SinoPac Holdings and sell over 12 days ADV on Elan Microelectronics, while there will be net inflows on Powerchip Semiconductor Manufacturing Corp.

S&P/ASX Index Rebalance (Sep 2022): Adds, Deletes, Surprises & Pre-Positioning

There is one change for the S&P/ASX 100 Index, eight changes to the S&P/ASX 200 (AS51 INDEX), while there are 16 adds and 12 deletes for the S&P/ASX 300 Index.
Passive trackers need to buy/sell a lot of stock for the ASX100 and ASX200 names. There appears to be large pre-positioning on the deletes.
Link Administration (LNK AU)‘s privatisation may require an ad hoc inclusion prior to the implementation of the September rebalance – ACCC approval is key.

EURO STOXX 50 Sep 22 Rebal: Massive Flows for Nordea Bank, Nokia, Kone, & Philips

The annual index changes for the EURO STOXX 50 Index were announced yesterday.
There will be two ADDs and two DELs. Collectively, the ADDs could see index inflows of ~US$2.15bn while the DELs could experience index outflows of ~US$1.05bn.
In this insight, we take a closer look at the index flow expectations, historical performance of EURO STOXX 50 Rebal events, and recent performance of the current index change names.

STOXX Europe 600 Sep 2022 Rebal: ADDs Could Outperform DELs for the Next Few Weeks

The September 2022 index changes for the STOXX Benchmark Indices were announced yesterday.
There will be 16 ADDs/DELs for the STOXX Europe 600 Index and there will be 5 ADDs and 6 DELs for the EURO STOXX Index.
In this insight, we take a closer look at the index flow expectations and the historical performance of Rebal events.

Shanghai/Shenzhen Northbound Connect: Weekly Moves (2 September 2022)

Inside is a recap of movements in the last week relating to the Hong Kong Stock Exchange -Shanghai and Shenzhen Northbound Connect facilities, broken down by company and industry
Overall, net inflow over the past week was ~US$0.7bn, split between Shanghai (US$0.3bn) and Shenzhen (US$0.4bn).
The largest inflows were into Gree Electric Appliances (000651 CH) and CATL (300750 CH). The largest outflows were in Industrial Bank (601166 CH) and China Merchants Bank (600036 CH).

Shanghai/Shenzhen Southbound Connect: Weekly Moves (2 September 2022)

Inside is a recap of movements in the last week relating to the Shanghai and Shenzhen-Hong Kong Stock Connect facilities, broken down by company and industry.
Overall, the net outflow over the past week was ~US$0.1bn, split (-US$0.4bn) for Shanghai and (+US$0.3bn) for Shenzhen.
The largest inflows were into CNOOC Ltd (883 HK) and Yankuang Energy Group (1171 HK). The largest outflows were in Meituan (3690 HK) and Kuaishou Technology (1024 HK).

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Sep 02

Daily Brief Event-Driven: Sep22 FTSE EPRA Nareit Index Rebalance – Big Impact on Sekisui House (1928 JP) and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Sep22 FTSE EPRA Nareit Index Rebalance – Big Impact on Sekisui House (1928 JP)
Hang Lung Group Chips Away At Holding In Hang Lung Props
STI Index Rebalance: Emperador IN, ComfortDelGro OUT
Kadokawa – Investments From Sony and Tencent
NIFTY NEXT50 Index Rebalance: Significant Impact for an Overlooked Index
NIFTY50 Index Rebalance: Adani Enterprises Replaces Shree Cement
FTSE UK Sep 2022 Rebal: Warehouse REIT (WHR) Sees HUGE Impact
NIFTY Sep 2022 Rebal: Adani Enterprises and Adani Total Gas Are Top Positives

Sep22 FTSE EPRA Nareit Index Rebalance – Big Impact on Sekisui House (1928 JP)

Yesterday FTSE Russell announced two Asian additions to its FTSE EPRA Nareit Global Developed Index – Sekisui House (1928 JP) and Healthcare & Medical Investment Corporation (3455 JP).
Sekisui House is larger cap, and will see big dollars added. H&M IC is much smaller and will see less, but has had a huge run-up, outright and relative.
Trading impact will be significant on both tickers in terms of days of ADV.

Hang Lung Group Chips Away At Holding In Hang Lung Props

Hang Lung (10 HK) recently announced it had acquired 1.3% in Hang Lung Properties (101 HK) over a one-year period, increasing its holding to 59.5%.
HLG currently trades at a 62% discount to NAV, a level last seen around the Covid lows in May 2020.
HLG is the most basic of Holdco structures – there is almost a 100% overlap in the stub ops with HLP’s property investments.

STI Index Rebalance: Emperador IN, ComfortDelGro OUT

Emperador (EMI SP) will replace Comfortdelgro Corp (CD SP) in the FTSE Straits Times Index (STI) (STI INDEX) at the close of trading on 16 September.
Though the changes were expected, there is over 4 days of ADV to trade on both stocks and we do not feel there are a lot of pre-positions built up.
There are some risks in the stocks, and we would look to close out positions prior to the implementation of the changes.

Kadokawa – Investments From Sony and Tencent

By Mio Kato

Kadokawa announced yesterday that subsidiary From Software would conduct a third-party allocation of shares to Sony and Tencent.
The allotment values From Software at about ¥120bn with Tencent acquiring 16.25% and Sony acquiring 14.09% of the company.
This creates opportunities for both Sony and Tencent and likely puts Kadokawa on track to eventually be acquired though timing may be somewhat later than we had anticipated.

NIFTY NEXT50 Index Rebalance: Significant Impact for an Overlooked Index

Adani Total Gas (ATGL IN), Bharat Electronics (BHE IN), Hindustan Aeronautics (HNAL IN), IRCTC (IRCTC IN), Mphasis (MPHL IN), Samvardhana Motherson (MSS IN) and Shree Cement (SRCM IN) are adds.
Adani Enterprises (ADE IN), Jubilant Foodworks (JUBI IN), Lupin (LPC IN), Mindtree (MTCL IN), Punjab National Bank (PNB), Steel Authority of India (SAIL) and Zydus Lifesciences (ZYDUSLIF IN) are deletes.
There is significant impact on a lot of the stocks in terms of days of delivery volume to trade. Given the index is overlooked, there could be significant price movements.

NIFTY50 Index Rebalance: Adani Enterprises Replaces Shree Cement

Adani Enterprises (ADE IN) will replace Shree Cement (SRCM IN) in the NIFTY Index (NIFTY INDEX) at the close of trading on 29 September.
We had forecast the change in April and Adani Enterprises (ADE IN) is up over 60% since then while Shree Cement (SRCM IN) is down a bit.
Passive NIFTY Index (NIFTY INDEX) trackers will need to buy over 7% of the real float on Adani Enterprises (ADE IN). The stock could continue to move higher.

FTSE UK Sep 2022 Rebal: Warehouse REIT (WHR) Sees HUGE Impact

The index changes for the FTSE UK Indices for the September 2022 Rebalance were announced yesterday. There will be 3 changes for FTSE 100 and 8 changes for FTSE 250.
These index changes are mostly in line with our expectations in FTSE UK Quiddity Leaderboard Sep 2022: Avast, Meggitt, Brewin, and a Busy Rebalance Month.
However, there a couple of surprises. In this insight, we take a closer look at our expectations for index flows and potential trading ideas

NIFTY Sep 2022 Rebal: Adani Enterprises and Adani Total Gas Are Top Positives

The September 2022 Rebalance results for the NIFTY 50, 100, and 500 Indices were announced after the close on 1st September 2022.
There will be one ADD/DEL for the NIFTY 50 Index and 6 ADDs/DELs for the NIFTY 100 Index, mostly in line with our expectations.
In this insight, we take a closer look at our expectations for index flows and potential trading ideas.

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Sep 01

Daily Brief Event-Driven: FTSE EPRA Nareit Index Rebalance: Two Adds for Japan and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

FTSE EPRA Nareit Index Rebalance: Two Adds for Japan
Giordano (709 HK): Minimal Acceptance As Webb Ups Stake
Berkshire BYD’s Selldown Likely to Follow Its PetroChina Playbook
FTSE China A50 Index Rebalance: Three Changes Upcoming
FTSE China 50 Index Rebalance: Yankuang Energy (1171) To Replace Shenzhou Intl (2313)
Doosan Enerbility: Post-Block Deal Trading
(Mostly) Asia M&A: August 2022 Roundup
Nitro Software Rejects Potentia’s Proposal
JPX-Nikkei 400 Rebal 2023: End-Aug 2022
SpinTalk: On The Cusp Of Value Realization As Bluerock Residential Readies Its SFR Business Spin-Off

FTSE EPRA Nareit Index Rebalance: Two Adds for Japan

Healthcare & Medical Investment Corporation (3455 JP) and Sekisui House (1928 JP) have been announced as inclusions to the FTSE EPRA Nareit Developed Asia Index.
Healthcare & Medical Investment Corporation (3455 JP) is also an inclusion to the FTSE All Cap Index at the September rebalance and the EPRA Nareit inclusion will increase passive inflows.
Sekisui House (1928 JP) has been rangebound over the last few months and the index inclusion could take the stock higher relative to its peers in the short-term.

Giordano (709 HK): Minimal Acceptance As Webb Ups Stake

The Cheng-family Offer for Giordano International (709 HK) became open to tendering after the Composite Doc was issued on the 15 August.
With the first close less than a week away, acceptances are minimal – ~3.6%.
Separately, David Webb, who definitely will not be tendering, has increased his stake to 5.79%.

Berkshire BYD’s Selldown Likely to Follow Its PetroChina Playbook

BYD (1211 HK)’s shares declined by -8% on disclosure that Berkshire Hathaway Inc Cl B (BRK/B US) trimmed its stake from 20.04% to 19.92% of outstanding H Shares.
Berkshire will likely follow its PetroChina (857 HK) playbook and materially sell down over the next few months. Buffet stated that the PetroChina exit was “a decision based on valuation.”
Berkshire will apply the same investment discipline to the BYD stake. While the shares are trading at a discount to historical multiples, the Berkshire stake is an overhang.

FTSE China A50 Index Rebalance: Three Changes Upcoming

EVE Energy (300014 CH), PetroChina (601857 CH) and Shaanxi Coal (601225 CH) replace Anhui Conch (600585 CH), CPIC (601601 CH) and Zhangzhou Pientzehuang (600436 CH) at the close 16 September.
Estimated one-way index turnover at the rebalance is 3.1% and will result in a one-way trade of CNY 1,678m.
PetroChina (601857 CH) is also an inclusion to the FTSE All-World Index while China Pacific Insurance (2601 HK) is a delete from the Hang Seng China Enterprises Index (HSCEI INDEX).

FTSE China 50 Index Rebalance: Yankuang Energy (1171) To Replace Shenzhou Intl (2313)

Yankuang Energy Group (1171 HK) will replace Shenzhou Intl Group Holdings (2313 HK) in the FTSE China 50 Index at the close on 16 September.
Passive trackers will need to buy over 1 day of ADV on Yankuang Energy Group (1171 HK) while selling over 1 days ADV on Shenzhou Intl Group Holdings (2313 HK).
Short interest on Yankuang Energy Group (1171 HK) is over 10 days of ADV to cover and around 10% of float. That could help the stock move higher.

Doosan Enerbility: Post-Block Deal Trading

The deal size amounts to ₩572B at a volume of 28.54M shares. The per-share disposal price is ₩20,050, a 7.6% discount from the previous day’s closing price, ₩21,700.
Enerbility can be a timely LONG target of pension-driven flow in the context where the NPS is seen actively doing portfolio rebalancing lately.
The volume digested by wall crossing seems quite small, as suggested by yesterday’s short selling volume, the flow volatility range is highly likely to be concentrated in one direction.

(Mostly) Asia M&A: August 2022 Roundup

For the month of August, 10 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$8.5bn.
The average premium for the new deals announced (or first discussed) in August was ~41%, and a year-to-date average of 38%.
This compares to the average premium for all deals in 2021 (165 deals), 2020 (158 deals), and 2019 (145 deals) of 33%, 31%, and 31.5% respectively.

Nitro Software Rejects Potentia’s Proposal

Adobe rival Nitro Software Ltd (NTO AU) has rejected a A$1.58/share cash Offer from Potentia Capital.
Nitro considers the proposal to be highly opportunistic and comes at a time of significant share market volatility and cyclical weakness in global technology company valuations.
Separately, Potentia has acquired a 17% interest in Nitro. They are not done yet.

JPX-Nikkei 400 Rebal 2023: End-Aug 2022

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

SpinTalk: On The Cusp Of Value Realization As Bluerock Residential Readies Its SFR Business Spin-Off

By Robert Sassoon

Bluerock Residential Growth’s (BRG US) spin-off of its single-family rentals business, Bluerock Homes (BHM) is set for October 26, 2022
Although this is a delay on the initial target of 2Q 2022, BRG has proved to be a very defensive holding during a period of high market volatility
While financial information on BHM needs to be updated, there does appear to be significant hidden value waiting to be realized post October 6.

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Aug 31

Daily Brief Event-Driven: A Taiwan Basket Trade For A Special Index Rebal and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

A Taiwan Basket Trade For A Special Index Rebal
HSI, HSCEI, HSTECH: September Rebalance Flows Post Capping
SKT ADR Play on the 31st for MSCI Exclusion
S&P BSE Quiddity Leaderboard Dec 2022: Multiple Adani Names with F&O Question Marks
Nitro’s Opportunistic A$1.58 Offer from Potentia
Doosan Corp: A Block Deal Sale of 4.5% Stake in Doosan Enerbility
Link Net: Axiata’s MTO Kicks Off Today
Leapmotor IPO – Index Inclusion Timeline
Open Text/Micro Focus: Next Chapter in an Acquisition Growth Story
A Separation of Korea Zinc Group & Young Poong Group by the Choi & Jang Families?

A Taiwan Basket Trade For A Special Index Rebal

The FTSE TWSE Taiwan indices get rebalanced in line with the standard FTSE Global indices – on the third Friday of September.
The most interesting one is the probably the least famous. It has only one change but it has massive re-weightings because of the way the index is constructed.
Historical patterns suggest a right-way long-short basket, reversed on the event, is a good trade.

HSI, HSCEI, HSTECH: September Rebalance Flows Post Capping

The September rebalance of the HSI, HSCEI and HSTECH indices will use today’s closing prices to cap the index constituents at 8%. This will lead to large flows.
The largest inflows will be on Baidu (9888 HK), SenseTime Group (20 HK), China Shenhua Energy (1088 HK), Tencent (700 HK), Kuaishou Technology (1024 HK) and Anta Sports (2020 HK).
The largest outflows will be on Meituan (3690 HK), AIA Group (1299 HK), Sunny Optical (2382 HK), SMIC (981 HK), China Pacific Insurance (2601 HK) and China Construction Bank (939).

SKT ADR Play on the 31st for MSCI Exclusion

We need a hedge to short SKT on the 31st. For this, we need to consider trading SKT ADR, which is pretty liquid as DTV reaches nearly $8mil.
The play structure is simple. It exploits the pattern that passive flow is concentrated on underlying shares rather than ADRs. We witnessed this pattern in the last two cases.
Passive outflow may be aggravated since SKT leaves not only STANDARD but also sub-indices such as ESG. So, the degree of a temporary DR premium can get thicker.

S&P BSE Quiddity Leaderboard Dec 2022: Multiple Adani Names with F&O Question Marks

In this insight, we take a look at the names leading the race to become ADDs/DELs for the BSE SENSEX, 100, 200, and 500 Indices in the December 2022 Rebalance.
Based on the latest data, I expect one ADD/DEL for SENSEX, one ADD/DEL for BSE 100, and 3 ADDs/DELs for BSE 200.
The potential ADDs/DELs for SENSEX could see index flows of US$100mn or more but the other index changes are both small in size and volume impact (days-to-trade).

Nitro’s Opportunistic A$1.58 Offer from Potentia

Nitro Software Ltd (NTO AU) entered a trading halt in response to an AFR report that Potentia has lobbed an indicative non-binding proposal at A$1.58 per share.
Potentia’s offer follows its success in securing a 17% stake at A$1.58 per share on Monday night. The stake is large enough to deter rival schemes.
The offer is opportunistic and unattractive. However, the ability of Potentia to relatively quickly secure a significant stake suggests that the Board will be under pressure to engage.

Doosan Corp: A Block Deal Sale of 4.5% Stake in Doosan Enerbility

After the market close today, Doosan Corp (000150 KS) announced that it plans to sell a 4.5% stake in Doosan Enerbility (034020 KS) in a block deal sale.
The discount range on the block deal price is 5.1% to 7.8% based on today’s closing price of 21,700 won.
This block deal sale should have a positive impact on Doosan Corp but a negative impact on Doosan Enerbility.

Link Net: Axiata’s MTO Kicks Off Today

After Axiata (AXIATA MK) completed the acquisition of 66.03% in Link Net (LINK IJ) on the 22 June, Axiata was obligated to undertake a mandatory offer for the remaining 33.97%.
The MTO commences today and concludes on the 28 September. Payment will be the 6 October.
There are no conditions attached to the MTO. Play the spread, where available.

Leapmotor IPO – Index Inclusion Timeline

Leapmotor (2007699D HK) is said to be looking to raise between US$1bn-US$1.5bn by selling 290.9m shares in its IPO. At the top end, the company will be valued at HK$53bn.
The performance of its peers over the last year leaves a lot to be desired and could lead to lower demand in the IPO.
Leapmotor (2007699D HK) should be added to the HSCI and the Hang Seng Tech Index, though timing depends on when the stock lists on the HKEX (388 HK).

Open Text/Micro Focus: Next Chapter in an Acquisition Growth Story

By Jesus Rodriguez Aguilar

Open Text agreed a 532p/share cash offer for legacy software, highly leveraged FTSE250 constituent, Micro Focus (98% premium, 2.3x EV/Fwd Revenues, 6.4x EV/Fwd EBITDA), taking advantage of target’s downwards re-rating.
My TP based (5.6x EV/Fwd EBITDA based) is 350p, which reflects macro challenges. Although the offer from Open Text seems every generous, ROIC could reach low single teens.
Gross spread is 2.35% and the estimated annual return would be 4.38% assuming settlement by mid-February. Irrevocables amount to 16.62%, the lengthy part will be antitrust and FDI approvals. Long.

A Separation of Korea Zinc Group & Young Poong Group by the Choi & Jang Families?

The history of Young Poong Group goes back nearly 73 years ago in 1949 when two young men Ki-ho Choi and Byeong-hee Jang founded Young Poong.
Young Poong Group and Korea Zinc could be separated from each other with the Choi family controlling Korea Zinc and Jang family controlling Young Poong and related affiliates.
The bullish case for Young Poong and Korea Zinc would be that once they are separated, there could be greater management transparency and ownership structure which could boost overall efficiency.

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Aug 30

Daily Brief Event-Driven: China ADRs Delisting – Tide Is Turning – Non-HK Listed ADRs Are Already Outperforming and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

China ADRs Delisting – Tide Is Turning – Non-HK Listed ADRs Are Already Outperforming
MACA: Thiess’ Unsurprising Bump. NRW’s Move, If Any
Link Net’s MTO of IDR4,800 from Axiata Open from 30 August
SENSEX Index Rebalance Preview: Adani Green Could Replace Dr. Reddy
MACA’s Revised Thiess Offer Makes an NRW Rival Offer Increasingly Unlikely
ResApp’s Scheme Meeting on 7 September Still Faces Headcount Test Risk
Hanjin Kal Club Deal: Shorting on Waning Proxy Fight & Flow Trading on MSCI Inclusion

China ADRs Delisting – Tide Is Turning – Non-HK Listed ADRs Are Already Outperforming

By Sumeet Singh

On 26th Aug 2022, PCAOB and CSRC announced that they had entered into an agreement granting US authorities access to investigate public accounting firms headquartered in China and HK.
On 2nd Apr 2022, CSRC put out a draft for public comments on the revision of certain provisions which would allow easier access by overseas regulators to China ADRs audits.
In this note, we’ll talk about the latest developments and its implications.

MACA: Thiess’ Unsurprising Bump. NRW’s Move, If Any

Back on the 26th July, diversified contractor MACA Ltd (MLD AU) announced a friendly off-market cash offer from fellow contractor Thiess, at A$1.025/share, a 28.1% premium to the undisturbed price.
The Bidder’s Statement was dispatched on the 9 August. After rejecting NRW Holdings (NWH AU)‘s non-binding proposal (implied consideration of $1.085/share), MACA dispatched the Target Statement on the 25 August.
Thiess has now lifted its all-cash Offer to A$1.075/share – a 34.4% to undisturbed. MACA is trading marginally through the revised terms. The first closing date is the 12 September.

Link Net’s MTO of IDR4,800 from Axiata Open from 30 August

On 22 June, Axiata Group (AXIATA MK) and XL Axiata (EXCL IJ) completed the acquisition of a combined 63.45% interest in Link Net (LINK IJ) for approximately RM2.63 billion (IDR8.72 trillion).
Today, Axiata announced that the mandatory tender offer (MTO) runs from 30 August to 28 September. The MTO price is IDR4,800 with no minimum acceptance condition.
At the current price of IDR4,740 per share, the gross and annualised spread for a mid-October payment is 1.3% and 9.1%, respectively.

SENSEX Index Rebalance Preview: Adani Green Could Replace Dr. Reddy

We are two-thirds of the way through the review period for the December review of the S&P BSE SENSEX Index (SENSEX INDEX). Changes become effective at the close 16 December.
We see Adani Green Energy (ADANIGR IN) as the highest ranked non-constituent in inclusion zone, while Dr. Reddy’s Laboratories (DRRD IN) is the lowest ranked constituent in deletion zone.
Passive trackers will need to trade over 10 days of delivery volume on Adani Green Energy (ADANIGR IN) and Dr. Reddy’s Laboratories (DRRD IN), so the impact will be significant.

MACA’s Revised Thiess Offer Makes an NRW Rival Offer Increasingly Unlikely

Theiss has improved its MACA Ltd (MLD AU) offer from A$1.025 to A$1.075 per share. The offer is conditional on 90% minimum acceptances, FIRB approval and no prescribed occurrences.
Theiss increased its shareholding to 15.90% of outstanding shares due to acceptances from MACA founders and directors. This is a stumbling block to a potential NRW Holdings (NWH AU) scheme.
While the value of NRW’s default option remains higher than Thiess’ revised offer, it is increasingly unlikely that NRW will start a bidding war.

ResApp’s Scheme Meeting on 7 September Still Faces Headcount Test Risk

Resapp Health (RAP AU)’s scheme meeting date has been set for 7 September. Pfizer Inc (PFE US)’s A$0.208 per share is its best and final offer.
The Board hoped that the threat of a discounted equity raise and Pfizer’s final offer would sway the retail shareholders’ NO vote camp. However, there remains a vocal NO camp.
The headcount test remains a key risk. The upside (9.5% spread to the offer) vs downside (likely equity raise at a huge discount) is an unfavourable risk/reward profile.

Hanjin Kal Club Deal: Shorting on Waning Proxy Fight & Flow Trading on MSCI Inclusion

Bando sold all of its 17% stakes through a club deal. Of this, about 3.8% went to LX Pantos. The remaining 13% found a new home among several institutional investors.
Outright shorting for Hanjin Kal seems to require a bit more cautious approach. That’s because there is still no definitive information on the owners of the 13% stake.
If the price correction does not go as harshly as expected and expectations for a proxy battle resurface, we should consider switching to flow trading aimed at MSCI inclusion.

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Aug 29

Daily Brief Event-Driven: CSRC and PCAOB “Agree” On Audit Terms – Now PCAOB Will Try To Prove a Negative and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

CSRC and PCAOB “Agree” On Audit Terms – Now PCAOB Will Try To Prove a Negative
Ramsay and KKR’s Game of Cat and Mouse
KODEX FnGuide Battery ETF Rebalancing Checkup
Merger Arb Mondays (29 Aug) – Ramsay, DTAC/True, Pendal, Link Admin, Ramsay, Infomedia, ResApp, MACA
Jeju Air Rights Offering Worth 320 Billion Won Diluting Existing Shareholders

CSRC and PCAOB “Agree” On Audit Terms – Now PCAOB Will Try To Prove a Negative

Friday in US time, the China Securities Regulatory Commission (CSRC), China’s MOF, and the US Public Company Accounting Oversight Board (PCAOB) “agreed” on a Statement of Protocol.
This SoP sets the outlines for PCAOB access to inspect/investigate audit papers and accounting firms in China and HK for companies listed in the US.
The releases’ difference in language is to be expected – different constituencies – but as PCAOB Chair Williams said, “Now we will find out whether those promises hold up.”

Ramsay and KKR’s Game of Cat and Mouse

Ramsay Health Care (RHC AU) disclosed that the KKR & Co Inc (KKR US) consortium withdrew its indicative proposal but remains committed to the alternative proposal, which the Board earlier rejected.
The alternative proposal, while inferior to the indicative proposal, is still attractive and better than the status quo of no deal. The Board will engage for an improved offer.
The value gap between the parties is not huge, and a deal is possible. The upside (20% to alternative proposal) vs downside (-9% to undisturbed price) is worth a punt.

KODEX FnGuide Battery ETF Rebalancing Checkup

I recommend focusing on the ceiling regression play. In this regard, SK Innovation has the most notable regression spread, and we should use Samsung SDI as a hedge against it.
As for constituent change, SungEel HiTech is firmly positioned with a market cap of ₩1.34T and a float rate of 50%. And it belongs to the Waste batteries keyword.
But, it is unclear whether SungEel will be in the top 25 in scoring. We should patiently wait until confirmation as it’s still a worthy candidate requiring our attention.

Merger Arb Mondays (29 Aug) – Ramsay, DTAC/True, Pendal, Link Admin, Ramsay, Infomedia, ResApp, MACA

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
Highest spreads – 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Infomedia Ltd (IFM AU), Ramsay Health Care (RHC AU), Resapp Health (RAP AU), True Corp Pcl (TRUE TB).
Lowest spreads MACA Ltd (MLD AU), Nearmap Ltd (NEA AU), Dongzheng Automotive Finance (2718 HK), Excelpoint Technology (EXLP SP), MyDeal.com.au Ltd (MYD AU), China Vast Industrial Urban Development (6166 HK)

Jeju Air Rights Offering Worth 320 Billion Won Diluting Existing Shareholders

On 26 August, Jeju Air (089590 KS) announced a rights offering worth 320 billion won, representing 39% of its market cap.
The expected rights offering price is 11,750 won (29% lower than its current price of 16,550 won) and the expected rights offering shares are 27.23 million shares.
Overall, we are negative on this rights offering mainly because we believe it is likely to result in too much dilution for the existing shareholders.

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Aug 26

Daily Brief Event-Driven: Pendal Group (PDL AU): Perpetual’s Bump Should Get the Deal Done and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Pendal Group (PDL AU): Perpetual’s Bump Should Get the Deal Done
Ramsay’s Overdue Update on the KKR Proposal
Pendal Enters Scheme With Perpetual
Pendal Gets a Binding Offer from Perpetual
I Squared/FirstGroup: Why Have the Negotiations Ended?
STOXX Europe Quiddity Leaderboard Sep 2022: 11 ADDs/DELs, Sandvik-Alleima, and More

Pendal Group (PDL AU): Perpetual’s Bump Should Get the Deal Done

Pendal Group and Perpetual Ltd have entered into a SID where Pendal shareholders will receive 1 share of Perpetual for every 7.5 shares in Pendal, plus cash of A$1.976/share.
While this is a premium to the last close and undisturbed prices, it is a discount to longer term prices. The Pendal Board has unanimously recommended the offer though.
In the short-term expect short covering on Pendal Group (PDL AU) and increased shorts on Perpetual Ltd (PPT AU) as arbs step in to close the gap.

Ramsay’s Overdue Update on the KKR Proposal

Ramsay Health Care (RHC AU) notes that discussions with KKR are ongoing, but the indicative proposal is held up by due diligence access to Ramsay Generale de Sante (GDS FP).
KKR proposed an alternative proposal that the Board rejected as “meaningfully inferior.” KKR remains interested, and its shenanigans are likely a move to nudge down the price.
At the last close, the risk/reward profile is favourable as the downside due to a deal break (-3% estimated decline) is lower than the upside (+20%) to the indicative proposal.

Pendal Enters Scheme With Perpetual

On the 4 April, asset manager Pendal (PDL AU)‘s board unanimously determined the indicative cash/scrip Offer proposal from Perpetual (PPT AU) undervalued the current and future value of the company.
Pendal And Perpetual have now entered into a SID such that Pendal shareholders will receive 1 Perpetual share for every 7.5 Pendal shares plus $1.976 cash for each Pendal share.
The negotiation clincher was the increase in the cash component by A$0.306/share. Should the deal complete, Pendal will hold 47% in the enlarged entity.

Pendal Gets a Binding Offer from Perpetual

Pendal Group (PDL AU) entered a scheme implementation deed with Perpetual Ltd (PPT AU). The revised offer – scrip (1 Perpetual share for every 7.5 Pendal share) and cash (A$1.976).
The revised offer throws in an 18.3% higher cash component as a sweetener. The offer implies a healthy acquisition multiple compared to peers.
The offer is subject to shareholder and regulatory approvals. At the last close price, the gross spread to the current offer value of A$5.635 per share is 13.7%.

I Squared/FirstGroup: Why Have the Negotiations Ended?

By Jesus Rodriguez Aguilar

On 16 August, I Squared confirmed it did not intend to make an offer for FirstGroup thus will now be precluded from bidding for six months.
The 15 August offer implied almost no premium for the core business, significant value not reflected, and a difficult to grasp structure for most investors, in my view.
A SOTP approach gives a fair value of 183.4p. The board seems right in its refusal. Other bidders may appear or I Squared may return to the negotiating table. Long.

STOXX Europe Quiddity Leaderboard Sep 2022: 11 ADDs/DELs, Sandvik-Alleima, and More

In this insight, we take a look at the names leading the race to become ADDs/DELs for the STOXX Europe 600 and EURO STOXX Indices for the September 2022 Rebalance.
Based on current rankings, there could be around 11 ADDs/DELs in the September 2022 Rebalance.
The completion of the Avast PLC (AVST LN) and Meggitt PLC (MGGT LN) deals could result in intra-review changes in September 2022.

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Aug 25

Daily Brief Event-Driven: StubWorld: Swire’s NAV Discount Further Narrows As Buyback Kicks Off and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

StubWorld: Swire’s NAV Discount Further Narrows As Buyback Kicks Off
FTSE TWSE Dividend+ Sep 22 Capping: Massive Negative Flows for Farglory, Greatek, & Elan
Intouch’s NAV Discount Not Supported By Higher Look-Through Payout
Intel’s $30 Billion JV with Brookfield Asset Mgmt: To Take Away Market Share from TSMC & Samsung?
KLCI Index Rebalance Preview: The Gloves Could Come Off
ESOP Lockup Releases: Iljin HySolus & Hyundai Heavy Industries
Hong Kong CEO & Director Dealings – 25th August 2022
APM Human Services IPO Lock-Up – PE with a US$620m Stake Comes Free

StubWorld: Swire’s NAV Discount Further Narrows As Buyback Kicks Off

Swire Pacific (19 HK) has bought back B/A shares in ratios of 63/37 and 72/28 over two days. Listing Rules suggest the ratio has to be higher than 76.71/23.29.
Preceding my comments on Swire are the current setup/unwind tables for Asia-Pacific Holdcos.
These relationships trade with a minimum liquidity of US$1mn, and a % market capitalisation >20%.

FTSE TWSE Dividend+ Sep 22 Capping: Massive Negative Flows for Farglory, Greatek, & Elan

The index constituent weights of the FTSE TWSE Dividend+ Index will be capped during the upcoming September 2022 Index quarterly index review.
In addition, Elan Microelectronics (2458 TT) could also get deleted as discussed in FTSE TWSE Quiddity Leaderboard Sep 2022: Elan Micro (2458 TT) Could Be a Big Negative Surprise
In this insight, we take a look at Quiddity’s expectations for index flows resulting from these events.

Intouch’s NAV Discount Not Supported By Higher Look-Through Payout

Intouch Holdings (INTUCH TB)‘s discount to NAV is back to levels last seen in November 2021, where euphoric trading was rolling over subsequent to Gulf Energy Development (GULF TB)‘s VTO.
Intouch’s net cash increased in the 2Q22 and its look-through interim dividend payout is the highest in at least five years.
I’d be shorting Intouch here and buying Advanced Info Service (ADVANC TB), with a view to mean reversion of ~25% NAV discount.

Intel’s $30 Billion JV with Brookfield Asset Mgmt: To Take Away Market Share from TSMC & Samsung?

On 23 August, Intel announced that it will partner with Canada’s Brookfield Asset Management to jointly fund up to $30 billion to make advanced semiconductor chips in Arizona.
Despite Intel’s aggressive plans to expand the semiconductor chip production, we are more concerned about the overall downturn in the semiconductor sector which lead to further decline in sales.
Despite our negative view of Intel’s shares in the near term, Intel could gain market share versus Samsung and TSMC in the semiconductor sector in the next three years.

KLCI Index Rebalance Preview: The Gloves Could Come Off

AMMB Holdings (AMM MK) and Ql Resources (QLG MK) could replace Hartalega Holdings (HART MK) and Top Glove Corp (TOPG MK) at the December rebalance.
One way turnover is estimated at 2.87% and the impact of passive flows is larger on the potential adds as compared to the potential deletes.
Westports Holdings (WPRTS MK) is a close add and there could be changes over the next few months as we approach the end of the review period.

ESOP Lockup Releases: Iljin HySolus & Hyundai Heavy Industries

Iljin HySolus and Hyundai Heavy Industries will release the ESOP volumes, 0.82% and 3.93% of SO, on September 1st and 17th. They have risen 2.3% and 145.8% from the listings.
Despite the small profit, it seems more probable that the Iljin HySolus ESOP will attempt to dispose of its shares immediately after the release, potentially leading to another price correction.
On the other hand, I would seek a hedge for the HHI ESOP lockup release. I would look at KSOE as a hedge for my short position on HHI.

Hong Kong CEO & Director Dealings – 25th August 2022

The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. However, such disclosures are by no means an absolute.
These insights also flag those companies where shares have been pledged, both recently and ongoing.

APM Human Services IPO Lock-Up – PE with a US$620m Stake Comes Free

By Sumeet Singh

APM Human Services (APM) raised about US$730m by selling a mix of primary and secondary shares in Nov 21. Its IPO linked lockup is set to expire later this month.
APM is an international human services provider, it runs 800 sites spanning 10 countries with its largest market being Australia.
In this note, we will talk about the lock-up dynamics and updates since our last note.

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Aug 23

Daily Brief Event-Driven: FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: HUGE Turnover as Review Period Ends and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: HUGE Turnover as Review Period Ends
10 Tradable Names for KOSPI Size Index Migration & Hyundai Mipo in Conjunction with MSCI Nov IR
FTSE TWSE Taiwan 50 Index Rebalance Preview: PSMC (6770) Deletion Could Offset Some All-World Flow
FTSE China A50 Index Rebalance Preview: PetroChina & EVE Energy Are Potential Adds
Samsung Electronics: Local Market’s Bet on a Buyback
Link’s Scheme Approved but Time Running Out for Satisfying Conditions Precedent
PTB Group Enters Scheme With PAG
Nearmap Enters a SID with Thoma Bravo at A$2.10
FTSE China 50 Index Rebalance Preview: Yankuang Energy (1171) Could Replace Shenzhou Intl (2313)
KB Kookmin Bank Invests 200 Billion Won in SK Square’s TMap Mobility

FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: HUGE Turnover as Review Period Ends

We do not forecast any deletions from the FTSE TWSE Taiwan Dividend+ Index in September. There will be a lot of flow from dividend yield changes and capping changes.
Based on the closing prices from 22 August, we estimate one-way turnover of 13.6% at the September rebalance resulting in a one-way trade of TWD 19,664m (US$653m).
Passive inflows will be focused (for the most part) on stocks that have underperformed and outflows will mainly be on recent outperformers.

10 Tradable Names for KOSPI Size Index Migration & Hyundai Mipo in Conjunction with MSCI Nov IR

Ten names, five each for each direction, are almost guaranteed to migrate between MID and LARGE. From the last time we checked, Hyundai Marine and Hanmi Science are newly added.
The rebalancing trading day is September 8, and both directions of MID⇔LARGE cause significant passive impact. So, Long/Short basket trading is a practical approach, starting about 20 days before effective.
We should consider approaching this event in conjunction with the MSCI IR. This is because of Hyundai Mipo Dockyard, the only candidate likely to join the MSCI Standard this November.

FTSE TWSE Taiwan 50 Index Rebalance Preview: PSMC (6770) Deletion Could Offset Some All-World Flow

Today is the review cutoff and we expect SinoPac Holdings (2890 TT) to replace Powerchip Semiconductor Manufacturing Corp (6770 TT) in the FTSE TWSE Taiwan 50 Index in September.
Passive Taiwan50 trackers will need to buy over 5 days ADV on SinoPac Holdings (2890 TT) and sell less than a days ADV on Powerchip Semiconductor Manufacturing Corp (6770 TT).
Powerchip Semiconductor Manufacturing Corp (6770 TT) has been added to the FTSE All-World Index and those trackers need to buy around 96.5m shares.

FTSE China A50 Index Rebalance Preview: PetroChina & EVE Energy Are Potential Adds

PetroChina (601857 CH) and EVE Energy (300014 CH) could replace China Pacific Insurance (Group) (601601 CH) and Zhangzhou Pientzehuang Pharmaceutical Co. (600436 CH) in the index at the September rebalance.
Assuming both changes are implemented, estimated one-way turnover is 2.24% and will result in a one-way trade of CNY 1,180m.
There has been no announcement from FTSE yet on the potential increase in the number of index constituents from 50 to 100.

Samsung Electronics: Local Market’s Bet on a Buyback

The local market is betting that Samsung Electronics will announce an additional shareholder return measure. Special dividends or buyback? They lean towards a buyback.
It is unlikely that it will be another pref-skewed buyback. The Lee family needs cash now, so preventing the dilution of voting shares becomes the top priority.
Hence, we should not have high expectations for a further decline in the pref discount. Instead, we should consider designing a short position aimed at block sales.

Link’s Scheme Approved but Time Running Out for Satisfying Conditions Precedent

Shareholders approved the scheme at the scheme meeting. However, Link Administration (LNK AU) shares declined due to the slow progress in satisfaction of conditions precedent.
Key conditions precedent is ACCC, FIRB, UK’s FCA and Central Bank of Ireland approvals. The wording in the Chairman’s address on the conditions precedent is incrementally negative.
The downside to a deal break remains low. At the last close, the potential upside to the offer (10.1%) outweighs the downside (-3.8% to our A$4.21 price target).

PTB Group Enters Scheme With PAG

Late last week aviation engine repair play PTB Group Ltd (PTB AU) entered into a Scheme Implementation Deed (SID) with PAG Holding Corp.
PAG is offering $1.595/share, a 40.5% premium to last close.
Apart from PTB shareholder approval, PAG’s Offer requires FIRB. This looks done. PTB’s board unanimously recommends the Scheme.

Nearmap Enters a SID with Thoma Bravo at A$2.10

Nearmap Ltd (NEA AU) entered a scheme implementation deed (SID) with Thoma Bravo at A$2.10 per share, a 39.1% premium to the undisturbed price.
The offer price is attractive. The key conditions are shareholders and regulatory (FIRB & US antitrust) approvals. The scheme meeting is in November.
At last close and for the end of November payment, the gross and annualised spread to the offer is 1.4% and 5.2%, respectively.

FTSE China 50 Index Rebalance Preview: Yankuang Energy (1171) Could Replace Shenzhou Intl (2313)

Yankuang Energy Group (1171 HK) is the highest ranked eligible non-constituent and could replace Shenzhou Intl Group Holdings (2313 HK) in the index at the September rebalance.
Passive trackers will need to buy over 1 day of ADV on Yankuang Energy Group (1171 HK) while selling over 1 days ADV on Shenzhou Intl Group Holdings (2313 HK).
Short interest is over 10% of float on Yankuang Energy Group (1171 HK) and there could be short covering as the stock breaks out.

KB Kookmin Bank Invests 200 Billion Won in SK Square’s TMap Mobility