Event-Driven

FTSE announced the results of the September SAIR for the FTSE All-World/All-Cap indices on Friday. There are 243 changes (adds, deletes, migrations across AW/AC) across Asia-Pac.
The largest inflows will go to PSMC (6770 TT), Sumber Alfaria Trijaya (AMRT IJ), Daqo New Energy (DQ US) and Tianqi Lithium (002466 CH).
FTSE will switch index membership from the US ADRs to the HK listings for New Oriental Education & Technology Group (9901 HK) and XPeng (9868 HK).

Hang Seng Index Rebalance – FOUR Names IN, None Out (The March to 80 Continues)

The Hang Seng Index Team announced four changes to the Hang Seng Index, bringing membership to 73 from 69, on its way to 80, but later than originally targeter mid-2022.
Additions are China Shenhua Energy Co H (1088 HK), Chow Tai Fook Jewellery (1929 HK), Hansoh Pharmaceutical (3692 HK), and Baidu (9888 HK).
Official placeholder turnover is about 3.8%. Small changes due to capping updates still to come. China Shenhua and possibly Chow Tai Fook look interesting as trades.

Hang Seng Tech Rebalance – No Name Changes But Lots of Flow

The Hang Seng Index Team announced the index review for the Hang Seng Tech Index Friday after the close. There were no additions or deletions.
However, there is a 4.9% one-way turnover on reasonably heavy FAF and capping changes. Sensetime sees a huge FAF increase. Tencent, Meituan, and Kuaishou get re-capped higher. Xiaomi lower.
There is a fair bit of flow, but the obvious big name – SenseTime Group (20 HK) – has potential overhang. Watch Haier Smart Home Co Ltd (6690 HK).

HSCEI Rebalance – One In, One Out, 3.1% One-Way Flow

On Friday the Hang Seng announced the changes to the HSCEI for the September rebalance. SenseTime Group (20 HK) is an ADD. China Pacific Insurance (2601 HK) a DELETE.
Meituan (3690 HK) and Tencent (700 HK) see their weights re-capped upwards. Alibaba Group (9988 HK) capped slightly lower. There are a number of FAF changes.
Little stands out other than the China Pacific Insurance (2601 HK) deletion. It runs low volatility vs Peers so could be a good buy on dip.

Merger Arb Mondays (22 Aug) – Link, Alliance, Nearmap, Genex, Ramsay, Lifestyle, EVOC, Giordano

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 are 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Infomedia Ltd (IFM AU), Resapp Health (RAP AU), Lifestyle International Holdings (1212 HK).
Lowest gross spreads are MACA Ltd (MLD AU), Dongzheng Automotive Finance (2718 HK), Excelpoint Technology (EXLP SP), Xiamen International Port H (3378 HK), MyDeal.com, Giordano International (709 HK).

Overheated Short Selling Designation in Korea: Precise Definitions for the Confusing Terms

The definitions of the terms used in this designation rule have not been clearly disclosed. Even the words used in the original Korean text make interpreting quite tricky.
What confuses investors the most is the Short Selling Proportion, basically the ratio of a stock’s short-selling to the market.
Amount Increase in Short Selling Transactions is also quite confusing. It is the ratio of a stock’s short selling to its 40-day average daily short selling volume.

Weekly Deals Digest (21 Aug) – CTGDF, Frasers Hospitality, Nearmap, Alliance, Tassal, Yashili

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 – China Tourism Group Duty Free Corp Ltd (1880 HK) priced its H Share at HK$158, WCP (WCP KS) issued an updated prospectus.
Event-Driven developments Alliance Aviation Services (AQZ AU), Nearmap Ltd (NEA AU), Tassal (TGR AU), Genex Power Ltd (GNX AU), Yashili International Holdings (1230 HK), Xiamen International Port H (3378 HK).

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Aug 21

Daily Brief Event-Driven: HSCI Index Rebalance: 24 Adds and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

HSCI Index Rebalance: 24 Adds, 14 Deletes & Changes to Stock Connect
Hang Seng TECH Index Rebalance: No Changes BUT Big Turnover
Last Week in Event SPACE: Tencent/Meituan, Jardine Matheson, Giordano, Nearmap, Fraser Hospitality
Fraser Hospitality Trust’s Scheme Meeting on 12 September
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Fraser Hospitality, Nearmap, Net Marketing, Tassal, Genex
Index Rebalance & ETF Flow Recap: S&P/ASX, CSI300, SSE50, HSI, HSCEI, HSTECH, HSCI, CTG IPO, KQ150
TOPIX Inclusions Pre-Event: Artspark Holdings (3663 JP)

HSCI Index Rebalance: 24 Adds, 14 Deletes & Changes to Stock Connect

There are 24 adds and 14 deletes for the Hang Seng Composite Index (HSCI) at the September rebalance to take the number of index constituents up to 518.
19 of the 24 HSCI inclusions will be added to Southbound Stock Connect, while 12 of the 14 HSCI deletions will be removed from Southbound Stock Connect.
Five of the HSCI constituents could be removed from Southbound Stock Connect only since the average market cap over the last year is less than HK$5bn.

Hang Seng TECH Index Rebalance: No Changes BUT Big Turnover

There are no changes to the index names, but FAF and capping changes will lead to a one-way turnover of 4.5% and one-way flow of HK$3,287m.
An increase in the FAF from 3% to 40% will result in passive inflows of HK$1.18bn for SenseTime Group (20 HK) – that is over 5 days of ADV.
There are large shorts on some of the stocks that will have passive outflows and some of these positions could be covered on implementation day.

Last Week in Event SPACE: Tencent/Meituan, Jardine Matheson, Giordano, Nearmap, Fraser Hospitality

Chinese food delivery giant Meituan (3690 HK) shed 9% after Tencent (700 HK) reportedly planned to divest its $24bn stake. But it may just be a misunderstanding. Maybe.
Given Jardine Matheson Holdings (JM SP)‘s strong underlying operating performance, the 40% discount to NAV – one in which there are discounts of discounts – JMH appears attractive here.
Expect a firm Offer for Nearmap Ltd (NEA AU) shortly. Thoma Bravo’s due diligence is already at an advanced stage. And why Nearmap entered into the break fee.

Fraser Hospitality Trust’s Scheme Meeting on 12 September

Frasers Hospitality Trust (FHT SP)’s EGM and trust scheme meeting will take place on 12 September. The effective date is 12 October with a payment date of 19 October.
The offer comprises S$0.70 cash per share + permitted distributions (estimated 1.356 cents). The IFA considers the scheme consideration to be fair and reasonable.
This is a done deal. For a 19 October payment, the gross and annualised spread of the offer (inc. permitted DPU) S$0.714 per unit is 1.9% and 12.1%, respectively.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Fraser Hospitality, Nearmap, Net Marketing, Tassal, Genex

There are 46 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Two new deals were discussed this week: Thoma Bravo’s tilt for Nearmap Ltd (NEA AU); Net Marketing (6175 JP)‘s MBO.
Key updates took place for Frasers Hospitality Trust (FHT SP), Tassal (TGR AU), Genex Power Ltd (GNX AU), MACA Ltd (MLD AU), and Giordano International (709 HK).

Index Rebalance & ETF Flow Recap: S&P/ASX, CSI300, SSE50, HSI, HSCEI, HSTECH, HSCI, CTG IPO, KQ150

A busy Friday with the end of the S&P/ASX review period and announcement of changes to the Hang Seng family of indices and FTSE AW/AC at the September rebalance.
Monday is the review cutoff for the FTSE TWSE Taiwan 50, STI, FTSE China 50 and A50 indices, among others. STAR50 Sep changes announcement expected post market close on Friday.
There were some big inflows into Asia focused ETFs during the week, while the outflows from KraneShares CSI China Internet ETF (KWEB US) continued for yet another week.

TOPIX Inclusions Pre-Event: Artspark Holdings (3663 JP)

By Janaghan Jeyakumar, CFA

After market close on Friday, Japan-based UI/UX software solutions company Artspark Holdings (3663 JP) announced (link) they will be working towards a Segment transfer from Standard market to Prime market.
If a TSE-listed name moves from the Standard Market to the Prime Market, a TOPIX Inclusion event will be triggered.
In this insight, we take a look at the ability of Artspark Holdings (3663 JP) to meet the Prime Market Segment Transfer Requirements and the TOPIX Inclusion Implications.

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Aug 20

Daily Brief Event-Driven: Frasers Hospitality Trust – Scheme Doc Out and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Frasers Hospitality Trust – Scheme Doc Out
Canon (7751) – Buyback Progress Update
Discussing Kakao Bank Block Deal Trading Dynamics
HSI Index Rebalance: Another Small Step Towards 80 Members, But BIG Impact
PTB Group’s Binding Offer from PAG
A Block Deal Sale of 3.1% of Kakao Bank by KB Kookmin Bank
HSCEI Index Rebalance: SenseTime (20 HK) Added As FAF Increases Dramatically

Frasers Hospitality Trust – Scheme Doc Out

A little long in the tooth but the Scheme Doc for Frasers Hospitality Trust (FHT SP) was released this morning.
It is the standard multi-hundred page document (in this case 502 pages). And it does little other than tell the same weak story as the announcement did.
But the price is unchanged and the Scheme Meeting is 10 September 2022. This looks like it will be a done deal.

Canon (7751) – Buyback Progress Update

Canon Inc (7751 JP) announced a buyback on 5 August. That was its 17th ¥50bn buyback in 15 years. And its first “second buyback within a single year” since 2014.
History suggests outperformance of Peers until the end of the buyback (and it has done well here), then underperformance post-buyback.
Consensus forward EPS and EBIT ratios vs Peers suggest Canon shares have more to catch up, but some of that would involve reclaiming historical “quality premium.”

Discussing Kakao Bank Block Deal Trading Dynamics

It seems clear that Kakao Bank’s situation is not good as the block deal risk exposure has increased. Additional disposable volume is 15% owned by the non-strategic institutional shareholders.
The factor that will reverse this, flow-wise, is MSCI’s float adjustment. But chances are low. So, we’d better maintain a short position betting on Kakao Bank’s further correction.
Nevertheless, if that happens, Kakao Bank will welcome additional passive flows equal to the amount of passive money currently parked, which is a major event causing a significant passive impact.

HSI Index Rebalance: Another Small Step Towards 80 Members, But BIG Impact

The inclusion of China Shenhua Energy Co H (1088 HK), Chow Tai Fook Jewellery (1929 HK), Hansoh Pharmaceutical (3692 HK) and Baidu (9888 HK) takes us to 73 index constituents.
Changes to the stocks, number of shares, float and capping result in an estimated one-way turnover of 5.09% and will result in a one-way trade of HK$10,562m.
There are large shorts on Chow Tai Fook Jewellery (1929 HK) and Hansoh Pharmaceutical (3692 HK) and there could be some short covering from now to implementation.

PTB Group’s Binding Offer from PAG

Ptb Group Ltd (PTB AU) entered a scheme implementation deed (SID) with Precision Aviation Group (PAG). The offer comprises A$1.595 + dividend up to A$0.03 per share (total of A$1.625).
The offer price is attractive. The key conditions are shareholder approvals and FIRB approval. The scheme meeting is on 16 November.
This is a done deal. At last close and for the 2 December payment, the gross and annualised spread to the offer + div is 3.8% and 13.5%, respectively.

A Block Deal Sale of 3.1% of Kakao Bank by KB Kookmin Bank

On 19 August, KB Kookmin Bank sold a 3.1% stake (14.76 million shares) in KakaoBank (323410 KS).
The block deal sale price was 28,704 won, which was 8% discount to the previous day’s closing price.
We continue to have a Negative view of Kakao Bank, due to further overhang on more share sales, concerns about partial ban of simple remittance, and unattractive valuations.

HSCEI Index Rebalance: SenseTime (20 HK) Added As FAF Increases Dramatically

SenseTime Group (20 HK)‘s Free-Float Adjustment Factor (FAF) increases from 3% to 40% following lock-up expiry and the stock will replace China Pacific Insurance (2601 HK) in the HSCEI INDEX.
Using prices from the close on 19 August, estimated one-way turnover is 3.82% and will result in a one-way trade of HK$2,751m at the close on 2 September.
Increase in the FAF on a couple of stocks saves them from index deletion in September but is probably not enough to save them from index deletion in December.

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Aug 19

Daily Brief Event-Driven: LX Semicon (108320 KS) – Section Change and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

LX Semicon (108320 KS) – Section Change, Index Flow and KOSDAQ150 Replacement
Giordano (709 HK): Interim Divy – But Perhaps Not If You Tender
Ping An A/H Premium: Near The High End
Japan Excellent REIT (8987) – Possible Sustained Flow Event
MACA (MLD AU): NRW’s Offer Rejected
Giordano’s Improving Outlook and Surprising Dividend Provide Deal-Break Support
Alliance Aviation – Selloff Provides Optionality on ACCC Approval
Genex Opens Its Books After Farquhar Bumps
PTT (PTT TB): Asset Sales And Solid Results
Liquid Universe of European Ordinary and Preferred Shares: August ‘22 Report

LX Semicon (108320 KS) – Section Change, Index Flow and KOSDAQ150 Replacement

LX Semicon (108320 KS) is looking to transfer from the KOSDAQ market to the KOSPI market. Shareholder meeting is 23 September and the transfer will happen soon after if approved.
LX Semicon (108320 KS) will be deleted from the KOSDAQ 150 Index on the suspension date. There is zero chance of the stock being included in the Kospi 200 Index.
Nextin (348210 KS) is a high probability inclusion to the KOSDAQ 150 Index in December but could be an early inclusion in September to replace LX Semicon (108320 KS).

Giordano (709 HK): Interim Divy – But Perhaps Not If You Tender

Giordano International (709 HK) has announced 1H22 net profit of HK$97mn compared to HK$60mn in 1H21.
Of interest is the declaration of an interim dividend of HK$0.085/share.
The ex-dividend date is the 20 September. Whether you get the dividend plus the Offer Price depends when the Offer closes (or is extended), and/or whether the Offer turns Unconditional.

Ping An A/H Premium: Near The High End

The Ping An AH premium has moved from 1-2% to near 10% over the last month while the HSAHP Index has stayed around the same level.
The Ping AH premium is now nearing the level from where reversals take place. Interim results on 23 August could be a trigger for a reversal.
Northbound Stock Connect holdings on the A-shares have been decreasing, while Southbound Stock Connect holdings on the H-shares have been increasing over the last month.

Japan Excellent REIT (8987) – Possible Sustained Flow Event

Japan Excellent (8987 JP) has been the worst-performing Office J-REIT amongst the existing crop since the end of 2019.
Today, we got news of a possible flow event – a buyer.
There is room here for Japan Excellent to outperform over the next several months.

MACA (MLD AU): NRW’s Offer Rejected

MACA Ltd (MLD AU) has indicated that NRW Holdings (NWH AU)‘s A$1.085/share Offer is inferior to Thiess’ conditional A$1.025/share takeover offer.
The reasons for the rejection are expected to be fleshed out at MACA’s full years results briefing.
NRW’s Offer is higher, has a lower shareholder approval, and provides MACA shareholders the option of cash, scrip or a combination of both. But is subject to scaling.

Giordano’s Improving Outlook and Surprising Dividend Provide Deal-Break Support

Giordano International (709 HK)’s 1H22 net profit of HK$97 million was within the HK$91-101 million positive profit range. The IFA noted that interims do not change its advice.
The Board surprisingly declared an interim dividend of HK$0.085 per share. As the ex-div falls after the final closing date, shareholders who accept the offer will not receive the dividend.
The incrementally positive outlook and dividend highlight Giordano’s value. The results have pushed our deal break/intrinsic value to align with the VGO price.

Alliance Aviation – Selloff Provides Optionality on ACCC Approval

The ACCC has raised concerns about Qantas Airways (QAN AU) proposed acquisition of Alliance Aviation Services (AQZ AU). The ACCC’s final decision is on 17 November.
Qantas knew a lengthy ACCC approval process was highly likely and committed to an additional special dividend in the SID to reflect this risk.
Qantas has its work cut out to address the ACCC concerns. Nevertheless, due to the selloff, the current price offers almost a free option on Qantas securing ACCC approval.

Genex Opens Its Books After Farquhar Bumps

On the 25 July, renewable energy play Genex Power Ltd (GNX AU) announced a non-binding indicative proposal from Atlassian’s Scott Farquhar and Stonepeak, by way of a Scheme, at A$0.23/share.
Genex subsequently rejected the proposal less than a week later on the grounds the Offer undervalued the company.
Farquhar, via Skip Essential Infrastructure Fund, and Stonepeak have increased their non-binding proposal to A$0.25/share. Genex has now provided confirmatory due diligence.

PTT (PTT TB): Asset Sales And Solid Results

Thailand’s state-owned energy firm PTT (PTT TB) recently announced a ~67% and ~13% increase yoy in 1H22 revenue and net profit, buoyed by higher average selling prices and sales volume.
Earlier this month PTT also announced the divestment of its Indonesian coal mining business as the company transitions towards clean energy.
PTT’s goal is to make Thailand a liquified natural gas hub in Asia. The market appears to be fully pricing in this ambitious roadmap.

Liquid Universe of European Ordinary and Preferred Shares: August ‘22 Report

By Jesus Rodriguez Aguilar

Since mid-July, spreads have generally tightened across our liquid universe, including those flagged in July (Investor AB, Roche and Volkswagen).
Trade recommendations long ords / short prefs: Fuchs Petrolub, SSAB Svenska Stal.
Recommendations Long prefs / short ords: Sixt, VW, MFE-Media for Europe, Telecom Italia, Ericsson.

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Aug 18

Daily Brief Event-Driven: Update on the S-REIT Re-Allocation Trade and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Update on the S-REIT Re-Allocation Trade
Appier Group (4180 JP): Now TOPIX-Ready!
KOSDAQ150 Ad Hoc Index Rebalance: Hancom (030520) To Replace Vidente (121800)
MSCI Korea Flow Trading for August 31st
Net Marketing Japan (6175) “MBO” Tender Offer – Done Deal
SSE50 Index Rebalance Preview: Sector Rotation To Continue
Genex Gets an Improved A$0.25 Offer, Headcount Test a Risk, Board Hoping for an Auction
LX Semicon KOSDAQ→KOSPI Migration Event: Index Rebalance Trading
A Full Walkthrough of What Happens to Vidente & Hancom: KOSDAQ 150 Special Change
Judo Capital IPO Lock-Up – Gearing up for a A$650m Lock-Up Release

Update on the S-REIT Re-Allocation Trade

In June-July I warned of a reinvestment trade into S-REITs due to the S$2.0-3.0bn cash-out by investors in Mapletree North Asia Commercial Trust and sellers into the SPHREIT Chain Offer.
Many investors who would need to re-allocate. The trade was to buy major S-REITs. From my last insight, a basket is up 5.3%. MCT has already topped out vs peers.
The question is…. is there still a trade left to run?

Appier Group (4180 JP): Now TOPIX-Ready!

By Janaghan Jeyakumar, CFA

In February 2022, I discussed why Appier Group (4180 JP) could be an interesting TOPIX Inclusion Candidate in TOPIX Inclusion Pre-Event: Appier Group (4180 JP)
Earlier this month, I reiterated my view in TOPIX Inclusions: Who Is Ready (Aug 2022) identifying Appier Group as the best pick among all current TOPIX Inclusion candidates.
Since my last insight, the share price has risen sharply and that has important implications for the company’s Prime market ambitions.

KOSDAQ150 Ad Hoc Index Rebalance: Hancom (030520) To Replace Vidente (121800)

Vidente (121800 KS) has not submitted its semiannual reports and has been labeled as an ‘Administrative Issue’. This means deletion from the KOSDAQ 150 Index (KOSDQ150 INDEX) on 19 August.
Hancom Inc (030520 KS) was the highest ranked stock to not be included in the index at the June rebalance. It will now be included in the index.
Passive funds will need to buy KRW 8.8bn of Hancom Inc (030520 KS) while selling KRW 11.2bn of Vidente (121800 KS).

MSCI Korea Flow Trading for August 31st

MSCI Korea’s August QIR features one deletion: SK Telecom. But Woori Financial, HYBE, and LG Energy will also present a notable impact as they face float rate changes.
We should consider executing flow trading on these names, even SKT, towards the effective date as much as possible, as the flow magnitude wouldn’t be enough to act proactively.
It’s been witnessed that SK Telecom’s recall and liquidation of short positions have been made preemptively this time, minimizing the risk of price distortion on the effective date.

Net Marketing Japan (6175) “MBO” Tender Offer – Done Deal

Bain Capital Private Equity launched a deal for Net Marketing (6175 JP) at a 63% premium.
That should be enough to get it done on its own, despite coming below the IPO price of 5yrs ago.
In any case, Shareholder Structure makes this a completely done deal.

SSE50 Index Rebalance Preview: Sector Rotation To Continue

Over 80% of the way through the review period for the December rebalance, we see 7 stocks in inclusion/exclusion zone. However, there can be a maximum of 5 changes.
We estimate a one-way turnover of 3.9% at the December rebalance leading to a one-way trade of CNY 2.85bn.
The potential adds have outperformed the potential deletes and the SSE50 Index (SSE50 INDEX) by a wide margin over the last few months.

Genex Gets an Improved A$0.25 Offer, Headcount Test a Risk, Board Hoping for an Auction

Genex Power Ltd (GNX AU) received an improved non-binding offer from Skip Capital/Stonepeak at A$0.25 per share, an 8.7% bump from the previously rejected A$0.23 offer.
The headcount test is emerging as a key risk as retail shareholders are voicing their displeasure. The offer is underwhelming based on precedent transactions and average sell-side price targets.
The Board hopes that granting non-exclusive due diligence and stating an intention to recommend a binding A$0.25 offer will force rival bidders to kickstart an auction.

LX Semicon KOSDAQ→KOSPI Migration Event: Index Rebalance Trading

LX Semicon announced that its board approved KOSPI migration on August 17. This migration requires shareholder approval, and a shareholder meeting will be scheduled for September 23.
The outflow of KOSDAQ 150 is estimated to be -1.37x ADTV. A passive impact of this magnitude should cause a price movement of at least 3%p.
But LX Semicon’s GICS sector won’t change after the KOSPI migration. We should refrain from trading with expectations for the possibility of KOSPI 200 inclusion at this point.

A Full Walkthrough of What Happens to Vidente & Hancom: KOSDAQ 150 Special Change

Vidente is a KOSDAQ 150 constituent. If designated as an administrative issue, it will be removed on the third trading day after the effective date of designation.
Hancom gets to replace Vidente, and rebalancing trading occurs at the close of August 19th. Hancom’s passive inflow should be 4.70x ADTV.
It seems that proactive long positions have already been built up significantly from today. So, we should consider getting out of the position earlier than usual towards Friday’s close.

Judo Capital IPO Lock-Up – Gearing up for a A$650m Lock-Up Release

By Sumeet Singh

Judo Capital raised about US$483m by selling a mix of primary and secondary shares in Nov 21. Its IPO linked lockup is set to expire later this month.
Judo Capital (JC) focuses on lending to small and medium-sized enterprises (SMEs) in Australia. It also offers a range of personal term deposit products to consumers.
In this note, we will talk about the lock-up dynamics and updates since our last note.

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Aug 16

Daily Brief Event-Driven: Jardine Matheson (JM SP): MSCI Blues and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Jardine Matheson (JM SP): MSCI Blues
HLB Capital Increase: Offering Terms & Trading Dynamics
2022 JPX Nikkei 400 Rebal Update – Going the Right Way
S&P/ASX Index Rebalance Preview: Adds Outperform Deletes As Review Period End Nears
Nearmap’s A$2.10 Per Share Indicative Offer from Thoma Bravo
Giordano’s Conditional Offer Open, Price Declared Final, Unlikely to Meet 50%+ Voting Threshold
Nikkiso (6376 JP) BIG Asset Sale Leads to Biggish Buyback
POSCO International + POSCO Energy = A Value Enhancing M&A Deal
ANZ Renounceable Entitlement Offer – Could Be a Relatively Large (A$550-750m) Retail Shortfall
Nearmap: Thoma Bravo’s Bird’s Eye View

Jardine Matheson (JM SP): MSCI Blues

Jardine Matheson Holdings (JM SP) (JMH) has shed ~8% since MSCI said it was cutting the conglomerate’s weighing in two indices.
The reweighting follows the cancellation of the 59% shareholding in JMH held by Jardine Strategic Holdings (JS SP), which was privatised last year.
I see the discount to NAV at ~40%, right at the 12-month -2 STD level. JMH bought back ~149mn shares in the 1Q22, paying ~US$59/share, 17% above the current price.

HLB Capital Increase: Offering Terms & Trading Dynamics

This offering is a 100% stockholder allocation with forfeited shares going to the public. There will be 9.56M new shares at a capital increase of nearly 9%.
We should note that the largest shareholder may again do the same trick. He may block-deal a 1% stake and use the proceeds to participate in this offering.
A massive release volume and a 25% discount rate may cause a severe pricing distortion, leading to arb trading openings.

2022 JPX Nikkei 400 Rebal Update – Going the Right Way

As designed, the JPX-Nikkei400 Index is something of a disaster. It aims to be slightly ‘smart’ vs other cap-weighted indices like TOPIX, but tracking error vs TOPIX is de minimus.
This year, in week 1, the ADD vs DELETE performance is positive. If we sector-hedge the ADDs vs DELETEs, it’s doing even better.
This is probably due to relatively low pre-positioning, and cares. Momentum suggests one could be long ADDs vs DELETEs. And there is the perennial trade to watch out for.

S&P/ASX Index Rebalance Preview: Adds Outperform Deletes As Review Period End Nears

There are 4 trading days to go in the review period for the September rebalance of the S&P/ASX indices. Announcement is on 2 September with implementation on 16 September.
There could be 6 changes to the S&P/ASX 200 (AS51 INDEX), increasing to 8 if AVZ Minerals (AVZ AU) continues to be halted and if Link Administration (LNK) is privatised.
The potential adds have outperformed the potential deletes over the last month. Short interest has increased on a few potential deletes. There will be pre-positions built up.

Nearmap’s A$2.10 Per Share Indicative Offer from Thoma Bravo

Nearmap Ltd (NEA AU) disclosed a non-binding indicative offer of A$2.10 per share from Thoma Bravo. The offer price represents a 39.1% premium to the last trading day price.
Thoma Bravo has secured a 7-day exclusivity to firm up an offer. Thoma Bravo is a credible bidder and agreed to acquire Ping Identity Holding Corp (PING US) last week.
Nearmap also revealed other non-binding expressions of interest. The exclusivity could flush out other bids. We think that offer is reasonable. At the last close, the gross spread is 11.4%.

Giordano’s Conditional Offer Open, Price Declared Final, Unlikely to Meet 50%+ Voting Threshold

Giordano International (709 HK)’s voluntary conditional from the Cheng Yu Tung family (24.57% of outstanding shares) at HK$1.88 per share is open with a first closing date of 5 September.
Crucially, the offeror will not increase the offer price. In combination with an ongoing retail recovery, the low-ball offer has little chance of meeting the 50%+ minimum acceptance threshold.
While the IFA says the offer is fair and reasonable, key directors will not accept the offer. A deal break implies, at most, another 10% downside to the last close.

Nikkiso (6376 JP) BIG Asset Sale Leads to Biggish Buyback

Nikkiso Co Ltd (6376 JP) announced an unusual buyback today. It is worth paying attention.
In March, Nikkiso announced the sale of a subsidiary to Atlas Copco AB (ATCOA SS), noting the sale proceeds would used to pay down debt (Debt/EBITDA in high single digits).
The company today announced Q2 earnings, and a large buyback, which should be taken as a positive surprise given the debt load.

POSCO International + POSCO Energy = A Value Enhancing M&A Deal

On 12 August, Posco International stated that it plans to merge with one of POSCO Holdings’ energy affiliate called POSCO Energy which is a major LNG provider in Korea.
We believe the merger between POSCO International and POSCO Energy is value enhancing. The shareholders of POSCO International are getting a sweet deal in POSCO Energy at attractive valuations.
This M&A deal is likely to boost the market cap of the combined companies and raise the rank of POSCO International in important indices such as KOSPI200.

ANZ Renounceable Entitlement Offer – Could Be a Relatively Large (A$550-750m) Retail Shortfall

By Sumeet Singh

ANZ announced a US$2.4bn (A$3.5bn) raising via a renounceable entitlement offer to part fund the purchase of Suncorp Bank in Jul 2022.
The institutional part of the entitlement offer saw a strong take up and the shares have held up well since the deal was announced.
In this note, we will talk about the upcoming retail shortfall bookbuild and other updates since our last note.

Nearmap: Thoma Bravo’s Bird’s Eye View

Mapping technology outfit Nearmap Ltd (NEA AU) has fielded a non-binding indicative offer from San Francisco-based PE firm Thoma Bravo.
Thoma Bravo is offering A$2.10/share, a 39% premium to last close, and an 83% premium to when Nearmap was first approached in early July.
Due diligence is at an advanced stage. Curiously, Nearmap has agreed to pay Thoma Bravo up to US$3mn if a transaction agreement does not result.

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Aug 15

Daily Brief Event-Driven: Impact of Potential Changes to India F&O Eligibility Criteria and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Impact of Potential Changes to India F&O Eligibility Criteria
China Tourism Group Duty Free (1880 HK) IPO: Offer Details, Index Inclusion, AH Premium
S&P/ASX Quiddity Leaderboard Sep 2022: Potential Last Minute Surprises
Giordano (709 HK): Offer Doc Out. Terms Declared Final
Merger Arb Mondays (15 Aug) – Lifestyle Intl, EVOC, Giordano, Yashili, Alliance Aviation, ResApp
Hyundai Mobis: Plans to Spin Off Parts & Module Units

Impact of Potential Changes to India F&O Eligibility Criteria

A news report has indicated that SEBI is looking to tighten criteria used for inclusion and continued availability of stocks in the Futures & Options (F&O) segment of the market.
Our analysis shows 30 stocks could be deleted from the F&O segment while another 12 are close to deletion zone. If applied objectively, 22 stocks could be added to F&O.
Deletion from the F&O segment could see two stocks dropped from the Nifty Next 50 Index while inclusion in F&O could see two stocks added to the NIFTY Index.

China Tourism Group Duty Free (1880 HK) IPO: Offer Details, Index Inclusion, AH Premium

CTG Duty Free (1880 HK) is looking to sell up to 118.176m shares to raise up to US$2.5bn. Pricing at HK$143.5-165.5/share is a 38.6%-29.2% discount to CTG Duty Free (601888).
Between 32-37% of the total offer size is being taken by 9 cornerstone investors and they are locked in for 6 months from listing date (expected 25 August).
CTG Duty Free (1880 HK) could be added to MSCI China in November, FTSE All-World and FTSE China 50 in March. Southbound Stock Connect could come online on 19 September.

S&P/ASX Quiddity Leaderboard Sep 2022: Potential Last Minute Surprises

By Janaghan Jeyakumar, CFA

With the Reference Period for the September 2022 Rebalance nearing its end, we take a final look at the potential index changes for ASX 300, 200, 100, 50, and 20.
AVZ Minerals (AVZ AU) and Firefinch Ltd (FFX AU) are both members of the ASX Index family and are currently suspended from trading. There could be index consequences here.
Based on current data, I expect 7 ADDs/DELs for the ASX 200 Index and 22 ADDs and 18 DELs for the ASX 300 Index.

Giordano (709 HK): Offer Doc Out. Terms Declared Final

On the 23 June, the Cheng family made an underwhelming voluntary conditional Offer of $1.88/share for Giordano International (709 HK).
The Offer is conditional on the family getting to more than 50% via tendering, and the Cheng’s (and concert parties) control 24.57%.
The Composite Document is now out with a first close on the 5 September. The Offer Price has now been declared final. That’s a surprise.

Merger Arb Mondays (15 Aug) – Lifestyle Intl, EVOC, Giordano, Yashili, Alliance Aviation, ResApp

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 are 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Resapp Health (RAP AU), Infomedia Ltd (IFM AU), Lifestyle International Holdings (1212 HK).
Lowest gross spreads are Dongzheng Automotive Finance (2718 HK), Excelpoint Technology (EXLP SP), MyDeal.com.au Ltd (MYD AU), Cocoaland Holdings (COLA MK), Giordano International (709 HK), China VAST.

Hyundai Mobis: Plans to Spin Off Parts & Module Units

On 12 August, it was reported in numerous local media that Hyundai Mobis (012330 KS) plans to spin off its auto parts and module business units into two separate entities.
Hyundai Mobis has not formally announced these spin offs although local media mentioned that these spin off plans have recently been finalized.
These spin-offs by Hyundai Mobis also are likely to be preludes to the Hyundai Mobis/Hyundai Motor Group reorganization. We remain positive on Hyundai Mobis.

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Aug 14

Daily Brief Event-Driven: Index Rebalance & ETF Flow Recap: MSCI and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Index Rebalance & ETF Flow Recap: MSCI, S&P Global Water, TW Div+, FTSE JP, STI, OZ Minerals
Last Week in Event SPACE: Softbank, OZ Minerals, Lifestyle, Nexon, Magic Empire, Swire Pacific
Predicting Inclusion at MSCI Korea November IR: Hyundai Mipo Dockyard
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Oz Minerals, Lifestyle, EVOC Tech, Shinoken, DTAC/True
POSCO Holdings Stock Cancellation: Tiggering a 5%p Float Change for FnGuide Top 10 ETF

Index Rebalance & ETF Flow Recap: MSCI, S&P Global Water, TW Div+, FTSE JP, STI, OZ Minerals

MSCI announced the changes to its indices prior to market open on 12 August. Most changes were expected, while the non-inclusion of Gcl Poly Energy (3800 HK) was a surprise.
There are a bunch of announcement on the coming Friday for the Hang Seng and FTSE indices. Plus the review cutoff for the S&P/ASX family of indices.
Outflows from KraneShares CSI China Internet ETF (KWEB US) continued for yet another week, while there were inflows to iShares Core MSCI Pacific ETF (IPAC US).

Last Week in Event SPACE: Softbank, OZ Minerals, Lifestyle, Nexon, Magic Empire, Swire Pacific

BHP launched a bid for OZ Minerals (OZL AU). OZ has rejected it as being too low. BHP said the Offer provides certainty of funding growth. They are both right
This Offer price for Lifestyle International Holdings (1212 HK) is probably sufficient to get up. It has been declared final for that reason. Optically $6/share was a more reasonable level.
Nexon (3659 JP) announced another ¥100bn buyback over three years. However, the buyback is too small to pay back the Kim family inheritance tax obligations.

Predicting Inclusion at MSCI Korea November IR: Hyundai Mipo Dockyard

The MSCI’s November IR will hardly see any new addition from Outside IMI. Additions will mostly come from Small Cap→Standard migration.
There are 12 candidates for Small Cap→Standard migration. They are all beating the float market cap hurdle. However, only Hyundai Mipo satisfies the full market cap requirement.
At the current market cap, Hyundai Mipo will likely cause passive inflows equivalent to 5.89x ADTV, equal to US$160M or 1.9M shares.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Oz Minerals, Lifestyle, EVOC Tech, Shinoken, DTAC/True

There are 43 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Four new deals discussed this week: BHP (BHP AU)‘s tilt for OZ Minerals (OZL AU); Lifestyle (1212 HK)‘s privatisation; EVOC (2308 HK)‘s Merger by Absorption, and Shinoken (8909 JP)‘s MBO.
Key updates took place for Total Access Communication (DTAC TB) / True Corp Pcl (TRUE TB).

POSCO Holdings Stock Cancellation: Tiggering a 5%p Float Change for FnGuide Top 10 ETF

POSCO Holdings announced it would cancel ₩567B worth of 2.6M treasury shares last Friday. It represents 3% of the shares outstanding, reducing the treasury shares from 13% to 10%.
With this cancellation, the float change reaches 5%p, triggering an adjustment from 68% to 73% in the upcoming cycle, just in time for the FnGuide Top 10’s December rebalancing.
As a result, POSCO Holdings suddenly becomes a strong contender to beat KB Financial in the FnGuide Top 10 rebalancing as they will be in a very tight race.

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Aug 13

Daily Brief Event-Driven: Swire A Vs Swire B – Regulatory Nuances REALLY Matter and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Swire A Vs Swire B – Regulatory Nuances REALLY Matter
Posco International Merger: Deal Structure & Arbitrage Dynamics
WSP Global/RPS Group: More Consolidation In Engineering Consultancy
POSCO Holdings: Treasury Shares Cancellation Worth 3% of Outstanding Shares

Swire A Vs Swire B – Regulatory Nuances REALLY Matter

Yesterday Swire Pacific (A) (19 HK) (and Swire Pacific Ltd-Cl B (87 HK)) announced a buyback of shares according to the 2022 AGM mandates approved in May, limited to HK$4bn.
A reader question prompted me to look more closely at the rules. There are nuances NOT covered in the announcements. So I work through them.
The conclusions are surprising, and lead to one clear trading idea.

Posco International Merger: Deal Structure & Arbitrage Dynamics

We still have the chance to become eligible. We will still receive the rights if we buy Posco International next Tuesday. But we will exercise them at ₩20,590, NOT ₩27,801.
Given that there is little cancellation risk, we can capitalize on the price falling below the appraisal price by opening both Long and Short at the same price.
We close Short if the price goes under ₩20,590 and fix the arb spread by exercising the rights with Long.

WSP Global/RPS Group: More Consolidation In Engineering Consultancy

By Jesus Rodriguez Aguilar

WSP agreed to acquire RPS Group at a (generous) 206/share (+0.45p interim), in a well-timed transaction at 76% premium, 17.2x EV/Fwd EBIT and 24x Fwd P/E. Irrevocable undertakings are 18%.
The offer represents a 43% premium to mean consensus TP. My fair value estimate DCF (WACC 9%, 1.6% terminal growth) is 190.5p/share, 1.5% below the offer price.
The shares trade just below the offer. This seems a low risk/low return deal. Gross spread is 0.7% and the estimated annual return is 2.2% assuming settlement by 8 December.

POSCO Holdings: Treasury Shares Cancellation Worth 3% of Outstanding Shares

On 12 August, POSCO Holdings announced that it will cancel treasury shares worth 3% of outstanding shares involving 2.6 million shares worth 672 billion won.
The cancellation of treasury shares is a shareholder friendly policy that will improve the company’s ROE and P/E ratios. The treasury shares cancellation will be completed on 22 August 2022.
The combination of treasury shares cancellation and high dividend yield is likely to lead to higher probability of POSCO Holdings outperforming KOSPI on a total returns basis this year.

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Aug 12

Daily Brief Event-Driven: MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise
Swire Pacific (19 HK/87 HK) Buyback: Bigger Than It Appears
Swire A/B (19 HK / 87 HK) Buyback Programme – It’s REALLY BIG
Japan Post Insurance (7181 JP) – Reading Between The Lines
Toyo Tecnica (8151) – BIG Buyback
Swire A/B (19 HK / 87 HK)’s BIG Buyback Programme
Solvency Risk Short Candidates: BridgeBio, Wayfair, Archaea Energy, Enviva

MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise

As announced, there are 8 adds and 3 deletes for the MSCI Standard indices in Asia Pacific. To trade, there are 8 adds and 2 deletes.
Most of the changes are inline with what we forecast. The non-inclusion of Gcl Poly Energy Holdings Limited (3800 HK) is the big surprise, though that could change.
All the adds in China are potential inclusions to the FTSE All-World Index in September and that will add to the passive inflows on the stocks.

Swire Pacific (19 HK/87 HK) Buyback: Bigger Than It Appears

Swire Pacific (A) (19 HK)/Swire Pacific Ltd-Cl B (87 HK) has announced a HK$4bn buyback. While that is 6.5% of shares out, it is over 15% of real float.
Swire Pacific (A) (19 HK) was trading at a 50% discount to NAV and near the widest level over the last few years.
There will be passive selling once the buyback is complete, but the stocks should run up prior to that.

Swire A/B (19 HK / 87 HK) Buyback Programme – It’s REALLY BIG

Today Swire Pacific (A) (19 HK) (and Swire Pacific Ltd-Cl B (87 HK)) announced earnings, and they announced a large (HK$4bn) buyback.
Details are somewhat thin, but there are a bunch of possibilities, and all of them should have non-negligible impact on Swire and Swire vs Peers.
The immediate market response was to send them up 10% on the day. That puts both at somewhere near one-year highs, but the discount to NAV is still big.

Japan Post Insurance (7181 JP) – Reading Between The Lines

Japan Post Insurance (7181 JP) reported soft Q1 Tuesday on negative existing policy premium growth and higher (covid-related) underwriting claims costs. Guidance was unchanged but JPI also announced a buyback.
The buyback structure is designed to keep Japan Post Holdings (6178 JP) under 50% to continue to abide by the strictures and goals of the Japan Postal Privatisation Act.
50% or more will be done in a ToSTNeT-3 buyback Thursday morning 12 August. The rest will be bought on market. Impact is non-negligible. And JPI is cheap cheap cheap.

Toyo Tecnica (8151) – BIG Buyback

Toyo Corp (8151 JP) is a smallcap electronics firm specialising in sensors/testers/loggers for industrial and data system processes, large scale antennae systems, high tech medical equipment, remote sensing equipment, etc.
They have seen their (extraordinarily seasonal) revenues go mostly nowhere over the past ten years, but they have, until recently, accumulated cash and securities.
On 10 August, the company announced a LARGE buyback of up to 8.44% of shares out. The details suggest

Swire A/B (19 HK / 87 HK)’s BIG Buyback Programme