Event-Driven

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.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

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.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

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.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

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.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

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.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

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

On 22 August, it was announced that KB Kookmin Bank invested 200 billion won worth of TMap Mobility, valuing the company at 2.2 trillion won ($1.7 billion).
At the end of 2021, SK Square owned a 66.3% stake in TMap Mobility. After this investment, KB Kookmin Bank will own an 8.2% stake in TMap Mobility.
TMap Mobility generated sales of 74.5 billion won, operating loss of 67.8 billion won, and net loss of 5.3 billion won in 2021.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

Aug 22

Daily Brief Event-Driven: FTSE All-World/All-Cap Index Rebalance: Changes and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

FTSE All-World/All-Cap Index Rebalance: Changes, Switches, Hits & Misses
Hang Seng Index Rebalance – FOUR Names IN, None Out (The March to 80 Continues)
Hang Seng Tech Rebalance – No Name Changes But Lots of Flow
HSCEI Rebalance – One In, One Out, 3.1% One-Way Flow
Merger Arb Mondays (22 Aug) – Link, Alliance, Nearmap, Genex, Ramsay, Lifestyle, EVOC, Giordano
Overheated Short Selling Designation in Korea: Precise Definitions for the Confusing Terms
Weekly Deals Digest (21 Aug) – CTGDF, Frasers Hospitality, Nearmap, Alliance, Tassal, Yashili

FTSE All-World/All-Cap Index Rebalance: Changes, Switches, Hits & Misses

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).

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

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)

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.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

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.

Before it’s here, it’s on Smartkarma

The Smartkarma Preview Pass is your entry to the Independent Investment Research Network

✓ Unlimited Research Summaries
✓ Personalised Alerts
✓ Custom Watchlists
✓ Company Data and News
✓ Events & Webinars

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