Category

Singapore

Brief Singapore: How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World? and more

By | Daily Briefs, Singapore

In this briefing:

  1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?
  2. Potential Trade Ideas – Asia-Pacific Companies that May Access Capital Markets
  3. Governments and Policies Adapting to Critical Known Unknown
  4. Costs of and Response to COVID-19
  5. Singapore Air’s Massive Rights Issue

1. How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?

Buffett 2

The main subject of this report is as follows: “How Long Does It Take To Change One’s Behavior? Why Does This Matter in the Post COVID-19 World?” Certainly, COVID-19 will change the way people behave. The longer that COVID-19 lasts and the longer that millions of people are under lockdown, their behaviors will change further, potentially making them into a habit and this would have a tremendous impact on the global economy. 

We are specifically interested in this topic because as millions of people around the world undergo “lockdown” for a period of one to three months, this could have an enormous behavior change once this lockdown period ends.

The change in behavior patterns (especially related to consumer spending) in the post COVID-19 world would also have a big impact on whether the global economy/stock market can turn around quickly (such as after the Great Financial Recession in 2008/2009) or whether the turnaround lasts longer (such as after the Internet tech/crash lasting for nearly 3 years from 2000 to 2002). 

2. Potential Trade Ideas – Asia-Pacific Companies that May Access Capital Markets

Image 486509224231585300174956

As global markets rebound and businesses start to feel impact of the virus outbreak, there will likely be companies looking to access capital markets to shore up their balance sheet. Singapore Airlines (SIA SP)‘s rights issue was a case in point.

In this insight, we will explore what are some Asia-Pacific companies that may breach their debt covenants and will likely look to raise capital in the near-term.

3. Governments and Policies Adapting to Critical Known Unknown

Chart%203c

We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

4. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

5. Singapore Air’s Massive Rights Issue

This is worth having some Singapore Airlines (SIA SP) borrow.

SIA is seeking to raise S$5.3bn via a renounceable rights issue and an additional S$3.5bn via 10-year mandatory convertible bonds (MCBs).

1,777,692,487 rights will be issued at S$3.00/share – a 53.8% discount to last (S$6.50) and a 31.8% discount to TERP of S$4.40  – on a three rights for every two existing ordinary share basis.

Rights MCBs will be issued on the basis of 295 Rights MCBs for every 100 existing ordinary shares held by shareholders. The rights MCBs are convertible into fully paid-up new shares based on the conversion price of S$4.84, which is a 10% premium to the theoretical ex-rights price of S$4.40/share.

The rights issue is subject to approval by shareholders at an EGM – yet to be confirmed. At the EGM, SIA will seek be seeking shareholders approval for the further issuance of up to ~S$6.2bn additional MCB, “on terms that are substantially similar to the terms of the Rights MCBs and to be offered by the Company to Shareholders on a pro-rata basis by way of one or more further rights issues at such future dates and times as may be determined by the Company at its sole discretion. …   any such further rights issues of Additional MCBs will be undertaken within a period of 15 months commencing from the date of the approval by Shareholders for the issue of the Rights MCBs at the EGM”

Temasek, with 55.46% of SIA, has given an irrevocable undertaking to vote in favour of all resolutions at a forthcoming EGM; and to subscribe for its entitlement to the rights issue and rights MCBs; and to take up any unsubscribed rights shares and rights MCBs.

Entitlements for the rights shares and rights MCBs will be renounceable and expected to trade on the  SGX.
A rundown of terms and an indicative timetable below.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Singapore: AEM Holdings (AEM SP): Stellar FY19 Results & On Its Way to Be 1 Billion SGD Market Cap and more

By | Daily Briefs, Singapore

In this briefing:

  1. AEM Holdings (AEM SP): Stellar FY19 Results & On Its Way to Be 1 Billion SGD Market Cap

1. AEM Holdings (AEM SP): Stellar FY19 Results & On Its Way to Be 1 Billion SGD Market Cap

Image?1582787308

AEM Holdings (AEM SP) posted stellar FY19 results and upped its 2020 guidance. Long-term the company’s TAM continues to rise and diversification away from core-client Intel Corp (INTC US) will gather pace in FY20-21.

Management must be bullish on its FY20-FY21 prospects if we believe Charlie Munger’s “show me the incentives and I will show you the outcome” motto. On 07/10/19 the board granted a Mega Grant of Performance Shares to both the Chairman and CEO to complete its Transformational Roadmap (aka diversify away from Intel). The options and share grants were priced at 1.14 SGD.

While investors in ASEAN SMIDcaps often have to worry about the alignment of the promoters and the interests of minorities we believe they are aligned at AEM. Free float is over 83% which also makes AEM a prime takeover candidate, but not before maximum value has been extracted by the current management team.

Net cash is over 107M SGD (18% of market cap) and should continue to grow as its record order book for FY2020 gets delivered. So far it sees no impact from Covid-19.

Our revised Fair Value is 3.7 SGD (previously 2.5 SGD) which equates to a market cap of 1 billion SGD but an EV of just 898M SGD. At this kind of valuation the stock would still only be trading at 14.8x 2020 EPS, a level easily justified by its fast growth, high margins and high ROE. Looking at its peers such as Cohu Inc (COHU US), Teradyne Inc (TER US), Chroma Ate Inc (2360 TT) or Pentamaster Corp (PENT MK) we note that they trade at an average P/E multiple of 23.9x, 13.5x EV/EBITDA and 3.4x P/B with a 1.8% dividend yield. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Singapore: Asian Bank HY Credit Weekly: It Was Ugly, What May Be Oversold and more

By | Daily Briefs, Singapore

In this briefing:

  1. Asian Bank HY Credit Weekly: It Was Ugly, What May Be Oversold
  2. Keppel Corp Update – STILL Trading Cheap
  3. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
  4. AEM Holdings (AEM SP): Stellar FY19 Results & On Its Way to Be 1 Billion SGD Market Cap

1. Asian Bank HY Credit Weekly: It Was Ugly, What May Be Oversold

Week%209%20 %20spread%20per%20duration

Coronavirus capitulation is creating value within certain securities. Nouriel Roubini and Scott Minerd are back in fashion and that’s a buy sign. To be honest, we worried that markets were too sanguine regarding the coronavirus and marveled at the strength of liquidity in support of asset prices. Now that we have a correction, it’s time to look for possible winners once the panic is over.

We do not buy the argument that this is 2008. There are major differences in terms of banking system and consumer leverage metrics. Those items take time to reset. Rather, we see this week’s sell-off as a correction of overly optimistic, liquidity-driven, euphoria. And it was not all coronavirus, JPMorgan reminded investors that it is not immune to interest rates and lowered its net interest income forecast while other companies dropped guidance on clearly slowing global growth. We’re not sure what’s worse, the fact that economic growth will slow or that millionaire Bernie Sanders will capitalize on it. As such, this may be more of a U-shaped than sharp and shallow V-shaped recovery; but recovery is what we anticipate.

In this weekly, we investigate recent Asian bank spread moves, place them in context relative to global banks and identify securities that are beginning to look oversold.

2. Keppel Corp Update – STILL Trading Cheap

20200228 kepsp fssti%20&%20singaporebasket

Four months ago, Temasek announced its intention to conduct a Partial Offer to bring its stake in Keppel Corp Ltd (KEP SP) from just over 20% to just over 50%. 

  • The Offer, its details, and valuation was discussed in BIG Temasek Partial Offer for Keppel
  • Because Keppel has overseas businesses, and Temasek is a sovereign fund, there are foreign investment review approvals and anti-trust approvals sought from a variety of places. Because Temasek has a controlling stake in Singtel (ST SP) and Keppel has an indirect stake in M1, there are domestic telecom approvals, and because of a change in control. This was reviewed in Gauging Foreign Investment Review Risk for Temasek Takeover of Keppel. The approval with the longest time frame may be the IMDA approval in Singapore.
  • Partial Offers are strange beasts. Many arbitrageurs avoid them because they have “back end” risk (i.e. investment risk on a residual position).  Many more traditional investors don’t like them because they are complicated. That means there is something for everyone, and understanding how to deal with them best means fundamental investors can avail themselves of interesting opportunities. This was discussed in The Dummies’ Guide to Partial Offers/Tenders which used the Keppel Corp situation as a guide.
  • The Keppel situation is interesting as an exercise in benchmarking because on an asset basis or revenue basis, the company is a conglomerate with significant Offshore & Marine presence. However, in terms of the company’s earnings profile now and over the next couple of years, it is decidedly less O&M and more property and infrastructure.
  • Because of the divergence of those two major comp baskets, the fact that markets are trading a little wonky because of the nCoV2019 anyway, and the fact that people don’t think about the embedded details and assumptions within Partial Offers as much as they should…

Markets are crashing everywhere across Asia. This arbitrage is behaving reasonably well, but it is slightly losing ground vs its comps. It is possible that this is because it is crowded. 

If you believe that Temasek has greater strategic imperatives than catching playing footsie with a Partial Offer Price, or pulling it because markets hiccup, then this is probably still a buy. 

3. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

4. AEM Holdings (AEM SP): Stellar FY19 Results & On Its Way to Be 1 Billion SGD Market Cap

Image?1582787308

AEM Holdings (AEM SP) posted stellar FY19 results and upped its 2020 guidance. Long-term the company’s TAM continues to rise and diversification away from core-client Intel Corp (INTC US) will gather pace in FY20-21.

Management must be bullish on its FY20-FY21 prospects if we believe Charlie Munger’s “show me the incentives and I will show you the outcome” motto. On 07/10/19 the board granted a Mega Grant of Performance Shares to both the Chairman and CEO to complete its Transformational Roadmap (aka diversify away from Intel). The options and share grants were priced at 1.14 SGD.

While investors in ASEAN SMIDcaps often have to worry about the alignment of the promoters and the interests of minorities we believe they are aligned at AEM. Free float is over 83% which also makes AEM a prime takeover candidate, but not before maximum value has been extracted by the current management team.

Net cash is over 107M SGD (18% of market cap) and should continue to grow as its record order book for FY2020 gets delivered. So far it sees no impact from Covid-19.

Our revised Fair Value is 3.7 SGD (previously 2.5 SGD) which equates to a market cap of 1 billion SGD but an EV of just 898M SGD. At this kind of valuation the stock would still only be trading at 14.8x 2020 EPS, a level easily justified by its fast growth, high margins and high ROE. Looking at its peers such as Cohu Inc (COHU US), Teradyne Inc (TER US), Chroma Ate Inc (2360 TT) or Pentamaster Corp (PENT MK) we note that they trade at an average P/E multiple of 23.9x, 13.5x EV/EBITDA and 3.4x P/B with a 1.8% dividend yield. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Singapore: Governments and Policies Adapting to Critical Known Unknown and more

By | Daily Briefs, Singapore

In this briefing:

  1. Governments and Policies Adapting to Critical Known Unknown
  2. Costs of and Response to COVID-19
  3. Singapore Air’s Massive Rights Issue
  4. Fault Lines and Positive Surprises: Buy Car Makers
  5. Takeover Defenses, MACs & Deal Breaks

1. Governments and Policies Adapting to Critical Known Unknown

Chart%203c

We argued in Lack of US market & macro volatility both reassuring and troubling that “the market’s willingness to look through domestic political and geopolitical events suggests that only a significant exogenous or endogenous shock currently beyond markets’ radar screens (an “unknown unknown”) is likely to really move the needle”.

That unknown unknown, a “black swan” event, has turned out to be a global viral pandemic on a scale not seen since the Spanish influenza pandemic of 1918-1919.

The coronavirus outbreak is now three months old but governments, central banks, corporates and households still face a critical known unknown, in our view, namely the total number people who had the coronavirus, acquired immunity and are no longer contagious and who currently carry the coronavirus and are thus potentially infectious.

This includes people who have not been clinically tested – more than 99.9% of the world’s population. We estimate that only 3.3 million people (4 out of every 10,000) have been tested for coronavirus, although testing data are patchy and often released with a lag. The main reason so few people have been tested is the still limited capacity to rapidly and reliably test a very large number of people.

In econometric terms that is a very small sample from which to extrapolate country-wide trends. One implication is that the actual mortality rate may be far smaller than reported.

The high number of tests-per-capita conducted in countries such as South Korea has been posited as an explanation for their relatively low number of coronavirus-related deaths. However, other factors have likely been at play, including the timing of clinical tests, demographics, national health systems’ capacity to treat infected patients and the timing and efficacy of self-isolation and self-distancing policies, including country “lockdowns”.

For now what policy-makers know they don’t know will likely continue to influence country-specific containment plans, as well as domestic measures to support economic growth while ensuring the functioning of financial markets.

2. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

3. Singapore Air’s Massive Rights Issue

This is worth having some Singapore Airlines (SIA SP) borrow.

SIA is seeking to raise S$5.3bn via a renounceable rights issue and an additional S$3.5bn via 10-year mandatory convertible bonds (MCBs).

1,777,692,487 rights will be issued at S$3.00/share – a 53.8% discount to last (S$6.50) and a 31.8% discount to TERP of S$4.40  – on a three rights for every two existing ordinary share basis.

Rights MCBs will be issued on the basis of 295 Rights MCBs for every 100 existing ordinary shares held by shareholders. The rights MCBs are convertible into fully paid-up new shares based on the conversion price of S$4.84, which is a 10% premium to the theoretical ex-rights price of S$4.40/share.

The rights issue is subject to approval by shareholders at an EGM – yet to be confirmed. At the EGM, SIA will seek be seeking shareholders approval for the further issuance of up to ~S$6.2bn additional MCB, “on terms that are substantially similar to the terms of the Rights MCBs and to be offered by the Company to Shareholders on a pro-rata basis by way of one or more further rights issues at such future dates and times as may be determined by the Company at its sole discretion. …   any such further rights issues of Additional MCBs will be undertaken within a period of 15 months commencing from the date of the approval by Shareholders for the issue of the Rights MCBs at the EGM”

Temasek, with 55.46% of SIA, has given an irrevocable undertaking to vote in favour of all resolutions at a forthcoming EGM; and to subscribe for its entitlement to the rights issue and rights MCBs; and to take up any unsubscribed rights shares and rights MCBs.

Entitlements for the rights shares and rights MCBs will be renounceable and expected to trade on the  SGX.
A rundown of terms and an indicative timetable below.

4. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

5. Takeover Defenses, MACs & Deal Breaks

Holdcos behaving badly is unusual, but it happens, as it is happening now, for one reason or another.

Firm Offers behaving badly, outside the realms of opportunistic/takeunder situations, are rare under normal circumstances.

Clearly we are not living under normal circumstances.

Augusta Capital (AUG NZ) is the latest in a string of firm offers to lapse with the Bidco (Centuria Capital (CNI AU) walking after invoking its right to a material adverse change (MAC) being triggered under their respective agreement (the scheme implementation agreement here).

Bumrungrad Hospital Pub Co (BH TB) declined 11.67% (it also went ex-div today) on news Bangkok Dusit Med Service (BDMS TB) have delayed their AGM to evaluate the impact of COVID-19 and consider and evaluate whether it is still appropriate to make the offer for BH TB.

Abano Healthcare (ABA NZ) has warned Corvid-19 may trigger a MAC.

Australian Unity Office Fund (AOF AU)‘s Offer has lapsed, ostensibly to a technical breach of its SIA, but probably virus-related. Metlifecare Ltd (MET NZ) is all but broken, despite repeated announcements assuring the Offer is (sort of) still on.

As always, more below the fold.

 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Singapore: Keppel Corp Update – STILL Trading Cheap and more

By | Daily Briefs, Singapore

In this briefing:

  1. Keppel Corp Update – STILL Trading Cheap
  2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint
  3. AEM Holdings (AEM SP): Stellar FY19 Results & On Its Way to Be 1 Billion SGD Market Cap
  4. United Hampshire US REIT IPO – Yield Looks Enticing but Falls Short on Multiple Measures

1. Keppel Corp Update – STILL Trading Cheap

20200228 kepsp fssti%20&%20singaporebasket

Four months ago, Temasek announced its intention to conduct a Partial Offer to bring its stake in Keppel Corp Ltd (KEP SP) from just over 20% to just over 50%. 

  • The Offer, its details, and valuation was discussed in BIG Temasek Partial Offer for Keppel
  • Because Keppel has overseas businesses, and Temasek is a sovereign fund, there are foreign investment review approvals and anti-trust approvals sought from a variety of places. Because Temasek has a controlling stake in Singtel (ST SP) and Keppel has an indirect stake in M1, there are domestic telecom approvals, and because of a change in control. This was reviewed in Gauging Foreign Investment Review Risk for Temasek Takeover of Keppel. The approval with the longest time frame may be the IMDA approval in Singapore.
  • Partial Offers are strange beasts. Many arbitrageurs avoid them because they have “back end” risk (i.e. investment risk on a residual position).  Many more traditional investors don’t like them because they are complicated. That means there is something for everyone, and understanding how to deal with them best means fundamental investors can avail themselves of interesting opportunities. This was discussed in The Dummies’ Guide to Partial Offers/Tenders which used the Keppel Corp situation as a guide.
  • The Keppel situation is interesting as an exercise in benchmarking because on an asset basis or revenue basis, the company is a conglomerate with significant Offshore & Marine presence. However, in terms of the company’s earnings profile now and over the next couple of years, it is decidedly less O&M and more property and infrastructure.
  • Because of the divergence of those two major comp baskets, the fact that markets are trading a little wonky because of the nCoV2019 anyway, and the fact that people don’t think about the embedded details and assumptions within Partial Offers as much as they should…

Markets are crashing everywhere across Asia. This arbitrage is behaving reasonably well, but it is slightly losing ground vs its comps. It is possible that this is because it is crowded. 

If you believe that Temasek has greater strategic imperatives than catching playing footsie with a Partial Offer Price, or pulling it because markets hiccup, then this is probably still a buy. 

2. London Shanghai Stock Connect – The Dampest of Squibs. Inteqres Viewpoint

Image 41514005621582821543929

Despite the fanfare only one Chinese company listed (and raised money) in London after the announcement of the London Shanghai Connect.  There have been no listing of Chinese Depository Receipts by companies listed in London.  This is starting to look like a white elephant.  We have reviewed the successful Depository Receipt programmes around the world and conclude that the pull to issue Chinese Depository Receipts is only weak at present.  We do think that companies are reviewing the option of issuing CDRs but there is no intense pressure to do so.  By following the factors we have identified, authorities and exchanges could build a more successful programme.

3. AEM Holdings (AEM SP): Stellar FY19 Results & On Its Way to Be 1 Billion SGD Market Cap

Image?1582787308

AEM Holdings (AEM SP) posted stellar FY19 results and upped its 2020 guidance. Long-term the company’s TAM continues to rise and diversification away from core-client Intel Corp (INTC US) will gather pace in FY20-21.

Management must be bullish on its FY20-FY21 prospects if we believe Charlie Munger’s “show me the incentives and I will show you the outcome” motto. On 07/10/19 the board granted a Mega Grant of Performance Shares to both the Chairman and CEO to complete its Transformational Roadmap (aka diversify away from Intel). The options and share grants were priced at 1.14 SGD.

While investors in ASEAN SMIDcaps often have to worry about the alignment of the promoters and the interests of minorities we believe they are aligned at AEM. Free float is over 83% which also makes AEM a prime takeover candidate, but not before maximum value has been extracted by the current management team.

Net cash is over 107M SGD (18% of market cap) and should continue to grow as its record order book for FY2020 gets delivered. So far it sees no impact from Covid-19.

Our revised Fair Value is 3.7 SGD (previously 2.5 SGD) which equates to a market cap of 1 billion SGD but an EV of just 898M SGD. At this kind of valuation the stock would still only be trading at 14.8x 2020 EPS, a level easily justified by its fast growth, high margins and high ROE. Looking at its peers such as Cohu Inc (COHU US), Teradyne Inc (TER US), Chroma Ate Inc (2360 TT) or Pentamaster Corp (PENT MK) we note that they trade at an average P/E multiple of 23.9x, 13.5x EV/EBITDA and 3.4x P/B with a 1.8% dividend yield. 

4. United Hampshire US REIT IPO – Yield Looks Enticing but Falls Short on Multiple Measures

Image?1582779689

United Hampshire US REIT (UHUS) aims to raise up to US$325m in its Singapore IPO. UHUS will invest in  grocery-anchored and necessity-based retail properties, and self-storage facilities, located in the U.S. 

The initial portfolio consists of 22 assets with an aggregate net lettable area (NLA) of 3.17m sqft on the East Coast of the U.S. The portfolio comprises 18 grocery & necessity properties with a total NLA of 2.86m sq ft and four self-storage properties with a total NLA of 0.31m sq ft. The aggregate purchase consideration payable is US$582.5m.

In my previous note, United Hampshire US REIT IPO – E-Commerce Resistant Maybe but Still Not Doing Great, I looked at the company’s past performance and highlighted some of the issues.

In this note, I’ll talk about valuations and run the deal through our ECM framework

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Singapore: Costs of and Response to COVID-19 and more

By | Daily Briefs, Singapore

In this briefing:

  1. Costs of and Response to COVID-19
  2. Singapore Air’s Massive Rights Issue
  3. Fault Lines and Positive Surprises: Buy Car Makers
  4. Takeover Defenses, MACs & Deal Breaks
  5. Tracking the Daily COVID-19 Cases for 10 Major Countries

1. Costs of and Response to COVID-19

Capture

As the epicentre of the coronavirus pandemic shifts from Europe to the US and the number of deaths and infection cases reach new highs, the costs of the crisis are beginning to be revealed. In Singapore economic activity contracted in 1Q20 at a faster pace than at the worst point during the GFC while Chinese industrial profits were down 38% in the first two months of the year. Despite this we are cautiously optimistic that Asian economic activity led by China will pick-up in the second half of the year. We are much more worried about advanced economies where policy mis-management threatens to tip the world economy into recession.

2. Singapore Air’s Massive Rights Issue

This is worth having some Singapore Airlines (SIA SP) borrow.

SIA is seeking to raise S$5.3bn via a renounceable rights issue and an additional S$3.5bn via 10-year mandatory convertible bonds (MCBs).

1,777,692,487 rights will be issued at S$3.00/share – a 53.8% discount to last (S$6.50) and a 31.8% discount to TERP of S$4.40  – on a three rights for every two existing ordinary share basis.

Rights MCBs will be issued on the basis of 295 Rights MCBs for every 100 existing ordinary shares held by shareholders. The rights MCBs are convertible into fully paid-up new shares based on the conversion price of S$4.84, which is a 10% premium to the theoretical ex-rights price of S$4.40/share.

The rights issue is subject to approval by shareholders at an EGM – yet to be confirmed. At the EGM, SIA will seek be seeking shareholders approval for the further issuance of up to ~S$6.2bn additional MCB, “on terms that are substantially similar to the terms of the Rights MCBs and to be offered by the Company to Shareholders on a pro-rata basis by way of one or more further rights issues at such future dates and times as may be determined by the Company at its sole discretion. …   any such further rights issues of Additional MCBs will be undertaken within a period of 15 months commencing from the date of the approval by Shareholders for the issue of the Rights MCBs at the EGM”

Temasek, with 55.46% of SIA, has given an irrevocable undertaking to vote in favour of all resolutions at a forthcoming EGM; and to subscribe for its entitlement to the rights issue and rights MCBs; and to take up any unsubscribed rights shares and rights MCBs.

Entitlements for the rights shares and rights MCBs will be renounceable and expected to trade on the  SGX.
A rundown of terms and an indicative timetable below.

3. Fault Lines and Positive Surprises: Buy Car Makers

Image 74356928621585274600719

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

4. Takeover Defenses, MACs & Deal Breaks

Holdcos behaving badly is unusual, but it happens, as it is happening now, for one reason or another.

Firm Offers behaving badly, outside the realms of opportunistic/takeunder situations, are rare under normal circumstances.

Clearly we are not living under normal circumstances.

Augusta Capital (AUG NZ) is the latest in a string of firm offers to lapse with the Bidco (Centuria Capital (CNI AU) walking after invoking its right to a material adverse change (MAC) being triggered under their respective agreement (the scheme implementation agreement here).

Bumrungrad Hospital Pub Co (BH TB) declined 11.67% (it also went ex-div today) on news Bangkok Dusit Med Service (BDMS TB) have delayed their AGM to evaluate the impact of COVID-19 and consider and evaluate whether it is still appropriate to make the offer for BH TB.

Abano Healthcare (ABA NZ) has warned Corvid-19 may trigger a MAC.

Australian Unity Office Fund (AOF AU)‘s Offer has lapsed, ostensibly to a technical breach of its SIA, but probably virus-related. Metlifecare Ltd (MET NZ) is all but broken, despite repeated announcements assuring the Offer is (sort of) still on.

As always, more below the fold.

 

5. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19d

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Singapore: United Hampshire US REIT IPO – E-Commerce Resistant Maybe but Still Not Doing Great and more

By | Daily Briefs, Singapore

In this briefing:

  1. United Hampshire US REIT IPO – E-Commerce Resistant Maybe but Still Not Doing Great

1. United Hampshire US REIT IPO – E-Commerce Resistant Maybe but Still Not Doing Great

Image?1582721190

United Hampshire US REIT (UHUS) aims to raise up to US$325m in its Singapore IPO. UHUS will invest in  grocery-anchored and necessity-based retail properties, and self-storage facilities, located in the U.S. 

The initial portfolio consists of 22 assets with an aggregate net lettable area (NLA) of 3.17m sqft on the East Coast of the U.S. The portfolio comprises 18 grocery & necessity properties with a total NLA of 2.86m sq ft and four self-storage properties with a total NLA of 0.31m sq ft. The aggregate purchase consideration payable is US$582.5m.

While the assets are being marketed for their tenant’s e-commerce resilience, their past performance hasn’t exactly been steady. Furthermore, the outlook for the industry doesn’t appear rosy either. 

In this note, I’ll look at the company’s past performance and highlight some of the issues.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Singapore: Singapore Air’s Massive Rights Issue and more

By | Daily Briefs, Singapore

In this briefing:

  1. Singapore Air’s Massive Rights Issue
  2. Fault Lines and Positive Surprises: Buy Car Makers
  3. Takeover Defenses, MACs & Deal Breaks
  4. Tracking the Daily COVID-19 Cases for 10 Major Countries
  5. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

1. Singapore Air’s Massive Rights Issue

This is worth having some Singapore Airlines (SIA SP) borrow.

SIA is seeking to raise S$5.3bn via a renounceable rights issue and an additional S$3.5bn via 10-year mandatory convertible bonds (MCBs).

1,777,692,487 rights will be issued at S$3.00/share – a 53.8% discount to last (S$6.50) and a 31.8% discount to TERP of S$4.40  – on a three rights for every two existing ordinary share basis.

Rights MCBs will be issued on the basis of 295 Rights MCBs for every 100 existing ordinary shares held by shareholders. The rights MCBs are convertible into fully paid-up new shares based on the conversion price of S$4.84, which is a 10% premium to the theoretical ex-rights price of S$4.40/share.

The rights issue is subject to approval by shareholders at an EGM – yet to be confirmed. At the EGM, SIA will seek be seeking shareholders approval for the further issuance of up to ~S$6.2bn additional MCB, “on terms that are substantially similar to the terms of the Rights MCBs and to be offered by the Company to Shareholders on a pro-rata basis by way of one or more further rights issues at such future dates and times as may be determined by the Company at its sole discretion. …   any such further rights issues of Additional MCBs will be undertaken within a period of 15 months commencing from the date of the approval by Shareholders for the issue of the Rights MCBs at the EGM”

Temasek, with 55.46% of SIA, has given an irrevocable undertaking to vote in favour of all resolutions at a forthcoming EGM; and to subscribe for its entitlement to the rights issue and rights MCBs; and to take up any unsubscribed rights shares and rights MCBs.

Entitlements for the rights shares and rights MCBs will be renounceable and expected to trade on the  SGX.
A rundown of terms and an indicative timetable below.

2. Fault Lines and Positive Surprises: Buy Car Makers

Image 16957330731585274683132

Where are the weakest points in the global economy that could send activity into a tailspin and threaten the banking system? Italy would seem to be the prime candidate for collapse. The economy was already flirting with recession but will definitely enter one when first quarter 2020 data are published. Weak economies are always the most vulnerable when an external shock hits. Italy’s banks are bound to require a bailout from either the government or the ECB – neither of which are well placed to provide the capital. 

3. Takeover Defenses, MACs & Deal Breaks

Holdcos behaving badly is unusual, but it happens, as it is happening now, for one reason or another.

Firm Offers behaving badly, outside the realms of opportunistic/takeunder situations, are rare under normal circumstances.

Clearly we are not living under normal circumstances.

Augusta Capital (AUG NZ) is the latest in a string of firm offers to lapse with the Bidco (Centuria Capital (CNI AU) walking after invoking its right to a material adverse change (MAC) being triggered under their respective agreement (the scheme implementation agreement here).

Bumrungrad Hospital Pub Co (BH TB) declined 11.67% (it also went ex-div today) on news Bangkok Dusit Med Service (BDMS TB) have delayed their AGM to evaluate the impact of COVID-19 and consider and evaluate whether it is still appropriate to make the offer for BH TB.

Abano Healthcare (ABA NZ) has warned Corvid-19 may trigger a MAC.

Australian Unity Office Fund (AOF AU)‘s Offer has lapsed, ostensibly to a technical breach of its SIA, but probably virus-related. Metlifecare Ltd (MET NZ) is all but broken, despite repeated announcements assuring the Offer is (sort of) still on.

As always, more below the fold.

 

4. Tracking the Daily COVID-19 Cases for 10 Major Countries

Covid 19us

In this report, we provide an update of the new cases of COVID-19 among 10 major countries, including the top 10 countries with COVID-19 cases (excluding China). From our previous report, Tracking the Daily COVID-19 Cases for 7 Major Countries (More Hope!), we have added three more countries including Switzerland, U.K., and the Netherlands due to their rapid increase in new cases in the past week. 

A combination of the U.S. Fed’s “QE Infinity,” U.S.’s $2 trillion stimulus bill, and growing optimism that the new cases of COVID-19 can be controlled in the U.S. and Europe have helped to stage turnaround of major equity markets around the world including S&P500 and KOSPI. We continue to believe that the peak daily cases of COVID-19 in the U.S. are likely to be in this 2 week period from March 23rd to April 5th. Numerous European countries included in the top 10 countries for COVID-19 cases are also likely to experience their peak daily cases during this period.

The number of COVID-19 cases has surged in the U.S. in the past week. According to the COVID Tracking Project, there were 418,810 people that were tested for this virus as of March 25th, up nearly 10x from on March 16th. As of March 25th, 15.2% of the people that were tested had positive results, up from 10.0% on March 16th. 

5. Monetary Policy: Nothing to Offer (And That’s Where They’re Going)

Image 63476846251585115144649

When the Bank of England cut rates on 11 March it joined a growing list of central banks that have eased since the beginning of February: the Fed, the Reserve Bank of Australia, Bank Negara Malaysia, Bangko Sentral ng Pilipinas, Bank of Korea, Bank of Thailand and Bank Indonesia. Since then, the Fed, Bank of Korea, the Central Bank of China, Bank Indonesia, Bangko Sentral and Bank of Thailand have all cut again, thus compounding the folly. All of these moves have failed to arrest the rout in equity markets. 

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Singapore: United Hampshire US REIT IPO – E-Commerce Resistant Maybe but Still Not Doing Great and more

By | Daily Briefs, Singapore

In this briefing:

  1. United Hampshire US REIT IPO – E-Commerce Resistant Maybe but Still Not Doing Great
  2. Bank M&A in Asia – a Decade in Review

1. United Hampshire US REIT IPO – E-Commerce Resistant Maybe but Still Not Doing Great

Image?1582721190

United Hampshire US REIT (UHUS) aims to raise up to US$325m in its Singapore IPO. UHUS will invest in  grocery-anchored and necessity-based retail properties, and self-storage facilities, located in the U.S. 

The initial portfolio consists of 22 assets with an aggregate net lettable area (NLA) of 3.17m sqft on the East Coast of the U.S. The portfolio comprises 18 grocery & necessity properties with a total NLA of 2.86m sq ft and four self-storage properties with a total NLA of 0.31m sq ft. The aggregate purchase consideration payable is US$582.5m.

While the assets are being marketed for their tenant’s e-commerce resilience, their past performance hasn’t exactly been steady. Furthermore, the outlook for the industry doesn’t appear rosy either. 

In this note, I’ll look at the company’s past performance and highlight some of the issues.

2. Bank M&A in Asia – a Decade in Review

Image 268452452991581932023726

Several countries are pushing for more M&A in Asian banking as a way to ameliorate risks (India) or to possibly compete more regionally (Malaysia), with even some rumours resurfacing of further activity in Australia. We have reviewed all major banking transactions in the Asia Pacific region over the past 10 years which involved consolidation and we summarise our findings below.

Summary findings

We find that most banks lose market share after a merger when we consider total assets.  This is usually due to depositors moving to reduce concentration risk and loan rationalisation by the merged entity. 

Overlapping banks allow for more synergies and there tends to be better performance, especially if management is able to achieve the synergistic gains quickly.  Mergers aimed more at revenue synergies or entering new markets appear to have lukewarm benefits.

A long drawn out merger process with unambitious long term synergistic benefits are penalised by markets.  Delays can be cultural, labour union led, government led or legal.

Clearly the lead in any transaction tends to impose their will on the combined entity.  We find that performance suggests that investors are better owing targets rather than acquirers.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief Singapore: Bank M&A in Asia – a Decade in Review and more

By | Daily Briefs, Singapore

In this briefing:

  1. Bank M&A in Asia – a Decade in Review

1. Bank M&A in Asia – a Decade in Review

Image 268452452991581932023726

Several countries are pushing for more M&A in Asian banking as a way to ameliorate risks (India) or to possibly compete more regionally (Malaysia), with even some rumours resurfacing of further activity in Australia. We have reviewed all major banking transactions in the Asia Pacific region over the past 10 years which involved consolidation and we summarise our findings below.

Summary findings

We find that most banks lose market share after a merger when we consider total assets.  This is usually due to depositors moving to reduce concentration risk and loan rationalisation by the merged entity. 

Overlapping banks allow for more synergies and there tends to be better performance, especially if management is able to achieve the synergistic gains quickly.  Mergers aimed more at revenue synergies or entering new markets appear to have lukewarm benefits.

A long drawn out merger process with unambitious long term synergistic benefits are penalised by markets.  Delays can be cultural, labour union led, government led or legal.

Clearly the lead in any transaction tends to impose their will on the combined entity.  We find that performance suggests that investors are better owing targets rather than acquirers.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.