Utilities Sector

In this briefing:

1. GLOW For It! Be GLOWful… And Full of GLOW… (Trading Tactics)
2. Glow Energy: An Imminent Delisting Offer?
3. Xinyi Energy (信义能源) Post-IPO Trading Update

1. GLOW For It! Be GLOWful… And Full of GLOW… (Trading Tactics)

David Blennerhassett has written about Glow Energy Pcl (GLOW TB) several times as since September last year. Links to the insights in the history of the situation of Global Power Synergy Company Ltd (GPSC TB) purchasing a majority then super-majority stake in Glow Energy (and the Quiddity Thailand M&A Guide 2019 he authored are below.

Earlier today, David published an insight discussing the possibility of an Imminent Delisting Offer. It was, as is David’s wont, very helpful in showing precedent and the rules to help investors decide how to deal with this situation. 

I thought it worthwhile to go one step further.

There is a trade here.

2. Glow Energy: An Imminent Delisting Offer?

Glow Energy Pcl (GLOW TB) popped 9.56% yesterday on (relatively) decent volume.

The share price increase appears to be in response to media reports that Global Power Synergy Company Ltd (GPSC TB) will conduct a Delisting Offer for the remaining 4.75% of shares not owned, which would likely be done at the most recent Offer Price of Bt91.99/share.

To recap, GPSC launched a tender offer at Bt91.9906/share for an Offer period of 35 business days (25 March to 17 May) resulting in 26.14% of shares out tendering. Together with GPSC’s 69.11% stake acquired from Engie SA (ENGI FP), that gave it 95.25% of GLOW shares out.

In the tender offer doc (Form 247-4), GPSC said that if it held more than 80% of GLOW at the close of the offer (section 2.1 of page 38 of the PDF), it “has a plan to delist the securities of the Business from the SET within the period of 12 months after the end of the Offer period“.

That plan may occur sooner rather than later.

The Quiddity Thailand M&A Guide 2019 is now published with guidelines to pointers and the relevant rules, regulations, and documentation regarding the Thailand M&A landscape. Others in the series to date are Hong Kong, Japan, Australia, Singapore and Malaysia. Watch for more soon!

3. Xinyi Energy (信义能源) Post-IPO Trading Update

Xinyi Energy’s IPO was priced near the low end and started trading today. We have highlighted in our earlier note that investors in Xinyi Energy acquired solar farm assets from its parent at premia to the market value of solar farms, and deal implies a low WACC thanks to the long term contract with the national grid. In this insight, we will summarize the allotment results and re-iterate our view on valuation.

In this briefing:

1. TRADE IDEA – First Pacific Stub (142 HK): Round Two with Catalysts
2. HK Connect Ideas: Six Weeks of Inflows, BEW, Solars (2019-06-21)
3. China Power’s Scheme Document Dispatched
4. GPSC Announces Delisting Offer Intent for GLOW
5. US LNG Price Economic Drivers in the Context of Low LNG and Tariffs

1. TRADE IDEA – First Pacific Stub (142 HK): Round Two with Catalysts

At the end of May, I closed my trade on First Pacific Co (142 HK) ​ with a 5.33% return on gross notional over roughly six months, equating to 11.3% on gross notional in annualized terms in the insight TRADE IDEA – First Pacific (142 HK) Stub: Parent Pops, Close the Trade.

Now, roughly four weeks later, I propose getting back into the trade as the discount has widened again and the long-term fundamentals continue to support a long position in the undervalued holding company.

There have been significant developments (catalysts) that affect both the holding company and some of its major listed subsidiaries that I will explore in the body of this note.

This is, yet again, an exciting trade and catalysts abound! 

2. HK Connect Ideas: Six Weeks of Inflows, BEW, Solars (2019-06-21)

In our weekly HK Connect Snippet series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine, and highlight interesting observations. 

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this insight, we will highlight recent issue with Beijing Enterprises Water Group (371 HK) ​and catalyst for solar companies, including Xinyi Solar Holdings (968 HK) ​and Flat Glass (6865 HK)​. Meanwhile, we will also review the flows of Tencent Holdings (700 HK)​, WH Group (288 HK) ​and Geely Auto (175 HK)​. 

3. China Power’s Scheme Document Dispatched

On the 28 March, SOE State Power Investment Corporation (SPIC) announced an intention to privatise China Power New Energy Development Co (735 HK) by way of a Scheme at $5.45/share, a 41.9% premium to last close and a 78.1% premium to the 30-day average.

A scrip alternative (6 New shares for one Scheme shares) into an unlisted vehicle under SPIC is also available.

The Scheme Document has now been dispatched. The Scheme Meeting is to be held on 12 July with payment expected on 28 August. The IFA has given a “fair and reasonable” opinion and recommends independent shareholders take the cash option.

China Three Gorges (CTG), CPNED’s largest shareholder with 27.10%, had given an irrevocable undertaking to vote for the Scheme in the initial announcement and to elect the share alternative. The SFC has now concluded CTG is deemed not to be acting in concert and is therefore permitted to vote at the Scheme Meeting.

As the effective date for the Scheme is expected to be the 19 August, shareholders will be entitled to the 2018 dividend of RMB0.0546/share. The record date is the 27 June – the 21 June is the latest date for lodging the transfer of shares to become entitled.

This looks like a pretty clean deal. The stock is currently trading tight at a gross/annualised spread of 1.5%/8.1%. I recommend shareholders vote For the Scheme.

4. GPSC Announces Delisting Offer Intent for GLOW

Late on on 19 June 2019, Glow Energy Pcl (GLOW TB) released a statement[NB: link downloads PDF] on the Stock Exchange of Thailand website (GLOW website link for the same doc) noting it had received a letter from Global Power Synergy Company Ltd (GPSC TB) which recently completed a Tender Offer on GLOW, obtaining 95.25% of the shares, that it intended to support the board of GLOW if it decided to conduct a Delisting Offer (as is expected). The letter from GPSC to the SET and the public is here. It provides a little additional information.

The Delisting Offer, if accepted (and there is every reason to expect it would be) would take place at THB 90.8136/share less any dividends paid out by GLOW in between now and the close of the Offer. 

GLOW’s statement said that it would conduct a Board Meeting on 20 June 2019 to consider the Delisting of Securities and GPSC’s Offer, and would disclose the results promptly. 

You had the warning from David Blennerhassett‘s Glow Energy: An Imminent Delisting Offer? on 30 May and my GLOW For It! Be GLOWful… And Full of GLOW… (Trading Tactics) a day later. The stock traded low 82s for a week after that.

Now (or later today) it should become more official.

5. US LNG Price Economic Drivers in the Context of Low LNG and Tariffs

In the current environment of very low Asian LNG and European gas prices it is worth looking at whether US LNG economics still justify production or if there is the chance of shut-ins. We have analysed the various factors that influence the US LNG delivered price both on a full cycle cost basis and a variable cost basis.  

In this briefing:

1. Glow Energy: An Imminent Delisting Offer?
2. Xinyi Energy (信义能源) Post-IPO Trading Update

1. Glow Energy: An Imminent Delisting Offer?

Glow Energy Pcl (GLOW TB) popped 9.56% yesterday on (relatively) decent volume.

The share price increase appears to be in response to media reports that Global Power Synergy Company Ltd (GPSC TB) will conduct a Delisting Offer for the remaining 4.75% of shares not owned, which would likely be done at the most recent Offer Price of Bt91.99/share.

To recap, GPSC launched a tender offer at Bt91.9906/share for an Offer period of 35 business days (25 March to 17 May) resulting in 26.14% of shares out tendering. Together with GPSC’s 69.11% stake acquired from Engie SA (ENGI FP), that gave it 95.25% of GLOW shares out.

In the tender offer doc (Form 247-4), GPSC said that if it held more than 80% of GLOW at the close of the offer (section 2.1 of page 38 of the PDF), it “has a plan to delist the securities of the Business from the SET within the period of 12 months after the end of the Offer period“.

That plan may occur sooner rather than later.

The Quiddity Thailand M&A Guide 2019 is now published with guidelines to pointers and the relevant rules, regulations, and documentation regarding the Thailand M&A landscape. Others in the series to date are Hong Kong, Japan, Australia, Singapore and Malaysia. Watch for more soon!

2. Xinyi Energy (信义能源) Post-IPO Trading Update

Xinyi Energy’s IPO was priced near the low end and started trading today. We have highlighted in our earlier note that investors in Xinyi Energy acquired solar farm assets from its parent at premia to the market value of solar farms, and deal implies a low WACC thanks to the long term contract with the national grid. In this insight, we will summarize the allotment results and re-iterate our view on valuation.

In this briefing:

1. HK Connect Ideas: Six Weeks of Inflows, BEW, Solars (2019-06-21)
2. China Power’s Scheme Document Dispatched
3. GPSC Announces Delisting Offer Intent for GLOW
4. US LNG Price Economic Drivers in the Context of Low LNG and Tariffs
5. Banco Do Brasil (BBAS3 BZ): Neoenergia IPO Kicks off Non-Core Disposals

1. HK Connect Ideas: Six Weeks of Inflows, BEW, Solars (2019-06-21)

In our weekly HK Connect Snippet series, we aim to help our investors understand the flow of southbound trades via the Hong Kong Connect, as analyzed by our proprietary data engine, and highlight interesting observations. 

We split the stocks eligible for the Hong Kong Connect trade into three groups: component stocks in the HSCEI index, stocks with a market capitalization between USD 1 billion and USD 5 billion, and stocks with a market capitalization between USD 500 million and USD 1 billion.

In this insight, we will highlight recent issue with Beijing Enterprises Water Group (371 HK) ​and catalyst for solar companies, including Xinyi Solar Holdings (968 HK) ​and Flat Glass (6865 HK)​. Meanwhile, we will also review the flows of Tencent Holdings (700 HK)​, WH Group (288 HK) ​and Geely Auto (175 HK)​. 

2. China Power’s Scheme Document Dispatched

On the 28 March, SOE State Power Investment Corporation (SPIC) announced an intention to privatise China Power New Energy Development Co (735 HK) by way of a Scheme at $5.45/share, a 41.9% premium to last close and a 78.1% premium to the 30-day average.

A scrip alternative (6 New shares for one Scheme shares) into an unlisted vehicle under SPIC is also available.

The Scheme Document has now been dispatched. The Scheme Meeting is to be held on 12 July with payment expected on 28 August. The IFA has given a “fair and reasonable” opinion and recommends independent shareholders take the cash option.

China Three Gorges (CTG), CPNED’s largest shareholder with 27.10%, had given an irrevocable undertaking to vote for the Scheme in the initial announcement and to elect the share alternative. The SFC has now concluded CTG is deemed not to be acting in concert and is therefore permitted to vote at the Scheme Meeting.

As the effective date for the Scheme is expected to be the 19 August, shareholders will be entitled to the 2018 dividend of RMB0.0546/share. The record date is the 27 June – the 21 June is the latest date for lodging the transfer of shares to become entitled.

This looks like a pretty clean deal. The stock is currently trading tight at a gross/annualised spread of 1.5%/8.1%. I recommend shareholders vote For the Scheme.

3. GPSC Announces Delisting Offer Intent for GLOW

Late on on 19 June 2019, Glow Energy Pcl (GLOW TB) released a statement[NB: link downloads PDF] on the Stock Exchange of Thailand website (GLOW website link for the same doc) noting it had received a letter from Global Power Synergy Company Ltd (GPSC TB) which recently completed a Tender Offer on GLOW, obtaining 95.25% of the shares, that it intended to support the board of GLOW if it decided to conduct a Delisting Offer (as is expected). The letter from GPSC to the SET and the public is here. It provides a little additional information.

The Delisting Offer, if accepted (and there is every reason to expect it would be) would take place at THB 90.8136/share less any dividends paid out by GLOW in between now and the close of the Offer. 

GLOW’s statement said that it would conduct a Board Meeting on 20 June 2019 to consider the Delisting of Securities and GPSC’s Offer, and would disclose the results promptly. 

You had the warning from David Blennerhassett‘s Glow Energy: An Imminent Delisting Offer? on 30 May and my GLOW For It! Be GLOWful… And Full of GLOW… (Trading Tactics) a day later. The stock traded low 82s for a week after that.

Now (or later today) it should become more official.

4. US LNG Price Economic Drivers in the Context of Low LNG and Tariffs

In the current environment of very low Asian LNG and European gas prices it is worth looking at whether US LNG economics still justify production or if there is the chance of shut-ins. We have analysed the various factors that influence the US LNG delivered price both on a full cycle cost basis and a variable cost basis.  

5. Banco Do Brasil (BBAS3 BZ): Neoenergia IPO Kicks off Non-Core Disposals

• Neoenergia registered its IPO on June 6th; Banco Do Brasil Sa (BBAS3 BZ) is expected to raise between BRL1.64bn and BRL1.92bn from its 9.35% stake
• We estimate that the Banco do Brasil capital contribution from the Neoenergia stake disposal should be small, but it should serve to add to positive sentiment for non-core disposals
• More importantly, its 49.9% stake in Banco Votorantim is also up for sale and its returns are improving; we estimate that BVoto’s disposal would be the biggest capital relief contribution of its non-core sales 
• Banco Patagonia Sa (BPAT AR), in which Banco do Brasil has an 80.4% stake, is more of a challenge for disposal given the approaching Argentinian presidential election – and the uncertain outcome – in October 2019, but could be slated for sale in early 2020
• Banco do Brasil management has added the 10.1% stake in reinsurance company IRB Brasil Resseguros S/A (IRBR3 BZ) to its list of non-core disposals
• Overall, we see that these key disposals in total, through capital gains and RWA reduction in the case of the banks, should bring between 93bps to 100bps of capital relief to Banco do Brasil’s CET1 ratio; even if we exclude the BPAT disposal, we estimate capital build from the other disposals could reach 75bps of CET1

In this briefing:

1. Xinyi Energy (信义能源) Post-IPO Trading Update
2. ECM Weekly (25 May 2019) – ESR Cayman, Hansoh Pharma, Tai Hing, China East Edu, Haitong UniTrust

1. Xinyi Energy (信义能源) Post-IPO Trading Update

Xinyi Energy’s IPO was priced near the low end and started trading today. We have highlighted in our earlier note that investors in Xinyi Energy acquired solar farm assets from its parent at premia to the market value of solar farms, and deal implies a low WACC thanks to the long term contract with the national grid. In this insight, we will summarize the allotment results and re-iterate our view on valuation.

2. ECM Weekly (25 May 2019) – ESR Cayman, Hansoh Pharma, Tai Hing, China East Edu, Haitong UniTrust

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Accuracy Rate:

Our overall accuracy rate is 72.4% for IPOs and 63.9% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings

• Sinic Holdings (Hong Kong, >US$100m)
• Meten International Edu (the U.S, US$100m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

• Consumer lender Home Credit appoints banks for over US$1b HK IPO
• CVC-Backed Sanitary Product Maker Mulls $500 Million IPO
• Emami Cement gets SEBI approval to float IPO

Analysis on Upcoming IPOs

• ESR Cayman Pre-IPO – Updates from PHIP – Growth Remains on Track
• ESR Cayman Pre-IPO – Updated Valuation and Key Risks
• ESR Cayman Pre-IPO – Peer Comparison Quick Take – Bigger than Some, Much Smaller than Others
• Haitong UniTrust International Leasing IPO – Valuation Isn’t Demanding but Lacks a Compelling Story
• Hansoh Pharma (翰森制药) IPO: Competitive Landscape of HS-10296, the 3rd Gen EGFR TKI for Lung Cancer
• Hansoh Pharma (翰森制药) IPO: Thoughts on Valuation
• Tai Hing (太興) Pre-IPO Review – Potentially Appetizing
• China East Education (中国东方教育) IPO -Preliminary Valuation
• Meten International Edu (美联国际教育) Early Thoughts – Unclear Strategies 

In this briefing:

1. Xinyi Energy (信义能源) Post-IPO Trading Update
2. ECM Weekly (25 May 2019) – ESR Cayman, Hansoh Pharma, Tai Hing, China East Edu, Haitong UniTrust
3. SPINOFF:  Xinyi Solar Spinoff of Xinyi Energy
4. SPINOFF: Haitong Securities Spinoff of Haitong UniTrust Int’l Leasing

1. Xinyi Energy (信义能源) Post-IPO Trading Update

Xinyi Energy’s IPO was priced near the low end and started trading today. We have highlighted in our earlier note that investors in Xinyi Energy acquired solar farm assets from its parent at premia to the market value of solar farms, and deal implies a low WACC thanks to the long term contract with the national grid. In this insight, we will summarize the allotment results and re-iterate our view on valuation.

2. ECM Weekly (25 May 2019) – ESR Cayman, Hansoh Pharma, Tai Hing, China East Edu, Haitong UniTrust

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Accuracy Rate:

Our overall accuracy rate is 72.4% for IPOs and 63.9% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings

• Sinic Holdings (Hong Kong, >US$100m)
• Meten International Edu (the U.S, US$100m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

• Consumer lender Home Credit appoints banks for over US$1b HK IPO
• CVC-Backed Sanitary Product Maker Mulls $500 Million IPO
• Emami Cement gets SEBI approval to float IPO

Analysis on Upcoming IPOs

• ESR Cayman Pre-IPO – Updates from PHIP – Growth Remains on Track
• ESR Cayman Pre-IPO – Updated Valuation and Key Risks
• ESR Cayman Pre-IPO – Peer Comparison Quick Take – Bigger than Some, Much Smaller than Others
• Haitong UniTrust International Leasing IPO – Valuation Isn’t Demanding but Lacks a Compelling Story
• Hansoh Pharma (翰森制药) IPO: Competitive Landscape of HS-10296, the 3rd Gen EGFR TKI for Lung Cancer
• Hansoh Pharma (翰森制药) IPO: Thoughts on Valuation
• Tai Hing (太興) Pre-IPO Review – Potentially Appetizing
• China East Education (中国东方教育) IPO -Preliminary Valuation
• Meten International Edu (美联国际教育) Early Thoughts – Unclear Strategies 

3. SPINOFF:  Xinyi Solar Spinoff of Xinyi Energy

XSH is spinning off its subsidiary Xinyi Energy Holdings Ltd (3868 HK).

According to the prospectus, XEH will issue 1.88bn – or up to 2.165bn (inclusive of the over-allotment) new shares, at an issue price between HK$1.89-$2.35/share, raising US$456mn-US$652mn. After the listing, XSH will hold ~53.7%. 

My interest is whether these spin-offs create new parent/subsidiary relationships leading to relative value trade ideas going forward, which will be dependent on the spin-off’s liquidity and the % market cap held by the parent.

Using available information from the prospectus/red herrings and various HKEx announcements, it is also possible to back out a rudimentary implied stub value of the unlisted parent’s operations ahead of these spin-offs.

At between 35-45% of Xinyi Solar market cap, this will be a new Holdco/subsidiary relationship to follow, depending on XEH’s volume.

Discussion of the spinoff and stub valuations continues below.

4. SPINOFF: Haitong Securities Spinoff of Haitong UniTrust Int’l Leasing

A number of Hong Kong spin-offs, including  Haitong UniTrust International Leasing Co Ltd (1905 HK) and Xinyi Energy Holdings Ltd (3868 HK), have been announced recently. Clicking on the company names will take you to a home page providing a list of recent insights by various Smartkarma contributors.

There are other situations where they have been announced but conditions (approvals, market conditions) are unmet and they may never arrive.

My interest is whether these spin-offs create new parent/subsidiary relationships leading to relative value trade ideas going forward, which will be dependent on the spin-off’s liquidity and the % market cap held by the parent.

Using available information from the prospectus/red herrings and various HKEx announcements, it is also possible to back out a rudimentary implied stub value of the unlisted parent’s operations ahead of these spin-offs.

The first to be addressed is Haitong Securities’ spin-off of Haitong UniTrust International Leasing.

In this briefing:

1. China Power’s Scheme Document Dispatched
2. GPSC Announces Delisting Offer Intent for GLOW
3. US LNG Price Economic Drivers in the Context of Low LNG and Tariffs
4. Banco Do Brasil (BBAS3 BZ): Neoenergia IPO Kicks off Non-Core Disposals
5. Vocus Group’s Tilt from AGL Energy Is Attractive but Not a Sure Thing

1. China Power’s Scheme Document Dispatched

On the 28 March, SOE State Power Investment Corporation (SPIC) announced an intention to privatise China Power New Energy Development Co (735 HK) by way of a Scheme at $5.45/share, a 41.9% premium to last close and a 78.1% premium to the 30-day average.

A scrip alternative (6 New shares for one Scheme shares) into an unlisted vehicle under SPIC is also available.

The Scheme Document has now been dispatched. The Scheme Meeting is to be held on 12 July with payment expected on 28 August. The IFA has given a “fair and reasonable” opinion and recommends independent shareholders take the cash option.

China Three Gorges (CTG), CPNED’s largest shareholder with 27.10%, had given an irrevocable undertaking to vote for the Scheme in the initial announcement and to elect the share alternative. The SFC has now concluded CTG is deemed not to be acting in concert and is therefore permitted to vote at the Scheme Meeting.

As the effective date for the Scheme is expected to be the 19 August, shareholders will be entitled to the 2018 dividend of RMB0.0546/share. The record date is the 27 June – the 21 June is the latest date for lodging the transfer of shares to become entitled.

This looks like a pretty clean deal. The stock is currently trading tight at a gross/annualised spread of 1.5%/8.1%. I recommend shareholders vote For the Scheme.

2. GPSC Announces Delisting Offer Intent for GLOW

Late on on 19 June 2019, Glow Energy Pcl (GLOW TB) released a statement[NB: link downloads PDF] on the Stock Exchange of Thailand website (GLOW website link for the same doc) noting it had received a letter from Global Power Synergy Company Ltd (GPSC TB) which recently completed a Tender Offer on GLOW, obtaining 95.25% of the shares, that it intended to support the board of GLOW if it decided to conduct a Delisting Offer (as is expected). The letter from GPSC to the SET and the public is here. It provides a little additional information.

The Delisting Offer, if accepted (and there is every reason to expect it would be) would take place at THB 90.8136/share less any dividends paid out by GLOW in between now and the close of the Offer. 

GLOW’s statement said that it would conduct a Board Meeting on 20 June 2019 to consider the Delisting of Securities and GPSC’s Offer, and would disclose the results promptly. 

You had the warning from David Blennerhassett‘s Glow Energy: An Imminent Delisting Offer? on 30 May and my GLOW For It! Be GLOWful… And Full of GLOW… (Trading Tactics) a day later. The stock traded low 82s for a week after that.

Now (or later today) it should become more official.

3. US LNG Price Economic Drivers in the Context of Low LNG and Tariffs

In the current environment of very low Asian LNG and European gas prices it is worth looking at whether US LNG economics still justify production or if there is the chance of shut-ins. We have analysed the various factors that influence the US LNG delivered price both on a full cycle cost basis and a variable cost basis.  

4. Banco Do Brasil (BBAS3 BZ): Neoenergia IPO Kicks off Non-Core Disposals

• Neoenergia registered its IPO on June 6th; Banco Do Brasil Sa (BBAS3 BZ) is expected to raise between BRL1.64bn and BRL1.92bn from its 9.35% stake
• We estimate that the Banco do Brasil capital contribution from the Neoenergia stake disposal should be small, but it should serve to add to positive sentiment for non-core disposals
• More importantly, its 49.9% stake in Banco Votorantim is also up for sale and its returns are improving; we estimate that BVoto’s disposal would be the biggest capital relief contribution of its non-core sales 
• Banco Patagonia Sa (BPAT AR), in which Banco do Brasil has an 80.4% stake, is more of a challenge for disposal given the approaching Argentinian presidential election – and the uncertain outcome – in October 2019, but could be slated for sale in early 2020
• Banco do Brasil management has added the 10.1% stake in reinsurance company IRB Brasil Resseguros S/A (IRBR3 BZ) to its list of non-core disposals
• Overall, we see that these key disposals in total, through capital gains and RWA reduction in the case of the banks, should bring between 93bps to 100bps of capital relief to Banco do Brasil’s CET1 ratio; even if we exclude the BPAT disposal, we estimate capital build from the other disposals could reach 75bps of CET1

5. Vocus Group’s Tilt from AGL Energy Is Attractive but Not a Sure Thing

Vocus Communications (VOC AU) is Australia’s fourth largest telecom operator which is in the midst of a three-year turnaround plan. Today, Vocus announced a non-binding proposal from AGL Energy Ltd (AGL AU) for A$4.85 cash per share. AGL’s proposal values Vocus at a market cap of A$3.0 billion and FY19 EV/EBITDA of 11.4x (CY2019 EV/EBITDA of 10.9x).

In this briefing:

1. ECM Weekly (25 May 2019) – ESR Cayman, Hansoh Pharma, Tai Hing, China East Edu, Haitong UniTrust
2. SPINOFF:  Xinyi Solar Spinoff of Xinyi Energy
3. SPINOFF: Haitong Securities Spinoff of Haitong UniTrust Int’l Leasing
4. U.S. Equity Strategy: Neutral Outlook; Opportunities Within Staples and Utilities

1. ECM Weekly (25 May 2019) – ESR Cayman, Hansoh Pharma, Tai Hing, China East Edu, Haitong UniTrust

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Accuracy Rate:

Our overall accuracy rate is 72.4% for IPOs and 63.9% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings

• Sinic Holdings (Hong Kong, >US$100m)
• Meten International Edu (the U.S, US$100m)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

• Consumer lender Home Credit appoints banks for over US$1b HK IPO
• CVC-Backed Sanitary Product Maker Mulls $500 Million IPO
• Emami Cement gets SEBI approval to float IPO

Analysis on Upcoming IPOs

• ESR Cayman Pre-IPO – Updates from PHIP – Growth Remains on Track
• ESR Cayman Pre-IPO – Updated Valuation and Key Risks
• ESR Cayman Pre-IPO – Peer Comparison Quick Take – Bigger than Some, Much Smaller than Others
• Haitong UniTrust International Leasing IPO – Valuation Isn’t Demanding but Lacks a Compelling Story
• Hansoh Pharma (翰森制药) IPO: Competitive Landscape of HS-10296, the 3rd Gen EGFR TKI for Lung Cancer
• Hansoh Pharma (翰森制药) IPO: Thoughts on Valuation
• Tai Hing (太興) Pre-IPO Review – Potentially Appetizing
• China East Education (中国东方教育) IPO -Preliminary Valuation
• Meten International Edu (美联国际教育) Early Thoughts – Unclear Strategies 

2. SPINOFF:  Xinyi Solar Spinoff of Xinyi Energy

XSH is spinning off its subsidiary Xinyi Energy Holdings Ltd (3868 HK).

According to the prospectus, XEH will issue 1.88bn – or up to 2.165bn (inclusive of the over-allotment) new shares, at an issue price between HK$1.89-$2.35/share, raising US$456mn-US$652mn. After the listing, XSH will hold ~53.7%. 

My interest is whether these spin-offs create new parent/subsidiary relationships leading to relative value trade ideas going forward, which will be dependent on the spin-off’s liquidity and the % market cap held by the parent.

Using available information from the prospectus/red herrings and various HKEx announcements, it is also possible to back out a rudimentary implied stub value of the unlisted parent’s operations ahead of these spin-offs.

At between 35-45% of Xinyi Solar market cap, this will be a new Holdco/subsidiary relationship to follow, depending on XEH’s volume.

Discussion of the spinoff and stub valuations continues below.

3. SPINOFF: Haitong Securities Spinoff of Haitong UniTrust Int’l Leasing

A number of Hong Kong spin-offs, including  Haitong UniTrust International Leasing Co Ltd (1905 HK) and Xinyi Energy Holdings Ltd (3868 HK), have been announced recently. Clicking on the company names will take you to a home page providing a list of recent insights by various Smartkarma contributors.

There are other situations where they have been announced but conditions (approvals, market conditions) are unmet and they may never arrive.

My interest is whether these spin-offs create new parent/subsidiary relationships leading to relative value trade ideas going forward, which will be dependent on the spin-off’s liquidity and the % market cap held by the parent.

Using available information from the prospectus/red herrings and various HKEx announcements, it is also possible to back out a rudimentary implied stub value of the unlisted parent’s operations ahead of these spin-offs.

The first to be addressed is Haitong Securities’ spin-off of Haitong UniTrust International Leasing.

4. U.S. Equity Strategy: Neutral Outlook; Opportunities Within Staples and Utilities

In last week’s Compass (5/14) we laid our case for a more cautious outlook as a result of several negative developments, including breakdowns for EM (EEM) and China (MCHI, FXI), steep price and RS uptrend violations for Technology (XLK, RYT), improving RS for defensive areas of the market, and weakness in copper. Our outlook remains neutral. In today’s report we highlight attractive Groups and stocks within Consumer Staples and Utilities.

In this briefing:

1. GPSC Announces Delisting Offer Intent for GLOW
2. US LNG Price Economic Drivers in the Context of Low LNG and Tariffs
3. Banco Do Brasil (BBAS3 BZ): Neoenergia IPO Kicks off Non-Core Disposals
4. Vocus Group’s Tilt from AGL Energy Is Attractive but Not a Sure Thing
5. AGL Takes A Turn At Vocus

1. GPSC Announces Delisting Offer Intent for GLOW

Late on on 19 June 2019, Glow Energy Pcl (GLOW TB) released a statement[NB: link downloads PDF] on the Stock Exchange of Thailand website (GLOW website link for the same doc) noting it had received a letter from Global Power Synergy Company Ltd (GPSC TB) which recently completed a Tender Offer on GLOW, obtaining 95.25% of the shares, that it intended to support the board of GLOW if it decided to conduct a Delisting Offer (as is expected). The letter from GPSC to the SET and the public is here. It provides a little additional information.

The Delisting Offer, if accepted (and there is every reason to expect it would be) would take place at THB 90.8136/share less any dividends paid out by GLOW in between now and the close of the Offer. 

GLOW’s statement said that it would conduct a Board Meeting on 20 June 2019 to consider the Delisting of Securities and GPSC’s Offer, and would disclose the results promptly. 

You had the warning from David Blennerhassett‘s Glow Energy: An Imminent Delisting Offer? on 30 May and my GLOW For It! Be GLOWful… And Full of GLOW… (Trading Tactics) a day later. The stock traded low 82s for a week after that.

Now (or later today) it should become more official.

2. US LNG Price Economic Drivers in the Context of Low LNG and Tariffs

In the current environment of very low Asian LNG and European gas prices it is worth looking at whether US LNG economics still justify production or if there is the chance of shut-ins. We have analysed the various factors that influence the US LNG delivered price both on a full cycle cost basis and a variable cost basis.  

3. Banco Do Brasil (BBAS3 BZ): Neoenergia IPO Kicks off Non-Core Disposals

• Neoenergia registered its IPO on June 6th; Banco Do Brasil Sa (BBAS3 BZ) is expected to raise between BRL1.64bn and BRL1.92bn from its 9.35% stake
• We estimate that the Banco do Brasil capital contribution from the Neoenergia stake disposal should be small, but it should serve to add to positive sentiment for non-core disposals
• More importantly, its 49.9% stake in Banco Votorantim is also up for sale and its returns are improving; we estimate that BVoto’s disposal would be the biggest capital relief contribution of its non-core sales 
• Banco Patagonia Sa (BPAT AR), in which Banco do Brasil has an 80.4% stake, is more of a challenge for disposal given the approaching Argentinian presidential election – and the uncertain outcome – in October 2019, but could be slated for sale in early 2020
• Banco do Brasil management has added the 10.1% stake in reinsurance company IRB Brasil Resseguros S/A (IRBR3 BZ) to its list of non-core disposals
• Overall, we see that these key disposals in total, through capital gains and RWA reduction in the case of the banks, should bring between 93bps to 100bps of capital relief to Banco do Brasil’s CET1 ratio; even if we exclude the BPAT disposal, we estimate capital build from the other disposals could reach 75bps of CET1

4. Vocus Group’s Tilt from AGL Energy Is Attractive but Not a Sure Thing

Vocus Communications (VOC AU) is Australia’s fourth largest telecom operator which is in the midst of a three-year turnaround plan. Today, Vocus announced a non-binding proposal from AGL Energy Ltd (AGL AU) for A$4.85 cash per share. AGL’s proposal values Vocus at a market cap of A$3.0 billion and FY19 EV/EBITDA of 11.4x (CY2019 EV/EBITDA of 10.9x).

5. AGL Takes A Turn At Vocus

Vocus Communications (VOC AU) has announced it has received an A$3.02bn (US$2.1bn) non-binding, indicative proposal from Aussie energy outfit AGL Energy Ltd (AGL AU) by way of a Scheme, at A$4.85/share in cash, a 26.63% premium to last close.

This proposal arrives one week after Swedish PE outfit EQT and Vocus terminated takeover talks – and just two weeks since that $5.25/share indicative offer was first announced. 

Although EQT was viewed to be overpaying (see Morningstar‘s insight EQT Infrastructure’s Proposal for Vocus Seems Expensive), disconcertingly, EQT was the third bidder to walk in the past two years after KKR –  shortly followed by Affinity Partners – lobbed identical $3.50/share indicative proposals in June/July 2017, both of which were terminated on the 21 August 2017 as both bidders were “unable to support a transaction on terms acceptable to the board“.

A profit warning four days earlier – the third in the past nine months – doubtless played a role in KKR/Affinity’s decisions.

Vocus implemented a “two-three year turnaround” in August last year, involving a “major reset” of its strategic priorities, cost and leadership, with a primary focus on growth. We aren’t privy to why three potential acquirers walked, but can speculate that forward growth promulgated from this reset falls short of a sustainable run rate for EQT to justify its bid price.

What to do? Shares traded roughly at the halfway point in terms of distance to bid from where the price was before subsequent to the EQT offer. A similar scenario places Vocus at ~$4.30 with respect to AGL’s proposal. Currently trading at $4.17, indicating investors are less sold on this proposal.

In this briefing:

1. SPINOFF:  Xinyi Solar Spinoff of Xinyi Energy
2. SPINOFF: Haitong Securities Spinoff of Haitong UniTrust Int’l Leasing
3. U.S. Equity Strategy: Neutral Outlook; Opportunities Within Staples and Utilities
4. M&A LNG Theme Back in the Spotlight with Total’s Entry in Mozambique LNG

1. SPINOFF:  Xinyi Solar Spinoff of Xinyi Energy

XSH is spinning off its subsidiary Xinyi Energy Holdings Ltd (3868 HK).

According to the prospectus, XEH will issue 1.88bn – or up to 2.165bn (inclusive of the over-allotment) new shares, at an issue price between HK$1.89-$2.35/share, raising US$456mn-US$652mn. After the listing, XSH will hold ~53.7%. 

My interest is whether these spin-offs create new parent/subsidiary relationships leading to relative value trade ideas going forward, which will be dependent on the spin-off’s liquidity and the % market cap held by the parent.

Using available information from the prospectus/red herrings and various HKEx announcements, it is also possible to back out a rudimentary implied stub value of the unlisted parent’s operations ahead of these spin-offs.

At between 35-45% of Xinyi Solar market cap, this will be a new Holdco/subsidiary relationship to follow, depending on XEH’s volume.

Discussion of the spinoff and stub valuations continues below.

2. SPINOFF: Haitong Securities Spinoff of Haitong UniTrust Int’l Leasing

A number of Hong Kong spin-offs, including  Haitong UniTrust International Leasing Co Ltd (1905 HK) and Xinyi Energy Holdings Ltd (3868 HK), have been announced recently. Clicking on the company names will take you to a home page providing a list of recent insights by various Smartkarma contributors.

There are other situations where they have been announced but conditions (approvals, market conditions) are unmet and they may never arrive.

My interest is whether these spin-offs create new parent/subsidiary relationships leading to relative value trade ideas going forward, which will be dependent on the spin-off’s liquidity and the % market cap held by the parent.

Using available information from the prospectus/red herrings and various HKEx announcements, it is also possible to back out a rudimentary implied stub value of the unlisted parent’s operations ahead of these spin-offs.

The first to be addressed is Haitong Securities’ spin-off of Haitong UniTrust International Leasing.

3. U.S. Equity Strategy: Neutral Outlook; Opportunities Within Staples and Utilities

In last week’s Compass (5/14) we laid our case for a more cautious outlook as a result of several negative developments, including breakdowns for EM (EEM) and China (MCHI, FXI), steep price and RS uptrend violations for Technology (XLK, RYT), improving RS for defensive areas of the market, and weakness in copper. Our outlook remains neutral. In today’s report we highlight attractive Groups and stocks within Consumer Staples and Utilities.

4. M&A LNG Theme Back in the Spotlight with Total’s Entry in Mozambique LNG

This insight has been produced in collaboration with Anish Kapadia as a joint effort of the Smartkarma Energy and Commodities Team.

With the acquisition of Anadarko Petroleum (APC US) ’s African assets from Occidental Petroleum (OXY US) for $8.8bn, Total Sa (FP FP) is adding a new LNG export position in East Africa to its growing global LNG portfolio. The acquired assets also include high-quality low cost producing fields offshore Ghana.

Total has been one of the most aggressive oil majors pursuing countercyclical upstream M&A during the oil downturn to expand its resource base at low cost. Is the French major paying a reasonable price for Anadarko’s assets?

The ongoing “re-gasification” of the oil majors’ portfolios is underpinning a growing interest among LNG buyers and portfolio players for quality LNG assets. Total’s entry in the prolific East Africa gas play is the latest example highlighting the LNG “theme” as one of the main strategic drivers of recent and likely future M&A activity in the oil and gas industry.