This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. 7&I (3382 JP) – Ito-San MBO Plan Includes 7-Eleven US IPO… Which LeadsTo A Modest Proposal
- A Bloomberg article late in the trading session today said the Seven & I Holdings (3382 JP) MBO proposal by Ito family scion Ito Junro includes a US assets IPO.
- The idea? IPO proceeds would help pay down MBO debt to Japanese banks. Seven & i would retain a stake. This is not dissimilar to Berkshire Hathaway buying a stake.
- But more directly, this leads us back to 7&I (3382) – What If… A Modest Proposal. Possible strategic mistake by Ito-san here. ACT should act on this.
2. Goodman Group (GMG AU) Placement: Limited Index Flows
- China Investment Corp owns 7.84% of Goodman Group (GMG AU) and is looking to sell 50.4m shares (2.64% of shares out) at a price range of A$37.55-37.6/share, a tiny discount.
- Goodman Group (GMG AU) has run away from its peers over the last couple of years and there could be a move lower in the stock following the placement.
- There will be limited passive buying in the short-term coinciding with the placement. There will be some more passive buying in February.
3. Kioxia (285A) IPO: Index Entry Timeline & Overhang from Plans to Increase Float
- Kioxia Holdings (285A JP)‘s listing has been approved by the JPX and the stock is expected to start trading on the Prime Market from 18 December.
- At the mid-point of the IPO price range of JPY 1390-1520/share, Kioxia Holdings (285A JP) will be valued at JPY 784bn (US$5.24bn).
- TOPIX inclusion will take place in January while inclusion in global indices is likely to take place in May and June. Selling stock to increase float will be an overhang.
4. Sanrio (8136 JP) – Kitty Behaving Badly
- Sanrio (8136 JP) announced a deal last week which I discussed in Sanrio (8136 JP) Large Secondary Offering – Don’t Say Hello Kitty! Too Soon. Next day it fell sharply.
- There was shorting involved, and since then the stock has rallied 18% to clear the undisturbed price which itself was an all-time high, up 5% in the previous two days.
- There is some LO buying, some HF covering, but a LOT of day-traders. In five days the stock has traded 903% of its Maximum Real World Float. That’s a lot.
5. TIP Customized Taiwan Select High Div Index Rebalance Preview: US$2.8bn Trade as Adds Outperform
- The TIP Taiwan Select High Dividend ETF (00919 TW) tracks the TIP Customized Taiwan Select High Dividend Index and has an AUM of TWD 285bn (US$8.75bn).
- We forecast 8 changes a side at the December rebalance with an estimated one-way turnover of around 16% and a round-trip trade of around US$2.8bn.
- An equal weighted basket of potential inclusions has outperformed an equal weighted basket of potential deletions since the start of July with most of the outperformance coming from September.
6. Breaking: Korea Drops Martial Law, Local Markets in Turmoil—What’s the Short-Term Trade Play Here?
- Martial law has been declared 11 times since 1945, but this is the first since Korea’s post-‘90 democratization.
- The Martial Law Command’s first proclamation blocks parliament, raising legal questions about its constitutionality and making any immediate attempt to end martial law uncertain.
- Defense and telecom stocks could outperform short-term due to martial law, making them strong trading targets to watch.
7. HSI, HSCEI, HSTECH, HSIII Index Rebalance: US$3.4bn of Flows Post Capping (Dec 2024)
- The December rebalance of the HSI, HSCEI, HSTECH and HSIII indices will use today’s closing prices to cap the index constituent weights at 8%/12%. This will lead to large flows.
- The round-trip trade across all stocks across the four indices is estimated at HK$26.14bn (US$3.4bn).
- Alibaba, Tencent, Midea Group, Kuaishou Technology, NIO, HSBC Holdings and New Oriental Education & Techn are the largest buys. Meituan, Xiaomi, JD.com, AIA Group and NetEase are the largest sells.
8. NIFTY200 Momentum30 Index Rebalance Preview: 65% One-Way Turnover and US$1.6bn Trade
- There could be 19 changes for the Nifty200 Momentum 30 Index that will be implemented at the close on 30 December. There are some stocks from the new F&O inclusions.
- If all changes are on expected lines, one-way turnover is estimated at 65.2% and that will result in a one-way trade of INR 71bn (US$837m).
- The potential inclusions have outperformed the potential deletions since the start of July. The pace picked up over the last month as we neared the end of the review period.
9. Auckland Airport (AIA NZ) Placement: Potential Index Flows
- Auckland City Council is looking to sell 163.23m shares of Auckland Intl Airport (AIA NZ) in a clean-up trade. This is big at NZ$1.3bn and 64 days of ADV.
- The placement was expected by the market and the stock has run up despite that. The stock is in a trading halt and should open lower.
- There will be passive buying at the time of settlement of the placement shares and that will mop up around 15% of the offering.
10. 7 & I (3382) – York Holdings Sale Process, Timeline, Nuances
- The sale process of Seven & I Holdings (3382 JP) “unit” York Holdings, with 31 sub-units, has started. 7+ bidders bid in Round 1. Due dili follows then Round 2.
- I expect SST+support ops get sold, and the specialty stores get carved out. I expect the deal to get decided by end-Feb 2025. Noises about real estate enhancement are encouraging.
- This is still all to the good, so I include a Gratuitous Chart Showing 7&i’s Up-And-To-The-Rightness
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. 7&I (3382 JP) – A York Holdings Deal And Warren Buffett?
- The Seven & I Holdings (3382 JP) to rid itself of control of the Ito-Yokado, York Benimaru, Akachan Hompo, and Denny’s Japan businesses in York Holdings proceeds apace.
- The First Round of bids is due tomorrow, apparently, and all manner of bidders have assembled.
- This leads to the question of a deal for the rest of 7&i. If a TradingCo is a natural co-investor for the Ito family (or ACT), so is Berkshire Hathaway.
2. Sanrio (8136 JP) Placement: Potential Global Index Migration Leads to Interesting Dynamics
- Overnight, Sanrio (8136 JP) announced a placement of 25.87m shares to unwind crossholdings and improve corporate value. There is an overallotment option for another 3.88m shares.
- There will be limited passive buying in the short-term and the shares offered is a large percentage of real float of the stock.
- However, Sanrio (8136 JP) is the highest ranked non-constituent stock in a global index universe and a drop in the stock price could be used to accumulate positions.
3. Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: Last-Second Changes to the Last-Minute Changes
- There are now new changes forecast for the Yuanta/P-Shares Taiwan Dividend Plus ETF in December for a total of 8 inclusions and 7 deletions.
- Constituent changes along with capping changes will lead to a one-way turnover of 21.8% and in a one-way trade of TWD 75.8bn (US$2.33bn).
- The potential changes had a big one-day move yesterday and we expect similar moves over the next couple of days.
4. Kansai Electric Power (9503 JP) – Huge Offering Is Smaller Now; Reward/Risk Skews Upwards
- On 13 November, Kansai Electric Power (9503 JP) announced an equity offering to raise capital for capex expenditures over the next several years. It is significantly dilutive.
- The shares responded by falling 23% to 8-months lows of ¥1,850 last Thursday and Friday. That puts the stock at the same forward PER post-offering as it was pre-offering.
- That’s probably not an awful place to own now that the stock will have been slightly de-risked/de-levered.
5. Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: Big Shift in Divs Leads to Last Minute Changes
- Using data from the close on 25 November, there could be 6 adds and 5 deletes for the Yuanta/P-Shares Taiwan Dividend Plus ETF in December.
- There will also be capping and funding flows that will lead to a one-way turnover of 17.3% and a one-way trade of TWD 60.6bn (US$1.86bn).
- On average, the forecast adds have started to outperform the forecast deletes. Positioning should continue in stocks that have large flow/impact or have recently joined the list of forecast adds/deletes.
6. [JAPAN ACTIVISM] Keisei Elec (9009) – Murakami Stake Causes Pop But the Oppty Is Still Unconvincing
- 13mos ago, activist investor Palliser Capital spoke at a conference about the value offered by Keisei Electric Railway Co (9009 JP) due to its large stake in Oriental Land (4661).
- Keisei outperformed OLC by 30% over 3.5mos. Then it fell all the way back, and more, over the next five months. Asset sale, buyback, AGM proposals. Meh.
- Nov 25th, Toyo Keizai wrote activist Murakami-san had acquired stakes of <5% in Keikyu Corp (9006 JP) and <1% in Keisei Electric Railway Co (9009 JP). Shares in both jumped.
7. Taiwan Top 50 ETF Rebalance Preview: Double Inclusion for Yang Ming Marine (2609 TT)
- Yang Ming Marine Transport (2609 TT) is forecast to be added to the Yuanta/P-Shares Taiwan Top 50 ETF in December, replacing Airtac International (1590 TT).
- Yang Ming Marine Transport (2609 TT) is also expected to be added to the Yuanta/P-shares Dividend Plus ETF in December, so there will be buying from multiple trackers.
- Shorts are near their lows in Yang Ming Marine Transport (2609 TT) while there has been covering in Airtac International (1590 TT) after an increase in the last few months.
8. HSTECH Index Rebalance: Midea (300 HK) Replaces Weibo (9898 HK); US$1.5bn Round-Trip Trade
- In a surprise, Midea Group (300 HK) will replace Weibo (9898 HK) in the Hang Seng TECH Index (HSTECH INDEX) after the close of trading on 6 December.
- Estimated one-way turnover at the rebalance is 4.5% resulting in a round-trip trade of HK$11.72bn (US$1.51bn). Passives need to buy 9x ADV in Midea Group (300 HK).
- The Midea Group Co Ltd A (000333 CH) / Midea Group (300 HK) premium could drop due to the index inclusion providing an entry point into an AH expansion trade.
9. NTT (9432 JP) And SBI Sumishin NetBank (7163 JP)? Maybe. Maybe Not. Seven Bank A Better Idea
- An article in Japanese weekly magazine Bunshun this morning sent shares inSBI Sumishin Net Bank (7163 JP) limit up +17% with a headline that NTT Docomo was interested to buy.
- Without access to the article, I can’t go deep, but the base concept is that NTT Docomo is “worried” about KDDI (which has a bank, as does Softbank Corp)
- It is not clear how serious it is, SBI Sumishin is super-expensive, and buying a bank isn’t the same as buying a company. Hmmm…
10. Seven & I Holdings (3382 JP): Implications from the YORK Holdings Stake Sale
- NHK reports that Seven & I Holdings (3382 JP)‘s first bidding round for a YORK Holdings stake ends on 28 November. The sale provides a third-party valuation benchmark for the asset.
- It is an incremental positive for the founding family MBO as it supports the post-privatisation strategy and assists in securing bank financing.
- This is an incremental negative for Alimentation Couche-Tard (ATD CN) as it shows that the Board believes the restructuring plan will increase shareholder corporate value.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. 7&I (3382) – What If… A Modest Proposal
- A lot of the talk around the news that Ito family scion Ito Junro had proposed to Seven & I Holdings (3382 JP) an MBO was about thwarting Alimentation Couche-Tard.
- Several mentioned that this bid – seemingly uncompetitive at the moment – would make ACT back down. I discussed the bid and its repercussions here.
- Here I suggest an alternate solution which might get everyone what they want.
2. 7&I (3382) Ito Family MBO – New Urgency for ACT
- Days ago we got a dramatic headline about Ito family scion ITO Junro and his family company Ito Kogyo making a bid for Seven & I Holdings (3382 JP).
- The stock popped, then fell. Details were not clear. Was the ¥9trln an EV number? A market cap? Was he serious? How would he get funding. Skepticism was rife.
- Today we get more headlines from NHK. who says the family wants to raise ¥8trln to take 7&i private by end-Feb 2025.
3. Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: 6 Adds, 5 Deletes, Capping, US$3.5bn Trade
- Using data from the close on 15 November, there could be 6 adds and 5 deletes for the Yuanta/P-Shares Taiwan Dividend Plus ETF in December.
- There will also be capping and funding flows that will lead to a one-way turnover of 16.9% and a one-way trade of TWD 57.5bn (US$1.77bn).
- Short interest is at the highs in most forecast deletes, while the trend is mixed among the potential inclusions.
4. TIP Taiwan Value High Dividend Index Rebalance: A Lot to Trade This Week
- There are 15 changes for the TIP Taiwan Value High Dividend Index in November. The Yuanta Taiwan Value High Dividend ETF (00940 TT) has an AUM of US$5bn.
- Estimated one-way turnover is 26% and there are 16 stocks with over 4 days of ADV left to trade. The rebalance commenced yesterday and will end on Friday.
- An equal weighted basket of inclusions has outperformed an equal weighted basket of deletions since July. That could continue over the week as the ETF continues to rebalance their portfolio.
5. TIP Customized Taiwan Select High Div Index Rebalance Preview: 32% T/O; US$2.75bn Trade; HUGE Impact
- The TIP Taiwan Select High Dividend ETF (00919 TW) tracks the TIP Customized Taiwan Select High Dividend Index and has an AUM of TWD 284bn (US$8.7bn).
- We forecast 8 changes a side at the December rebalance with an estimated one-way turnover of around 15.8% and a round-trip trade of around US$2.75bn.
- An equal weighted basket of potential inclusions has outperformed an equal weighted basket of potential deletions since beginning September with a pick-up in pace over the last 2-3 weeks.
6. SF Holding (6936 HK): No Index Inclusion till Mid-2025; AH Premium Could Stay Wide
- The S.F. Holding (002352 CH) H-shares are being offered at a price range of HK$32.3-36.3/share, a discount of 20.2%-29% to the A-shares. The max raise (including oversubscription) is US$912m.
- Unlike Midea Group (300 HK), the S.F. Holding (002352 CH) H-shares will not get Fast Entry to any indices. Southbound Stock Connect inclusion will take place on 23 December.
- With no index inclusion in the short-term, the H-shares discount to the A-shares should remain wide. The H-shares could become short sell eligible in February.
7. Hang Seng Index (HSI) Rebalance Preview: Inclusion Candidates for December
- Post market close on Friday, Hang Seng Indexes will announce the changes for the Hang Seng Index (HSI INDEX) that will be implemented at the close on 6 December.
- With no increase in the number of index constituents this calendar year, there could be inclusions in December. The process of getting to 100 index constituents could drag into 2026.
- Short interest is especially large in Sinotruk, Giant Biogene, Kuaishou Technology, ASMPT and JD Logistics and inclusion could set off some short covering.
8. Fuji Soft (9749): KKR To Launch at ¥9,451, Fuji Soft REJECTS Bain’s Bid – Governance in Shambles
- On Friday 15 November, KKR announced it would launch KKR Tender2 to buy the rest of FujiSoft not purchased in KKR Tender1. Their new price is ¥1 higher than Bain’s.
- Fuji Soft Inc (9749 JP) announced (J) it supported the KKR2 Tender and rejected the Bain TOB Proposal. KKR1 shareholders are “made whole” at ¥9,451/share. Minimum is 53.22%.
- The document, however, is a Governance Disaster – an absolute shambles, effectively gaslighting investors at every turn. And now investors can see it was problematic from the start.
9. Seven & I Holdings (3382 JP): Evaluating the Potential MBO
- Seven & I Holdings (3382 JP) did not dispute the NHK article’s claims that the founding family aims to raise buyout funds by the end of the fiscal year.
- Since 13 November, there have been conflicting press reports on the MBO offer price. The NHK article’s implied offer price of JPY3,082 seems the most credible.
- The MBO’s aggressive completion timeline pressures Alimentation Couche-Tard (ATD CN) to respond by either overbidding, working with the founding family at the back-end or walking away.
10. S&P/ASX Index Rebalance Preview (Dec 2024): Dexus and Spark NZ with Double Deletions
- With the review period nearly complete, there could be one change for the S&P/ASX 50 Index and one change for the S&P/ASX 200 (AS51 INDEX) in December.
- Both deletes are also deletions from a global index next week and there could be short-term buying/covering opportunities on a drop in the stock price.
- There has been a buildup of cumulative excess volume in all stocks over the last few months. There has been no increase in positioning in CAR Group (CAR AU) recently.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. Meituan (3690 HK): Big Passive Selling in December
- The announcement of the changes to the Hang Seng indices is on 22 November, the capping will use the close on 3 December and implemented at the close 6 December.
- Meituan (3690 HK)‘s outperformance over the last couple of months will result in capping of the stock weight in all major indices and passives will sell stock.
- We estimate passive trackers will need to sell 35m shares (US$866m; 0.64x ADV) of Meituan (3690 HK) and that number will change over the next 3 weeks depending on performance.
2. 7&I (3382 JP) – An ITO Family MBO? With Itochu? At ¥9trln? Maybe. Information Is Scarce
- Yesterday a news article from Bloomberg suggested 7&i was “considering” an MBO. Seven & I Holdings (3382 JP) later confirmed they had received a non-binding proposal from ITO Junro/family.
- The initial number was ¥9trln. If market cap? High. If EV, too low. That would have implied a price just over the first “grossly inadequate” ACT price.
- There is a lot we don’t know. This changes the landscape. It probably shifts the range trade, but it will shift more when we get more clarity on ITO-san’s price.
3. KEPCO (9503 JP): Index Implications of US$3.5bn Primary + Secondary Offering
- Kansai Electric Power (9503 JP) is looking to raise up to US$3.5bn via a primary offering and a sale of Treasury shares. Pricing date is between 26-29 November.
- Kansai Electric Power (9503 JP) is among the better performing stocks from the Electric Utilities industry and trades at higher valuations compared to its peers.
- There will be a fair bit of passive buying with around 29% of the offering being bought at the time of settlement of the shares.
4. Seven & I Holdings (3382 JP): The Rumoured MBO Price Underscores the Trapped Value
- In response to media reports, Seven & I Holdings (3382 JP) confirmed receiving a non-binding proposal from Junro Ito (founder’s son) and Ito-Kogyo. No terms were disclosed.
- Bloomberg suggests an MBO deal worth up to JPY9 trillion (US$58 billion), which implies an offer of JPY3,467.89, a 39.3% premium to the last close price.
- The “white knight” MBO undermines Alimentation Couche-Tard (ATD CN)’s offer and is a proxy for the restructuring plan’s value. Couche-Tard will likely walk if a binding MBO proposal emerges.
5. Nikkei 225 Index Rebalance Preview (Mar 2025): Ranking, Capping, Funding & Other Changes
- The review period for the Nikkei 225 Index March rebalance ends in January. There could be one outright change and one or two others driven by sector balance.
- Depending on the changes, passive trackers will need to buy between 8.2-20.5x ADV (8.75%-24.5% of real float) and sell between 9-38x ADV on the deletions.
- Fast Retailing‘s PAF could see a double reduction to keep the stock weight capped at 10%. There will be huge passive selling leading to funding inflows for other index constituents.
6. INDIA: Index Changes Due to the 45 New Additions to the F&O Segment
- The National Stock Exchange (NSEIN IN) has announced a list of 45 stocks that will be added to the Futures & Options (F&O) segment of the market from 29 November.
- There will be changes to the NIFTY Index, NSE Nifty Next 50 Index, S&P BSE SENSEX Index and the CNXIT Index over the next couple of rebalances.
- There are some interesting situations out there, including a change to the universe for the NSE Nifty Next 50 Index (NIFTYJR INDEX) that could lead to more changes.
7. STAR Chip Index Rebalance Preview: 3 Potential Changes in December; US$450m Round-Trip Trade
- There could be 3 constituent changes for the STAR Chip Index at the December rebalance. There will also be a couple of capping changes.
- Estimated one-way turnover is 5.05% resulting in a one-way trade of CNY 1.6bn (US$225m). Passives need to trade between 0.6-1x ADV in the potential changes.
- The forecast adds have underperformed the forecast deletes over the last month but there has been a marked improvement in performance in the last week. Watch out for more.
8. NASDAQ 100 Index Rebalance: Lovin’ It as AppLovin (APP) Replaces Dollar Tree (DLTR)
- AppLovin (APP US) will replace Dollar Tree Inc (DLTR US) in the Nasdaq-100 Stock Index (NDX INDEX) after the close of trading on 15 November.
- Passive trackers are expected to buy over US$1.6bn in AppLovin (APP US) while they will sell around US$250m in Dollar Tree Inc (DLTR US).
- AppLovin (APP US) is the biggest tech name outside the S&P 500 INDEX (SPX INDEX) now and is a high probability inclusion to the index at the December rebalance.
9. NEC Network (1973 JP) Tender Offer – The Landscape Has Fully Changed
- On 29-October, NEC Corp (6701 JP) announced a low-ball TOB to buy out subsidiary Nec Networks & System Integr (1973 JP). It deserved activism, but finding an activist was tough.
- On 7 November, it got an activist, and I wrote on 8-November the Landscape Had Changed that they might have bought 6mm shares more in 5 days. They bought 8.4mm.
- The Landscape Has FULLY Changed. The details now matter quite a bit. NEC has two basic choices. Neither are that palatable. But Target Advisor DCF was ¥3,073-4,688 without synergies.
10. CES China Semiconductor Chips Index Rebalance Preview: Three Changes in December
- There could be three changes for the CES China Semiconductor Chips Index at the close of trading on 13 December.
- Based on the assets tracking the index, passive trackers will need to trade between 0.1-0.3x ADV in the stocks.
- There will be selling in Semiconductor Manufacturing International Corporation (SMIC) (688981 CH) to cap the stock at 10% of the index weight.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. Bain Bids Bigger, Goes Hard on Fuji Soft (9749); I’ve Got 🍿🍿🍿
- As they had announced was their intention, Bain has made a binding offer for Fuji Soft Inc (9749 JP), bidding ¥9,450 against KKR’s ¥8,800. They aim to launch late October.
- There is no minimum and no maximum. The Founding Nozawa family had thrown their lot in with Bain not KKR and that 18.5% is tied up.
- There are conditions, and those are ALL-important. And I expect we see in the next week or so how coercive KKR’s “non-coercive” scheme change was. I’ve got 🍿🍿🍿.
2. MBK’s Korea Zinc & Young Poong Precision Tender Results Officially Out
- MBK officially disclosed that they scooped up 5.34% of the Korea Zinc (010130 KS) shares in the tender that wrapped up today.
- MBK scored a partial win by securing more voting rights than Choi, with unexpected backing from foreign and local institutions, likely due to proration risk over legal issues.
- Still, securing just 5.34% puts MBK in a tough position, requiring them to navigate minority shareholder votes while pushing hard on the legal front to block the buyback.
3. China ETF Inflows & Implications: YTD Inflows Nearing US$150bn
- Nearly US$140bn has flowed into mainland China listed ETFs year to date and there have been big creations in the last few weeks as stocks have surged.
- 97% of all inflows are in ETFs benchmarked to the CSI300, CSI1000, CSI500, SSE50, ChiNext and STAR50 indices. But over US$4bn has gone into other ETFs in the last week.
- The large ETF inflows over the last few weeks has led to index rebalance strategies underperforming in China. But that should reverse from now to rebalance implementation.
4. S&P/ASX Index Rebalance Preview (Dec 2024): Big Impact as Shorts Ramp Up
- With three quarters of the review period complete, there could be one change for the S&P/ASX 50 Index and two changes for the S&P/ASX 200 (AS51 INDEX) in December.
- There are two stocks that could be deleted from global indexes in November and that could keep those names under pressure for the next few weeks.
- Passive trackers will need to buy between 4-5x ADV in the forecast adds and sell between 2-8x ADV in the forecast deletes. Shorts have been building up in some names.
5. Yuanta/P-Shares Taiwan Div+ ETF Rebalance Preview: Big Impact and US$3bn Round-Trip Trade
- Using data from the close on 11 October, there could be 6 adds and 5 deletes for the Yuanta/P-Shares Taiwan Dividend Plus ETF in December.
- There will also be capping and funding flows that will lead to a one-way turnover of 15% and a one-way trade of TWD 49bn (US$1.52bn)
- Shorts have been building up in some of the forecast deletes and in a couple of the forecast adds as well.
6. China Resources Beverage (2460 HK) IPO: Index Inclusions & Stock Connect in 2025
- China Resources Beverage (CRB HK) is offering 347.8m shares in its IPO at a price range of HK$13.5-14.5/share. With the overallotment option, the IPO could raise up to HK$5.8bn (US$474m).
- Cornerstone investors will take up nearly half the offer. Those shares will be locked up for 6 months and will significantly reduce the free float of the stock.
- Index inclusions will commence with the HSCI in March 2025 – that will also result in Stock Connect inclusion. The next index inclusion will take place in June.
7. Korea Value-Up ETFs: Latest Market Info on Initial AUM Setup & Resulting Passive Impacts
- KRX will launch 12 ETFs tracking the Korea Value-Up Index on November 4—9 passive and 3 active—aiming for an initial AUM exceeding 1 trillion KRW.
- KRX is pressuring ETF operators to reveal initial capital by November 4, with expectations to exceed 1 trillion KRW due to government pressure.
- Early signs of position buildup are emerging, so it’s essential to monitor stocks with significant passive impact closely moving forward.
8. Fuji Soft (9749 JP): Bain’s Better Late than Never Competing Offer
- Bain’s pre-conditional tender offer for Fuji Soft Inc (9749 JP) is JPY9,450, a 7.4% premium to KKR’s JPY8,800 offer. There is no minimum or maximum acceptance condition.
- The preconditions relate to regulatory approval (Vietnam) and Board recommendation. Bain’s offer is designed to bring KKR to the negotiating table to find a solution to privatisation.
- KKR can 1) do nothing, 2) work with Bain on a solution, or 3) engage in a price war to prevent the satisfaction of Bain’s Board recommendation precondition.
9. Merger Arb Mondays (14 Oct) – Haitong/GJTA, GA Pack, Henlius, Canvest, Seven & I, Arcadium Lithium
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads Seven & I Holdings (3382 JP), Shanghai Henlius Biotech (2696 HK), Canvest Environmental Protection Group (1381 HK), Haitong Securities Co Ltd (H) (6837 HK), Shinko Electric Industries (6967 JP).
- Lowest spreads: Dyna Mac Holdings (DMHL SP), Xingda International (1899 HK), Fuji Soft Inc (9749 JP), Trancom Co Ltd (9058 JP), Descente Ltd (8114 JP), T Gaia Corp (3738 JP).
10. Quiddity Leaderboard ChiNext Dec 24: US$400mn Expected Inflow for Jiangsu Hoperun
- The ChiNext Index represents the performance of the 100 largest and most liquid A-share stocks listed on the ChiNext Market of the Shenzhen Stock Exchange.
- The ChiNext 50 index is a subset of the ChiNext Index and it consists of the top 50 names in the ChiNext index with the highest daily average turnover.
- In this insight, we have presented our updated rankings for Potential ADDs and DELs for the upcoming index rebal event in December 2024.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. 7&I Results and Plans – The Good, The Bad, The Ugly, The Respectable, Unfortunate, and Encouraging
- H1 sales were GOOD. H1 earnings were BAD. New forecasts are UGLY. The CVS initiatives are RESPECTABLE, but US CVS market environment UNFORTUNATE. The creation of the new Holdco ENCOURAGING.
- The Couche-Tard Bid? That’s SEPARATE. Confidential. But three weeks after receiving the new proposal, it hasn’t been publicly rejected. So that’s a thing.
- 7&i is progressing with its Standalone Plan, as it should, because ACT’s bid is more a show of faith for discussions. The York Holdings structure is INTERESTING.
2. Revised Couche-Tard Bid for 7&I and a Flurry of News Items Ahead of Earnings
- This AM, partway through the morning session, Bloomberg carried an article saying Alimentation Couche-Tard (ATD CN) had upped its bid for Seven & I Holdings (3382 JP) to US$18.19/share.
- The stock popped, then faded sharply. Near and after the close we got more headlines. Some of these preview tomorrow’s earnings report. Some preview the restructuring announcements.
- The Nikkei comment regarding an earnings shortfall vs Plan suggests weaker US convenience store sales and consumer footfall are to blame. Details will matter. But I’d buy dips.
3. Haitong Securities (6837 HK)/GTJA (2611 HK) Merger Is a Done Deal
- Guotai Junan Securities (2611 HK) and Haitong Securities Co Ltd (H) (6837 HK) all-scrip merger is set at an exchange ratio of 0.62x.
- The merger is conditional on the GJTA/Haitong shareholder vote, which is low risk. Regulatory approvals are a formality as they involve two entities with SOE backgrounds.
- The share exchange ratio is attractive compared to historical price ratios and precedent transactions. The recent material re-rating of peers is irrelevant to the vote as the offer is all-scrip.
4. Guotai Junan (2611 HK)/Haitong (6837 HK)’s Merger: A Win For H-Shareholders
- A month after China’s leading state-backed brokerages, Guotai Junan Securities (2611 HK) and Haitong Securities (H) (6837 HK), announced an intention to merge, we have a firm deal.
- Via a share swap, each Haitong H share may be exchanged for 0.62 H shares of GJS. A similar ratio is in place for the As. Cash options are afforded
- Conditions include GJS and Haitong shareholder approval; plus the usual suspects on the regulatory front. The key risk, as with TCM (570 HK)‘s Offer, is one of timing.
5. 7-Eleven Corporation: A Clear Strategy for Long-Term Value, Founding Family Return to Super-Stores
- Seven & I released 1H24 earnings today as well as details on planned restructuring of its business. Results included some one-off items hitting operating profit as well as lower footfall.
- The bigger news was the plan to hive off the non-CVS retail operations into a new company, York Holdings, leaving a newly named 7-Eleven Corporation running CVS globally.
- Unusually, Seven also mentioned the possibility of new strategic partners investing in York, including even the “original founding families”, suggesting one way of holding on to control.
6. MBK Rules Out Further Tender Price Hike for Korea Zinc, Game Plans Shift
- MBK’s strategy is clear: they believe they have the upper hand with the current price level and are optimistic about a favorable ruling on the second injunction.
- All eyes are on Choi to raise the price by this Friday, the 11th, before the deadline, especially with the FSS’s scrutiny looming.
- If that happens, MBK will likely go all-in on the second injunction whose hearing is on the 18th. Choi raising the price this Friday won’t significantly boost Korea Zinc’s stock.
7. HSCI Index Rebalance Preview: Midea Group (300 HK) To Be Added in December; Stock Connect Next Week
- There were only 13 new listings on the Main Board of the HKEX (388 HK) in the third quarter of the year.
- Of those stocks, we only see Midea Group (300 HK) having a chance of being added to the HSCI in December.
- Midea Group (300 HK) should be added to Southbound Stock Connect next week after the price stabilisation period has ended.
8. Shin Kong and Taishin – There’s a Good Value Swap Trade To Do Here
- Media reports indicate that the shareholder base of Shin Kong Financial Holding (2888 TT) and Taishin Financial Holding (2887 TT) have approved their merger.
- Shin Kong meeting results were public just before the market closed. The results from Taishin were known earlier. The market and spread were un-moved. If anything, things widened a little.
- Next, the two companies try to get fair Trade Commission, FSC, and Exchange approval to join to become Taishin Shin Kong FHC. And there’s a good trade to do here.
9. Hyundai Motor India: Index Entry Timing for India’s Biggest IPO
- Hyundai Motor India (1342Z IN) is looking to list on the exchanges by selling up to INR 279bn (US$3.3bn) of stock at a valuation of up to INR 1,593bn (US$19bn).
- The anchor allocations will be completed early next week, and the stock is expected to start trading on 22 October.
- The stock will not get Fast Entry to global indices. Inclusion at regular rebalances should take place in February and June next year.
10. Seven & I Holdings (3382 JP): Pressure Mounts with a Couche-Tard Revised Offer
- In response to media reports, Seven & I Holdings (3382 JP) confirmed receiving a revised non-binding proposal from Alimentation Couche-Tard (ATD CN).
- The rumoured revised offer is US$18.19, a 22.4% premium to the initial US$14.86 offer. The revised terms are attractive vs precedent transactions and analyst price targets.
- The Board would cite regulatory concerns and the revised offer’s implied discount compared to peer multiples. At tomorrow’s results, the Board must present a credible alternative value generation path.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. HSTECH Index Rebalance Preview: $800m Round-Trip Trade
- The review period for the December rebalance of the Hang Seng TECH Index (HSTECH INDEX) ended on 30 September.
- We do not forecast any constituent changes for the index. Capping changes will lead to a one-way turnover of 2.15% and a round-trip trade of HK$6.1bn (US$785m).
- If any stocks have outsized moves on expectations of being added to or deleted from the index, there could be opportunities to enter trades.
2. Tokyo Metro (9023 JP) IPO: TPX Inclusion in November; Global Indices: One in October, One in Feb
- Tokyo Metro (9023 JP)‘s listing has been approved by the JPX and the stock is expected to start trading on the Prime Market from 23 October.
- At the reported indicative IPO price of JPY 1100/share, Tokyo Metro (9023 JP) will be valued at JPY 639.1bn (US$4.49bn).
- The stock should be added to one global index on 29 October, to the TOPIX INDEX on 28 November, while another global index inclusion will need to wait till February.
3. HSCEI Index Rebalance Preview: High & Low Probability Changes
- PICC Property & Casualty H (2328 HK) inclusion and Longfor Properties (960 HK) deletion are high probability changes for the Hang Seng China Enterprises Index (HSCEI INDEX) in December.
- There is a lower probability of China Resources Power (836 HK) being added and of Sino Biopharmaceutical (1177 HK) being deleted at the rebalance.
- There has been big short covering in PICC Property & Casualty (2328 HK) over the last couple of months while shorts would have covered Longfor Properties (960 HK) recently.
4. Mar25 Nikkei 225 Rebal: Considering Fast Retailing Capping…. Again…
- At end-September, the Nikkei 225 semi-annual review imposed a “cap” on Fast Retailing (9983 JP) in the Average, applying a 0.9 coefficient to the Price Adjustment Factor.
- At its current weight, Fast Retailing will be capped again in March 2025. If the stock outperforms Nikkei 225 by another 3% before 31 January 2025, it could be double-capped.
- And an additional 16% would mean ¥1.1trln of sales in March. But like last time, this is a rubber band which stretches. Too far, and selling pressure is obvious.
5. Shin Kong (2888 TT) Deal – Activism, Proxy Advice, Proxy Fight, Voting Risk, and Discounts
- Taishin Financial Holding (2887 TT) has raised its bid for Shin Kong Financial Holding (2888 TT) and CTBC Financial Holding (2891 TT) has dropped its bid after FSC rejection.
- Shin Kong’s Board approved the revised (25% higher) Taishin bid. Shares in Shin Kong fell sharply on the FSC rejection of the CTBC bid.
- Taishin’s bid clearly has governance/related party issues and a significant portion of the “non-Taishin” reps on the Shin Kong Board had issues. October 9th passage is not a done deal.
6. Korea Zinc’s Buyback Tender Offer at ₩830,000: Market Vibe Still Leans Towards MBK
- Korea Zinc is launching a 3.21M share buyback (15.5% of total shares) via a KRW 2.66T tender offer at ₩830,000 per share, with Bain Capital involved.
- If tendered shares fall short, Korea Zinc and Bain Capital will buy all. If over the target, they’ll buy pro rata. Below 1,215,283 shares, they will opt out.
- Should we dive into Korea Zinc’s risky buyback or choose safer, lower-priced MBK? The market vibe favors MBK, reflected in Korea Zinc’s closing price today.
7. T-Gaia (3738 JP) – Potential Premium Takeout Story Turns To An Ugly Takeunder
- Today, just before the close, the Nikkei put out a scoop that Bain would buy T Gaia Corp (3738 JP) for ¥140bn. Sounds big. It was a 30% discount.
- There is a three Tender Offer process whereby minorities, who could be squeezed out regardless, are offered the opportunity to block the deal by not tendering at ¥2,670.
- This not-quite “majority of minority” of the super-minority is an interesting governance condition established by the Special Committee. It bears some study.
8. FnGuide Semiconductor Top10 Index Rebalance Preview: Wonik IPS to Replace ISC
- Today is the last trading day in the review period for the October rebalance of the FnGuide Semiconductor Top10 Index.
- Wonik Ips (240810 KS) is a high probability add and ISC Co Ltd (095340 KS) is a high probability delete. This will reverse the changes from the April rebalance.
- Passive trackers will need to buy over 3.5x ADV in Wonik Ips (240810 KS) and sell nearly 2x ADV in ISC Co Ltd (095340 KS).
9. Emart’s Tender Offer for Shinsegae Construction: Arb Trading Angles
- E Mart Inc is launching a tender offer for 27.33% of Shinsegae Eng & Construction, offering ₩18,300 per share, a 14% premium, from September 30 to October 29.
- This tender’s got zero cancellation or proration risk since they’re all in to buy every share tendered. That makes it a prime event for close spread tracking and trading opportunities.
- Emart needs 95% of Shinsegae Construction’s shares to delist, requiring 22% of the remaining 27%. If they can’t get it, a stock swap with Emart shares is likely.
10. Court Dismisses Injunction; Korea Zinc to Announce Buyback Tender Offer Soon
- The court rejected MBK and Young Poong’s injunction to block Korea Zinc’s buyback, allowing Choi’s side to continue using buybacks to defend control.
- Korea Zinc plans an emergency board meeting to launch a tender offer, using internal funds, to buy back shares at 800K-850K KRW starting around October 7.
- If Choi converts discretionary reserves into distributable profits, Korea Zinc could unlock 2-3 trillion KRW for the buyback, but uncertainty keeps the stock around 700K KRW.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. The Biggish Sep 2024 “Thursday-Friday Trade”
- Every year it’s the same trade. This year it is Thursday and Friday. There is some funkiness to Monday too.
- There is meaningful directional buying on one day, which then kind of gets stretched a bit. This year, circumstances suggest high confidence buying should be at the top end.
- This year, because circumstances, I expect the trade is a lot larger than last year. I’d say ¥1.6trln.
2. China’s [Maybe] Biggish [Quasi?] Bazooka
- Today, in a press conference held jointly by the Governor of the PBOC, the Director of the Financial Regulatory Bureau, and Chairman of the CSRC, China announced market stimulus measures.
- The PBOC will cut RRR 50bp, the 7-day repo rate 20bp, guide effective mortgage rate cuts, and lower minimum down payments on second homes. There are other commercial RE measures.
- Three major stock market measures were announced. A RMB500bn collateral swap programme, PBOC backing RMB300bn bank loans for corps to buy stocks, and a Plan to increase Central Huijin investments.
3. Korea Zinc’s Latest Shareholder Roll & MBK’s Triggers to Sweeten Tender Price
- MBK is watching for a 1 million share trading volume, as that may prompt neutral institutional investors to sell rather than participate in the tender, triggering a price hike.
- MBK may raise the tender price to ₩900,000, a 35% jump, with a local pension fund CIO suggesting it’s the sweet spot for participation.
- MBK believes securing the minimum target would give them 44% voting rights, enough to push their proposals, indicating they’ll go all-in for that 7% stake in this first attempt.
4. Korea Exchange Announces The Korea Value Up Index
- Korea Exchange announced the long awaited Korea Value Up Index (“K Value Up Index”) (composed of 100 stocks) today.
- Korea Exchange used a 5-step screening process to select the 100 companies in this index including market cap, profitability, shareholder returns, market evaluation, and capital efficiency.
- This Value Up index is part of the bigger “Corporate Value Up ” program in Korea. These efforts to improve Korea’s corporate governance policies is a marathon, not a sprint.
5. Tech: Japan’s Biggest IPO in 6 Years, Kioxia, Is Off. Here Is the Likely Reason
- Significant peer price performance declines leaves IPO valuation stretched, the desired discount multiple to attract interest has suddenly become a premium
- Investor interest in memory semiconductors, AI derivative stocks has cooled
- Peer price sell-offs are extreme but could quickly change, reflecting the highly cyclical nature of the sector
6. STAR50/STAR100 Index Rebalance Preview: Massive Outperformance in Last Two Months; Time to Unwind?
- 90% of the way through the review period, there could be 1 change for the SSE STAR50 (STAR50 INDEX) and 5 changes for the STAR100 Index.
- We estimate turnover of 1% for the STAR50 INDEX and 5.5% for the STAR100 Index. The net round-trip trade is CNY 3.2bn (US$453m).
- The forecast add to the SSE STAR50 (STAR50 INDEX) has massively outperformed the forecast deletion from the index over the last two months.
7. KOSDAQ150 Index Adhoc Rebalance: HLB Therapeutics Replaces Jeisys Medical
- HLB Therapeutics (115450 KS) will replace Jeisys Medical (287410 KS) in the KOSDAQ 150 Index (KOSDQ150 INDEX) next week.
- Passive trackers will need to buy 1.8 days of ADV in HLB Therapeutics (115450 KS) and sell over 4 days of ADV in Jeisys Medical (287410 KS).
- Recent ad hoc inclusions to the KOSDAQ 150 Index (KOSDQ150 INDEX) have jumped post announcement of index inclusion but have sold off after the inclusion.
8. All the Scoop on the Korea Value-Up Index
- The index focuses on qualitative factors like capital efficiency and shareholder returns, but efforts to impose sector balance may have overextended its market benchmark role.
- Some companies not fitting the ‘value-up’ narrative got included, while market favorites were sidelined by sector rankings, which is puzzling given the index’s original goal.
- Still, with rebalancing cut down to once a year, we should expect the flow impact on the index names to hit harder than initially thought compared to their sector peers.
9. What Are Locals Saying About Potential Allies to Choi Family in Fight for Korea Zinc?
- In this insight, we discuss three particular allies that could help the Choi family that have been highlighted by the local media including Hanwha, KIS, and Softbank.
- The Hanwha Group is one of the largest shareholders of Korea Zinc. In addition, Hanwha Group Vice Chairman Kim Dong-Kwan has a close relationship with Korea Zinc Chairman Choi Yoon-Beom.
- Korea Zinc is planning to hold an important press conference on the 24 September to reveal its position on the tender offer of Korea Zinc shares by MBK.
10. MBK Raises Tender Prices: ₩750,000 for Korea Zinc & ₩25,000 for Young Poong Precision
- Hankyung reports MBK will raise Korea Zinc’s tender offer to ₩750,000 (14%) and Young Poong Precision’s to ₩25,000 (25%) before today’s market opens.
- Hankyung and Maeil are top sources for market scoops, so it’s almost certain MBK leaked the tender price hike ahead of today’s trading.
- MBK leaves Choi just five trading days to respond. Korea Zinc plans to raise ₩400 billion, but it’s still not enough for a counter-bid.
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. Quiddity Leaderboard KOSPI 200 Dec 24: Up to 4 ADDs & 5 DELs Possible
- KOSPI 200 is a Korean blue-chip index that tracks the 200 largest and most-liquid names listed in the KOSPI section of the Korea Exchange (KRX).
- In this insight, we take a look at the names leading the race to become ADDs and DELs during the upcoming semiannual review in December 2024.
- We expect up to four ADDs and five DELs for the KOSPI 200 index during this index rebal event based on the latest available data. And we have a trade.
2. ASX100/ASX200 Index: Replacement Candidates for Virgin Money (VUK AU)
- Following its acquisition by Nationwide, Virgin Money UK Plc (VUK AU) is scheduled to stop trading on the ASX Ltd (ASX AU) after market close on 25 September.
- Virgin Money UK Plc (VUK AU) is a member of the S&P/ASX100 Index and S&P/ASX 200 (AS51 INDEX) and there will be adhoc inclusions at the close on 25 September.
- There are a couple of stocks vying for inclusion in each index and the next couple of days will determine which ones make it.
3. Trancom (9058) – Another Bain MBO Done Too Cheaply Where “Activist” Dalton Rolls In To The Bid
- Logistics takeovers are hot this year. Any cutting-edge-of-efficiencies business in the space is likely to get a look. Trancom Co Ltd (9058 JP) is one.
- But while logistics assets put into bidding competition like Alps Logistics and Chilled & Frozen get high EV/EBITDA multiples, MBO transactions without competition get done too cheaply.
- Here again, an “Value Activist” “selling into the bid” to reinvest in the levered back end (at the takeover price). That tells you this deal is being done too cheaply.
4. Auckland Airport (AIA NZ) Placement: Index Impact
- Auckland Intl Airport (AIA NZ) has announced an underwritten placement of NZ$1.2bn and a non-underwritten retail offer to raise NZ$200m.
- The stock is trading near the low end of its range over the last few years and the 7% discount from the last close should attract investor interest.
- We estimate passive trackers will need to buy around 13.5% of the placement shares coinciding with the settlement date on 20 September.
5. Fuji Soft (9749 JP): Checkmate as KKR Switches to a Two-Stage Tender
- KKR has rejigged its Fuji Soft Inc (9749 JP) tender offer into a two-stage offer at an unchanged JPY8,800 price. The first stage has no minimum acceptance condition.
- The first stage is designed to facilitate KKR’s acquisition of 3D and Farallon shares, which have tendered and will not withdraw their tenders without KKR’s consent.
- By securing 3D/Farallon’s shares, KKR has effectively blocked a Bain tender offer. Bain could launch a partial offer but it would be constrained by the tradeable share ratio criteria.
6. The New FEFTA List (With 7&I (3382) As “Core”) Is Not a Big Hurdle for Couche-Tard
- On Friday 13 September, the Ministry of Finance of Japan released revisions to the list (Japanese, English) of company classifications under the Foreign Exchange and Foreign Trade Act (FEFTA)
- It appears 72 names were newly upgraded to “Core” (“3”), 21 newly listed companies (since the last list in Nov 2021) were labeled “3”, and six lost their Type3 designation.
- Seven & I Holdings (3382 JP) saw breathless news articles Friday suggesting a foreign takeover became more difficult. Not really.
7. Competition to Take Over Shin Kong (2888 TT) – CTBC in a Bit of a A Sticky Wicket, Wot?
- In late August, Taishin Financial Holding (2887 TT) and Shin Kong Financial Holding (2888 TT) agreed to merge in what appeared to be a hastily papered deal discussed here.
- CTBC Financial Holding (2891 TT) put forth its own proposal at a big premium. Shin Kong traded up. Both deals need FSC approval. Taishin’s deal has a vote 9 October.
- Taishin recently upped terms. And now the FSC has said “no” to CTBC’s proposal. But it’s weird. It’s not “NO”; more like, “not this.” Bit of a sticky wicket here.
8. MV Australia Equal Weight Index Rebalance: One Add, Two Deletes, Capping to Drive Flow
- Pro Medicus Ltd (PME AU) will be added to the MV Australia Equal Weight Index while IGO Ltd (IGO AU) and nib holdings (NHF AU) will be deleted.
- Constituent changes, float changes and capping changes result in a one-way turnover of 6.9% leading to a round-trip trade of A$330m.
- Shorts are pretty big in Pro Medicus Ltd (PME AU) while there has been a recent spike in short interest for IGO Ltd (IGO AU).
9. MV Global Rare Earth/Strategic Metals Index Rebalance: One Deletion & Other Changes
- Sayona Mining (SYA AU) will be deleted from the VanEck Rare Earth/Strategic Me (REMX US) at the close of trading on 20 September.
- Constituent changes, float changes and capping changes result in an estimated one-way turnover of 5.7% and in a round-trip trade of US$35m.
- The largest inflows will be in Eramet, Tronox and Lithium Americas Argentina while the largest outflows will be from Lynas Corp, Sayona Mining and MP Materials (MP US).
10. Merger Arb Mondays (16 Sep) – China TCM, Canvest, GA Pack, Raysum, Seven & I, Fuji Soft, Dyna-Mac
- We summarise the latest spreads and newsflow of merger arb situations we cover across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads: Yichang HEC Changjiang Pharma (1558 HK), Raysum Co Ltd (8890 JP), Canvest Environmental Protection Group (1381 HK), Greatview Aseptic Packaging (468 HK), China Traditional Chinese Medicine (570 HK).
- Lowest spreads: Fuji Soft Inc (9749 JP), Dyna Mac Holdings (DMHL SP), Seven & I Holdings (3382 JP), Tohokushinsha Film (2329 JP), Alps Logistics (9055 JP).
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.
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1. Midea Group (300 HK): IPO Open Now; Upcoming Index Flows
- The Midea Group (300 HK) IPO is being offered at a price range of HK$52-54.8/share, a discount of 20.9%-25% to Midea Group. That will raise US$3.28bn-US$3.46bn for the company.
- Midea Group (300 HK) will not get Fast Entry to the HSCI but will be added to Southbound Stock Connect on 14 October once the price stabilisation period has ended.
- Midea Group (300 HK) should get Fast Entry to one global index and that could lead to inclusion in the iShares China Large-Cap (FXI) (FXI US) too.
2. Select Sector Indices: Inflows to Apple, Palantir, Dell Will Add to SPX Buying
- Constituent changes to the S&P 500 INDEX and weight changes as a result of the market consultation proposals being adopted will result in a round-trip trade of US$31.5bn.
- The largest one-way turnover is expected in the Consumer Staples Select Sector SPDR Fund, Technology Select Sector SPDR, Materials Select Sector SPDR and Communication Services Select Sector SPDR Fund.
- The inflows to Apple (AAPL US), Palantir Technologies (PLTR US) and Dell Technologies (DELL US) will add to the buying from the S&P 500 INDEX (SPX INDEX) trackers.
3. CSI300 Index Rebalance Preview: Round-Trip Trade Tops US$6bn as ETF Creations Soar
- There could be 17 changes at the December rebalance with the Industrials sector gaining 3 index spots and the Information Technology sector losing 3 spots.
- We estimate one-way turnover of 2.9% at the rebalance leading to a one-way trade of CNY 21.96bn (US$3.1bn). There are 22 stocks with over 3x ADV to trade.
- Impact on the stocks has increased as creations in ETFs linked to the CSI 300 Index continue. That flow will reverse from the deletions in the next few months.
4. Midea Group (300 HK): Priced at Top End; Offer Size Adj Option Exercise Would Ease Index Fast Entry
- Media reports indicate that Midea Group (000333 CH) has priced its H-shares IPO at HK$54.8/share, the top of the range. That is a 19.85% discount to the A-shares.
- Reports also indicate that the IPO was oversubscribed multiple times with Hillhouse and GIC putting in large orders. That could result in the Offer Size Adjustment Option being exercised.
- The exercise of the Offer Size Adjustment Option will take the IPO raise to HK$31bn (US$3.98bn) and index inclusion in some of the larger indices will become a lot easier.
5. S&P/ASX Index Rebalance (Sep 2024): Two Big Surprises; Positioning Is Mixed
- There are 2 changes for the S&P/ASX100 Index, 3 changes for the S&P/ASX 200 (AS51 INDEX) and 16 adds/ 8 deletes for the S&P/ASX300 Index.
- The two big surprises are the inclusion of Guzman Y Gomez (GYG AU) and Yancoal Australia (YAL AU) in the S&P/ASX 200 (AS51 INDEX) and S&P/ASX300 Index.
- The adds to the indices have outperformed the deletes over the last few months and there could be profit-taking in the next few days.
6. MBK’s Dual Tenders for Korea Zinc and Youngpoong Precision: The Largest Deal Ever in Korea
- MBK launches a tender offer to acquire 14.6% of Korea Zinc at ₩660,000 per share, a ₩2T deal with an 18.7% premium. Offer runs from September 13 to October 4.
- On top of that, MBK’s also rolling out a tender offer for Young Poong Precision at ₩20,000 per share—a hefty 113% premium over yesterday’s close.
- Spread action is possible if the Choi family counters, driving volatility. The market’s watching for a higher bid, which could create trading opportunities amid rising spread volatility.
7. 7&I Rejects ACT’s Bid As Too Low, Not Worth Discussing, ACT Whines, 7&I Taps The Sign
- Late last week, the Nikkei reported Seven & I Holdings (3382 JP) would send a letter to Couche-Tard saying they reviewed ACT’s Proposal and deemed it “inadequate.” Indeed it was.
- 7&i then published the Board’s letter, saying 7&i remained open to discussions but ACT’s Offer “grossly undervalued” 7&i’s intrinsic value and lacked in other areas. ACT responded with a “letter.”
- But ACT’s “letter” was a press release aimed not at 7&i but the public. 7&i released a terse response today. ACT is the suitor. It needs to act like it.
8. SENSEX Index Rebalance Preview: Trent Could Replace Bajaj Finserv; BUT F&O Adds Could Change That
- As things stand, Trent Ltd (TRENT IN) could replace Bajaj Finserv (BJFIN IN) in the S&P BSE SENSEX Index (SENSEX INDEX) at the close on 20 December.
- Addition to the F&O list could see Zomato (ZOMATO IN) added to the index instead. That could then result in two changes to the S&P BSE SENSEX Index in December.
- Trent Ltd (TRENT IN) is also an inclusion to the NIFTY Index (NIFTY INDEX) later this month and the pool of shares available for active investors is getting smaller.
9. Taking Advantage of Terumo (4543) Weakness And After-Offering Flow
- Terumo Corp (4543 JP) was able to hang in well after the announcement, up until the day or two before pricing date, then the shares were walloped into Pricing.
- After pricing, they have fallen and erased most of the discount. That’s an opportunity.
- The shares have underperformed Peers, and there is flow to come. This deal was, as advertised, smaller than it first appeared.
10. Seven & I Holdings (3382 JP): State of Play
- Despite Seven & I Holdings (3382 JP)‘s rejection, Alimentation Couche-Tard (ATD CN) remains prepared to enter collaborative and friendly discussions to focus on finding greater value for 7&i shareholders.
- Couche-Tard’s options are to return with a revised offer, go hostile or walk away. Couche-Tard will likely test the Board’s resolve by returning with a higher offer.
- The Board’s options are to go through the motions (appointing IFAs), conduct a market check or launch a more aggressive action plan to placate restive shareholders.