In this briefing:
- Korea Preferred Shares – An Eventful Week & Trade Ideas
- XD Inc. (心动有限公司) Trade Idea – Lock-Up Expiry – Existing Shareholders May Look to Sell
- Bitauto’s Privatisation Enters into a Definitive Agreement
Over the last week, Korean preferred shares have outperformed the ordinary shares by a huge margin. On most stocks, the narrowing discount was accompanied by a huge jump in volume on the preferred shares.
Is this the beginning of a trend where the discount on the preferred shares continues to narrow, or does this present an opportunity to sell out of the preferred shares and buy the ordinary shares? We recommend buying preferred shares that are trading at discounts of greater than 40% and near the wider end of their 2 year range, while switching out of preferred shares that are trading at discounts of less than 20% and are nearer to their tightest discounts over the last 2 years.
With the ban on short selling, implementation of a pure arbitrage strategy is difficult and would depend on long sell availability. However, the strategy can be implemented in names that have relatively liquid single stock futures.
XD Inc. (2400 HK)‘s IPO lock-up expired on Friday. We have earlier covered the IPO in:
- XD Inc. (心动有限公司) Pre-IPO – Sustainability in Question
- XD Inc. (心动有限公司) Pre-IPO – TapTap, Overseas Markets, and Thoughts on Valuation
- XD Inc. (心动有限公司) IPO – Has Better Disclosure of Data but It Probably Won’t Help
- XD Inc. (心动有限公司) Trading – Subscription Rate Pales in Comparison to CMGE
In this insight, we will look at the potential sellers upon lock-up expiry and updates of how the company has performed since listing.
On 12 June, Bitauto Holdings Ltd Adr (BITA US) announced that it has entered into a definitive agreement for a privatisation proposal from Tencent Holdings (700 HK) and Hammer Capital. As a reminder, on 13 September 2019, Bitauto announced a non-binding privatisation proposal from Tencent and Hammer Capital for $16 per ADS. The bid is currently backed by shareholders who together account for 55.3% of the voting rights.
We had previously highlighted the attractive Bitauto privatisation spread risk/reward. Overall, we think that with the definitive agreement signed, the privatisation has a high chance of success.
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