Daily Brief Event-Driven: Meituan Index Flows Clarifications on the Tencent Distribution; Prosus Comments on Its Holdings and more

In today’s briefing:

Meituan Index Flows Clarifications on the Tencent Distribution; Prosus Comments on Its Holdings
Adani Enterprises – A Record Follow-On Public Offering May Be in the Works
Straits Times Index Quiddity Leaderboard Mar 23: SMM Index Treatment Clearer Under New Terms
Korea Zinc: Treasury Shares Swap with LG Chem & Hanwha Corp + Treasury Share Sale
EQD | TSMC (TSM US): Buffet Is Betting on Long Term Upside – We Look at the Options Market for Ideas
Chip Eng Seng (CHIP SP)’s S$0.72 VGO from the Tangs
Lygend (2245 HK) IPO: No Index Inclusions Expected
MergerTalk:Why Broadcom’s Pursuit of VMware Will Fare Better Than Nvidia’s Doomed Bid For ARM

Meituan Index Flows Clarifications on the Tencent Distribution; Prosus Comments on Its Holdings

Days after the Tencent (700 HK) announcement about its planned distribution of the bulk of the Meituan (3690 HK) shares it owns, the Hang Seng Index team clarified index treatment.
It will be treated in HS Indices as a “listed non-cash distribution” for Tencent. There is theoretically wiggle room on the Meituan side, but it appears it will follow JD.com.
That means Meituan selling on 4 January at the close, limbo for two months, then Meituan buying. Full model below.

Adani Enterprises (ADE IN) (“ADL”) on Tuesday announced a Board Meeting for Friday to consider capital raising options. Multiple media sources suggest a record Indian Follow-on Public Offering of INR200bn.
The company has bid for/bought multiple assets recently, and proposed investments plan of up to US$150bn in 10yrs in renewables, cement, airports, healthcare to aim at a US$1trln valuation.
This will get complicated, interesting, and is not necessarily going to come out well.

In this insight, we take a look at the potential index changes for the FTSE Straits Times Index (STI) (STI INDEX) between now and the March 2023 index review.
The Sembcorp Marine (SMM SP) – Keppel Corp (KEP SP) deal terms were revised recently and our latest expectation is for SMM to become an STI member in March 2023.
At present, SATS (SATS SP) and Keppel DC REIT (KDCREIT SP) are the lowest-ranked STI members – one of which could get removed due to SMM’s addition in March 2023.

On 23 November, Korea Zinc announced that it will swap its treasury shares with LG Chem and Hanwha Corp and sell part of its treasury shares to other investors.
Korea Zinc could gain additional dividend payments by exchanging part of its treasury shares with shares of LG Chem and Hanwha Corp.
Potential separation of Young Poong and Korea Zinc between the Choi and Jang families is likely to be an on-going process, although it is difficult to tell the exact timing.

Stock has suffered this year (-47% YTD) with rising geopolitcal tensions and slowing global economy
Berkshire Hathaway is betting on a recovery in the stock with their $4.1bn stake
We look at the options market to identify some trades

Chip Eng Seng Corp (CHIP SP) disclosed a conditional VGO from the Tangs at S$0.720, a 6.7% premium to the undisturbed price (6 September). The price is not declared final.
Irrevocables and family represent 41.44% of outstanding shares. The VGO has a 50%+ minimum acceptance condition which requires around a 15% minorities acceptance rate.
While the last close is in line with the offer, it is attractive in the context of historical prices/multiples. Therefore, there is a good chance of hitting the 50% threshold.

Media reports indicate that Lygend Resources & Technology (2245 HK) has priced its IPO near the low end of the range at HK$15.80/share and will raise HK$3.67bn (US$470m).
Most of the cornerstone investors will be classified as non-float and the stock will not be included in the MSCI or FTSE indices due to low float market cap.
Importantly, Lygend Resources & Technology (2245 HK) will not meet the threshold for inclusion in the HSCI which means no inclusion to Southbound Stock Connect and no mainland flows.

While the size of the $61BN Broadcom/VMware deal has naturally attracted the scrutiny of regulators, the transaction’s regulatory obstacles are far less onerous than the failed Nvidia/Arm deal
Timing risk is a consideration as we can expect a protracted review process
If the regulatory review timeline does not stretch too far beyond the end 2023, there are still decent IRRs to be earned by arbs

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