Event-Driven: Haier Electronics Group Co, Keppel Corp and more

In today’s briefing:

  • Haier (1169 HK): Avatar Scrip Offer From Parent
  • Last Week in Event SPACE: Jardines, Keppel, FamilyMart, Toshiba, Sogo/Sogou, Chinese Toll Roads

Haier (1169 HK): Avatar Scrip Offer From Parent

By David Blennerhassett

Haier Electronics Group Co (1169 HK) (HEG) was briefly suspended pursuant to the Takeovers Code on the 19 December 2019, which was followed by a press release from Haier’s parent Haier Smart Home (600690 CH) (HSH) that it was contemplating taking Haier private with newly issued Hong Kong shares, implying HSH was seeking an H-share listing, either first, or concurrent with the share swap.

Then crickets.

The Announcement

This past Friday evening, HEG announced a pre-conditional Scheme such that HEG shareholder will receive 1.6 new HSH H shares plus HK$1.95 in cash. 

An independent valuer places a fair value for the (as yet unlisted) H shares between RMB16.45-RMB16.90/share. This backs out an indicative value under the Scheme of HK$31.11-HK$31.90 – or $31.51 at the mid-point, against HEG’s last close of HK$26.85; but a 44.20% premium to the price at the time of the 2019 December suspension. Plus an all-time high. The cash/equity split is 6.2%/93.8%. The A-shares closed last Wednesday (the day before shares were halted) at RMB 18.00, which would be closer to HK$33.95 (including the $1.95 in cash).

The pre-conditions concern CSRC approval with respect to the issuance of the H shares and approval by two-thirds of HSH’s shareholders to approve the resolutions.

And then there are the exchangeable bonds to take into account.

More below the fold.


Last Week in Event SPACE: Jardines, Keppel, FamilyMart, Toshiba, Sogo/Sogou, Chinese Toll Roads

By David Blennerhassett

Last Week in Event SPACE …

  • Plus, other events, CCASS movements and Mood Spins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events – or SPACE – in the past week)

STUBS

Jardine Matheson Holdings (JM SP)/ Jardine Strategic Holdings (JS SP)

JME is trading “cheap” at a 32% discount to NAV, adjusting for cross-holding. JSE is even wider at 51% discount to NAV, also adjusting for cross-holdings. Is the time ripe for the Keswicks to collapse the structure? (Spoiler – not likely). Would a move back to Hong Kong help narrow the discount? (Second spoiler – no).

  • There are entrenched reasons why the Jardines group is listed in Singapore, not Hong Kong, which centred on the 1990s demand from Jardines to be regulated by London while continuing to have its shares traded in Hong Kong. That wasn’t a viable option with the HK regulator. Since the move to LSE’s ineffectual Standard Listing in 2014 – Jardines’ primary listing – there is even less incentive to establish a listing (secondary or otherwise) in Hong Kong. 
  • There is no urgency for the Keswicks to restructure the group. The family can continue to chip away at minority ownership  – such as the JMH buybacks – in order to capture the discount for insiders and reduce the ultimate restructuring cost. 
  • The simple ratio (LMH/JSH) remains elevated. Yet it appears to have found a “new” base around 2x, the average over the past three months. As and when JMH reloads its buybacks, I can see the ratio widening.

M&A – ASIA

Keppel Corp (KEP SP)  (Mkt Cap: $7.1bn; Liquidity: $15mn)

The Keppel Partial Offer situation is now 9 months old. The Pound-The-Table Bullish calls in early and mid-March paid off well, both directionally and against proxy baskets. Since 30 April, the back end trade (i.e. buy, see 95% of minorities tender (including yourself) and be long the residual at the implied breakeven price) had traded cheaper than the day before the announcement of the Deal compared to an average of the FTSE Straits Time Index, a Property Basket, and an Infra-Heavy Basket on only two days. It has traded well rich to an O&M Heavy Basket since then.  Then came Friday 24 July 2020, when Keppel announced “Profit Guidance” which included significant impairments to the O&M business in Q2 and H1. 

  • Given the announcement, the degree of revenue recognition weakness at Sembcorp Marine in H1, and the degree of write-downs that were required at Floatel competitor Prosafe, it looks like impairments may be large enough to trigger a MAC clause in the Temasek Pre-Conditional Partial Offer pre-conditions.  If the deal does NOT go through because Temasek walks, then Keppel could fall further.
  • IF Temasek walks, it might delay any kind of restructuring which would involve a combination of Sembcorp Marine and Keppel O&M.  I would expect that there is a chance (if Temasek walks) that Keppel could restructure and spin-off its O&M business like Sembcorp did, and might seek to backstop the deal, raising its stake.
  • IF you think the impairments will be large enough to trigger the MAC (Travis Lundy does) AND you think that Temasek will walk away, then Keppel might start to become a partial hedge against one’s long Sembcorp Industries trade (the one described in Sembcorp Restructuring Details & Timing Announced – The Arithmetic Is Compelling). It is not a perfect hedge. IF you think the impairments will NOT be large enough to trigger the MAC, and you think the deal will be announced with pre-conditions met when earnings are announced, then weakness this week would likely be time to buy, and you should grab as much borrow as you can.
  • UPDATE: Keppel released earnings and they are, as suggested, a mess.

    This earnings result triggers the Profit After Tax MAC condition of the Temasek Pre-Conditional Offer in a non-subtle way. The business ex-impairments did pretty well. That could be a reason for Temasek to NOT walk away – the impairments are all non-cash items in any case. Bloomberg carried an article a month ago saying that Temasek could walk away. So now we wait.

(link to Travis’ insight: Keppel “Material Impairments” May Mean A MAC Mess)

FamilyMart Co Ltd (8028 JP) (Mkt Cap: $11.2bn; Liquidity: $41mn)

Itochu Corp (8001 JP)‘s plans for FamilyMart are about a lot more than control – it has had effective control for years anyway. There is a much bigger story: the fact that food is the one last hold out of traditional distribution practices with multiple layers of importers, wholesalers and a fragmented retail sector, resulting in gross inefficiencies.  Absorbing FamilyMart is the basis for a much bigger consolidation of Itochu’s interests which include stakes in numerous food retailers as well as role as the biggest food wholesaler when all its subsidiaries are taking into account. Sadly, current FamilyMart shareholders won’t benefit from this consolidation nor the likely spike in operating margins as some of the fat in food distribution is finally cut.

  • Itochu will gain hugely from absorbing FamilyMart. It will own the second-largest convenience store (CVS) chain, giving it a large share of what is the biggest retail format by sales and store numbers, and the biggest channel for food by far.  The result will be a rapid rise in-store automation, process efficiencies, and logistics which will again help improve OPM for all CVS chains.
  • FamilyMart is the most advanced in developing hybrid CVS stores with partners in other channels including drugstores, supermarkets and even has coin laundry and gyms tied with CVS. All these ideas have the potential to help FamilyMart grow well beyond the CVS format.
  • Itochu is one of the two biggest food wholesalers as well as having major interests in other food retailers like Don Quijote. Absorbing FamilyMart will allow it to create a vertically integrated food retail business, the first of its kind in Japan, and capture margins at every stage in the channel. 

(link to Michael Causton‘s insight: Keeping It in the Family: Why Familymart Is Worth so Much More to Itochu)

LINE Corp (3938 JP) (Mkt Cap: $12.8bn; Liquidity: $17mn)

Line announced its Q2 earnings, showing both a normal operating loss and additional extraordinary losses from write-downs. That will not encourage some and I expect there may be some accusations of LINE kitchen-sinking their earnings before a Special Committee (and this has its own issues) decides to revisit the fair price valuation through a re-valuation and an updated Fairness Opinion. 

  • Revenue is still growing, albeit more slowly than before.  One would have hoped for better growth in a Q2 when online shopping was the global theme, but no such luck. There is no real reason for analysts to change their full-year forecasts out of this, but we’ll see.  There is nothing in this earnings result which suggests that a bump in terms is more likely than it was before earnings were announced. If anything, the opposite. 
  • Travis remains bearish on the Reward/Risk tradeoff (upside potential, downside potential back to terms, path volatility, possibility of this not getting done, possibility that Z Holdings (4689 JP) shares tumble), providing less of a reason to even ask for a bump, the fact that a DCF on LINE would not necessarily change its range or its mid-point, or if the range changed, he expects the lower bound would not rise past JPY 5380/share. 
  • Z Holdings earnings are out 31 July. The data shown does not suggest Z Holdings hit it out of the park in the April-June quarter in the PayPay segment. The range trade between “interesting possibility” and “too rich” is probably rather tight. At 1% through, it looks much better. At near 4% through, it looks much worse. 

(link to Travis’ insight: LINE (3938) – This Is Not the Kitchen Sink You Are Looking For)

Skyworth Group Limited (751 HK) (Mkt Cap: $1bn; Liquidity: $3mn)

On the 17 June, Skyworth surprised the market with a partial buyback (& not a full Offer)  – 12.83% of shares out or 392.8mn shares, at HK$2.80/share, a 32.1% premium to last close. Stephen Wong & concert parties holding 40.88% of shares out and will not tender. Additional directors holding 0.9% have given an undertaking not to tender. With 58.22% of the register (or the Independent Shareholders) subject to the buyback, this implies a minimum pro-ration of 22.04%. The Independent Shareholders are required, by way of a special resolution (75% vote), to approve a whitewash waiver such that Wong is not obligated to make a general offer for shares not held. 

  • After a slight delay, the Offer doc is now out and the Offer is open for acceptances. The SGM (for the whitewash waiver) will be held on the 2 September, with the close of the offer on the 2 September. The IFA considers the Offer to be fair and reasonable.
  • Skyworth’s outlook – page 40-41 of the Doc – does little to dampen enthusiasm for the company’s operations. Yes, COVID-19 provides uncertainties in the business environment; but despite “intensifying market competition and the continuing uncertainties arising from decelerated growths in key global economies, the Group believes it will benefit from the positive effects of its cost-control measures and enhanced efficiency”. This sentiment is borne out by the strong 1Q20 results and the positive profit alert for 1H20 (>60% increase yoy expected).
  • I believe the minimum pro-ration will more like 30% (factoring in ~16% of the register from CapIQ who are unlikely to tender) – Travis Lundy reckons upward of 50% is feasible in light of the volume traded above terms – >70% of the time over the past five years. At 30%, that takes you to a theoretical breakeven price of ~HK$2.54; 50% to ~HK$2.60. At $2.40/share (where it was at the time of the insight) and below, this was a buy. 

(link to my insight: Skyworth (751 HK): Partial Buyback Circular Despatched

Fujitsu Frontech (6945 JP)  (Mkt Cap: $0.4bn; Liquidity: $1mn)

Fujitsu Ltd (6702 JP) announced a Tender Offer for its subsidiary Fujitsu Frontech (6945 JP) at a DISCOUNT to the last traded market price, which itself was trading at a discount to book value. Of course, the stock had experienced a nice run-up in high volume (the three highest volume days ever) in the last few days, most likely on speculation that a deal could be announced when earnings were released. But based on the lowest trailing 12-month EBITDA figure in 20 years, with management forecast EBITDA expected to rise sharply in the coming years, and a lot of non-cash assets which are effectively cash-equivalent for Fujitsu group, the forward EV/EBITDA of the takeout price is probably the wrong level. 

  • This deal is being done too cheaply. On a conservative, and below management’s own-forecast basis, this is 3.6x one-year forward EBITDA, at highest.  If one assumes that the substantial net current assets (mostly net receivables and inventory) could be sold for 90cts on the dollar and the land and PP&E could be sold for 80cts on the dollar and leased back at above-market rent, Tender Offer Price Adjusted EV is…. wait for it….. zero. If one uses the three-year average management forecast of EBITDA for April 2021 to March 2024, the EV/forward EBITDA is 2.6x.  
  • Fujitsu has 53% and there isn’t much in the way of “friendly” shareholder base. It is conceivable that investors object. The second-largest shareholder (Tower) has a reasonably “Active” mindset and could conceivably object to the price, though they do not have a habit of doing so publicly. 
  • If this stock trades down to the Tender Offer Price or just above on 31 July, I would want to own it at a small premium for the possibility that some people will get upset and try to force a bump.  This is not an easy thing to bump because Fujitsu already owns 53% and only really needs another 14.5% to get it over the line. That is less than a third of the float. But the passive ownership of this stock is minimal, and passive ownership of TSE2 stocks could be thought of to be “Active” anyway, just by its nature. 

(link to Travis’ insight: Fujitsu TOB For Fujitsu Frontech At a Discount?)

Accordia Golf Trust (AGT SP) (Mkt Cap: $.5bn; Liquidity: $1mn)

After the close of business on 27 July 2020, the leading opponent of the proposed deal for Accordia to purchase the golf course assets of AGT and for Accordia Golf Trust to subsequently wind down – Hibiki Path Advisors – also the second-largest shareholder – announced in a Press Release that “jointly with more than 50 fellow minority unitholders with collective ownership more than 12%”, they had submitted a request to Accordia Golf Trust Management (“AGTM”) to convene an EGM of unitholders on 18 August 2020 to discuss several matters listed in the press release. Both Hibiki Path Advisors, with 7.2%, and Santa Lucia Asset Management (reportedly with 1.19%) have publicly objected to the deal’s terms. The deal was discussed in Accordia Golf Trust Buyout… A Gimme But… 

  • Santa Lucia Asset Management CEO James Morton was interviewed by a media outlet which specialises in deal reporting in early July and it appears once last week as well. He apparently said the value of AGT was between S$0.80 and S$0.85 per unit. That straddles the level that Hibiki Path suggested in its July 3 press release – S$0.821/share. He also said that under normal conditions (i.e. without the COVID-19 pandemic affecting things), the price should be more like S$0.90/unit. Getting these numbers are going to be difficult.
  • At S$0.67, this trade has roughly 8.6% upside and 10% downside to undisturbed. There is a bit more upside if the ¥300+mm of fees paid already is part of the “3%” of costs required to execute the deal and wind up the entity. Travis would suggest that Accordia would not want to let this go so easily. If they have to bid S$0.80 to get this done, they may. If they have to be transparent and pay out the extra ¥300+mm of fees already paid, and also an April-Sep dividend, that seems reasonable on the face of it and could get marginal investors over the hump because of the “win.”
  • Travis thinks a 50/50 proposition looks like it is trading a bit wide. He’d still be a buyer at S$0.675 and below. 

(link to Travis’ insight: Accordia Golf Trust Deal Gets More Complicated)

EVENTS

Japan Exchange Group (8697 JP)  (Mkt Cap: $12.8bn; Liquidity: $53mn)

When it was reported in the press and subsequently announced by Sony on the 19th of May partway through the day that Sony was going to launch a Tender Offer to take out minorities in Sony Financial Holdings (8729 JP) the immediate reaction of first order thinkers was to buy Sony Financial. The immediate reaction of second-order thinkers was to buy JPX because taking out minorities in Sony Financial would cause it to be delisted, putting its place in the Nikkei 225 Average up for grabs. 
  • JPX shares was up 37+% (at the time of Travis’ report)  since before the Sony Financial takeover announcement. The increased volume and price are clearly linked to the Nikkei 225 inclusion trade. The inclusion is for 26-30mm shares. I believe 25mm shares of that can reasonably be assumed to be “placed.” 
  • Whether you are long-only investor or a long-short investor, Travis believes that with a three-month view, selling or short-selling is a good idea. After the inclusion, there will be no impetus to see a demand/supply imbalance as we have seen recently. Fundamentals do not warrant staying long here. 
  • Long-term, there is still considerable overhang in the broker/members’ cross-shareholdings. Those cross-holdings are clearly no longer needed, and the JPX itself has shown that it will not hold cross-holdings if they are not necessary to ensure strategic cooperation (which basically means there will be no cross-holdings). Should the brokers start to unwind, that would be 100 million shares to come out. 

(link to Travis’ insight: JPX Goes In to Nikkei 225 – Time To Sell)

Chinese Toll Roads – C-REIT Pilot Program

On the 30 April, the China Securities Regulatory Commission and the National Development and Reform Commission jointly announced (Chinese-only) a new pilot for Chinese infrastructure real estate investment trusts (or C-REITs), which are ostensibly a mechanism to fund infrastructure projects such highways and airports; and only for such infrastructure which has been operational for three years. As a pilot program, the implementation will center on the least disruptive, least risky, most stable investments. A key tenant of the program is that the infrastructure REIT cannot invest in commercial/residential property.

  • The key implementation hurdle will be taxes. A successful REIT program pivots off favourable taxes to unitholders. Singapore is the innovator in this space, providing various tax exemptions for investors. To support demand for C-REITS, China needs to overhaul its complex tax regime, and implement a structure that ring-fences the assets such they (and the investors) are not subject to added, burdensome taxes.
  • As the largest expressways are all PRC incorporated, I delved into the mechanics of the unique merger by absorption/voluntary offers of precedents, and why one method could be chosen over the other. 
  • Recommendations: Jiangsu Expressway (H) (177 HK) ticks all the boxes: stable, right location (with respect to the pilot allocated areas), reduced sensitivity to changes in traffic. Pushback? It is the most expensive on almost all metrics, and trading at 1.5x P/B.  I’m lead to believe that it’s challenging for SOEs to finance a privatisation at 1x+ book at the moment. Second choice, Zhejiang Expressway Co H (576 HK).  Again, stable, right location. 1x P/B. The stock appears to be increasingly overshadowed by its more interesting securities op, a business segment that should be hived off. 

(link to my insight: Chinese Expressways: A Step In The REIT Direction)

As this past Friday’s showdown between Toshiba Corp (6502 JP) management and its more vocal shareholders, Mio Kato questions in Toshiba Vs. Effisimo – Much Ado About Nothing? whether a change in board members would really have much impact on the company. The reason being, he sees little that can be done to goose Toshiba’s operations and governance improvements, and Toshiba management has said they are committed to returning proceeds from the sale of Kioxia to shareholders.

M&A – US

Sogou Inc (SOGO US)  (Mkt Cap: $3.3bn; Liquidity: $17mn)

Chinese search-engine Sogou, majority-owned by Sohu.com Inc (SOHU US)  and Tencent Holdings (700 HK), has announced it has received a preliminary non-binding proposal from Tencent to acquire all of its outstanding ordinary shares that are not already owned by Tencent, for US$9.00 in cash per ordinary share or ADS. The Offer price is a 57% premium to the undisturbed price and a two-year high. Tencent owns ~39% of the total shares out in Sogou and 52.3% of the total voting power (on account of the super-voting rights of the Class B shares). Sohu holds 33.7%/43.9% respectively. Together, they control 96.4% of Sogou’s vote. 

  • Sogou has an extensive collaboration with Tencent, one of its largest shareholders since 2013. Sougou is the default general search engine in various Tencent products that provide general search offerings, such as Mobile QQ Browser, qq.com, and the PC Web directories daohang.qq.com and hao.qq.com. Approximately 35% of our total search traffic, measured by page views, was contributed by Tencent’s Internet properties in December 2019. Further synergies between Sogou and Tencent can be expected going forward in terms of searches and handheld devices.  About the only surprise with this announcement is that Sogou has been listed for less than three years. 
  • Assuming Sohu gives the nod, the vote is a formality. It seems questionable super-voting shares are held by a select few, such that they can take the company private at whatever price they wish. But as seen in any number of precedent companies operating in China, listed in the US  under a Cayman incorporated company, this is simply par for the course. A key risk to the privatisation of Chinese tech companies in the US is often on timing. 
  • Currently, trading at a gross/annualised spread of 5.7%/14.3% – assuming this gets done in six months. Even that timing may be too aggressive – this is still a non-binding Offer. However, Tencent is the major shareholder and has deep operational ties. It doesn’t need to undertake a long due diligence process. Buying around here is probably going to have limited downside. Elsewhere, Sohu is probably worth a second look. Its 32.5% equity stake in Sogou is worth US$1.08bn at the current market price, vs. Sohu’s market cap of US$611mn. 

Genworth Financial Inc Cl A (GNW US)  (Mkt Cap: $1bn; Liquidity: $15mn)

The unwinding of GNW’s share price in recent months leaves the share price trading not far from its historically lowest levels and at a massive discount to CO’s acquisition price. Uncertainty over the outcome of this unusually long acquisition saga has shifted firmly to the camp of the naysayers, although Robert Sassoon believes the outcome remains in the balance. While the upside is clear at approaching 150% on the transaction successfully closing, the share price is trading well below its fair value floor of above $3, based on his SOTP analysis, which he believes very much errs on the side of conservatism. 

Over the last couple of days, several news media outlets reported that the Chinese online travel firm Ctrip (Trip.com (TCOM US)) is now considering delisting its shares from Nasdaq. In Ctrip in Talks with Investors for Nasdaq Delisting; Ability to Attract a Large Premium Seems Limited, Shifara Samsudeen takes a look at Ctrip, intention to delist its shares from Nasdaq and its valuation.

SHARE CLASS

Samsung Electronics’ ordinary shares Samsung Electronics (005930 KS) and the preferred shares Samsung Electronics Pref Shares (005935 KS) typically trade in a tight band and arbitrageurs move in when the ratio of the two securities reaches either end of the band. Currently, the preferred shares are trading at the cheaper end of the short term band due to investors demanding liquidity and finding it on the common shares. This has been exacerbated by the jump in the stock price following Intel Corp (INTC US)‘s announcement that its 7nm chip technology was six months behind schedule and the market expects the company to outsource more chip manufacturing. Expect the preferred shares to outperform the ordinary shares in the near term.

links to:
Brian Freitas‘s insight: Samsung Electronics – Preferred Shares Underperforming on Liquidity
Sanghyun Park‘s insight: Samsung 1P At -2.4σ & 16.2% Disc: Entry Point Despite Intel Factor?

INDEX REBALS

HDFC Standard Life Insurance (HDFCLIFE IN) has rallied 34% from our first Insight on its potential inclusion in the NIFTY Index (NIFTY INDEX) at the September index review and has outperformed its peers over the period. With the stock now trading expensive relative to its peers, Brian recommends (in NIFTY50 Index Rebalance – HDFC Life at All Time High On Inclusion, Time to Switch) using the passive flow at the close tomorrow, which we estimate at around 20m shares to buy, to switch out of the stock and into its peers SBI Life Insurance (SBILIFE IN) and ICICI Prudential Life Insurance (IPRU IN).

The next rebalance for the FTSE China A50 Index (XIN9I INDEX) will be effective after the close of trading on 18 September and the changes will be announced on 2 September. The September review will use data from the close of trading on 24 August to determine the stocks to be included and excluded. In FTSE China A50 Index Rebalance Preview – Changes Expected, Brian sees Chongqing Zhifei Biological Products (300122 CH) and BYD Co Ltd (002594 CH) being included in the index and Wens Foodstuff Group Co., Ltd. (300498 CH) and CRRC Corp Ltd A (601766 CH) being excluded.

Due to the merger of Capitaland Commercial Trust (CCT SP) and Capitaland Mall Trust (CT SP) expected to be completed by 30 September (the Long-Stop date), there will be a space available to keep the number of constituents in the FTSE Straits Times Index (STI) (STI INDEX)  at 30. At the current time, Keppel DC REIT (KDCREIT SP) is the highest-ranked non-constituent by full market cap and should be included in the index. The timing of the inclusion is uncertain given that CCT and CMT have not announced the dates for the CCT EGM, the CMT EGM, and the Trust Scheme Meeting. As discussed by Brian in STI Index Rebalance Preview – Keppel DC REIT Inclusion Possibilities, if KDCREIT is not included in the September review, it will go into the Reserve List and should be included when the CCT/CMT merger is complete.

The next  FTSE China 50 index rebalance will be effective after the close of trading on 18 September and the changes will be announced on 2 September. The September review will use data from the close of trading on 24 August to determine the stocks to be included and excluded. At the current time, in FTSE China 50 Index Rebalance Preview – Turnover Could Be Big, Brian sees three possible additions BYD (1211 HK)Wuxi Biologics (Cayman) Inc (2269 HK) and Sino Biopharmaceutical (1177 HK), and three possible deletions China Railway Construction Corp (1186 HK)China Gas Holdings (384 HK) and China Railway Group Ltd H (390 HK). There is also a possibility of China Unicom Hong Kong (762 HK) being excluded from the index and China Resources Beer Holdings (291 HK) being included. Alibaba Group (9988 HK)‘s weight in the index will increase as part of the tranched inclusion of the stock in the index.

With MSCI Korean index review for August to be announced soon,  Sanghyun sees Seegene Inc (096530 KS), Shin Poong Pharmaceutical (019170 KS)Alteogen Inc (196170 KS) as the leading candidates in MSCI Korea Index August IR: Inclusions & Exclusions.

TOPIX INCLUSIONS

Ahead of Tsuzuki Denki (8157 JP) TOPIX inclusion, in Tsuzuki Denki (8157 JP): 3 More Days to The Inclusion Event – Prepare to Sell/Short, Janaghan Jeyakumar looked at the possible trade actions. This stock has enjoyed a strong rally in the run-up to its TOPIX Inclusion Event. Those are often good to sell on or just before the Inclusion Event. If you were long, SELL on the Inclusion Date (30th July) into the close. If you are inclined to SHORT TOPIX Inclusion Events, this one was likely a good one to SHORT but it would be best if you can hold back borrow for the Inclusion itself and use limits in the last 5-10mins because many of the ETF and pure passive buyers buy a significant portion of the volume ON the close, which means there should be some demand in the last 15 minutes.

M&A ROUND-UP IN JULY

For the month of July, 17 new deals were discussed on Smartkarma with an overall announced deal size of ~US$32bn. The average premium for the new deals announced (or first discussed) in July was ~36% and the YTD average premium for all deals discussed on Smartkarma (86 all-in) is 32%.  The average for all deals discussed on Smartkarma in 2019 (145 deals) was 31.5%.

OTHER M&A & EVENT UPDATES

  • And it’s a scrip/cash (pre-conditional) Offer for Haier Electronics Group Co (1169 HK) at a value of HK$31.11-HK$31.90/share vs the last close of $26.85, or a 44.2% premium when compared to where Haier was trading when the proposal was first floated. The pre-conditions are CSRC with respect to the issuance of the H shares and approval by two-thirds of shareholders of Qingdao Haier Co Ltd A (600690 CH) to approve the resolutions. Disinterested shareholders total 41.59% – therefore the blocking stake is 4.159%. Lots of moving parts – more to follow.

  • Zenith Energy Ltd/AU (ZEN AU) minorities approve the Scheme – bit it was a close-run thing. For the general scheme vote – in which the rollover shareholders could not vote- 80.25% voted for, 18.98% against. Next steps- the Scheme is expected to be effective on the 7 August and implemented on the 21 August. 

  • HyAS & Co. (6192 JP) has moved to TSE1, but today – interestingly – the company announced that it had established a special committee to investigate an issue of improper accounting. This is not a good look. 

  • An article came out in the Economic Times, suggesting that Vedanta Resources (VED LN) could seek to increase the loan size it takes down from a consortium of banks from the previously-mooted US$2.75bn (which itself had been lifted from US$2.5bn) to US$3.25bn. 
    The extra US$500mm (to up to US$1bn) could be deemed a third tranche, to be paid back by spring 2021, and would be “funded” (i.e. funded to Vedanta Resources so they could repay lenders) by Hindustan Zinc (HZ IN) taking down debt in addition to paying out its existing cash as a dividend.  The idea is that Vedanta Resources would have the room to raise the price paid for Vedanta Ltd (VEDL IN) in an Exit Offer. 

  • As expected – Cardinal Resources (CDV AU) recommends Shandong’s A$0.70/share Offer.
  • Village Roadshow (VRL AU) has extended its exclusivity with BGH to the 4 August.
  • O-Net Technologies (Group) (877 HK) has announced it has delayed the despatch of the Scheme Document to the 7 September from the 29 July. This was expected. I estimated 6 September in my timeline above. 
  • Haier Electronics Group Co (1169 HK) suspended “pursuant to the Code on Takeovers and Mergers”. This could be the big one, finally. 
  • UAC bumps its stake in Infigen Energy (IFN AU) to 19.94% from 13.40%. 
  • In its monthly update, CGN New Energy Holdings (1811 HK) says there is no update. on the deal.
  • Xinghua Port Holdings (1990 HK) announced a voluntary cash Offer of HK$2.597/share, a premium of 23.67% to last close. The Offer price is Final. No dividends expected to be paid. 90% acceptance condition – 70.37% of shares out have given an irrevocable. 

  • The Offer for Mediawan (MDW FP)  is now open.
  • A-Living Services (3319 HK) announced it has completed full circulation of its H shares. 
  • Tianjin Tianbao Energy Co Ltd (1671 HK) announced it has completed full circulation of its H shares. 

CCASS

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

Often these moves can easily be explained – the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

%chg

Into

Out of

15.54%
Get Nice
Bocom
11.71%
Golden Eagle
Outside CCASS
45.67%
China Ren
Outside CCASS
Source: HKEx

The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Name

% chg

Into

Out of

33.83%
Citic
Outside CCASS
Source: HKEx

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