Daily BriefsEvent-Driven

Event-Driven: KakaoBank, Tencent, Chong Hing Bank, Money Forward, SK IE Technology, Soho China Ltd and more

In today’s briefing:

  • Kakao Bank: Allocations, Lock Ups and Index Fast Entry
  • Tencent: All Bets Are Off
  • Chong Hing Bank (1111 HK): Scheme Doc Out. IFA Says Fair
  • TOPIX Inclusion Trade Summary: July 2021
  • Chong Hing’s Scheme Document, IFA Opinion
  • Float Confusions for Likely Adds at MSCI Std Korea QIR: SKIET, Ecopro BM, & Kakao Games
  • (Mostly) Asia M&A: July 2021 Roundup

Kakao Bank: Allocations, Lock Ups and Index Fast Entry

By Brian Freitas

KakaoBank (1349010D KS) announced the IPO allocations and voluntary lock-ups on the institutional investor allocation yesterday. The company raised US$2.23bn by selling 65.45m shares at KRW 39,000/share, valuing KakaoBank (1349010D KS) at US$16.21bn.

Due to undersubscription, there was a small reallocation from the ESOP category to institutional and retail investors. 60% of the institutional investor allocation is subject to lock ups.

KakaoBank (1349010D KS) is a high probability inclusion in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) with the implementation at the close of trading on 9 September.

With the free float at 6.56%, Fast Entry inclusion in the FTSE All-World and MSCI Standard index will require a big listing pop for the stock. Given the concern on the stock being overvalued at the IPO price, a big jump is unlikely on listing day and we do not expect Fast Entry inclusion for KakaoBank (1349010D KS).

Trading at a big premium to the traditional banks, with a large number of pre-IPO investors able to sell from listing day, and the lack of large passive buying flow, the stock could trade weaker than similar listings in the recent past.


Tencent: All Bets Are Off

By Shifara Samsudeen, ACMA, CGMA

Tencent (700 HK) shares have lost 18% to HK$478.80 by the end of today’s close since the beginning of July 2021 and has lost 35.0% since its peak in February this year. Tencent’s shares continue to slide over regulatory scrutiny over Chinese internet stocks. The Chinese regulators have widened their crackdown on the country’s internet sector with the latest crackdown aimed at the county’s education sector.

Tencent has been making into headlines over the past few days with its music streaming arm Tencent Music (TME US) being ordered to give up exclusive music licensing rights alongside a fine, its investments in online education and tutoring platforms such as Yuanfudao being targeted by Beijing regulators and the company suspending new user registrations on WeChat.

As we have discussed in our previous insights, there is no sign that the Chinese regulators are slowing down with its antitrust crackdown on the country’s tech platforms and though the ongoing regulatory crackdown has already been priced into Tencent’s share price, we would strongly recommend being on the side lines as the ongoing probe could have a material impact on the company’s future earnings.


Chong Hing Bank (1111 HK): Scheme Doc Out. IFA Says Fair

By David Blennerhassett

On the 18 May, Yue Xiu (the investment arm of the Guangzhou municipal government) made an Offer, by way of a Scheme, for Chong Hing Bank (1111 HK) shares not owned, at HK$20.80/share, a 51.2% premium to last close, and a 97% premium to the day preceding the last trading day. The Cancellation Price, which was a 10.1% discount to the NAV, would NOT be increased.

Standard Scheme conditions apply. Chong Hing is Hong Kong incorporated, therefore there is no headcount test.

The Scheme Document is now out.  The Scheme Meeting will be held on the 30 August with expected payment (assuming the Scheme resolutions are approved by independent shareholders) on the 7 October.

The IFA considers the Offer to be fair and reasonable, although that report covered the bare minimum. 

More below the fold.


TOPIX Inclusion Trade Summary: July 2021

By Janaghan Jeyakumar, CFA

In this insight, we take a look at the monthly performance of the trading opportunities surrounding TOPIX Index Rebalance events. During the month, we witnessed the Inclusion Events of cloud-based business accounting software company Money Forward (3994 JP), water treatment technology company Nomura Micro Science (6254 JP), and printed circuit board manufacturer Meiko Electronics (6787 JP)

Furthermore, as discussed by Travis Lundy in July TOPIX FFW Rebalancing Trade, there were quarterly float adjustments for some constituents of the TOPIX Index which opened up a few trading opportunities. 

Below is a closer look at each of these situations. 


Chong Hing’s Scheme Document, IFA Opinion

By Arun George

Chong Hing Bank (1111 HK)/CHB has despatched the scheme document in relation to a privatisation offer from Yuexiu Holdings, the largest shareholder who holds 74.97% of outstanding shares. The offeror will offer HK$20.80 per scheme share.

Unsurprisingly, the IFA considers the offer to be fair and reasonable. We broadly agree with the IFA analysis with the exception that the privatisation precedent comparison could be improved. 

The key condition is the scheme approved by at least 75% disinterested shareholders (<10% disinterested shareholders rejection). With no shareholder holding a blocking stake, we continue to believe that the substantial premium of the offer price to long-term average share prices and P/B multiples, makes it likely that the offer gains approval at the court meeting on 30 August (cheques dispatched on or before 7 October). At the current price of HK$20.45 per share, the gross spread to the offer price stands at 1.7%.


Float Confusions for Likely Adds at MSCI Std Korea QIR: SKIET, Ecopro BM, & Kakao Games

By Sanghyun Park

In MSCI Standard Korea’s QIR rebalancing, likely candidates are narrowed down to the following three stocks.

Today is the last day of the 10-day review period, so the results are almost all out.

The street consensus for the Interim Cutoff is a bit conservative at US$2.8B. Therefore, the full market cap hurdle is ₩5.76T, and the float-adjusted market cap hurdle is ₩2.88T.

Screening
Interim cutoff

₩3,201.7B (US$2.8B)

Full market cap hurdle₩5,763.1B
Float-adjusted market cap hurdle₩2,881.5B
Source: Clepsydra Capital

The problem is the float estimate. At this point, there are different opinions on the floats estimated by the local street.

In all three stocks, accurate float estimation is important enough to determine whether or not they are included in the MSCI Standard this time.

However, none of these three stocks has reached a clear consensus on the float.

All three stocks have passed the full market hurdle. On the other hand, the situation becomes complicated in the case of a float-adjusted market cap hurdle.

The following is whether or not each candidate passed the float-adjusted market cap hurdle at different float rates. As shown below, SKIET needs at least 20%. Ecopro BM needs 50% at a minimum. Kakao Games has the most desperate situation. It needs at least 45%, a substantial boost from the previous 25%.

Potential addsSK IE TechnologyEcopro BMKakao Games
Float rate15.00%20.00%45.00%50.00%25.00%45.00%
Beat the threshold by % – float-adjusted market cap
7. 19-21.69%4.42%-0.83%10.19%-45.54%-1.98%
7. 20-20.58%5.90%-8.09%2.12%-45.67%-2.21%
7. 21-19.83%6.89%-7.71%2.54%-42.76%3.03%
7. 22-14.45%14.07%-8.98%1.13%-35.12%16.79%
7. 23-12.60%16.54%-6.75%3.61%-34.99%17.02%
7. 26-14.82%13.57%-2.44%8.40%-38.49%10.73%
7. 27-15.19%13.08%-2.96%7.83%-37.51%12.48%
7. 28-14.82%13.57%-4.84%5.74%-39.13%9.56%
7. 29-16.49%11.34%-2.65%8.17%-39.39%9.10%
7. 30-15.94%12.09%-0.18%10.91%-41.98%4.43%
Source: KRX

(Mostly) Asia M&A: July 2021 Roundup

By David Blennerhassett

For the month of July, 13 new deals (firm and non-binding) were discussed on Smartkarma with an overall announced deal size of ~US$34bn.

  • Clicking on the company name in the table below will take you to the entity page where you can read the initial insight(s) written by Smartkarma contributors on these new deals and follow-up discussions, or simply click on the insight link(s) below the name.

New Deals

Industry

Size (US$bn)

Type

Premium

Australia

5G Networks Ltd/Australia (5GN AU) /
Webcentral (WCG AU) 
Telco0.1Schemen.a.
Webcentral – 5GN Merger: A Small-Cap Merger Aimed at ASX300 Status
Australian Pharmaceutical Industries (API AU) Healthcare0.5Scheme20.5%
API AU: The Hunter Turns The Hunted As Wesfarmers Makes A Move
Empired Ltd (EPD AU) Systems0.2Scheme64.6%
Empired (EPD AU): Capgemini’s Full Offer
iCar Asia Ltd (ICQ AU) Auto portal0.2Scheme83%
ICar (ICQ AU): Carsome & Catcha Carpool
Iress Ltd (IRE AU) Software2.3Scheme23%
Iress (ASX AU) Bats Away EQT – For Now
Oil Search Ltd (OSH AU) O&G7.1Scheme12.3%
Santos/Oil Search: Getting Facts Straight
Rhipe Ltd (RHP AU) Software0.1Scheme20%
Rhipe (RHP AU): Crayon Sees Silver in Them Thar Clouds
Spark Infrastructure (SKI AU) Utility3.9Scheme26%

Spark Infra (SKI AU): KKR & OTPPB’s Tilts Falls Short

Spark Infrastructure (SKI AU): KKR & OTPPB Pay Up

Sydney Airport (SYD AU) Airports17.0Scheme42%
Sydney Airports (SYD AU): Opportunistic Tilt Amid Cloudy Future
Youfoodz Holdings (YFZ AU) Home delivery0.1Scheme82.4%
Youfoodz (YFZ AU): HelloFresh’s Lowball Takeover Offer Difficult to Block But Not UnBumbable

Hong Kong

Beijing Capital Land Ltd H (2868 HK) Real Estate0.4Merger by Absorption62.8%
Beijing Capital Land (2868 HK): Delisting Offer From Parent
Nature Home Holding Company (2083 HK) Floorboarding0.1Scheme17.2%
Nature Home (2083 HK): Possible Takeover Target
Nature Home (2083 HK)’s Full Offer

South Korea

Green Cross Cell (031390 KS) / Green Cross LabCell (144510 KS) Biopharmaceutical1.5Mergern.a.
GC Cell – GC LabCell: Korean Biopharma Merger Trading Tight
Source: Smartkarma Insights

The average premium for the new deals announced (or first discussed) in July was ~41%, with a year-to-date average of ~34% (102 deals & total deal size of US$195bn). This compares to the average premium for all deals in 2020 (158 deals) and 2019 (145 deals) of 31% and 31.5% respectively. 

Offer Premium Summary

2019

2020

2021 YTD

Australia33.0%32.4%35.2%
Hong Kong25.2%34.7%34.5%
Japan44.0%35.2%28.5%
ROW29.1%24.2%35.3%
Average31.5%31.1%33.5%
Source: Smartkarma Insights

Summary of News in July of Arb Situations On Smartkarma’s Radar

(Again, click on the company names to take to you to the insights and/or discussion posts for a more comprehensive read-through on each situation)

Australia

Comments (with links to announcements & insights)

20-Jul: Autodesk Inc (ADSK US)‘s early June Offer for Altium Ltd (ALU AU) was terminated.

27-Jul: All resolutions passed at the Scheme Meeting

13-Jul: All resolutions passed at the Scheme Meeting

14-Jul:  Boral’s Bump Earned, Likely to Extend, but THEN WHAT?
19-Jul: Boral (BLD AU): Index Impact from Seven’s Offer
22-Jul: Boral Ltd: Seven’s Done Deal. What Happens Next?

29-Jul: The Seven Group Holdings (SVW AU) Offer for Boral Ltd (BLD AU) was not extended (as announced on 28 Sep). The deal closed yesterday. The resulting ownership is now 69.6%. 

22-Jul: Star Entertainment Group (SGR AU) walks away from its proposal for Crown Resorts (CWN AU). That’s not a good look. 

7-Jul: Scheme Booklet dispatched. The Scheme Meeting will be held on the 6 August.

16-Jul: Co-operation agreement entered into

No July update

No July update

Hong Kong

Comments (with links to announcements & insights)

16-Jul: Scheme Doc pushed out to the 31 August. 

9-Jul: In its monthly update regarding a potential Offer, China Traditional Chinese Medicine (570 HK) says there is no update.

15-Jul: In its monthly update, China Youzan (8083 HK) said in its monthly update, that there is no update.

20-Jul: Kerry Logistics Network (636 HK) announced approval by the Independent Shareholders in respect of the Special Deal Agreements and the Framework Services Agreement had been obtained.

23-Jul: Scheme approved

15-Jul: Desliting conditions met. Last day of trading is the 9 August. 

India

Comments (with links to insights)

23- Jul: After going limit up today, to INR 101.80/share, Adani Power (ADANI IN) is now back above INR 100/share after having fallen from INR 160. The 1-year deadline to file the Delisting Offer to the Exchange is 23 July. The Exchange would respond within 5 business days if they file. 

No July update

No July update

Japan

Comments (with links to announcements & insights)

No July update
9-Jul: The bidder for EPS Holdings (4282 JP) now has 86.97%. This will lead us to an EGM and a squeezeout. 

No July update

14-Jul: City Index Eleventh has raised its bid from ¥960/share to ¥970/share. That forces an extension from expected end date tomorrow to the 30th of July. That’s why it was raised. He doesn’t have enough shares to do what he wants yet. But in raising it, he has gotten the board to agree to recommend his offer, which is something pretty special. 
9-Jul: Kufu (4399 JP) confirmed on 7th July 2021 that shareholders have voted in favour of the Deal. Locoguide (4497 JP) shareholder vote (which was quite straightforward as the top shareholder held more than two-thirds) was also confirmed on 25th June 2021. Both stocks are expected to be delisted on 29th September 2021. The combined NewCo will be listed on 1st October 2021. 
No July update
No July update
No July update

No July update

No July update

Malaysia

Comments 

No July update
No July update
14-Jul: the Offeror has granted the Company an extension of time to no later than 5.00pm on 30 August 2021 for the Company to respond to the Offeror with its decision as to whether or not to implement and to recommend the Proposed SCR to the Entitled Shareholders for their consideration, based on the terms set out in the SCR Offer Letter.

New Zealand

Comments (& link to insight)

15-Jul: At the Scheme Meeting,  shareholders representing 91.84% of all Tilt Renewables’ shares on issue, voted by proxy or at the meeting. Over 75% of the votes of shareholders in each interest class who were entitled to vote and who voted, were cast in favour of the Scheme. Further, of all the votes cast, 99.94% of votes were in favour of the Scheme.

Singapore

Comments (& link to insight)

15-Jul: Offer price revised to $0.435/share. Offer closes on the 2 August.


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