Daily BriefsEvent-Driven

Event-Driven: Shinsei Bank, WH Group, GCA Corporation, Monde Nissin Corp, Tencent, Naturgy Energy Group SA, Kakao Corp, Rhipe Ltd, KakaoBank, Microstrategy Inc Cl A and more

In today’s briefing:

  • SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)!
  • WH Group Post-Tender Outlook
  • Houlihan Lokey Bumps the GCA Offer – A Whopping 1.3%!!!
  • FTSE GEIS December Index Rebalance Preview: IPOs & Lock-Up Expiries
  • Tencent: Temporary Freeze of New Game Approvals to Further Impact Slowing Games Business
  • IFM/Naturgy: Start of Offer Period
  • Concerns Are Growing that Kakao Becomes a Political Scapegoat Ahead of the Presidential Election
  • Rhipe (RHP AU): Done Deal As Scheme Booklet Dispatched
  • Short-Selling Kakao Bank & Krafton Begins Today: Here Are Some Data Worth Checking
  • Microstrategy (MSTR US): Bitcoin’s Mainstream/Fringes Balancing Act

SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)!

By Travis Lundy

When in late December 2020 I wrote that Shinsei Bank (8303 JP) was my 2021 High Conviction Trade (at the time) (in 2021 High Conviction – Shinsei Bank), I talked about buybacks, and pressure on the stock, and float, and the government ownership, and value, and business recycling, and other things. 

Over the next three months, the stock was up as much as 50%, helped by both Shinsei Bank buying back stock and SBI Holdings (8473 JP) lifting its position sharply. When I wrote SBI had reported a position of 10.3% months earlier. A couple of days later they reported an uplift and by the end of March had an additional 16.067mm shares, giving them 16.5% of shares out and 19.85% of voting rights. 

As I wrote in 2021 High Conviction Update – Shinsei Bank Float Squeeze to Mitigate Near-Term in mid-March before they got that far, it was likely they needed to pause because someone who wants to own more than 20% of voting rights of a bank has to ask the Ministry of Finance first, before going over.

Shinsei reported results in mid-May, launched another 20mm share ¥20bn buyback, saw a float weight drop by MSCI at end-May, and since mid-May had bought back 5.049mm shares spending ¥7.2bn to do so as banks and other financials in Japan fell with US long rates.

Today SBI Announced A Tender Offer To Go To 48%

Today, SBI announced a Tender Offer to go to 48%. The Tender Offer starts tomorrow and goes for 30 business days. The price is ¥2000/share. 

As of today, the SBIHD Parties have not held prior discussions regarding the Tender Offer with the Target Company and have not confirmed whether the Target Company will support the Tender Offer.

This is a hostile bid.

SBI bought just under 5% in April-August 2019. In September 2019, SBI proposed that SBI buy 33.4-48% of Shinsei and bring the bank under SBI’s wing. Two years have passed since the initial proposal of an alliance, and after what appears to be a lack of progress (and some implied criticism not acted upon), and SBI’s vote against the re-election of four directors at the AGM in June, SBI apparently did not seem to think it fruitful to hold any further discussions on practical matters until they had the ability to do something. This is vaguely reminiscent of Itochu’s lifting of its stake in Descente Ltd (8114 JP) a couple years ago. 

The Financial Instruments & Exchange Act (FIEA) Article 27-2 sets out the rules for Tender Offers, for both would-be acquirers and Target Companies. Shinsei Bank now has 10 days to come up with an Official Opinion (the immediate announcement is “we’ll take a look and get back to you”).

One should expect this to continue on somewhat to highly unfriendly terms.  But there is not much Shinsei can do about it. 

Or is there…?

I’ve got popcorn. 

And lots more discussion below about how to think about this situation…


WH Group Post-Tender Outlook

By Travis Lundy

The shares of WH Group (288 HK) to be returned to shareholders after the Buyback Offer have been returned to shareholders as of this morning. Some appeared to have sold yesterday, some today, and some may not “get notice” of the return until tonight, which means they would sell tomorrow or later. 

Now we look ahead. 

Based on a pure price-vs-peers basis, the price today is about 3% below where it was compared to a mix of Chinese and global peers as of the day before the announcement. 

However, that does not include the 15% accretion to EPS from the buyback. That puts the stock a fair bit cheaper than its peer basket since the announcement 3+ months ago. 

And it has ALWAYS traded cheap on governance concerns (and one reason why showed up last month in a public spat between the spurned first son and the chairman, discussed in WH Group – Stock Plummets as Ousted Son Drags Pigs Into The Mud. The question investors should ask themselves is…. if the family were ousted, would that be good for the share price? 

If the answer is yes, then the exposure here probably has some convexity given the shares trade at a multi-year low to Peers on an accretion-adjusted basis.


Houlihan Lokey Bumps the GCA Offer – A Whopping 1.3%!!!

By Travis Lundy

In Houlihan Lokey To Take Out GCA :  Light But Likely Done I suggested that the price for the investment bank/consultant was light, but that the tender offer at ¥1,380/share would most likely get done. 

Today, Houlihan Lokey bumped the Tender Offer Price

By ¥18/share – 1.30435% – from ¥1,380/share to ¥1,398/share.

Don’t spend it all in one place ladies and gents.

It was not clear that Houlihan Lokey needed to bump. The price hadn’t cleared the Tender Offer Price since announcement. 

More below the fold.


FTSE GEIS December Index Rebalance Preview: IPOs & Lock-Up Expiries

By Brian Freitas

FTSE Russell will announce the changes to the Global Equity Index Series (GEIS) as a part of the December quarterly review on 19 November and the changes will be effective after the close of trading on 17 December.

We see 18 stocks that could be included in the FTSE All-World and FTSE All-Cap indices based on prices from the close on 9 September. The inclusions will be decided based on prices from the close on 11 November.

Stocks that could be added to the FTSE All-World index are KakaoBank (323410 KS), JD Logistics (2618 HK), Krafton Inc (259960 KS), Zomato (ZOMATO IN), SK IE Technology (361610 KS), Angelalign Technology (6699 HK), Lodha Developers (LODHA IN), Monde Nissin Corp (MONDE PM), Bukalapak (BUKA IJ) and Sona BLW Precision Forgings (SPF IN).

Stocks that could be added to the FTSE All-Cap index are SD Biosensor (137310 KS), Linklogis (9959 HK), Ngern Tid Lor (TIDLOR TB), PEXA Group (PXA AU), Powergrid Infrastructure Investment Trust (PGINVIT IN), Krishna Institute of Medical Sciences (KIMS IN), 29Metals (29M AU) and CTOS Digital Bhd (CTOS MK).

Krafton Inc (259960 KS), Zomato (ZOMATO IN) and Bukalapak (BUKA IJ) are also potential inclusions to the MSCI Standard Index at the November SAIR that will be implemented at the close on 30 November.

There are a lot of names that have lock-up expiries coming up in the lead up to index inclusion. While this will increase the supply in the market, it provides investors with opportunities to side step the selling and buy on dips in the stock price to position for index inclusion.


Tencent: Temporary Freeze of New Game Approvals to Further Impact Slowing Games Business

By Shifara Samsudeen, ACMA, CGMA

The government of China announced last week a set of rules aimed at the country’s gaming sector in order to reduce the long-term impact of gaming on the country’s younger population (those under 18 years of age). Those new rules on limiting the mobile gaming time, we think was taken lightly by the market, however, regulators continue to ramp up regulation and tighten their grip on the mobile gaming sector. Executives from Tencent (700 HK) , NetEase (9999 HK)  and other mobile gaming companies were called in for a meeting on Wednesday and were instructed to end their “Solitary focus of pursuing profit” in order to prevent minors from getting addicted to games. This no doubt will require gaming companies to change their game rules and designs that induce addiction and at the same time, changes to operating models that will severely impact revenue and margins of games.

As China tackles to bring down gaming addiction among minor users, SCMP reports that the Chinese regulators will temporarily freeze approvals for new online games.


IFM/Naturgy: Start of Offer Period

By Jesus Rodriguez Aguilar

The National Securities and Market Commission (CNMV) has authorized the partial offer launched by IFM on Naturgy Energy Group SA (NTGY SM) and has  announced that the acceptance period will run from 9 September to 8 October, both included.

The CNMV has approved the prospectus. Starting today, the Board of Naturgy has ten days to issue an opinion about the fairness of the offer.

The success of IFM’s bid might be hindered by:

  • the intentions of Criteria Caixa to strengthen its position as the top shareholder (Criteria Caixa has increased its stake up to 25.997% of the share capital and intends to acquire up to 29.9%),

  • the improvement in the economic outlook, and

  • the increase in the price of natural gas since the offer announcement (26 February).

An improved economic outlook could provide grounds for requesting a sweetening of the offer. The Board of Naturgy, which is due to issue an opinion on the IFM’s takeover bid soon, could consider asking IFM for an improvement in the consideration.

The offer price is €22.07/share (cum dividend). There’s a minimum acceptance condition of 17% of the share capital. If the offer succeeds, Naturgy’s free-float could be substantially reduced (down to below 10%) and the company would leave the IBEX 35 index.

  • IFM reserves the right to unilaterally lower the 17% threshold to 10%. “The offeror may freely reduce the minimum acceptance condition to 10% of Naturgy’s share capital, waive the minimum acceptance condition as long as the acceptance of the offer is not less than 10% of Naturgy’s share capital”.

The apportionment will depend on whether any institutional shareholder tenders its shares, which seems unlikely. This means that retail shareholders will likely tender and chances for apportionment are reduced.

Recent research reports point to Naturgy’s earnings growth potential within its new strategic plan. Naturgy’s board, which is due to issue an opinion on the takeover, will likely consider them, both in terms of results and target price. Naturgy’s shares are now below the price offered by IFM, but there is the risk that the offer price may not be attractive enough and the offer fails to achieve the necessary acceptances.

A very reasonable scenario is that Criteria Caixa will resume its share purchases, thus raising the price above the current offer.

Gross spread is 1.36% (as of midday 9 September). A sweetened offer is likely, as are new share purchases by Criteria. Core strategy is long and tender (or upon possible share price increases, be ready to sell into strength).


Concerns Are Growing that Kakao Becomes a Political Scapegoat Ahead of the Presidential Election

By Sanghyun Park

Today’s drop in Kakao’s share price has a different meaning than yesterday. Yesterday too, Kakao fell more than Naver, but it was not as much of a difference as today. Kakao is currently down 6.5%, while Naver is stopping the decline at 2.32%.

Yesterday, a rather abstract view emerged that government-level regulations on big tech had begun in Korea, similar to China. Therefore, the market focused on understanding the short-term impact of the actual application and interpretation of the Financial Consumer Protection Act announced by the Financial Services Commission on big tech financial platform businesses.

So yesterday, the stock prices of Kakao and Naver, two of Korea’s major big tech companies, fell together with a modest difference. This is because they all provide financial platform services that are highly likely to violate the Financial Consumer Protection Act in the immediate term.

  • But today, other concerns are spreading in the market. The FSC’s decision is not to tame big tech in the Chinese style but to publicize big tech regulations externally as a political tool that can greatly benefit the ruling party ahead of the presidential election scheduled for March 9 of next year.
  • The important point here is that the local market speculates that the ruling party specifically targets Kakao as a political scapegoat.

Rhipe (RHP AU): Done Deal As Scheme Booklet Dispatched

By David Blennerhassett

Back on the 1 July, rhipe Ltd (RHP AU), a provider of cloud-based subscription software-as-a-service licenses,  announced a non-binding indicative proposal from Norway’s Crayon Group Holdings. 

Less than a week later, rhipe entered into a Scheme Implementation Deed.

The Scheme consideration is A$2.50/share, less any permitted special dividend.

rhipe’s board said it intended to declare a fully franked special dividend, to be paid before the Scheme’s implementation date.

The Scheme Booklet is now out. The Scheme Meeting will be held on the 11 October, with an expected implementation date on the 3 November. The special dividend record date is the 18 October. 

This looks done.


Short-Selling Kakao Bank & Krafton Begins Today: Here Are Some Data Worth Checking

By Sanghyun Park

From today, September 10, it will be possible to short sell Kakao Bank and Krafton.

Both Kakao Bank and Krafton have rapidly increased their loan balances over the past few days. This should be due to the increase in loan transactions in line with the start date of the short sale.

As of yesterday, Kakao Bank’s loan balance was 4,336,765 shares. This represents 0.91% of the total number of outstanding shares. Although the ratio of the loan balance to SO is not yet high, it is worth paying attention to the recent rate of increase. In particular, since local ETFs/index funds that have completed KOSPI 200 rebalancing trading will enter the loan transaction market from now on, the current growth rate is highly likely to be maintained for the time being.

Krafton’s situation is no different. There has been a sharp increase in recent days. As of yesterday, the loan balance is 528,702, which is 1.08% of the outstanding shares. Similarly, stocks owned by local ETFs/index funds, which have completed KOSPI 200 rebalancing trading, will also flow in for Krafton. Hence, an increase in loan balance is unavoidable for the time being.


Microstrategy (MSTR US): Bitcoin’s Mainstream/Fringes Balancing Act

By David Blennerhassett

That trade worked out well.

In my note Microstrategy (MSTR US): “Crypto Through The Tulips” back on the 28 June, I recommended shorting Microstrategy Inc Cl A (MSTR US) and going long bitcoin.

MSTR is up 2.3% since, against 30% for BTC.

MSTR has a tendency to issue paper to buy more bitcoins when the stock is at a large premium to its Bitcoin holdings.  As per its 21 June 21 announcement, MSTR said it held 105,085 bitcoins. That figure remains unchanged.

MSTR’s share price was US$123 prior to its initial announcement on the 11 August 2020 it was “adopting Bitcoin as a primary treasury reserve asset“.

The current implied value for MSTR’s stub ops – selling business intelligence software – is US$158/share, having touched US$141/share, suggesting value was emerging.

Yet is MSTR the ideal proxy for bitcoin? And just how much legitimacy should be attached to El Salvador giving bitcoin the status of legal tender?

More below the fold.


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