Daily BriefsEvent-Driven

Event-Driven: SK Innovation, Chilisin Electronics, Xpeng, Naturgy Energy Group SA and more

In today’s briefing:

  • SK Innovation Battery Spinoff: What’s Known at This Point
  • Chilisin – Yageo: Taiwan Scrip Deal Trading Wide
  • XPeng (9868 HK) Dual Primary Listing: HSCI Entry & Stock Connect
  • IFM Advances on Naturgy

SK Innovation Battery Spinoff: What’s Known at This Point

By Sanghyun Park

SK Innovation announced at today’s IR presentation that it is considering spinning off the rechargeable battery business. At the same time, SK Innovation said that it would achieve an EBITDA of ₩2.5T in the battery business by 2025.

The specific performance targets for each year of the battery business are as follows.

  • First, they said that the battery business would turn to the black next year. After that, the company plans to achieve an EBITDA of ₩1T in 2023 and an EBITDA of ₩2.5T in 2025.
  • For SK IE Technology, they set EBITDA targets of ₩300B next year, ₩700B in 2023, and ₩1.4T in 2025.

Chilisin – Yageo: Taiwan Scrip Deal Trading Wide

By Janaghan Jeyakumar, CFA

Taiwanese electronic component manufacturer Yageo Corporation (2327 TT) announced on 30th June 2021 they will acquire all of the outstanding shares of Inductor manufacturer Chilisin Electronics (2456 TT) in a stock-swap transaction which will see Chilisin get delisted and become a wholly-owned subsidiary of Yageo.

The conversion ratio is 0.2002 Yageo shares per Chilisin share. However, according to the Deal announcement, the final share conversion ratio will be adjusted according to the share conversion contract of both parties.

The Deal is expected to close at the end of 2021 and is subject to the receipt of required regulatory approvals and approval from shareholders of both companies. 

More below the fold. 

For more information about M&A rules, regulations, and practices in Australia, please refer to Quiddity Taiwan M&A Guide 2019 

XPeng (9868 HK) Dual Primary Listing: HSCI Entry & Stock Connect

By Brian Freitas

Xpeng (XPEV US) is raising US$1.8bn via a dual primary listing on the HKEX (388 HK) by selling 85m shares at HK$165/share. There is an oversubscription option for another 12.75m shares.

The stock is expected to start trading on the HKEX on 7 July under the ticker ‘9868’.

FTSE has announced an increase in the number of issued shares and passive funds will need to buy Xpeng (XPEV US) at the close of trading on 7 July in the US.

As a dual primary listing, only the shares issued in Hong Kong will be used in the calculation of the market cap for inclusion in the various indices. We do not expect XPeng to be included in the Hang Seng Composite Index (HSCI) via Fast Entry. The earliest inclusion in the HSCI could happen at the December quarterly review if the oversubscription option is exercised and if there is an increase in the stock price.

An alternative is for XPeng to apply to the Hang Seng Indexes (HSIL) for treatment as a Secondary Listed company. With XPeng planning to transfer some of its shares from the Cayman register to the Hong Kong register, this will make it a lot easier for the stock to be included in the HSCI (and consequently into Southbound Stock Connect) earlier.

A change to secondary-listing treatment could also make it possible for inclusion in the Hang Seng China Enterprises Index (HSCEI INDEX) at an earlier point in time.

IFM Advances on Naturgy

By Jesus Rodriguez Aguilar

IFM gathers support from funds and large minority shareholders in its partial offer for Naturgy. According to daily Expansión, banking sources close to IFM have been working intensively in recent weeks in order to identify potential shareholders willing to attend the takeover bid. According to these sources, IFM is adding minority support and could reach its goal.

Although CriteriaCaixa continues to acquire shares in the market (25.534%, as of 1 July, according to the CNMV register), thus narrowing IFM’s room for maneuver, IFM is receiving sufficient expressions of interest indications of adherence to its proposal.

According to daily Expansion, IFM has almost assured the success of its partial takeover of Naturgyy with the support of funds and some minority shareholders have already reached approximately 22% of the capital. IFM, whose objective was to obtain at least 17% of Naturgy, now hopes that the Government will approve the operation.

Assuming institutional acceptances totaling 18% of the share capital and retail acceptances totaling 4% of the share capital, 22%, the upper band of the offer would be reached, without the need for any apportionment. Paradoxically, while CriteriaCaixa acquisitions remove shares freely trading, also reduce the chances of apportionment. 

Gross spread is 3.9%, a level I find attractive. Recommendation is long NTGY SM.

  • Upside risk: I do not rule out that as CriteriaCaixa keeps on buying (until a maximum of 29.99%), the share price keeps being pushed up.
  • Downside risk: more shareholders tender and there is apportionment; reduced free float (under 5%) with low liquidity. In this case, the share price would be partially supported by a c. 7% dividend yield.

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