Daily BriefsEvent-Driven

Event-Driven: Sri Trang Gloves, Kingboard Laminates Holdings, Keppel DC REIT, Metlifecare Ltd, SK Telecom, Naver Corp, Softbank Group, Schroders PLC and more

In today’s briefing:

  • MSCI Nov20 Index Rebalance Preview – ASEAN EM Edition
  • StubWorld: Kingboards’ All-Time Low Implied Stub; PICC Trading Rich
  • STI Index Rebalance: KDCREIT Included, FLT Misses Out
  • Metlifecare: Statutory Vacuum
  • SK Telecom Plans to Spin Off Mobility Business & Partner with Uber
  • Big Stock Swaps Between Naver & 3 CJ Group Companies – Why?
  • Softbank – How Does AMD’s Resurgence and Xilinx Deal Impact the Nvidia-Arm Deal?
  • Liquid Universe of European Ordinary and Preferred Shares: October Report

MSCI Nov20 Index Rebalance Preview – ASEAN EM Edition

By Brian Freitas

MSCI is scheduled to announce the results of the November 2020 Semi Annual Index Review (SAIR) on 10 November. The changes will be effective after the close of trading on 30 November.

The November review could use price data from any of the last 10 business days of October to determine the list of inclusions to and exclusions from the index.

At the current time, we see 6 potential inclusions and 7 potential exclusions across Malaysia, Indonesia, Thailand and the Philippines. There will be a very large impact on most of the potential deletes with over 30 days of ADV to sell, while there are a few potential inclusions with over 10 days of ADV to buy.

A lot of the expected inclusions and exclusions have already moved higher/ lower but given the flows that are yet to come, there could be further moves in the stocks. We recommend hedging with stocks from the same sector or index futures.

StubWorld: Kingboards’ All-Time Low Implied Stub; PICC Trading Rich

By David Blennerhassett

This week in StubWorld …

Kingboard Laminates Holdings (1888 HK)‘s announcement of a possible Chi-Next listing sends Kingboard Holdings (148 HK)‘s implied stub to an all-time low.

People’s Insurance Co (PICC) (1339 HK) trading rich – possibly as the A-share premium rallies. 

Preceding my comments on KBC and PICC are the weekly setup/unwind tables for Asia-Pacific Holdcos.

These relationships trade with a minimum liquidity threshold of US$1mn on a 90-day moving average, and a % market capitalisation threshold – the $ value of the holding/opco held, over the parent’s market capitalisation, expressed as a % – of at least 20%.

STI Index Rebalance: KDCREIT Included, FLT Misses Out

By Brian Freitas

FTSE Russell today confirmed that Keppel DC REIT (KDCREIT SP) will take the vacant spot in the FTSE Straits Times Index (STI) (STI INDEX) created by the merger of Capitaland Commercial Trust (CCT SP) and Capitaland Mall Trust (CT SP).

 The change will be effective after the close of trading on 16 October and passive funds will trade at the close on the day.

The 11.85m shares of Keppel DC REIT (KDCREIT SP) that the passive funds need to buy is just over 2 days of ADV. There will also be active funds that are benchmarked to the FTSE Straits Times Index (STI) (STI INDEX) that will be looking to buy KDCREIT to better track their benchmark.

The one-way turnover of this change on the index is 1.46%.

With Frasers Logistics & Industrial Trust (FLT SP) losing out in a close race, it will have a chance to replace Sembcorp Industries (SCI SP) at the regular rebalance in December. At rank 39, Sembcorp Industries (SCI SP) is ranked just ahead of SPH REIT (SPHREIT SP) and Starhub Ltd (STH SP) and is 14% away from the deletion zone.

Metlifecare: Statutory Vacuum

By David Blennerhassett

This is shaping up to be the week when the sanctioning of Schemes by the Courts goes awry.

Last Friday, Hong Kong’s High Court declined to sanction Allied Properties (H.K.) (56 HK)‘s Scheme. (Allied Properties (56 HK): Amateur Hour). I would expect the Offeror, Allied (373 HK), to appeal the decision,  especially noting the irrelevancy of the headcount test discussed at length in the judgment, which likely influenced the judge’s final opinion.

Tomorrow there is a high likelihood that New Zealand’s High Court postpones the final hearing on the Metlifecare Ltd (MET NZ)‘s Scheme.

At MET’s Scheme Meeting on the 2 October, 90.7% of the votes case voted for the Scheme. 9.14% (or 14.96mn shares) voted against. 

Of those naysayers, 1,000 shares are held by ResIL Investments Limited, who has, in a detailed letter (attached at the end of this insight) flagged what it perceives as breaches in the Takeovers Code, with reference to the valuation methodology in the Scheme Booklet

Those perceived breaches have been submitted to the Takeovers Panel.

Ahead of tomorrow’s hearing, the Panel will need to consider ResIL’s objections and whether the standard of disclosure is consistent with that required under the Code. If no objection, the Panel will issue a no-objection statement to approve the Scheme.

Yet merely obtaining a no-objection statement from the Takeovers Panel does not necessarily mean that the Court will approve a scheme.

There are no dissent or buy-out rights for shareholders who do not support Schemes in New Zealand. In effect, this is a statutory vacuum. It would be a dangerous precedent if this Scheme is not sanctioned after a disgruntled shareholder contends the contents of the Scheme Booklet are flawed – after the shareholder lost the vote.

SK Telecom Plans to Spin Off Mobility Business & Partner with Uber

By Douglas Kim

It was announced this morning that SK Telecom (017670 KS) plans to spin-off its mobility business and potentially partner with Uber (UBER US) to launch a multi-service mobility platform. Following this news, shares of SK Telecom declined 4.7% to 231,000 won. This move follows the recent funding received by Socar last month which put Socar as the next Unicorn in South Korea. For further details, see our recent insight Socar: The Biggest Car-Sharing Platform in Korea Becomes the Next Unicorn

Big Stock Swaps Between Naver & 3 CJ Group Companies – Why?

By Douglas Kim

Various local media reported today that Naver Corp (035420 KS) and three CJ Group related companies, including CJ Logistics (000120 KS), CJ ENM (035760 KS), and Studio Dragon (253450 KS) are considering strategic stock swaps. In other words, Naver would receive a certain number of shares of CJ Logistics, CJ ENM, and Studio Dragon in exchange for a certain number of Naver shares. 

If the big stock swap deals between Naver and the three CJ Group related companies are completed, the total amount of stock deals is expected to be about 800 billion won to 1 trillion won. 

Softbank – How Does AMD’s Resurgence and Xilinx Deal Impact the Nvidia-Arm Deal?

By Mio Kato

Following the appointment of Lisa Su as CEO in 2014, AMD has staged a stunning turnaround headlined by its Ryzen series of consumer-focused processors. Its recent announcement on Zen 3 cements this and raises questions for both Intel and Nividia as the (formerly?) dominant players in their respective markets. It also has implications for the Arm acquisition, which was on shaky ground already, and that is before even considering what a Xilinx acquisition could mean for the industry.

Liquid Universe of European Ordinary and Preferred Shares: October Report

By Jesus Rodriguez Aguilar


There has been no obvious trend over the last three months regarding the discounts, although it has widened in some names.  Trading opportunities are less obvious, but some still exist.

Recommended trades

  • Bayerische Motoren Werke AG (BMW GR) : the discount has traded sideways since mid-September, and is now 23.2%. I would recommend setting up a trade long BMW prefs, short common shares with a target of a 15% discount.

  • Fuchs Petrolub SE (FPE GR) ‘s premium of preferred shares is a whopping 34.4% currently. Remember that voting rights are valuable. Recommendation: long ords/short prefs, with a 10% target.

  • Henkel AG & Co KGaA (HEN3 GR) : the premium is 13.0% (down from 15.4% in my September report). I would set up a trade long prefs/short common shares with a 10% premium target.

  • Voting rights are valuable in a company like Volkswagen (VOW GR) , so a 5.8% discount of the prefs. seems about right. It has moved sideways since mid-September.  If you believe that the higher liquidity of the prefs will, at some point, mean that the discount will close, then a long prefs/short ords may be an option; plus it can be executed in size. The discount tightened since the March selloff and has been moving within a tight range. 

  • A 35.9% discount of Danieli & C Officine Meccanich (DAN IM) savers (vs. 37.5% in September and 39% in June) seems still too wide, and low liquidity does not help. I keep on recommending long savers/short ordinaries. A 30% discount is not a demanding target.

  • Grifols SA (GRF SM) B shares are trading at a 37.9% discount (vs. 41.9 by mid-September), there is a trend towards the tightening of this discount since mid-March. The discount in Grifols B shares has averaged 28% since listing of the B shares in February 2016. I recommend setting up the trade long B shares traded on Nasdaq, short A shares traded in Madrid. The target is a 27% discount. Please note there is FX risk, which can be hedged.

  • The current discount in Atlas Copco AB (ATCOA SS) B shares vs. A shares is 13.2%. I recommend setting up Long B shares/short A shares, with a target of >10% discount.

  • The discount in the Telefonaktiebolaget Lm Ericsso (ERICB SS) (Ericsson) B shares has tightened since my July recommendation: from 8.7% to 6.8%. I would keep the trade on with a 3% discount target.

  • The discount in Schroders PLC (SDR LN) is now 32.7% (vs. 27% by mid-September). I would set up long non-voting/short voting shares.

Please read on for table and charts.

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