Brief Hong Kong: Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia and more

In this briefing:

1. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia
2. Free Money Has Flown
3. StubWorld: Can One’s Offer For Kian Joo Can; Mahindra At Possible Set-Up Levels
4. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao
5. Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade

1. Repsol, Petronas & Mitsui Make Massive Gas Find in Indonesia

Repsol SA (REP SM)‘s discovery is very significant for the companies involved and others around the area, which we discuss in detail below. It is also important for Indonesia, which requires more gas to supply domestic and export demand. It is also positive for exploration sentiment globally, to see a material discovery (Oil Exploration: We Expect a Resurgence in 2019 Pointing to Strong Performance for E&Ps) and this may encourage further M&A in Indonesia such as this deal: (Indonesia Upstream Gas Asset Sale: Positive Read-Through to Other SE Asia Gas Companies).

2. Free Money Has Flown

The world will soon discover that debt matters.

The announcement of each round of QE increased asset prices, but the effect on Treasury bond prices began to fade when central bank purchases began. This unexpected behaviour revealed a little-known fact: asset prices react more to the expectation of changes in liquidity than to the experience of greater liquidity in financial markets. By contrast, economic growth is subject to the fluctuating standards of commercial bank lending, which follow variations in the demand for credit. Consequently, financial markets lead the economy. Meanwhile, central banks focus on lagging indicators, so they’re followers, not leaders. Bond markets usually predict more accurately than stock markets. To work, central bank easing policies require real risk-adjusted interest rates. However, with those rates below zero in many countries, further reductions would penalise lenders without helping borrowers. Thus, only rising inflation can save stressed debtors.

3. StubWorld: Can One’s Offer For Kian Joo Can; Mahindra At Possible Set-Up Levels

This week in StubWorld …

• Can One Bhd (CAN MK)‘s gets shareholder approval to launch a Mandatory General Offer for 33%-held Kian Joo Can Factory (KJC MK). (note, both legs are illiquid)
• Curtis Lehnert sees Mahindra & Mahindra (MM IN)‘s discount to NAV at its widest since 2015.

Preceding my comments on Can One/Kian Joo, Mahindra and other stubs 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 in percent – of at least 20%.

4. Ab InBev Asia Pre-IPO – Quick Note – More like CR Beer Rather than Tsingtao

Anheuser Busch Inbev Sa/Nv (ABI BB) is looking to list its Asian operations in order to lighten its debt burden. The listing will probably be in Hong Kong and the company could raise around US$5bn at a valuation of around US$70bn.

In my earlier insight, Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China, I looked at how the Asian operations of ABI have shaped up over the past few years.  

In this insight, I’ll do a quick comparison of the past financial performance of China Resources Beer Holdin (291 HK) and Tsingtao Brewery Co Ltd H (168 HK).

5. Chinese Telcos: Rising 5G Capex Risk Leads to Another Downgrade

We recently downgraded the Chinese telcos on rising concerns that the telcos will be required to do “national service” to support China’s technological leadership in 5G.  The closure of many overseas markets to Chinese equipment suppliers (esp Huawei, but also Zte Corp H (763 HK)) means the risk of a more aggressive 5G roll-out has increased.  Markets have started to take notice but the initial reaction has been positive on excitement over the 5G opportunity. Given the lack of a strong business case for 5G currently, we don think additional capex is a positive. We model what an extreme roll-out could look like and the impact on the telcos. Along with a weakening macro outlook, we have further downgraded target prices for all three operators and cut China Mobile (941 HK) and China Telecom (728 HK) to Reduce and China Unicom (762 HK) to Neutral.