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Most Read: Beijing Huafeng Test & Control Technology-A, Soho China Ltd, WH Group, Intouch Holdings, KakaoBank and more

In today’s briefing:

  • STAR50 Index Rebalance Preview: Big Turnover in a Volatile Market
  • SOHO China (410 HK): In For a Penny …
  • WH Group Offer Doc Out – This Little Piggy Went To Market
  • GULF/INTUCH: Nearing The End of the Offer Period; Passive Selling to Come
  • Kakao Bank: Allocations, Lock Ups and Index Fast Entry

STAR50 Index Rebalance Preview: Big Turnover in a Volatile Market

By Brian Freitas

The SSE STAR 50 (STAR50 INDEX) is a free float market cap weighted and is made up of the 50 largest stocks based on full market cap that are listed on the STAR Market.

The review period for the September rebalance ends on 31 July, the results of the rebalance will be announced towards the end of August and the changes will be implemented at the close of trading on 10 September.

With only 2 trading days left in the review period, we see Shanghai Shen Lian Biomedical (688098 CH)Piesat Information Technology (688066 CH)Guangzhou Fang Bang Electr-A (688020 CH)Shenzhen Lifotronic Techno-A (688389 CH) and Appotronics Corp Ltd (688007 CH) as high probability deletions from the index.

Coming up with a definitive list of inclusions is tougher given the subjectivity of the index rules for this review. The subjectivity comes from the whether the index committee uses a minimum listing history period of 12 months or 6 months.

Higher probability inclusions (if a 12 month minimum listing history is used) are Eyebright Medical Technology Beijing (688050 CH), Sinocelltech Group (688520 CH), Beijing Huafeng Test & Control Technology-A (688200 CH), Zhejiang Orient Gene Biotech-A (688298 CH) and Tinavi Medical Technologies (688277 CH).

Lower probability inclusions (if a 6 month minimum listing history is used) are Zhejiang Supcon Technology (688777 CH), Tianneng Battery Group (688819 CH), Bestechnic Shanghai (688608 CH), 3peak (688536 CH) and Pylon Technologies Co Ltd (688063 CH).

The inclusions, exclusions and capping changes will result in a one-way turnover of 8.45% and result in a one-way trade of CNY3.3bn.

SOHO China (410 HK): In For a Penny …

By David Blennerhassett

Yesterday, SOHO China Ltd (410 HK)‘s shares were utterly cremated, ostensibly in response to a media report the pre-conditional Offer from the Blackstone Group faces regulatory obstacles.

At one stage, shares were down 31%, or 48% adrift of the $5.00/share offer price, and 13% below the undisturbed price, before recovering to close at $3.02/share.

Yet that media article was vague in context, and ultimately stopped short of saying the deal would be blocked. 

As they say, “In for a penny, in for a pound.”

More thoughts below the fold.

WH Group Offer Doc Out – This Little Piggy Went To Market

By Travis Lundy

On 6 June 2021, WH Group (288 HK) announced a proposal for a Voluntary Buyback Offer. The company decided it had enough cash and excess capital given its investment requirements and decided to return the excess to shareholders by buying up to 13% of shares outstanding. The Controlling Group would not tender, so they would see their stake increase and the minimum pro-ration would reach nearly 20%. 

The shares popped, then fell. Then they kept on falling. Yesterday and today they hit the level which has been a low point in the oscillator cycle for the last few years at HK$6.00/share.

I wrote about the situation that very day in WH Group Buyback Offer Announced – Strong Accretion Creates Accretion Risk. I wrote that based on then-current pricing, expectations, and the trading levels of its peers, it would not be considered expensive at prices higher than the previous close (which had, to be fair, seen a nice pop on news). 

But markets gonna market. 

The peers fell. DRAMATICALLY. The 7 names in a HK- or China-listed basket of peers have fallen 23% as live hog prices have fallen and the hog/feed ratio has also fallen, indicating hog producers are making even less than before (or, according to the NDRC, losing more than before).

The NEW News – The Offer Doc is Out

Last night, late-ish, WH Group (288 HK) released its Offer Document whereby it launches the Conditional Voluntary Cash Offer for 13% of its own shares at HK$7.80/share. 

  • This will need to be approved by Shareholders – both the Offer and the Whitewash Waiver (the Executive has indicated its intention to approve the WW subject to 50+% of Independent Shareholder votes cast supporting the Offer and 75% of Independent Shareholder votes). 
  • The Record Date for the EGM is 19 August 2021, the EGM is 16 August, and if approved, the Offer will become Unconditional on 16 August and will close on 30 August.
  • Cheques will be sent no later than 8 Sep. Shares not bought back will be returned no later than 9 Sep. 
  • Minimum pro-ration is 19.7%. 

There are things to do here for hedge funds and arbitrageurs.

There are things to do here for long-only funds who love the stock. 

This remains an interesting situation. 

Read on below.

GULF/INTUCH: Nearing The End of the Offer Period; Passive Selling to Come

By Brian Freitas

On 19 April, Gulf Energy Development Public Company (GULF TB) made a conditional voluntary tender offer for all shares in Intouch Holdings (INTUCH TB) that it did not hold at THB 65/share. The Offer Period commenced on 29 June and will end on 4 August at 4pm.

Post market close yesterday, Gulf Energy Development Public Company (GULF TB) announced that 318.154m shares (9.92% of the issued shares) of Intouch Holdings (INTUCH TB) have been tendered as of 27 July taking their holding in the company up to 28.85%. This could move higher by the close of trading on 4 August.

We expect FTSE and MSCI to lower Intouch Holdings (INTUCH TB)‘s investability weight/ FIF over the next week due to a drop in the free float and this will necessitate passive selling on the stock. 

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.

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