In today’s briefing:
- HK Merger Arb: Opportunities Amidst the Market Selloff
- Hong Kong Arbs: (Largely) Immune From Trump Tariffs
- MitCorp (8058) BIG Buyback – Share Demand Will Help Weather The Storm
- Suzuki Motor (7269 JP) Placement: Limited Index Buying & Weak Markets Could Pressure Stock
- STAR50/STAR100 Index Rebalance Preview: Central Huijin’s ETF Creations Skew Performance
- TOPIX Index Upweights: Great Hit Rate; Strong Trade Performance; A Rare Win!
- UK: Spillover effects from US tariffs
- Key Implications of SK Inc’s Disposal of SK Siltron
- Hanwha Aerospace – Lowers Rights Offering Capital Raise Amount To 2.3 Trillion Won
- Duality Biotherapeutics (映恩生物) IPO: Valuation Upside at Risk
HK Merger Arb: Opportunities Amidst the Market Selloff
- The gross spreads of large HK merger arb situations have increased due to the unfortunate fallout from Trump’s trade war. The HSI closed down 13.2%.
- We assess the widening spreads of HK’s merger arb situations based on offer structure, preconditions, conditions, and other factors.
- The deals, ranked in terms of increasing deal risk, are Tam Jai, Soundwill, Vesync, Goldlion, Canvest, ESR, OneConnect, HKBN, and ENN Energy.
Hong Kong Arbs: (Largely) Immune From Trump Tariffs
- In Aussie Arbs: Trump Tariffs And MACs, I ran a ruler over the fifteen live deals Down Under, and how they may be affected by the Trump Tariffs.
- This insight canvasses the ongoing Hong Kong arbs and wording surrounding material adverse changes (MACs). Hong Kong MACs are typically less onerous, and lack specificity, versus Aussie arbs.
- Although the framework exists for an Offeror to enforce a MAC, I’m not aware of any evidence of this occurring under Hong Kong’s Takeovers Code.
MitCorp (8058) BIG Buyback – Share Demand Will Help Weather The Storm
- On 3 April mid-day, Mitsubishi Corp (8058 JP) announced its FY25 earnings guidance and new “Shareholder Return Strategy”, a ¥1 trillion buyback, and its “Corporate Strategy 2027” Mid-Term Management Plan.
- The FY25 forecast is for a third consecutive decline in underlying operating cashflow, but a hike in dividend from ¥100 to ¥110 and a ¥1trln share buyback, including ¥230bn tender.
- The combination of dividend and buyback should be 15% of market cap over the next 12mos. And I expect Warren Buffett will consider buying dips.
Suzuki Motor (7269 JP) Placement: Limited Index Buying & Weak Markets Could Pressure Stock
- Tokio Marine & Nichido Fire Insurance and Sompo Japan Insurance are looking to offload their entire stakes in Suzuki Motor (7269 JP) by way of a secondary offering.
- With the size of the secondary offering less than 5% of the number of shares, there could be no index buying in the short-term and that will pressure the stock.
- If the overallotment option is exercised and the seller of the shares is currently considered as non-float, there could be small passive buying in the short-term.
STAR50/STAR100 Index Rebalance Preview: Central Huijin’s ETF Creations Skew Performance
- Nearing the end of the review period, we forecast 1 change for the SSE STAR50 (STAR50 INDEX) and 4 changes for the STAR100 Index in June.
- We estimate turnover of 1.9% for the SSE STAR50 (STAR50 INDEX) and 4.5% for the STAR100 Index. The estimated round-trip trade is CNY 7.5bn (US$1.02bn).
- Large ETF inflows could have led to the recent underperformance of a long add/ short delete trade. That could reverse once markets stabilize or when the passives trade the rebalance.
TOPIX Index Upweights: Great Hit Rate; Strong Trade Performance; A Rare Win!
- In the TOPIX Index, some “low liquidity” names carry a liquidity factor of 0.75x resulting in their actual index weights being smaller than their default weights.
- These names are reviewed every April and if the liquidity factor of a stock gets removed, the stock will see index inflows from passive trackers of TOPIX.
- The results for April 2025 liquidity factor removal have been confirmed and we achieved very high hit rates for our High and Medium conviction baskets.
UK: Spillover effects from US tariffs
- The UK output destroyed by reciprocal US tariffs is only partly due to the direct impact of the new 10% rate (worth ~0.2% of GDP) and generally weaker US prospects (0.1%).
- Global GDP growth is depressed by this policy, indirectly destroying demand for UK exports from elsewhere (0.2%), especially if countries harm themselves by retaliating.
- An overall 0.6% GDP hit has two-sided risks and a skew lowered by likely negotiations. Fears of items dumping into the UK market are overblown excuses for protectionism.
Key Implications of SK Inc’s Disposal of SK Siltron
- SK Inc is selling SK Siltron to cut its 68% debt-to-equity ratio. The sale could reduce borrowings below ₩5T and lower debt ratio to 30-40%.
- Chey Tae-won’s divorce lawsuit risks his majority stake in SK Inc. Selling Siltron helps raise ₩1T for alimony without touching his SK Inc shares, potentially reducing the holding company discount.
- SK Inc-SK Square merger is unlikely soon, despite asset sales and preparation on both sides, as SK Square recently reaffirmed no current merger plans. Setting a position now seems premature.
Hanwha Aerospace – Lowers Rights Offering Capital Raise Amount To 2.3 Trillion Won
- On 8 April, Hanwha Aerospace (012450 KS) announced that it plans to lower its rights offering capital raise amount from 3.6 trillion won to 2.3 trillion won (US$1.6 billion).
- The remaining 1.3 trillion won will be secured through a third-party allocation paid-in capital increase targeting three companies, including Hanwha Energy, Hanwha Impact Partners, and Hanwha Energy Singapore.
- Hanwha Aerospace disclosed today that it expects sales of 30 trillion won (58% higher than consensus) and operating profit of 3 trillion won (20% higher than consensus) in 2025.
Duality Biotherapeutics (映恩生物) IPO: Valuation Upside at Risk
- Duality, a China-based clinical-stage biotechnology company, launched its IPO to raise up to US$200m via a Hong Kong listing.
- We look at the deal dynamics and latest developments in the biotech sector.
- The deal initially presented upside for investors but there’s a portion of its valuation now at risk due to the latest development.
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