Daily BriefsMost Read

Most Read: FTSE China A50 Index, Vedanta Ltd, Hulic Co Ltd, Chinese Estates Holdings, SK Telecom and more

In today’s briefing:

  • FTSE China A Market Consultation: Reaction to MSCI China A50 Connect Index Launch?
  • Vedanta’s Plan to Eliminate ADRs – THE Trade
  • Hulic Co (3003 JP): Index Implications of New Issue + Placement
  • Chinese Estates (127 HK): Potential Privatisation?
  • SK Telecom (017670 KS): Spin-Off and MSCI/ FTSE / KOSPI200 Index Treatment

FTSE China A Market Consultation: Reaction to MSCI China A50 Connect Index Launch?

By Brian Freitas

Earlier today in Asia, FTSE announced a market consultation for its China A Index offering. The consultation covers a number of aspects related to index market representation, index weighting methodology and index constituent accessibility.

The market consultation comes just over a month after HKEX (388 HK) announced the launch of index futures based on the MSCI China A50 Connect Index. That contract is expected to commence trading on 18 October.

The MSCI China A50 Connect Index is constructed by choosing the top 2 stocks from each GICS Sector and the rest of the stocks are then chosen based on their free float weighted market cap. This makes it a lot more diversified as compared to the FTSE China A50 Index (XIN9I INDEX).

The FTSE China A50 Index (XIN9I INDEX) is one of the flagship China offshore indices and there are liquid index futures trading on the SGX (SGX SP) plus ETFs trading on the HKEX (388 HK). The market consultation seeks market participants views on a potential expansion of the number of index constituents to 100.

An increase to 100 stocks from the current 50 will trigger a large index trade. While the impact on the stocks is not large in terms of ADV to trade, FTSE could implement the changes in two tranches to reduce the turnover at a single rebalance.

Vedanta’s Plan to Eliminate ADRs – THE Trade

By Travis Lundy

On Thursday 23 September after the close, Vedanta Ltd (VEDL IN) announced it would eliminate its ADS program. I wrote about it in Vedanta To Eliminate Its ADRs – Creates VERY Interesting Possibilities.

Looking at it a little further and I see more.  

Hulic Co (3003 JP): Index Implications of New Issue + Placement

By Brian Freitas

Yesterday post market close, Hulic Co Ltd (3003 JP) announced an issuance of new shares and a secondary offering of shares amounting to JPY 127.464bn to expand the company’s stable business foundation and promote the strengthening of its business structure.

A maximum of 94m shares (JPY 127.46bn; US$1.15bn) will be issued and the price of the new issue and secondary placement will be determined between 6-11 October while settlement will take place between 14-19 October.

The Hulic Co Ltd (3003 JP) stock is near its highs and at a level from where it has retraced in the past on a few occasions. The stock has performed in line with its peers over the last year and trades marginally expensive on forward price to earnings.

The equity offering will increase the number of issued shares and the free float of the stock and will require MSCI, FTSE and Tokyo Stock Exchange Tokyo Price Index Topix (TPX INDEX) passive trackers to buy stock. This will provide near-term support for the stock with just over 30% of the issue being bought up by passive trackers.

Short interest on the stock is 3.36m shares and there could be some covering on a drop in the stock price.

Chinese Estates (127 HK): Potential Privatisation?

By David Blennerhassett

Chinese Estates Holdings (127 HK),  a leading property developer in Hong Kong – and avid securities investor – is currently suspended pursuant to the Hong Kong Code on Takeovers and Mergers. There are, as yet, no further details, although shares did gain 33% before being halted at 11.10am today. 

Joseph Lau and his wife Chan Hoi Wan control 74.99% of the company.

This insight provides some brief background on Chinese Estates, plus speculates on a fair price should a firm Offer unfold. 

SK Telecom (017670 KS): Spin-Off and MSCI/ FTSE / KOSPI200 Index Treatment

By Brian Freitas

SK Telecom (017670 KS) shareholders will meet on 12 October to approve the spin-off of SK Square. For each share of SK Telecom (017670 KS) held, shareholders will receive 0.6073625 shares of the new SK Telecom (017670 KS) and 0.39296375 shares of SK Square. There will also be a 5:1 share split.

Trading in SK Telecom (017670 KS) will be halted from 26 October to 26 November and both stocks will resume trading on 29 November.

There are a few big implications of the spin-off (apart from the value unlocking angle):

  • Passive funds benchmarked to the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) will need to sell SK Telecom (017670 KS) at the close of trading prior to suspension and buy back the stock at the close on relisting date. However, not all funds trade the same way and some just keep the parent stock.
  • SK Square will be included in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) and there will be an extra deletion from the index at the December rebalance
  • SK Square will be included in the MSCI Korea index. That will not bring in any passive flows. But the stock will not be subject to an FOL. The increased FIF of the stock in the index will bring in a lot of passive flow.
  • SK Square will be included in the FTSE All-World index. Again, the increased investability weight of the stock due to lack of an FOL will being in substantial passive inflows.

In this Insight, we take a look at the current state of play in SK Telecom (017670 KS), the spin-off details and the index treatment of the stocks post spin-off. 

Before it’s here, it’s on Smartkarma