In today’s briefing:
- Meituan (3690 HK) – US$16bn of Shares To Be Delivered This Week
- Korean Government’s Official Statement on Foreign Ownership Limits & The Names Still to Watch
- SSE50 Index Rebalance Preview: BIG Outperformance Over the Last Month
- Korean Government Reviews Rules to Ease Foreign Ownership Limits
- Shorting Kakao Pay on K200 Sector Index Passive Outflow Due to GICS Change on June 8
- Merger Arb Mondays (20 Mar) – Toshiba, AAG Energy, Tyro, Newcrest, InvoCare, Pushpay, Golden Energy
- Australian Clinical Labs (ACL) Lowballs an All-Stock Offer for Healius (HLS)
- Golden Energy: Offer Bumped. Still Insulting
- MSCI Korea May QCIR: Potential Changes, Impact, Positioning & Short Interest
- ChiNext/ChiNext50 Index Rebalance Preview: Overlapping Stocks & Recent Outperformance
Meituan (3690 HK) – US$16bn of Shares To Be Delivered This Week
- In early 2022, Tencent (700 HK) made clear it was on a divestment path – disposing of investments able to support themselves – possibly “obliged” after 2021’s China internet mess.
- In August, Reuters suggested Meituan (3690 HK) was next. Tencent denied it, but in November with Q3 earnings, announced a January 2023 distribution with March 2023 settlement.
- US$16bn of Meituan shares get delivered on 24 March 2023 – this Friday. That’s a lot. But this time is different than last time.
Korean Government’s Official Statement on Foreign Ownership Limits & The Names Still to Watch
- Hankyung exclusively reported that the Korean regulators were considering abolishing the foreign ownership limit. This morning, the Ministry of Economy and Finance released a statement that this report is untrue.
- Nevertheless, circumstantially, given the current government’s all-out effort to make it to MSCI Developed Market status, there is a high possibility that it will resurface not too far from now.
- Four out of the 33 foreign ownership-restricted stocks will likely be immediately affected: SKT, KT, and Korea Gas (MSCI inclusion) and SBS (flow improvement).
SSE50 Index Rebalance Preview: BIG Outperformance Over the Last Month
- Nearly 90% through the review period, we see 6 potential adds and 5 potential deletes in June. However, there can be a maximum of 5 changes at a rebalance.
- We estimate a one-way turnover of 5.07% at the June rebalance leading to a one-way trade of CNY 3.97bn. Index arb activity could add to the impact on the stocks.
- The potential adds have outperformed the potential deletes by 17% over the last month and by 21% over the last two months.
Korean Government Reviews Rules to Ease Foreign Ownership Limits
- In recent days, the Korean government announced that it is reviewing foreign ownership limit rules.
- The main reasons are to align South Korea’s financial policies in line with the global standards and improve the chances of South Korea becoming included in MSCI Developed country status.
- Key companies that could benefit from potential raise of foreign ownership limit include SK Telecom, KT Corp, and SBS.
Shorting Kakao Pay on K200 Sector Index Passive Outflow Due to GICS Change on June 8
- Kakao Pay’s GICS sector movement from IT to FINANCIALS creates flow trading opportunities due to the subsequent transfer between KOSPI 200’s sector sub-indices.
- An outflow of ₩24.6B or 410K shares will occur. This is 0.6x ADTV. Given that the recent trading volume has further decreased, the actual impact will likely exceed 1.0x DTV.
- It will be a concentrated flow in a single trading day by a single ETF, which gives us plenty of reasons for preemptively designing a short position targeting this.
Merger Arb Mondays (20 Mar) – Toshiba, AAG Energy, Tyro, Newcrest, InvoCare, Pushpay, Golden Energy
- We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Philippines, Thailand and Chinese ADRs.
- Highest spreads – 21Vianet Group (VNET US), 111 Inc (YI US), Alliance Aviation Services (AQZ AU), Genesis Minerals (GMD AU), Newcrest Mining (NCM AU), Aag Energy Holdings (2686 HK).
- Lowest spreads – Nitro Software Ltd (NTO AU),Norwest Energy NL (NWE AU), GK Goh Holdings (GKG SP), Boustead Projects (BOCJ SP), Nippon Steel Trading Corporation (9810 JP), Nissin Electric.
Australian Clinical Labs (ACL) Lowballs an All-Stock Offer for Healius (HLS)
- Australian Clinical Labs (ACL AU) has announced its intention to make an off-market takeover for Healius (HLS AU) offering 0.74 ACL shares for each Healius share.
- The offer represents a nil-premium merger and if successful will result in current Healius (HLS AU) shareholders owning 68% of the merged company.
- The offer is a big discount to longer-term VWAPs. We don’t expect shareholders will tender and Australian Clinical Labs (ACL AU) will need to sweeten the offer.
Golden Energy: Offer Bumped. Still Insulting
- The Widjaja family has responded to criticism from various quarters over its low-balled Offer for Golden Energy & Resources (GER SP) and revised terms.
- The all-cash payout for the 62.5% stake in Golden Energy Mines (GEMS IJ) is now 15.5% higher at S$0.792/share. The exit offer is 13% higher at S$0.18.1.
- No matter how you slice it, the bump is petty. GEAR’s “rump” is currently worth at least S$0.63/share.
MSCI Korea May QCIR: Potential Changes, Impact, Positioning & Short Interest
- We currently forecast 2 potential inclusions and 3 potential deletions for the MSCI Korea Index at the May QCIR. That will change over the next few weeks till cutoff date.
- Passive trackers are estimated to buy between 0.6-3.3 days of ADV on the potential inclusions while selling between 6.9-14.2 days of ADV on the potential deletions.
- Short interest on the potential deletions has moved significantly higher in the last few weeks and there will be pre-positioning on the stocks.
ChiNext/ChiNext50 Index Rebalance Preview: Overlapping Stocks & Recent Outperformance
- Three quarters of the way through the review period, we forecast 10 changes for the Chinext Price Index (SZ399006 INDEX) and 5 changes for the ChiNext 50 Index in June.
- Passive trackers will need to buy +/-0.5 days of ADV for most inclusions and exclusions from the indices. On average, the impact on the potential deletions is higher.
- The potential adds have outperformed the potential deletes over the last six months, and there has been a sharp widening of the gap over the last few weeks.
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