In today’s briefing:
- Hang Seng Indexes: FAF Methodology Change for Secondary Listings; Over US$1bn to Buy in NetEase
- Shinko Electric (6967) – Chicken and Logistics
- [Japan Activism] – KKR and JIC Buy Out Topcon (7732 JP) At ¥3,300/Share
- Nikkei 225 Mar25 Rebal – A Big Buy With Buying Shadow, A Bigger Sell, And $2bn of Funding Flows
- Topcon (7732 JP): KKR/JICC-Sponsored Preconditional MBO, with Caveats
- ETF Flows in Q1: Inflows for Taiwan, Outflows for China
- Last Week in Event SPACE: Seven & I, ENN Energy, Sun Corp, Great Eastern Holdings
- Weekly Deals Digest (30 Mar) – Seven & I, Topcon, ENN Energy, Jinke Smart, Sinarmas Land, Gold Road
- Korea Short Selling: Off to the Races
- Jinke Smart Services (9666 HK): Boyu to Launch a Privatisation Offer?
Hang Seng Indexes: FAF Methodology Change for Secondary Listings; Over US$1bn to Buy in NetEase
- Hang Seng Indexes has announced a change in the FreeFloat-Adjusted Factor (FAF) methodology for Secondary Listings that will be implemented from the next rebalance in June.
- NetEase (9999 HK), Baidu (9888 HK), Trip.com (9961 HK), NIO (9866 HK), New Oriental Education & Techn (9901 HK) and Weibo (9898 HK) benefit; GDS Holdings (9698 HK) loses out.
- The FAF changes along with capping changes will result in a round-trip trade of HK$34.2bn (US$4.4bn) at the June rebalance with the largest turnover for the Hang Seng TECH Index.
Shinko Electric (6967) – Chicken and Logistics
- The Tender Offer closed end of last week. The bidder JICC-04 got 59.281mm shares. Most of what was left over – perhaps even more than 100%, was passive-owned.
- More than 100%? How does that work? It works because of how the logistics goes.
- And right now, the reason why the stock is trading well through terms is a matter of Chicken and Logistics.
[Japan Activism] – KKR and JIC Buy Out Topcon (7732 JP) At ¥3,300/Share
- The difference between an LBO (Leveraged Buy Out) and an MBO (Management Buy Out) is that an MBO is usually just an LBO where the buyers don’t replace the CEO.
- After 4+mos of speculation/noise since a Bloomberg article said Topcon was weighing takeover bids, we have a deal. KKR and JIC will buy out Topcon in an “MBO” at ¥3,300/share.
- Unusually, the lower limit is 50.1%. This is an OK exit for the “Bad Cops” but not a great one. It should be higher. Start delayed for 4 months.
Nikkei 225 Mar25 Rebal – A Big Buy With Buying Shadow, A Bigger Sell, And $2bn of Funding Flows
- The Nikkei 225 March 2025 rebalance is today. The ADD is big, with more to buy later. The SELL is a really big sell in terms of float.
- The Sell, Mitsubishi Logistics (9301 JP), means Max Real World Float doubles. It’s like a huge offering, with warning.
- There’s a big cap trade on Fast Retailing (9983 JP) where timing is not on its side, leaving US$2bn to buy in funding. 25 names at 0.4x ADV to buy.
Topcon (7732 JP): KKR/JICC-Sponsored Preconditional MBO, with Caveats
- Topcon Corp (7732 JP) recommended a KKR/JICC-sponsored preconditional MBO at JPY3,300, representing an 87.9% premium to the undisturbed price and a 5.4% premium to the last close.
- The offer is preconditional on regulatory approvals and is scheduled to start at the end of July. The offer is attractive and represents an all-time high.
- The offer comes with caveats: the Board recommendation is not unanimous, the lower limit is set below the two-thirds threshold, and KKR offered a higher price during the discussions.
ETF Flows in Q1: Inflows for Taiwan, Outflows for China
- The largest ETF inflows in the region have been in Taiwan as investors rush into indices that have higher dividend yields.
- China had large inflows last year as markets floundered. With markets trading in a range over the last 6 months, those flows have reversed in Q1 this year.
- Australia has seen net inflows this year, while there have been net outflows from Hong Kong, India and Japan focused ETFs.
Last Week in Event SPACE: Seven & I, ENN Energy, Sun Corp, Great Eastern Holdings
- If you don’t think Seven & I (3382 JP)‘s Standalone Plan has legs to go north of here, or ACT gets its act together, then you should sell into strength.
- ENN Energy (2688 HK)‘s cash and scrip (into a unlisted H-share-equivalent entity) Offer was not what the doctor ordered.
- Sun Corp (6736 JP) is cheap to its holding in Cellebrite DI (CLBT US). How cheap depends on the form and structure of its eventual exit.
Weekly Deals Digest (30 Mar) – Seven & I, Topcon, ENN Energy, Jinke Smart, Sinarmas Land, Gold Road
- A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Japan, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
- ECM developments: DN Solutions (298440 KS) seeks to raise US$1.1 billion in a KRX IPO.
- Event-Driven developments: Seven & I Holdings (3382 JP), Topcon Corp (7732 JP), ENN Energy (2688 HK), Jinke Smart Services (9666 HK), Sinarmas Land (SML SP), Gold Road Resources (GOR AU).
Korea Short Selling: Off to the Races
- Short selling in Korea resumes in a couple of hours. Expect heightened volatility for a few days before things settle down.
- Foreign investors have increased their holdings over the last five weeks and there could be further buying in select stocks on stock price drops.
- The KOSPI 200 INDEX has outperformed the KOSDAQ 150 Index, and the forecast index deletes have underperformed the indices indicating that there will be positioning for the short-sell resumption.
Jinke Smart Services (9666 HK): Boyu to Launch a Privatisation Offer?
- Jinke Smart Services (9666 HK) is in a trading halt “pending the release of an announcement pursuant to the Hong Kong Code on Takeovers and Mergers which constitutes inside information.”
- It is likely that Boyu, the largest shareholder, is seeking to privatise Jinke. The privatisation of PRC-incorporated entities is usually done through a merger by absorption.
- I use several methods to triangulate the likely offer price, which suggests a price range of HK$10.00-16.86, with an average of HK$12.47, a 45% premium to the last close.
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