Daily BriefsMost Read

Most Read: NTT Docomo Inc, Big Hit Entertainment, SBI Cards , OptiComm Ltd and more

In today’s briefing:

  • NTT Docomo: The Three Arbs and the Great Re-Allocation Trade
  • The KOSPI200 Could Have a ‘Big Hit’ in December
  • Smartkarma Webinar | China Environment Sector Deep Dive: Solid Waste Treatment
  • MSCI Nov20 Index Rebalance Preview – India
  • OptiComm: Uniti Sees Aware And Raises

NTT Docomo: The Three Arbs and the Great Re-Allocation Trade

By Travis Lundy

Mega buyouts for cash are rare. Mega buyouts for cash in Japan are even rarer. 

On 29 september, some 16 hours after the Nikkei published articles suggesting NTT (Nippon Telegraph & Telephone) (9432 JP) would buy out minorities in NTT Docomo Inc (9437 JP), the deal was announced. 

It is, as deals, go, a very big deal. 

It is, as deals go, generous in price, with a very low threshold for success, and an extraordinarily good quality buyer. It doesn’t get much easier than this. 

Since the announcement, the stock has traded $6.5bn in volume, with the last six days basically trading ¥3875-3877 with the last four days seeing most volume on the bid side at ¥3876.

This sounds like small potatoes but if one pays 5bp commission, buying today at ¥3876 nets you 5.16% annualised. Lever that up a bit and you get a decent return, and in you can get some size on.

This is about the easiest pure balance sheet arb trade one is going to find if you are an arbitrageur, but there are much more interesting trades afoot. 

I expect that out of the US$40bn of stock in the float, some $12-15bn is going to change hands then tender those shares, another $5-10bn will tender their shares, and then another $15+bn of shares will not tender and will instead be squeezed out. This number is surprisingly large and it means some very interesting flows will occur. 

Much more below the fold. 

Previous insights in the series are:

The KOSPI200 Could Have a ‘Big Hit’ in December

By Brian Freitas

Big Hit Entertainment (1255064D KS) listed on the KRX yesterday and closed the day at KRW 258,00/share versus an IPO price of KRW 135,000/share for a day 1 gain of 91%. After hitting a high of KRW 351,000/share in early trade, the stock sold off through the day to close near its lows.

Currently ranked 33 among the eligible KOSPI universe, Big Hit could be included in the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) at the December rebalance depending on the price movements over the next 2 weeks.

If Big Hit’s inclusion is the announced ahead of the regular index review announcement, then Unid Co Ltd (014830 KS) should be deleted. If the inclusion is announced as part of the regular index review, then Unid is a medium probability exclusion as part of the overall change. All changes will happen at the close of trading on 10 December.

Following the selloff in Kakao Games (293490 KS) earlier this week on lock up expiries, investors should be aware of the shares unlocking in 15 days and 1 month that could cause a slump in the stock.

With a very low free float, Big Hit will not be eligible for Fast Entry in the MSCI and FTSE indices and could only be included in those indices in the first half of 2021.

Smartkarma Webinar | China Environment Sector Deep Dive: Solid Waste Treatment

By Smartkarma Research

Our next Webinar features Insight Provider Osbert Tang, CFA, who will discuss the outlook of China’s solid waste treatment industry, as outlined in his Smartkarma Original Insight, China Environment Sector Deep Dive: Solid Waste Treatment, focusing on the impact of China’s revised Solid Waste Pollution Environmental Prevention and Treatment Law on the country’s major listed waste treatment companies.

The webinar will be hosted on Wednesday, 21/October/2020, 5.00pm SGT/HKT.

Osbert Tang is an equity analyst with over 20 years of experience, focusing on China transport, infrastructure, industrials, and utilities. He has been based in Shanghai since 2003, accumulated more than 15 years of on-ground knowledge on the Chinese economy and financial markets, and has a wealth of contacts with China corporates and government entities.

MSCI Nov20 Index Rebalance Preview – India

By Brian Freitas

MSCI is scheduled to announce the results of the November 2020 Semi Annual Index Review (SAIR) on 10 November. For India, the changes will be effective after the close of trading on 27 November due to a holiday on 30 November.

The November review could use price data from any of the last 10 business days of October to determine the list of inclusions to and exclusions from the index.

At the current time, we expect Apollo Hospitals Enterprise (APHS IN), SBI Cards (SBICARD IN) and Larsen & Toubro Infotech (LTI IN) to be included in the Standard Index, while we see Rural Electrification (RECL IN) and Bosch Ltd (BOS IN) as potential deletions.

We estimate over 5 days of ADV to trade on four of the five names, and some of the stocks have already started to move in anticipation of the passive flows that are expected. The inclusions in particular have outperformed their peers significantly over the last couple of weeks.

OptiComm: Uniti Sees Aware And Raises

By David Blennerhassett

Back on the 15 June, Adelaide-based outfit Uniti Group Ltd (UWL AU) proposed a cash/scrip Offer by way of a Scheme for fiber network operator OptiComm Ltd (OPC AU).  The consideration price under the Scheme was A$5.20/share, including a fully-franked $0.10/share dividend. OPC shareholders were afforded various forms of Scheme consideration options. 

On the 8 September OPC announced it had received a non-binding and conditional competing proposal, by way of a Scheme, from Aware Super (formerly First State Super), with a cash consideration of A$5.85/share. A week later, Uniti announced a simplified matching offer of $5.85/share, comprising $4.835/share in cash (including a fully-franked $0.10/share dividend), and 0.80537 Uniti shares per OPC share.

On the 12 October, Aware Super made an off-market takeover offer at $6.50/share, including a fully-franked $0.10/share dividend. The Offer was subject to a minimum acceptance condition of 50.1%  – flipping from a Scheme previously – and no MACs. Uniti subsequently sent a letter to OPC stating OPC was in breach of the SID entered into on the 15 September, in commencing the marching rights process. OPC refuted those allegations.

The New News

Uniti’s has now tabled a $6.67/share Offer, comprising $5.20/cash (including a fully-franked $0.10/share dividend) and 1.07 new Uniti shares. OPC considers Uniti’s revised Offer a superior proposal to Aware’s. No mention whatsoever on the alleged SID breach.

Currently trading marginally through terms.

As always, more below the fold.

For a history of the Offers for OPC, please refer to past insights below:

Before it’s here, it’s on Smartkarma