Daily BriefsMost Read

Most Read: Shinsei Bank, Softbank Group, Soho China Ltd, Santos Ltd and more

In today’s briefing:

  • SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)!
  • That Upcoming $3-4bn SELL on Softbank Group (9984)
  • SOHO China (410 HK): The Tap On The Shoulder
  • SOHO China: Blackstone Walks Away
  • Santos/Oil Search Merger & Potential ASX100/200 Replacements

SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)!

By Travis Lundy

When in late December 2020 I wrote that Shinsei Bank (8303 JP) was my 2021 High Conviction Trade (at the time) (in 2021 High Conviction – Shinsei Bank), I talked about buybacks, and pressure on the stock, and float, and the government ownership, and value, and business recycling, and other things. 

Over the next three months, the stock was up as much as 50%, helped by both Shinsei Bank buying back stock and SBI Holdings (8473 JP) lifting its position sharply. When I wrote SBI had reported a position of 10.3% months earlier. A couple of days later they reported an uplift and by the end of March had an additional 16.067mm shares, giving them 16.5% of shares out and 19.85% of voting rights. 

As I wrote in 2021 High Conviction Update – Shinsei Bank Float Squeeze to Mitigate Near-Term in mid-March before they got that far, it was likely they needed to pause because someone who wants to own more than 20% of voting rights of a bank has to ask the Ministry of Finance first, before going over.

Shinsei reported results in mid-May, launched another 20mm share ¥20bn buyback, saw a float weight drop by MSCI at end-May, and since mid-May had bought back 5.049mm shares spending ¥7.2bn to do so as banks and other financials in Japan fell with US long rates.

Today SBI Announced A Tender Offer To Go To 48%

Today, SBI announced a Tender Offer to go to 48%. The Tender Offer starts tomorrow and goes for 30 business days. The price is ¥2000/share. 

As of today, the SBIHD Parties have not held prior discussions regarding the Tender Offer with the Target Company and have not confirmed whether the Target Company will support the Tender Offer.

This is a hostile bid.

SBI bought just under 5% in April-August 2019. In September 2019, SBI proposed that SBI buy 33.4-48% of Shinsei and bring the bank under SBI’s wing. Two years have passed since the initial proposal of an alliance, and after what appears to be a lack of progress (and some implied criticism not acted upon), and SBI’s vote against the re-election of four directors at the AGM in June, SBI apparently did not seem to think it fruitful to hold any further discussions on practical matters until they had the ability to do something. This is vaguely reminiscent of Itochu’s lifting of its stake in Descente Ltd (8114 JP) a couple years ago. 

The Financial Instruments & Exchange Act (FIEA) Article 27-2 sets out the rules for Tender Offers, for both would-be acquirers and Target Companies. Shinsei Bank now has 10 days to come up with an Official Opinion (the immediate announcement is “we’ll take a look and get back to you”).

One should expect this to continue on somewhat to highly unfriendly terms.  But there is not much Shinsei can do about it. 

Or is there…?

I’ve got popcorn. 

And lots more discussion below about how to think about this situation…

That Upcoming $3-4bn SELL on Softbank Group (9984)

By Travis Lundy

After consulting the ancient texts, studying the runes, tossing the bones, and reading the tea leaves, I surmise there is likely to be a large seller on Softbank Group (9984 JP) coming shortly. 

My take on this is the selldown is $3-4bn worth of stock. Which is decent. Especially as the company has taken it on the chin recently with investments in China turning less salutary.

Explained below.

SOHO China (410 HK): The Tap On The Shoulder

By David Blennerhassett

Perhaps my last insight should have been titled: SOHO China (410 HK): At Least There WAS Dialogue

On the 6 September, Soho China Ltd (410 HK) announced its SAMR application was still ongoing, and that the “Offeror has received further requests to provide additional information for the regulators’ review. It is uncertain when the review process will be completed.”

Four days later, and in “light of the lack of sufficient progress in satisfying the Pre-Conditions” – the Offer was conditional on approval from China’s competition authorities –  Blackstone and Pan Shiyi pulled the transaction.

With over three and half months left on the clock to the expiry of the long-stop date… what happened?

Evidently, Beijing tapped Pan Shiyi on the shoulder that this deal is not going to happen, and all parties saved face by simply pulling the transaction.

But was the decision predicated on the ensuing backlash from Pan Shiyi son’s comments last year?

Or has Pan Shiyi fallen victim to China’s common-prosperity strategy, which calls for China’s citizens to share in the opportunity to be wealthy?

From the onset, this property deal faced domestic online criticism that Pan Shiyi and his wife Zhang Xin were cashing out of the business they set up over two decades ago, and taking the proceeds offshore. Perhaps not the poster children for this shared prosperity drive.

So what now – how do the Pans move forward?

The right trade would appear to one of selling their assets piecemeal, then paying out dividends. But that scenario would see cash returned to the vendor anyway, which only serves to circumvent this failed offer. 

The big question now is where this will trade on Monday, and who – apart from those who are short – will be buying from arb investors now that the company is certifiably toxic.

More below the fold. 

SOHO China: Blackstone Walks Away

By Arun George

Soho China Ltd (410 HK) is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. On Friday after market close, SOHO China announced that Blackstone Group (BX US) has withdrawn its pre-conditional voluntary conditional cash offer of HK$5.00 per share. 

The key pre-condition was SAMR anti-trust approval. On 2 August, the SOHO China/Blackstone case was accepted for SAMR review by normal procedure rather than a simplified procedure which can take 180 days. On 6 September, SOHO China noted that Blackstone has provided further documents in response to the SAMR’s requests for additional information. Blackstone had received further requests to provide additional information by SAMR and the statement noted that it remains uncertain when the review process will be completed. 

We previously argued in SOHO China’s Spread Risk/Reward Update that SAMR approval should be forthcoming due to Blackstone’s prior experience in securing SAMR approval for real estate deals, SOHO China will continue to be listed and the deal will not lead to a material increase in market concentration. 

Four days later 10 September, Blackstone and Pan Shiyi mutually agreed to terminate the offer as they concluded that the pre-condition (SAMR antitrust approval) will be unlikely to be satisfied on or before the Long Stop date (31 December 2021). Revealingly, the parties also agreed that there will be no extension to the Long Stop date suggesting that recent interactions with SAMR had headed downhill.  

We think that Blackstone decided to walk away as it was unwilling to expend all its political goodwill to complete a single transaction. The transaction had caused disquiet in China with several Chinese press and social media posts urging SAMR to block the transaction due to the premise that the deal is unpatriotic for reasons highlighted in SOHO China’s Spread Risk/Reward Update. While we previously argued that the rationale presented in these articles for blocking the deal is poor, a SAMR antitrust approval would also not sit well with President Xi Jinping’s recent calls for wealth redistribution.

On the other hand, Pan Shiyi is stuck between a rock and a hard place. The publicity from the pulled transaction means that potential buyers will stay away in the short term. When the dust settles, Pan Shiyi can pursue selling individual assets or sell his stake to a domestic private equity bidder or real estate firm. Long-term, we see a limited rationale for SOHO China to remain publicly listed.   

With the offer terminated, the immediate focus turns to the extent of the share price drop on Monday. Our analysis suggests that the share price could fall between HK$2.45-3.25 per share range. At the last close price of HK$3.50 per share, our share price range represents a decline of -30% to -7%. 

Santos/Oil Search Merger & Potential ASX100/200 Replacements

By Brian Freitas

On 10 September, Santos Ltd (STO AU) and Oil Search Ltd (OSH AU) announced that they were merging to create a regional champion.

Oil Search Ltd (OSH AU) shareholders will receive 0.6275 shares of Santos Ltd (STO AU) for each share held in Oil Search. This will result in Oil Search Ltd (OSH AU) shareholders owning 38.5% of the merged group and Santos Ltd (STO AU) shareholders owning the remaining 61.5%.

The merged entity would be among the 20 largest Oil & Gas companies globally and one of the 20 largest listed companies on the ASX that would place the merged entity in the S&P/ASX 20 Index.

The merger is subject to the usual conditions of approval and has Material Adverse Change conditions. The Deputy Prime Minister of Papua New Guinea has already spoken about PNG’s national interest being harmed and this could be the toughest approval to obtain for the merger to proceed.

Santos Ltd (STO AU) and Oil Search Ltd (OSH AU) are members of the FTSE All-World and MSCI Standard indices. Post the merger, passive shareholders in Oil Search Ltd (OSH AU) will receive shares in Santos Ltd (STO AU) and there will be minimal impact from these shareholders.

Santos Ltd (STO AU) and Oil Search Ltd (OSH AU) are members of the S&P/ASX100 and the S&P/ASX 200 (AS51 INDEX). We see Pilbara Minerals (PLS AU) as a potential inclusion in the S&P/ASX100 while Imugene Ltd (IMU AU) or Paladin Energy (PDN AU) could be included in the S&P/ASX 200 (AS51 INDEX)

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