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Most Read: Shinsei Bank, Soho China Ltd, Washington H. Soul Pattinson and Co. Ltd, Monde Nissin Corp and more

In today’s briefing:

  • SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)!
  • SOHO China (410 HK): At Least There Is Dialogue
  • Milton – WHSP: Endgame
  • FTSE GEIS December Index Rebalance Preview: IPOs & Lock-Up Expiries
  • Flash Webinar | SBI’s Hostile Tender to Control Shinsei Bank

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…

SOHO China (410 HK): At Least There Is Dialogue

By David Blennerhassett

The speculation and conjecture continues in the takeover of Soho China Ltd (410 HK)‘s tier-1 property assets.

The last piece of positive news occurred on the 3 August 2021, when Blackstone received a notice from SAMR dated 2 August that the case concerning its notification under the PRC Anti-Monopoly Law (AML) had been formally accepted by SAMR for review. 

The announcement, however, stopped short of stating the review was simplified, and simply said the application has been formally accepted, and “notwithstanding such formal acceptance, the Offeror and the Company may still be requested to provide further information and materials for the regulators’ review“.

In 2020, simple cases took 14 days on average to process. By the middle of last month, you knew you were in for the long haul, and the 30-day Phase 1 period expired on the 1 September.

I’m not aware an official announcement occurs when the review spills into Phase 2 (ostensibly another 90 calendar days); but Blackstone/SOHO were expected to clarify proceedings in its monthly update announcement.

On the 6 September, SOHO 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.

The Composite Document is now expected to be dispatched on or before the 31 December 2021. 

Without either party expounding on the situation, the application now moves into Phase II.

China’s AML provides the following periods for review:
  • Phase I. The initial review period is for 30 calendar days. Under the simplified procedure, SAMR generally grants clearance in Phase I.
  • Phase II. If necessary, the Phase I period will be followed by an additional 90-calendar day review period
  • Phase III review period. The review period may then be extended for a further 60 calendar days if need be.

Additional information? One media source reckoned this was in regards to Blackstone providing more details  – such as GFA – on its property interests.

This is doubtful – SAMR would likely know Blackstone’s property exposure, right down to the last wastepaper basket.

More likely the “additional info” concerns the seller, although pertaining to what, it’s unclear. Cue all the rumours and the ensuing backlash from Pan Shiyi son’s comments last year (see here for more detail). 

The takeaways from all of this? At the very least, there is a modicum of dialogue between the parties and the regulator. Often the clock runs down on the review process with little to no information made public, before a deal is blocked/prohibited.

Perhaps there are alternative means to lock-up the proceeds to Pan in escrow – sort of like an elevated withholding tax applied in the Grand Baoxin Auto (1293 HK) case (see further details below) – so as to progress the deal.

The negatives, apart from the extended review process over property assets, which historically have not triggered similar treatment – SOHO sold Sky SOHO to Gaw Capital Partners in 2018 for RMB5bn, plus entered into an agreement to sell car parking spaces for RMB761mn, none of which attracted security concerns – is that the clock does indeed run down to the long-stop date (31 December 2021), and both parties agree to terminate negotiations.

But I’d be surprised to see Blackstone walk. The underlying assets on a stand-alone basis are worth considerably more, potentially >HK$8/share by some asset valuation models. 

The Trade? I still like SOHO here – a high probability of a break is already priced in. I just don’t see Beijing setting a precedent and outright blocking the deal on anti-trust grounds.

Milton – WHSP: Endgame

By Brian Freitas

With the Milton Corp Ltd (MLT AU) / Washington H. Soul Pattinson and Co. Ltd (SOL AU) Exchange Ratio all squared away and the Target Material Adverse Clause (MAC) unlikely to be triggered, the focus shifts to the Scheme Meeting on Monday where the shareholders are likely to vote in favour of the Scheme.

Next up will be the passive flow where MSCI has pre-announced an increase in Washington H. Soul Pattinson and Co. Ltd (SOL AU)‘s shares in issue and free float at the close of trading on 21 September.

We expect FTSE to make an announcement post the Scheme Meeting and implement changes at the close on 21/22 September.

S&P is the wild-card. Index inclusion could take place at the close on 17 September, 21/22 September or at the December rebalance (17 December). It is a toss-up between liquidity and representativeness – S&P looks at all M&A transactions on a case by case basis, so any of the possibilities could come about.

There will be a big impact on Washington H. Soul Pattinson and Co. Ltd (SOL AU) at the time of the MSCI implementation. That will get bigger if FTSE implements at the close on 21 September as well. The impact of a 22 September FTSE implementation will be much smaller since the new Washington H. Soul Pattinson and Co. Ltd (SOL AU) will start trading on 22 September on a deferred settlement basis.

FTSE GEIS December Index Rebalance Preview: IPOs & Lock-Up Expiries

By Brian Freitas

FTSE Russell will announce the changes to the Global Equity Index Series (GEIS) as a part of the December quarterly review on 19 November and the changes will be effective after the close of trading on 17 December.

We see 18 stocks that could be included in the FTSE All-World and FTSE All-Cap indices based on prices from the close on 9 September. The inclusions will be decided based on prices from the close on 11 November.

Stocks that could be added to the FTSE All-World index are KakaoBank (323410 KS), JD Logistics (2618 HK), Krafton Inc (259960 KS), Zomato (ZOMATO IN), SK IE Technology (361610 KS), Angelalign Technology (6699 HK), Lodha Developers (LODHA IN), Monde Nissin Corp (MONDE PM), Bukalapak (BUKA IJ) and Sona BLW Precision Forgings (SPF IN).

Stocks that could be added to the FTSE All-Cap index are SD Biosensor (137310 KS), Linklogis (9959 HK), Ngern Tid Lor (TIDLOR TB), PEXA Group (PXA AU), Powergrid Infrastructure Investment Trust (PGINVIT IN), Krishna Institute of Medical Sciences (KIMS IN), 29Metals (29M AU) and CTOS Digital Bhd (CTOS MK).

Krafton Inc (259960 KS), Zomato (ZOMATO IN) and Bukalapak (BUKA IJ) are also potential inclusions to the MSCI Standard Index at the November SAIR that will be implemented at the close on 30 November.

There are a lot of names that have lock-up expiries coming up in the lead up to index inclusion. While this will increase the supply in the market, it provides investors with opportunities to side step the selling and buy on dips in the stock price to position for index inclusion.

Flash Webinar | SBI’s Hostile Tender to Control Shinsei Bank

By Smartkarma Research

In today’s flash webinar, Travis Lundy will discuss the hostile tender offer for Shinsei Bank (8303 JP) from SBI Holdings (8473 JP). Travis will go over the background and opportunities:

  • SBI has been building positions in regional banks with an apparent goal of creating a Super-Regional to compete with the big boys.
  • After creeping up to near 10% of Shinsei by end 2020 (having proposed an alliance the year before), and then from 10% to 20% in Q1 2021, SBI tried to oust 4 Shinsei directors in June. What started with guarded talks have become no talks, and SBI has launched a bid to own up to 48% of Shinsei.
  • Shinsei has options, but not great ones.
  • And this would change everything for shareholders.

The webinar will be hosted on Friday, 10/Sep/2021, 3.00pm SGT/HKT. It will be moderated by Lee Mitchell.

Before it’s here, it’s on Smartkarma