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Most Read: SITC International, Capitaland, Milton Corp Ltd, Oil Search Ltd, SK Telecom and more

In today’s briefing:

  • MSCI Aug 2021 Index Rebalance Preview: Changes After Day 1 in the Review Period
  • Capitaland (CAPL SP): Index Impact & Upside of the Restructuring
  • Milton’s Marvelous Arb Meanders Along… Marvelously
  • Santos/Oil Search: Getting Facts Straight
  • MSCI Std Korea QIR: SK Telecom Downweight, SK IE Tech, Ecopro BM, SK Bioscience, & Kakao Games

MSCI Aug 2021 Index Rebalance Preview: Changes After Day 1 in the Review Period

By Brian Freitas

MSCI is scheduled to announce the results of the August 2021 Quarterly Index Review (QIR) on 11 August with the changes implemented after the close of trading on 31 August.

The review period for price cut-off began on 19 July and will run through to 30 July. For Asia, most of the changes are expected in China with a few changes for Hong Kong, Taiwan, Korea and Thailand.

MSCI generally picks a day from the first week to calculate the market cap on which it bases the list of inclusions and exclusions.

Post day 1 of the review period, we see SITC International (1308 HK), Huabao International Holdings (336 HK), Momo.Com Inc (8454 TT), Chinasoft International (354 HK), China United Network A (600050 CH), Ecopro BM Co Ltd (247540 KS), CRRC Corp Ltd A (601766 CH), SK IE Technology (361610 KS), Beijing Wantai Biological-A (603392 CH), Beijing Kingsoft Office Software-A (688111 CH), Beijing Roborock Technology-A (688169 CH), Imeik Technology Development (300896 CH), StarPower Semiconductor Ltd (603290 CH), Advanced Micro-Fabrication Equipment-A (688012 CH) and China Baoan (000009 CH) being added to the Standard index.

Likely deletions are Bank of East Asia (23 HK), Taiwan Business Bank (2834 TT), KMW Co Ltd (032500 KS), Perennial Energy Holdings Ltd (2798 HK), Bangkok Bank PCL (BBL/F TB) and Douyu International Holdings (DOYU US).

The August QIR will also implement tranche 2 of Sea Ltd (SE US)‘s inclusion in the MSCI indices and will result in the index inclusion factor increasing from 0.05 to 0.25.


Capitaland (CAPL SP): Index Impact & Upside of the Restructuring

By Brian Freitas

On 22 March, Capitaland (CAPL SP) announced a restructuring where the the Group’s investment management platforms and lodging business would be consolidated into ‘CapitaLand Investment’ (CLI) and listed by way of introduction on the SGX (SGX SP), while the real estate development business would be privatised and fully held by CLA Real Estate Holdings.

Capitaland (CAPL SP) shareholders will receive 1 share of CLI, 0.155 units in Capitaland Integrated Commercial Trust (CICT SP) per share of CAPL, and cash of S$0.951/share for a total consideration of around S$4.102.

The Capitaland EGM will be held on 10 August while the last expected trading day for Capitaland (CAPL SP) is 2 September. The CLI shares are expected to start trading on 17 September.

We expect CLI will be included in the MSCI Standard, FTSE All-World and FTSE Straits Times Index (STI) (STI INDEX). We also see upside in Capitaland (CAPL SP) from current levels based on the terms of the restructuring and the potential re-rating of CLI due to its move to an asset light and capital efficient model.


Milton’s Marvelous Arb Meanders Along… Marvelously

By Travis Lundy

In mid-late June, the two largest Listed Investment Corporations in Australia – Milton Corp Ltd (MLT AU) and Washington H. Soul Pattinson and Co. Ltd (SOL AU) – announced plans to merge, with SOL (a.k.a. “WHSP”) becoming the surviving entity. 

This was discussed by David Blennerhassett in WHSP’s Proposed Merger With Milton Corp and by myself in Milton Merger Is A Most Marvelous Arb and Milton-WHSP Merger Index Implications and the Marvelous Arb

It is a complicated deal. 

Milton had been trading at a discount to NAV, where NAV was 97% or so listed stocks. WHSP had been trading at a premium to NAV. WHSP agreed to pay a premium to NAV for MLT shares, but the construct provided for some really interesting other optionality (some positive, a little negative) for MLT shareholders. 

In early July, Milton announced its NAV at A$5.50/share and assuming it is exactly A$5.5000/share, the Quiddity Milton Model was off by 0.16%. When it released its top 20 stock and weights list which showed about A$50-60mm of adjustments to positions since 31 Dec 2020 within the top 20 names, that lowered the NAV miss to about 0.07% and that is probably a matter of timing and stray dividend income or a mark on its private assets.

Interestingly, as WHSP rose 10% then came back a bit, and Milton rose with it, but the Milton NAV did not rise much, the “spread to terms” has stayed reasonably stable except for some near-market-close shenanigans at times. 

But it still feels like people don’t get it. 

There’s some really interesting convexity here. Still.

And the supply/demand tilt is remarkable.


Santos/Oil Search: Getting Facts Straight

By David Blennerhassett

When questioned by analysts at an investor briefing on the 19 July as to any takeover offers, Oil Search Ltd (OSH AU)‘s chairman Rick Lee denied it had received a change-of control approach.

That wasn’t entirely incorrect. It wasn’t even close. 

The day after that briefing, Santos Ltd (STO AU) confirmed that on 25 June 2021 it had submitted a confidential, non-binding, indicative all-scrip merger proposal to Oil Search’s board.

The proposal, to be implemented through a Scheme, would result in Oil Search shareholders receiving 0.589 new Santos shares for each Oil Search share held. Upon completion, Oil Search shareholders would own 37% of the merged group and Santos shareholders 63%.

The implied transaction price was A$4.25 per Oil Search share, based on Santos’ closing price on 24 June 2021, or a 12.3% premium to Oil Search’s closing price on the same day.

Oil Search agreed there was strategic logic combining with Santos, but that the terms of the combo were “demonstrably not” fair. 

In addition, Oil Search’s MD Kerian Wulff resigned for health reasons and that:

following the receipt of recent concerns and complaints about his (Wulff’s) behaviour …. the Board considered that Dr Wulff had behaved in a manner inconsistent with the standards expected by the Board in relation to his management style.

Lots more below the fold.


MSCI Std Korea QIR: SK Telecom Downweight, SK IE Tech, Ecopro BM, SK Bioscience, & Kakao Games

By Sanghyun Park

August quarterly index review hurdle

The MSCI QIR updates the Global Minimum Size Reference based on the existing Investable Equity Universe (Section 3.2.1.1). The existing Market Investable Equity Universe and the number of existing segment companies do not change. The market cap of the company in the corresponding ranking becomes the Market Size Segment Cutoff (Section 3.2.1.2). And for non-constituent stocks (mostly recent IPOs) to be added in the quarterly review, the same size criteria for fast entry apply.

  • A full market cap hurdle >= Interim cutoff × 1.8x
  • A free float-adjusted market cap hurdle >= Interim cutoff × 0.5 × 1.8.

Recently, MSCI has decided to apply the criteria of the semi-annual index review to all four review quarters. However, the implementation date has not yet been determined. Therefore, it is highly likely that the MSCI will apply the previous criteria to this QIR.

The market cap cutoff for this QIR is estimated at US$2.8B (₩3,220.1B). Therefore, the full market cap hurdle is estimated at ₩5,796.2B, and the float-adjusted market cap hurdle is projected at ₩2,898.1B.

August QIR hurdle
Interim cutoff₩3,220.1B (US$2.8B)
Full market cap hurdle₩5,796.2B (Interim cutoff × 1.8)
Float-adjusted market cap hurdle₩2,898.1B (Interim cutoff × 0.5 × 1.8)
Source: Clepsydra Capital

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