Daily BriefsMost Read

Most Read: Soho China Ltd, Singapore Press Holdings, City Developments, Jeol Ltd and more

In today’s briefing:

  • SOHO China (410 HK): The Tap On The Shoulder
  • SPH Shareholders Approve Spinoff – There’s Still a Spread To Earn
  • City Developments – Clinical Exit from Sincere Property Investment
  • JEOL (6951 JP) Is a Late Add to FTSE All-World for 17 Sep Rebalance
  • Asia Shorts: Meituan, CMB, Li Ning, Sekisui, Toyo Seikan, Toshiba, Kakao, HMM, LGE, Wan Hai, TSMC

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. 

SPH Shareholders Approve Spinoff – There’s Still a Spread To Earn

By Travis Lundy

On Friday 9 September, Singapore Press Holdings (SPH SP) shareholders voted to approve the Media Business Spinoff and the Proposed Restructuring which will allow SPH to spin off the various media assets and some supporting assets it has heretofore controlled into a new non-profit Company Limited by Guarantee.

The idea is that the “lifting” of the restrictions of the Newspaper Printing and Presses Act (“NPPA”) would then provide SPH “with greater financial flexibility to tailor its capital and shareholding structure to unlock and maximise value for all shareholders.”

As discussed first in Singapore Press Own Time Own Target Restructuring Lor… (Come I Clap For You), the upside did not seem huge. A few months later SPH decided that the rest of the business would be taken over by Keppel Corp (KEP SP) in return for a basket of cash, units of SPH REIT (SPHREIT SP) and units in Keppel REIT (KREIT SP). This was discussed in Alamak! SPH Restructuring Restructured as Keppel Bo Jios SPH Holders, and at that, the upside did not seem huge. The price jumped from a div-adjusted S$1.88/share before the Keppel news to S$1.92/unit to close some of the gap. The remaining spread is now quite small at a bit less than 10cts on a forward div-adjusted basis, or about 5%.

From the day before the Keppel announcement until now, the value of the non-cash portion of the Consideration (i.e. the 0.596 units of KREIT and the 0.782 units of SPH REIT) have fallen 2.55% in value while the value of an equal weighted Peer Basket of REITs has fallen 2.45%. That tells you that despite the first-day drop in the value of SPH REIT and Keppel REIT resulting from market participants’ expectation that hedging pressure on those two REITs would cause them to underperform the market, the underperformance has been minimal. I expect the high cost of borrow and relative illiquidity of S-REITs has limited the appeal of the arb to arbitrageurs.

Now we wait for the EGM to approve the distribution of SPH REIT units and the Scheme Meeting to dispose of the SPH business in return for KREIT units and cash. That should happen in the October/November timeframe.

In the meantime, we check progress of the arb, and what the value of the Consideration is compared to a comparable Peer Basket.

City Developments – Clinical Exit from Sincere Property Investment

By Jason Yap, CFA

On 10 September 2021, City Developments (CIT SP) announced plans to exit Sincere Property (“SP”) through a series of transactions including, amongst others, divesting its remaining stake in Sincere Property, exiting director and officer appointments, and continuing to protect its creditor rights under the mainland entity’s possible PRC bankruptcy proceedings. 

In CDL – Remedies for a Beleaguered Chinese Investment and Belligerent JV Partner, we discussed CDL’s investment in SP and potential remedies that may be considered.  In its subsequent H1 2021 earnings release, CDL disclosed that financial exposure to SP stood at SGD117 million. The latest set of moves mark a clinical and decisive exit from the SP debacle. This article discusses the key terms of transactions and the outlook ahead.

JEOL (6951 JP) Is a Late Add to FTSE All-World for 17 Sep Rebalance

By Travis Lundy

On 31 August 2021, Jeol Ltd (6951 JP) launched a 2mm share primary offering, a 2.5mm share secondary offering, and 675k share over-allotment where Nikon Corp (7731 JP) and Mitsubishi UFJ Financial (MUFG) (8306 JP) would sell shares (Nikon 2mm shares, MUFJ and MUFJ Trust 500,00 shares), taking advantage of record high stock prices and multiples on EUV-related bullishness since Q2, substantially increased liquidity in the name in the same time frame, and a general corporate societal pressure to reduce cross-holdings, and the company would issue 2.675mm shares.

Not bad. Nikon has been the largest shareholder for years and years and the stock has done a four-bagger in three years.

The stock price move since the offering was announced has been strong.

The offering is but 2.675mm shares, which was 36 days of ADV in the year before The Report which came out in April, but is only about 9 days of ADV now, and in the 7 trading days since the announcement, the stock is UP and has traded 10,000,000 shares plus. 

The offering should get taken pretty easily. 

The FTSE News

Last night, FTSE decided, in a late move, that the offering – of just over 5% of shares out – combined with the move in stock price made the stock eligible for inclusion in the FTSE All World, Developed, and Global MidCap Indices. 

That means an additional index event and buying on the 17th of September. 

But there’s more…

Asia Shorts: Meituan, CMB, Li Ning, Sekisui, Toyo Seikan, Toshiba, Kakao, HMM, LGE, Wan Hai, TSMC

By Brian Freitas

The Asia Short Interest weekly looks at moves in market wide short interest and highlights movements in stock specific short interest across Hong Kong, Japan, Korea and Taiwan using the last available data published by the relevant authorities.

Hong Kong saw shorts rise on Meituan (3690 HK), Li Ning (2331 HK), China Merchants Bank H (3968 HK), Dongyue Group (189 HK) and Kuaishou Technology (1024 HK) while there was short covering on Alibaba Group (9988 HK), Ping An Insurance (H) (2318 HK), Sunny Optical (2382 HK), Xiaomi Corp (1810 HK) and JD Health (6618 HK). Shorts increased in the Communication Services and Materials sectors while decreasing in the Financials, Information Technology and Health Care sectors.

In Japan, stocks increased on Pan Pacific International Holdings (7532 JP), Sekisui House (1928 JP), Toshiba Corp (6502 JP), Toyo Seikan Group Holdings L (5901 JP) and Canon Inc (7751 JP) while there was short covering on Money Forward (3994 JP), ENEOS Holdings (5020 JP), SBI Holdings (8473 JP), Yamaha Corp (7951 JP) and Lasalle Logiport REIT (3466 JP). Shorts increased in most sectors led by the Consumer Discretionary, Industrials, Real Estate, Information Technology and Materials stocks.

Before it’s here, it’s on Smartkarma