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Most Read: Taiyo Yuden, Shinsei Bank, Sea Ltd, Tencent, WH Group and more

In today’s briefing:

  • MSCI Nov 2021 Index Rebalance Preview: Early Look at Another BIG SAIR
  • SBI (8473) Launches a HOSTILE Tender Offer on Shinsei Bank (8303)!
  • SEA Ltd Placement -Momentum Is Very Strong but Last Deal Didn’t Do Well and It Doesn’t Need the Cash
  • China Gaming Restrictions Redux – Market Seems to Be in Denial
  • WH Group Post-Tender Outlook

MSCI Nov 2021 Index Rebalance Preview: Early Look at Another BIG SAIR

By Brian Freitas

MSCI is scheduled to announce the results of the November 2021 Semi Annual Index Review (SAIR) on 12 November (Asia time) with the changes implemented after the close of trading on 30 November.

The review period for price cut-off will run from 18-29 October.

Stocks with the largest estimated passive inflows are Mitsui Osk Lines (9104 JP), Taiyo Yuden (6976 JP), Baycurrent Consulting (6532 JP), Mineral Resources (MIN AU), Parade Technologies (4966 TT), Srf Ltd (SRF IN), Zomato (ZOMATO IN), Krafton Inc (259960 KS), Dongyue Group (189 HK) and Benefit One Inc (2412 JP).

Stocks with the largest estimated passive outflows are Venture Corp (VMS SP), Pigeon Corp (7956 JP), Nh Foods Ltd (2282 JP), Tohoku Electric Power Co (9506 JP), A2 Milk Co Ltd (ATM NZ), Thk Co Ltd (6481 JP), AGL Energy Ltd (AGL AU), NSK Ltd (6471 JP), Hisamitsu Pharmaceutical Co (4530 JP), SJM Holdings (880 HK) and Oneness Biotech (4743 TT).

Stocks that are expected to have the largest impact (in terms of ADV) from passive buying are Benefit One Inc (2412 JP), CRRC Corp Ltd H (1766 HK), Mineral Resources (MIN AU), Kintor Pharmaceutical (9939 HK), Parade Technologies (4966 TT), China Coal Energy Co H (1898 HK), AC Energy Corp (ACEN PM), Mphasis Ltd (MPHL IN), F&F (383220 KS) and Srf Ltd (SRF IN)

Stocks that are expected to have the largest impact (in terms of ADV) from passive selling are Shenzhen Investment (604 HK), A2 Milk Co Ltd (ATM NZ), Chongqing Rural Commercial Bank (3618 HK), Acom Co Ltd (8572 JP), Venture Corp (VMS SP), Zhenro Properties (6158 HK), China Resources Pharmaceutical (3320 HK), Kossan Rubber Industries (KRI MK), Hisamitsu Pharmaceutical Co (4530 JP) and Kaisa Group Holdings (1638 HK).

Recent listings that could be added to the MSCI Standard index are Krafton Inc (259960 KS), Bukalapak (BUKA IJ) and Zomato (ZOMATO IN).

These names could change over the next month and a half as prices move around.

The November SAIR will also see the third tranche of the inclusion of Sea Ltd (SE US) in the MSCI Singapore Free Index (SIMSCI INDEX), a potential switch in listing from JD.com Inc (ADR) (JD US) to JD.com Inc. (9618 HK) and from NetEase Inc (NTES US) to NetEase (9999 HK), and Pakistan will be dropped from Emerging Markets to Frontier Markets. 


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…


SEA Ltd Placement -Momentum Is Very Strong but Last Deal Didn’t Do Well and It Doesn’t Need the Cash

By Sumeet Singh

Sea Ltd (SE US) plans to raise around US$3.5bn via an equity offering, along with another US$2.5bn via a convertible offering. The company last raised US$2.5bn in Dec 2020, which we covered in SEA Ltd Placement – New Business Needs New Money.

While the stock’s momentum and earnings growth is very strong, the last deal didn’t do particularly well in the near term.

In this note, we will talk about the deal dynamics and run the deal through our ECM framework.

Links to our prior SEA coverage:


China Gaming Restrictions Redux – Market Seems to Be in Denial

By Mio Kato

We said a couple of weeks ago that the restrictions on the gaming sector imposed by China were far more severe than the market reaction indicated. However, our view was mostly a call on the long-term impact of the gaming time restrictions on minors. The latest updates suggest that even the short-term outlook could get dire fast.


WH Group Post-Tender Outlook

By Travis Lundy

The shares of WH Group (288 HK) to be returned to shareholders after the Buyback Offer have been returned to shareholders as of this morning. Some appeared to have sold yesterday, some today, and some may not “get notice” of the return until tonight, which means they would sell tomorrow or later. 

Now we look ahead. 

Based on a pure price-vs-peers basis, the price today is about 3% below where it was compared to a mix of Chinese and global peers as of the day before the announcement. 

However, that does not include the 15% accretion to EPS from the buyback. That puts the stock a fair bit cheaper than its peer basket since the announcement 3+ months ago. 

And it has ALWAYS traded cheap on governance concerns (and one reason why showed up last month in a public spat between the spurned first son and the chairman, discussed in WH Group – Stock Plummets as Ousted Son Drags Pigs Into The Mud. The question investors should ask themselves is…. if the family were ousted, would that be good for the share price? 

If the answer is yes, then the exposure here probably has some convexity given the shares trade at a multi-year low to Peers on an accretion-adjusted basis.


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