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Most Read: WH Group, Hitachi Transport System, Kerry Logistics Network, Bharti Airtel, SK Materials and more

In today’s briefing:

  • WH Group Post-Tender Outlook – Index Selldown and Back-End Trading/Valuations
  • Hitachi Transport Uncoupled – TSE Prime, Price Popping, And Supply To Come
  • Kerry Logistics (636 HK): Technicalities As Partial Draws To An End
  • Bharti Airtel’s Large Partly Paid Rights Offering
  • SKC Is Down 5% Today: Why & What Impact on SK Holdings/SK Materials Arb Spread-Hunting

WH Group Post-Tender Outlook – Index Selldown and Back-End Trading/Valuations

By Travis Lundy

WH Group (288 HK) will see its Tender Offer completed on Monday 30 August. I expect the result will be out as per the 30 July Circular – at 7pm HKT. 

Then we wait. 

And things get a little weird and possibly a little bumpy this week. 

And into the week after…

But we wait anyway. 

More below the fold. 

Insights on This WH Group Event To Date

02-Jun-21David BWH Group (288 HK): Today’s Pig Is Tomorrow’s Bacon? 
06-Jun-21myselfWH Group Buyback Offer Announced – Strong Accretion Creates Accretion Risk 
20-Jun-21myselfWH Group Vs Peers – Too Many Piggies Going to Market? 
05-Jul-21myselfWH Group – Trading Opportunities Abound 
10-Jul-21myselfWH Group – Long-Only Fundamental Investors Can Take Advantage Too 
30-Jul-21myselfWH Group Offer Doc Out – This Little Piggy Went To Market 
17-Aug-21myselfWH Group Partial Buyback Offer Now Unconditional 
18-Aug-21myselfWH Group – Stock Plummets as Ousted Son Drags Pigs Into The Mud 

Hitachi Transport Uncoupled – TSE Prime, Price Popping, And Supply To Come

By Travis Lundy

This insight covers a bit of history, a bit of teaching about how TOPIX works, a bit about the foreseeable events, and a bit of the fundamentals of the company. If you think you know all that, please don’t hesitate to jump immediately to the bottom section where there is a Thin Red Line across the screen and a section titled Short & Sweet Version. That is also the conclusions. 

The Background

At the end of March 2016, Hitachi Ltd (6501 JP),  Hitachi Transport System (9086 JP), and as-yet unlisted SG Holdings (9143 JP)  announced Hitachi Transport was going to spend ¥66.3bn to buy a 20% stake in the unlisted delivery subsidiary (Sagawa Express) of then still-unlisted SG Holdings (9143 JP), forming a capital and business tie-up looking to merge “within three years” (i.e. merger by 1 April 2019). Hitachi Ltd (6501 JP) was going to sell a 29% stake (out of the 59% they owned) in Hitachi Transport for ¥87.5 billion to SG. They were both going to expand strongly outside of Asia.  HTS was known at the time for its 3PL and “Smart Logistics” capabilities to make customer supply chains more efficient, etc, whereas Sagawa was known as a top last-mile delivery business. The combined entity was set to overtake Yamato Holdings (9064 JP) in terms of revenue and get closer to industry top dog Nippon Express (9062 JP). It was supposed to help SG improve margins by doing more in B2B. 

SG IPOed in late 2017. Three years came and went. Nothing happened. There were a few collaborative projects but it was slow-going, and there were signs of friction. In May 2019 a Medium Term Management Plan (with no mention of SG or Sagawa) was announced, and the Nikkei carried an interview with HTS President Nakatani who said, when asked about the integration..

“I am aware that we are moving toward integration. I would like to harmonize future directions.” [Nikkei: He showed a positive attitude…] “We have decided to discuss and consider the possibility of business integration, but we have not made any decisions, including any start to discussions.”

On September 25 last year, the Diamond Online let fly a scoop saying the capital and business tie-up between the two was going to be scrapped. HTS shares fell 10+%. 

Hitachi Transport’s first release to the exchange said the article wasn’t based on information they announced and that it was not going to be a dissolution of the capital tie-up, just a re-arranging of the deckchairs and a board meeting was going on and there would be an announcement within the day. HTS shares – at that point down 7% on the day – bounced sharply (they closed down 4%).

The announcement after the close talked about a “partial modification” of the business and capital tie-up, but it involved HTS selling its 20% stake in Sagawa Express, and buying back 27.675mm of the 32.35mm shares of HTS SG held. It was almost a full unwind. SG managed to sell fewer than 27.675mm shares in the ToSTNeT-3 transaction as others also jumped in to sell. 

My conclusion was to NOT sell that despite the opportunity to be able to do so in size. My conclusion was bullish HTS and basically bearish SG. 

That didn’t work so well in the first ten weeks, with the share price ratio falling 20% from 1.252 to 1.00 by 1 December 2020. 

When the TSE announced its new listing criteria for TSE Prime, there was going to be trouble. There had to be 35% of shares “tradable” and by that time, the register looked as follows:

It did not clear the 35%v threshold (it would have been fine but for the large number of public sellers in the 28 September ToSTNeT-3 transaction.) 

By early February 2020, the HTS/SG ratio had reached the ratio of that fateful day announcing the split and by mid-June, the ratio was 26% higher in 9 months. So I am now happier with that call from the past.

On 20 April 2021, SG Holdings announced they had sold 4.6mm shares (at JPY 3,119.5). And on 20 May (the yellow dot on the blue line in the chart above), HTS announced it would cancel 6,975,786 shares (6.2% of shs out) in order to put tradable shares back above 35%. In fact, the sale by SG had done that, and the market did not react. But it was a start, and it kept Hitachi Transport in the TSE Prime section and therefore the TOPIX Index when it launches in April 2022 because tradable shares were back above 35%. 

But there were still a lot of Treasury Shares, which as per the 6 May Results Presentation, included the use of stock (and cash) for alliance and M&A. 

With the shares rallying, on 19 August, the company announced that on 3 September, they would cancel 20,699,214 shares out (19.8% of total shares out), leaving treasury shares of 228,308. That would put Hitachi to just under 40% (where there is no question of consolidation if Hitachi Transport doesn’t want), it puts SG Holdings to 9.8% (i.e. still below 10%), and puts the public at greater than 50%. 

The shares reacted well to that too. 

But all this creates a curious problem. 

The float is now 50%, vs 41% pre-selldown, and 33.6% post-dealbreak, and the stock will stay in Prime.

But there is selling to come. 

More below the fold. 

Kerry Logistics (636 HK): Technicalities As Partial Draws To An End

By David Blennerhassett

Back on the 9 February, Kerry Logistics Network (636 HK) (KLN) announced a pre-conditional Partial Offer from  S.F. Holding (002352 CH) (“SFH”).  SFH intended to acquire 931.21mn shares or 51.8% of shares outstanding, of KLN. The Offer price of  HK$18.80/share was a 19.83% discount to last close. KLN’s shares also gained 25% prior to the suspension.

Below is a timeline of events that subsequently unfolded:


Data in the Date

30-Mar-21The controlling shareholders of Kerry Logistics Network (636 HK) (KLN), including Kerry Properties (683 HK), plus shares held by executive directors, comprise 63.1% of shares out. These shareholders have given an irrevocable to tender 575.545mn shares or 32% of shares out. Those irrevocables have now been fulfilled – this forms part of the pre-conditions.
9-Apr-21KLN announced that the antitrust approval has been received from the State Administration for Market Regulation with respect to the Partial Offer.
26-May-21At an SGM, KLN shareholders overwhelmingly approved the sale of its Hong Kong, Taiwan warehouse business to Kerry Holdings.
7-Jun-21The free float waiver has been received from the HKEx.

Approval by the shareholders of Kerry Properties (683 HK) obtained

29-Jun-21CFIUS approval received
20-Jul-21KLN announced approval by the Independent Shareholders in respect of the Special Deal Agreements and the Framework Services Agreement had been obtained.
2-Aug-21KLN announced NDRC and MoC approval has been received as to the partial offer.
9-Aug-21Exactly on the Long Stop date, KLN announced all of the pre-cons have been met – or waived (the Thai waiver in particular)  – and that the Composite Document is expected to be dispatched, on or before, the 16 August. 
12-Aug-21Composite Doc dispatched
17-Aug-21The Record Date for the Special Dividend is expected to be the 1 September. The Special Dividend is expected to be paid on or about Friday, 17 September 2021
18-Aug-21Irrevocables received. Thai MGO waiver received,. 
Source: HKEx announcements

All appears to be going to plan.  The first close is the 2 September. 

Then KLN announced on the 24 August a delay in the record date for the Special Dividend. KLN estimates:

that the Record Date for the Special Dividend will be on or around Wednesday, 15 September 2021, instead of Wednesday, 1 September 2021 as disclosed in the Special Dividend Announcement. The Special Dividend is expected to be paid on or about Tuesday, 5 October 2021, instead of Friday, 17 September 2021.

With the Partial expected to close on the 2 September, questions have been asked whether those shareholders who have already tendered – or those investors who tender before the 2 September – whether they are still eligible for the special dividend?

More below the fold. 

Plus updated Ye Olde Arb Grids

Bharti Airtel’s Large Partly Paid Rights Offering

By Brian Freitas

On 25 August, the Board of Bharti Airtel (BHARTI IN) announced that they would be meeting on 29 August to consider various capital raising options through equity or equity linked or debt instruments or a combination thereof. The stock dropped 4.2% on 26 August and then gained 1.4% on 27 August.

Last evening, Bharti Airtel (BHARTI IN) announced a 1:14 rights issue (shareholders can subscribe to 1 share for every 14 shares they own) at INR 535/share to raise up to INR 21,000 crores (INR 210 bn; US$2.86bn). That is a 10.1% discount to the last close on the NSE.

Subscribers to the issue will need to pay 25% on application and the balance will need to be paid in two additional calls within an overall time horizon of 36 months.

The promoter and promoter group will subscribe to the full extent of their entitlement and will also subscribe to any unsubscribed shares in the issue.

The record date has not been announced yet and a ‘Special Committee of Directors’ has been formed to decide other terms and conditions of the offer, including the issue period and record date.

Given the small dilution, we do not expect the stock to trade a lot lower today. The stock could trade higher as investors that sold in size on Thursday and Friday re-enter the stock.

Bharti Airtel (BHARTI IN) has continued to gain subscribers at the expense of Vodafone Idea (IDEA IN) and the rights issue could help cement its position while helping pay the Adjusted Gross Revenue (AGR) dues.

SKC Is Down 5% Today: Why & What Impact on SK Holdings/SK Materials Arb Spread-Hunting

By Sanghyun Park

A fairly interesting path to the growth strategy of SK Group, with SK Holdings at the center, spread in the local market this morning. The core of this strategic path is to maximize valuation by separating the business divisions owned by SK Holdings’ direct subsidiaries and listing them separately.

This is a part of the so-called SK Financial Story strategy that SK Holdings recently unveiled extensively. Through this, SK Holdings plans to increase its valuation nearly tenfold by 2025.

(Courtesy SK Holdings)

The full version of this SK Financial Story presentation is attached below in this insight.

This strategic path was made clear by the merger of SK Holdings and SK Materials. Therefore, the SK Holdings/SK Materials merger is just the beginning, and that a similar merger will continue is spreading in the local market today.

So who will be the next target?

The answer to this? Well, we can find the answer from today’s stock prices. Among SK affiliates, SKC Co Ltd (011790 KS) is showing the largest share price movement. As of now (11:30 am local time), SKC is down more than 5%. This is because concerns are rapidly growing in the market that SKC will become the next affiliate to merge with SK Holdings.

  • SKC will pursue a physical division in the same way as SK Materials, and a newly created operating company will be listed separately, aiming for a significant valuation re-rating.
  • After SKC, SK Siltron, an unlisted company, will be the next target. This is a scenario where SK Siltron merges with SK Materials’ newly created operating company and goes public. Similarly, this newly combined company will again aim for a substantial valuation re-rating. 

Before it’s here, it’s on Smartkarma