Event-Driven Archives | Page 118 of 187 | Smartkarma

In June-July I warned of a reinvestment trade into S-REITs due to the S$2.0-3.0bn cash-out by investors in Mapletree North Asia Commercial Trust and sellers into the SPHREIT Chain Offer.
Many investors who would need to re-allocate. The trade was to buy major S-REITs. From my last insight, a basket is up 5.3%. MCT has already topped out vs peers.
The question is…. is there still a trade left to run?

Appier Group (4180 JP): Now TOPIX-Ready!

By Janaghan Jeyakumar, CFA

In February 2022, I discussed why Appier Group (4180 JP) could be an interesting TOPIX Inclusion Candidate in TOPIX Inclusion Pre-Event: Appier Group (4180 JP)
Earlier this month, I reiterated my view in TOPIX Inclusions: Who Is Ready (Aug 2022) identifying Appier Group as the best pick among all current TOPIX Inclusion candidates.
Since my last insight, the share price has risen sharply and that has important implications for the company’s Prime market ambitions.

KOSDAQ150 Ad Hoc Index Rebalance: Hancom (030520) To Replace Vidente (121800)

Vidente (121800 KS) has not submitted its semiannual reports and has been labeled as an ‘Administrative Issue’. This means deletion from the KOSDAQ 150 Index (KOSDQ150 INDEX) on 19 August.
Hancom Inc (030520 KS) was the highest ranked stock to not be included in the index at the June rebalance. It will now be included in the index.
Passive funds will need to buy KRW 8.8bn of Hancom Inc (030520 KS) while selling KRW 11.2bn of Vidente (121800 KS).

MSCI Korea Flow Trading for August 31st

MSCI Korea’s August QIR features one deletion: SK Telecom. But Woori Financial, HYBE, and LG Energy will also present a notable impact as they face float rate changes.
We should consider executing flow trading on these names, even SKT, towards the effective date as much as possible, as the flow magnitude wouldn’t be enough to act proactively.
It’s been witnessed that SK Telecom’s recall and liquidation of short positions have been made preemptively this time, minimizing the risk of price distortion on the effective date.

Net Marketing Japan (6175) “MBO” Tender Offer – Done Deal

Bain Capital Private Equity launched a deal for Net Marketing (6175 JP) at a 63% premium.
That should be enough to get it done on its own, despite coming below the IPO price of 5yrs ago.
In any case, Shareholder Structure makes this a completely done deal.

SSE50 Index Rebalance Preview: Sector Rotation To Continue

Over 80% of the way through the review period for the December rebalance, we see 7 stocks in inclusion/exclusion zone. However, there can be a maximum of 5 changes.
We estimate a one-way turnover of 3.9% at the December rebalance leading to a one-way trade of CNY 2.85bn.
The potential adds have outperformed the potential deletes and the SSE50 Index (SSE50 INDEX) by a wide margin over the last few months.

Genex Gets an Improved A$0.25 Offer, Headcount Test a Risk, Board Hoping for an Auction

Genex Power Ltd (GNX AU) received an improved non-binding offer from Skip Capital/Stonepeak at A$0.25 per share, an 8.7% bump from the previously rejected A$0.23 offer.
The headcount test is emerging as a key risk as retail shareholders are voicing their displeasure. The offer is underwhelming based on precedent transactions and average sell-side price targets.
The Board hopes that granting non-exclusive due diligence and stating an intention to recommend a binding A$0.25 offer will force rival bidders to kickstart an auction.

LX Semicon KOSDAQ→KOSPI Migration Event: Index Rebalance Trading

LX Semicon announced that its board approved KOSPI migration on August 17. This migration requires shareholder approval, and a shareholder meeting will be scheduled for September 23.
The outflow of KOSDAQ 150 is estimated to be -1.37x ADTV. A passive impact of this magnitude should cause a price movement of at least 3%p.
But LX Semicon’s GICS sector won’t change after the KOSPI migration. We should refrain from trading with expectations for the possibility of KOSPI 200 inclusion at this point.

A Full Walkthrough of What Happens to Vidente & Hancom: KOSDAQ 150 Special Change

Vidente is a KOSDAQ 150 constituent. If designated as an administrative issue, it will be removed on the third trading day after the effective date of designation.
Hancom gets to replace Vidente, and rebalancing trading occurs at the close of August 19th. Hancom’s passive inflow should be 4.70x ADTV.
It seems that proactive long positions have already been built up significantly from today. So, we should consider getting out of the position earlier than usual towards Friday’s close.

Judo Capital IPO Lock-Up – Gearing up for a A$650m Lock-Up Release

By Sumeet Singh

Judo Capital raised about US$483m by selling a mix of primary and secondary shares in Nov 21. Its IPO linked lockup is set to expire later this month.
Judo Capital (JC) focuses on lending to small and medium-sized enterprises (SMEs) in Australia. It also offers a range of personal term deposit products to consumers.
In this note, we will talk about the lock-up dynamics and updates since our last note.

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Aug 16

Daily Brief Event-Driven: Jardine Matheson (JM SP): MSCI Blues and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Jardine Matheson (JM SP): MSCI Blues
HLB Capital Increase: Offering Terms & Trading Dynamics
2022 JPX Nikkei 400 Rebal Update – Going the Right Way
S&P/ASX Index Rebalance Preview: Adds Outperform Deletes As Review Period End Nears
Nearmap’s A$2.10 Per Share Indicative Offer from Thoma Bravo
Giordano’s Conditional Offer Open, Price Declared Final, Unlikely to Meet 50%+ Voting Threshold
Nikkiso (6376 JP) BIG Asset Sale Leads to Biggish Buyback
POSCO International + POSCO Energy = A Value Enhancing M&A Deal
ANZ Renounceable Entitlement Offer – Could Be a Relatively Large (A$550-750m) Retail Shortfall
Nearmap: Thoma Bravo’s Bird’s Eye View

Jardine Matheson (JM SP): MSCI Blues

Jardine Matheson Holdings (JM SP) (JMH) has shed ~8% since MSCI said it was cutting the conglomerate’s weighing in two indices.
The reweighting follows the cancellation of the 59% shareholding in JMH held by Jardine Strategic Holdings (JS SP), which was privatised last year.
I see the discount to NAV at ~40%, right at the 12-month -2 STD level. JMH bought back ~149mn shares in the 1Q22, paying ~US$59/share, 17% above the current price.

HLB Capital Increase: Offering Terms & Trading Dynamics

This offering is a 100% stockholder allocation with forfeited shares going to the public. There will be 9.56M new shares at a capital increase of nearly 9%.
We should note that the largest shareholder may again do the same trick. He may block-deal a 1% stake and use the proceeds to participate in this offering.
A massive release volume and a 25% discount rate may cause a severe pricing distortion, leading to arb trading openings.

2022 JPX Nikkei 400 Rebal Update – Going the Right Way

As designed, the JPX-Nikkei400 Index is something of a disaster. It aims to be slightly ‘smart’ vs other cap-weighted indices like TOPIX, but tracking error vs TOPIX is de minimus.
This year, in week 1, the ADD vs DELETE performance is positive. If we sector-hedge the ADDs vs DELETEs, it’s doing even better.
This is probably due to relatively low pre-positioning, and cares. Momentum suggests one could be long ADDs vs DELETEs. And there is the perennial trade to watch out for.

S&P/ASX Index Rebalance Preview: Adds Outperform Deletes As Review Period End Nears

There are 4 trading days to go in the review period for the September rebalance of the S&P/ASX indices. Announcement is on 2 September with implementation on 16 September.
There could be 6 changes to the S&P/ASX 200 (AS51 INDEX), increasing to 8 if AVZ Minerals (AVZ AU) continues to be halted and if Link Administration (LNK) is privatised.
The potential adds have outperformed the potential deletes over the last month. Short interest has increased on a few potential deletes. There will be pre-positions built up.

Nearmap’s A$2.10 Per Share Indicative Offer from Thoma Bravo

Nearmap Ltd (NEA AU) disclosed a non-binding indicative offer of A$2.10 per share from Thoma Bravo. The offer price represents a 39.1% premium to the last trading day price.
Thoma Bravo has secured a 7-day exclusivity to firm up an offer. Thoma Bravo is a credible bidder and agreed to acquire Ping Identity Holding Corp (PING US) last week.
Nearmap also revealed other non-binding expressions of interest. The exclusivity could flush out other bids. We think that offer is reasonable. At the last close, the gross spread is 11.4%.

Giordano’s Conditional Offer Open, Price Declared Final, Unlikely to Meet 50%+ Voting Threshold

Giordano International (709 HK)’s voluntary conditional from the Cheng Yu Tung family (24.57% of outstanding shares) at HK$1.88 per share is open with a first closing date of 5 September.
Crucially, the offeror will not increase the offer price. In combination with an ongoing retail recovery, the low-ball offer has little chance of meeting the 50%+ minimum acceptance threshold.
While the IFA says the offer is fair and reasonable, key directors will not accept the offer. A deal break implies, at most, another 10% downside to the last close.

Nikkiso (6376 JP) BIG Asset Sale Leads to Biggish Buyback

Nikkiso Co Ltd (6376 JP) announced an unusual buyback today. It is worth paying attention.
In March, Nikkiso announced the sale of a subsidiary to Atlas Copco AB (ATCOA SS), noting the sale proceeds would used to pay down debt (Debt/EBITDA in high single digits).
The company today announced Q2 earnings, and a large buyback, which should be taken as a positive surprise given the debt load.

POSCO International + POSCO Energy = A Value Enhancing M&A Deal

On 12 August, Posco International stated that it plans to merge with one of POSCO Holdings’ energy affiliate called POSCO Energy which is a major LNG provider in Korea.
We believe the merger between POSCO International and POSCO Energy is value enhancing. The shareholders of POSCO International are getting a sweet deal in POSCO Energy at attractive valuations.
This M&A deal is likely to boost the market cap of the combined companies and raise the rank of POSCO International in important indices such as KOSPI200.

ANZ Renounceable Entitlement Offer – Could Be a Relatively Large (A$550-750m) Retail Shortfall

By Sumeet Singh

ANZ announced a US$2.4bn (A$3.5bn) raising via a renounceable entitlement offer to part fund the purchase of Suncorp Bank in Jul 2022.
The institutional part of the entitlement offer saw a strong take up and the shares have held up well since the deal was announced.
In this note, we will talk about the upcoming retail shortfall bookbuild and other updates since our last note.

Nearmap: Thoma Bravo’s Bird’s Eye View

Mapping technology outfit Nearmap Ltd (NEA AU) has fielded a non-binding indicative offer from San Francisco-based PE firm Thoma Bravo.
Thoma Bravo is offering A$2.10/share, a 39% premium to last close, and an 83% premium to when Nearmap was first approached in early July.
Due diligence is at an advanced stage. Curiously, Nearmap has agreed to pay Thoma Bravo up to US$3mn if a transaction agreement does not result.

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Aug 15

Daily Brief Event-Driven: Impact of Potential Changes to India F&O Eligibility Criteria and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Impact of Potential Changes to India F&O Eligibility Criteria
China Tourism Group Duty Free (1880 HK) IPO: Offer Details, Index Inclusion, AH Premium
S&P/ASX Quiddity Leaderboard Sep 2022: Potential Last Minute Surprises
Giordano (709 HK): Offer Doc Out. Terms Declared Final
Merger Arb Mondays (15 Aug) – Lifestyle Intl, EVOC, Giordano, Yashili, Alliance Aviation, ResApp
Hyundai Mobis: Plans to Spin Off Parts & Module Units

Impact of Potential Changes to India F&O Eligibility Criteria

A news report has indicated that SEBI is looking to tighten criteria used for inclusion and continued availability of stocks in the Futures & Options (F&O) segment of the market.
Our analysis shows 30 stocks could be deleted from the F&O segment while another 12 are close to deletion zone. If applied objectively, 22 stocks could be added to F&O.
Deletion from the F&O segment could see two stocks dropped from the Nifty Next 50 Index while inclusion in F&O could see two stocks added to the NIFTY Index.

China Tourism Group Duty Free (1880 HK) IPO: Offer Details, Index Inclusion, AH Premium

CTG Duty Free (1880 HK) is looking to sell up to 118.176m shares to raise up to US$2.5bn. Pricing at HK$143.5-165.5/share is a 38.6%-29.2% discount to CTG Duty Free (601888).
Between 32-37% of the total offer size is being taken by 9 cornerstone investors and they are locked in for 6 months from listing date (expected 25 August).
CTG Duty Free (1880 HK) could be added to MSCI China in November, FTSE All-World and FTSE China 50 in March. Southbound Stock Connect could come online on 19 September.

S&P/ASX Quiddity Leaderboard Sep 2022: Potential Last Minute Surprises

By Janaghan Jeyakumar, CFA

With the Reference Period for the September 2022 Rebalance nearing its end, we take a final look at the potential index changes for ASX 300, 200, 100, 50, and 20.
AVZ Minerals (AVZ AU) and Firefinch Ltd (FFX AU) are both members of the ASX Index family and are currently suspended from trading. There could be index consequences here.
Based on current data, I expect 7 ADDs/DELs for the ASX 200 Index and 22 ADDs and 18 DELs for the ASX 300 Index.

Giordano (709 HK): Offer Doc Out. Terms Declared Final

On the 23 June, the Cheng family made an underwhelming voluntary conditional Offer of $1.88/share for Giordano International (709 HK).
The Offer is conditional on the family getting to more than 50% via tendering, and the Cheng’s (and concert parties) control 24.57%.
The Composite Document is now out with a first close on the 5 September. The Offer Price has now been declared final. That’s a surprise.

Merger Arb Mondays (15 Aug) – Lifestyle Intl, EVOC, Giordano, Yashili, Alliance Aviation, ResApp

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
Highest spreads are 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Resapp Health (RAP AU), Infomedia Ltd (IFM AU), Lifestyle International Holdings (1212 HK).
Lowest gross spreads are Dongzheng Automotive Finance (2718 HK), Excelpoint Technology (EXLP SP), MyDeal.com.au Ltd (MYD AU), Cocoaland Holdings (COLA MK), Giordano International (709 HK), China VAST.

Hyundai Mobis: Plans to Spin Off Parts & Module Units

On 12 August, it was reported in numerous local media that Hyundai Mobis (012330 KS) plans to spin off its auto parts and module business units into two separate entities.
Hyundai Mobis has not formally announced these spin offs although local media mentioned that these spin off plans have recently been finalized.
These spin-offs by Hyundai Mobis also are likely to be preludes to the Hyundai Mobis/Hyundai Motor Group reorganization. We remain positive on Hyundai Mobis.

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Aug 14

Daily Brief Event-Driven: Index Rebalance & ETF Flow Recap: MSCI and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Index Rebalance & ETF Flow Recap: MSCI, S&P Global Water, TW Div+, FTSE JP, STI, OZ Minerals
Last Week in Event SPACE: Softbank, OZ Minerals, Lifestyle, Nexon, Magic Empire, Swire Pacific
Predicting Inclusion at MSCI Korea November IR: Hyundai Mipo Dockyard
(Mostly) Asia-Pac Weekly Risk Arb Wrap: Oz Minerals, Lifestyle, EVOC Tech, Shinoken, DTAC/True
POSCO Holdings Stock Cancellation: Tiggering a 5%p Float Change for FnGuide Top 10 ETF

Index Rebalance & ETF Flow Recap: MSCI, S&P Global Water, TW Div+, FTSE JP, STI, OZ Minerals

MSCI announced the changes to its indices prior to market open on 12 August. Most changes were expected, while the non-inclusion of Gcl Poly Energy (3800 HK) was a surprise.
There are a bunch of announcement on the coming Friday for the Hang Seng and FTSE indices. Plus the review cutoff for the S&P/ASX family of indices.
Outflows from KraneShares CSI China Internet ETF (KWEB US) continued for yet another week, while there were inflows to iShares Core MSCI Pacific ETF (IPAC US).

Last Week in Event SPACE: Softbank, OZ Minerals, Lifestyle, Nexon, Magic Empire, Swire Pacific

BHP launched a bid for OZ Minerals (OZL AU). OZ has rejected it as being too low. BHP said the Offer provides certainty of funding growth. They are both right
This Offer price for Lifestyle International Holdings (1212 HK) is probably sufficient to get up. It has been declared final for that reason. Optically $6/share was a more reasonable level.
Nexon (3659 JP) announced another ¥100bn buyback over three years. However, the buyback is too small to pay back the Kim family inheritance tax obligations.

Predicting Inclusion at MSCI Korea November IR: Hyundai Mipo Dockyard

The MSCI’s November IR will hardly see any new addition from Outside IMI. Additions will mostly come from Small Cap→Standard migration.
There are 12 candidates for Small Cap→Standard migration. They are all beating the float market cap hurdle. However, only Hyundai Mipo satisfies the full market cap requirement.
At the current market cap, Hyundai Mipo will likely cause passive inflows equivalent to 5.89x ADTV, equal to US$160M or 1.9M shares.

(Mostly) Asia-Pac Weekly Risk Arb Wrap: Oz Minerals, Lifestyle, EVOC Tech, Shinoken, DTAC/True

There are 43 – mostly firm, mostly Asia-Pac – transactions currently being discussed and analysed on Smartkarma. Inside is a timetable of upcoming key events for each deal.
Four new deals discussed this week: BHP (BHP AU)‘s tilt for OZ Minerals (OZL AU); Lifestyle (1212 HK)‘s privatisation; EVOC (2308 HK)‘s Merger by Absorption, and Shinoken (8909 JP)‘s MBO.
Key updates took place for Total Access Communication (DTAC TB) / True Corp Pcl (TRUE TB).

POSCO Holdings Stock Cancellation: Tiggering a 5%p Float Change for FnGuide Top 10 ETF

POSCO Holdings announced it would cancel ₩567B worth of 2.6M treasury shares last Friday. It represents 3% of the shares outstanding, reducing the treasury shares from 13% to 10%.
With this cancellation, the float change reaches 5%p, triggering an adjustment from 68% to 73% in the upcoming cycle, just in time for the FnGuide Top 10’s December rebalancing.
As a result, POSCO Holdings suddenly becomes a strong contender to beat KB Financial in the FnGuide Top 10 rebalancing as they will be in a very tight race.

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Aug 13

Daily Brief Event-Driven: Swire A Vs Swire B – Regulatory Nuances REALLY Matter and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Swire A Vs Swire B – Regulatory Nuances REALLY Matter
Posco International Merger: Deal Structure & Arbitrage Dynamics
WSP Global/RPS Group: More Consolidation In Engineering Consultancy
POSCO Holdings: Treasury Shares Cancellation Worth 3% of Outstanding Shares

Swire A Vs Swire B – Regulatory Nuances REALLY Matter

Yesterday Swire Pacific (A) (19 HK) (and Swire Pacific Ltd-Cl B (87 HK)) announced a buyback of shares according to the 2022 AGM mandates approved in May, limited to HK$4bn.
A reader question prompted me to look more closely at the rules. There are nuances NOT covered in the announcements. So I work through them.
The conclusions are surprising, and lead to one clear trading idea.

Posco International Merger: Deal Structure & Arbitrage Dynamics

We still have the chance to become eligible. We will still receive the rights if we buy Posco International next Tuesday. But we will exercise them at ₩20,590, NOT ₩27,801.
Given that there is little cancellation risk, we can capitalize on the price falling below the appraisal price by opening both Long and Short at the same price.
We close Short if the price goes under ₩20,590 and fix the arb spread by exercising the rights with Long.

WSP Global/RPS Group: More Consolidation In Engineering Consultancy

WSP agreed to acquire RPS Group at a (generous) 206/share (+0.45p interim), in a well-timed transaction at 76% premium, 17.2x EV/Fwd EBIT and 24x Fwd P/E. Irrevocable undertakings are 18%.
The offer represents a 43% premium to mean consensus TP. My fair value estimate DCF (WACC 9%, 1.6% terminal growth) is 190.5p/share, 1.5% below the offer price.
The shares trade just below the offer. This seems a low risk/low return deal. Gross spread is 0.7% and the estimated annual return is 2.2% assuming settlement by 8 December.

POSCO Holdings: Treasury Shares Cancellation Worth 3% of Outstanding Shares

On 12 August, POSCO Holdings announced that it will cancel treasury shares worth 3% of outstanding shares involving 2.6 million shares worth 672 billion won.
The cancellation of treasury shares is a shareholder friendly policy that will improve the company’s ROE and P/E ratios. The treasury shares cancellation will be completed on 22 August 2022.
The combination of treasury shares cancellation and high dividend yield is likely to lead to higher probability of POSCO Holdings outperforming KOSPI on a total returns basis this year.

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Aug 12

Daily Brief Event-Driven: MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise
Swire Pacific (19 HK/87 HK) Buyback: Bigger Than It Appears
Swire A/B (19 HK / 87 HK) Buyback Programme – It’s REALLY BIG
Japan Post Insurance (7181 JP) – Reading Between The Lines
Toyo Tecnica (8151) – BIG Buyback
Swire A/B (19 HK / 87 HK)’s BIG Buyback Programme
Solvency Risk Short Candidates: BridgeBio, Wayfair, Archaea Energy, Enviva

MSCI August 2022 Index Rebalance: The Last QIR Throws Up One Big Surprise

As announced, there are 8 adds and 3 deletes for the MSCI Standard indices in Asia Pacific. To trade, there are 8 adds and 2 deletes.
Most of the changes are inline with what we forecast. The non-inclusion of Gcl Poly Energy Holdings Limited (3800 HK) is the big surprise, though that could change.
All the adds in China are potential inclusions to the FTSE All-World Index in September and that will add to the passive inflows on the stocks.

Swire Pacific (19 HK/87 HK) Buyback: Bigger Than It Appears

Swire Pacific (A) (19 HK)/Swire Pacific Ltd-Cl B (87 HK) has announced a HK$4bn buyback. While that is 6.5% of shares out, it is over 15% of real float.
Swire Pacific (A) (19 HK) was trading at a 50% discount to NAV and near the widest level over the last few years.
There will be passive selling once the buyback is complete, but the stocks should run up prior to that.

Swire A/B (19 HK / 87 HK) Buyback Programme – It’s REALLY BIG

Today Swire Pacific (A) (19 HK) (and Swire Pacific Ltd-Cl B (87 HK)) announced earnings, and they announced a large (HK$4bn) buyback.
Details are somewhat thin, but there are a bunch of possibilities, and all of them should have non-negligible impact on Swire and Swire vs Peers.
The immediate market response was to send them up 10% on the day. That puts both at somewhere near one-year highs, but the discount to NAV is still big.

Japan Post Insurance (7181 JP) – Reading Between The Lines

Japan Post Insurance (7181 JP) reported soft Q1 Tuesday on negative existing policy premium growth and higher (covid-related) underwriting claims costs. Guidance was unchanged but JPI also announced a buyback.
The buyback structure is designed to keep Japan Post Holdings (6178 JP) under 50% to continue to abide by the strictures and goals of the Japan Postal Privatisation Act.
50% or more will be done in a ToSTNeT-3 buyback Thursday morning 12 August. The rest will be bought on market. Impact is non-negligible. And JPI is cheap cheap cheap.

Toyo Tecnica (8151) – BIG Buyback

Toyo Corp (8151 JP) is a smallcap electronics firm specialising in sensors/testers/loggers for industrial and data system processes, large scale antennae systems, high tech medical equipment, remote sensing equipment, etc.
They have seen their (extraordinarily seasonal) revenues go mostly nowhere over the past ten years, but they have, until recently, accumulated cash and securities.
On 10 August, the company announced a LARGE buyback of up to 8.44% of shares out. The details suggest

Swire A/B (19 HK / 87 HK)’s BIG Buyback Programme

Swire Pacific (19 HK) has announced a “small” buyback at HK$4bn, but it is a material portion of ADV.
What remains unknown is how the buyback will be split. The split will only be known once buyback volumes are announced.
Swire is trading cheap at a look-through forward P/B of 0.28x compared to its five-year average of 0.38x, and the two-year average pre-Covid of 0.48x.

Solvency Risk Short Candidates: BridgeBio, Wayfair, Archaea Energy, Enviva

By Eric Fernandez, CFA

This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows. It considers interest expense, capex and short term maturities for additional input.
The companies may not be viable given cash flows and capital structures. These shorts tend to have higher betas and can have strong down moves as the crisis is recognized.
This week we flag: BridgeBio, Wayfair, Archaea Energy, Enviva Inc.

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Aug 11

Daily Brief Event-Driven: Softbank Confirms BABA Selldown – Big Changes on Softie’s Balance Sheet and BABA Index Implications and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Softbank Confirms BABA Selldown – Big Changes on Softie’s Balance Sheet and BABA Index Implications
FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: BIG Capping Changes in September
Shinoken (8909) MBO – Decent Premium, Still Light, Will Someone Push?
Looking at Canon Buyback Dynamics History – Patterns Vs Peers Gives Execution Hints
Kakao Games: Announces A Rights Offering Worth 197 Billion Won
Hong Kong CEO & Director Dealings – 10th August 2022
STI Index Rebalance Preview (Sep): Close to the Cutoffs
True/DTAC: Merger Support Increasingly Tenuous
Siemens Energy/Siemens Gamesa: Downwards Guidance

Softbank Confirms BABA Selldown – Big Changes on Softie’s Balance Sheet and BABA Index Implications

Softbank today confirmed that the stories circulating about Softbank having hedged a decent portion – 200+mm shares – of its BABA position were true.
The market expectation had been that these pre-paid forwards would be held for another two years. The announcement today is that they will be physically settled early.
This means the entire accounting effect – worth ¥4.6trln – will hit the income statement (and balance sheet) in the current quarter. There are investment and index implications

FTSE TWSE Taiwan Dividend+ Index Rebalance Preview: BIG Capping Changes in September

We do not expect any deletions from the FTSE TWSE Taiwan Dividend+ Index in September, but there will be a lot of passive flow due to capping changes.
Based on the closing prices from 9 August, we estimate one-way turnover of 11.2% at the September rebalance resulting in a one-way trade of TWD 15,754m (US$525m).
Most stocks with expected passive inflows are trading near their recent lows (leading to higher dividend yield), while most stocks with expected passive outflows have rallied recently (lower dividend yields).

Shinoken (8909) MBO – Decent Premium, Still Light, Will Someone Push?

Today Shinoken Group (8909 JP) announced it was the subject of an MBO where the CEO-founder invited Integral – a local PE fund – to help him restructure and grow.
It is at a 45% premium to last, and management negotiated the price from a relatively insulting initial bid of ¥1,300 to ¥1,600 in the end, but it’s still light.
It is not hugely light, but it is not a full price. It could definitely be a bit higher. The question is whether active foreigners will push.

Looking at Canon Buyback Dynamics History – Patterns Vs Peers Gives Execution Hints

Canon Inc (7751 JP) has just started its 17th buyback in 15 years. Like the 16 before, this one is for ¥50bn.
The patterns/dynamics of the canon buybacks in the past are remarkable when compared to buybacks of other companies.
There are outperformance and under-performance patterns vs Peers, and it is worth taking note if you have a position to trade.

Kakao Games: Announces A Rights Offering Worth 197 Billion Won

Kakao Games Corp (293490 KS) announced today a rights offering worth 197 billion won, representing 4.4% of its market cap.
Lionheart Studio’s founder and CEO Kim Jae-Young is expected to purchase 3.1 million shares of the rights offering (177 billion won), representing 90% of the total rights offering shares.
The issue with Kakao Games and Lionheart Studio remains the fact that many investors would rather invest in Lionheart when it completes its IPO, rather than indirectly through Kakao Games.

Hong Kong CEO & Director Dealings – 10th August 2022

The data in this insight is collated from the “shareholding disclosure” link on the HKEx website.
Often there is a corresponding HKEx announcement on the increase – or decrease – in the shareholding by directors. However, such disclosures are by no means an absolute.
These insights also flag those companies where shares have been pledged, both recently and ongoing.

STI Index Rebalance Preview (Sep): Close to the Cutoffs

Emperador (EMI SP) currently is just outside the inclusion zone for the FTSE Straits Times Index (STI) (STI INDEX) and a small price bump is needed for index inclusion.
If Emperador (EMI SP) is added to the index, Comfortdelgro Corp (CD SP) could be deleted as the lowest ranked index constituent.
Emperador (EMP PM) is a high probability inclusion to the FTSE All-World Index at the September SAIR and the stock could move higher over the next couple of weeks.

True/DTAC: Merger Support Increasingly Tenuous

Reportedly, the board of the National Broadcasting and Telecommunications Commission (NBTC), Thailand’s telco regulator, has called for a more detailed analysis of the deal’s impact on competition, consumers and industry.
This follows recent calls by Thailand’s opposition Move Forward party urging the NBTC to block Total Access Communication (DTAC TB) / True Corp Pcl (TRUE TB)‘s merger.
Both DTAC and True are trading tight to terms – especially True. Time to take down borrow.

Siemens Energy/Siemens Gamesa: Downwards Guidance

Q3 2022 results were received as weak by the market. Guidance was (again) revised downwards. Otherwise, the takeover bid continues in the process of authorization by the CNMV.
I don’t expect any relevant changes in the offer: Siemens Energy already has control, operating problems persist and the financial position continues to deteriorate. Downwards risks to consensus estimates persist.
Gross spread is 0.33%. The estimated annual return is 1.63% (assuming settlement on 24 October). Sell on strength/tender during the offer in case there’s a (low probability) improvement in the offer.

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Aug 10

Daily Brief Event-Driven: S&P Global Water Index: Market Consultation Driven Potential Changes and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

S&P Global Water Index: Market Consultation Driven Potential Changes
Magic Empire Global – Not Clear Who Is Driving and Who Is Being Taken For a Ride
Nexon Q2 In-Line, New Buyback Plan Too Small To Matter Near-Term
MSCI Korea: Potential Inclusions & Exclusions in August 2022 Highlighted by Locals
Selected European Holdcos and DLCs: July ‘22 Report
Appraisal Rights (& Possibly Preemptive Too) To Be Granted in an ECO in Korea
Tencent Looking to Raise Its Stake in Ubisoft at a Huge Premium
NHN: Cancellation of Treasury Shares Equivalent to 10% of Outstanding Shares Over Next 3 Years

S&P Global Water Index: Market Consultation Driven Potential Changes

S&P DJI commenced a market consultation for the S&P Global Water Index on 29 July and that could lead to quite a few changes to the index in October.
We currently see 14 deletions and 10 inclusions for the index in October. Most of the changes will have a high impact from passive fund trading.
There could be more changes in April 2023 once stocks listed in Emerging Markets are included in the index.

Magic Empire Global – Not Clear Who Is Driving and Who Is Being Taken For a Ride

Just days after AMTD Digital (HKD US) was ramped 30,000% to a ridiculous valuation only weeks after its IPO, Magic Empire Global (MEGL US) IPOed and rose 2000+ on Day1.
MEGL is a corporate advisory, helping smallcaps IPO then helping them comply with listing rules. 2 principals, 2 professionals, 5 staff with no moat had US$2.16mm in revenue in 2021.
And it is worth US$2.3bn – 1000 x revenues and 10,000x earnings? This is not OK. And it smacks of something unsavoury.

Nexon Q2 In-Line, New Buyback Plan Too Small To Matter Near-Term

Nexon (3659 JP) reported Q2 earnings and Q3 forecasts today. Everything is generally “in-line” to tilting slightly light. But USD/yen volatility matters a lot.
The company announced a small dividend hike, from largely meaningless to ever-so-slightly less meaningless. And a plan to buy back ¥100bn of shares over 3 years.
The inheritance tax issue remains a big one, but overhang appears delayed and buyback accretion is small, and also appears delated. And there’s an index sell at end-September.

MSCI Korea: Potential Inclusions & Exclusions in August 2022 Highlighted by Locals

We discuss the potential inclusions and exclusions in the next MSCI Korea Index rebalance announcement (12 August) that are being highlighted by the locals.
The potential inclusion candidates in the MSCI Korea Index emphasized by the locals in August 2022 include LG Energy Solution and Kakao Pay; potential exclusion candidate include SK Telecom.
The overall assessment of the MSCI Korea Index rebalance in August is rather mixed. There are two potential inclusions (LG Energy Solution and Kakao Pay) and one exclusion (SK Telecom).

Selected European Holdcos and DLCs: July ‘22 Report

Discounts to NAV of covered holdcos haven’t shown a clear trend during July/beginning of August. Investors have favored Swedish hodlcos, disliked GBL’s results and avoided the Heineken/Heineken Holdings trade.
Discounts to NAV: Alba, 42.8%; GBL, 34.5%; Heineken Holdings to 21.5%; Industrivärden C, 7.8%; Investor B, 14.3%; Porsche Automobile Holding to 29.4%. Rio Tinto DLC tightened to 16.2%.
Spreads tend to widen in bear markets but short term recoveries provide opportunities on tightening discounts. If anything, recommended trades are: Industrivärden C vs. listed assets, Porsche, Rio Tinto (DLC).

Appraisal Rights (& Possibly Preemptive Too) To Be Granted in an ECO in Korea

By Shifara Samsudeen, ACMA, CGMA

The Korea FSC disclosed the policy agenda, which was presented to President Yoon. The implementation will likely be in the fourth quarter.
The FSC stated that it would grant appraisal rights to the shareholders of a parent company in an ECO (equity carve-out).
This rule will likely be applied to DB Hitek and Foosung. Hence, our trading setup targeting these ECO events will require more sophisticated modifications.

Tencent Looking to Raise Its Stake in Ubisoft at a Huge Premium

Reuters and several other news media outlets reported that Tencent (700 HK) is looking to raise its stake in French game publisher Ubisoft as it seeks to expand overseas.
Tencent owns approx. 5.0% of Ubisoft which was acquired in 2018 and is said to have reached out to the founding family Guillemot to buy a stake from their ownership.
As we mentioned in our previous insight, Tencent has been excluded for the fourth time from new game approvals which had impacted its online games biz.

NHN: Cancellation of Treasury Shares Equivalent to 10% of Outstanding Shares Over Next 3 Years

After the market close on 9 August, NHN Corp announced that it will cancel treasury shares equivalent to 10% of outstanding shares in the next three years.
This is a tremendous management move to improve shareholder return policy.
A 10% share cancellation of outstanding shares is a major move and this is likely to result in a sharp appreciation of NHN’s share price in the next several weeks.

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Aug 09

Daily Brief Event-Driven: Oz Minerals Rejects BHP’s Opportunistic Foray – Expect More and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Oz Minerals Rejects BHP’s Opportunistic Foray – Expect More
Inpex (1605 JP) – Earnings, Forecasts and a BIGLY Buyback
EVOC’s Privatisation Offer of HK$1.75 a Case of Third Time’s the Charm?
FTSE Japan: Potential Inclusions in March Following TSE Restructure
Introducing KRX Sector Indices: SK Square & Iljin Hysolus Deserve Attention for Rebalancing
Foosung: Excessive Decline in Share Price Due to Spin-Off & IPO of Its Foosung Global Subsidiary
EVOC (2308 HK)’s Merger By Absorption

Oz Minerals Rejects BHP’s Opportunistic Foray – Expect More

Early 8 August, OZ Minerals Ltd (OZL AU) announced it had rejected BHP Group Ltd (BHP AU)‘s indicative acquisition proposal at A$25.00/share, after BHP had bought less than 5%.
The Board took a quick look over the weekend and decided “the Indicative Proposal significantly undervalues OZ Minerals” and rejected it out of hand.
It has been an obvious deal for years. This may not be BHP’s last go, but they will probably need to pay more like A$30/share to get it.

Inpex (1605 JP) – Earnings, Forecasts and a BIGLY Buyback

Today Inpex Corp (1605 JP) announced Q2 earnings (results, presentation), a revised full-year forecast due to higher crude and lower yen, an 11%-above-guidance dividend, and a big buyback.
The buyback is for up to 120mm shares spending up to ¥120bn, to run through year-end. Practically speaking, it is limited to 80mm shares or so at current price.
This should be a non-negligible portion of Real World Float, and I expect the buyback to have impact over the next five months.

EVOC’s Privatisation Offer of HK$1.75 a Case of Third Time’s the Charm?

EVOC Intelligent Technology Company Limited H (2308 HK) announced a privatisation offer from Mr Chen Zhi Lie, the ultimate controlling shareholder, at HK$1.75 per H share.
The key conditions are approval by at least 75% of independent H Shareholders (<10% of all independent H Shareholders’ rejection). There is no minimum acceptance condition.
The offer price is final. The offer is attractive in comparison to long-term historical share prices and multiples. We think that Mr Chen’s third privatisation attempt will likely succeed.

FTSE Japan: Potential Inclusions in March Following TSE Restructure

Stocks that migrated from the JASDAQ and Mothers Boards to the Standard Market in April will be eligible for inclusion in the FTSE All-World/All-Cap indices at the March 2023 SAIR.
Currently, we see 4 potential inclusions to the All-World Index and 12 potential inclusions to the All-Cap Index. There are some close adds on market cap and liquidity.
The potential adds underperformed the TOPIX Index from April to June, but there has been a significant outperformance since then.

Introducing KRX Sector Indices: SK Square & Iljin Hysolus Deserve Attention for Rebalancing

The correlation and sensitivity between passive flow and price impact have been significantly high for adds/deletes. So, we need a basket-trade setup focusing on potential adds/deletes.
We will see 12 changes for Semicon and 6 for Autos. Bank won’t present any change.
SK Square and Iljin Hysolus are the most prominent names to join the KRX Sector Indices this time. They will have a passive impact of 2.03x and 3.97x ADTVs, respectively.

Foosung: Excessive Decline in Share Price Due to Spin-Off & IPO of Its Foosung Global Subsidiary

On 4 August (after market close), it was reported that Foosung Co plans to IPO its subsidiary Foosung Global. The timing is to complete the IPO in 2023.
After this news came out, Foosung’s share price has declined by 17%. Since its share price peak in May 2022, its share price has declined by 42%.
Recent share price decline has presented a more attractive investment opportunity. Foosung is currently trading at EV/EBITDA multiple of 7.7x in 2022, which is much lower than 20.9x in 2021.

EVOC (2308 HK)’s Merger By Absorption

After shares were suspended on the 1 August, electronics play and property developer EVOC Intelligent Technology Company Limited H (2308 HK) has announced a privatisation at HK$1.75 per H-share.
This Offer is by way of a Merger by Absorption, which incorporates a Scheme-like vote. There is no tendering condition.
The premium to last close is just 15.13%; however, it is a 42.28% premium to the five-day closing average. This is EVOC’s third privatisation attempt in the past five years.

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Aug 08

Daily Brief Event-Driven: Lifestyle International’s HK$5.00 Privatisation Bid and more

By Smartkarma Daily Briefs | Daily Briefs, Event-Driven

In today’s briefing:

Lifestyle International’s HK$5.00 Privatisation Bid
Merger Arb Mondays (08 Aug) – Yashili, Lifestyle, Link, Infomedia, Ramsay, ResApp, Alliance Aviation
Marui (8252 JP) – Increases Size of Delayed-Start Buyback, Cuts Yutai
SAIC Completes Dongzheng Stake Acquisition, Unconditional MGO
Weekly Deals Digest (07 Aug) – Hongjiu Fruit, Link, Infomedia, Atlas Arteria, ResApp, DTAC/True
OZ Minerals (OZL): BHP Offer Swiftly Rejected
Lifestyle (1212 HK): Thomas Yau’s Scheme
Kinetic&Globalvia/Go-Ahead: Increased Offer

Lifestyle International’s HK$5.00 Privatisation Bid

Lifestyle International Holdings (1212 HK) announced a privatisation offer from Mr Lau, the controlling shareholder and Chairman, at HK$5.00 per scheme share, a 62.3% premium to the undisturbed price.
The offer price is final. Key conditions include approval by at least 75% of independent shareholders (<10% of independent shareholders rejection). No shareholder holds a blocking stake.
The offer price is unattractive for long-term shareholders and below average sell-side price targets. Nevertheless, this deal likely goes through as the headcount test is not applicable.

Merger Arb Mondays (08 Aug) – Yashili, Lifestyle, Link, Infomedia, Ramsay, ResApp, Alliance Aviation

We summarise the latest spreads and newsflow of merger arb situations covered by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand and Chinese ADRs.
Highest spreads are Lifestyle International Holdings (1212 HK), 21Vianet Group (VNET US), Alliance Aviation Services (AQZ AU), Ramsay Health Care (RHC AU), Infomedia Ltd (IFM AU), Yashili, ResApp.
Lowest gross spreads are Excelpoint Technology (EXLP SP), Frasers Hospitality Trust (FHT SP), MyDeal.com.au Ltd (MYD AU), Cocoaland Holdings (COLA MK), True Corp Pcl (TRUE TB), China VAST.

Marui (8252 JP) – Increases Size of Delayed-Start Buyback, Cuts Yutai

Marui Group (8252 JP) was a long-suffering Japanese retailer with generally sub-standard locations and “different” customer base, and much of its income came from consumer credit.
Since a decade ago, helped by the rise of foreign tourism income, Marui has been redeveloping itself. Michael Causton‘s insights are a great help to understanding the background.
They are aiming at non-stuff retailing. Friday saw earnings, cancellation of the yutai program, a slight div hike, and an increase in the already large buyback program. It’s interesting!

SAIC Completes Dongzheng Stake Acquisition, Unconditional MGO

SAIC Motor (600104 CH) completed the auction procedures for acquiring a 71.04% stake in Dongzheng Automotive Finance (2718 HK). This will trigger an unconditional MGO at HK$1.2430 per H Share.
The offeror and Dongzheng are required to issue the composite document on or before 11 August jointly. However, an application has been made to the Executive to extend the deadline.
At last close and for an end of September completion, the gross and annualised spread to the MGO price is 3.6% and 20.9%, respectively.

Weekly Deals Digest (07 Aug) – Hongjiu Fruit, Link, Infomedia, Atlas Arteria, ResApp, DTAC/True

A weekly summary of key developments across ECM and Event-Driven names tracked by us across Hong Kong, Australia, New Zealand, Singapore, Indonesia, Malaysia, Thailand, Korea, India and Chinese ADRs.
ECM developments – Chongqing Hongjiu Fruit (CHF HK) is pre-marketing a US$200-300m IPO.
Event-Driven developments at Atlas Arteria (ALX AU), Genex Power Ltd (GNX AU), Infomedia Ltd (IFM AU), Link Administration (LNK AU), Ramsay Health Care (RHC AU), ResApp, DTAC/True, Dongzheng AFC.

OZ Minerals (OZL): BHP Offer Swiftly Rejected

BHP Group Ltd (BHP AU) made a non-binding indicative proposal to acquire all shares in OZ Minerals Ltd (OZL AU) at A$25/share and was swiftly rejected.
We feel an offer around the A$28.5-A$29/share range would get the OZ Minerals Ltd (OZL AU) Board to open up its books for due diligence.
3.25% of the outstanding shares have been shorted and the stock could trade higher than the BHP offer price. We’d wait for a price around A$25/share to enter.

Lifestyle (1212 HK): Thomas Yau’s Scheme

Thomas Yau, Lifestyle International Holdings (1212 HK)‘s controlling shareholder, is offering to take the company private by way of a Scheme at HK$5/share, a 62.3% premium to last close.
Independent shareholders comprise 23.51% of shares out, therefore the blocking stake at the forthcoming Court Meeting is 2.351% of shares out.
The Offer price is final. No dividends will be paid during the Offer period.

Kinetic&Globalvia/Go-Ahead: Increased Offer