Event-Driven and Index Rebalance

Weekly Top Ten Event-Driven and Index Rebalance – Feb 25, 2024

By February 25, 2024 No Comments
This weekly newsletter pulls together summaries of the top ten most-read Insights across Event-Driven and Index Rebalance on Smartkarma.

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1. HSTECH Index Rebalance: Tongcheng (780 HK) In; GDS (9698 HK) Out; Round Trip Trade US$1bn

By Brian Freitas, Periscope Analytics

2. Hang Seng Internet & IT Index Rebalance: Three Changes & One Big Surprise

By Brian Freitas, Periscope Analytics

  • There will be 3 changes for the Hang Seng Internet & Information Technology Index (HSIII) at the March rebalance. There are some surprises.
  • Estimated one-way turnover at the rebalance is 5.6% resulting in a round-trip trade of HK$3.26bn (US$416m). 6 stocks will have over 1x ADV to trade.
  • There is huge short interest on East Buy Holding (1797 HK) and there could be some short covering ahead of the inclusion of the stock in the index.

3. Dow Jones Industrials (INDU) Index Rebalance: Amazon (AMZN) Replaces Walgreen Boots (WBA)

By Brian Freitas, Periscope Analytics

4. TCM (570 HK): Sinopharm’s $4.60/Share Offer

By David Blennerhassett, Quiddity Advisors

  • $4.60/Share. That’s the number – by way of a Scheme – that only matters. Below the recently rumoured $6/share, and $5.10/share a little over three years ago. Terms are final.
  • As widely expected, the Offeror is SASAC-managed China National Pharmaceutical Group Corporation (CNPGC), indirectly owning 32.46% in China Traditional Chinese Medicine (570 HK) (TCM) via Sinopharm Group Hongkong,
  • Optically, the Offer price appears light. But this should still get up. TCM is trading rich to peers. No other competing bidder will emerge. Expect regulatory pre-cons to be fast-tracked.

5. China Traditional Chinese Medicine (570.HK) – New Information on Privatization

By Xinyao (Criss) Wang

  • Since China TCM doesn’t deny the rumors so far after the trading halt, privatization is becoming likely this time.Rumor said formal negotiations may not begin until after the Lantern Festival.
  • CNPGC may not want to pay high prices on privatization.Weak sentiment/share price may help with the negotiations.But the key is to obtain the consent of other shareholders, especially Ping An.
  • There’s underlying logic for Taiji Group to drive this privatization. A price of higher than HKD5.1 is possible. If the price could reach HKD6 (or higher), it has exceeded expectations.

6. STTF Index Rebalance Preview: One High Probability Change in March

By Brian Freitas, Periscope Analytics

7. Azure (AZS AU): MinRes’ Discounted Exit

By David Blennerhassett, Quiddity Advisors

  • JPMorgan is placing MinRes (MIN AU)‘s 14.5% stake in Azure Minerals (AZS AU) at A$3.42/share, a 5% discount to last close and a 7.6% discount to the A$3.70/share Scheme price. 
  • It was reported last month that MinRes, who paid up to ~A$4.00/share for some of its stake, was looking to exit. But cash now vs. ~8% more in two months?
  • Given the recent rout in lithium and nickel prices, one wonders if a MAC landmine lurks. Or, quite simply, MinRes just needs the cash. Expect Azure to fall tomorrow.

8. Snow Peak (7816) – Bain Deal at ¥1,250 – 46% Premium Is Nice, Not A Home Run

By Travis Lundy, Quiddity Advisors

  • The possibility/likelihood of a “¥50bn MBO” for Snow Peak Inc (7816 JP) was leaked in a Nikkei article last Friday. It went limit up two days in a row. 
  • That TOB price is more than 70% off its three-year high. That will certainly disappoint some. Separately, the price seems a bit low given growth. 
  • The family and friends own ~42% so if someone gets upset, or uppity, there could be a challenge. Just because an MBO exists doesn’t mean people have to tender in.

9. Korea NPS Abruptly Joins Corporate Value Up Program: According to Document Obtained from NPS

By Sanghyun Park, Clepsydra Capital

  • NPS abruptly joins ‘Corporate Value Up Program’, plans to select three asset managers. Deadline: this month’s 29th; results: March 19th, possibly linked to Korea Premium Index ETF launch in mid-May.
  • The document outlines guidelines, allocating 90-100% to value stocks, with KOSDAQ under 20%. While benchmarked to the internally-built index, it will likely focus on Korea Premium Index and KOSDAQ Global.
  • The fund size is crucial. NPS will disclose details later. But still, there is considerable room to this year’s ceiling for local equity; a significant amount could flow into this.

10. China Traditional Chinese Medicine (570 HK): Sinopharm-Led Pre-Conditional Offer at HK$4.60

By Arun George, Global Equity Research Ltd

  • China Traditional Chinese Medicine (570 HK) announced a privatisation offer from the Sinopharm-led consortium at HK$4.60 per share, a 47.4% premium to the undisturbed price.
  • The pre-condition relates to various Chinese regulatory approvals. As SOE entities own the offeror, regulatory approvals will be a formality. The offer price is final. 
  • Ping An Insurance (H) (2318 HK), which holds a blocking stake, will be supportive. The offer is fair when the previously (higher) rumoured offers are adjusted for the market downturn.