Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

Car Inc (699 HK):  Are We Missing Anything?

Car Inc (699 HK):  No, We Are Not Missing Anything

Car (699 HK): Doc Out. IFA Says Fair. Done Deal

Car Inc (699 HK): MBK Takes A Turn At The Wheel

Gravity Works As WeWork Doesn't; Now Plan B

Quiddity Advisors

Event-Driven

<div>
<p><a href="https://www.smartkarma.com/entities/car-inc" target="_blank" data-smartkarma-citation="entities:942:1" rel="noopener">Car Inc (699 HK)</a>'s cratered 54% on the 3 April before being suspended, given the management crossover with scandal-hit <a href="https://www.smartkarma.com/entities/luckin-coffee-inc" target="_blank" data-smartkarma-citation="entities:28046:1" rel="noopener">Luckin Coffee (LK US)</a>. Charles Zhengyao Lu, the largest shareholder in Luckin, was also a major (indirect) shareholder and chairman in Car.</p>
<p>Car <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0407/2020040700005.pdf" target="_blank" rel="noopener">qualified</a> that while Lu was a shareholder and chairman of Luckin Coffee, "<em>he resigned from the role of Chief Executive Officer and became a Non-executive Director of Car in April 2016</em>" and "<em>has not been involved in the Group’s day-to-day management since then</em>". In addition, Jian Liu, COO of Luckin and widely understood to be the orchestrator of Luckin's internal issues, "<em>ceased his employment as a department director" with Car in 2015.</em>" </p>
</div>
<div>
<p>A detailed rundown of these events can be found in <em><a href="https://skr.ma/p7ikw" target="_blank" rel="noopener">Car Inc (699 HK) - Needs A Hire Purpose</a></em>.</p>
<p>According to a <a href="https://www.reuters.com/article/us-car-inc-mbk-partners-m-a-exclusive/exclusive-mbk-partners-leads-group-in-talks-to-take-hk-listed-car-inc-private-idUSKCN25G0JX" target="_blank" rel="noopener">Reuters</a>' article on the 20 August, an MBK consortium had been in negotiations with SOE Jinggangshan BAIC with respect to its ~29% stake in Car, with a possible view to taking Car private. This was discussed in <em><a href="https://skr.ma/WyCdw" target="_blank" rel="noopener">Car Inc (699 HK): MBK Takes A Turn At The Wheel</a></em>. A HKEx disclosure filing on the 24 July showed BAIC with <a href="https://di.hkex.com.hk/di/NSForm2.aspx?fn=CS20200727E00205&amp;sa2=np&amp;scpid1=99615&amp;scpid3=0&amp;scpid2=109421&amp;sa1=pl&amp;scsd=21%2f08%2f2017&amp;sced=21%2f08%2f2020&amp;pn=Beijing+Automotive+Group&amp;src=MAIN&amp;lang=EN&amp;" target="_blank" rel="noopener">28.92%</a>, given the SPAs with UCAR &amp; Warburg Pincus/Amber.</p>
<p>On the 10 November, Car <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1110/2020111001297.pdf" target="_blank" rel="noopener">announced</a> the SPA between UCAR and BAIC had terminated. Separately, MBK Partners had entered into a SPA to acquire ~20.86% of shares in Car for HK$1.77bn ($4.00/share) from UCAR.</p>
</div>
<div>
<p>A summary of announcements below brings you up to date.:</p>
</div>
<div>
<div>
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 115.258px;">
<h3>Date</h3>
</td>
<td style="width: 588.274px;">
<h3>Data in the Date</h3>
</td>
</tr>
<tr>
<td style="width: 115.258px;">9-Apr-20</td>
<td style="width: 588.274px;">Car's largest shareholder, <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0409/2020040900021.pdf" target="_blank" rel="noopener">sold</a> 44.666mn shares, or 2.11% of shares out, on the day Car's shares collapsed. NOT a good look. UCAR held ~27.65% of shares out in Car after the sale. Lu is the controller of UCAR with a 39.94% stake.<br><br>UCAR <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0512/2020051201219.pdf" target="_blank" rel="noopener">sold</a> a further 100k shares (0.0047% of shares out) on the 11 May, and <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0623/2020062301508.pdf" target="_blank" rel="noopener">7.085mn</a> shares (0.33%) between the 12 May and 22 June.</td>
</tr>
<tr>
<td style="width: 115.258px;">16-Apr-20</td>
<td style="width: 588.274px;">
<p>Amber Gem <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0416/2020041601733.pdf" target="_blank" rel="noopener">entered</a> into a SPA with UCAR to acquire 98.6mn shares (4.65% of shares out - known as the first tranche) from UCAR at HK$2.30/share; and 264.08mn shares (12.46% of shares out - the second tranche) at HK$3.40/share. This works out to an average price of $3.10/share.</p>
<p></p>
<p>At the time of the SPA, Amber Gem held 10.11%. According to the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0401/2020040101309.pdf" target="_blank" rel="noopener">2019 annual report</a> (page 49), Warburg Pincus holds a 60.47% stake in Amber Gem. </p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">1-Jun-20</td>
<td style="width: 588.274px;">
<p>Car <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0601/2020060100013.pdf" target="_blank" rel="noopener">announced</a> Amber Gem and UCAR had terminated their second tranche. The first tranche <a href="https://di.hkex.com.hk/di/NSNoticePersonList.aspx?sa2=np&amp;scpid1=69816&amp;scpid3=0&amp;scpid2=109421&amp;sa1=pl&amp;scsd=21%2f07%2f2019&amp;sced=21%2f07%2f2020&amp;pn=Amber+Gem&amp;src=MAIN&amp;lang=EN&amp;" target="_blank" rel="noopener">appears</a> to have been completed on the 30 May, lifting Amber Gem's stake to 14.76%.</p>
<p></p>
<p>Separately  UCAR and BAIC Group <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0601/2020060100013.pdf" target="_blank" rel="noopener">entered</a> into a non-legally binding strategic cooperation agreement, such that BAIC would acquire 450.79mn shares in Car, or 21.26% of shares out, from UCAR.</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">9-Jun-20</td>
<td style="width: 588.274px;">Lu <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0610/2020061000043.pdf" target="_blank" rel="noopener">resigned</a> as Chairman and NED, with effect from June 9 (i.e. immediate).</td>
</tr>
<tr>
<td style="width: 115.258px;">2-Jul-20</td>
<td style="width: 588.274px;">
<p>Car announced UCAR had entered into an offer letter with <a href="https://www.smartkarma.com/entities/saic-motor-corp-ltd-a" target="_blank" data-smartkarma-citation="entities:20833:1" rel="noopener">SAIC Motor (600104 CH)</a> such that SAIC will acquire UCAR's 20.87% stake in Car at HK$3.10.</p>
<p></p>
<p>Separately, SAIC entered into an offer letter with Amber Gem to acquire an 8.05% stake in Car, also at HK$3.10/share.  The completion of these Offer letters would result in SAIC holding 28.92%, below the 30% mandatory general offer threshold.</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">20-Jul-20</td>
<td style="width: 588.274px;">
<p>Car announced that UCAR has terminated its agreement with SAIC; and that UCAR had now entered into a SPA with Jinggangshan BAIC to acquire its 20.87% stake in Car at HK$3.10/share. Jinggangshan BAIC also signed an offer letter with Amber Gem to acquire an 8.04% of shares out (@ HK$3.10/share) - to collectively give Jinggangshan BAIC 28.91%. Amber Gem would be left holding 6.7% of shares out. </p>
<p></p>
<p>Car <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0720/2020072001067.pdf" target="_blank" rel="noopener">announced</a> that it has been informed that "UCAR has received a notice from the China Securities Regulatory Commission (and that the) CSRC has initiated an investigation on UCAR in connection with suspected violations of information disclosure laws and regulations by UCAR". </p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">24-Jul-20</td>
<td style="width: 588.274px;">
<p>Profit warning. Car expects a net loss n the 1H20 vs. net profit of RMB279mn in 1H19. Looking at impairment charges with respect to is vehicle fleet of RMB2.5bn-3RMBbn. </p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">26-Jul-20</td>
<td style="width: 588.274px;">
<p>Amber Gem and Jinggangshan BAIC <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0726/2020072600011.pdf" target="_blank" rel="noopener">entered</a> into a SPA such that BAIC acquires 170.72mn shares (8.05% of shares out) from Amber at $3.10/share.</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">3-Aug-20</td>
<td style="width: 588.274px;">
<p>Xiaogeng Li, an NED, <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0803/2020080300015.pdf" target="_blank" rel="noopener">resigned</a>, ceasing her membership of the audit and compliance committee</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">3-Aug-20</td>
<td style="width: 588.274px;">
<p>The CSRC <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0803/2020080300019.pdf" target="_blank" rel="noopener">completed</a> its (two-week) investigation and dished out some fines to UCAR and certain directors/senior management. </p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">20-Aug-20</td>
<td style="width: 588.274px;">
<p>A Reuters article suggests MBK is kicking tyres</p>
</td>
</tr>
<tr>
<td style="width: 115.258px;">10-Nov-20</td>
<td style="width: 588.274px;">
<p><a href="https://www.smartkarma.com/entities/car-inc" target="_blank" data-smartkarma-citation="entities:942:1" rel="noopener">Car Inc (699 HK)</a> <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1110/2020111001297.pdf" target="_blank" rel="noopener">announced</a> the S&amp;P with UCAR, BAIC is terminated. MBK Partners to acquire ~20.86% of shares in Car for HK$1.77bn ($4/share).</p>
</td>
</tr>
</tbody>
</table>
</div>
</div>
<div>
<div class="content-caption">
<p style="text-align: left;">Source: HKEx filings</p>
</div>
</div>
<div>
<h3>The NEW News</h3>
</div>
<div>
<p>MBK has now <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1113/2020111301538.pdf" target="_blank" rel="noopener">tabled</a> a pre-conditional general cash Offer of $4.00/share, a 17.99% premium to last close. There are no outstanding dividends and no dividends are expected to be declared or paid during the Offer.</p>
<p>Pre-conditions include anti-trust approval, no default on any bonds or debt; and the Offer not triggering a "change of control" in the bond/debt instruments. Interestingly, all pre-conditions can be waived by MBK. </p>
<p>The Offer is conditional on MBK holding 50% of the voting rights in Car. Irrevocables (namely Legend Holdings) holding 26.55% have agreed to tender into the Offer. Together with the 20.86% from the SPA with UCAR, MBK will hold a minimum of 47.41% of shares out. Clearing the 50% looks like a lock.</p>
<p>MBK intends to maintain Car's listing.</p>
</div>
<div>
<p>More below the fold.</p>
</div>


Car Inc (699 HK)'s cratered 54% on the 3 April before being suspended, given the management crossover with scandal-hit Luckin Coffee (LK US). Charles Zhengyao Lu, the largest shareholder in Luckin, was also a major (indirect) shareholder and chairman in Car.
Car qualified that while Lu was a shareholder and chairman of Luckin Coffee, "he resigned from the role of Chief Executive Officer and became a Non-executive Director of Car in April 2016" and "has not been involved in the Group’s day-to-day management since then". In addition, Jian Liu, COO of Luckin and widely understood to be the orchestrator of Luckin's internal issues, "ceased his employment as a department director" with Car in 2015." 


A detailed rundown of these events can be found in Car Inc (699 HK) - Needs A Hire Purpose.
According to a Reuters' article on the 20 August, an MBK consortium had been in negotiations with SOE Jinggangshan BAIC with respect to its ~29% stake in Car, with a possible view to taking Car private. This was discussed in Car Inc (699 HK): MBK Takes A Turn At The Wheel. A HKEx disclosure filing on the 24 July showed BAIC with 28.92%, given the SPAs with UCAR &amp; Warburg Pincus/Amber.
On the 10 November, Car announced the SPA between UCAR and BAIC had terminated. Separately, MBK Partners had entered into a SPA to acquire ~20.86% of shares in Car for HK$1.77bn ($4.00/share) from UCAR.


A summary of announcements below brings you up to date.:







Date


Data in the Date



9-Apr-20
Car's largest shareholder, sold 44.666mn shares, or 2.11% of shares out, on the day Car's shares collapsed. NOT a good look. UCAR held ~27.65% of shares out in Car after the sale. Lu is the controller of UCAR with a 39.94% stake.  UCAR sold a further 100k shares (0.0047% of shares out) on the 11 May, and 7.085mn shares (0.33%) between the 12 May and 22 June.


16-Apr-20

Amber Gem entered into a SPA with UCAR to acquire 98.6mn shares (4.65% of shares out - known as the first tranche) from UCAR at HK$2.30/share; and 264.08mn shares (12.46% of shares out - the second tranche) at HK$3.40/share. This works out to an average price of $3.10/share.

At the time of the SPA, Amber Gem held 10.11%. According to the 2019 annual report (page 49), Warburg Pincus holds a 60.47% stake in Amber Gem. 



1-Jun-20

Car announced Amber Gem and UCAR had terminated their second tranche. The first tranche appears to have been completed on the 30 May, lifting Amber Gem's stake to 14.76%.

Separately  UCAR and BAIC Group entered into a non-legally binding strategic cooperation agreement, such that BAIC would acquire 450.79mn shares in Car, or 21.26% of shares out, from UCAR.



9-Jun-20
Lu resigned as Chairman and NED, with effect from June 9 (i.e. immediate).


2-Jul-20

Car announced UCAR had entered into an offer letter with SAIC Motor (600104 CH) such that SAIC will acquire UCAR's 20.87% stake in Car at HK$3.10.

Separately, SAIC entered into an offer letter with Amber Gem to acquire an 8.05% stake in Car, also at HK$3.10/share.  The completion of these Offer letters would result in SAIC holding 28.92%, below the 30% mandatory general offer threshold.



20-Jul-20

Car announced that UCAR has terminated its agreement with SAIC; and that UCAR had now entered into a SPA with Jinggangshan BAIC to acquire its 20.87% stake in Car at HK$3.10/share. Jinggangshan BAIC also signed an offer letter with Amber Gem to acquire an 8.04% of shares out (@ HK$3.10/share) - to collectively give Jinggangshan BAIC 28.91%. Amber Gem would be left holding 6.7% of shares out. 

Car announced that it has been informed that "UCAR has received a notice from the China Securities Regulatory Commission (and that the) CSRC has initiated an investigation on UCAR in connection with suspected violations of information disclosure laws and regulations by UCAR". 



24-Jul-20

Profit warning. Car expects a net loss n the 1H20 vs. net profit of RMB279mn in 1H19. Looking at impairment charges with respect to is vehicle fleet of RMB2.5bn-3RMBbn. 



26-Jul-20

Amber Gem and Jinggangshan BAIC entered into a SPA such that BAIC acquires 170.72mn shares (8.05% of shares out) from Amber at $3.10/share.



3-Aug-20

Xiaogeng Li, an NED, resigned, ceasing her membership of the audit and compliance committee



3-Aug-20

The CSRC completed its (two-week) investigation and dished out some fines to UCAR and certain directors/senior management. 



20-Aug-20

A Reuters article suggests MBK is kicking tyres



10-Nov-20

Car Inc (699 HK) announced the S&amp;P with UCAR, BAIC is terminated. MBK Partners to acquire ~20.86% of shares in Car for HK$1.77bn ($4/share).








Source: HKEx filings



The NEW News


MBK has now tabled a pre-conditional general cash Offer of $4.00/share, a 17.99% premium to last close. There are no outstanding dividends and no dividends are expected to be declared or paid during the Offer.
Pre-conditions include anti-trust approval, no default on any bonds or debt; and the Offer not triggering a "change of control" in the bond/debt instruments. Interestingly, all pre-conditions can be waived by MBK. 
The Offer is conditional on MBK holding 50% of the voting rights in Car. Irrevocables (namely Legend Holdings) holding 26.55% have agreed to tender into the Offer. Together with the 20.86% from the SPA with UCAR, MBK will hold a minimum of 47.41% of shares out. Clearing the 50% looks like a lock.
MBK intends to maintain Car's listing.


More below the fold.


Car Inc

Car Inc (699 HK): MBK's Firm Offer