Mapletree Commercial Trust

Last Week in Event SPACE: Mapletree Merger, China Mobile, LG Chem, China Logistics

Event-Driven
311 Views, 09 Jan 2022 07:53
EXECUTIVE SUMMARY
detail

Last Week in Event SPACE (in addition to the above) ...

  • Plus, other events, CCASS movements (flagging possible Offers and  IPO lock-ups), and Mood Spins.

(This insight covers specific insights & comments involving Stubs, Pairs, Arbitrage, share Classifications, and Events - or SPACE - in the past week)

M&A - ASIA

Mapletree Commercial Trust (MCT SP)/ Mapletree North Asia Commercial Trust (MAGIC SP) 

MCT and MAGIC announced a proposed merger which would make the combined entity a Top 10 Asian REIT.  It involves substantial pro-forma accretion for MCT unitholders because of increased leverage.  For MAGIC (aka MNACT) unitholders, it involves a decent uplift against an already strong recent relative performance.  Each unitholder in MNACT will get either a) 0.5963 units of MCT, or b) a combination of 0.5009 units + S$0.1912 in cash. Based on the VWAP of MCT on 27 Dec of S$2.0039/share, this is equal to Scheme Consideration of S$1.1949. The Goal? Better diversification. Bigger (S$17bn in AUM) and better platform.This should get approved easily in the EGM and AGM meetings scheduled for mid-April 2022.

  • The deal involves a substantial upweight for MCT in the FTSE EPRA Nareit Global Indices, the MSCI indices, and FTSE Straits Times Index. All told, there is about 25-33 days of ADV of MCT to buy, which will likely be spread across MCT and MAGIC. 
  • Because of the merger arbitrage, borrow in MCT will likely be somewhat difficult to come across and so will be expensive, and will get more difficult and more expensive as time goes on.  MAGIC will likely jump a bit to trade closer to terms less a discount for the borrow cost of MCT. MCT has recently underperformed a basket of the Top 12 Most Liquid S-REITs, the Top 5 Liquid S-REITs, and a basket of Most Appropriate Comps.
  • One could expect that the prospect of increased pro-forma NAV and DPU will cause active investors to increase their weightings of MCT in a portfolio.  One should expect that if this passes unitholder muster in April, there will be considerable buying in May by passive funds.  Both active and passive buying should lead to outperformance of MCT vs a basket of S-REIT Comps. 

(link to Travis Lundy's insight: Mapletree Mega-Merger Means MCT Markup)


China's AML (Anti-Monopoly Law) Authority approval, the key SPA condition to the China Logistics Property Holdings (1589 HK) transaction, has now been satisfied.  A number of conditions to the SPA remain outstanding, almost all of which can be waived by the Offeror (JD.com Inc. (9618 HK)). Trading tight to terms with possible payment in early February. Link to my insight: CLPH (1589 HK): MGO Imminent As Anti-Monopoly Approval Satisfied.


The Katakura Industries (3001 JP) MBO was launched in early November at a price which was too light but activist/long-time holder Oasis agreed to sell (with an up-and-out exception).  Another would-be activist bought Oasis' shares at a premium to the Tender, encouraging hopes of a bump in the Tender Offer Price. The bidder dashed those hopes, and shares fell, but not to the TOB Price. Link to Travis' insight: Katakura Tender Offer Bump Now Looks Off. It Is Take-The-Loss or Hold-On-For-Later.


The Scheme Document for the S$1.4bn ESR-REIT (EREIT SP) / ARA LOGOS (ALLT SP) merger has now been dispatched. The Scheme Meeting will take place on the 27 January with the expected date for the payment of the Cash Consideration and issuance of Consideration Units on the 28 February.  The IFA (ING Bank) considered the terms of the Scheme to be fair and reasonable. Link to my insight: ARA Logos (ALLT SP): Scheme Doc Out. Meeting On 27 Jan.


For a decade Adastria Co Ltd (2685 JP) was the fastest growing fashion retailer but, as it matured and the apparel market stagnated, growth rates declined. The company now wants to become a diversified lifestyle retailer with food as a major element so, to speed things along, it will acquire restaurant business Zetton Inc (3057 JP).  It is also investing in overseas retailers to spearhead expansion abroad, a strategy that will include Zetton's leading chain, Aloha Table. Link to Michael Causton's insight: Adastria to Expand Beyond Fashion with Zetton Acquisition.


Asia Optical Co (3019 TT) has bumped its Scheme Offer Price for Yorkey Optical International (2788 HK) to HK$0.999/share, a 13.5% increase over its original Offer Price of HK$0.88/share. David Webb, who previously indicated the original price was inadequate, has given an irrevocable undertaking to vote his 49.588mn shares (10.4% of Independent Scheme Shares) in favour of the Scheme. This transaction is now done. The Scheme Document is expected to be dispatched on the 25 January suggesting payment early April. Link to my insight: Yorkey Optical (2788 HK): Webb Backs Asia Optical's Bump.


Keiyo Co Ltd (8168 JP) announced a large (9.2% of shares out) ToSTNeT-3 buyback at JPY 855/share.  Normally this would be an occasion for looking at the significant accretion. However, float is low and there appears to be one buyer who may have influenced the price upwards in recent months. It appears that holder which increased its stake last year could be the seller. If it is the seller, there may not be another buyer waiting in the wings. The stock would see EPS accretion for next year, but even if the company raises EBITDAM from long-term industry-lagging numbers to industry average, and shareholders benefit from accretion, it will still be more expensive than peers on a PER basis - trailing and/or forecast.  Link to Travis' insight: Very Large Keiyo (8168 JP) Buyback NOT Necessarily Bullish.


Shares have declined ~9% since copper/cobalt miner Jinchuan Group International Resources (2362 HK) said it was unaware Jinchuan Group, its largest shareholder, was proposing a privatisation plan.  There is, as yet, no deal on the table. Just rumours.  Jinchuan does not appear expensive relative to peers. Not once has the listed vehicle tapped the secondary market. Volume, relative to its market cap, is minimal. Copper is a mainstay for most electrical wiring, power generation, transmission, distribution, and circuitry on account of its high conductivity and durability. As the world moves towards alternative energy sources, copper should remain in high demand. Jinchuan is also China's third-largest cobalt refiner, whose output is used in lithium-ion batteries.  Taking the company private would not be a significant outlay for Jinchuan Group. Especially ahead of the Musonoi project coming online. I'd be looking to get involved on any further weakness. Link to my insight: Jinchuan International (2362 HK): Thoughts On A Rumoured Offer.

EVENTS

China Mobile (941 HK)  (Mkt Cap: $131bn; Liquidity: $288mn)

The China Mobile (600941 CH) A-Share IPO at RMB 57.58/share started trading on 5 January. Travis Lundy thought the premium disappointing, and the dividend overly attractive. At 800x over-subscribed, with substantial clawback, IPO allocations to mainland investors were limited. Cash should be back in investors' hands and the yield is very attractive on A-shares and H-shares. Ahead of trading, China Mobile announcement of a massive buyback. This was within the mandate granted in the 2021 AGM on 29 April 2021, but this has to be considered to be a surprise. They will not likely be able to buy back H-shares past the late April 2022 AGM under the existing mandate, but one would expect the mandate to be renewed and for China Mobile to continue buying.

  • 10% or 2.047 billion shares is a LOT.  It is 37% of the entire publicly-tradable CCASS position. It is nearly 70 days of ADV. The really big picture is China Mobile finally doing something right with its huge pile of cash.  One should expect that the main goal is to cover the 972,555,000 shares of dilution created through the RMB Share Issuance, not necessarily to buy back all 2.047 billion shares. 
  • Travis would buy dips post the pop. He expects China Telecom (H) (728 HK) could rally on this news too because the H-share trades at a 50% discount to the A-share and the company has net cash equal to about 10% of shares out. Travis expects other SOE H-shares with significant discounts to the As and lots of net cash or significant ability to maintain and roll a net debt position could look at buying back H-shares. This is a good example of an issuer executing an H-share discount arb for the benefit of shareholders. 
  • If this picks up, Travis would want to be long ALL deeply discount H-shares where the SOE has spare cash, a big discount, and particularly in cases where the Trump Executive Order caused US Persons to sell. 

Japan Prime Realty Investment (8955 JP) ("JPR") announced a follow-on equity offering to fund part of their recently announced property acquisition. The primary offer quantity is 38,100 units. In addition, there will also be an over-allotment quantity of 1,900 units. The total size of this offering could be roughly ¥16bn (~US$135mn).  In Japan Prime Realty REIT (8955 JP): Offering Could Trigger Outperformance Vs TSEREIT Index, Janaghan Jeyakumar takes a look at the attractiveness of JPR's latest offering with greater emphasis on the potential for strong post-offering secondary market performance.


On 5 January, Posco (005490 KS) announced several shareholder-friendly policies including a partial cancellation of its treasury shares. POSCO currently has 11.56 million treasury shares, accounting for 13.3% of its total outstanding shares. The company has not specified exactly how many treasury shares it will cancel this year. Link to Douglas Kim's insight: POSCO Announces Partial Cancellation of Treasury Shares


Nippon Building Fund (8951 JP)("NBF") announced a follow-on equity offering to fund part of their recently announced property acquisition.  The primary offer quantity is 47,500 units. In addition, there will also be an over-allotment quantity of 2,500 units. The total size of this offering could be roughly ¥33bn (~US$285mn). In Nippon Building Fund (8951): Offering Could Trigger Outperformance Vs TSEREIT Index, Janaghan takes a closer look at the details of this offering and the potential of this offering to trigger strong secondary market performance in the following weeks. In Nippon Building Fund (8951) - Calculating Passive Tracking of J-REITs and Index Events Around Offers, Travis looks at how much of float is held by passive trackers. 


Comforia Residential REIT (3282 JP) ("CRR") announced a follow-on equity offering to fund part of their recently announced property acquisition.  The primary offer quantity is 22,960 units. In addition, there will also be an over-allotment quantity of 1,140 units. The total size of this offering could be roughly ¥7.4bn (~US$64mn). In Comforia Residential REIT (3282 JP):  Offering Could Trigger Outperformance Vs Comps, Janaghan looks at the attractiveness of CRR's latest offering with greater emphasis on the potential for strong post-offering secondary market performance.

STUBS

LG Chem Ltd (051910 KS) / LG Energy Solution (LGENERGY KS) 

Korean EV battery unit play LGES has now opened its books to raise up to US$10.7bn, which will be the country's largest-ever IPO. Shares are expected to be sold in a price range of ₩257,000 to ₩300,000 per share, in line with information released last month. Separately, LG Chem is trading at its widest indicative discount to NAV in the past twelve months. 

  • LG Chem shares are trading at a 15 month low. Shares are down 25% in the last year. The consensus target price is up ~13%.  The market is assigning ₩18bn less for the stub ops since December 2020, ₩17bn since LGES applied for a preliminary IPO review on June 9, and ₩10bn since deal specifics were made public early last month.  At the low-end of pricing,  the expected holding in LGES after the IPO exceeds LG Chem's current market cap. 
  • Even taking the view a nominal 30% holding discount should be applied - given the relatively clean composition of the NAV and the controlling stake into LGES - LG chem appears beaten up at these levels. 
  • Potentially go outright long or, until LGES lists, hedge against a basket of domestic chemical peers, all of whom have outperformed LG Chem over the past six months. Pushback?  LGES gets bid up post IPO causing the discount to widen, at least in the short term.
  • UPDATE: After a 16% move in four days, Mio Kato reckons in LG Chem – Holdco Discount Narrowed Like a Charm… Time to Exit it is time to exit.

(link to my insight: LG Chem Trading Cheap As LG Energy Opens Its Books)


Heineken Holding NV (HEIO NA) is currently trading at holdco discount of 17.1%, which is around -1.67x the standard deviation of the 90-day average holdco discount. The holdco discount has generally followed an expanding trend during the last 18 months. (From around 6.0-10.0% pre-COVID to an average of 14% over the last 12 months). With the sector seemingly overvalued and Heineken NV trading expensive to peers, Oshadhi Kumarasiri expects the discount to return to the pre-COVID level (6-11%) alongside a correction in the sector’s valuations. Link to Oshadhi's insight: Heineken Holdings: Holdco Discount Could Return to Pre-COVID Levels.

M&A - EUROPE

  • The deal did not pass muster with the New Mexico PRC (the last hurdle) but still is strategic for Iberdrola, hence the longstop date os extended to 20 April 2023. There should be higher chances to obtain the green light. On a standalone basis, Jesus Rodriguez Aguilar's TP for PNM Resources (PNM US) is $50.47/share. Gross spread is 9.2%, with likely a year to closing.  Recommendation is Long PNM US, underpinned by stand-alone comparables based valuation and a 2.9% dividend yield. There is the possibility of further upside coming from a sweetening of the offer price. Link to Jesus' insight: Iberdrola/PNM Resources: Longstop Date Extension

M&A RISK ARB WEEKLY ROUND-UP

INDEX REBALS

  • The FTSE UK Index Series is a widely tracked family of sub-indices representing the  performance of the public equity market in the UK.  These indices are reviewed on a quarterly basis in March, June, September, and December. In FTSE UK Index Series: Leaderboard for March 2022, Janaghan takes a look at the potential constituency changes that can happen in the March 2022 Rebalance for the FTSE 100 and FTSE 250 Indices.

OTHER M&A & EVENT UPDATES

CCASS

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves that are often outside normal market transactions.  These may be indicative of share pledges.  Or potential takeovers. Or simply help understand volume swings. 

  • Often these moves can easily be explained - the placement of new shares, rights issue, movements subsequent to a takeover, lock-up expiry, amongst others. For those mentioned below, I could not find an obvious reason for the CCASS move.   

Name

% chg

Into

Out of

IA Finance (1563 HK) 51.23% Shanghai Comm Bank Outside CCASS
Wai Yuen Tong Medicine Holdings (897 HK)  59.47% BNP MS
Steve Leung Design Group Ltd (2262 HK)  22.47% BEA BNP
Glory Sun (299 HK)  19.35% Glory Sun Outside CCASS
Impro Precision Industries (1286 HK)  10.62% DBS HSBC
Central China New Life (9983 HK)  45.01% BNP CMB
Xingye (9916 HK) 18.41% Zhongtai Outside CCASS
China Tontine Wines (389 HK)  11.31% Yuet Golden Eagle
Yincheng (1922 HK) 10.46% China Tonghai Outside CCASS
Source: HKEx
  • The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Name

% chg

Into

Out of

Brii Biosciences (2137 HK)  20.81% MS Outside CCASS
SF Intra-City (9699 HK)  22.49% CICC Outside CCASS
Source: HKEx

I listen to a bunch of music when writing insights. Here are a handful of tunes, old & new, that piqued my interest during the week: Dry Cleaning's Strong Feelings, Widowspeak's The Good Ones, Vanishing Twin's Big Moonlight, Gene Harris' I'm Still Sad (Live).

What are you listening to? 

Enjoy your Sunday!



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David Blennerhassett
Pan-Asia Catalysts/Events
Quiddity Advisors
EquitiesEvent-Driven

HK Type 4 license through Ballingal Investment Advisors Ltd. I'm a highly experienced sell-side analyst with in excess... 

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