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SBI Shinsei Bank

Last Week in Event SPACE: Shinsei Bank, Hongkong Land, SOHO China, Bank Rakyat, Oil Search, JCNC

268 Views12 Sep 2021 07:36
SUMMARY

Last Week in Event SPACE ...

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

M&A - ASIA

Shinsei Bank (8303 JP) (Mkt Cap: $3.3bn; Liquidity: $11mn)

When in late December 2020 Travis Lundy wrote that Shinsei was his 2021 High Conviction Trade (at the time) (in 2021 High Conviction - Shinsei Bank), he talked about buybacks, and pressure on the stock, and float, and the government ownership, and value, and business recycling, and other things. On the 9 Sept, SBI Holdings (8473 JP) announced a Tender Offer to go to 48%. The Tender Offer starts tomorrow and goes for 30 business days. The price is ¥2000/share. This is a hostile bid. They own 20.32% now after having bought about 16% in the market and Shinsei having bought enough to reduce the denominator to get SBI above 20%.

  • This will obviously not go over well, but Shinsei is in kind of a corner. It has a few choices, but not many of them good. Shinsei could pay out a special dividend to try to thwart the bid, but that goes against its own Revitalisation Plan. It could buy back a large number of shares in a Tender Offer but that would lift the ownership of SBI. It could conduct a fire sale of assets, but that would not be a good look, and would go against the Revitalisation Plan. It could conduct a Poison Pill but that might not be as easy as they think - Shinsei does not have a lot of super-management-friendly holders. Shinsei must respond with an official Opinion in ten days. The Tender Offer is 30 business days.
  • Personally, Travis thinks buying at below ¥1800 is a no-brainer. POST-tender, Real World Float could be VERY small and VERY squeezy and it is not clear to me that the stock could remain in TSE Prime. It might be OK, but it might not be.
  • Travis expects minimum practical pro-ration is 66.9% but that is based on an assumption of how much the passive holders would be willing to lend. If you think they would lend more, then it could be a bit lower.
  • If you are large and long, Travis would not sell early. He would take a very close look at the Arb Grids below and if you have questions, send a message, call, etc. If you are an event trader, he would borrow early, buy early/quickly if it trades below ¥1800. There may be less stock in "loose hands" than one might think.

Soho China Ltd (410 HK) (Mkt Cap: $2.1bn; Liquidity: $6mn)

The speculation and conjecture continues in the takeover of SOHO China's tier-1 property assets. The last piece of positive news occurred on the 3 August 2021, when Blackstone received a notice from SAMR dated 2 August that the case concerning its notification under the PRC Anti-Monopoly Law (AML) had been formally accepted by SAMR for review. But not, it seemed under a simplified review process. Then on the 6 September, SOHO announced its SAMR application was still ongoing, and that Blackstone has received further requests to provide additional information for the regulators’ review. The Composite Document is now expected to be dispatched on or before the 31 December 2021. Without either party expounding on the situation, the application now moved into Phase II - another 90 calendar days.

  • The takeaways from all of this? At the very least, there was a modicum of dialogue between the parties and the regulator. Often the clock runs down on the review process with little to no information made public, before a deal is blocked/prohibited.
  • The negatives, apart from the extended review process over property assets, which historically have not triggered similar treatment - SOHO sold Sky SOHO to Gaw Capital Partners in 2018 for RMB5bn, plus entered into an agreement to sell car parking spaces for RMB761mn, none of which attracted security concerns - is that the clock does indeed run down to the long-stop date (31 December 2021), and both parties agree to terminate negotiations. But I'd be surprised to see Blackstone walk. The underlying assets on a stand-alone basis are worth considerably more, potentially >HK$8/share by some asset valuation models.
  • UPDATE: Then disaster. In "light of the lack of sufficient progress in satisfying the Pre-Conditions" - the Offer was conditional on approval from China's competition authorities - Blackstone and Pan Shiyi pulled the transaction. The right trade going forward would appear to be one of selling their assets piecemeal, then paying out dividends. But that scenario would see cash returned to the vendor anyway, which only serves to circumvent this failed offer. The big question now is where this will trade on Monday, and who - apart from those who are short - will be buying from arb investors now that the company is certifiably toxic.

Links to my insights:
SOHO China (410 HK): At Least There Is Dialogue
SOHO China (410 HK): The Tap On The Shoulder

Bank Rakyat Indonesia Persero (BBRI IJ) (Mkt Cap: $32bn; Liquidity: $35mn)

Indonesia's largest bank by assets will see the execution of a Rights Offering. BBRI is 57% owned by government and 43% by the public. The Rights Issue will see the government "subscribe" by contributing two companies to help build out an Ultra Micro platform to augment BBRI's existing efforts in the space. The 43% of the public will receive 0.23013 rights per share owned as of 7 September, and will put up IDR 3400/share which is not quite a 10% discount. The shares went ex-rights on the 8 September on a regular-way traded basis. Not all Indonesian Rights Issues are traded. BBRI rights will be traded on market from 13-22 September. There will be Excess Rights Subscriptions possible.

  • Outside of BBCA, BBRI has the highest forward PER multiple among a selected group of major ASEAN peers, but it isn't "high" and seems a good way to own broad Indonesian growth. But others have seen forward consensus growing faster than BBRI. That may change with the development of Ultra micro and digital banking (see Angus' pieces linked in the Executive Summary above).
  • BBRI has generally outperformed an equal-weighted basket of large cap Indo bank comps or large ASEAN comps over the past five years, but all of that performance was until early Q1 2021 when the possibility of a rights issue was mooted. Since then, BBRI has underperformed. The ratio vs ASEAN peers is the lowest in a year, and the ratio against Indo peers is the lowest in 2021, and roughly the 2020 average.
  • For arbitrageurs, buy the rights, sell the shares, take the spread, own the put. The other obvious trade is to be negatively long the shares early because when the rights recipients decide whether to sell their rights or exercise them, some will sell them and that will pressure the stock. Cover by buying the rights or the shares in 5-8 trading days. For fundamental investors who really like the stock, Travis would be prepared to put money to work in several days at lower prices.

Oil Search Ltd (OSH AU) (Mkt Cap: $5.8bn; Liquidity: $39mn)

Santos Ltd (STO AU) and OSH entered into a definitive agreement to merge the two companies in an all-scrip transaction. The scrip ratio remains unchanged at 0.6275 new Santos shares for every OSH share. The merger would create a major regional player with a pro-forma market cap of ~A$21bn. Upon completion of the merger, OSH shareholders will own ~38.5% of the merged entity and Santos shareholders will own ~61.5%. The merger is subject to OSH shareholder approval, regulatory approvals, and Papua New Guinea (PNG) court approval. It's that last approval that could prove to be a sticking point.

  • PNG-incorporated OSH has a listing in the PNG, which account for 31% of the local index. Should the merger complete, and OSH is delisted, domestic shareholders will have no option but to acquire and trade their shares in Australia, an activity compounded by foreign exchange restrictions. Unless Santos plans to list the merged entity in PNG. Should PNG investment funds re-domicile in Australia, PNG local investors will be cut off from investing (via Santos and OSH) in PNG's large PNG projects.
  • No doubt the less-than-satisfactory situation revolving around the fees charged by UBS to the PNG government to borrow $1.2bn in 2014 to purchase a 10.1% stake in OSH - are not forgotten. The PNG government was compelled to sell that stake in 2017 when OSH's shares fell and it did not have the necessary funds to put up extra capital for the loan. A royal commission reckoned PNG lost US$432mn on the deal.

(link to my insight: Oil Search/Santos: PNG a Potential Party Pooper)

Nippo Corp (1881 JP) (Mkt Cap: $4.3bn; Liquidity: $6mn)

ENEOS Holdings (5020 JP) and Nippo announced a transaction where a slightly convoluted org chart of entities will try to buy out minorities of Nippo - at ¥4,000/share. The Tender Offer is likely to start between mid-October and mid-November, but in the meantime, Nippo has come out to support the Tender Offer and we have all the supporting documentation. ¥4,000/share is a lifetime high.

  • The bid is low. Egregiously low. But they own 57% and TOPIX funds own some and Travis expects retail will tender. The only way this gets blocked is if someone goes big, and goes hard and public to own and solicit others to NOT tender at ¥4,000/share. To win, one needs to convince TOPIX funds and retail to NOT sell into the tender offer. For that, the market price has to trade well through terms.
  • If you are long only and have been holding, you might hold a little longer. If you are an arb, you might consider the optionality of someone else being aggressive, but this is a big ticket. Arbitrageurs have time, but the retail position is really quite small, so the vast majority of what would come out at terms or just below is foreign and domestic active funds.

Aeon Co Ltd (8267 JP)-controlled supermarket companies Fuji Co Ltd (8278 JP) ("Fuji") and Maxvalu Nishinihon (8287 JP) ("MVNN") announced they had agreed to merge in a long-dated transaction which will complete in March 2024. Prior to that, both companies will establish a joint holding company to become a consolidated subsidiary of Aeon and integrate the management. This process is expected to be completed by March 2022. This Deal is part of a long-term restructuring exercise carried out by Aeon.

This was previously discussed by Michael Causton in Aeon: Major Overhaul of Supermarkets, Ties with Fuji (8278). Link to Janaghan Jeyakumar's insight: Fuji (8278) & Maxvalu Nishinihon (8287): Aeon Family Supermarket Integration.

Back on the 1 July, rhipe Ltd (RHP AU), a provider of cloud-based subscription software-as-a-service licenses, announced a non-binding indicative proposal from Norway's Crayon Group Holdings. Less than a week later, rhipe entered into a Scheme Implementation Deed. The Scheme consideration is A$2.50/share, less any permitted special dividend. rhipe's board said it intended to declare a fully franked special dividend, to be paid before the Scheme's implementation date. The Scheme Booklet is now out. The Scheme Meeting will be held on the 11 October, with an expected implementation date on the 3 November. The special dividend record date is the 18 October. This looks done. Link to my insight: Rhipe (RHP AU): Done Deal As Scheme Booklet Dispatched.

Pan Pacific International Holdings (7532 JP) announced it was registering for a bond issuance for up to ¥300bn, and would buy back up to 38,054,300 shares on ToSTNeT-3 before the open (7 Sept), for up to ¥80.94bn. Travis would not sell and remains bullish the stock. It has underperformed the market and its own sector and remains one of the better growth vehicles and margin vehicles in the space. Link to Travis' insight: PPIH (7532 JP) ToSTNeT-3 Buyback - The Alliance Is Strong, so FamilyMart Is Selling Shares.

On the 7 September, NCSOFT Corp (036570 KS)announced that it will buy back 300,000 shares. At the then current price, this represents ₩190bn. The purchase period is from 8 September to 7 December. NCsoft's share price has fallen 42% since the peak in early February 2021 and 25% since the end of July. Link to Douglas Kim's insight: NCsoft - Announces a Buyback Worth 190 Billion Won To Stop Share Price Bleeding.

The shares of WH Group (288 HK) have been returned to shareholders on the 9 Sept. Based on a pure price-vs-peers basis, the price today is about 3% below where it was compared to a mix of Chinese and global peers as of the day before the announcement. However, that does not include the 15% accretion to EPS from the buyback. That puts the stock a fair bit cheaper than its peer basket since the announcement 3+ months ago. And it has always traded cheap on governance concerns (and one reason why showed up last month in a public spat between the spurned first son and the chairman, discussed in WH Group - Stock Plummets as Ousted Son Drags Pigs Into The Mud. The question investors should ask themselves is.... if the family were ousted, would that be good for the share price? If the answer is yes, then the exposure here probably has some convexity given the shares trade at a multi-year low to Peers on an accretion-adjusted basis. Link to Travis' insight: WH Group Post-Tender Outlook.

In Houlihan Lokey To Take Out GCA : Light But Likely Done Travis suggested that the price for the GCA Corporation (2174 JP), an investment bank/consultant, was light, but that the tender offer at ¥1,380/share would most likely get done. On the 9 Sept, Houlihan Lokey bumped the Tender Offer Price. By ¥18/share - 1.30435% - from ¥1,380/share to ¥1,398/share. Don't spend it all in one place ladies and gents. The Tender Offer Price is STILL a bit light, but because it hadn't traded through terms by even one tick, Travis doubt there is a further bump possible. Link to Travis' insight: Houlihan Lokey Bumps the GCA Offer - A Whopping 1.3%!!!.

Friday was the last day of trading of Milton Corp Ltd (MLT AU) and Washington H. Soul Pattinson and Co. Ltd (SOL AU) before the Scheme Meeting on Monday the 13th of September. On the 7th of September, MSCI pre-announced its treatment of the merger in its indices, and that caused a one-day jump in performance and volume, changing the pre-positioning situation. As Travis said in the last insight on 3 September, the ratio is done, and now for the "hard part." Things are moving strongly into "the hard part" and investors should keep a close watch on the KPIs which should help tell you when to take profits. He tends to believe that the WHSP inclusion event will be big, but he also tends to believe that people are starting to see it. Links to Travis' insight Marvelous Milton Moves to Merger and Flows, Lots of Flows & Brian's insight: Milton - WHSP: Endgame.

STUBS

Jardine Cycle & Carriage (JCNC SP) / Astra International (ASII IJ)

Astra is up 10% in the past month, against (~4%) for JCNC, resulting in the discount to NAV at ~35%. The current implied stub of negative S$6.90/share compares its long-term average (10-years) of negative S$3.38/share. The simple ratio is the lowest outside of the onset of Covid.

  • Astra dominates JCNC with 88%/74% of JCNC's NAV/GAV. Angus Mackintosh reckons Astra continues to see good recovery through its autos and 2W divisions plus United Tractors (UNTR IJ) seeing positive tailwinds from commodities for heavy equipment and its coal contracting business. There is also a lot of hidden value in its gold mining division.
  • JCNC has been cheaper inside the last year, but that occurred largely on account of the Covid fallout.
  • Jardines/Keswicks appear to be increasingly more proactive on the corporate front of late. Not being a UK listing, JCNC is unlikely to be tabled a derisory Offer. But, an Offer cannot be totally ruled out. Especially when the market has been fixated on a possible S$2bn rights issue - roughly the size of the free float. I'd look to set-up JCNC around these levels.

(link to my insight: StubWorld: JCNC Is A Set-Up Here)

Intouch Holdings (INTUCH TB) / Advanced Info Service (ADVANC TB)

Intouch is a head-scratcher. Back in early June, I recommend avoiding the company, but not shorting it, or short tender the stock into Gulf Energy Development Public Company (GULF TB) inexplicable Offer. Extraordinary - or perhaps given the unprecedented events - the NAV discount went from 9.7% at the close of the Offer, to a 16.8% mid-week. The implied stub and the simple ratio (Intouch/AIS) have never been at such extreme levels. The new news is Thailand's cabinet ordering Intouch to lift its take to at least 51% in Thaicom, from 41.13% currently.

  • Sarath Ratanavadi’s Gulf Energy failed to achieve majority ownership in Intouch. I would not be quick to dismiss Gulf buying more shares. But my understanding of Thailand's takeover rules, is that Gulf cannot buy here. Gulf is free to acquire more shares, up to 50% before triggering a mandatory tender offer (MTO). However, within 6 months after the TO closed, the price at which Gulf buys must not exceed Bt65/share..
  • Thaicom satellite concession expire this month. The DES Ministry says a fair auction will be held to determine the operator of Thaicom's 4 and 6 satellites, which are scheduled to be handed over to National Telecom. It also faces a number of disputes over three of its satellites, one of which was decommissioned earlier.
  • Current levels for Intouch are unsustainable and unjustifiable. But it was also unsustainable at ~0% discount to NAV, where Intouch traded for most of June & July. I think Gulf is still a buyer - but not here. There are multiple factors at work regarding Thaicom. It is largely an immaterial holding to Intouch - just 2% of NAV/GAV. For now, Intouch is an avoid. I like to see this premium start to reverse before getting involved on the short side

(link to my insight: Intouch (INTUCH TB): It's All Happening)

Microstrategy Inc Cl A (MSTR US) (Mkt Cap: $6.2bn; Liquidity: $587mn)

That trade worked out well. In my note Microstrategy (MSTR US): "Crypto Through The Tulips" back on the 28 June, I recommended shorting MSTR and going long bitcoin. MSTR is up 2.3% since, against 30% for BTC. MSTR's share price was US$123 prior to its initial announcement on the 11 August 2020 it was "adopting Bitcoin as a primary treasury reserve asset". The current implied value (at the time of my insight for MSTR's stub ops - selling business intelligence software - is US$158/share, having touched US$141/share.

  • To me, without a stable “guarantor” or intrinsic value of these virtual currencies, they will never garner mainstream appeal. Cryptocurrency still appears to be a solution in search of a problem. Despite my deep scepticism, I don't view bitcoin's current price as a "bubble" - that it will simply pop, and go to zero.
  • To this, if you want exposure to bitcoin, value appears to have emerged for MSTR after its recent underperformance.
  • But my preference, if I had to choose, would be cryptocurrency exchange platforms (Coinbase (COIN US), Monex Group Inc (8698 JP)), as they capture the key digital currencies, plus lessen (some of) the volatility from outright exposure to one cryptocurrency.

(link to my insight: Microstrategy (MSTR US): Bitcoin's Mainstream/Fringes Balancing Act)

EVENTS

Hongkong Land (HKL SP) (Mkt Cap: $11.3bn; Liquidity: $11mn)

After the close of trading on the 8 September, HKL announced a US$500mn share buyback program, which will run until 31st December 2022. As the holding of treasury shares is not permitted in HKL’s constitution, any shares repurchased will be canceled. Based on the average daily volume over the last year of US$9-10mn, this buyback is roughly equivalent to ~15% of daily volume through to 2022 year-end. That's pretty meaningful. Jardine evidently believes it makes good business sense to buy back its own shares in place of deploying capital into HKL's investment and development property portfolio.

At a ~68% discount its NAV of US$14.75 (as at 30 June) - even after the move on the 9 September - HKL is cheap. Jardines think so too. This is a stock to own now, and to buy on dips.

  • On a P/B metric, HKL has traded an average discount to peers of 25% over the past five years. That discount widens to 33% compared to a basket of larger-cap property players. I saw the current discount to all peers of 41%, and 51% for the large-cap peers. HKL's average P/B over the last five years is 0.41x.
  • Given HKL's UK standard listing, Jardine Matheson Holdings (JM SP) can propose a low-ball or zero-premium Offer, then move to delist shares. There is nothing minorities can do about it - apart from taking up their dissension rights. Which is currently ongoing with respect to Jardine Strategic Holdings (JS SP)'s privatisation.
  • And HKL is also not regulatorily obligated to inform the market of any forward buyback program after moving to the Standard Board. This is why HKL has not sought shareholder approval since the AGM on the 7 May 2014 - historically, there was a buyback resolution tabled at the AGMs. This buyback announcement, therefore, is purely voluntary - there is no shareholder approval required.

Singapore Press Holdings (SPH SP)

Shareholders approved the spin-off the Media Business on Friday. That means we are on track for an EGM and Scheme Meeting in October-November to approve the distribution of SPH REIT (SPHREIT SP) units and sell the non-REIT assets for Keppel REIT (KREIT SP) units and cash.

The spread remains wide. A lack of borrow and relatively low liquidity is one problem.

Travis goes through the SPH Consideration Basket, derives the non-cash part as it has traded against a peer basket, analyses the ROA, div yield, and where the SPH basket finds its place in the fundament.

(link to his insight: SPH Shareholders Approve Spinoff - There's Still a Spread To Earn)

M&A - EUROPE

Adtran Inc (ADTN US) seeks to gain scale and strengthen its position in the fibre market, by acquiring vendor Adva Optical Networking Se (ADV GR) in an all-stock deal. Link to Jesus Rodriguez Aguilar insight: ADTRAN/ADVA Optical Networking: Friendly Merger, Spread.
The National Securities and Market Commission (CNMV) has authorized the partial offer launched by IFM on Naturgy Energy Group SA (NTGY SM) and has announced that the acceptance period will run from 9 September to 8 October, both included. Link to Jesus' insight: IFM/Naturgy: Start of Offer Period)

M&A RISK ARB WEEKLY ROUND-UP

  • This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks. I number 37, mostly firm, deals around the region.

INDEX REBALS

OTHER M&A & EVENT UPDATES

  • KPMG said in Crown Resorts (CWN AU)'s 2021 annual report (page 98): "The conditions disclosed in Note 1.1 indicate a material uncertainty exists that may cast significant doubt on the Group’s ability to continue as a going concern and, therefore, whether it will realise its assets and discharge its liabilities in the normal course of business, and at the amounts stated in the financial report. Our opinion is not modified in respect of this matter".

  • JOYY (YY US) announces a US$200mn share repurchase.
  • Carsome has requested an extension of the exclusivity period under the process deed with iCar Asia Ltd (ICQ AU), such that the exclusivity period is extended initially to the 30 September, then to automatically to the 30 October provided Carsome has completed DD by the 30 Sept. The board is currently minded to agree to this request.
  • And it's a "no deal" - BGH withdraws its proposal for Hansen Technologies (HSN AU).
  • Iress Ltd (IRE AU) has granted EQT an additional 10 days s of exclusive due diligence.
  • Singapore Press Holdings (SPH SP) shareholders voted in favour of the Proposed Restructuring.

  • The Tender Offer doc (247-4) for Siam Future Development (SF TB) has been tabled. The Offer period is for 25 business days - and closes on the 18 October. The payment date is the 20 October.

CCASS

My ongoing series flags large moves (~10%) in CCASS holdings over the past week or so, moves which 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

Tong Kee (8305 HK)75.00%China RiseOutside CCASS
ZJ Tech (8295 HK)57.33%GuotaiOutside CCASS
Luzhou Commercial Bank Co Ltd (1983 HK) 17.84%

ABCI

Outside CCASS
Cool Link Holdings Ltd (8491 HK)14.94%

Yuzhou

Outside CCASS
Chtc Fong'S Industries (641 HK) 15.90%

Citi

Outside CCASS
Zhongyuan Bank (1216 HK) 12.49%

Sheng Yuan

Yuanyin
Source: HKEx
The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.
None this week.

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: Mac Miller's (who would have celebrated his birthday this week) Good News, Nubya Garcia's La cumbia me está llamando ft. La Perla (Kaidi Tatham Remix), Radiohead's If you say the words, The Cranberries' (a nod to Dolores O'Riordan, who would have been 50 this week) Ode to my family.

What are you listening to?

Enjoy your Sunday!
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