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Singapore Airlines

Last Week in Event SPACE: Sing Air, Swire/Cathay, Evergrande, Crown Resorts, Capitaland REIT, Leyou

380 Views10 May 2020 07:59
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)

EVENTS

Singapore Airlines (SIA SP) (Mkt Cap: $9.2bn; Liquidity: $21mn)

The Shares ended their cum-rights trading on the 5 May, and starting 6 May - as announced by SIA several days ago - they trade without Rights (normally this would have been the 7th against the 8th Record Date but there was a Vesak holiday). If you owned 1,000,000 shares of Singapore Air as of the close of 5 May, as of 6 May you will own 1,000,000 shares + 1,500,000 Rights to Buy Shares at S$3.00 + 2,950,000 Rights to Buy MCBs at Terms.

  • Travis Lundy remains bearish the shares of SIA. He was slightly bullish the shares into ex-date expecting a squeeze on either the shares (or the rights vs their intrinsic value at the open of trading on May 13) because of mechanical short-covering, but he would be bearish the stock after that. IF you are an investor who owns the shares, and you want to sell the rights because you do not want to increase your position, but the rights are trading cheap to their intrinsic, the other method to deal with this situation is to sell the shares and exercise your rights.
  • If the shares are trading at TERP of S$4.16 and the rights are trading at S$1.12, you can sell the shares at S$4.16 and you can replace those shares by paying S$3.00 for them and not selling your rights at S$1.12. You will have made the "1% spread" rather than give it away to arbitrageurs.
  • Taxable investors may be able to use the tax loss from selling the SIA shares (not the rights) at a "loss" (S$5.91 is near the lowest price in 22 years) to offset embedded gains in other securities positions, allowing for efficient rebalancing.
  • The only mitigant to Travis' bearishness is the tone in the Q&A and Additional Info presentations provided by Singapore Air in the last week or two which show that they understand the goal should be to buy back the MCBs at the earliest possible date.

(link to Travis' insight: Singapore Air - Rights Gone Ex, What Next?)

Prored Partners Co Ltd (7034 JP) (Mkt Cap: $0.4bn; Liquidity: $3mn)

Management consultant Prored confirmed (J-only) on 21st April it had received approval to move from the MOTHERS section to the First section of the Tokyo Stock Exchange as of 28th April. TSE1 reassignment triggers inclusion into the TOPIX Index and we expect the inclusion event will be at the close of trading 28th May 2020.

  • Janaghan Jeyakumar feels that the market had anticipated this event right from the beginning. In 2019, the stock price had almost doubled before the announcement in December that they were applying to move to the TSE1, and since then, the movement in price has been relatively insignificant. The announcement in December 2019 came as no surprise. The Company was listed on the Tokyo Stock Exchange Mothers Market in July 2018 and their intentions to move to TSE1 were made clear with their 1-into-2 stock split in May 2019.
  • Janaghan's expects the inclusion size to be around 0.5mn-0.6mn shares which is only 6-8 days of ADV. Furthermore, the offerings in the last 12 months have collectively increased float by approximately 916,000 shares which is 60-80% larger than the expected inclusion size and we feel there will be enough float shareholders waiting to sell at or slightly above the current share price to satisfy the demand expected from index buyers. All told, Janaghan reckons this is largely an avoidable TOPIX Inclusion event.

(link to Janaghan's insight: TOPIX Inclusion (7034 JP): Prored Partners)

Oisix Ra Daichi (3182 JP) (Mkt Cap: $0.6bn; Liquidity: $8mn)

Japanese online grocery delivery service provider Oisix confirmed on 30th March that it had received approval to move from the Mothers market to the First Section of the Tokyo Stock Exchange as of 9th April. TSE1 reassignment triggers inclusion into the TOPIX Index and we expect that the inclusion event will be at the close of trading 28th May 2020.

  • Janaghan does not expect the TOPIX Inclusion to have a significant positive impact on stock price. He estimates the impact of the inclusion to be around 5-6 days of volume based on 3-month average daily volume and this is only 3-4 days going by 20-day ADV. This is very small. The equity offering announced in conjunction with the market reassignment alone has increased the float by around 4mn shares which is almost the same number of shares as the expected inclusion buying demand.
  • Despite promising business prospects, the stock's relative valuation versus peers is at a cycle high. This is a steadily-growing business. The company has seen strong subscriber growth over the last five years, with some weakness in the smaller units in the past year (while Oisix subscriber growth continues apace). The company's revenue has grown at a CAGR of ~31% over the past five years. The current lock-down situation in Japan means they will see a spike in demand from consumers.
  • While TOPIX inclusion is generally a positive factor, this time the inclusion is smaller than the recent Offering, meaning there may not be that much positive influence. It is not clear there is strong fundamental upside to peers as the EV/Revenue spread has expanded very recently. Only recommended as a momentum trade which means when relative momentum slows or stops, bail quickly.

(link to Janaghan's insight: TOPIX Inclusion: Oisix Ra Daichi (3182 JP))

STUBS

Swire Pacific (A) (19 HK) / Swire Properties (1972 HK)

Swire Pac's discount to NAV of 40% is around its all-time low. The implied stub, stripping out its 82% holding in Swire Prop, is at its lowest level since Props was listed in Jan 2012. The last time the implied stub touched this level, HAECO (44 HK) was being privatized. The current issues largely rotate around Swire's 45% stake in Cathay Pacific Airways (293 HK).Singapore Airlines (SIA SP) has been the large Asian airline the most forthright of the large Asian airlines to address capital issues in its massive rights offering. Cathay is also in survival mode, and exploring all options.

  • Should HK's government step in for Cathay? It is the default "national" carrier. But I think politics will get in the way. And just like the public pushback on Virgin asking for government help, when many believe Richard Branson should do some of the heavy lifting (he just sold half his stake in Virgin Galactic, so he may use those proceeds for Virgin), Hong Kong taxpayers may feel (rightly to me) the major shareholders of Cathay should similarly stump up the cash.
  • With a net debt/equity of 2.3x, roughly in line with peers - and above SIA's 1.5x - Cathay may well go cap in hand to its shareholders. This would require a material outlay for Swire Pac if it intends to maintain its % holding - you would have to imagine Cathay tapping US$4bn+. I can't see Swire throwing in the towel. An alternative scenario, one that will inevitably be played out, if not now but at some later juncture, is that Air China/CNAC makes a takeover bid for Cathay.
  • Leaning bearish on Swire Pac at 0.27x P/B on a look-through basis, appears disingenuous. It is cheap here. And the investment portfolio is prime real estate. Arguing a Long Pac, Short Prop trade, with mean reversion in mind, has merit.
  • My concern is that Pac gets saddled with significantly more debt to maintain its % holdings in Cathay after a capital raising exercise. As it stands, the majority of the Swire Group news is largely negative, and primarily focused on the stub assets. A lot of that negative news surrounding Cathay is baked into Swire Pac's price. But if Cathay does announce a major capital raising - if anything like SIA's, then the long-term prognosis for the carrier is likely bearish (see earlier comments above in this insight on SIA) - and Swire Pac takes up its share, the implied stub will probably blow out further.

(link to my insight: Swire (19 HK) Trading Cheap. Heading Cheaper On Cathay Woes)

Kingsoft Corp (3888 HK) / Beijing Kingsoft Office So-A (688111 CH) / Kingsoft Cloud (KC US)

Both Ke Yan and I analysed Kingsoft with respect to the spin-off and listing of Kingsoft Cloud (KC US) this past Friday. The IPO price range provided an indicative market cap of US$3.4-3.8bn. Ke Yan estimated that Kingsoft Cloud could fetch a fair value of US$6.4bn-US$7.6bn based on peer valuation, believes there is at least a 30% upside from Kingsoft's current share price and would go long Kingsoft.

  • I was less confident. Doubling in size, despite the offering metric, may be ambitious in this environment. Most of the benefits/monetisation from KC's listing will have been baked into Kingsoft's share price. If anything, if KC performs poorly on debut (that would not be my expectation, but possible), Kingsoft will be more negatively affected. For now, at the current discount to NAV levels, I would not chase a narrowing-in-the-discount trade, but would wait to see how KC trades.
  • Ke Yan had a discount to NAV of 63% versus mine of 60%, so roughly the same. The IPO was price was set at $17/ADS, at the mid-point of the indicative range. Shares jumped 40% on their debut - good call Ke Yan. I see the discount to NAV now at 63%, with KC comprising 17%/18% of NAV/GAV.

links to:
Ke Yan's insight: Kingsoft Trade Idea Update: Cloud Listing to Crystalize the Value
my insight: StubWorld: Kingsoft's Imminent Spin-Off

Parjointco is offering Pargesa Holding Sa (PARG SW) minority shareholders to exchange each of their Pargesa shares for 0.93 shares of Groupe Bruxelles Lambert Sa (GBLB BB). That looks fair - Pargesa has 84.7mn shares out, GBL has 156.1mn, and Pargesa holds 50% in GBL. Pargesa is at discount to its holding int GBL, and GBL a discount to its holdings. In Pargesa (PARG SW) & Groupe Bruxelles Lambert (GBLB BB): A Tale of Two Discounts, Jesus Rodriguez Aguilar recommends a Long Pargesa / short GBL's main listed companies; and Long GBL / short GBL's main listed companies. Perhaps, but it's unwieldy. And short-selling is banned in both Belgium and France until 18 May.

M&A - ASIA

Evergrande Real Estate Group (3333 HK) (Mkt Cap: $25bn; Liquidity: $44mn)

Earlier this week, for the first time in nearly two years, Evergrande bought back stock again. Evergrande last bought back shares in 2018. When they did so, they were reasonably aggressive in making sure the market - or at least the market price - was aware of and impacted by their buybacks. In just over three weeks they bought one-third of traded volume and spent 193bp more than the other two-thirds of volume did in the process. Because of the 207mm new shares issued since the 2018 buyback and now, the company has substantial room to buy back shares - roughly 11% of free float and probably 15% of Real World Float.
  • Last time, the company appeared to be sensitive around the HK$18.00 mark, and this may have been based on the HK$15.74 average in-price for Chinese Estates Holdings (127 HK). Since those 2018 buybacks, the company has paid HK$2.865/share in special dividends. If that was put towards the collateral or paid down the debt, the sensitive price is in the HK$10.00-13.00 range. A new price-sensitive range going forward may be HK$13.112, which is where the 2020 Options Grant becomes exercisable starting in late April 2021.
  • Because of the management-friendly accounting available to large Chinese real estate developers and some developers' relatively aggressive use of financial structuring between subsidiaries and parent to smooth revenue and income streams, Travis is usually quite reluctant to be bullish developer shares on a fundamental basis. Evergrande is no exception.
  • As a group, they are perhaps Too Big To Fail because much of the Chinese economy and the government's ability to apply the turbo boost when necessary relies on developers and their employees, the developer ecosystem, and the structural ability of the Chinese financial system to lend against real estate collateral seemingly without end. But Travis finds there is substantial embedded moral hazard. On the other hand, at times he is willing to be tactically bullish for flow and policy reasons. This is one of those times.
  • Given how far the shares have fallen, the new leeway Evergrande has to buy back stock and their propensity to be splashy about doing so, and the fact that the easiest policy levers for China to push in coming out of COVID-19-impacted Q1 and Q2 economic weakness are still in real estate, this is one of those times.

(link to Travis' insight: Evergrande (3333 HK) : They're Doing It Again. And This Time It Could Have Legs)

Crown Resorts (CWN AU) (Mkt Cap: $4bn; Liquidity: $23mn)

Melco Resorts & Entertainment (MLCO US) announced it has sold its 9.99% stake in Crown to Blackstone. Blackstone paid $551.55mn for the 67.675mn shares in Crown, or A$8.15/share, a 2.37% discount to the average closing price of A$8.348 over the preceding five days. MLCO paid A$13/share back in June last year. What now? As it stands, 9.99% confers a passive stake, with no board seat. Media reports are that Blackstone's acquisition was opportunistic in nature, and that they have no plans to increase their stake. For now, maybe. Outside the Las Vegas and Macau Las Vegas and Macau casino clusters, expansion is thin on the ground. Which makes the Crown story, and its Australian footprint, an attractive opportunity.

  • Packer is a seller. In April of last year, Crown confirmed that it was in confidential discussions with Wynn regarding a potential change of control transaction following approaches to Crown by Wynn Resorts (WYNN US), at A$14.75/share. Those discussions were promptly terminated the following day. A month later, the Melco deal was struck. Genting Bhd (GENT MK) was also seen to be in the mix.
  • Melco selling is not the end of the matter. The casino inquiry is ongoing by the Aussie regulator, having been delayed due to COVID-19. Packers holds 36.8% in Crown. But it is highly unusual to hold such a large position, with no board seat (in either Crown or his private company CPH Group), having stepped back from the limelight in March 2018. His resignation occurred subsequent to the grant of the casino licence. The simple act of not notifying the regulator about the Melco/Crown deal in the first place, is troubling, and it is possible the inquiry will continue despite the exit of Melco. It is, however, doubtful the license will be yanked.
  • Packer viewed Melco as his exit strategy. Melco was good for 19.99% and was seeking approval to go higher. That avenue has now been cut off. Once the casino inquiry completes, and taking the view Crown's remains on as the licensee, my guess is that Blackstone makes a move. Crown doesn't appear overly expensive, though not overly cheap at these levels. But there is a large player circling, with skin in the game. This looks worthwhile picking up on weakness, especially below $9, and closer to the $8.15 in-price.

(link to my insight: Crown: Blackstone's Passive Bet, For Now)

Keppel Corp Ltd (KEP SP) (Mkt Cap: $7.7bn; Liquidity: $21mn)

Travis' last insight Keppel Corp Partial Tender Update - Odds Less In Your Favor Now Than Before surprised some people because he put it out as a bearish insight. That required some further explanation. He said that he had turned "Bearish" on Keppel vs its Proxy Baskets because if we look at buying 100,000 shares of Keppel, assuming that tendering the 1,000,000 shares of Keppel will lead to a sale of 389,000 shares (i.e. 100% of minority investors participate), and hedge the resulting 611,000 shares with a basket of proxy baskets, the valuation buffer one had for doing was somewhat limited.

  • If you are a long-only investor in Keppel, on a relative basis vs its proxy/peers, it is at the expensive end of things for the opportunity simply because one would want a greater margin of safety on any kind of event like this given the uncertainty surrounding the evolution of profits under the scenario of continued economic impact of COVID-19.
  • If you are a hedge fund, able to borrow Keppel shares in order to buy and borrow and tender, then the current price is still eminently reasonable as a price to buy. And assuming the Tender Offer gets announced in the next short while, the risk vs proxies may not be significant. That, by itself, would allow me to be bullish Keppel, however, event-trading is not the act of Buying at A and Selling at Z, but instead, one buys at A, suffers the path risk of portfolio P&L indignity from B to Y, then sells at Z.
  • The timing is still in question, and uncertainty is contagious, so for the moment I would wait for a further relative and/or absolute pullback in Keppel shares

(link to Travis' insight: Keppel Corp - Two Ways To Tender)

Leyou Technologies (1089 HK) (Mkt Cap: $0.9bn; Liquidity: $2mn)

Coming on two months since entering into a definitive agreement (now terminated) with Tencent-backed iDreamsky Technology Limited (1119 HK) - and over five months since an MOU was announced - nothing definitive has been publicly announced. Leyou has now announced Yuk Kwok Cheung Charles and Zhejiang Century Huatong A (002602 CH) have entered into an MOU for Yuk’s 69.2% stake in Leyou. No price was mentioned. Should the sale occur, an MGO will be triggered for the remaining 30.8%.

  • On the 3 April, online consumer finance service provider VCredit Holdings Ltd (2003 HK) announced the subscription and issuance of 600mn new shares at $6.60/share (HK$3.96bn all-in, to be paid via a deposit and two instalments), equivalent to 54.58% of shares out on FD basis. The subscriber? Leyou's Charles Yuk. That subscription outlay is about 80% of his current holding in Leyou. The long-dated negotiations with iDreamsky may have spurred Yuk to seek out third parties.
  • The entry of Century Huatong creates a pseudo-competitive bidding situation from two decent-sized players occurs. iDreamsky is not out of the picture. That's worth getting involved here.
  • A cautionary tale - independent shareholders recently voted down Neway Group Holdings (55 HK)'s "whitewash waivers" with respect to a 2:1 rights issue. Whitewash waivers require 75% approval - only 73.23% voted in favour. Allowing investors to take control of a company without making a general offer are not always straightforward - this is in regards to Yuk and VCredit, a deal which is also contingent on a waiver.

(link to my insight: 58.com: Done Deal If Tencent Joins Consortium)

Alpha Networks (3380 TT) (Mkt Cap: $0.9bn; Liquidity: $2mn)

John Lee (also known as Li Zhongwang) has been Chairman and CEO of Taiwanese network hardware designer and manufacturer Alpha since 2003. Or may be "was." One cannot be sure yet. There was a board coup to oust him by a couple of large corporate holders (Qisda and D-Link) acting in concert. There is, subsequent to the ouster of Lee and installation of Qisda's board rep as the new chairman, a tender offer announcement by Qisda to take it from what appears to be 23.8% to 28.8-42.8% (buying 5-19%) of the shares out. That gets to a minimum pro-ration, depending on Qisda's actual position (18.4% is recorded in the TWSE database, 23.8% is reported in the media) of 31.0-33.9%, though index and director holdings probably put the effective minimum a few percent higher at say 37-38%.

  • The Tender Offer will be launched within a week, according to the filings. John Lee only holds about 0.8% of the shares outstanding so will not be leading the fight to defend with his own position. But he is fighting his ouster through an injunction filed with the Court to keep the newly "elected" chair from taking his post. If the Court decides that indeed his ouster was illegal, then that could allow Lee to slow the process down, but he cannot stop the Tender Offer, and presumably once it is done, he will be out anyway. His goal has to be to help get the "right" deal for minority shareholders through fair board procedures.
  • Fundamentally, this stock has been a bit all over the place. Revenues in 2018-2019 had dropped significantly - to 14-15 year lows. It would be easy to see why large shareholders might be disappointed. It is also not clear that the shares are necessarily worth more than TWD 30/share on an earnings basis though Travis has not looked at what hidden assets may exist (though Alpha Networks appears to own a 31% stake in Hitron Technology (2419 TT) which is worth about TSD 2.0bn or 15% of Alpha Networks' market cap. Hitron itself is a small company and not a bad earner, but Travis does not see it being worth the bulk of Alpha Network's value.
  • Alpha Networks shares were limit up this past Monday. Travis would suggest that they could go higher, but he is not sure that Alpha Networks is fundamentally worth a great deal more. At TWD 27 and assuming 85% of minority shareholders participate, the residual is "worth" TWD 25.00 a share, which is near the top of the range for the last few years. To be worth any more than that there needs to be a serious integration program or a LOT of customers. The other possibility is that Lee finds friends and they put in a counter-bid, but Travis thinks displacing an existing 43.8% of holdings might be a tall order for a rival bidder.

(link to Travis' insight: Alpha Networks (3380 TT): A Board Coup and Partial Offer To Control)

Nichii Gakkan Co (9792 JP) (Mkt Cap: $0.9bn at Tender Offer Price

  • On Friday 8 May, insiders (the President and members of the founding family) announced an MBO to be executed with Bain Capital Japan.
  • This looks something like a stitchup.
  • It was trading ¥1600/share when the family approached Bain (the head of Bain Japan was an independent director) and the deal came at ¥1500/share. This deal is too light given the capital structure, and when you realize the banks will lend the entire purchase amount, you understand that the family are effectively getting the company for free.
  • And that isn't the rest of the company. That could be considered the whole company. They sell their shares to the Bidder. They buy into the bidder with the proceeds. The Banks lend the entire purchase price, and on a net basis, the family could take their money out immediately afterwards.
  • The capital structure suggests there is money to wring out of this. The VISION 2025 Medium Term Plan is far more bullish than the forecast that management proposed for the fair valuation.
  • The big question is Effissimo. They own 11.4%. If they tender, and the crossholders and ESOP tenders, then only 2mm shares more from the public would be needed. That is about 3% of shares out. He thinks this gets done. The only question is whether Effissimo is already aligned, or if they decide they want an extra kiss.

(link to Travis' insight: Nichii Gakkan MBO: Great Deal for the Buyers (Not so Much for Minorities) )

In CCT+CMT: CMT Results Update, Doing the Right Thing but Feeling the Pain, Sumeet Singh took a quick look at Capitaland Mall Trust (CT SP)'s results which were announced recently. Then on the 6 May, CMT and Capitaland Commercial Trust (CCT SP) announced that they won't be holding their EGM in May 2020, as was planned earlier, due to the ongoing COVID-19 situation. "Meanwhile, the CMT Manager and the CCT Manager will continue to stay engaged with the respective unitholders of CMT and CCT and provide further updates in due course. The Long-Stop Date under the Implementation Agreement remains at 30 September 2020." It doesn't sound particularly bullish for the deal.

In Ricoh Redux: Get Long Vs Comps, Travis reiterated suggestions that with or shortly after Ricoh Co Ltd (7752 JP)'s full-year results announcement will come the likely near-term announcement of the next Mid-Term Plan, and the announcement for how Ricoh will execute the ¥100bn capital return to shareholders from the last Mid-Term Plan results. For the background, please read Ricoh's BIG Buyback Potential - The Timing Is Right. Given that the Board has already approved the ¥100bn capital return, and that return is almost 20% of current market cap and would be 25% of float, and close to one-third of Real World Float, investors should not ignore the likely impact here. In a follow-up discussion piece, Travis noted that the new "Lift Off" Ricoh Mid-Term Plan is going to be delayed up to a full year. But we need to wait for MD&A and Q&A.

In Thai M&A (Part 2): Transforming Deals in Other Sectors, Athaporn Arayasantiparb reviewed (mainly) smaller deals in Thailand spanning healthcare (Bangkok Dusit Medical Services (BDMS TB) / Bumrungrad Hospital Pub Co (BH TB)), telecoms (Telenor ASA (TEL NO) / Total Access Communication (DTAC TB)), and banks (TMB Bank PCL (TMB TB) / Thanachart Capital (TCAP TB))

In Tencent Buys a 5% Stake in Australia’s Afterpay to Accelerate Its Overseas Expansion into Payments, Shifara Samsudeen discussed Tencent Holdings (700 HK) crossing the 5% disclosure threshold in Afterpay Holdings (AFY AU) an Australian buy-now-pay-later firm. That 5% stake is worth around A$390mn.

As discussed in Realord (1196 HK): Let's Get Real Realord Group Holdings (1196 HK), Realord is currently suspended "pursuant to the Hong Kong Code on Takeovers and Mergers". Realord has conducted numerous connected transactions between the company and its major shareholders (chairman, Lin Xiaohui, and his wife Su Jiaohua (CEO)), some of them substantial, resulting in Realord taking on significant debt. Net debt as at FY19 was HK$8.1bn, up from HK$517mn in FY17. There has been a change in auditor - twice - since Lin and Su's reverse takeover in 2014, one of which was premised on the inability to agree on an audit fee. This investment property-heavy company is trading at an eye-watering 2.8x P/B. Perhaps this will be takeunder. The company is a big avoid without an Offer.

GlaxoSmithKline PLC (GSK LN) has sold its entire 5.7% holding in Hindustan Unilever (HUVR IN) that it had got from selling its Consumer Healthcare division Glaxosmithkline Consumer Healthcare (SKB IN) to HUVR back in 2018. The deal was well communicated and marked the biggest block deal ever done in India. In mid-April, index providers adjusted the number of shares issued on HUVR to account for the new shares issued to shareholders of SKB. The change was not very big since the shares issued to GSK were classified as non-free float. In Hindustan Unilever - Overhang Gone, Now Comes The Passive Flow, Brian Freitas reckons GSK selling its shares will now significantly increase the free float and there will be a fair amount of passive buying across the MSCI, FTSE, Nifty50 and Sensex trackers.

M&A - EUROPE/UK

Telefonica SA (TEF SM) / Liberty Global Plc Lilac Class C (LILAK US)

Telefonica and Liberty are in talks to merge their UK operations. As with the street, Patryk Basiewicz assumes this will be a 50:50 JV, similar to the deal Liberty did with Vodafone (VOD LN) in the Netherlands. This transaction will fundamentally, perhaps, permanently, and, perhaps, conclusively reshape the UK telco market. Clearly other market players are currently considering their options with regards to both O2 UK and Liberty as a whole, or the Virgin Media (VMed) part. But there are no natural buyers for Virgin Media (VMed) and for O2 UK.

  • Ultimately, both Telefonica and Liberty Global want to sell those assets too. In Patryk's view, this transaction is made with a view to IPO the JV in 2-3 years.

  • Based on a 50% retention ratio of synergies, the more realistic (analytically conservative) impact on Telefonica TEF share is c. €0.22 per share from the deal. This implies that TEF share price is currently under-pricing the impact by about 2-3%. The deal’s impact on Liberty Global share is about $2 per share, which implies that the current share price move has overshot the value implications.

  • Gatecrashers? Not Hutchison's Three - their influence over the market's towers remains a regulatory issue. Comcast Corp Class A (CMCSA US)will never get past the anti-trust regulatory. Vodafone should get involved, but is busy integrating the bulk of the ex-Liberty European assets. Overseeing two transformational deals at the same time is a stretch.

(link to Patryk's insight: O2 UK / Telefonica (TEF SM) / Liberty (LBTYA): Can You Create Value from Assets that Nobody Wants?)

M&A - US

58.Com Inc Adr (WUBA US) (Mkt Cap: $8bn; Liquidity: $43mn)

Back on the 2 April, China's 58.com received a preliminary, nonbinding proposal from Ocean Link Partners, at $27.50 per Class A or Class B ordinary share, or $55/ADS, a 17.88% premium to last close. PE-outfit Ocean Link didn't appear to be the sort of company to make an US$8bn proposal on its own. So it came as no surprise when 58.com announced recently that it has received a preliminary & non-binding Offer from Ocean Link Partners and Warburg Pincus Asia LLC, General Atlantic Singapore Fund, and Jinbo Yao, 58.com's chairman and chief executive officer. The group has proposed to acquire all of WUBA's shares for $55/ADS, the same price as under Ocean Link's initial proposal.

  • The Offer remains highly opportunistic. But the concert group controls 44.1% of the votes - it needs two-thirds majority to get over the line. If Tencent Holdings (700 HK) (28.3% of the votes) is onboard, this proposal is done.
  • An Offer of US$51/ADS equates to a CAGR of 4% since Tencent's initial investment. Hardly inspiring, so don't expect Tencent to cash out here. Which leaves Tencent joining the consortium, if that is its want.
  • This is a simple bet - either Tencent joins the consortium, or it doesn't. On balance, why not bolt on its voting power and delist 58.com cheaply? There does not appear any roadblock to Tencent publicly joining the bidders. Perhaps a revised proposal including Tencent is imminent.

INDEX REBALS/REVIEWS

The S&P BSE Sensex is the flagship index of the Bombay Stock Exchange (BSE). The index has 30 stocks and is a free float weighted market cap index. The upcoming rebalance will be effective 22 June 2020 and the changes will be announced on 22 May 2020. Passive funds will need to trade at the close (VWAP over the last 30 minutes of trading) on 19 June 2020. In Sensex Rebalance Preview: The Final Cut, Brian sees a high probability of Hero Motocorp (HMCL IN) being excluded from the Sensex Index and of Bajaj Finserv (BJFIN IN) being included.

The next rebalance for the NIFTY Index (NIFTY INDEX) will be effective 25 September 2020 and the announcement of the changes will be done four weeks prior to the effective date. Halfway through the review period that runs from February to July, four stocks are eligible for inclusion HDFC Standard Life Insurance (HDFCLIFE IN), SBI Life Insurance (SBILIFE IN), Divi'S Laboratories (DIVI IN) and Dabur India Ltd (DABUR IN) while the four lowest-ranked stocks by average free float market cap and at risk of exclusion are Bharti Infratel (BHIN IN), Zee Entertainment Enterprises (Z IN), Gail India Ltd (GAIL IN) and Vedanta Ltd (VEDL IN). Avenue Supermarts (DMART IN) ranks very highly on market cap and is a constituent of the Nifty100 Index but it does not have listed Futures & Options, a prerequisite for inclusion. NIFTY50 Rebalance Preview - Early Trade Ideas.

The FTSE Global Equity Index Series quarterly rebalance in June is usually a quiet affair with few changes. In FTSE GEIS Quarterly Preview - HK IPO Inclusions, Brian sees a high probability of China Feihe (6186 HK) and ESR Cayman (1821 HK) and a lower probability of Topsports International (6110 HK) being included in the FTSE GEIS. The next quarterly rebalance will be effective 22 June and the changes will be announced on 22 May. Passive funds will need to trade at the close on 19 June. The data used to determine inclusion levels for the IPOs will use the closing prices on 11 May.

The next quarterly rebalance for the FTSE Taiwan 50 Index will be effective 22 June and the changes will be announced on 5 June. Passive funds will need to trade at the close on 19 June. The data used to determine changes to the index will use the closing prices on 18 May. At the current time, Brian does not see any inclusions/exclusions from the index. However, Pou Chen (9904 TT) is at the cusp of being excluded from the index and relative stock price moves over the next week and a half would determine any changes. We see Wiwynn Corp (6669 TT) as a possible replacement candidate. FTSE Taiwan50 Rebalance Preview - On the Cusp of a Change

The next rebalance for the FTSE Straits Times Index (STI) (STI INDEX) will be effective 22 June and the changes will be announced on 4 June. Passive funds will need to trade at the close on 19 June. Due to the merger of Capitaland Commercial Trust (CCT SP) and Capitaland Mall Trust (CT SP) (or was) expected to be completed in June, there will be a space available to keep the number of constituents at 30. At the current time, Mapletree Industrial Trust (MINT SP) is the highest-ranked non-constituent by full market cap and should be included in the index. But the cancelling the May EGM for the merger will change this narrative. STI Rebalance Preview - A Spare Space

The Kuala Lumpur Composite Index (Klci) (FBMKLCI INDEX) has 30 stocks and is a free-float weighted market cap index. The next rebalance will be effective 22 June and the changes will be announced on 4 June. Passive funds will need to trade at the close on 19 June. At the current time, Brian sees a possibility of Malaysia Airports Hldgs (MAHB MK) and Press Metal Aluminium Holdin (PMAH MK) being excluded from the index and of Telekom Malaysia (T MK) and Ql Resources (QLG MK) being included in the index. KLCI Rebalance Preview - Dialling in to Telekom

OTHER M&A & EVENT UPDATES

  • Yixin Group Ltd (2858 HK) announced DD in regards to the US$16/share Offer from Tencent Holdings (700 HK), Hammer Capital for Bitauto Holdings Ltd Adr (BITA US) is ongoing.

  • TA Enterprise (the Offeror) has resolved to seek the SC’s prior written consent to withdraw the Offer after taking into consideration, amongst others, the adverse impact of the COVID-19 pandemic to the financial performance of TA Global Bhd (TAGB MK).

  • According to a Reporter on Deals, ISS and Glass Lewis recommend shareholders to vote for Li & Fung Ltd (494 HK)'s Scheme Offer.

  • The Court date has been set for considering Metlifecare Ltd (MET NZ)’s application for initial orders to call a meeting of shareholders to vote on the scheme plan contemplated by the SIA.

  • Abbvie Inc (ABBV US) has received US FTC approval to buy Allergan Plc (AGN US). As part of the proposed consent, Allergan has agreed to divest brazikumab, an investigational IL-23 inhibitor in development for autoimmune diseases, to AstraZeneca. Also, Abbvie will sell Zenpep, a treatment for exocrine pancreatic insufficiency due to cystic fibrosis and other conditions, to Nestle. Nestle will also acquire Viokace, another pancreatic enzyme preparation, as part of the same transaction.
  • SAMR announced that they had approved the China Mengniu Dairy Co (2319 HK) and Coca Cola Co (KO US) JV which follows from the Olympics partnership they signed last June.
  • Idec Corp (6652 JP) announced the first FULL month of its Very Large Buyback (after buying back 58,600 shares in the last several days of March. In April, the company bought back 586,200 shares for ¥818.414mm. That is 1.87% of shares out and not quite 20% of the buy back program, which is scheduled to buy up to 3mm shares spending up to ¥4bn.

  • Li Ka-Shing and his son Victor, continue to chip away at CK Asset Holdings (1113 HK). Li senior (via a wholly-owned subsidiary of Li Ka Shing Foundation) is now at 34.68% (up from 34.5% from the beginning of the month) and Victor 34.74%. These % holdings are not be added together, given various related entities between the two.

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

Top Spring International Hld (3688 HK) 23.64%China MerchantsAMC
Gcl New Energy Holdings (451 HK) 20.00%Shun LoongGet Nice
Sea Holdings (251 HK) 16.25%HSBCDBS
Ernest Borel Holdings (1856 HK) 10.65%HuarongKGI
Hao Bai (8431 HK)18.75%GuotaiOutside CCASS
Source: HKEx

The following large movement(s) concern recently listed companies, and therefore are (likely) lock-up related.

Name

% chg

Into

Out of

World Super (8612 HK)12.52%Sun Int'lOutside CCASS
China Feihe (6186 HK) 18.59%CLSAOutside CCASS
Source: HKEx
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