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

Spring REIT - PAG Real Estate Bumps. Get Involved.

Spring REIT's EGM Suspension Is A Boost for PAG's Offer

Quiddity Advisors

Event-Driven

<a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2013/1125/LTN20131125013.pdf" target="_blank" rel="noopener">Listed in December 2013</a> with a property portfolio comprising office towers in Beijing's China, <a href="https://www.smartkarma.com/entities/spring-real-estate-investment-trust" target="_blank" data-smartkarma-citation="entities:19888:1" rel="noopener">Spring REIT (1426 HK)</a>'s first acquisition on the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2017/0714/ltn20170714794.pdf" target="_blank" rel="noopener">14 July 2017</a> was ... auto repair shops in the UK.
PAG Real Estate, a-then 12.5% unitholder in Spring, derided that US$46.6mn investment rationale (a transaction that narrowly, but legally, via a last-minute shareholder reshuffling in Mercuria, avoided being deemed a connected transaction) and on the <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2017/0830/LTN20170830923.pdf" target="_blank" rel="noopener">29 August 2017</a> called for an EGM to remove Spring Asset Management Limited, Spring's Manager. <a href="https://www.smartkarma.com/entities/26104" target="_blank" data-smartkarma-citation="entities:26104:1" rel="noopener">Mercuria Investment (7190 JP)</a> owns 90.2% of Spring's Manager. Unitholders <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2017/1110/LTN20171110788.pdf" target="_blank" rel="noopener">voted to keep the Manager</a>.  
On the 28 September, Spring <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0919/LTN201809191050.pdf" target="_blank" rel="noopener">announced the proposed acquisition of retail assets</a> (a shopping mall) in Huizhou for RMB1.65bn (an 18.5% discount to the appraised value) primarily funded via the issuance of new units 15.8% on a diluted basis) to the seller, Huamao, at an issue price of HK$3.372/unit.
With that dilution pending, PAG had had enough, and <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2018/0926/LTN20180926219.PDF" target="_blank" rel="noopener">announced a voluntary conditional general offer at $4.85/unit</a>, a 61.7% premium to the prior day's close, a 27.3% premium to the IPO price of $3.81/unit, and an all-time high price for the stock. A condition (though waivable) to the Offer was shareholders voting down the Huizhou acquisition.
Then matters turned downright unprincipled. The EGM to vote on the Huizhou acquisition was set for the 29 October - the first closing date of PAG's offer. The IFA for Spring gave a "not fair and reasonable opinion" in the <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2018/1014/LTN20181014013.pdf" target="_blank" rel="noopener">Response Document</a>, premised on the 19.83% discount to the NAV of $6.05/unit as at 30 June 2018. Yet Spring REIT had/has never traded at or near NAV. And the Huizhou transaction would reduce Spring REIT’s NAV/unit by 8.1% to HK$5.56.
The Huizhou EGM was finally <a href="http://www.hkexnews.hk/listedco/listconews/SEHK/2018/1018/LTN20181018954.pdf" target="_blank" rel="noopener">delayed</a> - it was determined Huamao may have been (?!) a connected party.
Proxy advisor ISS recommended shareholders vote AGAINST the transaction as it was dilutive in terms of NAV, and management lacked experience in acquiring and operating shopping malls. Glass Lewis chimed in saying PAG had raised reasonable questions around a problematic framework at Spring which continues to produce tenuously-reasoned acquisitions tied to Manager-connected entities. It also cited a disconcerting preference for strategically disparate arrangements, and the NAV dilutive final terms of the Huizhou transaction.
On the First Closing Date, PAG Real Estate <a href="http://www3.hkexnews.hk/listedco/listconews/SEHK/2018/1029/LTN20181029927.PDF" target="_blank" rel="noopener">bumped</a> its Offer for <a href="https://www.smartkarma.com/entities/19888" target="_blank" data-smartkarma-citation="entities:19888:1" rel="noopener">Spring Real Estate Investment Trust (1426 HK)</a> to $5.30/unit from $4.85. This was a 76.7% premium to the undisturbed price. Not surprisingly, PAG's revised Offer was also <a href="http://www3.hkexnews.hk/listedco/listconews/SEHK/2018/1107/LTN20181107724.pdf" target="_blank" rel="noopener">considered</a> not fair &amp; reasonable.
Mercuria manages and exercises influence over RCA Fund, the major unitholder of Spring with 27.2%, therefore it would not tender into this Offer. Neither would the Manager (4.8%) nor the directors (0.2%).  
Acceptances fell short of the required 50% threshold and the Offer <a href="http://www3.hkexnews.hk/listedco/listconews/SEHK/2018/1128/LTN20181128790.PDF" target="_blank" rel="noopener">lapsed</a> on the 28 November 2018. The Huizhou transaction was <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2018/1231/ltn201812311151.pdf" target="_blank" rel="noopener">terminated</a> on the 31 December 2018.
Nearly a year went by before the excitement started again, with Spring issuing CBs to <a href="https://www.smartkarma.com/entities/sino-ocean-land-holdings" target="_blank" data-smartkarma-citation="entities:8898:1" rel="noopener">Sino Ocean Land (3377 HK)</a>, which ultimately lead to more ructions with PAG.
As always, more below the fold.
<hr>
Previous insights on Spring
<table class="table table-striped">
<tbody>
<tr>
<td style="width: 108.909px;">
<h3>Date </h3>
</td>
<td style="width: 594.623px;">
<h3>Insight</h3>
</td>
</tr>
<tr>
<td style="width: 108.909px;">26-Sep-18</td>
<td style="width: 594.623px;"><a href="https://skr.ma/PW1CD" target="_blank" rel="noopener">Spring REIT And The Final Straw For PAG</a></td>
</tr>
<tr>
<td style="width: 108.909px;">4-Oct-18</td>
<td style="width: 594.623px;"><a href="https://skr.ma/AXvr4" target="_blank" rel="noopener">Spring REIT's EGM Should Be Delayed</a></td>
</tr>
<tr>
<td style="width: 108.909px;">15-Oct-18</td>
<td style="width: 594.623px;"><a href="https://skr.ma/9Ewzj" target="_blank" rel="noopener">Negative IFA Opinion Compromises PAG's Offer For Spring REIT</a></td>
</tr>
<tr>
<td style="width: 108.909px;">16-Oct-18</td>
<td style="width: 594.623px;"><a href="https://skr.ma/bCwT5" target="_blank" rel="noopener">Spring REIT's IFA Opinion Is Misleading</a></td>
</tr>
<tr>
<td style="width: 108.909px;">19-Oct-18</td>
<td style="width: 594.623px;"><a href="https://skr.ma/dg5kG" target="_blank" rel="noopener">Spring REIT's EGM Suspension Is A Boost for PAG's Offer</a></td>
</tr>
<tr>
<td style="width: 108.909px;">29-Oct-18</td>
<td style="width: 594.623px;"><a href="https://skr.ma/sDK4F" target="_blank" rel="noopener">Spring REIT - PAG Real Estate Bumps. Get Involved..</a></td>
</tr>
</tbody>
</table>

Listed in December 2013 with a property portfolio comprising office towers in Beijing's China, Spring REIT (1426 HK)'s first acquisition on the 14 July 2017 was ... auto repair shops in the UK.
PAG Real Estate, a-then 12.5% unitholder in Spring, derided that US$46.6mn investment rationale (a transaction that narrowly, but legally, via a last-minute shareholder reshuffling in Mercuria, avoided being deemed a connected transaction) and on the 29 August 2017 called for an EGM to remove Spring Asset Management Limited, Spring's Manager. Mercuria Investment (7190 JP) owns 90.2% of Spring's Manager. Unitholders voted to keep the Manager.  
On the 28 September, Spring announced the proposed acquisition of retail assets (a shopping mall) in Huizhou for RMB1.65bn (an 18.5% discount to the appraised value) primarily funded via the issuance of new units 15.8% on a diluted basis) to the seller, Huamao, at an issue price of HK$3.372/unit.
With that dilution pending, PAG had had enough, and announced a voluntary conditional general offer at $4.85/unit, a 61.7% premium to the prior day's close, a 27.3% premium to the IPO price of $3.81/unit, and an all-time high price for the stock. A condition (though waivable) to the Offer was shareholders voting down the Huizhou acquisition.
Then matters turned downright unprincipled. The EGM to vote on the Huizhou acquisition was set for the 29 October - the first closing date of PAG's offer. The IFA for Spring gave a "not fair and reasonable opinion" in the Response Document, premised on the 19.83% discount to the NAV of $6.05/unit as at 30 June 2018. Yet Spring REIT had/has never traded at or near NAV. And the Huizhou transaction would reduce Spring REIT’s NAV/unit by 8.1% to HK$5.56.
The Huizhou EGM was finally delayed - it was determined Huamao may have been (?!) a connected party.
Proxy advisor ISS recommended shareholders vote AGAINST the transaction as it was dilutive in terms of NAV, and management lacked experience in acquiring and operating shopping malls. Glass Lewis chimed in saying PAG had raised reasonable questions around a problematic framework at Spring which continues to produce tenuously-reasoned acquisitions tied to Manager-connected entities. It also cited a disconcerting preference for strategically disparate arrangements, and the NAV dilutive final terms of the Huizhou transaction.
On the First Closing Date, PAG Real Estate bumped its Offer for Spring Real Estate Investment Trust (1426 HK) to $5.30/unit from $4.85. This was a 76.7% premium to the undisturbed price. Not surprisingly, PAG's revised Offer was also considered not fair &amp; reasonable.
Mercuria manages and exercises influence over RCA Fund, the major unitholder of Spring with 27.2%, therefore it would not tender into this Offer. Neither would the Manager (4.8%) nor the directors (0.2%).  
Acceptances fell short of the required 50% threshold and the Offer lapsed on the 28 November 2018. The Huizhou transaction was terminated on the 31 December 2018.
Nearly a year went by before the excitement started again, with Spring issuing CBs to Sino Ocean Land (3377 HK), which ultimately lead to more ructions with PAG.
As always, more below the fold.

Previous insights on Spring




Date 


Insight



26-Sep-18
Spring REIT And The Final Straw For PAG


4-Oct-18
Spring REIT's EGM Should Be Delayed


15-Oct-18
Negative IFA Opinion Compromises PAG's Offer For Spring REIT


16-Oct-18
Spring REIT's IFA Opinion Is Misleading


19-Oct-18
Spring REIT's EGM Suspension Is A Boost for PAG's Offer


29-Oct-18
Spring REIT - PAG Real Estate Bumps. Get Involved..




Spring REIT (1426 HK): Sino Ocean (Further) Maginalises PAG