Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

HK Type 4 license through Ballingal Investment Advisors Ltd. ("BIA" or "BIAL")

BACKGROUND
I have 20+yrs experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies with most of that time spent managing money. 

4 years in fixed income macro, 8 years running internal hedge fund and 4yrs investment banking at Citi in Japan, 3 years running an Asia multi-strat portfolio at a hedge fund, 4+yrs as an independent special situations analyst.

Pan-Asia Catalysts/Events

Toshiba – After Crunching the Numbers We Believe Guidance Could Be Punchy

Toshiba TOPIX Inclusion - Weak Excess Volume So Far

Toshiba TOPIX Inclusion - Jack Be Nimble, Jack Be Quick...

The Delayed TOPIX FFW Rebalance: $32bn To Trade

Gravity Works As WeWork Doesn't; Now Plan B

Quiddity Advisors

Event-Driven

In February 2017, when the accounting and loss scandal surrounding <a href="https://www.smartkarma.com/entities/toshiba-corp" target="_blank" data-smartkarma-citation="entities:637:1" rel="noopener">Toshiba Corp (6502 JP)</a> was just taking shape, I published <a href="https://www.smartkarma.com/insights/toshiba-possible-demotion-to-tse2-the-mechanics-impact" target="_blank" data-smartkarma-citation="insights:8838" rel="noopener">Toshiba: Possible Demotion to TSE2? The Mechanics &amp; Impact</a> based on the fact that the loss envisaged would take Toshiba's shareholder equity below zero at the photo some 40 days later. That meant demotion to the TSE2, but it wasn't on people's minds yet so was not worth shorting until people got less excited about a bounce (when the real facts about the losses and its implications became clearer. THEN it would be worth a short, because the dip-buyers would have bought the dip, then the passive funds would have to sell, and new dip buyers would have to show up. So in June we got the news, as expected, and covered in <a href="https://www.smartkarma.com/insights/toshiba-demotion-from-tse1-to-tse2-topix-exclusion-jul31-close" target="_blank" data-smartkarma-citation="insights:11664" rel="noopener">Toshiba Demotion from TSE1 to TSE2; TOPIX Exclusion Jul31 Close</a>, and the stock fell.  Later that year, after the company successfully fought to retain its listing in late summer, it made an equity placement of ¥600bn in late November 2017 with promises of eventual shareholder return after it had sold its Toshiba Memory business. They avoided delisting through this capital raise, but hopes for an early return to TOPIX as had been the case with <a href="https://www.smartkarma.com/entities/sharp-corp" target="_blank" data-smartkarma-citation="entities:391:1" rel="noopener">Sharp Corp (6753 JP)</a> (which only spent a year in purgatory), were dashed when investors figured out (covered in <a href="https://www.smartkarma.com/insights/toshiba-and-topix-it-s-gonna-be-a-long-wait" target="_blank" data-smartkarma-citation="insights:16853" rel="noopener">TOSHIBA and TOPIX - It's Gonna Be a Long Wait.</a>) that TSE Listing Regulations had clauses which meant companies which had received Opinion Withheld on their accounting statements were ineligible for TSE1 listing until five years afterwards. Noises surfaced later that spring and summer so I wrote <a href="https://www.smartkarma.com/insights/toshiba-a-possible-route-to-early-tse1-topix-inclusion" target="_blank" data-smartkarma-citation="insights:21544" rel="noopener">Toshiba:  A Possible Route to Early TSE1/TOPIX Inclusion?</a> discussing possible loopholes which could allow an earlier return than spring 2022. My conclusion then was "It is tougher than it looks, but there are other reasons one should own."Fast forward a couple of years past a revival plan, ¥700bn of buybacks, and buy-ins of subsidiaries, in November 2019 the TSE decided, as it was starting its cash equity market structure review designed to raise standards for blue chips to gain more international goodwill on governance, to lower the standards of TSE1 promotion to those of TSE2. That was changed to allow the TSE to admit Toshiba back to TOPIX early, discussed in <a href="https://www.smartkarma.com/insights/nikkei-tse-rule-change-to-allow-toshiba-an-early-return-to-topix" target="_blank" data-smartkarma-citation="insights:34839" rel="noopener">[Nikkei] TSE Rule Change to Allow Toshiba An Early Return to TOPIX</a>.Toshiba announced five months later in April 2020 it had applied for a return to TSE1, discussed in <a href="https://www.smartkarma.com/insights/toshiba-return-to-topix-timing-and-size" target="_blank" data-smartkarma-citation="insights:38189" rel="noopener">Toshiba Return to TOPIX? Timing and Size</a> and after 4+ months had passed I looked at the ongoing issues of inclusion in <a href="https://www.smartkarma.com/insights/toshiba-topix-inclusion-jack-be-nimble-jack-be-quick" target="_blank" data-smartkarma-citation="insights:42235" rel="noopener">Toshiba TOPIX Inclusion - Jack Be Nimble, Jack Be Quick...</a> (I was not bullish then price-wise, though after the price fell I became positive again).  Regular Smartkarma readers who want to see the whole series on Toshiba going back four years can look <a href="https://www.smartkarma.com/profiles/travis-lundy/insights?fulltext=Toshiba" target="_blank" rel="noopener">here</a>.<h3>The NEW News</h3>The NEW News is that on Friday the TSE announced that Toshiba would be reassigned to the TSE1 on 29 January. According to TOPIX Index Methodology (<a href="https://www.jpx.co.jp/english/markets/indices/topix/tvdivq00000030ne-att/e_cal_3_topix.pdf" target="_blank" rel="noopener">25 Dec 2020 version</a>), this means it will be included in TOPIX as of the last trading day of February, which means the index inclusion event is at the close of 25 February 2021. Toshiba itself made a flowery <a href="http://www.toshiba.co.jp/about/ir/en/news/20210122_1.pdf" target="_blank" rel="noopener">announcement</a> full of words about the seriousness of its governance and compliance.Long-suffering activists may rejoice. This creates liquidity for a partial exit.The shares are up roughly 20% since the TOPIX Deletion on 31 July 2017. The shares are up about 10% from the placement in late November 2017 raising capital. This hasn't been the best of trades, but my relatively constant refrain has been to feed the ducks when they are quacking (my most recent insight on Toshiba was <a href="https://www.smartkarma.com/insights/toshiba-is-a-range-trade-still" target="_blank" data-smartkarma-citation="insights:43366" rel="noopener">Toshiba Is A Range Trade. Still.</a> four+ months ago and on that day, shares closed at ¥2,959. Today they closed at ¥2,963. But a TOPIX Inclusion of this size is a rare species, and one of this anticipation is practically mythological. So we're going to talk about it.I have a personal favourite mythological creature from Japanese folklore (originally, I believe, derived from Chinese traditions). It's called a Baku (<a href="https://ja.wikipedia.org/wiki/%E7%8D%8F" target="_blank" data-ved="2ahUKEwji-KzBqq_uAhUSGKYKHa2oBuUQFjAAegQIAhAC" rel="noopener"></a>獏) and it looks a bit like a cross between a lion and an elephant, and visitors to temples have undoubtedly seen them before.<section class="figure"><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/184/086/original/baku+asada-ji+Matsusaka+City+Soga+Shohaku.jpg?1611312861" class="editor-image img-responsive" data-smartkarma-image-id="184086"></figure><div class="content-caption">Baku, Door Painting by Soga Shohaku, Asada-ji (Matsusaka City)</div></section>This creature is perhaps an apt metaphor for the TOPIX Inclusion as far as activists and event traders are concerned.Those who want to know why should read on...

In February 2017, when the accounting and loss scandal surrounding Toshiba Corp (6502 JP) was just taking shape, I published Toshiba: Possible Demotion to TSE2? The Mechanics &amp; Impact based on the fact that the loss envisaged would take Toshiba's shareholder equity below zero at the photo some 40 days later. That meant demotion to the TSE2, but it wasn't on people's minds yet so was not worth shorting until people got less excited about a bounce (when the real facts about the losses and its implications became clearer. THEN it would be worth a short, because the dip-buyers would have bought the dip, then the passive funds would have to sell, and new dip buyers would have to show up. So in June we got the news, as expected, and covered in Toshiba Demotion from TSE1 to TSE2; TOPIX Exclusion Jul31 Close, and the stock fell.  Later that year, after the company successfully fought to retain its listing in late summer, it made an equity placement of ¥600bn in late November 2017 with promises of eventual shareholder return after it had sold its Toshiba Memory business. They avoided delisting through this capital raise, but hopes for an early return to TOPIX as had been the case with Sharp Corp (6753 JP) (which only spent a year in purgatory), were dashed when investors figured out (covered in TOSHIBA and TOPIX - It's Gonna Be a Long Wait.) that TSE Listing Regulations had clauses which meant companies which had received Opinion Withheld on their accounting statements were ineligible for TSE1 listing until five years afterwards. Noises surfaced later that spring and summer so I wrote Toshiba:  A Possible Route to Early TSE1/TOPIX Inclusion? discussing possible loopholes which could allow an earlier return than spring 2022. My conclusion then was "It is tougher than it looks, but there are other reasons one should own."Fast forward a couple of years past a revival plan, ¥700bn of buybacks, and buy-ins of subsidiaries, in November 2019 the TSE decided, as it was starting its cash equity market structure review designed to raise standards for blue chips to gain more international goodwill on governance, to lower the standards of TSE1 promotion to those of TSE2. That was changed to allow the TSE to admit Toshiba back to TOPIX early, discussed in [Nikkei] TSE Rule Change to Allow Toshiba An Early Return to TOPIX.Toshiba announced five months later in April 2020 it had applied for a return to TSE1, discussed in Toshiba Return to TOPIX? Timing and Size and after 4+ months had passed I looked at the ongoing issues of inclusion in Toshiba TOPIX Inclusion - Jack Be Nimble, Jack Be Quick... (I was not bullish then price-wise, though after the price fell I became positive again).  Regular Smartkarma readers who want to see the whole series on Toshiba going back four years can look here.The NEW NewsThe NEW News is that on Friday the TSE announced that Toshiba would be reassigned to the TSE1 on 29 January. According to TOPIX Index Methodology (25 Dec 2020 version), this means it will be included in TOPIX as of the last trading day of February, which means the index inclusion event is at the close of 25 February 2021. Toshiba itself made a flowery announcement full of words about the seriousness of its governance and compliance.Long-suffering activists may rejoice. This creates liquidity for a partial exit.The shares are up roughly 20% since the TOPIX Deletion on 31 July 2017. The shares are up about 10% from the placement in late November 2017 raising capital. This hasn't been the best of trades, but my relatively constant refrain has been to feed the ducks when they are quacking (my most recent insight on Toshiba was Toshiba Is A Range Trade. Still. four+ months ago and on that day, shares closed at ¥2,959. Today they closed at ¥2,963. But a TOPIX Inclusion of this size is a rare species, and one of this anticipation is practically mythological. So we're going to talk about it.I have a personal favourite mythological creature from Japanese folklore (originally, I believe, derived from Chinese traditions). It's called a Baku (獏) and it looks a bit like a cross between a lion and an elephant, and visitors to temples have undoubtedly seen them before.Baku, Door Painting by Soga Shohaku, Asada-ji (Matsusaka City)This creature is perhaps an apt metaphor for the TOPIX Inclusion as far as activists and event traders are concerned.Those who want to know why should read on...

Toshiba Finally Gets Into TOPIX but Beware the Baku  (It's Complicated)