IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Event-Driven

China Vast Industrial Urban Development / Event-Driven

<ul>
<li>
<a href="https://www.smartkarma.com/entities/china-vast-industrial-urban-development-company-limited" target="_blank" data-smartkarma-citation="entities:3212:1" rel="noopener">China Vast Industrial Urban Development (6166 HK)</a> announced a pre-conditional privatisation offer from <a href="https://www.smartkarma.com/entities/china-jinmao-holdings-group" target="_blank" data-smartkarma-citation="entities:35:1" rel="noopener">China Jinmao Holdings (817 HK)</a> at HK$2.40 per share, a 30.4% premium to the undisturbed price.</li>
<li>Key conditions include approval by at least 75% disinterested shareholders (&lt;10% of disinterested shareholders rejection). Shareholders with blocking stakes will be supportive.</li>
<li>The headcount test (if still applicable) is a key challenge as minorities are likely to be unimpressed. We would be buyers up to HK$2.26 per share (implies 75% deal probability).</li>
</ul>



China Vast Industrial Urban Development (6166 HK) announced a pre-conditional privatisation offer from China Jinmao Holdings (817 HK) at HK$2.40 per share, a 30.4% premium to the undisturbed price.
Key conditions include approval by at least 75% disinterested shareholders (&lt;10% of disinterested shareholders rejection). Shareholders with blocking stakes will be supportive.
The headcount test (if still applicable) is a key challenge as minorities are likely to be unimpressed. We would be buyers up to HK$2.26 per share (implies 75% deal probability).


China VAST’s Underwhelming Privatisation Bid from China Jinmao

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

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<div class="content-highlight">
<p><em><strong>Corrigenda: There is an error in this Insight. Please note the correction.</strong></em></p>
<p><em><strong>Correction: [Under the section “On the Evergrande holding”], that (unrealised &amp; realised) loss on the investment in Evergrande (3333 HK) of HK$10.4bn almost certainly includes the HK$3.99bn loss on investment included in the 2021 interims.</strong></em></p>
<p><em><strong>Therefore the additional (unrealised &amp; realised) loss on investment, using the $2.95/share price for Evergrande as provided in the announcement, is ~HK$6.4bn, or HK$3.37/share, giving an adjusted NAV of HK$9.61/share (ignoring forward earnings), implying a P/B under the Offer of ~0.42x compared to a three-year average of 0.31x.</strong></em></p>
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<p>After being <a href="chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/viewer.html?pdfurl=https%3A%2F%2Fwww1.hkexnews.hk%2Flistedco%2Flistconews%2Fsehk%2F2021%2F0929%2F2021092900219.pdf&amp;clen=26125&amp;chunk=true" target="_blank" rel="noopener">suspended</a> on the 29 September pursuant to the Hong Kong Code on Takeovers and Mergers, <a href="https://www.smartkarma.com/entities/chinese-estates-holdings-limited" target="_blank" data-smartkarma-citation="entities:20954:1" rel="noopener">Chinese Estates Holdings (127 HK)</a>, a leading property developer in Hong Kong, has now <a href="chrome-extension://efaidnbmnnnibpcajpcglclefindmkaj/viewer.html?pdfurl=https%3A%2F%2Fwww1.hkexnews.hk%2Flistedco%2Flistconews%2Fsehk%2F2021%2F1006%2F2021100601285.pdf&amp;clen=203491&amp;chunk=true" target="_blank" rel="noopener">announced</a> an Offer, by way of a Scheme, from its founder, Joseph Lau, and his wife Chan Hoi Wan.</p>
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<p>The consideration is $4.00/share, a 37.9% premium to last close, but an impressive 83.5% premium to the close on the last full trading day. The Offer price will NOT be increased.</p>
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<p>Lau and Chan control <a href="https://di.hkex.com.hk/di/NSAllSSList.aspx?sa2=as&amp;sid=206&amp;corpn=Chinese+Estates+Holdings+Ltd.&amp;sd=29/09/2013&amp;ed=29/09/2021&amp;cid=0&amp;sa1=cl&amp;scsd=29%2f09%2f2013&amp;sced=29%2f09%2f2021&amp;sc=127&amp;src=MAIN&amp;lang=EN&amp;g_lang=en&amp;" target="_blank" rel="noopener">74.99%</a> of the company. Disinterested shareholders comprise 21.41% of shares out, therefore the blocking stake at the forthcoming Court Meeting is 2.141% of shares out. </p>
<p>The headcount test applies.</p>
</div>
<div>
<p>In <em><a href="https://skr.ma/1HQM2" target="_blank" rel="noopener">Chinese Estates (127 HK): Potential Privatisation?</a></em>, I expected a punchy premium (to the "undisturbed price") upwards of up 75%, or $3.82/share, to get this over the line. This has been exceeded. </p>
<p>Optically, Lau and Chan appear to be getting Chinese Estates at a bargain. But the current realised plus unrealised losses on the <a href="https://www.smartkarma.com/entities/china-evergrande-group" target="_blank" data-smartkarma-citation="entities:479:1" rel="noopener">Evergrande (3333 HK)</a> holding is HK$10.4bn, which dramatically alters what is deemed to be book value, and therefore the implied valuation metric under the Offer.</p>
<p>This looks like a done deal and should trade tight to terms.</p>
</div>
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<div>
<p></p>
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Corrigenda: There is an error in this Insight. Please note the correction.
Correction: [Under the section “On the Evergrande holding”], that (unrealised &amp; realised) loss on the investment in Evergrande (3333 HK) of HK$10.4bn almost certainly includes the HK$3.99bn loss on investment included in the 2021 interims.
Therefore the additional (unrealised &amp; realised) loss on investment, using the $2.95/share price for Evergrande as provided in the announcement, is ~HK$6.4bn, or HK$3.37/share, giving an adjusted NAV of HK$9.61/share (ignoring forward earnings), implying a P/B under the Offer of ~0.42x compared to a three-year average of 0.31x.

After being suspended on the 29 September pursuant to the Hong Kong Code on Takeovers and Mergers, Chinese Estates Holdings (127 HK), a leading property developer in Hong Kong, has now announced an Offer, by way of a Scheme, from its founder, Joseph Lau, and his wife Chan Hoi Wan.


The consideration is $4.00/share, a 37.9% premium to last close, but an impressive 83.5% premium to the close on the last full trading day. The Offer price will NOT be increased.


Lau and Chan control 74.99% of the company. Disinterested shareholders comprise 21.41% of shares out, therefore the blocking stake at the forthcoming Court Meeting is 2.141% of shares out. 
The headcount test applies.


In Chinese Estates (127 HK): Potential Privatisation?, I expected a punchy premium (to the "undisturbed price") upwards of up 75%, or $3.82/share, to get this over the line. This has been exceeded. 
Optically, Lau and Chan appear to be getting Chinese Estates at a bargain. But the current realised plus unrealised losses on the Evergrande (3333 HK) holding is HK$10.4bn, which dramatically alters what is deemed to be book value, and therefore the implied valuation metric under the Offer.
This looks like a done deal and should trade tight to terms.







Chinese Estates (127 HK): $4.00/Share Offer

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<p><a href="https://www.smartkarma.com/entities/chinese-estates-holdings-limited" target="_blank" data-smartkarma-citation="entities:20954:1" rel="noopener">Chinese Estates Holdings (127 HK)</a>,  a leading property developer in Hong Kong - and avid securities investor - is currently <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0929/2021092900219.pdf" target="_blank" rel="noopener">suspended</a> pursuant to the Hong Kong Code on Takeovers and Mergers. There are, as yet, no further details, although shares did gain 33% before being halted at 11.10am today. </p>
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<div>
<p><a href="https://www.smartkarma.com/entities/charoen-pokphand-foods-public-company-limited" target="_blank" data-smartkarma-citation="entities:16131:1" rel="noopener"></a>Joseph Lau and his wife Chan Hoi Wan control <a href="https://di.hkex.com.hk/di/NSAllSSList.aspx?sa2=as&amp;sid=206&amp;corpn=Chinese+Estates+Holdings+Ltd.&amp;sd=29/09/2013&amp;ed=29/09/2021&amp;cid=0&amp;sa1=cl&amp;scsd=29%2f09%2f2013&amp;sced=29%2f09%2f2021&amp;sc=127&amp;src=MAIN&amp;lang=EN&amp;g_lang=en&amp;" target="_blank" rel="noopener">74.99%</a> of the company.</p>
</div>
<div>
<p>This insight provides some brief background on Chinese Estates, plus speculates on a fair price should a firm Offer unfold. </p>
</div>


Chinese Estates Holdings (127 HK),  a leading property developer in Hong Kong - and avid securities investor - is currently suspended pursuant to the Hong Kong Code on Takeovers and Mergers. There are, as yet, no further details, although shares did gain 33% before being halted at 11.10am today. 


Joseph Lau and his wife Chan Hoi Wan control 74.99% of the company.


This insight provides some brief background on Chinese Estates, plus speculates on a fair price should a firm Offer unfold. 


Chinese Estates (127 HK): Potential Privatisation?

<p>2020 has been a bumpy journey for Chinese toll roads. China's State Council first increased the toll-free period over the Chinese New Year to 16 days, up from seven days in a normal year. This was followed by a directive from the Ministry of Transport such that charges for using the toll roads would be waived for users from the 17 February until a later date - an exemption which was finally lifted on the 6 May.</p><p>The sector was already being scrutinized after an ETC (E-Toll discount) policy was introduced in July of last year; and a truck toll charge implemented on the 1 January of this year, with respect to toll-by-weight compared to toll-by-vehicle.</p><p>Collectively, yield-starved investors have questioned the defensiveness of the sector. Shares are off 22% on average YTD, versus 12% for the HSI.</p><h2>The New News</h2><p>On the 30 April, the China Securities Regulatory Commission and the National Development and Reform Commission jointly <a href="http://www.csrc.gov.cn/pub/zjhpublic/zjh/202004/t20200430_374847.htm" target="_blank" rel="noopener">announced</a> (Chinese-only) a new pilot for Chinese infrastructure real estate investment trusts (or C-REITs), which are ostensibly a mechanism to fund infrastructure projects such highways and airports; and only for such infrastructure which has been operational for three years.  </p><p>Details are still to be fully fleshed out, not least how China's complex tax regime will be addressed. But it is worth exploring which toll road companies <em>may</em> be best suited to being taken private and repackaged as a REIT.</p><hr><div class="content-highlight">
<h2>What's Original?</h2>
<p>The CSRC and NDRC's announcement of a pilot program for public infrastructure REITs opens the door for the potential restructuring of listed toll road companies.</p>
<p>This in-depth insight canvasses the key Chinese toll road operators listed in Hong Kong, and assesses which companies may be targeted for acquisition, from both a financial and regulatory perspective, to spearhead this new policy.</p>
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2020 has been a bumpy journey for Chinese toll roads. China's State Council first increased the toll-free period over the Chinese New Year to 16 days, up from seven days in a normal year. This was followed by a directive from the Ministry of Transport such that charges for using the toll roads would be waived for users from the 17 February until a later date - an exemption which was finally lifted on the 6 May.The sector was already being scrutinized after an ETC (E-Toll discount) policy was introduced in July of last year; and a truck toll charge implemented on the 1 January of this year, with respect to toll-by-weight compared to toll-by-vehicle.Collectively, yield-starved investors have questioned the defensiveness of the sector. Shares are off 22% on average YTD, versus 12% for the HSI.The New NewsOn the 30 April, the China Securities Regulatory Commission and the National Development and Reform Commission jointly announced (Chinese-only) a new pilot for Chinese infrastructure real estate investment trusts (or C-REITs), which are ostensibly a mechanism to fund infrastructure projects such highways and airports; and only for such infrastructure which has been operational for three years.  Details are still to be fully fleshed out, not least how China's complex tax regime will be addressed. But it is worth exploring which toll road companies may be best suited to being taken private and repackaged as a REIT.
What's Original?
The CSRC and NDRC's announcement of a pilot program for public infrastructure REITs opens the door for the potential restructuring of listed toll road companies.
This in-depth insight canvasses the key Chinese toll road operators listed in Hong Kong, and assesses which companies may be targeted for acquisition, from both a financial and regulatory perspective, to spearhead this new policy.


Chinese Expressways: A Step In The REIT Direction

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<p>Tomorrow is the Court Meeting (12 p.m.) for <a href="https://www.smartkarma.com/entities/li-fung-ltd" target="_blank" data-smartkarma-citation="entities:6290:1" rel="noopener">Li &amp; Fung Ltd (494 HK)</a>, which means today is potentially the last day to trade shares ahead of the shareholder vote outcome. </p>
<p>Shares may or may not be suspended ahead of the vote.</p>
<p><a href="https://www.smartkarma.com/entities/guoco-group-ltd" target="_blank" data-smartkarma-citation="entities:5290:1" rel="noopener">Guoco Group Ltd (53 HK)</a> was belatedly <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2018/1101/ltn201811019993.htm" target="_blank" rel="noopener">suspended</a> at 11.37AM - the Court Meeting started at 10.30AM. None of <a href="https://www.smartkarma.com/entities/china-power-clean-energy-dev" target="_blank" data-smartkarma-citation="entities:17653:1" rel="noopener">China Power New Energy Development Co (735 HK)</a>, <a href="https://www.smartkarma.com/entities/harbin-electric-co-ltd-h" target="_blank" data-smartkarma-citation="entities:11116:1" rel="noopener">Harbin Electric Co Ltd H (1133 HK)</a>, <a href="https://www.smartkarma.com/entities/hong-kong-aircraft-engineering-co-ltd" target="_blank" data-smartkarma-citation="entities:3310:1" rel="noopener">HAECO (44 HK)</a> or <a href="https://www.smartkarma.com/entities/hopewell-holdings-ltd" target="_blank" data-smartkarma-citation="entities:2283:1" rel="noopener">Hopewell Holdings (54 HK)</a> (amongst others), were suspended at all.</p>
<p>Since the <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/0419/2020041900047.pdf" target="_blank" rel="noopener">despatch</a> of the Scheme Document on 19 April, proxy advisors Glass Lewis and ISS have given the deal the green light; and Edgbaston has consistently, and continually, pared down its holding, and it would be no surprise if the next SFC disclosure filing from Silchester indicates a complete exit by Edgbaston.</p>
<p>Silchester has maintained its direct 10.9% holding since the Offer was announced, and has offered up little in the way of how it will vote, apart from the previous comments that it was open to bids for shares Silchester controls at close to the offer price.</p>
<p>Should the Scheme be successful, the effective date is expected to be on the 26 May with cash payment on or before the 4 June. </p>
</div>
<div>
<p>Currently trading at a gross/annualised spread of 8.7%/255%, having widened in the afternoon session. The downside, should the deal break, is horrendous. But on balance, the macroeconomic uncertainties in a post-COVID-19 world would suggest the Offer is price attractively for investors seeking an exit.</p>
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<p></p>
</div>


Tomorrow is the Court Meeting (12 p.m.) for Li &amp; Fung Ltd (494 HK), which means today is potentially the last day to trade shares ahead of the shareholder vote outcome. 
Shares may or may not be suspended ahead of the vote.
Guoco Group Ltd (53 HK) was belatedly suspended at 11.37AM - the Court Meeting started at 10.30AM. None of China Power New Energy Development Co (735 HK), Harbin Electric Co Ltd H (1133 HK), HAECO (44 HK) or Hopewell Holdings (54 HK) (amongst others), were suspended at all.
Since the despatch of the Scheme Document on 19 April, proxy advisors Glass Lewis and ISS have given the deal the green light; and Edgbaston has consistently, and continually, pared down its holding, and it would be no surprise if the next SFC disclosure filing from Silchester indicates a complete exit by Edgbaston.
Silchester has maintained its direct 10.9% holding since the Offer was announced, and has offered up little in the way of how it will vote, apart from the previous comments that it was open to bids for shares Silchester controls at close to the offer price.
Should the Scheme be successful, the effective date is expected to be on the 26 May with cash payment on or before the 4 June. 


Currently trading at a gross/annualised spread of 8.7%/255%, having widened in the afternoon session. The downside, should the deal break, is horrendous. But on balance, the macroeconomic uncertainties in a post-COVID-19 world would suggest the Offer is price attractively for investors seeking an exit.





Li & Fung: Nervous Action Ahead of Scheme Vote

Hong Kong

Hopewell Holdings Limited, through its subsidiaries, develops and invests in properties.  The Company also operates hotels, restaurants and food catering businesses, provides agency, construction, and project management services as well as invests in treasuries and infrastructure projects.

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Hopewell Holdings (54 HK)

China VAST’s Underwhelming Privatisation Bid from China Jinmao

The offer price is unattractive to historical multiples and precedent transactions. We would be buyers up to HK$2.26 per share (implies 75% deal...

Arun George

Chinese Estates (127 HK): Potential Privatisation?

To get this Offer the line, I reckon Lau would have to pay a significant premium to the undisturbed price. Potentially upwards of 75% or $3.82...

David Blennerhassett

Chinese Expressways: A Step In The REIT Direction

2020 has been a bumpy journey for Chinese toll roads. China's State Council first increased the toll-free period over the Chinese New Year to 16...

David Blennerhassett

Li & Fung: Nervous Action Ahead of Scheme Vote

Tomorrow is the Court Meeting (12 p.m.) for Li & Fung Ltd (494 HK), which means today is potentially the last day to trade shares ahead of the...

David Blennerhassett

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)

China VAST’s Underwhelming Privatisation Bid from China Jinmao

The offer price is unattractive to historical multiples and precedent transactions. We would be buyers up to HK$2.26 per share (implies 75% deal...

Arun George

Chinese Estates (127 HK): $4.00/Share Offer

There may be some pushback on pricing, but factoring in the Evergrande loss (real & unrealised), the Offer Price appears fair.

David Blennerhassett

Chinese Estates (127 HK): Potential Privatisation?

To get this Offer the line, I reckon Lau would have to pay a significant premium to the undisturbed price. Potentially upwards of 75% or $3.82...

David Blennerhassett

Chinese Expressways: A Step In The REIT Direction

2020 has been a bumpy journey for Chinese toll roads. China's State Council first increased the toll-free period over the Chinese New Year to 16...

David Blennerhassett

Li & Fung: Nervous Action Ahead of Scheme Vote

Tomorrow is the Court Meeting (12 p.m.) for Li & Fung Ltd (494 HK), which means today is potentially the last day to trade shares ahead of the...

David Blennerhassett