Pan-Asia Catalysts/Events, Quiddity Advisors

Travis Lundy

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

On Friday, it became known that S&amp;P Global ratings had lowered the ratings on Evergrande by two full notches, from B- to CCC, which is now four notches above Default. USD bonds issued by Scenery Journey were lowered from CCC+ to CCC-. That was the second time in about ten days that S&amp;P had lowered rates (after the agency had lower rates after the Guangfa Bank account freezing episode, later resolved, and the issue in Shaoyang City which had accused Evergrande of not depositing pre-sale funds into the escrow accounts properly). According to a Reuters article...<blockquote>"We lowered the ratings because Evergrande's liquidity position is eroding more quickly and by more than we previously expected," the rating agency said.</blockquote><div><div><div><div><blockquote><div id="reuters_desktop_native_1">It added the firm's nonpayment risk is escalating not only for the substantial public bond maturities in 2022, but also for its bank and trust loans and other debt liabilities over the next 12 months.</div></blockquote></div></div></div></div>This move followed Fitch and Moody's which had both dinged the ratings at end June and again on 28 July and 2 August, respectively. To possibly make it worse on the ratings agency front, as of Friday after the close, China's financial regulators are also on the case, trying to root out weakness in "construction of ratings methods and systems" (which could be taken to mean corruption). The PBOC (announcement <a href="http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4311502/index.html" target="_blank" rel="noopener">link</a> in Chinese), in conjunction with the NDRC, the Ministry of Finance, the CBRC, and the CSRC, jointly issued the "Notice on Promoting the Healthy Development of the Bond Market Credit Rating Industry"On Friday, Caixin Media <a href="https://www.caixinglobal.com/2021-08-06/exclusive-one-court-will-handle-developer-evergrandes-multitude-of-debt-lawsuits-101751875.html" target="_blank" rel="noopener">reported</a> that the Supreme People's Court - the top court in China - had directed that all cases involving debts owed by Evergrande and its related parties be transferred to the Guangzhou Intermediate People's Court. According to Caixin... <blockquote>A court insider said this kind of decision — known as “centralized jurisdiction” — is usually made when a company is involved in a large number of lawsuits across regions and the situation has the potential to cause a significant social impact.</blockquote>The article notes that other companies which have been subject to centralized jurisdiction include Peking University Founder Group, HNA Group - which have been put through bankruptcy and/or restructuring - and China Fortune Land Development which <a href="https://www.caixinglobal.com/2021-02-02/developer-china-fortune-defaults-on-53-billion-yuan-in-debt-101659497.html" target="_blank" rel="noopener">defaulted</a> on repayment of debt in February, and <a href="https://www.caixinglobal.com/2021-03-10/developer-china-fortune-defaults-on-another-13-billion-in-debt-101673624.html" target="_blank" rel="noopener">again</a> in March. Vice Premier Liu He apparently apparently pointed out in a State Council meeting the week before last that Evergrande's problems are one of "liquidity stress" rather than an "insolvency" situation. I'd note that a MinNews <a href="https://min.news/en/economy/aff8aa102018d13ea3af930f62859bdb.html" target="_blank" rel="noopener">article</a> quoting a REDD report says HNA Group, China Fortune Land Development, and China Minsheng Investment were also assessed as having liquidity stress and "non-insolvent debt"Banks have been asked to curb lending and in May were asked to stress-test their Evergrande exposure. Evergrande affiliate Shengjing Bank was fined in May for illegally financing real estate projects.It would appear that Evergrande has decreasing room for manoeuvre. And that room for manoeuvre depends on others' confidence in stability of outcome.

On Friday, it became known that S&amp;P Global ratings had lowered the ratings on Evergrande by two full notches, from B- to CCC, which is now four notches above Default. USD bonds issued by Scenery Journey were lowered from CCC+ to CCC-. That was the second time in about ten days that S&amp;P had lowered rates (after the agency had lower rates after the Guangfa Bank account freezing episode, later resolved, and the issue in Shaoyang City which had accused Evergrande of not depositing pre-sale funds into the escrow accounts properly). According to a Reuters article..."We lowered the ratings because Evergrande's liquidity position is eroding more quickly and by more than we previously expected," the rating agency said.It added the firm's nonpayment risk is escalating not only for the substantial public bond maturities in 2022, but also for its bank and trust loans and other debt liabilities over the next 12 months.This move followed Fitch and Moody's which had both dinged the ratings at end June and again on 28 July and 2 August, respectively. To possibly make it worse on the ratings agency front, as of Friday after the close, China's financial regulators are also on the case, trying to root out weakness in "construction of ratings methods and systems" (which could be taken to mean corruption). The PBOC (announcement link in Chinese), in conjunction with the NDRC, the Ministry of Finance, the CBRC, and the CSRC, jointly issued the "Notice on Promoting the Healthy Development of the Bond Market Credit Rating Industry"On Friday, Caixin Media reported that the Supreme People's Court - the top court in China - had directed that all cases involving debts owed by Evergrande and its related parties be transferred to the Guangzhou Intermediate People's Court. According to Caixin... A court insider said this kind of decision — known as “centralized jurisdiction” — is usually made when a company is involved in a large number of lawsuits across regions and the situation has the potential to cause a significant social impact.The article notes that other companies which have been subject to centralized jurisdiction include Peking University Founder Group, HNA Group - which have been put through bankruptcy and/or restructuring - and China Fortune Land Development which defaulted on repayment of debt in February, and again in March. Vice Premier Liu He apparently apparently pointed out in a State Council meeting the week before last that Evergrande's problems are one of "liquidity stress" rather than an "insolvency" situation. I'd note that a MinNews article quoting a REDD report says HNA Group, China Fortune Land Development, and China Minsheng Investment were also assessed as having liquidity stress and "non-insolvent debt"Banks have been asked to curb lending and in May were asked to stress-test their Evergrande exposure. Evergrande affiliate Shengjing Bank was fined in May for illegally financing real estate projects.It would appear that Evergrande has decreasing room for manoeuvre. And that room for manoeuvre depends on others' confidence in stability of outcome. 

Evergrande's Room for Manoeuvre - A Question of Confidence

TMT & Consumer Independent Equity Research Analyst, Obex Capital Research

Aaron Gabin

TMT & Consumer Independent Equity Research Analyst

TMT & Consumer Independent Equity Research

Obex Capital Research

“Obex” is Latin for Barriers to Entry. Obex Capital Management’s investment philosophy is driven by an intense focus on which business model’s Barriers to Entry are able to withstand the ever increasing competitive disruption in the TMT and Consumer Sectors.

Equity Bottom-Up

We owned Activision for many years until the pandemic when our thought was that like Netflix Activision had likely pulled in demand and would be enjoying a peak in near term earnings. The controversy around its work environment has provided an entry point for one of the best video game franchises as it is trading at 19x forward earnings, below even the March 2020 at the pandemic low. Given the stock’s longterm average of 25-26x, we think the risk reward here is compelling.<div class="content-highlight">Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.</div>

We owned Activision for many years until the pandemic when our thought was that like Netflix Activision had likely pulled in demand and would be enjoying a peak in near term earnings. The controversy around its work environment has provided an entry point for one of the best video game franchises as it is trading at 19x forward earnings, below even the March 2020 at the pandemic low. Given the stock’s longterm average of 25-26x, we think the risk reward here is compelling.Obex’s fundamental research process is focused on secular change in the TMT and Consumer sectors. We seek to differentiate between fundamental business analysis and security analysis. Before deciding if a security’s pricing and positioning merit a long or short position, we analyze the four pillars of business fundamentals (Secular Factors, TAM, Competitive Advantage, Business Model) in order to determine if this is a “good” or “not so good” opportunity.

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.

Equity Capital Markets

<a href="https://www.smartkarma.com/entities/policybazaar-insurance-web-aggregator" target="_blank" data-smartkarma-citation="entities:33470:1" rel="noopener">Policybazaar Insurance Web Aggregator (1569999D IN)</a>/PB Fintech operates the Policybazaar and Paisabazaar platforms in India. Policybazaar is India’s largest digital insurance marketplace with a 93.4% market share based on the number of policies sold in FY20, according to Frost &amp; Sullivan. Paisabazaar is India’s largest digital consumer credit marketplace with a 51.4% market share, based on disbursals in FY20, according to Frost &amp; Sullivan. PB Fintech’s shareholders include SoftBank Vision Fund, <a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, Tiger Global and <a href="https://www.smartkarma.com/entities/info-edge-india-ltd" target="_blank" data-smartkarma-citation="entities:14461:1" rel="noopener">Info Edge India (INFOE IN)</a>.   PB Fintech is looking to raise Rs60.2 billion ($809 million) at an $5 billion valuation, according to press reports. The IPO comprises a primary raise of Rs37.5 billion and a secondary raise of Rs22.7 million. PB Fintech is also considering a pre-IPO placement of Rs7.5 billion in new shares. The pre-IPO placement amount will be deducted from the primary portion of the raise. India has a highly underpenetrated insurance market due to financial illiteracy, lack of awareness of insurance, low household disposable income, complex products and inefficiencies in distribution system. Insurance penetration (premium as % of GDP) is at 3.8% in India as compared to the global average of 7.2%. However, online distribution channels are changing the insurance distribution landscape in India. A key enabler of online distribution are digital insurance marketplaces which account for 54% of the total online insurance market in FY20, according to Frost &amp; Sullivan. Policybazaar, which is India’s largest digital consumer credit marketplace, is a direct play on the rising insurance penetration rates in India. <a href="https://www.smartkarma.com/entities/paytm-mobile-solutions-pvt-ltd" target="_blank" data-smartkarma-citation="entities:26149:1" rel="noopener">Paytm (PAYTM IN)</a>, which also has an insurance marketplace amongst its various offerings, offers an alternative but less direct exposure to the Indian insurance market. We discussed the Paytm IPO in <a href="https://www.smartkarma.com/insights/paytm-ipo-initiation-a-payments-led-super-app" target="_blank" data-smartkarma-citation="insights:54983" rel="noopener">Paytm IPO Initiation: A Payments-Led Super-App</a>. <div class="content-highlight">PB Fintech operates an asset-light capital model and does not underwrite any insurance or retain any credit risk on loans. Due to its market-leading platforms, the business is well positioned to benefit from the post-COVID-19 recovery in insurance policies sales and loan disbursals by its partners. In July 2021, PB Fintech obtained an insurance brokerage license will allow Policybazaar to broaden its consumer reach through the offline channel. Helped by strong brand recognition and retention rates, the favourable unit economics also suggest that profitability is within reach. Overall, we think that PB Fintech has attractive fundamentals.</div>

Policybazaar Insurance Web Aggregator (1569999D IN)/PB Fintech operates the Policybazaar and Paisabazaar platforms in India. Policybazaar is India’s largest digital insurance marketplace with a 93.4% market share based on the number of policies sold in FY20, according to Frost &amp; Sullivan. Paisabazaar is India’s largest digital consumer credit marketplace with a 51.4% market share, based on disbursals in FY20, according to Frost &amp; Sullivan. PB Fintech’s shareholders include SoftBank Vision Fund, Tencent (700 HK), Tiger Global and Info Edge India (INFOE IN).   PB Fintech is looking to raise Rs60.2 billion ($809 million) at an $5 billion valuation, according to press reports. The IPO comprises a primary raise of Rs37.5 billion and a secondary raise of Rs22.7 million. PB Fintech is also considering a pre-IPO placement of Rs7.5 billion in new shares. The pre-IPO placement amount will be deducted from the primary portion of the raise. India has a highly underpenetrated insurance market due to financial illiteracy, lack of awareness of insurance, low household disposable income, complex products and inefficiencies in distribution system. Insurance penetration (premium as % of GDP) is at 3.8% in India as compared to the global average of 7.2%. However, online distribution channels are changing the insurance distribution landscape in India. A key enabler of online distribution are digital insurance marketplaces which account for 54% of the total online insurance market in FY20, according to Frost &amp; Sullivan. Policybazaar, which is India’s largest digital consumer credit marketplace, is a direct play on the rising insurance penetration rates in India. Paytm (PAYTM IN), which also has an insurance marketplace amongst its various offerings, offers an alternative but less direct exposure to the Indian insurance market. We discussed the Paytm IPO in Paytm IPO Initiation: A Payments-Led Super-App. PB Fintech operates an asset-light capital model and does not underwrite any insurance or retain any credit risk on loans. Due to its market-leading platforms, the business is well positioned to benefit from the post-COVID-19 recovery in insurance policies sales and loan disbursals by its partners. In July 2021, PB Fintech obtained an insurance brokerage license will allow Policybazaar to broaden its consumer reach through the offline channel. Helped by strong brand recognition and retention rates, the favourable unit economics also suggest that profitability is within reach. Overall, we think that PB Fintech has attractive fundamentals.

PB Fintech (Policybazaar) IPO Initiation: Insurance Policy

David Blennerhassett

Has there ever been so much disinformation, speculation and conjecture for a takeover of, ostensibly, a straightforward asset?
From the onset, the <a href="https://www.smartkarma.com/entities/soho-china-ltd" target="_blank" data-smartkarma-citation="entities:4123:1" rel="noopener">SOHO China Ltd (410 HK)</a> deal traded wide on concerns the transaction could turn political on account of the company's founder's son allegedly making salacious comments aimed at China's PLA around the time India and China engaged in skirmishes along the Sino-Indian border last year. 
A vacuum of any positive news and continued speculation reached a helm on the 29 July, following a vague media article suggesting the deal faced regulatory "obstacles." The shares cratered, falling 31% at one point, before "recovering" to $3.02/share, around the undisturbed price and ~40% adrift of the $5.00/share offer price.
Five days later a sister publication of the one behind the "obstacle" article, issued a note that several banks had obtained internal approvals for underwriting some of Blackstone Group’s loans to fund the Offer. Shares consequently popped.
But it appears there was considerably more substance behind that pop in price. 
Last Friday afternoon, after the close of market, SOHO announced that on 3 August 2021, Blackstone received a <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0806/2021080600685.pdf" target="_blank" rel="noopener">notice</a> from SAMR dated 2 August that the case concerning its notification under the PRC Anti-Monopoly Law had been formally accepted by SAMR for review. 
Formal acceptance should be viewed as a major positive.  Less positive is that the application does not appear to a "simple procedure" review.  
More below the fold. 
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Has there ever been so much disinformation, speculation and conjecture for a takeover of, ostensibly, a straightforward asset?
From the onset, the SOHO China Ltd (410 HK) deal traded wide on concerns the transaction could turn political on account of the company's founder's son allegedly making salacious comments aimed at China's PLA around the time India and China engaged in skirmishes along the Sino-Indian border last year. 
A vacuum of any positive news and continued speculation reached a helm on the 29 July, following a vague media article suggesting the deal faced regulatory "obstacles." The shares cratered, falling 31% at one point, before "recovering" to $3.02/share, around the undisturbed price and ~40% adrift of the $5.00/share offer price.
Five days later a sister publication of the one behind the "obstacle" article, issued a note that several banks had obtained internal approvals for underwriting some of Blackstone Group’s loans to fund the Offer. Shares consequently popped.
But it appears there was considerably more substance behind that pop in price. 
Last Friday afternoon, after the close of market, SOHO announced that on 3 August 2021, Blackstone received a notice from SAMR dated 2 August that the case concerning its notification under the PRC Anti-Monopoly Law had been formally accepted by SAMR for review. 
Formal acceptance should be viewed as a major positive.  Less positive is that the application does not appear to a "simple procedure" review.  
More below the fold. 




Global Emerging Market Equities, Propitious Research

Wium Malan, CFA

Global Emerging Market Equities

Independent, Fundamental Quantitative Research

Propitious Research

Fully independent, fundamental and quantitative equity research, focused on companies in the Telecommunication, Media, Technology, Internet and Healthcare sectors in the Global Emerging Markets. Idea generation focused on Quality stocks, trading below their intrinsic Value, with sound Corporate Governance.

Thematic (Sector/Industry)

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:<a href="https://www.smartkarma.com/entities/tencent-holdings-ltd" target="_blank" data-smartkarma-citation="entities:26:1" rel="noopener">Tencent (700 HK)</a>, <a href="https://www.smartkarma.com/entities/flipkart-online-services-private-limited" target="_blank" data-smartkarma-citation="entities:31076:1" rel="noopener">Flipkart Online Services (1398508D IN)</a>, <a href="https://www.smartkarma.com/entities/meituan-dianping" target="_blank" data-smartkarma-citation="entities:26970:1" rel="noopener">Meituan (3690 HK)</a>

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity indices. Companies mentioned this week:Tencent (700 HK), Flipkart Online Services (1398508D IN), Meituan (3690 HK)

Global Emerging Markets Weekly: 6 August 2021

China

Tencent Holdings Limited operates as an investment holding company. The Company, through its subsidiaries, provides Internet and mobile value-added services (VAS), online advertising, and e-commerce transactions. Tencent Holdings offers services to users worldwide.

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Tencent (700 HK)

Evergrande's Room for Manoeuvre - A Question of Confidence

Evergrande bad news again chips away at the bonds. Late last week saw the 2nd downgrade by S&P in 10 days, and a "centralisation of jurisdiction"...

Travis Lundy

ATVI 2Q21: Its Time to Buy Activision

The controversy around ATVI's work environment has provided an entry point for one of the best video game franchises as it is trading at 19x...

Aaron Gabin

PB Fintech (Policybazaar) IPO Initiation: Insurance Policy

PB Fintech (operates Policybazaar and Paisabazaar platforms) is looking to raise Rs60.2 billion ($809 million) through an IPO in India. Overall, we...

Arun George

SOHO China (410 HK): Time To Buy

Formal acceptance for review is a big positive development. Most deals in China are simply not accepted for review if they are a no-go - and the...

David Blennerhassett

Global Emerging Markets Weekly: 6 August 2021

This insight provides a summary of the key news developments impacting the largest countries and constituents of the Global Emerging Markets equity...

Wium Malan, CFA

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