Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

In this weeks recap, we look at:<ul>
<li>the <a href="https://www.smartkarma.com/entities/santos-ltd" target="_blank" data-smartkarma-citation="entities:711:1" rel="noopener">Santos Ltd (STO AU)</a> / <a href="https://www.smartkarma.com/entities/oil-search-ltd" target="_blank" data-smartkarma-citation="entities:773:1" rel="noopener">Oil Search Ltd (OSH AU)</a> merger and the impact on the S&amp;P/ASX 100 and <a href="https://www.smartkarma.com/entities/s-p-asx-200" target="_blank" data-smartkarma-citation="entities:22901:1" rel="noopener">S&amp;P/ASX 200 (AS51 INDEX)</a> </li>
<li>the spread on the <a href="https://www.smartkarma.com/entities/keppel-corp-ltd" target="_blank" data-smartkarma-citation="entities:12:1" rel="noopener">Keppel Corp (KEP SP)</a> / <a href="https://www.smartkarma.com/entities/singapore-press-holdings-limited" target="_blank" data-smartkarma-citation="entities:9952:1" rel="noopener">Singapore Press Holdings (SPH SP)</a> deal and potential index flows</li>
<li>the listing of <a href="https://www.smartkarma.com/entities/hyundai-heavy-industries-co-ltd" target="_blank" data-smartkarma-citation="entities:33808:1" rel="noopener">Hyundai Heavy Industries (329180 KS)</a> and the potential Fast Entry into the <a href="https://www.smartkarma.com/entities/korea-stock-exchange-kospi-200-index" target="_blank" data-smartkarma-citation="entities:26021:1" rel="noopener">Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX)</a> </li>
<li>the potential changes to the <a href="https://www.smartkarma.com/entities/stock-exchange-of-thailand-set-50-index" target="_blank" data-smartkarma-citation="entities:31493:1" rel="noopener">Stock Exchange of Thailand SET 50 Index (SET50 INDEX)</a> at the December rebalance</li>
<li>the potential changes to the <a href="https://www.smartkarma.com/entities/hang-seng-tech-index" target="_blank" data-smartkarma-citation="entities:31367:1" rel="noopener">Hang Seng Tech Index (HSTECH INDEX)</a> at the December rebalance</li>
<li>the potential changes to the Hang Seng Composite Index (HSCI) at the December and March rebalances</li>
</ul>There are no major index events in the coming week - there were enough in the last week!There were substantial inflows to onshore China ETFs in the last week, while there was finally an outflow (albeit a small one) from <a href="https://www.smartkarma.com/entities/kraneshares-csi-china-internet-fund" target="_blank" data-smartkarma-citation="entities:28208:1" rel="noopener">KraneShares CSI China Internet Fund (KWEB US)</a>.

In this weeks recap, we look at:
the Santos Ltd (STO AU) / Oil Search Ltd (OSH AU) merger and the impact on the S&amp;P/ASX 100 and S&amp;P/ASX 200 (AS51 INDEX) 
the spread on the Keppel Corp (KEP SP) / Singapore Press Holdings (SPH SP) deal and potential index flows
the listing of Hyundai Heavy Industries (329180 KS) and the potential Fast Entry into the Korea Stock Exchange Kospi 200 Index (KOSPI2 INDEX) 
the potential changes to the Stock Exchange of Thailand SET 50 Index (SET50 INDEX) at the December rebalance
the potential changes to the Hang Seng Tech Index (HSTECH INDEX) at the December rebalance
the potential changes to the Hang Seng Composite Index (HSCI) at the December and March rebalances
There are no major index events in the coming week - there were enough in the last week!There were substantial inflows to onshore China ETFs in the last week, while there was finally an outflow (albeit a small one) from KraneShares CSI China Internet Fund (KWEB US). 

Index Rebalance & ETF Flow Recap: STO/OSH, KEP/SPH, HHI, SET50, HSTECH, HSCI

Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<div>
This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks.
</div>
<div>
I number 37, mostly firm, deals around the region.
</div>
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More below the fold.
</div>


This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks.


I number 37, mostly firm, deals around the region.


More below the fold.


Asia-Pac Weekly Risk Arb Summary: Shinsei Bank, Soho China, Nippo Corp, Rhipe, Oil Search/Santos

After submitting a confidential, non-binding, indicative all-scrip merger proposal to <a href="https://www.smartkarma.com/entities/oil-search-ltd" target="_blank" data-smartkarma-citation="entities:773:1" rel="noopener">Oil Search Ltd (OSH AU)</a>'s board on the 25 June, <a href="https://www.smartkarma.com/entities/santos-ltd" target="_blank" data-smartkarma-citation="entities:711:1" rel="noopener">Santos Ltd (STO AU)</a> <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02402372-2A1313090?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">bumped</a> the scrip consideration on the 2 August by 6.5% to 0.6275 new Santos shares for every OSH share.  This would give OSH's shareholders 38.5% of the merger group. The implied transaction price of A$4.52/share  - if using Santos price on the 24 June - is a 19.7% premium to the undisturbed price.  The OSH board recommended the Offer in the absence of superior proposal, and due diligence was afforded.
This morning, Santos and OSH <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02420086-2A1322734?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">entered into</a> a definitive agreement to merge the two companies in an all-scrip transaction. The scrip ratio remains unchanged. 
The OSH board has unanimously recommended shareholders vote in favour of the merger in the absence of a superior proposal.
The merger would create a major regional player with a pro-forma market cap of ~A$21bn. Santos expects the merger to unlock pre-tax synergies of US$90-115mn per annum.
The merger is subject to OSH shareholder approval, regulatory approvals, and Papua New Guinea (PNG) court approval.
It's that last approval that could prove to be a sticking point.  
Santos has a 13.5% interest in PNG LNG, behind <a href="https://www.smartkarma.com/entities/exxon-mobil-corp" target="_blank" data-smartkarma-citation="entities:811:1" rel="noopener">Exxon Mobil (XOM US)</a>'s 33.2% and OSH's 29%. OSH also holds a 22.8% interest in Papua LNG, a brownfield LNG growth opportunity.
In a recently completed <a href="https://www.coiubsl.com/" target="_blank" rel="noopener">royal commission</a> involving complex UBS loans, the bank maintained the fees it charged the PNG government to borrow $1.2bn in 2014 to purchase a 10.1% stake in OSH were appropriate. The PNG government was compelled to <a href="https://www.reuters.com/article/papua-oil-search-idUSL4N1M23EF" target="_blank" rel="noopener">sell</a> that stake in 2017 when OSH's shares fell and it did not have the necessary funds to put up extra capital for the loan. Contrary to PNG's former PM comments that it made A$39mn on the deal, the commission heard PNG lost US$432mn. 
In <a href="https://skr.ma/epYxh" target="_blank" rel="noopener">Santos/Oil Search: Getting Facts Straight</a>, I wondered if this less-than-satisfactory situation might resurface in any government approval process for a Santos/OSH merger.
In various media articles, Deputy Prime Minister Samuel Basil said this week:
<blockquote>
If the merger will result in the weakening of any Papua New Guinean shareholders or shareholder interests, reduction in market liquidity, potential for job losses, potential delisting from PNGX, and loss of local ownership of the company assets to a foreign interest, it is not in PNG’s national interest.
</blockquote>
Such a statement raises the stakes after PNG's PM James Marapoe's earlier <a href="https://www.pmnec.gov.pg/index.php/secretariats/pm-media-statements/336-pm-marape-says-government-is-closely-monitoring-a-proposed-acquisition-of-oil-search-limited" target="_blank" rel="noopener">comments</a> back in August that:
<blockquote>
Oil Search Limited is a prominent PNG company whose activities comprise a significant percentage of PNG’s GDP and provides the livelihood to thousands of Papua New Guineans both directly and indirectly. Any proposed merger must satisfy the national interest test.
</blockquote>
OSH (incorporated in PNG) is listed in both Australia and PNG, however, Santos is only listed in Australia. OSH has around 5,000 PNG shareholders according to Basil.
Should the merger complete, and OSH is delisted - taking with it almost one-third of PNG's market cap - domestic shareholders will have no option but to acquire and trade their shares in Australia, an activity compounded by foreign exchange restrictions. Unless Santos plans to list the merged entity in PNG. 
Basil continues:
<blockquote>
The Board of Oil Search and Santos must explicitly inform Papua New Guinea their plans for PNG capital market development in the context of this merger. Our concern derives from the possibility that PNG will incur significant detriment in the oil and gas sector to a foreign company. It is equal to losing our sovereignty in the oil and gas industry where PNG will have no control over it.
</blockquote>
Put another way: should PNG investment funds re-domicile in Australia, PNG local investors will be cut off from investing (via Santos and OSH) in PNG's large PNG projects.
More below the fold.

After submitting a confidential, non-binding, indicative all-scrip merger proposal to Oil Search Ltd (OSH AU)'s board on the 25 June, Santos Ltd (STO AU) bumped the scrip consideration on the 2 August by 6.5% to 0.6275 new Santos shares for every OSH share.  This would give OSH's shareholders 38.5% of the merger group. The implied transaction price of A$4.52/share  - if using Santos price on the 24 June - is a 19.7% premium to the undisturbed price.  The OSH board recommended the Offer in the absence of superior proposal, and due diligence was afforded.
This morning, Santos and OSH entered into a definitive agreement to merge the two companies in an all-scrip transaction. The scrip ratio remains unchanged. 
The OSH board has unanimously recommended shareholders vote in favour of the merger in the absence of a superior proposal.
The merger would create a major regional player with a pro-forma market cap of ~A$21bn. Santos expects the merger to unlock pre-tax synergies of US$90-115mn per annum.
The merger is subject to OSH shareholder approval, regulatory approvals, and Papua New Guinea (PNG) court approval.
It's that last approval that could prove to be a sticking point.  
Santos has a 13.5% interest in PNG LNG, behind Exxon Mobil (XOM US)'s 33.2% and OSH's 29%. OSH also holds a 22.8% interest in Papua LNG, a brownfield LNG growth opportunity.
In a recently completed royal commission involving complex UBS loans, the bank maintained the fees it charged the PNG government to borrow $1.2bn in 2014 to purchase a 10.1% stake in OSH were appropriate. The PNG government was compelled to sell that stake in 2017 when OSH's shares fell and it did not have the necessary funds to put up extra capital for the loan. Contrary to PNG's former PM comments that it made A$39mn on the deal, the commission heard PNG lost US$432mn. 
In Santos/Oil Search: Getting Facts Straight, I wondered if this less-than-satisfactory situation might resurface in any government approval process for a Santos/OSH merger.
In various media articles, Deputy Prime Minister Samuel Basil said this week:

If the merger will result in the weakening of any Papua New Guinean shareholders or shareholder interests, reduction in market liquidity, potential for job losses, potential delisting from PNGX, and loss of local ownership of the company assets to a foreign interest, it is not in PNG’s national interest.

Such a statement raises the stakes after PNG's PM James Marapoe's earlier comments back in August that:

Oil Search Limited is a prominent PNG company whose activities comprise a significant percentage of PNG’s GDP and provides the livelihood to thousands of Papua New Guineans both directly and indirectly. Any proposed merger must satisfy the national interest test.

OSH (incorporated in PNG) is listed in both Australia and PNG, however, Santos is only listed in Australia. OSH has around 5,000 PNG shareholders according to Basil.
Should the merger complete, and OSH is delisted - taking with it almost one-third of PNG's market cap - domestic shareholders will have no option but to acquire and trade their shares in Australia, an activity compounded by foreign exchange restrictions. Unless Santos plans to list the merged entity in PNG. 
Basil continues:

The Board of Oil Search and Santos must explicitly inform Papua New Guinea their plans for PNG capital market development in the context of this merger. Our concern derives from the possibility that PNG will incur significant detriment in the oil and gas sector to a foreign company. It is equal to losing our sovereignty in the oil and gas industry where PNG will have no control over it.

Put another way: should PNG investment funds re-domicile in Australia, PNG local investors will be cut off from investing (via Santos and OSH) in PNG's large PNG projects.
More below the fold.

Oil Search/Santos: PNG a Potential Party Pooper

Asia-Pac Weekly Risk Arb Summary: China Logistics, Kerry Logistics, China Youzan

Beijing Capital Land Ltd H / Event-Driven

<div>
This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks.
I number 36, mostly firm, deals around the region.
More below the fold.
</div>


This insight provides a quick summary of gross/annualised (where possible) spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and how those spreads have changed over the last week; plus the next hard events over the coming weeks.
I number 36, mostly firm, deals around the region.
More below the fold.


Asia-Pac Weekly Risk Arb Summary: Beijing Capital Land, Suchuang Gas, Siam Dev, 1300Smiles

Australia

Oil Search Limited explores for and produces gas and oil through operations in Papua New Guinea.  The Company's activities are located in the Papuan Highlands which include the Kutubu, Hides, and Gobe oil and gas projects.

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Oil Search Ltd (OSH AU)

Index Rebalance & ETF Flow Recap: STO/OSH, KEP/SPH, HHI, SET50, HSTECH, HSCI

This recap highlights Insights covering the index rebalance space in Asia as well as announcements that could result in index changes. We also look...

Brian Freitas

Asia-Pac Weekly Risk Arb Summary: Shinsei Bank, Soho China, Nippo Corp, Rhipe, Oil Search/Santos

This insight provides a summary of gross/annualised spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and...

David Blennerhassett

Oil Search/Santos: PNG a Potential Party Pooper

Trading relatively tight at 2.5%/10%, assuming mid-Dec completion. Provided Santos/OSH can mollify the PNG government - just how challenging is it...

David Blennerhassett

Asia-Pac Weekly Risk Arb Summary: China Logistics, Kerry Logistics, China Youzan

This insight provides a summary of gross/annualised spreads (on deals discussed on Smartkarma) across Asia-Pacific as at the last trading date, and...

David Blennerhassett

Asia-Pac Weekly Risk Arb Summary: Beijing Capital Land, Suchuang Gas, Siam Dev, 1300Smiles

This insight provides a quick summary of gross/annualised (where possible) spreads on 36 (mostly) firm deals as at the last trading date, and how...

David Blennerhassett

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