Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven




For the month of September, 21 new deals were discussed on Smartkarma with an overall announced deal size of ~US$70b, bolstered by the monster deal for NTT Docomo Inc (9437 JP).


Clicking on the company name in the table below will take you to the entity page where you can read the initial insight(s) written by Smartkarma contributors on these new deals and follow up discussions, or simply click on the insight link(s) below the name.





New Deals


Industry


Size (US$bn)


Type


Premium




Australia




Citadel Group (CGL AU) 
IT Services
0.3
Scheme
43.2%



   Citadel Group: Private Equity Partners' Offer




DWS Ltd (DWS AU) 
IT services
0.1
Scheme
33.3%



   HCL-DWS(DWS AU): Cash Deal Trading Wide







Hong Kong




AMVIG Holdings (2300 HK) 
Tobacco packaging
0.3
MGO
51.39%



   AMVIG (2300 HK): Smoker's Delight - Possible Conditional Offer




Changshouhua Food (1006 HK) 
Edible oils
0.15
Scheme
16.4%


   Changshouhua (1006 HK): What's Cooking?




Cross Harbour Holdings (32 HK) 
Toll roads
0.2
VGO
42.4%



   Cross-Harbour (32 HK): Voluntary Offer. Price Not Final




Get Nice Holdings (64 HK) 
Financials
0.1
VGO
5.59%



   Get Nice (64 HK)'s VGO. Possible Downstream Offer For Get Nice (1469 HK)




Macau Legend Development (1680 HK) 
Gaming
0.3
MGO
9.38%



   Macau Legend (1680 HK): Mandatory General Offer




China Zhongdi Dairy (1492 HK) 
Dairy
0.2
MGO
11.0%



   Zhongdi Dairy (1492 HK): Possible MGO from Yili



 







India




Allcargo Logistics (AGLL IN) 
Logistics
0.1
Delisting




   Allcargo Logistics (AGLL IN): Indian Delisting Offer Trading Cheap







Japan




Hinokiya Holdings (1413 JP) 
Electronic Retailer
0.1
Partial
12%



   Yamada Denki Partial TOB For Hinokiya (1413 JP)
    Hinokiya (1413 JP) Partial Tender Arb Grids &amp; ProRation




Kirindo Holdings (3194 JP) 
Retail
0.3
Tender Offer
39.7%



   Kirindo (3194) - Another Cheap Bain MBO With Weak Adherence to Fair M&amp;A Guidelines



 Hitachi Capital (8586 JP) / Mitsubishi UFJ Lease &amp; Finance (8593 JP) 
Leasing
7.1
Merger




   Hitachi's Hitachi Capital Capital Case - A Merger With MUFG Lease




NTT Docomo Inc (9437 JP) 
Telco
40
Tender Offer
40.5%



   NTT Docomo SHOCKER - Nikkei Says Parent NTT To Buy Out Docomo Minorities
   NTT – Initial Thoughts Reading Through the Lines of the Shock News
   NTT – NTT Is Going Big and Our Suspicions Are Aroused Further
   NTT Deal for DoCoMo - Not Going Gentle, Definitely Raging Against the Dying of the Light




Ryoyo Electro (8068 JP) 
Electronic Retailer
0.1
Partial
0%



   Ryoyo Electro Corporate Activism Ends in Buyout




Mcubs Midcity Investment Cor (3227 JP) 
REIT
1.2
Merger




   MCUBS Midcity (3227 JP): Scrip Deal Trading Tight But There's a BETTER Trade











Thailand








COL PCL (COL TB) 


Retailer

0.4
Delisting
26.7%



   COL-Central Retail Corp: Thailand Delisting Offer Trading Tight







US




51 Job Inc Adr (JOBS US) 
HR solutions
5.3
Going Private
16.05%


  You're Hired! DCP's Proposal For 51job.Inc










Europe/UK




Altice NV A (ATC NA) 
Telco
5.8
Tender Offer
23.8%



   Altice - Next Private Takeover Announcement




Play Communications SA (1P1 GR) 
Telco
2.6
Tender Offer
38.8%



   Play Communications - Iliad: Offer Announcement




William Hill (WMH LN) 
Gaming
3.7
Rumoured
25%



   William Hill - Caesars: Entertainment Prospective Bid




Ahlstrom-Munksjo (AM1 FH) 
Materials
2.0
Tender offer
37.1%



  Ahlstrom-Munksjo (AM1 FH): Tender Offer Trading Tight - Will There Be Bumpitrage?
  Ahlstrom-Munksjö - Spa Holdings 3: Friendly Offer 






Source: Smartkarma Insights


The average premium for the new deals announced (or first discussed) in September was ~26% and the YTD average premium for all deals discussed on Smartkarma (106 all-in) is 33%.  The average for all deals discussed on Smartkarma in 2019 (145 deals all-in) was 31.5%.

At present, it is difficult to gauge what level of control premium the acquirer will be willing to pay for Allcargo Logistics (AGLL IN) and it is unlikely that we will find the answer until the RBB process is complete. 

The Offer(s) for British bookmaker William Hill (WMH LN) are as yet not official. 


The charts below provide a snapshot of deals YTD discussed on Smartkarma. Where the deal is a merger of equals or similar, I've assigned no premium.







Summary of News in September of Arb Situations On Smartkarma's Radar



(Again, click on the company names to take to you to the insights and/or discussion posts for a more comprehensive read-through on each situation. Where a new insight was written on these names in July, I've included a link, in bold, to that insight in italics.)





Australia


Comments (with links to announcements &amp; insights)




3P Learning (3PL AU) 

No September update




Cardinal Resources (CDV AU) 

2-Sep: Nordgold has bumped its Offer by 36.4% to A$0.90/share from A$0.66/share.   Cardinal Resources (CDV AU): Nordgold's Knockout Offer
7-Sep: Shandong intends to increase its Offer Price to A$1.00/share.
Cardinal Resources (CDV AU): Shandong Trumps Nordgold’s Knockout Offer
9-Sep: Nordgold extends its Offer to the 24 September. 
15-Sep: CDV directors holding 6.07% have publicly stated their intention to accept Shandong's Offer.
17-Sep: Nordgold extends its Offer until the 8 October.
21-Sep: Shandong's Offer declared unconditional. They currently hold 10.94%.




Cassini Resources (CZI AU) 

24-Sep: Scheme effective




Cromwell Property (CMW AU) 

21-Sep: ARA now has 28.53% in Cromwell Property (CMW AU).




Infigen Energy (IFN AU) 

8-Sep: The AFR reported that UAC Energy had sold their 19.9% stake in Infigen Energy (IFN AU) into Iberdrola SA (IBE SM)'s revised bid. Iberdrola now have 97%. This is completely done. 




Onevue Holdings (OVH AU) 

4-Sep: The Scheme Meeting will be held on the 9 October.




OptiComm Ltd (OPC AU) 

8-Sep: Non-binding Offer from First State
OptiComm: First State Gatecrashes Uniti's Offer
25-Sep: OptiComm Ltd (OPC AU) will hold a Scheme Meeting on the 13 October to consider Uniti Group Ltd (UWL AU) 's Offer. 




Village Roadshow (VRL AU) 

25-Sep: Three films have been deferred. This would imply the A$0.08/share uplift is not payable.  






 





Hong Kong


Comments (with links to announcements &amp; insights)




Allied Properties (H.K.) (56 HK) 
In its weekly update concerning the progress of the High Court sanctioning, Allied Properties (H.K.) (56 HK) says there is no new update.



Beijing Jingneng Clean Energy (579 HK) 
4-Sep: In its monthly update, the company announces that there is no update.



Car Inc (699 HK) 
No September update



CGN New Energy Holdings (1811 HK) 
28-Aug: In its monthly update, CGN says there is no update on the deal.



Golden Meditech Holdings (801 HK) 

16-Sep: Scheme approved. 




Haier Electronics Group Co (1169 HK) 

1-Sep: The pre-conditions have been fulfilled - ie. approval from the independent shareholders of Haier Smart Home (600690 CH). The despatch of the Scheme Doc has now been extended to the 30 November, from 4 September previously.
Haier (1169 HK): Back To Entry Levels




Huadian Fuxin Energy Corp (816 HK) 

9-Sep: Lakeville Capital Management Ltd. has given a letter of intent to support the Merger. Lakeville holds 96.089mn shares or 3.74% of the total issued H shares. 
16-Sep: Shareholders approve the merger.




Jinmao Hotel &amp; Jinmao (China) Hotel Investments and Management Limited (6139 HK) 

10-Sep: Shareholders approve the Scheme.




Leyou Technologies (1089 HK) 

9-Sep: The SFC has granted consent to an extension of the time limit for despatching the Scheme Document from 17 September 2020 to 9 November 2020.  
A delay was anticipated - but this is about two weeks past my expected despatch date. The delay is expected to push the despatch of cheques to mid-late December.
23-Sep: Tencent/Leyou: China Bytes




O-Net Technologies (Group) (877 HK) 

1-Sep: O-Net (877 HK): Offer Doc Out. Priced To Complete
The Scheme for O-Net Technologies (Group) (877 HK) passes - 100% approval. 




Skyworth Group Limited (751 HK) 

1-Sep: Unaudited profit before and after non-controlling interests was RMB573mn and RMB391mn respectively, up 64.6% &amp; 116% as compared to RMB348mn and RMB181mn in 1H19.
3-Sep: The partial results are out - 755.8mn tendered against the maximum number of shares to be bought of 392.8mn. Or 51.97% pro-ration - nice one Travis Lundy. The settlement is expected to take place on or before the 14 September (not 11 September as per the circular on account of the delay in the SGM due to the typhoon last month). Shares not bought will be also be returned on this date.




Xinghua Port Holdings (1990 HK) 
16-Sep: Right on cue - this turned unconditional on the first close - 95.91% tendered. The Offer has been automatically extended for another 14 days. 



Yixin Group Ltd (2858 HK) 
4-Sep: Yixin Group Ltd (2858 HK) announced that the Merger is progressing, and Bitauto Holdings (BITA US) just filed a response letter to the SEC addressing some SEC comments. No date has been fixed for such shareholders’ meeting of Bitauto as of the date of this announcement.









India


Comments (with links to insights)




Adani Power Ltd (ADANI IN) 

No September update




Hexaware Technologies (HEXW IN) 

8-Sep: Hexaware Technologies Reverse Book Build Auction - It's On 15-Sep: Hexaware Exit Offer Reverse Book Build Gets 90% &amp; Discovered Price - Now We Wait 23-Sep:Hexaware Tech Done at INR 475. Now For The Residual




INEOS Styrolution India Limited (INEOS IN) 

No September update




J.B. Chemicals &amp; Pharmaceut (JBCP IN) 

No September update




Sequent Scientific (SEQ IN) 

7-Sep: Vedanta: Reaching The End Game 17-Sep: Vedanta : More Fuel For The Fire
21-Sep: Vedanta (VEDL): Cash Raised, Money Flow, and How It Affects Delisting Offer Discovered Price




Vedanta Ltd (VEDL IN) 

7-Sep: Vedanta: Reaching The End Game 17-Sep: Vedanta : More Fuel For The Fire 21-Sep: Vedanta (VEDL): Cash Raised, Money Flow, and How It Affects Delisting Offer Discovered Price 29-Sep: Vedanta Reverse Book Build Auction - It’s On And the Schedule From Here Is Tight










Indonesia


Comments 




Bank Permata (BNLI IJ) 

No September update










Japan


Comments (with links to insights)




Cocokara Fine (3098 JP) 
23-Sep: Cocokara/MatsuKiyo - Big Gains Since Delay, Stay Long Both




FamilyMart Co Ltd (8028 JP) 

14-Sep: FTSE today announced the deletion of FamilyMart Co Ltd (8028 JP) from its indices as of the close of 11 November 2020, contingent on the passage of the agenda items at the EGM allowing a squeezeout of minority shareholders. 
17-Sep: Familymart: What's Next? And Will Mitsubishi React?




Kawasumi Laboratories (7703 JP) 
No September update; offer closes 30 Sep



Keihin Corp (7251 JP) / Showa Corp (7274 JP) 
2-Sep: The Honda TOBs: FINALLY. Tenders for Showa, Keihin, and Nissin Kogyo




LIXIL VIVA (3564 JP) 

17 Sep EGM held 




Nichii Gakkan Co (9792 JP) 

Record Date for EGM 3 Sep, EGM for 16 Oct, Delisting expected 5 November




OOTOYA Holdings (2705 JP) 

9-Sep: They announced they had gotten to 46.77% in the Tender Offer,




Sanyo Chemical Ind (4471 JP) /  Nippon Shokubai (4114 JP) 
No September update



Softbrain (4779 JP) 

On 28 Sep, the Opinion Statement was revised slightly. A couple of minor changes to the doc.  Tender offer finally launched on 29 Sep.










Malaysia


Comments




TA Global Bhd (TAGB MK) 
No September update










New Zealand


Comments (with links to announcements)




Metlifecare Ltd (MET NZ) 

1-Sep: Scheme docs out - as previously flagged, the Scheme Meeting will be held on the 2 October.
14-Sep: MET has been advised by Asia Pacific Village Group Limited that the New Zealand Overseas Investment Office has granted APVG consent to acquire 100% of Metlifecare.











Singapore


Comments (with links to insights and announcements)




Accordia Golf Trust (AGT SP) 

10-Sep: Securities Investors Association (Singapore) has sent a letter to Accordia Golf Trust (AGT SP)'s management company with questions ahead of the EGM. 
14-Sep: The Accordia Golf Trust (AGT SP) General Meeting went off without a hitch.  The selldown was approved 97.55% FOR 2.45% AGAINST. The proposed winding up was 99.4% FOR 0.6% AGAINST. EGM Results here. 
17-Sep: Accordia Golf Trust (AGT SP) will be deleted from FTSE Small Cap as of the morning of Sep 30.  It goes out one trading day before.
24-Sep: Accordia Golf Gets Interesting - Main Payment Shortly Then Run The Residual




Capitaland Commercial Trust (CCT SP) 

7-Sep: Capitaland Mall and CCT Merger: Circular Finally Out. Looks Done.




ESR-REIT (EREIT SP) / Sabana Shari'ah Compliant Industrial REIT (SSREITR SP) 

16-Sep: Quarz Capital has raised its stake in Sabana Shari'ah Compliant Industrial REIT (SSREITR SP) from 5% to 6% - it restated it intends to vote down the merger with ESR-REIT (EREIT SP).    22-Sep: Sabana Shari'ah Compliant Industrial REIT (SSREITR SP) has received a notice from the Courts to convene a Scheme Meeting. It is understood Quarz and Black Crane continue to hold out against the deal.




Perennial Real Estate Holdings (PREH SP) 
11-Sept: Compulsory acquisition completed




Sembcorp Industries (SCI SP) / Sembcorp Marine (SMM SP) 

3-Sep: Sembcorp - Last Chance Before....
7-Sep:  Sembcorp Marine Rights Issue Results : Looks Like a Scheme of Introduction










Taiwan


Comments 




Boardtek Electronics (5349 TT) 
No September update



Casetek Holdings (5264 TT) 
No September update









Vietnam


Comments (with links to announcements)




Viglacera Corp (VGC VN) 
20-Sep: Gelex Bumps Viglacera Bid Again. High Pro-Ration Likely.. 





 






Middle East


Comments 




Samba Financial Group (SAMBA AB) /
National Commercial Bank (NCB AB) 

No September update 










Europe/UK


Comments (with links to announcements and insights)




Aker Solutions (AKSO NO) 

25-Sep: At the EGM, all proposals on the agenda were adopted, including approval of the merger plan.




Bolsas y Mercados Espanoles (BME SM) 
7-Sep: Bolsas Y Mercados - SIX Group: Squeeze-Out




CaixaBank SA (CABK SM) 
5-Sep: CaixaBank-Bankia Merger Conversations Announcement: First Take 18-Sep:  CaixaBank - Bankia: Definitive Agreement and Exchange Ratio




Mediawan (MDW FP) 
21-Sep: Antitrust approval received. 



NetEnt AB (NETB SS) 

No September update 








(Mostly) Asia M&A: September 2020 Roundup

Travis Lundy

On 29 September, <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> provided an <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/5ff359d1-b8f4-4e66-bfc1-d5706348d611.pdf" target="_blank" rel="noopener">announcement</a> to the Exchanges to the effect that the BSE and NSE had provided In-Principle Approval for the Delisting Offer on 28 September 2020. As per SEBI guidelines, the announcement of that was due today. This had been previewed in an article in the Economic Times yesterday, and shares touched a recent high at INR 140.00/share before closing at a recent high of INR 139+. 
Once the In-Principle Approval is received, the schedule gets quite tight. The announcement of the Delisting Offer in a newspaper was provided with the <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/5ff359d1-b8f4-4e66-bfc1-d5706348d611.pdf" target="_blank" rel="noopener">announcement</a> and that sets things off. 
This insight provides a breakdown of the basics to the arithmetic both on fundamentals and on the particular nature of the Discovered Price calculation when there is a significant portion of the minority shares which are in the form of ADS.
This lifts the possible RBB using existing funding lines of US$3.15bn quite dramatically vs where the papers have suggested.  
BE AWARE OF THE ARITHMETIC.
As always, MUCH more below the fold.

On 29 September, Vedanta Ltd (VEDL IN) provided an announcement to the Exchanges to the effect that the BSE and NSE had provided In-Principle Approval for the Delisting Offer on 28 September 2020. As per SEBI guidelines, the announcement of that was due today. This had been previewed in an article in the Economic Times yesterday, and shares touched a recent high at INR 140.00/share before closing at a recent high of INR 139+. 
Once the In-Principle Approval is received, the schedule gets quite tight. The announcement of the Delisting Offer in a newspaper was provided with the announcement and that sets things off. 
This insight provides a breakdown of the basics to the arithmetic both on fundamentals and on the particular nature of the Discovered Price calculation when there is a significant portion of the minority shares which are in the form of ADS.
This lifts the possible RBB using existing funding lines of US$3.15bn quite dramatically vs where the papers have suggested.  
BE AWARE OF THE ARITHMETIC.
As always, MUCH more below the fold. 

Vedanta Reverse Book Build Auction - It’s On And the Schedule From Here Is Tight

Last Week in Event SPACE: Vedanta, Evergrande Auto, Cocokara, Leyou, Mitsu Lease/Hitachi Cap

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Technical Analysis

<a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> is knocking on intermediate resistance near 140 and a tough level to clear given weaker technical conditions. Macro barrier rests at 165 if we see an event break above 140, outside of this position for a pullback cycle.Tough price resistance lies at 140 setting up for a short trade.Buy volumes have tapered off on recent strength; a sign of a weaker underlying posture. Bias for increased downside pressure from 135-140 to test trendline support conviction.RSI and MACD bear divergences are maturing to a point of an inflection.

Vedanta Ltd (VEDL IN) is knocking on intermediate resistance near 140 and a tough level to clear given weaker technical conditions. Macro barrier rests at 165 if we see an event break above 140, outside of this position for a pullback cycle.Tough price resistance lies at 140 setting up for a short trade.Buy volumes have tapered off on recent strength; a sign of a weaker underlying posture. Bias for increased downside pressure from 135-140 to test trendline support conviction.RSI and MACD bear divergences are maturing to a point of an inflection.

On the evening of Thursday 17 September 2020, PTI (Press Trust of India) published an article which was then afforded wider take-up in the Economic Times (of the India Times) about the imminent <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> ("VEDL") delisting offer process.The headline was "Vedanta moves Sebi to get nod to start reverse book building for delisting."The <a href="https://economictimes.indiatimes.com/markets/stocks/news/vedanta-moves-sebi-to-get-nod-to-start-reverse-book-building-for-delisting/articleshow/78169390.cms" target="_blank" rel="noopener">article</a> starts by saying "after mobilising USD 3.15 billion to fund the delisting of its Indian subsidiary" it continues by saying that "Sources said the firm is expecting to receive SEBI approvals by early next week, post which it will launch reverse book building".The "sources" here are a problem.I actually have no issue with the timing - indeed launch should be expected imminently - but the "sources" here read like "someone paid by Anil Agarwal to say what Anil Agarwal wants them to say."The source said Rs 125/share is "the best offer in the current scenario", that "the proposed transaction eliminates the potential impact of future balance sheet risks" because "the commodity cycle remains uncertain and hazy."  The article itself adds... <blockquote>On the other hand, delisting in the price band of Rs 125 to 128 per share offers a good opportunity for public shareholders to realise immediate and 100 per cent cash value amid volatile and uncertain markets. The price of Rs 125-128 per share is also at a hefty premium of the share's book value of Rs 89.38 as on March 31, 2020.</blockquote>Basically, the entire article seems like a plant from the Agarwal family. The value of the Hindustan Zinc shares held by <a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> per Vedanta share as of Friday was Rs. 157.52 (down from Rs 175.41 the previous Friday). This article suggests that the rest of Vedanta Limited probably has negative value (despite having a book value of Rs 89.38, and yes that is a more valid understanding of Vedanta's 'book value' than the article's). VEDL has produced an average ex-Hindustan Zinc ("HZL") EBITDA of Rs 125.1bn per year over the last seven years since VEDL has existed in its current form. The worst three years in that period averaged INR 110.1bn.Split out the value of the HZL shares and the VEDL ex-HZL business and it is surprising. <ul>
<li>At the closing price on Friday, the value per VEDL share of its holding in Hindustan Zinc was Rs. 157.5/share, or Rs. 126.0/share (5x last 3yr average EBITDA) at a 20% discount. </li>
<li>The rest of VEDL at an EV / EBITDA ratio using the worst 3 years of VEDL ex-HZL in its modern form is worth Rs. 68.9/share at 2.0x EBITDA. Push that to 5x EBITDA for VEDL ex-HZL and that is worth Rs. 157.8/share. Using a 7-year average and it is Rs. 170/share. </li>
</ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/204/original/Screenshot%202020-09-20%20at%209.25.08%20PM.png?1600608325" class="editor-image img-responsive" data-smartkarma-image-id="160204"></figure><div style="text-align: left;" class="content-caption">note: this spreadsheet is available to Smartkarma subscribers (DM for more details)</div><div class="content-highlight">
"Future balance sheet risks" because "the commodity cycle remains uncertain and hazy?"
Sure. I see that. I'll give you a really good price.
Buy me out at 3.0x the worst 3yrs of ex-HZL EBITDA and then spin off the Hindustan Zinc shares to all VEDL shareholders. 
At last trade using 30 Sep 2020 expected cash levels, that would be Rs. 115.0 per VEDL share plus Rs. 157.5 per VEDL share of Hindustan Zinc shares. 
That's Rs. 272.5/share based on a low multiple of depressed EBITDA despite stated plans to grow output on lower cash costs created by recent capex. 
</div><h2></h2><h2>But the Financing...</h2>The understanding in the article of the cash available at what time and for whom is also misleading. A diagram of where we stand is below.<ul>
<li>The colors of financing (in gray and coral) are shown as to their solidity/certainty in the explanation at the bottom. Yes, Vedanta Resources has raised US$3.15bn to date (that we know of). Media reports suggest there is another US$600mm targeted. I would note that SEBI Regulations regarding Delisting Offers only require that Rs. 161bn (US$2.2bn) be placed in escrow as of the start of the Delisting Offer.  That is the Floor Price x Maximum Number of Shares to be purchased.</li>
<li>The blue arrows are cash - pre-existing or inflows to VEDL and HZL since March 2020 (the HZL cash is the end-June 2020 level). These are sources of getting cash from downstream back to Vedanta Resources so that it can repay its loans (Facility A and "Other Unknown" are expected to be very short-term loans contingent on re-payment within 3-6 months).</li>
</ul><figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/192/original/Screenshot%202020-09-20%20at%206.19.14%20PM.png?1600597190" class="editor-image img-responsive" data-smartkarma-image-id="160192"></figure>Of course, when we look at it from the standpoint of what Vedanta Resources can afford once they have agreed to a Discovered Price and own 90+% (and can therefore squeeze out minorities at the same price), we look at what funds are available downstream that VEDL could lend to Vedanta Resources to allow VEDR to repay some obligations very early. As of now, there is probably a minimum of US$2.2bn which could be repaid within weeks by VEDL to VEDR. That is sitting on VEDL. As soon as HZL can pay out a large dividend, there is probably another US$1.6bn to come from that (post-tax).This does not include recent value "uncovered" with the Supreme Court judgment in favor of Cairn India last week, the sale or collateralisation of another US$1.0bn in inventory at Cairn and VEDL ex-HZL, or the idea of selling silver and zinc royalties to someone at HZL. <figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/160/205/original/Screenshot%202020-09-20%20at%2010.12.25%20PM.png?1600611178" class="editor-image img-responsive" data-smartkarma-image-id="160205"></figure><div class="content-highlight">
If US$2.2bn could be repaid quickly via loan from VEDL to VEDR, and another US$1.6bn could be repaid from a second loan from VEDL to VEDR after Hindustan Zinc paid out a massive Rs. 47/share dividend to all shareholders (delivering Rs. 117bn (US$1.6bn) to VEDL after tax), combined with the US$1.4bn borrowed elsewhere, that would be US$5.2bn. 
US$5.2bn at USDINR 73.60 is Rs. 208/share. If VEDL scraped the bottom of the barrel, it could find another US$0.8-1.0bn through inventory, etc. That would be worth another Rs. 32/share. HZL could probably upsize its bond planned for this week to Rs 80bn. That would add another Rs. 12.7/share. If VEDL sold a 20% stake in Cairn India like it had planned, that would add another US$500-800mm I expect. That would add another Rs. 20-32/share of available money.
All told, Rs 180/share is "easy."
Rs. 200/share is somewhat "doable", and as the table above shows, cheap.
Rs. 240 is probably possible but is a stretch. Rs. 270-280 is doable only with considerably more balance sheet wrangling. 
</div>To be clear, this is not value.This is maximum funding available in the pipe without going out and tapping some other emergency lines at VEDR or at the family level, or stretching at the HZL level. Of course, if you were Mr. Agarwal, you'd want to stretch at the HZL level as much as you could. After setting a final hearing date for mid-September, the Supreme Court appears about to allow the sale of the Government of India's stake in HZL to go forward. If HZL pays out a massive dividend, it considerably lowers "Book Value" (defined the way VEDL's merchant bank has valued it), and gives a chunk of revenue to the GOI before the stake sale. That lowers the price at which minorities might buy an OFS (Offer for Sale) of the GOI's stake in HZL, and it lowers the price at which VEDL might take out HZL minorities in future, but it raises the PBR at which he could say that he is doing the deal, possibly earning a favourable reaction. And it may be the only way that the GOI would be willing to sell it (i.e. they might be unwilling to sell it in a delisting Offer because they would become the price-setter, and that would be unsavoury to some observers).There is, as always, more below the fold for subscribers. <hr><div>Insights previously published in the timeline of the Vedanta Delisting Offer are listed below.</div><div><table class="table table-striped"><tbody>
<tr><td colspan="3" style="width: 724.8px;"><h3>Relevant Insights To Date</h3></td></tr>
<tr>
<td style="width: 72px;">Date</td>
<td style="width: 134.4px;">Theme or Ticker</td>
<td style="width: 476.8px;">Insight Title</td>
</tr>
<tr>
<td style="width: 72px;">2019</td>
<td style="width: 134.4px;">Indian M&amp;A Guide</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/quiddity-india-m-a-guide-2019" target="_blank" data-smartkarma-citation="insights:30885" rel="noopener">Quiddity India M&amp;A Guide 2019</a> </td>
</tr>
<tr>
<td style="width: 72px;">24 May 2020</td>
<td style="width: 134.4px;">Delisting Offers</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/indian-delisting-exit-offers-know-your-process-and-the-games-played" target="_blank" data-smartkarma-citation="insights:39683" rel="noopener">Indian Delisting/Exit Offers - Know Your Process and The Games Played</a> </td>
</tr>
<tr>
<td style="width: 72px;">19 Jun 2020</td>
<td style="width: 134.4px;">Failed Exit Offers</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/failed-exit-offers-in-india-lessons-for-vedl-adani-and-hexw" target="_blank" data-smartkarma-citation="insights:40492" rel="noopener">Failed Exit Offers in India: Lessons for VEDL, ADANI, and HEXW?</a> </td>
</tr>
<tr>
<td style="width: 72px;">27 May 2020</td>
<td style="width: 134.4px;">
<a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> </td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/vedanta-delisting-offer-how-it-goes-from-here" target="_blank" data-smartkarma-citation="insights:39761" rel="noopener">Vedanta Delisting Offer - How It Goes From Here</a> </td>
</tr>
<tr>
<td style="width: 72px;">22 Jun 2020</td>
<td style="width: 134.4px;">Vedanta Limited</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/vedanta-delisting-offer-opportunities-and-timing" target="_blank" data-smartkarma-citation="insights:40528" rel="noopener">Vedanta Delisting Offer: Opportunities and Timing</a> </td>
</tr>
<tr>
<td style="width: 72px;">25 Jun 2020</td>
<td style="width: 134.4px;">Vedanta Limited</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/vedanta-buyout-loan-huge-hindustan-zinc-div-but-may-change-vedanta-rbb-timing" target="_blank" data-smartkarma-citation="insights:40653" rel="noopener">Vedanta Buyout Loan = HUGE Hindustan Zinc Div But May Change Vedanta RBB Timing</a> </td>
</tr>
<tr>
<td style="width: 72px;">14 Jul 2020</td>
<td style="width: 134.4px;">Vedanta Limited</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/putting-sightlines-on-the-vedanta-discovered-price" target="_blank" data-smartkarma-citation="insights:41236" rel="noopener">Putting Sightlines on the Vedanta Discovered Price</a> </td>
</tr>
<tr>
<td style="width: 72px;">18 Aug 2020</td>
<td style="width: 134.4px;">Vedanta Limited</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/putting-sightlines-on-the-vedanta-delisting-offer-timing" target="_blank" data-smartkarma-citation="insights:42260" rel="noopener">Putting Sightlines on the Vedanta Delisting Offer TIMING</a> </td>
</tr>
<tr>
<td style="width: 72px;">7 Sep 2020</td>
<td style="width: 134.4px;">Vedanta Limited</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/vedanta-reaching-the-end-game" target="_blank" data-smartkarma-citation="insights:42969" rel="noopener">Vedanta: Reaching The End Game</a> </td>
</tr>
<tr>
<td style="width: 72px;">17 Sep 2020</td>
<td style="width: 134.4px;">Vedanta Limited</td>
<td style="width: 476.8px;">
<a href="https://www.smartkarma.com/insights/vedanta-more-fuel-for-the-fire" target="_blank" data-smartkarma-citation="insights:43316" rel="noopener">Vedanta : More Fuel For The Fire</a> </td>
</tr>
</tbody></table></div>

On the evening of Thursday 17 September 2020, PTI (Press Trust of India) published an article which was then afforded wider take-up in the Economic Times (of the India Times) about the imminent Vedanta Ltd (VEDL IN) ("VEDL") delisting offer process.The headline was "Vedanta moves Sebi to get nod to start reverse book building for delisting."The article starts by saying "after mobilising USD 3.15 billion to fund the delisting of its Indian subsidiary" it continues by saying that "Sources said the firm is expecting to receive SEBI approvals by early next week, post which it will launch reverse book building".The "sources" here are a problem.I actually have no issue with the timing - indeed launch should be expected imminently - but the "sources" here read like "someone paid by Anil Agarwal to say what Anil Agarwal wants them to say."The source said Rs 125/share is "the best offer in the current scenario", that "the proposed transaction eliminates the potential impact of future balance sheet risks" because "the commodity cycle remains uncertain and hazy."  The article itself adds... On the other hand, delisting in the price band of Rs 125 to 128 per share offers a good opportunity for public shareholders to realise immediate and 100 per cent cash value amid volatile and uncertain markets. The price of Rs 125-128 per share is also at a hefty premium of the share's book value of Rs 89.38 as on March 31, 2020.Basically, the entire article seems like a plant from the Agarwal family. The value of the Hindustan Zinc shares held by Vedanta Ltd (VEDL IN) per Vedanta share as of Friday was Rs. 157.52 (down from Rs 175.41 the previous Friday). This article suggests that the rest of Vedanta Limited probably has negative value (despite having a book value of Rs 89.38, and yes that is a more valid understanding of Vedanta's 'book value' than the article's). VEDL has produced an average ex-Hindustan Zinc ("HZL") EBITDA of Rs 125.1bn per year over the last seven years since VEDL has existed in its current form. The worst three years in that period averaged INR 110.1bn.Split out the value of the HZL shares and the VEDL ex-HZL business and it is surprising. 
At the closing price on Friday, the value per VEDL share of its holding in Hindustan Zinc was Rs. 157.5/share, or Rs. 126.0/share (5x last 3yr average EBITDA) at a 20% discount. 
The rest of VEDL at an EV / EBITDA ratio using the worst 3 years of VEDL ex-HZL in its modern form is worth Rs. 68.9/share at 2.0x EBITDA. Push that to 5x EBITDA for VEDL ex-HZL and that is worth Rs. 157.8/share. Using a 7-year average and it is Rs. 170/share. 
note: this spreadsheet is available to Smartkarma subscribers (DM for more details)
"Future balance sheet risks" because "the commodity cycle remains uncertain and hazy?"
Sure. I see that. I'll give you a really good price.
Buy me out at 3.0x the worst 3yrs of ex-HZL EBITDA and then spin off the Hindustan Zinc shares to all VEDL shareholders. 
At last trade using 30 Sep 2020 expected cash levels, that would be Rs. 115.0 per VEDL share plus Rs. 157.5 per VEDL share of Hindustan Zinc shares. 
That's Rs. 272.5/share based on a low multiple of depressed EBITDA despite stated plans to grow output on lower cash costs created by recent capex. 
But the Financing...The understanding in the article of the cash available at what time and for whom is also misleading. A diagram of where we stand is below.
The colors of financing (in gray and coral) are shown as to their solidity/certainty in the explanation at the bottom. Yes, Vedanta Resources has raised US$3.15bn to date (that we know of). Media reports suggest there is another US$600mm targeted. I would note that SEBI Regulations regarding Delisting Offers only require that Rs. 161bn (US$2.2bn) be placed in escrow as of the start of the Delisting Offer.  That is the Floor Price x Maximum Number of Shares to be purchased.
The blue arrows are cash - pre-existing or inflows to VEDL and HZL since March 2020 (the HZL cash is the end-June 2020 level). These are sources of getting cash from downstream back to Vedanta Resources so that it can repay its loans (Facility A and "Other Unknown" are expected to be very short-term loans contingent on re-payment within 3-6 months).
Of course, when we look at it from the standpoint of what Vedanta Resources can afford once they have agreed to a Discovered Price and own 90+% (and can therefore squeeze out minorities at the same price), we look at what funds are available downstream that VEDL could lend to Vedanta Resources to allow VEDR to repay some obligations very early. As of now, there is probably a minimum of US$2.2bn which could be repaid within weeks by VEDL to VEDR. That is sitting on VEDL. As soon as HZL can pay out a large dividend, there is probably another US$1.6bn to come from that (post-tax).This does not include recent value "uncovered" with the Supreme Court judgment in favor of Cairn India last week, the sale or collateralisation of another US$1.0bn in inventory at Cairn and VEDL ex-HZL, or the idea of selling silver and zinc royalties to someone at HZL. 
If US$2.2bn could be repaid quickly via loan from VEDL to VEDR, and another US$1.6bn could be repaid from a second loan from VEDL to VEDR after Hindustan Zinc paid out a massive Rs. 47/share dividend to all shareholders (delivering Rs. 117bn (US$1.6bn) to VEDL after tax), combined with the US$1.4bn borrowed elsewhere, that would be US$5.2bn. 
US$5.2bn at USDINR 73.60 is Rs. 208/share. If VEDL scraped the bottom of the barrel, it could find another US$0.8-1.0bn through inventory, etc. That would be worth another Rs. 32/share. HZL could probably upsize its bond planned for this week to Rs 80bn. That would add another Rs. 12.7/share. If VEDL sold a 20% stake in Cairn India like it had planned, that would add another US$500-800mm I expect. That would add another Rs. 20-32/share of available money.
All told, Rs 180/share is "easy."
Rs. 200/share is somewhat "doable", and as the table above shows, cheap.
Rs. 240 is probably possible but is a stretch. Rs. 270-280 is doable only with considerably more balance sheet wrangling. 
To be clear, this is not value.This is maximum funding available in the pipe without going out and tapping some other emergency lines at VEDR or at the family level, or stretching at the HZL level. Of course, if you were Mr. Agarwal, you'd want to stretch at the HZL level as much as you could. After setting a final hearing date for mid-September, the Supreme Court appears about to allow the sale of the Government of India's stake in HZL to go forward. If HZL pays out a massive dividend, it considerably lowers "Book Value" (defined the way VEDL's merchant bank has valued it), and gives a chunk of revenue to the GOI before the stake sale. That lowers the price at which minorities might buy an OFS (Offer for Sale) of the GOI's stake in HZL, and it lowers the price at which VEDL might take out HZL minorities in future, but it raises the PBR at which he could say that he is doing the deal, possibly earning a favourable reaction. And it may be the only way that the GOI would be willing to sell it (i.e. they might be unwilling to sell it in a delisting Offer because they would become the price-setter, and that would be unsavoury to some observers).There is, as always, more below the fold for subscribers. Insights previously published in the timeline of the Vedanta Delisting Offer are listed below.
Relevant Insights To Date

Date
Theme or Ticker
Insight Title


2019
Indian M&amp;A Guide

Quiddity India M&amp;A Guide 2019 


24 May 2020
Delisting Offers

Indian Delisting/Exit Offers - Know Your Process and The Games Played 


19 Jun 2020
Failed Exit Offers

Failed Exit Offers in India: Lessons for VEDL, ADANI, and HEXW? 


27 May 2020

Vedanta Ltd (VEDL IN) 

Vedanta Delisting Offer - How It Goes From Here 


22 Jun 2020
Vedanta Limited

Vedanta Delisting Offer: Opportunities and Timing 


25 Jun 2020
Vedanta Limited

Vedanta Buyout Loan = HUGE Hindustan Zinc Div But May Change Vedanta RBB Timing 


14 Jul 2020
Vedanta Limited

Putting Sightlines on the Vedanta Discovered Price 


18 Aug 2020
Vedanta Limited

Putting Sightlines on the Vedanta Delisting Offer TIMING 


7 Sep 2020
Vedanta Limited

Vedanta: Reaching The End Game 


17 Sep 2020
Vedanta Limited

Vedanta : More Fuel For The Fire 



Vedanta (VEDL): Cash Raised, Money Flow, and How It Affects Delisting Offer Discovered Price

India

Vedanta Limited mines, produces, and exports base metals. The Company mines and distributes metals such as zinc, iron ore, copper, silver, and aluminium, as well as operates power plants. Vedanta markets its products worldwide.

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Vedanta Ltd (VEDL US)

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Vedanta (VEDL): Cash Raised, Money Flow, and How It Affects Delisting Offer Discovered Price

There was an article in PTI then

Travis Lundy

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