Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>The speculation and conjecture continues in the takeover of <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>'s tier-1 property assets.</p>
<p>The last piece of positive news occurred on the 3 August 2021, when 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 (AML) had been formally accepted by SAMR for review. </p>
<p>The announcement, however, stopped short of stating the review was simplified, and simply said the application has been formally accepted, and "<em>notwithstanding such formal acceptance, the Offeror and the Company may still be requested to provide further information and materials for the regulators’ review</em>".</p>
<p>In 2020, simple cases took 14 days on average to process. By the middle of last month, you knew you were in for the long haul, and the 30-day Phase 1 period expired on the 1 September.</p>
<p>I'm not aware an official announcement occurs when the review spills into Phase 2 (ostensibly another 90 calendar days); but Blackstone/SOHO were expected to clarify proceedings in its monthly update announcement.</p>
<p>On the 6 September, SOHO <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0906/2021090600341.pdf" target="_blank" rel="noopener">announced</a> its SAMR application was still ongoing, and that...</p>
<blockquote>
<p>The Offeror has received further requests to provide additional information for the regulators’ review. It is uncertain when the review process will be completed.</p>
</blockquote>
<p>The Composite Document is now expected to be dispatched on or before the 31 December 2021. </p>
<p>Without either party expounding on the situation, the application now moves into Phase II.</p>
<div>
<div>China's AML provides the following periods for review:</div>
</div>
<div>
<ul style="list-style-type: disc;">
<li>
<div>
<div>
<div>Phase I. The initial review period is for 30 calendar days. Under the simplified procedure, SAMR generally grants clearance in Phase I.</div>
</div>
</div>
</li>
<li>
<div>
<div>
<div>Phase II. If necessary, the Phase I period will be followed by an additional 90-calendar day review period</div>
</div>
</div>
</li>
<li>
<div>
<div>
<div>Phase III review period. The review period may then be extended for a further 60 calendar days if need be.</div>
</div>
</div>
</li>
</ul>
</div>
<p>Additional information? One media source reckoned this was in regards to Blackstone providing more details  - such as GFA - on its property interests.</p>
<p>This is doubtful - SAMR would likely know Blackstone's property exposure, right down to the last wastepaper basket.</p>
<p>More likely the "additional info" concerns the seller, although pertaining to what, it's unclear. Cue all the rumours and the ensuing backlash from Pan Shiyi son's comments last year (see <a href="https://skr.ma/nQLF3" target="_blank" rel="noopener">here</a> for more detail). </p>
<p>The takeaways from all of this? At the very least, there is a modicum of dialogue between the parties and the regulator. Often the clock runs down on the review process with little to no information made public, before a deal is blocked/prohibited.</p>
<p>Perhaps there are alternative means to lock-up the proceeds to Pan in escrow - sort of like an elevated withholding tax applied in the <a href="https://www.smartkarma.com/entities/baoxin-auto-group-ltd" target="_blank" data-smartkarma-citation="entities:20829:1" rel="noopener">Grand Baoxin Auto (1293 HK)</a> case (see further details below) - so as to progress the deal.</p>
<p>The negatives, apart from the extended review process over property assets, which historically have not triggered similar treatment - SOHO sold Sky SOHO to Gaw Capital Partners in <a href="https://www.mingtiandi.com/real-estate/finance-real-estate/gaw-closes-on-798m-purchase-of-sky-soho-in-shanghai/" target="_blank" rel="noopener">2018</a> for RMB5bn, plus entered into an <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2019/0930/ltn20190930413.pdf" target="_blank" rel="noopener">agreement</a> to sell car parking spaces for RMB761mn, none of which attracted security concerns - is that the clock does indeed run down to the long-stop date (31 December 2021), and both parties agree to terminate negotiations.</p>
<p>But I'd be surprised to see Blackstone walk. The underlying assets on a stand-alone basis are worth considerably more, potentially &gt;HK$8/share by some asset valuation models. </p>
<div class="content-highlight">
<p><strong>The Trade?</strong> I still like SOHO here - a high probability of a break is already priced in. I just don't see Beijing setting a precedent and outright blocking the deal on anti-trust grounds.</p>
</div>
<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/229/063/original/image_47029318541631239524443.png?1631239525" class="editor-image img-responsive" data-smartkarma-image-id="229063"></figure>

The speculation and conjecture continues in the takeover of Soho China Ltd (410 HK)'s tier-1 property assets.
The last piece of positive news occurred on the 3 August 2021, when Blackstone received a notice from SAMR dated 2 August that the case concerning its notification under the PRC Anti-Monopoly Law (AML) had been formally accepted by SAMR for review. 
The announcement, however, stopped short of stating the review was simplified, and simply said the application has been formally accepted, and "notwithstanding such formal acceptance, the Offeror and the Company may still be requested to provide further information and materials for the regulators’ review".
In 2020, simple cases took 14 days on average to process. By the middle of last month, you knew you were in for the long haul, and the 30-day Phase 1 period expired on the 1 September.
I'm not aware an official announcement occurs when the review spills into Phase 2 (ostensibly another 90 calendar days); but Blackstone/SOHO were expected to clarify proceedings in its monthly update announcement.
On the 6 September, SOHO announced its SAMR application was still ongoing, and that...

The Offeror has received further requests to provide additional information for the regulators’ review. It is uncertain when the review process will be completed.

The Composite Document is now expected to be dispatched on or before the 31 December 2021. 
Without either party expounding on the situation, the application now moves into Phase II.

China's AML provides the following periods for review:






Phase I. The initial review period is for 30 calendar days. Under the simplified procedure, SAMR generally grants clearance in Phase I.






Phase II. If necessary, the Phase I period will be followed by an additional 90-calendar day review period






Phase III review period. The review period may then be extended for a further 60 calendar days if need be.





Additional information? One media source reckoned this was in regards to Blackstone providing more details  - such as GFA - on its property interests.
This is doubtful - SAMR would likely know Blackstone's property exposure, right down to the last wastepaper basket.
More likely the "additional info" concerns the seller, although pertaining to what, it's unclear. Cue all the rumours and the ensuing backlash from Pan Shiyi son's comments last year (see here for more detail). 
The takeaways from all of this? At the very least, there is a modicum of dialogue between the parties and the regulator. Often the clock runs down on the review process with little to no information made public, before a deal is blocked/prohibited.
Perhaps there are alternative means to lock-up the proceeds to Pan in escrow - sort of like an elevated withholding tax applied in the Grand Baoxin Auto (1293 HK) case (see further details below) - so as to progress the deal.
The negatives, apart from the extended review process over property assets, which historically have not triggered similar treatment - SOHO sold Sky SOHO to Gaw Capital Partners in 2018 for RMB5bn, plus entered into an agreement to sell car parking spaces for RMB761mn, none of which attracted security concerns - is that the clock does indeed run down to the long-stop date (31 December 2021), and both parties agree to terminate negotiations.
But I'd be surprised to see Blackstone walk. The underlying assets on a stand-alone basis are worth considerably more, potentially &gt;HK$8/share by some asset valuation models. 

The Trade? I still like SOHO here - a high probability of a break is already priced in. I just don't see Beijing setting a precedent and outright blocking the deal on anti-trust grounds.



SOHO China (410 HK): At Least There Is Dialogue

<div>
<p>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.</p>
</div>
<div>
<p>I number 37, mostly firm, deals around the region.</p>
</div>
<div>
<p>More below the fold.</p>
</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: China Logistics, Kerry Logistics, China Youzan

China Logistics Property Holdings / Event-Driven

<div>
<p><a href="https://www.smartkarma.com/entities/china-logistics-property-holdings-co-ltd" target="_blank" data-smartkarma-citation="entities:22799:1" rel="noopener">China Logistics Property Holdings (1589 HK)</a> (CLPH) has <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0903/2021090300814.pdf" target="_blank" rel="noopener">announced</a> its chairman, Li Shifa, has entered into an S&amp;P Agreement with <a href="https://www.smartkarma.com/entities/jd-com-inc" target="_blank" data-smartkarma-citation="entities:29043:1" rel="noopener">JD.com Inc. (9618 HK)</a>, to sell his 26.38% stake in CLPH at a price of $4.35/share.</p>
<p>Provided conditions to the S&amp;P are fulfilled, and with JD.com currently holding 10.64%, it would be obligated to make a Mandatory General Offer (MGO) - also at HK$4.35/share.</p>
<p>The key S&amp;P condition is approval from China's AML (Anti-Monopoly Law) Authority.</p>
<p>The key condition to the MGO becoming unconditional is JD.com holding 50% of the voting rights in CLPH. RRJ Capital, Joy Orient, and Dajia Baoxian have given irrevocables to tender in their 21.94%, 3.3%, and 4.14% respective stakes.</p>
<p>This all looks pretty clean.</p>
<p>The pushback is that when CLPH <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2020/1229/2020122901322.pdf" target="_blank" rel="noopener">announced</a> on the 29 December 2020 Li and RRJ Capital were "<em>conducting a preliminary strategic review of their stakes</em>", indicating a possible change of control for the company, the pre-announcement share price was HK$3.90. Therefore the Offer Price is an 11.5% premium to the undisturbed price. Many investors thought a $4.50+ handle was more in keeping with this space which has been garnering significant attention.</p>
<p>The Offer price will not be increased. </p>
<p>Still, as one reader put it, they're just happy to get this slow-burning deal off their books.</p>
<p>More below the fold.</p>
</div>


China Logistics Property Holdings (1589 HK) (CLPH) has announced its chairman, Li Shifa, has entered into an S&amp;P Agreement with JD.com Inc. (9618 HK), to sell his 26.38% stake in CLPH at a price of $4.35/share.
Provided conditions to the S&amp;P are fulfilled, and with JD.com currently holding 10.64%, it would be obligated to make a Mandatory General Offer (MGO) - also at HK$4.35/share.
The key S&amp;P condition is approval from China's AML (Anti-Monopoly Law) Authority.
The key condition to the MGO becoming unconditional is JD.com holding 50% of the voting rights in CLPH. RRJ Capital, Joy Orient, and Dajia Baoxian have given irrevocables to tender in their 21.94%, 3.3%, and 4.14% respective stakes.
This all looks pretty clean.
The pushback is that when CLPH announced on the 29 December 2020 Li and RRJ Capital were "conducting a preliminary strategic review of their stakes", indicating a possible change of control for the company, the pre-announcement share price was HK$3.90. Therefore the Offer Price is an 11.5% premium to the undisturbed price. Many investors thought a $4.50+ handle was more in keeping with this space which has been garnering significant attention.
The Offer price will not be increased. 
Still, as one reader put it, they're just happy to get this slow-burning deal off their books.
More below the fold.


China Logistics (1589 HK): JD.com's Offer Comes Up Short

Beijing Capital Land Ltd H / Event-Driven

<div>
<p>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.</p>
<p>I number 36, mostly firm, deals around the region.</p>
<p>More below the fold.</p>
</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

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.

<p><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> is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. As a reminder on 16 June, SOHO China announced a pre-conditional voluntary conditional cash offer from <a href="https://www.smartkarma.com/entities/blackstone-group-inc" target="_blank" data-smartkarma-citation="entities:27166:1" rel="noopener">Blackstone Group (BX US)</a>. The offer of HK$5.00 in cash per share is a 31.6% premium over the closing price of HK$3.80 per share on the last trading day (11 June prior to the trading halt). The offer is conditional on the offeror holding more than 50% of the voting rights. The offer will meet the 50+% acceptance threshold as the offeror has secured irrevocables from Pan Shiyi and Zhang Xin representing 54.93% of the outstanding shares.</p><p>However, since the announcement of the offer, the spread has widened from 9% on the first trading day after the deal announcement to touch a remarkable 74% on 30 July on the back of a dubious Chinese press article suggesting that deal would be blocked by SAMR under the PRC anti-monopoly law. The gross spread has subsequently declined to a still elevated 47% at the last close price. </p><p>We previously argued that SAMR approval should be forthcoming due to Blackstone’s prior experience in securing SAMR approval for real estate deals, SOHO China will continue to be listed and the deal will not lead to a material increase in market concentration. On 2 August, the SOHO China/Blackstone case was accepted for SAMR review by normal procedure rather than a simplified procedure which can take 180 days. Due to the tightening anti-monopoly regulatory environment and Pan Shiyi's status as a pioneering real estate entrepreneur, the SAMR approval process can take some time.</p><p>Several Chinese press and social media posts urge SAMR to block the transaction due to the premise that the deal is unpatriotic for various reasons. These negative articles and social media posts have led investors to take the sell first, ask questions later approach. We think that the rationale presented in these articles for blocking the deal is weak and largely speculation.</p><div class="content-highlight"><p>Based on a break price of HK$2.45 per share and at the last close price of HK$3.39 per share, the deal probability remains at a low of 37%. A 60% deal probability would imply a price of HK$4.00 per share and an 18% gross spread to last close, which we view as reasonable. </p></div>

Soho China Ltd (410 HK) is a real estate company controlled by power couple Pan Shiyi and Zhang Xin. As a reminder on 16 June, SOHO China announced a pre-conditional voluntary conditional cash offer from Blackstone Group (BX US). The offer of HK$5.00 in cash per share is a 31.6% premium over the closing price of HK$3.80 per share on the last trading day (11 June prior to the trading halt). The offer is conditional on the offeror holding more than 50% of the voting rights. The offer will meet the 50+% acceptance threshold as the offeror has secured irrevocables from Pan Shiyi and Zhang Xin representing 54.93% of the outstanding shares.However, since the announcement of the offer, the spread has widened from 9% on the first trading day after the deal announcement to touch a remarkable 74% on 30 July on the back of a dubious Chinese press article suggesting that deal would be blocked by SAMR under the PRC anti-monopoly law. The gross spread has subsequently declined to a still elevated 47% at the last close price. We previously argued that SAMR approval should be forthcoming due to Blackstone’s prior experience in securing SAMR approval for real estate deals, SOHO China will continue to be listed and the deal will not lead to a material increase in market concentration. On 2 August, the SOHO China/Blackstone case was accepted for SAMR review by normal procedure rather than a simplified procedure which can take 180 days. Due to the tightening anti-monopoly regulatory environment and Pan Shiyi's status as a pioneering real estate entrepreneur, the SAMR approval process can take some time.Several Chinese press and social media posts urge SAMR to block the transaction due to the premise that the deal is unpatriotic for various reasons. These negative articles and social media posts have led investors to take the sell first, ask questions later approach. We think that the rationale presented in these articles for blocking the deal is weak and largely speculation.Based on a break price of HK$2.45 per share and at the last close price of HK$3.39 per share, the deal probability remains at a low of 37%. A 60% deal probability would imply a price of HK$4.00 per share and an 18% gross spread to last close, which we view as reasonable. 

China

Soho China Ltd. is a property developer. The Company develops properties in central Beijing and Shanghai. Soho China collaborates with internationally recognized architects, translating their designs into real estate which possesses strong appeal to property investors and the local businesses and customer bases they serve.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Soho China (410 HK)

SOHO China (410 HK): At Least There Is Dialogue

I still like SOHO here - a high probability of a break is already priced in. I just don't see Beijing setting a precedent and outright blocking the...

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

China Logistics (1589 HK): JD.com's Offer Comes Up Short

The price is widely viewed as a disappointment. But this should trade relatively tight to terms - perhaps around HK$4.25, or 2.4%/16.0% gross...

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

SOHO China's Spread Risk/Reward Update

Negative articles have led investors to take the sell first, ask questions later approach. The reasoning for blocking the deal presented in these...

Arun George

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)