Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

<p>Perhaps my last <a href="https://www.smartkarma.com/compose/insight/57498/SOHO%20China%20(410%20HK):%20At%20Least%20There%20Is%20Dialogue.%20Read%20more:%20https:/skr.ma/2qN2b" target="_blank" rel="noopener">insight</a> should have been titled: <em>SOHO China (410 HK): At Least There <strong>WAS </strong>Dialogue<strong>. </strong></em></p>
<div>
<p>On the 6 September, <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> <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 the "<em>Offeror has received further requests to provide additional information for the regulators’ review. It is uncertain when the review process will be completed</em>."</p>
<p>Four days later, and in "<em>light of the lack of sufficient progress in satisfying the Pre-Conditions</em>" - the Offer was conditional on approval from China's competition authorities -  Blackstone and Pan Shiyi <a href="https://www1.hkexnews.hk/listedco/listconews/sehk/2021/0910/2021091000324.pdf" target="_blank" rel="noopener">pulled</a> the transaction.</p>
<p>With over three and half months left on the clock to the expiry of the long-stop date... what happened?</p>
<p>Evidently, Beijing tapped Pan Shiyi on the shoulder that this deal is not going to happen, and all parties saved face by simply pulling the transaction.</p>
<p>But was the decision predicated on the ensuing backlash from Pan Shiyi son's <a href="https://skr.ma/nQLF3" target="_blank" rel="noopener">comments</a> last year?</p>
<p>Or has Pan Shiyi fallen victim to China's common-prosperity strategy, which calls for China's citizens to share in the opportunity to be wealthy?</p>
<p>From the onset, this property deal faced domestic online criticism that Pan Shiyi and his wife Zhang Xin were cashing out of the business they set up over two decades ago, and taking the proceeds offshore. Perhaps not the poster children for this shared prosperity drive.</p>
<p>So what now - how do the Pans move forward?</p>
<p>The right trade would appear to one of selling their assets piecemeal, then paying out dividends. But that scenario would see cash returned to the vendor anyway, which only serves to circumvent this failed offer. </p>
<p>The big question now is where this will trade on Monday, and who - apart from those who are short - will be buying from arb investors now that the company is certifiably toxic.</p>
</div>
<p>More below the fold. </p>

Perhaps my last insight should have been titled: SOHO China (410 HK): At Least There WAS Dialogue. 

On the 6 September, Soho China Ltd (410 HK) 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."
Four days later, and in "light of the lack of sufficient progress in satisfying the Pre-Conditions" - the Offer was conditional on approval from China's competition authorities -  Blackstone and Pan Shiyi pulled the transaction.
With over three and half months left on the clock to the expiry of the long-stop date... what happened?
Evidently, Beijing tapped Pan Shiyi on the shoulder that this deal is not going to happen, and all parties saved face by simply pulling the transaction.
But was the decision predicated on the ensuing backlash from Pan Shiyi son's comments last year?
Or has Pan Shiyi fallen victim to China's common-prosperity strategy, which calls for China's citizens to share in the opportunity to be wealthy?
From the onset, this property deal faced domestic online criticism that Pan Shiyi and his wife Zhang Xin were cashing out of the business they set up over two decades ago, and taking the proceeds offshore. Perhaps not the poster children for this shared prosperity drive.
So what now - how do the Pans move forward?
The right trade would appear to one of selling their assets piecemeal, then paying out dividends. But that scenario would see cash returned to the vendor anyway, which only serves to circumvent this failed offer. 
The big question now is where this will trade on Monday, and who - apart from those who are short - will be buying from arb investors now that the company is certifiably toxic.

More below the fold. 

SOHO China (410 HK): The Tap On The Shoulder

<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>
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<div>China's AML provides the following periods for review:</div>
</div>
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<ul style="list-style-type: disc;">
<li>
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<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

China

Guangzhou R&F Properties Co., Ltd. operates real estate businesses. The Company provides housing renovation, housing loans, real estate brokerage, property management, and other services. Guangzhou R&F Properties also operates hotel management.

YunNan Metropolitan Real Estate Development Co., Ltd. operates in property development business. It also manufactures and markets beer and fruit wines, plastic film for agricultural use and grows chinaberry.

Shanghai Infotmic Co., Ltd. is a professional integrated circuit design company, focusing on the research and development of mobile Internet terminal application processor chip.

Zhejiang Guangsha Co., Ltd. develops real estate and undertakes construction projects.  The Company also provides travel services and operates in property management.

Beijing Electronic Zone Investment and Development Co. Ltd. operates as a real estate developer. The Company develops technology industrial parks and residential areas. Beijing Electronic Zone Investment and Development also conducts investment attractions, industry incubation, and industrial park operation businesses.

Hefei Urban Construction Development Co., LTD. develops residential properties. The company also markets and provides services to its related commercial properties.

Shanghai Tianchen Co., Ltd. is an investment holding company.  Through its subsidiaries, the Company develops and manages real estate properties, provides taxi transportation services, offers driver training programs, operates parking lots and logistic zones, and manufactures pharmaceuticals. The Company also operates hotel and construction and renovation businesses.

Tianjin Jinbin Development Co., Ltd. operates a diversified business.  The Company provides construction machinery and tools leasing and rental service, sells general merchandise and real estate properties, distributes electricity and heat, and offers technology consulting services.

Shenzhen World Union Properties Consultancy Inc. develops and invests in real estate.  The Company also provides real estate agency, consultancy and management services, financial and asset management services.

Shenzhen Worldunion Proprts Cnsltncy (002285 CH)

Hubei Fuxing Science and Technology Co Ltd manufactures steel wire ropes, steel wires, and steel strands. The Company's products are used in tire manufacturing, telecommunication, and other industries. Hubei Fuxing also invests in real estate.

Hubei Fuxing Science & Technology (000926 CH)

PT Puradelta Lestari Tbk is an industrial property developer. The Company sells industrial estate, residential and commercial land.

Far East Consortium International Limited, through its subsidiaries, develops and invests in real estate.  The Company also operates hotels.

Far East Consortium International (35 HK)

Sinarmas Land Ltd. invests in, develops and manages real estate.  The Company owns commercial buildings, hotels and resorts in China, Indonesia, Malaysia and Singapore.

Nirlon Ltd. develops real estate.  The Company develops office parks.

KSL Holdings Berhad is an investment holding company. Through its subsidiaries, the Company develops properties. KSL Holdings performs all aspects of development from land purchasing to final property inspection.

PT Duta Pertiwi Tbk operates as a holding company. The Company, through its subsidiaries, develop properties such as  malls, hotels, and office buildings. Duta Pertiwi Tbk serves clients in Indonesia.

Hung Sheng Construction Ltd. provides real estate services to meet both resident ial and commercial real estate needs.  The Company conducts primarily its busine ss in developing, selling, and leasing residential and commercial buildings whic h are constructed by independent constructors.

Tanco Holdings Berhad is an investment holding company.  The Company, through its subsidiaries, operates in property development and investment, hotel, vacation ownership interval and schemes, golf club, marina club, travel and tour agent, and resort.  Tanco also provides construction and money lending services.

Shin Ruenn Development Company Ltd. provides development and sale of residential and commercial buildings, villas, and office buildings. Shin Ruenn also produces video systems, drawing machines, and consumable parts.

Joy City Property Limited, is engaged in the development, operation, sale, leasing and management of mixed-use complexes and commercial properties such as shopping malls, hotels, offices, serviced apartments and resort and tourist properties.

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.

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Soho China (410 HK)

SOHO China (410 HK): The Tap On The Shoulder

The pre-announcement price was HK$2.98, however, I think the unaffected price is more like HK$2.25/share. But with SOHO firmly in the crosshairs,...

David Blennerhassett

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

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