Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

Pan-Asia Catalysts/Events

Quiddity Advisors

Event-Driven

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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.
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I number 36, mostly firm, deals around the region.
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More below the fold.
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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: Sydney Airport, Aussie Pharma, Milton, Shinsei Bank

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.

<a href="https://www.smartkarma.com/entities/sydney-airport" target="_blank" data-smartkarma-citation="entities:19063:1" rel="noopener">Sydney Airport (SYD AU)</a> is Australia’s largest airport and the only listed airport on ASX. Sydney Airport has granted a consortium (Sydney Aviation Alliance) non-exclusive due diligence access based on a further revised indicative proposal of A$8.75 cash per share. The revised indicative offer is A$8.75 per share is a 52% premium to the unaffected price of A$5.75 (1 July). The revised indicative offer is also a marginal 3.6% bump to the first revised offer of A$8.45 per share received from the consortium on 16 August.Pushing for a better price is part of the M&amp;A game. The Board were said to be seeking a price around A$9.00 per share, according to press reports. However, the Board faced increasing shareholder pushback to engage with the consortium and facilitate due diligence. The consortium viewed A$9.00 per share as excessive but shareholder feedback suggested that the price of A$8.75 per share would get the Board onside. UniSuper, the largest independent shareholder, will rollover its shares instead of receiving cash under the scheme and will be required to vote as a separate class on the scheme. The Board intends to recommend the revised offer subject to a binding scheme implementation agreement and no superior offer. The due diligence which is expected to take four weeks should be relatively straightforward due to the consortium’s expertise in airport infrastructure. The deal requires regulatory approval from the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board. The ACCC will commence a review of the proposed transaction “in due course” and the review should take about three months to complete. The shareholder vote for approval is likely to be held in 1Q22. <div class="content-highlight">Overall, we think that the further revised indicative offer is attractive and marginally above the pre-COVID-19 rights adjusted share price high reached in December 2019. The offer will prove attractive to shareholders who are looking for valuation certainty in an environment where the pace of the recovery in international air travel remains unclear. At the last close price of A$8.23, the shares are trading at a 6.3% gross spread to the indicative offer.</div>

Sydney Airport (SYD AU) is Australia’s largest airport and the only listed airport on ASX. Sydney Airport has granted a consortium (Sydney Aviation Alliance) non-exclusive due diligence access based on a further revised indicative proposal of A$8.75 cash per share. The revised indicative offer is A$8.75 per share is a 52% premium to the unaffected price of A$5.75 (1 July). The revised indicative offer is also a marginal 3.6% bump to the first revised offer of A$8.45 per share received from the consortium on 16 August.Pushing for a better price is part of the M&amp;A game. The Board were said to be seeking a price around A$9.00 per share, according to press reports. However, the Board faced increasing shareholder pushback to engage with the consortium and facilitate due diligence. The consortium viewed A$9.00 per share as excessive but shareholder feedback suggested that the price of A$8.75 per share would get the Board onside. UniSuper, the largest independent shareholder, will rollover its shares instead of receiving cash under the scheme and will be required to vote as a separate class on the scheme. The Board intends to recommend the revised offer subject to a binding scheme implementation agreement and no superior offer. The due diligence which is expected to take four weeks should be relatively straightforward due to the consortium’s expertise in airport infrastructure. The deal requires regulatory approval from the Australian Competition and Consumer Commission (ACCC) and the Foreign Investment Review Board. The ACCC will commence a review of the proposed transaction “in due course” and the review should take about three months to complete. The shareholder vote for approval is likely to be held in 1Q22. Overall, we think that the further revised indicative offer is attractive and marginally above the pre-COVID-19 rights adjusted share price high reached in December 2019. The offer will prove attractive to shareholders who are looking for valuation certainty in an environment where the pace of the recovery in international air travel remains unclear. At the last close price of A$8.23, the shares are trading at a 6.3% gross spread to the indicative offer.

Sydney Airport’s Further Revised Offer Gets the Board’s Approval

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The third time is the charm.
After rejecting an $8.25/share proposal on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02395613-2A1310027?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">15 July</a>, and a $8.45 bid on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02407025-2A1315596?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">16 August</a>, <a href="https://www.smartkarma.com/entities/sydney-airport" target="_blank" data-smartkarma-citation="entities:19063:1" rel="noopener">Sydney Airport (SYD AU)</a> has now granted the Sydney Aviation Alliance (SAA) non-exclusive due diligence after receiving a <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02420402-2A1322873?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">A$8.75/share conditional proposal</a>, a 51% premium to the undisturbed price on the 4 July 2021.
SAA comprises Aussie investors IFM Investors, QSuper, and AustralianSuper, and the U.S.' Global Infrastructure Partners. As per Australia's <a href="https://www.legislation.gov.au/Details/C2020C00284" target="_blank" rel="noopener">Airport Act</a>, at least 51% of the airport must be Australian-owned. 
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Having taken advice, and considering all the relevant factors, Sydney Airport intends to grant the Consortium the opportunity to conduct due diligence on a non-exclusive basis to enable it to put forward a binding proposal, subject to entry into a Non-Disclosure Agreement on acceptable terms. That due diligence is expected to take 4 weeks from entry into the Non-Disclosure Agreement.(my emphasis)
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Consistent with the initial proposal on the <a href="https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02391761-2A1307944?access_token=83ff96335c2d45a094df02a206a39ff4" target="_blank" rel="noopener">5 July</a>, should the proposal proceed, UniSuper (SYD's largest shareholder with 15.3%) will roll over its equity stake into the Consortium, rather than receive the cash consideration.
And as per the earlier proposals, any dividend paid would reduce the cash consideration.
With New South Wales recording 1,262 cases yesterday, and seven deaths, the revised Offer is pitched amid, as NSW Premier Gladys Berejiklian describes it, "some stabilisation in local government areas of concern".
The Offer still looks light - just a 6% bump from the initial bid. 
But this has the backing of the board and its largest shareholder (although rolled up into the back end).
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More below the fold. 
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The third time is the charm.
After rejecting an $8.25/share proposal on the 15 July, and a $8.45 bid on the 16 August, Sydney Airport (SYD AU) has now granted the Sydney Aviation Alliance (SAA) non-exclusive due diligence after receiving a A$8.75/share conditional proposal, a 51% premium to the undisturbed price on the 4 July 2021.
SAA comprises Aussie investors IFM Investors, QSuper, and AustralianSuper, and the U.S.' Global Infrastructure Partners. As per Australia's Airport Act, at least 51% of the airport must be Australian-owned. 

Having taken advice, and considering all the relevant factors, Sydney Airport intends to grant the Consortium the opportunity to conduct due diligence on a non-exclusive basis to enable it to put forward a binding proposal, subject to entry into a Non-Disclosure Agreement on acceptable terms. That due diligence is expected to take 4 weeks from entry into the Non-Disclosure Agreement.(my emphasis)

Consistent with the initial proposal on the 5 July, should the proposal proceed, UniSuper (SYD's largest shareholder with 15.3%) will roll over its equity stake into the Consortium, rather than receive the cash consideration.
And as per the earlier proposals, any dividend paid would reduce the cash consideration.
With New South Wales recording 1,262 cases yesterday, and seven deaths, the revised Offer is pitched amid, as NSW Premier Gladys Berejiklian describes it, "some stabilisation in local government areas of concern".
The Offer still looks light - just a 6% bump from the initial bid. 
But this has the backing of the board and its largest shareholder (although rolled up into the back end).

More below the fold. 





Sydney Airport (SYD AU): Consortium Ups Bid And Granted Due Diligence

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.
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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:
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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.
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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

China Logistics Property Holdings / Event-Driven

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<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.
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 <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 "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.
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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

Australia

Sydney Airport operates the Sydney, Australia airport. The Company develops and maintains the airport infrastructure and leases terminal space to airlines and retailers.

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Sydney Airport (SYD AU)

Asia-Pac Weekly Risk Arb Summary: Sydney Airport, Aussie Pharma, Milton, Shinsei Bank

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

Sydney Airport’s Further Revised Offer Gets the Board’s Approval

Sydney Airport has granted DD to a Sydney Aviation Alliance based on a revised price of A$8.75. The offer is attractive and at the last price of...

Arun George